Attached files

file filename
EX-10.16 - EX-10.16 FORM OF NOTICE OF RESTRICTED STOCK UNIT GRANT AND RESTRICTED STOCK UNIT AGREEMENT UNDER THE 2014 EQUITY INCENTIVE PLAN - Vivint Solar, Inc.vslr-ex1016_20140930485.htm
EX-10.7 - EX-10.7 TRADEMARK ASSIGNMENT AGREEMENT BETWEEN THE COMPANY AND VIVINT, INC., DATED SEPTEMBER 30, 2014 - Vivint Solar, Inc.vslr-ex107_20140930489.htm
EX-3.1 - EX-3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF THE COMPANY - Vivint Solar, Inc.vslr-ex31_20140930481.htm
EX-10.2 - EX-10.2 TRANSITION SERVICES AGREEMENT BETWEEN THE COMPANY AND VIVINT, INC., SEPTEMBER 30, 2014 - Vivint Solar, Inc.vslr-ex102_20140930486.htm
EX-10.8 - EX-10.8 TERMINATION AGREEMENT (TURNKEY FULL-SERVICE SUBLEASE AGREEMENT) BETWEEN VIVINT SOLAR HOLDINGS, INC., AND VIVINT, INC., DATED SEPTEMBER 30, 2014 - Vivint Solar, Inc.vslr-ex108_20140930480.htm
EX-10.15 - EX-10.15 FORM OF NOTICE OF STOCK OPTION GRANT AND STOCK OPTION AGREEMENT UNDER THE 2014 EQUITY INCENTIVE PLAN - Vivint Solar, Inc.vslr-ex1015_20140930484.htm
EX-10.3 - EX-10.3 NON-COMPETITION AGREEMENT BETWEEN THE COMPANY AND VIVINT, INC., DATED SEPTEMBER 30, 2014 - Vivint Solar, Inc.vslr-ex103_20140930478.htm
EX-10.11 - EX-10.11 TRADEMARK LICENSE AGREEMENT BETWEEN THE COMPANY AND VIVINT SOLAR LICENSING, LLC, DATED SEPTEMBER 30, 2014 - Vivint Solar, Inc.vslr-ex1011_20140930476.htm
EX-10.9 - EX-10.9 BILL OF SALE AND ASSIGNMENT BETWEEN THE COMPANY AND VIVINT, INC., DATED SEPTEMBER 30, 2014 - Vivint Solar, Inc.vslr-ex109_20140930490.htm
EX-10.1 - EX-10.1 MASTER INTERCOMPANY FRAMEWORK AGREEMENT BETWEEN THE COMPANY AND VIVINT, INC., DATED SEPTEMBER 30, 2014 - Vivint Solar, Inc.vslr-ex101_20140930475.htm
EX-10.10 - EX-10.10 LIMITED LIABILITY COMPANY AGREEMENT OF VIVINT SOLAR LICENSING, LLC, BETWEEN THE COMPANY AND VIVINT, INC., DATED SEPTEMBER 30, 2014 - Vivint Solar, Inc.vslr-ex1010_20140930483.htm
EX-3.2 - EX-3.2 AMENDED AND RESTATED BYLAWS OF THE COMPANY - Vivint Solar, Inc.vslr-ex32_20140930482.htm
EX-31.2 - EX-31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302(A) OF THE SARBANES-OXLEY ACT OF 2002 - Vivint Solar, Inc.vslr-ex312_201409307.htm
EX-32.2 - EX-32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER, PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - Vivint Solar, Inc.vslr-ex322_201409309.htm
EX-10.5 - EX-10.5 MARKETING AND CUSTOMER RELATIONS AGREEMENT BETWEEN VIVINT SOLAR DEVELOPER, LLC AND VIVINT, INC., DATED SEPTEMBER 30, 2014 - Vivint Solar, Inc.vslr-ex105_20140930487.htm
EX-10.4 - EX-10.4 PRODUCT DEVELOPMENT AND SUPPLY AGREEMENT BETWEEN VIVINT SOLAR DEVELOPER, LLC AND VIVINT, INC., DATED SEPTEMBER 30, 2014 - Vivint Solar, Inc.vslr-ex104_20140930479.htm
EX-32.1 - EX-32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER, PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - Vivint Solar, Inc.vslr-ex321_201409308.htm
EX-10.17 - EX-10.17 FORM OF STOCK OPTION AGREEMENT UNDER THE 2013 OMNIBUS INCENTIVE PLAN - Vivint Solar, Inc.vslr-ex1017_201409301123.htm
EX-10.6 - EX-10.6 TRADEMARK ASSIGNMENT AGREEMENT BETWEEN VIVINT SOLAR LICENSING LLC AND VIVINT, INC., DATED SEPTEMBER 30, 2014 - Vivint Solar, Inc.vslr-ex106_20140930488.htm
EX-31.1 - EX-31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER, PURSUANT TO SECTION 302(A) OF THE SARBANES-OXLEY ACT OF 2002 - Vivint Solar, Inc.vslr-ex311_201409306.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

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

For the quarterly period ended September 30, 2014

¨

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

Commission File Number: 001-36642

 

VIVINT SOLAR, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

45-5605880

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

3301 N. Thanksgiving Way, Suite 500

Lehi, Utah 84043

(Address of principal executive offices) (Zip Code)

(877) 404-4129

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ¨    No  x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

 

Large accelerated filer

 

¨

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

x  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

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

As of November 3, 2014, 105,303,122 shares of the registrant’s common stock were outstanding.

 

 

 

 

 

 


 

Vivint Solar, Inc.

Quarterly Report on Form 10-Q

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

PART I – FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements

 

2

 

 

Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013

 

2

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2014 and 2013

 

3

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013

 

4

 

 

Notes to Condensed Consolidated Financial Statements

 

5

Item 2.

 

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

 

21

Item 3.

 

Quantitative and Qualitative Disclosure About Market Risk

 

34

Item 4.

 

Controls and Procedures

 

35

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

37

Item 1A.

 

Risk Factors

 

37

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

62

Item 6.

 

Exhibits

 

63

 

 

 

 

 

 

 

Signatures

 

64

 

 

 

1


 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

Vivint Solar, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data and footnote 1)

 

 

September 30,

 

 

December 31,

 

 

2014

 

 

2013

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

66,149

 

 

$

6,038

 

Accounts receivable, net

 

2,712

 

 

 

608

 

Inventories, net

 

559

 

 

 

 

Prepaid expenses and other current assets

 

16,720

 

 

 

5,938

 

Total current assets

 

86,140

 

 

 

12,584

 

Restricted cash, non-current

 

6,516

 

 

 

5,000

 

Solar energy systems, net

 

467,460

 

 

 

188,058

 

Property, net

 

11,034

 

 

 

3,640

 

Intangible assets, net

 

22,157

 

 

 

27,364

 

Goodwill

 

36,431

 

 

 

29,545

 

Prepaid tax asset, net

 

76,555

 

 

 

30,738

 

Other non-current assets, net

 

17,912

 

 

 

778

 

TOTAL ASSETS(1)

$

724,205

 

 

$

297,707

 

LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND

   TOTAL EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

54,761

 

 

$

25,356

 

Accounts payable—related party

 

7

 

 

 

3,068

 

Distributions payable to non-controlling interests and redeemable non-controlling interests

 

3,879

 

 

 

1,576

 

Accrued compensation

 

15,680

 

 

 

15,491

 

Current portion of deferred revenue

 

180

 

 

 

68

 

Current portion of capital lease obligation

 

2,915

 

 

 

1,275

 

Accrued and other current liabilities

 

21,010

 

 

 

10,307

 

Total current liabilities

 

98,432

 

 

 

57,141

 

Capital lease obligation, net of current portion

 

5,457

 

 

 

2,486

 

Revolving lines of credit—related party

 

58,692

 

 

 

41,412

 

Long-term debt

 

87,000

 

 

 

 

Deferred tax liability, net

 

88,427

 

 

 

41,510

 

Deferred revenue, net of current portion

 

2,554

 

 

 

1,272

 

Total liabilities(1)

 

340,562

 

 

 

143,821

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

Redeemable non-controlling interests

 

122,955

 

 

 

73,265

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.01 par value—1,000,000,000 authorized, 84,703,122 shares issued and

   outstanding as of September 30, 2014; 100,000,000 authorized, 75,000,000 shares issued and

   outstanding as of December 31, 2013

 

847

 

 

 

750

 

Additional paid-in capital

 

199,479

 

 

 

75,049

 

(Accumulated deficit) retained earnings

 

(19,710

)

 

 

3,034

 

Total stockholders’ equity

 

180,616

 

 

 

78,833

 

Non-controlling interests

 

80,072

 

 

 

1,788

 

Total equity

 

260,688

 

 

 

80,621

 

TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND TOTAL

   EQUITY

$

724,205

 

 

$

297,707

 

 

(1)

The Company’s consolidated assets as of September 30, 2014 and December 31, 2013 include $418.7 million and $156.2 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 $408.0 million and $152.6 million as of September 30, 2014 and December 31, 2013; cash and cash equivalents of $9.0 million and $3.1 million as of September 30, 2014 and December 31, 2013; and accounts receivable, net, of $1.7 million and $0.5 million as of September 30, 2014 and December 31, 2013. The Company’s condensed consolidated liabilities as of September 30, 2014 and December 31, 2013 included $6.5 million and $2.9 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 $3.9 million and $1.6 million as of September 30, 2014 and December 31, 2013; and deferred revenue of $2.6 million and $1.3 million as of September 30, 2014 and December 31, 2013. See further description in Note 10—Investment Funds.

 

See accompanying notes to condensed consolidated financial statements.

 

2


 

Vivint Solar, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data)

(Unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating leases and incentives

$

7,131

 

 

$

2,123

 

 

$

15,798

 

 

$

3,916

 

Solar energy system and product sales

 

1,202

 

 

 

151

 

 

 

2,600

 

 

 

283

 

Total revenue

 

8,333

 

 

 

2,274

 

 

 

18,398

 

 

 

4,199

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue—operating leases and incentives

 

19,515

 

 

 

4,811

 

 

 

47,161

 

 

 

12,824

 

Cost of revenue—solar energy system and product sales

 

627

 

 

 

32

 

 

 

1,510

 

 

 

108

 

Sales and marketing

 

5,220

 

 

 

2,105

 

 

 

16,229

 

 

 

4,995

 

Research and development

 

431

 

 

 

 

 

 

1,403

 

 

 

 

General and administrative

 

37,170

 

 

 

5,135

 

 

 

63,276

 

 

 

9,967

 

Amortization of intangible assets

 

3,727

 

 

 

3,649

 

 

 

11,155

 

 

 

10,946

 

Total operating expenses

 

66,690

 

 

 

15,732

 

 

 

140,734

 

 

 

38,840

 

Loss from operations

 

(58,357

)

 

 

(13,458

)

 

 

(122,336

)

 

 

(34,641

)

Interest expense

 

3,261

 

 

 

963

 

 

 

7,335

 

 

 

1,954

 

Other expense

 

297

 

 

 

541

 

 

 

1,462

 

 

 

1,063

 

Loss before income taxes

 

(61,915

)

 

 

(14,962

)

 

 

(131,133

)

 

 

(37,658

)

Income tax (benefit) expense

 

(10,222

)

 

 

31

 

 

 

(3,286

)

 

 

76

 

Net loss

 

(51,693

)

 

 

(14,993

)

 

 

(127,847

)

 

 

(37,734

)

Net loss attributable to non-controlling interests and redeemable non-controlling

   interests

 

(16,415

)

 

 

(37,848

)

 

 

(105,103

)

 

 

(40,155

)

Net (loss attributable) income available to common stockholders

$

(35,278

)

 

$

22,855

 

 

$

(22,744

)

 

$

2,421

 

Net (loss attributable) income available per share to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(0.45

)

 

$

0.30

 

 

$

(0.30

)

 

$

0.03

 

Diluted

$

(0.45

)

 

$

0.30

 

 

$

(0.30

)

 

$

0.03

 

Weighted-average shares used in computing net (loss attributable) income

   available per share to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

78,428,498

 

 

75,000,000

 

 

 

76,159,639

 

 

75,000,000

 

Diluted

 

78,428,498

 

 

 

75,000,912

 

 

 

76,159,639

 

 

 

75,013,624

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

3


 

Vivint Solar, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

Nine Months Ended

 

 

September 30,

 

 

2014

 

 

2013

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net loss

$

(127,847

)

 

$

(37,734

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

5,435

 

 

 

1,012

 

Amortization of intangible assets

 

11,270

 

 

 

10,946

 

Stock-based compensation

 

20,846

 

 

 

336

 

Amortization of deferred financing costs

 

1,522

 

 

 

 

Noncash contributions for services

 

181

 

 

 

122

 

Noncash interest expense

 

4,280

 

 

 

1,757

 

Deferred income taxes

 

45,567

 

 

 

17,476

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

Accounts receivable, net

 

(1,893

)

 

 

(609

)

Inventories, net

 

21

 

 

 

 

Prepaid expenses and other current assets

 

(11,610

)

 

 

(2,209

)

Prepaid tax asset, net

 

(45,817

)

 

 

(18,080

)

Other non-current assets, net

 

(11,350

)

 

 

(334

)

Accounts payable

 

1,243

 

 

 

4,731

 

Accounts payable—related party

 

(3,061

)

 

 

1,628

 

Accrued compensation

 

(2,786

)

 

 

6,469

 

Deferred revenue

 

1,340

 

 

 

400

 

Accrued and other current liabilities

 

7,788

 

 

 

3,541

 

Net cash used in operating activities

 

(104,871

)

 

 

(10,548

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Payments for the cost of solar energy systems

 

(249,612

)

 

 

(96,694

)

Payment in connection with business acquisition, net of cash acquired

 

(12,040

)

 

 

 

Payments for property

 

(3,056

)

 

 

 

Change in restricted cash

 

(1,516

)

 

 

(3,500

)

Purchase of intangible assets

 

(269

)

 

 

 

Proceeds from U.S. Treasury grants

 

190

 

 

 

8,976

 

Net cash used in investing activities

 

(266,303

)

 

 

(91,218

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Proceeds from investment by non-controlling interests in subsidiaries

 

240,863

 

 

 

84,379

 

Proceeds from issuance of common stock

 

103,500

 

 

 

 

Distributions paid to non-controlling interests and redeemable non-controlling interests

 

(5,484

)

 

 

(1,525

)

Proceeds from long-term debt

 

87,000

 

 

 

 

Proceeds from short-term debt

 

75,500

 

 

 

 

Payments on short-term debt

 

(75,500

)

 

 

 

Payments on revolving lines of credit

 

 

 

 

(2,000

)

Proceeds from revolving lines of credit—related party

 

154,500

 

 

 

63,483

 

Payments on revolving lines of credit—related party

 

(141,500

)

 

 

(40,000

)

Principal payments on capital lease obligations

 

(1,810

)

 

 

(674

)

Payments for deferred offering costs

 

(5,784

)

 

 

 

Capital contribution from Parent

 

 

 

 

1,418

 

Net cash provided by financing activities

 

431,285

 

 

 

105,081

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

60,111

 

 

 

3,315

 

CASH AND CASH EQUIVALENTS—Beginning of period

 

6,038

 

 

 

11,650

 

CASH AND CASH EQUIVALENTS—End of period

$

66,149

 

 

$

14,965

 

NONCASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Vehicles acquired under capital leases

$

6,421

 

 

$

4,076

 

Accrued distributions to non-controlling interests and redeemable non-controlling interests

$

2,302

 

 

$

915

 

Costs of solar energy systems included in accounts payable, accrued compensation and other accrued liabilities

$

33,596

 

 

$

11,845

 

Receivable for tax credit recorded as a reduction to solar energy system costs

$

3,380

 

 

$

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

4


 

Vivint Solar, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1.

Organization

Vivint Solar, Inc. (formerly known as V Solar Holdings, Inc.) was incorporated as a Delaware corporation on August 12, 2011, and changed its name to Vivint Solar, Inc. from V Solar Holdings, Inc., on April 29, 2014. Vivint Solar, Inc. and its subsidiaries are collectively referred to as the “Company.” The Company commenced operations in May 2011. The Company offers solar energy to residential customers through long-term customer contracts, such as power purchase agreements and solar energy system leases. The Company enters into these long-term customer contracts through a sales organization that uses a direct-to-home sales model. The long-term customer contracts are typically for 20 years and require the customer to make monthly payments to the Company. Through the acquisition of Solmetric Corporation (“Solmetric”) in the first quarter of 2014, the Company also offers photovoltaic installation software products and devices.

The Company has formed various investment funds 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 to finance a portion of the Company’s variable and fixed costs associated with installing the residential solar energy systems.

On November 16, 2012 (the “Acquisition Date”), investment funds affiliated with The Blackstone Group L.P. (the “Sponsor”) and certain co-investors (collectively, the “Investors”), through 313 Acquisition LLC (“313”), acquired 100% of the equity interests of APX Group, Inc. (“Vivint”) and the Company (the “Acquisition”). The Acquisition was accomplished through certain mergers and related reorganization transactions pursuant to which the Company became a direct wholly owned subsidiary of 313, an entity owned by the Investors.

Since inception and continuing after the Acquisition, the Company has relied upon Vivint and certain of its affiliates for many of its administrative, managerial, account management and operational services. The Company was consolidated by Vivint as a variable interest entity prior to the Acquisition, and continues to be an affiliated entity and related party subsequent to the Acquisition. The Company has entered into various agreements and transactions with Vivint and its affiliates related to these services. See Note 14—Related Party Transactions.

 

 

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 (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on October 1, 2014 (the “Prospectus”). The results of the nine months ended September 30, 2014 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2014 or for any other interim period or other future year.

The 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. For all periods presented, the Company has determined that it is the primary beneficiary in all of its operational VIEs. 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 10—Investment Funds.

The condensed consolidated financial statements reflect all of the costs of doing business, including the allocation of expenses incurred by Vivint on behalf of the Company. For additional information, see Note 14—Related Party Transactions. These expenses 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. The allocations may not, however, reflect the expense the Company would have incurred as an independent company for the periods presented, and may not be indicative of the Company’s future results of operations and financial position.

5


 

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 financial statements and accompanying notes. The Company regularly makes significant estimates and assumptions including, but not limited to, estimates that affect the Company’s principles of consolidation, revenue recognition, the useful lives of solar energy systems, the valuation and recoverability of intangible assets and goodwill acquired, useful lives of intangible assets, recoverability of long-lived assets, the recognition and measurement of loss contingencies, the valuation of stock-based compensation, the determination of valuation allowances associated with deferred tax assets, and the valuation of 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.

Comprehensive Loss

As the Company has no other comprehensive income or loss, comprehensive loss is the same as net loss for all periods presented.

During the three months ended September 30, 2014, there have been no changes to the Company’s significant accounting policies as described in the Prospectus.

 

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 measured on a recurring basis by level within the fair value hierarchy (in thousands):

 

 

September 30, 2014

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time deposits

$

 

 

$

1,900

 

 

$

 

 

$

1,900

 

Money market funds

 

607

 

 

 

 

 

 

 

 

 

607

 

Total financial assets

$

607

 

 

$

1,900

 

 

$

 

 

$

2,507

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2013

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time deposits

$

 

 

$

1,900

 

 

$

 

 

$

1,900

 

Money market funds

 

620

 

 

 

 

 

 

 

 

 

620

 

Total financial assets

$

620

 

 

$

1,900

 

 

$

 

 

$

2,520

 

 

The carrying amounts of certain financial instruments of the Company, consisting of cash and cash equivalents excluding time deposits; accounts receivable; accounts payable; accounts payable—related party and distributions payable to redeemable non-controlling interests (all Level I) approximate fair value due to their relatively short maturities. Time deposits (Level II) approximate fair value due to their short-term nature (30 days) and, upon renewal, the interest rate is adjusted based on current market rates. The Company’s long-term debt, consisting of an aggregation credit facility (as described in Note 9), is carried at cost and was $87.0 million as of September 30, 2014. As the Company’s aggregation credit facility was entered into on September 12, 2014 and interest is based on market rates, the carrying value approximates fair value. The Company’s revolving lines of credit—related party are comprised of two lines of credit and are carried at cost of $58.7 million and $41.4 million as of September 30, 2014 and December 31, 2013. The Company has estimated the fair value of its related party revolving lines of credit to be $55.8 million and $39.0 million as of September 30, 2014 and December 31, 2013 based on rates for companies with similar credit ratings and issuances at approximately the same time period and in the same market environment. The Company did not have realized gains or losses related to financial assets for any of the periods presented.

 


6


 

 

4.

Solmetric Acquisition

In January 2014, the Company completed the acquisition of Solmetric (the “Solmetric Acquisition”), a developer and manufacturer of photovoltaic installation software products and devices. The purchase price agreed to in the purchase agreement with Solmetric was $12.0 million plus a net working capital adjustment resulting in total cash purchase consideration of $12.2 million. In connection with the Solmetric Acquisition, the total consideration of $12.2 million was used for the purchase of all outstanding stock and options of Solmetric, settlement of Solmetric’s short-term promissory note, and settlement of other liabilities including employee-related liabilities of Solmetric incurred in connection with the acquisition. The Company incurred $0.3 million of costs related to retention bonuses to key Solmetric employees and $59,000 of transaction fees, all of which have been included in the various line items of the condensed consolidated statements of operations for the nine months ended September 30, 2014.

Pursuant to the terms of the purchase agreement, $1.0 million of the purchase consideration was placed in escrow and is being held for general representations and warranties, rather than specific contingencies or specific assets or liabilities of the Company. The Company has no right to these funds, nor does it have a direct obligation associated with them. Accordingly, the Company does not include the escrow funds in its condensed consolidated balance sheets. Notwithstanding any prior claims to the escrow fund due to a breach of representations and warranties, the escrow is expected to be released upon the one year anniversary of the Solmetric Acquisition.

The estimated fair values of the assets acquired and liabilities assumed are based on information obtained from various sources including third party valuations, management’s internal valuation and historical experience. The fair values of the intangible assets related to customer relationships, trade names and trademarks, developed technology and in-process research and development were determined using the income approach and significant estimates relate to assumptions as to the future economic benefits to be received, cash flow projections and discount rates.

The purchase price has been preliminarily allocated based on the estimated fair value of net assets acquired and liabilities assumed at the date of the acquisition. The preliminary purchase price allocation is subject to further refinement and may require significant adjustments to arrive at the final purchase price allocation. These adjustments will primarily relate to working capital adjustments and income tax-related items. The purchase price allocation is expected to be completed within 12 months of the acquisition date.

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

 

Cash acquired

  

$

139

  

Inventories

  

 

580

  

Other current assets acquired

  

 

221

  

Property

  

 

77

  

Customer relationships

  

 

738

  

Trademarks/trade names

  

 

1,664

  

Developed technology

  

 

1,295

  

In-process research and development

  

 

2,097

  

Goodwill

  

 

6,886

  

Deferred tax liability, net

  

 

(1,308

Current liabilities assumed

  

 

(210

Total

  

$

12,179

  

Goodwill, which represents the purchase price in excess of the fair value of net assets acquired, is not expected to be deductible for income tax purposes. This goodwill is reflective of the value derived from the Company utilizing Solmetric’s advanced technology to improve the installation and efficacy of its solar panels as well as the expected growth in the Solmetric business, based on its historical performance and the expectation of continued growth as the solar industry expands.

For tax purposes, the acquired intangible assets are not amortized. Accordingly, a deferred tax liability of $2.5 million was recorded for the difference between the book and tax basis related to the intangible assets. Additionally, a deferred tax asset of $1.2 million was recorded mainly as a result of Solmetric’s net operating losses.

Financial results for Solmetric since the acquisition date are included in the results of operations for the nine months ended September 30, 2014. Solmetric contributed $1.1 million of revenues and $0.4 million of net income for the three months ended September 30, 2014. Solmetric contributed $2.4 million of revenues and $0.2 million of net income from the date of the acquisition through September 30, 2014.

7


 

Pro Forma Information

The following pro forma financial information is based on the historical financial statements of the Company and presents the Company’s results as if the Solmetric Acquisition had occurred as of January 1, 2013 (in thousands):

 

Nine Months Ended

 

 

September 30,

 

 

2014

 

 

2013

 

Pro forma revenue

$

18,521

 

 

$

6,254

 

Pro forma net loss

 

(121,634

)

 

 

(37,606

)

Pro forma net (loss attributable) income available to common stockholders

 

(15,891

)

 

 

2,549

 

The pro forma results include the accounting effects resulting from the Solmetric Acquisition, such as the amortization charges from acquired intangible assets, reversal of costs related to special retention bonuses and other payments to employees and transaction costs directly related to the Solmetric Acquisition, elimination of intercompany sales and reversal of the related tax effects. The pro forma information presented does not purport to present what the actual results would have been had the Solmetric Acquisition actually occurred on January 1, 2013, nor is the information intended to project results for any future period.

 

 

5.

Solar Energy Systems

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

 

September 30,

 

 

December 31,

 

 

2014

 

 

2013

 

System equipment costs

$

383,463

 

 

$

155,101

 

Initial direct costs related to solar energy systems

 

58,131

 

 

 

22,250

 

Solar energy system inventory

 

33,021

 

 

 

12,782

 

 

 

474,615

 

 

 

190,133

 

Less: Accumulated depreciation and amortization

 

(7,155

)

 

 

(2,075

)

Solar energy systems, net

$

467,460

 

 

$

188,058

 

 

The Company recorded depreciation and amortization expense related to solar energy systems of $2.0 million and $0.5 million for the three months ended September 30, 2014 and 2013. Depreciation and amortization expense related to solar energy systems of $5.1 million and $1.0 million was recorded for the nine months ended September 30, 2014 and 2013.

 

 

6.

Intangible Assets

Intangible assets consisted of the following (in thousands):

 

 

September 30,

 

 

December 31,

 

 

2014

 

 

2013

 

Cost:

 

 

 

 

 

 

 

Customer contracts

$

43,783

 

 

$

43,783

 

Customer relationships

 

738

 

 

 

 

Trademarks/trade names

 

1,664

 

 

 

 

Developed technology

 

1,295

 

 

 

 

In-process research and development

 

2,097

 

 

 

 

Internal-use software

 

269

 

 

 

 

Total carrying value

 

49,846

 

 

 

43,783

 

Accumulated amortization:

 

 

 

 

 

 

 

Customer contracts

 

(27,364

)

 

 

(16,419

)

Customer relationships

 

(98

)

 

 

 

Trademarks/trade names

 

(111

)

 

 

 

Developed technology

 

(116

)

 

 

 

Total accumulated amortization

 

(27,689

)

 

 

(16,419

)

Total intangible assets, net

$

22,157

 

 

$

27,364

 

 

During the three months ended September 30, 2014, the Company incurred third-party costs related to the development of an internal-use software application to improve the sales process. The costs have been capitalized and are subject to amortization over the

8


 

expected useful life of three years. The Company recorded amortization expense of $3.7 million and $3.6 million for the three months ended September 30, 2014 and 2013, which was included in amortization of intangible assets in the condensed consolidated statements of operations. The Company recorded amortization expense of $11.3 million for the nine months ended September 30, 2014, of which $0.1 million was recorded in cost of revenue-solar energy system and product sales. Amortization expense was $10.9 million for the nine months ended September 30, 2013.

 

 

7.

Accrued Compensation

Accrued compensation consisted of the following (in thousands):

 

September 30,

 

 

December 31,

 

 

2014

 

 

2013

 

Accrued payroll

$

8,704

 

 

$

3,142

 

Accrued commissions

 

6,871

 

 

 

4,206

 

Accrued employee taxes

 

105

 

 

 

8,143

 

Total accrued compensation

$

15,680

 

 

$

15,491

 

 

 

8.

Accrued and Other Current Liabilities

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

 

September 30,

 

 

December 31,

 

 

2014

 

 

2013

 

Sales and use tax payable

$

8,179

 

 

$

5,299

 

Accrued professional fees

 

7,408

 

 

 

 

Accrued penalties and interest

 

2,037

 

 

 

1,909

 

Income tax payable

 

1,210

 

 

 

3,061

 

Deferred rent

 

953

 

 

 

 

Other accrued expenses

 

1,223

 

 

 

38

 

Total accrued and other current liabilities

$

21,010

 

 

$

10,307

 

 

9.

Debt Obligations

Debt consisted of the following (in thousands):

 

 

September 30,

 

 

December 31,

 

 

2014

 

 

2013

 

Revolving lines of credit—related party

$

58,692

 

 

$

41,412

 

Long-term debt

 

87,000

 

 

 

 

Total debt

 

145,692

 

 

 

41,412

 

Bank of America, N.A. Aggregation Credit Facility

In September 2014, the Company entered into an aggregation credit facility (the “Aggregation Facility”) pursuant to which the Company may borrow up to an aggregate of $350.0 million and, subject to certain conditions, up to an additional aggregate of $200.0 million in borrowings with certain financial institutions for which Bank of America, N.A. is acting as administrative agent. For accounting purposes, the Aggregation Facility is considered a modification of a term loan credit facility entered into in May 2014.

Prepayments are permitted under the Aggregation Facility, and the principal and accrued interest on any outstanding loans mature on March 12, 2018. Under the Aggregation Facility, interest on borrowings accrues at a floating rate equal to (1) a margin that varies between 3.25% during the period during which the Company may incur borrowings and 3.50% after such period and either (2)(a) the London Interbank Offer Rate (“LIBOR”) or (b) the greatest of (i) the Federal Funds Rate plus 0.5%, (ii) the administrative agent’s prime rate and (iii) LIBOR plus 1%. Interest is payable at the end of each interest period that the Company may elect as a term of either one, two or three months.

The borrower under the Aggregation Facility is Vivint Solar Financing I, LLC, one of the Company’s indirect wholly owned subsidiaries, that in turn holds the Company’s interests in the managing members in the Company’s existing investment funds. These managing members guarantee the borrower’s obligations under the Aggregation Facility. In addition, Vivint Solar Holdings, Inc. has pledged its interests in the borrower, and the borrower has pledged its interests in the guarantors as security for the borrower’s obligations under the Aggregation Facility. The related solar energy systems are not subject to any security interest of the lenders, and there is no recourse to the Company in the case of a default.

9


 

The Aggregation Facility includes customary covenants, including covenants that restrict, subject to certain exceptions, the borrower’s, and the guarantors’ ability to incur indebtedness, incur liens, make investments, make fundamental changes to their business, dispose of assets, make certain types of restricted payments or enter into certain related party transactions. Among other restrictions, the Aggregation Facility provides that the borrower may not incur any indebtedness other than that related to the Aggregation Facility or in respect of permitted swap agreements, and that the guarantors may not incur any indebtedness other than that related to the Aggregation Facility or as permitted under existing investment fund transaction documents. These restrictions do not impact the Company’s ability to enter into investment funds, including those that are similar to those entered into previously.

As of September 30, 2014, the Company had incurred an aggregate of $87.0 million in term loan borrowings under this agreement, of which approximately $75.7 million was used to repay the outstanding principal and accrued and unpaid interest under the May 2014 credit facility discussed below. The remaining borrowing capacity was $263.0 million as of September 30, 2014. However, the Company does not have immediate access to the remaining $263.0 million balance as future borrowings are dependent on when it has solar energy system revenue to collateralize the borrowings.

The Aggregation Facility also contains certain customary events of default. If an event of default occurs, lenders under the Aggregation Facility will be entitled to take various actions, including the acceleration of amounts due under the Aggregation Facility and foreclosure on the interests of the borrower and the guarantors that have been pledged to the lenders.

Interest expense was approximately $0.3 million in the three and nine months ended September 30, 2014. No interest expense was recorded for the three and nine months ended September 30, 2013. As of September 30, 2014, the current portion of deferred financing costs of $2.5 million was recorded in prepaid expenses and other current assets, and the long-term portion of deferred financing costs of $6.1 million was recorded in other non-current assets, net in the condensed consolidated balance sheet. In addition, a $1.5 million interest reserve amount was deposited in an interest reserve account with the administrative agent and is included in restricted cash.

Bank of America, N.A. Term Loan Credit Facility

In May 2014, the Company entered into a term loan credit facility (the “Term Facility”) for an aggregate principal amount of $75.5 million with certain financial institutions for which Bank of America, N.A. acted as administrative agent. In September 2014, the Company repaid the then outstanding $75.5 million in aggregate borrowings and terminated the agreement. Under the Term Facility, the Company incurred interest on the term borrowings that accrued at a floating rate based on (1) LIBOR plus a margin equal to 4%, or (2) a rate equal to 3% plus the greatest of (a) the Federal Funds Rate plus 0.5%, (b) the administrative agent’s prime rate and (c) LIBOR plus 1%. Interest expense from inception of the Term Facility in May 2014 through payoff in September 2014 was approximately $1.3 million.

The credit facility included customary covenants, including covenants that restricted, subject to certain exceptions, the Company’s ability to incur indebtedness, incur liens, make investments, make fundamental changes to the Company’s business, dispose of assets, make certain types of restricted payments or enter into certain related party transactions. As of payoff, the Company was in compliance with all such covenants. In addition, the $1.6 million interest reserve amount that was deposited in an interest reserve account with the administrative agent was released upon termination of the agreement.

Revolving Lines of CreditRelated Party

In May 2013, the Company entered into a Subordinated Note and Loan Agreement with APX Parent Holdco, Inc., pursuant to which the Company may incur up to $20.0 million in revolver borrowings (“2013 Loan Agreement”). From May 2013 through December 2013, the Company incurred $18.5 million in principal borrowings under the agreement. Interest accrued on these borrowings at 12% per year through November 2013 and 20% per year thereafter, and accrued interest is paid-in-kind through additions to the principal amount on a semi-annual basis. In January 2014, the Company amended and restated the 2013 Loan Agreement, pursuant to which the Company may incur an additional $30.0 million in revolver borrowings, resulting in a total borrowing capacity of $50.0 million, with interest on the borrowings accruing at a rate of 12% per year for the remaining term of the agreement. From January 2014 through September 2014, the Company incurred an aggregate of $154.5 million in revolver borrowings under the 2013 Loan Agreement of which $141.5 million was repaid within one to eight days from the respective borrowing date. None of these borrowings individually exceeded the borrowing capacity of $50.0 million. As of September 30, 2014, the Company had $31.5 million of principal borrowings outstanding and $18.5 million in borrowing capacity available under the agreement. Interest expense for the three months ended September 30, 2014 and 2013 was $1.0 million and $0.6 million. Interest expense for the nine months ended September 30, 2014 and 2013 was $3.0 million and $0.7 million. While prepayments are permitted, the principal amount and accrued interest is payable by the Company upon the earliest to occur of (1) a change of control, (2) an event of default, and (3) January 1, 2017. The Company’s obligation under the 2013 Loan Agreement is subordinate to the Company’s guaranty obligations to its investment funds and all other indebtedness of the Company.

10


 

In December 2012 and amended in July 2013, the Company entered into a Subordinated Note and Loan Agreement with Vivint pursuant to which the Company may incur revolver borrowings of up to $20.0 million (“2012 Loan Agreement”). In December 2012, the Company incurred $15.0 million in revolver borrowings. From January 2013 through May 2013, the Company incurred an additional $5.0 million in revolver borrowings. Interest accrues on these borrowings at 7.5% per year, and accrued interest is paid-in-kind through additions to the principal amount on a semi-annual basis. Interest expense for the three months ended September 30, 2014 and 2013 was $0.4 million in both periods. Interest expense for the nine months ended September 30, 2014 and 2013 was $1.2 million and $1.0 million. While prepayments are permitted, the principal amount and accrued interest is payable by the Company upon the earliest to occur of (1) a change of control, (2) an event of default and (3) January 1, 2016. As of September 30, 2014, the Company had an aggregate of $0 in borrowing capacity available under the $20.0 million agreement. The Company’s obligations under the 2012 Loan Agreement are subordinate to the Company’s guaranty obligations to its investment funds and all other indebtedness of the Company.

As of September 30, 2014 and December 31, 2013, the total borrowings under both the 2012 Loan Agreement and the 2013 Loan Agreement were $58.7 million and $41.4 million. These amounts include $51.5 million and $38.5 million of principal borrowings and $7.2 million and $2.9 million of paid-in-kind and accrued interest.

 

 

10.

Investment Funds

The Company has formed investment funds and raised capital to fund the purchase of solar energy systems that will be contributed to or purchased by the investment fund. For discussion purposes, these 11 investment funds, including one arrangement with a large financial institution, are referred to as Fund A through Fund K.

The Company has aggregated the financial information of the investment funds in the table below. The aggregate carrying value of these funds’ assets and liabilities (after elimination of intercompany transactions and balances) in the Company’s condensed consolidated balance sheets were as follows (in thousands):

 

 

September 30,

 

 

December 31,

 

 

2014

 

 

2013

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

8,986

 

 

$

3,092

 

Accounts receivable, net

 

1,688

 

 

 

544

 

Total current assets

 

10,674

 

 

 

3,636

 

Solar energy systems, net

 

408,035

 

 

 

152,565

 

Total assets

$

418,709

 

 

$

156,201

 

Liabilities

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Distributions payable to non-controlling interests and redeemable non-controlling interests

$

3,879

 

 

$

1,576

 

Current portion of deferred revenue

 

135

 

 

 

68

 

Total current liabilities

 

4,014

 

 

 

1,644

 

Deferred revenue, net of current portion

 

2,447

 

 

 

1,272

 

Total liabilities

$

6,461

 

 

$

2,916

 

Fund investors for Funds D, E and H are managed indirectly by the Sponsor and accordingly are considered related parties. As of September 30, 2014 and December 31, 2013, the cumulative total of contributions into the VIEs by all investors was $381.6 million and $140.7 million, of which $110.0 million and $60.0 million were contributed by related parties.

All funds, except for Funds F and K, were operational as of September 30, 2014. The Company did not have any assets, liabilities or activity associated with Funds F and K. Total available committed capital under Funds F and K was $150.0 million as of September 30, 2014.

Guarantees

With respect to the investment funds, the Company and the fund investors have entered into guaranty agreements under which the Company guarantees the performance of certain obligations of its subsidiaries to the investment funds. These guarantees do not result in the Company being required to make payments to the fund investors unless such payments are mandated by the investment fund governing documents and the investment fund fails to make such payment. The Company is also contractually obligated to make certain VIE investors whole for losses that the investors may suffer in certain limited circumstances resulting from the disallowance or recapture of investment tax credits.

11


 

As a result of the guaranty arrangements in certain funds, as of September 30, 2014 and December 31, 2013, the Company is required to hold minimum cash balances of $5.0 million in the aggregate for both periods, which are classified as restricted cash on the condensed consolidated balance sheets.

 

 

11.

Redeemable Non-Controlling Interests and Equity

Common Stock

The Company had shares of common stock reserved for issuance as follows:

 

 

September 30,

 

 

December 31,

 

 

2014

 

 

2013

 

Options issued and outstanding

 

10,057,738

 

 

 

6,608,826

 

Options available for grant under equity incentive plans

 

8,800,000

 

 

 

2,567,645

 

Long-term incentive plan

 

4,058,823

 

 

 

4,058,823

 

Total

 

22,916,561

 

 

 

13,235,294

 

In August 2014, the Company issued and sold an aggregate of 2,671,875 shares of common stock to 313 for $10.667 per share for aggregate proceeds of $28.5 million. In September 2014, the Company issued and sold an aggregate of 7,031,247 additional shares to 313 and two of its directors for $10.667 per share for aggregate gross proceeds of $75.0 million. The Company intended for the proceeds from such sales to fund its growing operations without altering its plans and to bolster its financial condition in advance of its initial public offering. The transactions were negotiated on an arms’ length basis and represented what the Company believed to be the most agreeable alternative at the time.  Subsequent to such transactions, the Company set the preliminary price range for its initial public offering, the mid-point of which was $17.00 per share. The Company has determined that, for financial reporting purposes, it is appropriate to record the aggregate difference between the per share purchase price and mid-point of the preliminary price range for its initial public offering with respect to the shares sold to the two directors, or $14.8 million, as stock-based compensation expense, which was recorded in general and administrative expense. Regarding the shares of common stock sold to 313, the Company has also determined that for financial reporting purposes, it is appropriate to record the aggregate difference of $43.4 million as an aggregate return of capital within additional paid-in capital.

Redeemable Non-Controlling Interests, Total Equity and Non-Controlling Interests

The changes in redeemable non-controlling interests were as follows (in thousands):

 

Balance as of December 31, 2013

$

73,265

 

Contributions from redeemable non-controlling interests

 

54,973

 

Distributions to redeemable non-controlling interests

 

(4,282

)

Net loss

 

(1,001

)

Balance as of September 30, 2014

$

122,955

 

The changes in total stockholders’ equity and non-controlling interests were as follows (in thousands):

 

 

Total

 

 

 

 

 

 

 

 

 

 

Stockholders'

 

 

Non-controlling

 

 

 

 

 

 

Equity

 

 

Interests

 

 

Total Equity

 

Balance as of December 31, 2013

$

78,833

 

 

$

1,788

 

 

$

80,621

 

Capital contributions

 

103,500

 

 

 

 

 

 

103,500

 

Stock-based compensation expense

 

20,846

 

 

 

 

 

 

20,846

 

Noncash capital contributions

 

181

 

 

 

 

 

 

181

 

Contributions from non-controlling interests

 

 

 

 

185,890

 

 

 

185,890

 

Distributions to non-controlling interests

 

 

 

 

(3,504

)

 

 

(3,504

)

Net loss

 

(22,744

)

 

 

(104,102

)

 

 

(126,846

)

Balance as of September 30, 2014

$

180,616

 

 

$

80,072

 

 

$

260,688

 

Funds A, B, C and I each include a right for the non-controlling interest holder to elect to require the Company’s wholly owned subsidiary to purchase all of its membership interests in the fund after a stated period of time (each, a “Put Option”). In Fund A, the Company’s wholly owned subsidiary has the right to elect to require the non-controlling interest holder to sell all of its membership units to the Company’s wholly owned subsidiary (the “Call Option”) after the expiration of the non-controlling interest holder’s Put

12


 

Option. In Funds B, C and I, the Company’s wholly owned subsidiary has a Call Option for a stated period prior to the effectiveness of the Put Option. In Funds D, E, G, H, J and K there is a Call Option which is exercisable after a stated period of time.

The purchase price for the fund investor’s interest in Funds A, B, C and I under the Put Options is the greater of fair market value at the time the option is exercised and $0.7 million, $2.1 million, $3.3 million and $4.1 million. The Put Options for Funds A, B, C and I are exercisable beginning on the date that specified conditions are met for each respective fund. None of the Put Options are expected to become exercisable prior to 2017.

Because the Put Options represent redemption features that are not solely within the control of the Company, the non-controlling interests in these funds is presented outside of permanent equity. Redeemable non-controlling interests are reported using the greater of their carrying value at each reporting date (which is impacted by attribution under the hypothetical liquidation at book value method) or their estimated redemption value in each reporting period. The carrying value of redeemable non-controlling interests at September 30, 2014 and December 31, 2013 was greater than the redemption value.

The purchase price for the fund investors’ interests under the Call Options varies by fund, but is generally the greater of a specified amount, which ranges from approximately $0.7 million to $7.0 million, the fair market value of such interest at the time the option is exercised, or an amount that causes the fund investor to achieve a specified return on investment. The Call Options for Funds A, B, C, D, E, H, J and K are exercisable beginning on the date that specified conditions are met for each respective fund. None of the Call Options are expected to become exercisable prior to 2018.

 

 

12.

Equity Compensation Plans

2014 Equity Incentive Plan

The Company adopted the 2014 Equity Incentive Plan (the “2014 Plan”), which became effective upon the effectiveness of the Company’s registration statement on Form S-1, on September 30, 2014. Under the 2014 Plan, the Company may grant stock options, restricted stock, restricted stock units, stock appreciation rights, performance units, performance shares and performance awards to its employees, directors and consultants, and its parent and subsidiary corporations’ employees and consultants.

Under the 2014 Plan, a total of 8,800,000 shares of common stock initially are reserved for issuance, subject to adjustment in the case of certain events, of which no awards were issued and outstanding as of September 30, 2014. In addition, any shares that otherwise would be returned to the Omnibus Plan (as defined below) as the result of the expiration or termination of options, may be added to the 2014 Plan. The number of shares available for issuance under the 2014 Plan is subject to an annual increase on the first day of each year beginning in 2015, equal to the least of 8,800,000 shares, 4% of the outstanding shares of common stock as of the last day of the immediately preceding fiscal year and an amount of shares as determined by the Company.

2013 Omnibus Incentive Plan; Non-plan Option Grant

In July 2013, the Company adopted the 2013 Omnibus Incentive Plan (the “Omnibus Plan”), which was terminated in connection with the adoption of the 2014 Plan in September 2014, and accordingly no additional shares are available for issuance under the Omnibus Plan. The Omnibus Plan will continue to govern outstanding awards granted under the plan. In August 2013, the Company granted an option to purchase 617,647 shares of common stock outside of the Omnibus Plan; however the provisions of this option were substantially similar to those of the options granted pursuant to the Omnibus Plan.

During the third quarter of 2013 and the first nine months of 2014, the Company granted options of which one-third are subject to ratable time-based vesting over a five year period and two-thirds are subject to vesting upon certain performance conditions and the achievement of certain investment return thresholds by 313.

In April 2014, the Company amended the vesting schedules of certain options outstanding under the Omnibus Plan and an option granted outside of the Omnibus Plan described above to provide that a portion of each of these options vests upon the Company’s aggregate market capitalization being equal to or exceeding $1.0 billion at the end of any trading day at least 240 days following the completion of the Company’s public offering.

During the three and nine months ended September 30, 2014, the Company recorded $3.8 million in stock-based compensation related to the performance conditions as it is now probable that the performance condition will be met. In prior periods, all recognized stock compensation expense was related to the time-based vesting conditions. As of September 30, 2014, there are 6.7 million shares subject to outstanding options that are subject to performance and market conditions.

13


 

A summary of stock option activity is as follows (in thousands, except share and per share amounts):

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

Average

 

 

 

 

 

 

Shares

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

Underlying

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

 

Options

 

 

Price

 

 

Term

 

 

Value

 

Outstanding—December 31, 2013

 

6,609

 

 

$

1.00

 

 

 

 

 

 

$

12,755

 

Granted

 

3,493

 

 

 

1.60

 

 

 

 

 

 

 

 

 

Exercised