Attached files

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EX-10.5 - EX-10.5 - Vivint Solar, Inc.vslr-ex105_305.htm
EX-32.1 - EX-32.1 - Vivint Solar, Inc.vslr-ex321_9.htm
EX-31.2 - EX-31.2 - Vivint Solar, Inc.vslr-ex312_7.htm
EX-32.2 - EX-32.2 - Vivint Solar, Inc.vslr-ex322_8.htm
EX-31.1 - EX-31.1 - Vivint Solar, Inc.vslr-ex311_6.htm
EX-10.4 - EX-10.4 - Vivint Solar, Inc.vslr-ex104_304.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, 2015

¨

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  x    No  ¨

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 2, 2015, 106,537,391 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, 2015 and December 31, 2014

 

2

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended                          September 30, 2015 and 2014

 

3

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014

 

4

 

 

Notes to Condensed Consolidated Financial Statements

 

5

Item 2.

 

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

 

23

Item 3.

 

Quantitative and Qualitative Disclosure About Market Risk

 

37

Item 4.

 

Controls and Procedures

 

38

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

40

Item 1A.

 

Risk Factors

 

41

Item 6.

 

Exhibits

 

72

 

 

 

 

 

 

 

Signatures

 

73

 

 

 

1


 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

Vivint Solar, Inc.

Condensed Consolidated Balance Sheets

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

 

 

September 30,

 

 

December 31,

 

 

2015

 

 

2014

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

81,755

 

 

$

261,649

 

Accounts receivable, net

 

5,464

 

 

 

1,837

 

Inventories

 

472

 

 

 

774

 

Prepaid expenses and other current assets

 

20,861

 

 

 

16,806

 

Total current assets

 

108,552

 

 

 

281,066

 

Restricted cash and cash equivalents

 

13,172

 

 

 

6,516

 

Solar energy systems, net

 

986,908

 

 

 

588,167

 

Property and equipment, net

 

34,048

 

 

 

13,024

 

Intangible assets, net

 

4,462

 

 

 

18,487

 

Goodwill

 

36,601

 

 

 

36,601

 

Prepaid tax asset, net

 

247,861

 

 

 

111,910

 

Other non-current assets, net

 

9,409

 

 

 

8,553

 

TOTAL ASSETS(1)

$

1,441,013

 

 

$

1,064,324

 

LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

87,890

 

 

$

51,354

 

Accounts payable—related party

 

1,544

 

 

 

2,132

 

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

   interests

 

8,316

 

 

 

6,780

 

Accrued compensation

 

21,102

 

 

 

16,794

 

Current portion of deferred revenue

 

423

 

 

 

314

 

Current portion of capital lease obligation

 

5,147

 

 

 

3,502

 

Accrued and other current liabilities

 

34,286

 

 

 

14,016

 

Total current liabilities

 

158,708

 

 

 

94,892

 

Capital lease obligation, net of current portion

 

9,801

 

 

 

6,176

 

Long-term debt

 

253,000

 

 

 

105,000

 

Deferred tax liability, net

 

193,692

 

 

 

112,227

 

Deferred revenue, net of current portion

 

30,118

 

 

 

4,466

 

Other non-current liabilities

 

15,255

 

 

 

 

Total liabilities(1)

 

660,574

 

 

 

322,761

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

Redeemable non-controlling interests

 

171,179

 

 

 

128,427

 

Stockholders' equity:

 

 

 

 

 

 

 

Common stock, $0.01 par value—1,000,000 authorized, 106,537 shares issued and

   outstanding as of September 30, 2015; 1,000,000 authorized, 105,303 shares issued and

   outstanding as of December 31, 2014

 

1,065

 

 

 

1,053

 

Additional paid-in capital

 

528,252

 

 

 

502,785

 

Retained earnings (accumulated deficit)

 

421

 

 

 

(25,849

)

Total stockholders' equity

 

529,738

 

 

 

477,989

 

Non-controlling interests

 

79,522

 

 

 

135,147

 

Total equity

 

609,260

 

 

 

613,136

 

TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY

$

1,441,013

 

 

$

1,064,324

 

 

(1)

The Company’s assets as of September 30, 2015 and December 31, 2014 include $914.1 million and $540.1 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 $883.0 million and $525.9 million as of September 30, 2015 and December 31, 2014; cash and cash equivalents of $25.9 million and $12.6 million as of September 30, 2015 and December 31, 2014; and accounts receivable, net, of $5.3 million and $1.5 million as of September 30, 2015 and December 31, 2014. The Company’s liabilities as of September 30, 2015 and December 31, 2014 included $42.8 million and $11.4 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 $8.3 million and $6.8 million as of September 30, 2015 and December 31, 2014; deferred revenue of $30.5 million and $4.6 million as of September 30, 2015 and December 31, 2014; accrued and other current liabilities of $0.9 million and $0 as of September 30, 2015 and December 31, 2014; and other non-current liabilities of $3.1 million and $0 as of September 30, 2015 and December 31, 2014. For further information see Note 10—Investment Funds.

 

See accompanying notes to condensed consolidated financial statements.

2


 

Vivint Solar, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating leases and incentives

$

21,781

 

 

$

7,131

 

 

$

45,662

 

 

$

15,798

 

Solar energy system and product sales

 

693

 

 

 

1,202

 

 

 

2,492

 

 

 

2,600

 

Total revenue

 

22,474

 

 

 

8,333

 

 

 

48,154

 

 

 

18,398

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue—operating leases and incentives

 

37,624

 

 

 

19,515

 

 

 

94,799

 

 

 

47,161

 

Cost of revenue—solar energy system and product sales

 

470

 

 

 

627

 

 

 

1,384

 

 

 

1,510

 

Sales and marketing

 

12,051

 

 

 

5,220

 

 

 

37,181

 

 

 

16,229

 

Research and development

 

1,047

 

 

 

431

 

 

 

2,549

 

 

 

1,403

 

General and administrative

 

21,954

 

 

 

37,170

 

 

 

71,948

 

 

 

63,276

 

Amortization of intangible assets

 

3,711

 

 

 

3,727

 

 

 

11,195

 

 

 

11,155

 

Impairment of intangible assets

 

 

 

 

 

 

 

4,506

 

 

 

 

Total operating expenses

 

76,857

 

 

 

66,690

 

 

 

223,562

 

 

 

140,734

 

Loss from operations

 

(54,383

)

 

 

(58,357

)

 

 

(175,408

)

 

 

(122,336

)

Interest expense

 

3,351

 

 

 

3,261

 

 

 

8,208

 

 

 

7,335

 

Other expense

 

26

 

 

 

297

 

 

 

399

 

 

 

1,462

 

Loss before income taxes

 

(57,760

)

 

 

(61,915

)

 

 

(184,015

)

 

 

(131,133

)

Income tax (benefit) expense

 

(7,448

)

 

 

(10,222

)

 

 

15,977

 

 

 

(3,286

)

Net loss

 

(50,312

)

 

 

(51,693

)

 

 

(199,992

)

 

 

(127,847

)

Net loss attributable to non-controlling interests and redeemable

   non-controlling interests

 

(50,780

)

 

 

(16,415

)

 

 

(226,262

)

 

 

(105,103

)

Net income available (loss attributable) to common stockholders

$

468

 

 

$

(35,278

)

 

$

26,270

 

 

$

(22,744

)

Net income available (loss attributable) per share to common

   stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.00

 

 

$

(0.45

)

 

$

0.25

 

 

$

(0.30

)

Diluted

$

0.00

 

 

$

(0.45

)

 

$

0.24

 

 

$

(0.30

)

Weighted-average shares used in computing net income available

   (loss attributable) per share to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

106,492

 

 

 

78,428

 

 

 

105,932

 

 

 

76,160

 

Diluted

 

110,223

 

 

 

78,428

 

 

 

109,694

 

 

 

76,160

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

2015

 

 

2014

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net loss

$

(199,992

)

 

$

(127,847

)

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

 

 

 

 

 

 

 

Depreciation and amortization

 

16,771

 

 

 

5,435

 

Amortization of intangible assets

 

11,195

 

 

 

11,270

 

Impairment of intangible assets

 

4,506

 

 

 

 

Loss on removal of solar energy systems

 

1,169

 

 

 

 

Stock-based compensation

 

23,206

 

 

 

20,846

 

Amortization of deferred financing costs

 

2,557

 

 

 

1,522

 

Noncash contributions for services

 

 

 

 

181

 

Noncash interest expense

 

 

 

 

4,280

 

Deferred income taxes

 

77,480

 

 

 

45,567

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

Accounts receivable, net

 

(3,627

)

 

 

(1,893

)

Inventories

 

302

 

 

 

21

 

Prepaid expenses and other current assets

 

1,498

 

 

 

(11,610

)

Prepaid tax asset, net

 

(135,951

)

 

 

(45,817

)

Other non-current assets, net

 

(990

)

 

 

(11,350

)

Accounts payable

 

6,570

 

 

 

1,243

 

Accounts payable—related party

 

(588

)

 

 

(3,061

)

Accrued compensation

 

3,713

 

 

 

(2,786

)

Deferred revenue

 

25,761

 

 

 

1,340

 

Accrued and other current liabilities

 

21,785

 

 

 

7,788

 

Net cash used in operating activities

 

(144,635

)

 

 

(104,871

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Payments for the cost of solar energy systems

 

(383,674

)

 

 

(249,612

)

Payment in connection with business acquisition, net of cash acquired

 

 

 

 

(12,040

)

Payments for property and equipment

 

(5,282

)

 

 

(3,056

)

Change in restricted cash and cash equivalents

 

(6,656

)

 

 

(1,516

)

Purchase of intangible assets

 

(1,675

)

 

 

(269

)

Proceeds from U.S. Treasury grants

 

 

 

 

190

 

Net cash used in investing activities

 

(397,287

)

 

 

(266,303

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Proceeds from investment by non-controlling interests and redeemable non-controlling interests

 

232,071

 

 

 

240,863

 

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

 

(17,146

)

 

 

(5,484

)

Proceeds from long-term debt

 

148,000

 

 

 

87,000

 

Proceeds from short-term debt

 

 

 

 

75,500

 

Payments on short-term debt

 

 

 

 

(75,500

)

Payments for debt issuance costs

 

(3,078

)

 

 

 

Proceeds from lease pass-through financing obligation

 

4,005

 

 

 

 

Proceeds from revolving lines of credit—related party

 

 

 

 

154,500

 

Payments on revolving lines of credit—related party

 

 

 

 

(141,500

)

Principal payments on capital lease obligations

 

(3,600

)

 

 

(1,810

)

Proceeds from issuance of common stock

 

648

 

 

 

103,500

 

Payments for deferred offering costs

 

(589

)

 

 

(5,784

)

Excess tax effects from stock-based compensation

 

1,717

 

 

 

 

Net cash provided by financing activities

 

362,028

 

 

 

431,285

 

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

 

(179,894

)

 

 

60,111

 

CASH AND CASH EQUIVALENTS—Beginning of period

 

261,649

 

 

 

6,038

 

CASH AND CASH EQUIVALENTS—End of period

$

81,755

 

 

$

66,149

 

NONCASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

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

   other accrued liabilities

$

28,619

 

 

$

33,596

 

Property acquired under build-to-suit agreements

$

12,250

 

 

$

 

Vehicles acquired under capital leases

$

8,882

 

 

$

6,421

 

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

$

1,536

 

 

$

2,302

 

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

$

914

 

 

$

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. was incorporated as a Delaware corporation on August 12, 2011. 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 and legal-form leases through a sales organization that primarily 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. In May 2015, the Company began offering solar energy systems to commercial and industrial (“C&I”) customers through long-term customer contracts. On July 20, 2015, the Company entered into an Agreement and Plan of Merger with SunEdison, the world’s largest renewable energy development company, and SEV Merger Sub, Inc., a wholly-owned subsidiary of SunEdison.

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.

 

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 annual report on Form 10-K filed with the SEC on March 13, 2015. The unaudited condensed consolidated financial statements are prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which are considered of normal recurring nature) considered necessary to present fairly the Company’s financial results. The results of the nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2015 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. The Company has determined that it is the primary beneficiary in all but one of its operational VIEs, which are consolidated by the Company. 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.

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.

5


 

Comprehensive Income (Loss)

As the Company has no other comprehensive income or loss, comprehensive income (loss) is the same as net income available (loss attributable) to common stockholders for all periods presented.

Other Changes

During the nine months ended September 30, 2015, the Company reassessed its reportable segments as discussed in Note 17—Segment Information. There have been no other changes to the Company’s significant accounting policies as described in the Company’s annual report on Form 10-K for the year ended December 31, 2014.

Recent Accounting Pronouncements

In September 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2015-16, Business Combinations – Simplifying the Accounting for Measurement-Period Adjustments. Under current GAAP, an acquirer is required to retrospectively adjust any provisional amounts recognized at the acquisition date with a corresponding adjustment to goodwill when new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts initially recognized or would have resulted in the recognition of additional assets or liabilities. To simplify the accounting for adjustments to provisional amounts, the update eliminates the requirement to retrospectively account for those adjustments. This update is effective in fiscal years beginning after December 15, 2015 and early adoption is permitted. The Company does not currently have acquisitions which would be affected by this update.

In August 2015, the FASB issued ASU 2015-15, Interest – Imputation of Interest (Subtopic 835-30) – Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which addresses an omission in ASU 2015-03. In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30) – Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs be presented as a direct reduction from the carrying amount of that debt liability similar to debt discounts. Existing recognition and measurement guidance is not impacted. However, ASU 2015-15 acknowledges that ASU 2015-03 does not address the presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. Per ASU 2015-15, an entity may defer and present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement. ASU 2015-15 is effective immediately. ASU 2015-03 is effective in fiscal years beginning after December 15, 2015 and early adoption is permitted. The Company has debt issuance costs related to line-of-credit arrangements and has adopted ASU 2015-15, which resulted in no change of presentation. If the Company enters into other debt arrangements that fall under ASU 2015-03, the Company will account for any related debt issuance costs per the update upon its effectiveness in the first quarter of 2016.

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers – Deferral of the Effective Date, which defers the effective date of ASU 2014-09. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. ASU 2015-14 defers the effective date of ASU 2014-09 for one year, and the standard is now effective for the Company on January 1, 2018. The deferral allows for early adoption of the standard, which for the Company would be on January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

In April 2015, the FASB issued ASU 2015-05, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) – Customers Accounting for Fees Paid in a Cloud Computing Arrangement. This update provides guidance regarding the accounting for fees paid by a customer in cloud computing arrangements. If a cloud computing arrangement includes a software license, the payment of fees should be accounted for in the same manner as the acquisition of other software licenses. If there is no software license, the fees should be accounted for as a service contract. The update is effective in fiscal years beginning after December 15, 2015 and early adoption is permitted. An entity can elect to adopt the amendments either (1) prospectively to all arrangements entered into or materially modified after the effective date or (2) retrospectively. The Company is evaluating the impact this update will have on its consolidated financial statements and disclosures.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. This update makes some targeted changes to current consolidation guidance. These changes impact both the voting and the variable interest consolidation models. In particular, the update will change how companies determine whether limited partnerships or similar entities are VIEs. The update is effective in fiscal years, including interim periods, beginning after December 15, 2015, and early adoption is permitted. The Company currently consolidates all but one of its VIEs and does not anticipate that ASU 2015-02 will have a significant impact on its consolidated financial statements and related disclosures.

6


 

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, 2015

 

 

Level I

 

 

Level II

 

 

Level III

 

 

Total

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time deposits

$

 

 

$

1,900

 

 

$

 

 

$

1,900

 

Total financial assets

$

 

 

$

1,900

 

 

$

 

 

$

1,900

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 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

 

 

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 is carried at cost and was $253.0 million and $105.0 million as of September 30, 2015 and December 31, 2014. The Company estimated the fair values of long-term debt to approximate its carrying values as interest accrues at a floating rate based on market rates. The Company did not realize gains or losses related to financial assets for any of the periods presented.

4.

Solar Energy Systems

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

 

 

September 30,

 

 

December 31,

 

 

2015

 

 

2014

 

System equipment costs

$

784,725

 

 

$

478,502

 

Initial direct costs related to solar energy systems

 

147,098

 

 

 

75,349

 

 

 

931,823

 

 

 

553,851

 

Less: Accumulated depreciation and amortization

 

(25,173

)

 

 

(10,186

)

 

 

906,650

 

 

 

543,665

 

Solar energy system inventory

 

80,258

 

 

 

44,502

 

Solar energy systems, net

$

986,908

 

 

$

588,167

 

 

The Company recorded depreciation and amortization expense related to solar energy systems of $6.3 million and $2.0 million for the three months ended September 30, 2015 and 2014. Depreciation and amortization expense related to solar energy systems of $15.0 million and $5.1 million was recorded for the nine months ended September 30, 2015 and 2014.


7


 

5.

Property and Equipment 

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

 

 

 

Estimated

 

September 30,

 

 

December 31,

 

 

 

Useful Lives

 

2015

 

 

2014

 

Vehicles acquired under capital leases

 

3 years

 

$

22,034

 

 

$

13,351

 

Furniture and computer and other equipment

 

3 years

 

 

5,730

 

 

 

2,183

 

Leasehold improvements

 

1-3 years

 

 

3,933

 

 

 

2,088

 

 

 

 

 

 

31,697

 

 

 

17,622

 

Less: Accumulated depreciation and amortization

 

 

 

 

(9,899

)

 

 

(4,598

)

 

 

 

 

 

21,798

 

 

 

13,024

 

Build-to-suit assets

 

 

 

 

12,250

 

 

 

 

Property and equipment, net

 

 

 

$

34,048

 

 

$

13,024

 

 

The Company recorded depreciation and amortization expense related to property and equipment of $2.2 million and $1.0 million for the three months ended September 30, 2015 and 2014. Depreciation and amortization expense related to property and equipment of $5.6 million and $2.2 million was recorded for the nine months ended September 30, 2015 and 2014.

The Company leases fleet vehicles that are accounted for as capital leases. Depreciation on vehicles under capital leases totaling $1.4 million and $0.8 million was capitalized in solar energy systems, net for the three months ended September 30, 2015 and 2014. Depreciation on vehicles under capital leases totaling $3.8 million and $2.0 million was capitalized in solar energy systems, net for the nine months ended September 30, 2015 and 2014. For the three and nine months ended September 30, 2015 and 2014, a de minimis amount of depreciation was also expensed.

Because of its involvement in certain aspects of the construction of a new headquarters building in Lehi, UT, the Company is deemed the owner of the building for accounting purposes during the construction period. Accordingly, the Company recorded a build-to-suit asset of $12.3 million as of September 30, 2015. See Note 15—Commitments and Contingencies.

6.

Intangible Assets

Intangible assets consisted of the following (in thousands):

 

 

September 30,

 

 

December 31,

 

 

2015

 

 

2014

 

Cost:

 

 

 

 

 

 

 

Customer contracts

$

43,783

 

 

$

43,783

 

Customer relationships

 

164

 

 

 

738

 

Trademarks/trade names

 

201

 

 

 

1,664

 

Developed technology

 

522

 

 

 

1,295

 

In-process research and development

 

 

 

 

2,097

 

Internal-use software

 

2,038

 

 

 

370

 

Total carrying value

 

46,708

 

 

 

49,947

 

Accumulated amortization:

 

 

 

 

 

 

 

Customer contracts

 

(41,959

)

 

 

(31,013

)

Customer relationships

 

(55

)

 

 

(135

)

Trademarks/trade names

 

(33

)

 

 

(152

)

Developed technology

 

(109

)

 

 

(160

)

Internal-use software

 

(90

)

 

 

 

Total accumulated amortization

 

(42,246

)

 

 

(31,460

)

Total intangible assets, net

$

4,462

 

 

$

18,487

 

 

The Company recorded amortization expense of $3.7 million for the three months ended September 30, 2015 and 2014, which was included in amortization of intangible assets in the condensed consolidated statements of operations. The Company recorded amortization expense of $11.2 million for the nine months ended September 30, 2015. Amortization expense was $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.

8


 

In February 2015, the Company decided to discontinue the external sales of the SunEye and PV Designer products, the rights to which the Company acquired when it acquired Solmetric Corporation, or Solmetric, in January 2014. This discontinuance was considered an indicator of impairment, and a review regarding the recoverability of the carrying value of the related intangible assets was performed. In-process research and development, which was intended to generate Solmetric product sales in the residential market, was discontinued and deemed fully impaired resulting in a charge of $2.1 million. The Solmetric, SunEye and PV Designer trade names will no longer be utilized and were deemed fully impaired resulting in a charge of $1.3 million. The SunEye and PV Designer developed technology assets were deemed fully impaired resulting in a charge of $0.7 million. Customer relationships were deemed partially impaired by $0.4 million due to the loss of external customers who purchased the discontinued products. As a result of this review, the Company recorded a total impairment charge of $4.5 million for the nine months ended September 30, 2015.

7.

Accrued Compensation

Accrued compensation consisted of the following (in thousands):

 

 

September 30,

 

 

December 31,

 

 

2015

 

 

2014

 

Accrued payroll

$

12,915

 

 

$

10,219

 

Accrued commissions

 

8,187

 

 

 

6,575

 

Total accrued compensation

$

21,102

 

 

$

16,794

 

 

8.

Accrued and Other Current Liabilities

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

 

 

September 30,

 

 

December 31,

 

 

2015

 

 

2014

 

Income tax payable

$

19,031

 

 

$

4,097

 

Accrued professional fees

 

4,593

 

 

 

1,289

 

Sales and use tax payable

 

3,023

 

 

 

5,052

 

Accrued litigation settlements

 

2,215

 

 

 

450

 

Deferred rent

 

1,173

 

 

 

1,090

 

Current portion of lease pass-through financing obligation

 

901

 

 

 

 

Accrued unused commitment fees and interest

 

582

 

 

 

478

 

Fleet expenses

 

558

 

 

 

470

 

Other accrued expenses

 

2,210

 

 

 

1,090

 

Total accrued and other current liabilities

$

34,286

 

 

$

14,016

 

 

9.

Debt Obligations

Debt obligations consisted of the following (in thousands):

 

 

September 30,

 

 

December 31,

 

 

2015

 

 

2014

 

Aggregation credit facility

$

183,000

 

 

$

105,000

 

Working capital credit facility

 

70,000

 

 

 

 

Total debt

 

253,000

 

 

 

105,000

 

 


9


 

Working Capital Credit Facility

In March 2015, the Company entered into a revolving credit agreement (the “Working Capital Facility”) pursuant to which the Company may borrow up to an aggregate principal amount of $131.0 million from certain financial institutions for which Goldman Sachs Lending Partners LLC is acting as administrative agent and collateral agent. In May 2015, certain conditions were satisfied and the aggregate amount of available revolver borrowings was increased to $150.0 million. Loans under the Working Capital Facility will be used to pay for the costs incurred in connection with the design and construction of solar energy systems, and letters of credit may be issued for working capital and general corporate purposes. As of September 30, 2015, the Company had incurred an aggregate of $70.0 million in borrowings under the Working Capital Facility. Further, the Company established a letter of credit under the Working Capital Facility for $3.3 million related to an insurance contract. As such, the remaining borrowing capacity was $76.7 million as of September 30, 2015.

The Company has pledged the interests in the assets of the Company and its subsidiaries, excluding Vivint Solar Financing I, LLC, as security for its obligations under the Working Capital Facility. Prepayments are permitted under the Working Capital Facility, and the principal and accrued interest on any outstanding loans mature in March 2020. Interest accrues on borrowings at a floating rate equal to, dependent on the type of borrowing, (1) a rate equal to the Eurodollar Rate for the interest period divided by one minus the Eurodollar Reserve Percentage, plus a margin of 3.25%; or (2) the highest of (a) the Federal Funds Rate plus 0.50%, (b) the Citibank prime rate and (c) the one-month interest period Eurodollar rate plus 1.00%, plus a margin of 2.25%. Interest is payable dependent on the type of borrowing at the end of (1) the interest period that the Company may elect as a term and not to exceed three months, (2) quarterly or (3) at maturity of the Working Capital Facility.

The Working Capital Facility includes customary covenants, including covenants that restrict, subject to certain exceptions, the Company’s ability to incur indebtedness, incur liens, make investments, make fundamental changes to its business, dispose of assets, make certain types of restricted payments or enter into certain related party transactions. Among other restrictions, the Working Capital Facility provides that the Company may not incur any indebtedness other than that related to the Working Capital Facility or in respect of permitted swap agreements. These restrictions do not impact the Company’s ability to enter into investment funds, including those that are similar to those entered into previously. The Company is also required to maintain $25.0 million in cash and cash equivalents and certain investments as of the last day of each quarter. As of September 30, 2015, the Company was in compliance with such covenants.

The Working Capital Facility also contains certain customary events of default. If an event of default occurs, lenders under the Working Capital Facility will be entitled to take various actions, including the acceleration of amounts then outstanding.

Interest expense for this facility was approximately $0.7 million and $1.1 million for the three and nine months ended September 30, 2015. No interest expense was recorded for the three and nine months ended September 30, 2014. As of September 30, 2015, the current portion of deferred debt issuance costs of $0.5 million was recorded in prepaid expenses and other current assets, and the long-term portion of deferred debt issuance costs of $1.9 million was recorded in other non-current assets, net in the condensed consolidated balance sheet.

Bank of America, N.A. Aggregation Credit Facility

In September 2014, the Company entered into an aggregation credit facility (the “Aggregation Facility”), which was subsequently amended in February 2015, pursuant to which the Company may borrow up to an aggregate principal amount of $375.0 million and, for which Bank of America, N.A. is acting as administrative agent. Upon the satisfaction of certain conditions and the approval of the lenders, the Company may increase the aggregate amount of principal borrowings to $550.0 million.

As of September 30, 2015, the Company had incurred an aggregate of $183.0 million in term loan borrowings under the Aggregation Facility. The remaining borrowing capacity was $192.0 million as of September 30, 2015. However, the Company does not have immediate access to the remaining $192.0 million balance as future borrowings are dependent on when it has solar energy system revenue to collateralize the borrowings.

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 majority of the managing members of 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.


10


 

Prepayments are permitted under the Aggregation Facility, and the principal and accrued interest on any outstanding loans mature in March 2018. Interest accrues on borrowings at a floating rate equal to either (1)(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% and (2) a margin that varies between 3.25% during the period during which the Company may incur borrowings and 3.50% after such period. 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 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, 2015, the Company was in compliance with such covenants.

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 for this facility was approximately $2.6 million and $0.3 million for the three months ended September 30, 2015 and 2014. Interest expense for this facility was approximately $7.0 million and $0.3 million for the nine months ended September 30, 2015 and 2014. As of September 30, 2015, the current portion of deferred debt issuance costs of $3.0 million was recorded in prepaid expenses and other current assets, and the long-term portion of deferred debt issuance costs of $4.4 million was recorded in other non-current assets, net in the condensed consolidated balance sheet. In addition, an interest reserve of $3.2 million was held in an account with the administrative agent and was included in restricted cash and cash equivalents. The interest reserve increases as borrowings increase under the Aggregation Facility.

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

In May 2014, the Company entered into a term loan credit 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 and in connection with the closing of the Aggregation Facility, the Company repaid the then outstanding $75.5 million in aggregate borrowings and terminated the agreement. There was no interest expense incurred for the three and nine months ended September 30, 2015 under this agreement. Interest expense from inception of the Term Facility in May 2014 through payoff in September 2014 was approximately $1.3 million.

Revolving Lines of CreditRelated Party

On October 9, 2014, the Company repaid $58.8 million in aggregate borrowings and interest owed to Vivint under two loan agreements, which were terminated upon repayment. There was no interest expense incurred for the three and nine months ended September 30, 2015 under these agreements. Interest expense was $1.4 million and $4.2 million for the three and nine months ended September 30, 2014 under these agreements.

 

11


 

10.

Investment Funds 

As of September 30, 2015, the Company had formed 17 investment funds for the purpose of funding the purchase of solar energy systems. 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,

 

 

2015

 

 

2014

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

25,924

 

 

$

12,641

 

Accounts receivable, net

 

5,264

 

 

 

1,542

 

Total current assets

 

31,188

 

 

 

14,183

 

Solar energy systems, net

 

882,961

 

 

 

525,903

 

Total assets

$

914,149

 

 

$

540,086

 

Liabilities

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

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

   interests

$

8,316

 

 

$

6,780

 

Current portion of deferred revenue

 

413

 

 

 

237

 

Accrued and other current liabilities

 

930

 

 

 

 

Total current liabilities

 

9,659

 

 

 

7,017

 

Deferred revenue, net of current portion

 

30,047

 

 

 

4,335

 

Other non-current liabilities

 

3,104

 

 

 

 

Total liabilities

$

42,810

 

 

$

11,352

 

 

Residential Investment Funds

As of September 30, 2015, the Company had formed 16 residential investment funds. Fund investors for three of the funds are managed indirectly by The Blackstone Group L.P. (the “Sponsor”) and are considered related parties. As of September 30, 2015 and December 31, 2014, the cumulative total of contributions into the VIEs by all investors was $712.3 million and $480.2 million. Of these contributions, a cumulative total of $110.0 million was contributed by related parties in prior periods.

All residential investment funds except for one were operational as of September 30, 2015. The Company did not have any assets, liabilities or activity associated with that fund. Total available committed capital under that fund was $175.0 million as of September 30, 2015.

C&I Investment Fund

In May 2015, a wholly owned subsidiary of the Company entered into a C&I solar investment fund arrangement with a fund investor. The fund was not operational as of September 30, 2015, and as such, the Company did not have any assets or liabilities associated with the fund. The total available committed capital under the fund is $150.0 million, which is expected to be contributed through 2016.

Lease Pass-Through Financing Obligation

In the three months ended September 30, 2015, a new lease pass-through fund arrangement became operational under which the Company contributes solar energy systems and the investor contributes cash. Contemporaneously, a subsidiary of the Company entered into a master lease arrangement to lease the solar energy systems and the associated customer lease or power purchase agreements to the fund investor. The Company’s subsidiary makes a tax election to pass-through the investment tax credits (“ITCs”) that accrue to the solar energy systems to the fund investor, who as the legal lessee of the property is allowed to claim the ITCs under Section 50(d)(5) of the Internal Revenue Code and the related regulations. The solar energy systems are included under solar energy systems, net in the condensed consolidated balance sheets, and as of September 30, 2015, the net carrying value of the solar energy systems was $36.5 million.


12


 

Under the arrangement, the fund investor makes a large upfront payment to the Company’s subsidiary and subsequent periodic payments. The Company allocates a portion of the aggregate payments received from the fund investor to the estimated fair value of the assigned ITCs, and the balance to the future customer lease payments that are also assigned to the investor. The Company’s subsidiary has an obligation to ensure the solar energy system is in service and operational for a term of five years to avoid any recapture of the ITCs. Accordingly, the Company recognizes revenue as the recapture provisions lapse assuming all other revenue recognition criteria have been met. The amounts allocated to ITCs are initially recorded as deferred revenue in the condensed consolidated balance sheet, and subsequently, one-fifth of the amounts allocated to ITCs is recognized as revenue from operating leases and solar energy systems incentives in the condensed consolidated statements of operations based on the anniversary of each solar energy system’s placed in service date over the next five years.

The Company accounts for the residual of the payments received from the fund investor, net of amounts allocated to ITCs, as a borrowing by recording the proceeds received as a lease pass-through financing obligation, which will be repaid through customer payments that will be received by the investor. Under this approach, the Company continues to account for the arrangement with the customers in its condensed consolidated financial statements, whether the cash generated from the customer arrangements is received by the lessor or paid directly to the fund investor. A portion of the amounts received by the fund investor from customer payments is applied to reduce the lease pass-through financing obligation, and the balance is allocated to interest expense. The customer payments are recognized into revenue based on cash receipts during the period as required by GAAP. Interest is calculated on the lease pass-through financing obligation using the effective interest rate method. The effective interest rate is the interest rate that equates the present value of the cash amounts to be received by a fund investor over the master lease term with the present value of the cash amounts paid by the investor to the Company, adjusted for any payments made by the Company. The lease pass-through financing obligation is nonrecourse once the associated assets have been placed in service and all the customer arrangements have been assigned to the fund investor.

The fund investor is responsible for services such as warranty support, accounting, lease servicing and performance reporting, which have been outsourced to the Company under administrative and maintenance service agreements.

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 ITCs.

As of December 31, 2014, the Company accrued an estimated $4.0 million distribution to reimburse a fund investor a portion of its capital contribution in order to true-up the investor’s expected rate of return primarily due to a delay in solar energy systems being interconnected to the utility grid and other factors. During the nine months ended September 30, 2015, the Company accrued an additional $1.0 million and paid the contractually agreed upon distribution of $5.0 million to the fund investor.

As a result of the guaranty arrangements in certain funds, the Company is required to hold minimum cash balances of $10.0 million and $5.0 million as of September 30, 2015 and December 31, 2014, which are classified as restricted cash and cash equivalents on the condensed consolidated balance sheets.


13


 

11.Redeemable Non-Controlling Interests and Equity 

Common Stock

The Company had reserved shares of common stock for issuance as follows (in thousands):

 

 

September 30,

 

 

December 31,

 

 

2015

 

 

2014

 

Stock options issued and outstanding

 

9,284

 

 

 

10,053

 

Restricted stock units issued and outstanding

 

983

 

 

 

22

 

Shares available for grant under equity incentive plans

 

12,245

 

 

 

8,783

 

Long-term incentive plan

 

3,382

 

 

 

4,059

 

Total

 

25,894

 

 

 

22,917

 

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

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

 

Balance as of December 31, 2014

$

128,427

 

Contributions from redeemable non-controlling interests

 

79,356

 

Distributions to redeemable non-controlling interests

 

(5,099

)

Net loss

 

(31,505

)

Balance as of September 30, 2015

$

171,179

 

 

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

 

 

Total

 

 

 

 

 

 

 

 

 

 

Stockholders'

 

 

Non-Controlling

 

 

 

 

 

 

Equity

 

 

Interests

 

 

Total Equity

 

Balance as of December 31, 2014

$

477,989

 

 

$

135,147

 

 

$

613,136

 

Stock-based compensation expense

 

23,206

 

 

 

 

 

 

23,206

 

Excess tax effects from stock-based compensation

 

1,717

 

 

 

 

 

 

1,717

 

Issuance of common stock

 

556

 

 

 

 

 

 

556

 

Contributions from non-controlling interests