Attached files

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EX-32.2 - EX-32.2 - Vivint Solar, Inc.vslr-ex322_6.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_8.htm
EX-31.1 - EX-31.1 - Vivint Solar, Inc.vslr-ex311_7.htm
EX-10.3 - EX-10.3 - Vivint Solar, Inc.vslr-ex103_241.htm
EX-10.2 - EX-10.2 - Vivint Solar, Inc.vslr-ex102_172.htm
EX-10.1 - EX-10.1 - Vivint Solar, Inc.vslr-ex101_171.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended March 31, 2018

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)

1800 West Ashton Blvd.

Lehi, UT

 

84043

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (877) 404-4129

 

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  

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      No  

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a small reporting company)

  

Small reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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

As of May 1, 2018, 115,328,684 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 March 31, 2018 and December 31, 2017

 

2

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2018 and 2017

 

3

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2018 and 2017

 

4

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017

 

5

 

 

Notes to Condensed Consolidated Financial Statements

 

6

Item 2.

 

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

 

24

Item 3.

 

Quantitative and Qualitative Disclosure About Market Risk

 

36

Item 4.

 

Controls and Procedures

 

36

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

37

Item 1A.

 

Risk Factors

 

37

Item 5.

 

Other Information

 

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 par value and footnote 1)

(Unaudited)

 

 

March 31,

 

 

December 31,

 

 

2018

 

 

2017

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

78,466

 

 

$

108,452

 

Accounts receivable, net

 

18,236

 

 

 

19,665

 

Inventories

 

15,790

 

 

 

22,597

 

Prepaid expenses and other current assets

 

22,234

 

 

 

34,049

 

Total current assets

 

134,726

 

 

 

184,763

 

Restricted cash and cash equivalents

 

47,773

 

 

 

46,486

 

Solar energy systems, net

 

1,727,479

 

 

 

1,673,532

 

Property and equipment, net

 

13,315

 

 

 

15,078

 

Intangible assets, net

 

725

 

 

 

862

 

Prepaid tax asset, net

 

 

 

 

505,883

 

Other non-current assets, net

 

41,763

 

 

 

37,325

 

TOTAL ASSETS(1)

$

1,965,781

 

 

$

2,463,929

 

LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

40,751

 

 

$

40,736

 

Accounts payable—related party

 

529

 

 

 

163

 

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

 

7,501

 

 

 

16,437

 

Accrued compensation

 

19,890

 

 

 

20,992

 

Current portion of long-term debt

 

13,566

 

 

 

13,585

 

Current portion of deferred revenue

 

24,255

 

 

 

41,846

 

Current portion of capital lease obligation

 

3,439

 

 

 

4,166

 

Accrued and other current liabilities

 

25,989

 

 

 

29,675

 

Total current liabilities

 

135,920

 

 

 

167,600

 

Long-term debt, net of current portion

 

959,187

 

 

 

925,964

 

Deferred revenue, net of current portion

 

11,311

 

 

 

29,200

 

Capital lease obligation, net of current portion

 

1,226

 

 

 

1,599

 

Deferred tax liability, net

 

356,984

 

 

 

342,382

 

Other non-current liabilities

 

12,623

 

 

 

13,674

 

Total liabilities(1)

 

1,477,251

 

 

 

1,480,419

 

Commitments and contingencies (Note 17)

 

 

 

 

 

 

 

Redeemable non-controlling interests

 

130,107

 

 

 

122,444

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.01 par value—1,000,000 authorized, 115,329 shares issued and

   outstanding as of March 31, 2018; 1,000,000 authorized, 115,099 shares

   issued and outstanding as of December 31, 2017

 

1,153

 

 

 

1,151

 

Additional paid-in capital

 

562,962

 

 

 

559,788

 

Accumulated other comprehensive income

 

13,694

 

 

 

6,905

 

(Accumulated deficit) retained earnings

 

(277,015

)

 

 

213,107

 

Total stockholders’ equity

 

300,794

 

 

 

780,951

 

Non-controlling interests

 

57,629

 

 

 

80,115

 

Total equity

 

358,423

 

 

 

861,066

 

TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY

$

1,965,781

 

 

$

2,463,929

 

 

(1)

The Company’s assets as of March 31, 2018 and December 31, 2017 include $1,563.5 million and $1,516.2 million consisting of assets of variable interest entities, or VIEs, that can only be used to settle obligations of the VIEs. These assets include solar energy systems, net, of $1,532.9 million and $1,486.0 million as of March 31, 2018 and December 31, 2017; cash and cash equivalents of $12.9 million and $17.3 million as of March 31, 2018 and December 31, 2017; accounts receivable, net, of $9.4 million and $5.1 million as of March 31, 2018 and December 31, 2017; other non-current assets, net of $7.6 million and $6.8 million as of March 31, 2018 and December 31, 2017; and prepaid expenses and other current assets of $0.8 million and $1.0 million as of March 31, 2018 and December 31, 2017. The Company’s liabilities as of March 31, 2018 and December 31, 2017 included $23.9 million and $58.4 million of liabilities of VIEs whose creditors have no recourse to the Company. These liabilities include distributions payable to non-controlling interests and redeemable non-controlling interests of $7.5 million and $16.4 million as of March 31, 2018 and December 31, 2017; deferred revenue of $10.5 million and $36.0 million as of March 31, 2018 and December 31, 2017; accrued and other current liabilities of $4.5 million as of March 31, 2018 and December 31, 2017; and other non-current liabilities of $1.5 million and $1.4 million as of March 31, 2018 and December 31, 2017. For further information see Note 12—Investment Funds.

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

 

 

March 31,

 

 

2018

 

 

2017

 

Revenue:

 

 

 

 

 

 

 

Operating leases and incentives

$

31,114

 

 

$

30,389

 

Solar energy system and product sales

 

37,136

 

 

 

22,725

 

Total revenue

 

68,250

 

 

 

53,114

 

Cost of revenue:

 

 

 

 

 

 

 

Cost of revenue—operating leases and incentives

 

38,687

 

 

 

35,070

 

Cost of revenue—solar energy system and product sales

 

26,045

 

 

 

18,665

 

Total cost of revenue

 

64,732

 

 

 

53,735

 

Gross profit (loss)

 

3,518

 

 

 

(621

)

Operating expenses:

 

 

 

 

 

 

 

Sales and marketing

 

11,125

 

 

 

8,818

 

Research and development

 

486

 

 

 

896

 

General and administrative

 

19,851

 

 

 

20,579

 

Amortization of intangible assets

 

136

 

 

 

140

 

Total operating expenses

 

31,598

 

 

 

30,433

 

Loss from operations

 

(28,080

)

 

 

(31,054

)

Interest expense

 

16,922

 

 

 

14,721

 

Other (income) expense, net

 

(2,261

)

 

 

276

 

Loss before income taxes

 

(42,741

)

 

 

(46,051

)

Income tax expense

 

18,643

 

 

 

9,401

 

Net loss

 

(61,384

)

 

 

(55,452

)

Net loss attributable to non-controlling interests and redeemable

   non-controlling interests

 

(48,408

)

 

 

(68,744

)

Net (loss attributable) income available to common stockholders

$

(12,976

)

 

$

13,292

 

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

 

 

 

 

 

 

 

Basic

$

(0.11

)

 

$

0.12

 

Diluted

$

(0.11

)

 

$

0.11

 

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

   income available per share to common stockholders:

 

 

 

 

 

 

 

Basic

 

115,155

 

 

 

110,765

 

Diluted

 

115,155

 

 

 

116,398

 

 See accompanying notes to condensed consolidated financial statements.

 

3


 

Vivint Solar, Inc.

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

 

 

Three Months Ended

 

 

March 31,

 

 

2018

 

 

2017

 

Net (loss attributable) income available to common stockholders

$

(12,976

)

 

$

13,292

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

Unrealized gains (losses) on cash flow hedging instruments

   (net of tax effect of $1,394 and $(18))

 

3,749

 

 

 

(28

)

Less: Interest income (expense) on derivatives recognized into

   earnings (net of tax effect of $103 and $(60))

 

278

 

 

 

(90

)

Total other comprehensive income (loss)

 

3,471

 

 

 

(118

)

Comprehensive (loss) income

$

(9,505

)

 

$

13,174

 

See accompanying notes to condensed consolidated financial statements.

 

4


 

Vivint Solar, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

Three Months Ended

 

 

March 31,

 

 

2018

 

 

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net loss

$

(61,384

)

 

$

(55,452

)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

16,307

 

 

 

14,162

 

Amortization of intangible assets

 

136

 

 

 

140

 

Deferred income taxes

 

18,969

 

 

 

36,125

 

Stock-based compensation

 

2,969

 

 

 

3,922

 

Loss on solar energy systems and property and equipment

 

570

 

 

 

2,025

 

Non-cash interest and other expense

 

2,007

 

 

 

2,126

 

Reduction in lease pass-through financing obligation

 

(687

)

 

 

(649

)

(Gains) losses on interest rate swaps

 

(2,262

)

 

 

276

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable, net

 

1,429

 

 

 

(4,481

)

Inventories

 

6,807

 

 

 

(2,115

)

Prepaid expenses and other current assets

 

11,746

 

 

 

27,901

 

Prepaid tax asset, net

 

 

 

 

(24,181

)

Other non-current assets, net

 

385

 

 

 

(3,861

)

Accounts payable

 

374

 

 

 

641

 

Accrued compensation

 

(2,351

)

 

 

(1,763

)

Deferred revenue

 

(9,083

)

 

 

2,109

 

Accrued and other liabilities

 

(103

)

 

 

6,473

 

Net cash (used in) provided by operating activities

 

(14,171

)

 

 

3,398

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Payments for the cost of solar energy systems

 

(72,208

)

 

 

(75,140

)

Payments for property and equipment

 

(40

)

 

 

(278

)

Proceeds from disposals of solar energy systems and property and equipment

 

775

 

 

 

171

 

Net cash used in investing activities

 

(71,473

)

 

 

(75,247

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

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

 

42,771

 

 

 

58,560

 

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

 

(18,122

)

 

 

(15,027

)

Proceeds from long-term debt

 

40,000

 

 

 

253,750

 

Payments on long-term debt

 

(7,748

)

 

 

(141,159

)

Payments for debt issuance and deferred offering costs

 

 

 

 

(10,430

)

Proceeds from lease pass-through financing obligation

 

852

 

 

 

852

 

Principal payments on capital lease obligations

 

(1,015

)

 

 

(1,196

)

Proceeds from issuance of common stock

 

207

 

 

 

147

 

Net cash provided by financing activities

 

56,945

 

 

 

145,497

 

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS, INCLUDING RESTRICTED

   AMOUNTS

 

(28,699

)

 

 

73,648

 

CASH AND CASH EQUIVALENTS, INCLUDING RESTRICTED AMOUNTS—Beginning of period

 

154,938

 

 

 

123,439

 

CASH AND CASH EQUIVALENTS, INCLUDING RESTRICTED AMOUNTS—End of period

$

126,239

 

 

$

197,087

 

NONCASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

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

$

(8,936

)

 

$

(10,228

)

Change in fair value of interest rate swaps

$

7,024

 

 

$

(473

)

Costs of solar energy systems included in changes in accounts payable, accounts payable—related

   party, accrued compensation and accrued and other liabilities

$

(2,518

)

 

$

(5,266

)

Vehicles acquired under capital leases

$

199

 

 

$

98

 

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

$

4

 

 

$

52

 

 

See accompanying notes to condensed consolidated financial statements.

 

5


 

Vivint Solar, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.

Organization

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

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

2.

Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K dated as of March 7, 2018. The unaudited condensed consolidated financial statements were prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which were considered of normal recurring nature) considered necessary to present fairly the Company’s financial results. The results of the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2018 or for any other interim period or other future year.

The unaudited condensed consolidated financial statements reflect the accounts and operations of the Company and those of its subsidiaries in which the Company has a controlling financial interest. The Company uses a qualitative approach in assessing the consolidation requirement for variable interest entities (“VIEs”). This approach focuses on determining whether the Company has the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance and whether the Company has the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. All of these determinations involve significant management judgments and estimates. The Company has determined that it is the primary beneficiary in the operational VIEs in which it has an equity interest. The Company evaluates its relationships with the VIEs on an ongoing basis to ensure that it continues to be the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation. For additional information, see Note 12—Investment Funds.

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

Use of Estimates

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


6


 

Liquidity

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

Revenue from Contracts with Customers

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

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

The Company has analyzed the impact of Topic 606 on System Sales and other product sales and has concluded that the revenue recognition associated with these product sales did not change in the condensed consolidated financial statements. The Company will continue to show this revenue stream as solar energy system and product sales in the condensed consolidated statement of operations. The Company’s principal performance obligation for System Sales is to design and install a solar energy system that is interconnected to the local power grid and granted permission to operate to the customer. When the solar energy system has been granted permission to operate, the customer retains all of the significant risks and rewards of ownership of the solar energy system. For certain System Sales, the Company provides limited post-sale services to monitor the productivity of the solar energy system for 20 years after it has been placed in service. The Company collects cash during the installation process and recognizes revenue for System Sales and other product sales at the placed in-service date or product delivery date less any revenue allocated to monitoring services. The Company allocates a portion of the transaction price to the monitoring services by estimating the fair market price that the Company would charge for these services if offered separately from the sale of the solar energy system. As of March 31, 2018 and December 31, 2017, the Company had allocated deferred revenue of $2.5 million and $2.1 million to monitoring services that will be recognized over the term of the monitoring services. All costs to obtain and fulfill contracts associated with System Sales and other product sales are expensed as a cost of revenue when the Company has fulfilled its performance obligation and the products have been placed into service or delivered to the customer.

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

7


 

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

 

As Previously

 

 

Revenue

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Adjusted

 

Revenue

$

53,114

 

 

$

(2,364

)

 

$

50,750

 

Income tax expense

 

9,401

 

 

 

(946

)

 

 

8,455

 

Net income available to common shareholders

 

13,292

 

 

 

(1,418

)

 

 

11,874

 

Diluted earnings per share

 

0.11

 

 

 

(0.01

)

 

 

0.10

 

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

 

As Previously

 

 

Revenue

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Adjusted

 

Current portion of deferred revenue

$

41,846

 

 

$

(7,707

)

 

$

34,139

 

Deferred revenue, net of current portion

 

29,200

 

 

 

(18,690

)

 

 

10,510

 

Deferred tax liability, net

 

342,382

 

 

 

7,160

 

 

 

349,542

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings

 

213,107

 

 

 

(19,237

)

 

 

193,870

 

Income Taxes

The Company adopted ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), effective January 1, 2018 using the modified retrospective method by removing the prepaid tax asset, net and recording a cumulative adjustment to retained earnings of $493.1 million and to deferred tax liability, net of $12.8 million as of January 1, 2018. As such, only the current period presented in the Company’s condensed consolidated statements of operations has been reported using the new accounting standard. The Company now accounts for the income tax consequences of these intra-entity transfers, both current and deferred, as a component of income tax expense and deferred tax liability, net during the period in which the transfers occur.

The adoption of ASU 2016-16 had the following effect on the Company’s condensed consolidated statement of operations for the three months ended March 31, 2018 (in thousands, except per share data):

 

Pre-Adoption

 

 

Effect of

 

 

 

 

 

 

Accounting

 

 

Adoption

 

 

As Reported

 

Income tax expense

$

5,781

 

 

$

12,862

 

 

$

18,643

 

Net loss

 

(48,522

)

 

 

(12,862

)

 

 

(61,384

)

Net loss attributable to common shareholders

 

(114

)

 

 

(12,862

)

 

 

(12,976

)

Basic earnings per share

 

(0.00

)

 

 

(0.11

)

 

 

(0.11

)

Diluted earnings per share

 

(0.00

)

 

 

(0.11

)

 

 

(0.11

)

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

Derivative Financial Instruments

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


8


 

Restricted Cash

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

Recent Accounting Pronouncements

New Lease Guidance

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

3.

Fair Value Measurements

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

 

 

March 31, 2018

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

$

 

 

$

19,772

 

 

$

 

 

$

19,772

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

$

 

 

$

14,028

 

 

$

 

 

$

14,028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

$

 

 

$

1,280

 

 

$

 

 

$

1,280

 

 

The interest rate swaps (Level 2) were valued using a discounted cash flow model which incorporates an assessment of the risk of non-performance by the interest rate swap counterparties and the Company. The valuation model uses various observable inputs including contractual terms, interest rate curves, credit spreads and measures of volatility. The Company did not realize gains or losses related to financial assets for any of the periods presented.

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

 

March 31, 2018

 

 

December 31, 2017

 

 

Carrying Value

 

 

Fair Value

 

 

Carrying Value

 

 

Fair Value

 

Floating-rate long-term debt

$

792,191

 

 

$

792,191

 

 

$

757,044

 

 

$

757,044

 

Fixed-rate long-term debt

 

196,168

 

 

 

225,629

 

 

 

199,063

 

 

 

238,618

 

Total

$

988,359

 

 

$

1,017,820

 

 

$

956,107

 

 

$

995,662

 

The Company’s outstanding principal balance of long-term debt is carried at cost. The Company estimated the fair values of its floating-rate debt facilities to approximate their carrying values as interest accrues at floating rates based on market rates. The Company’s fixed-rate debt facilities (Level 2) were valued using quoted prices for corporate debt with similar terms.


9


 

4.

Inventories

Inventories consisted of the following (in thousands):

 

March 31,

 

 

December 31,

 

 

2018

 

 

2017

 

Solar energy systems held for sale

$

14,982

 

 

$

21,971

 

Photovoltaic installation products

 

808

 

 

 

626

 

Total inventories

$

15,790

 

 

$

22,597

 

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

5.

Solar Energy Systems

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

 

 

March 31,

 

 

December 31,

 

 

2018

 

 

2017

 

System equipment costs

$

1,484,019

 

 

$

1,437,419

 

Initial direct costs related to solar energy systems

 

355,164

 

 

 

336,136

 

 

 

1,839,183

 

 

 

1,773,555

 

Less: Accumulated depreciation and amortization

 

(145,016

)

 

 

(129,640

)

 

 

1,694,167

 

 

 

1,643,915

 

Solar energy system inventory

 

33,312

 

 

 

29,617

 

Solar energy systems, net

$

1,727,479

 

 

$

1,673,532

 

 

Solar energy system inventory represents the solar components and materials used in the installation of solar energy systems prior to being installed on customers’ roofs. As such, no depreciation is recorded related to this line item. The Company recorded depreciation and amortization expense related to solar energy systems of $15.4 million and $12.8 million for the three months ended March 31, 2018 and 2017.

6.

Property and Equipment

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

 

 

 

Estimated

 

March 31,

 

 

December 31,

 

 

 

Useful Lives

 

2018

 

 

2017

 

Vehicles acquired under capital leases

 

3-5 years

 

$

13,729

 

 

$

15,113

 

Leasehold improvements

 

1-12 years

 

 

12,284

 

 

 

15,071

 

Furniture and computer and other equipment

 

3 years

 

 

4,166

 

 

 

6,492

 

 

 

 

 

 

30,179

 

 

 

36,676

 

Less: Accumulated depreciation and amortization

 

 

 

 

(16,864

)

 

 

(21,598

)

Property and equipment, net

 

 

 

$

13,315

 

 

$

15,078

 

 

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

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

10


 

7.

Intangible Assets

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

 

 

March 31,

 

 

December 31,

 

 

2018

 

 

2017

 

Cost:

 

 

 

 

 

 

 

Internal-use software

$

1,199

 

 

$

1,314

 

Developed technology

 

522

 

 

 

522

 

Trademarks/trade names

 

201

 

 

 

201

 

Customer relationships

 

164

 

 

 

164

 

Total carrying value

 

2,086

 

 

 

2,201

 

Accumulated amortization:

 

 

 

 

 

 

 

Internal-use software

 

(863

)

 

 

(872

)

Developed technology

 

(274

)

 

 

(258

)

Trademarks/trade names

 

(85

)

 

 

(79

)

Customer relationships

 

(139

)

 

 

(130

)

Total accumulated amortization

 

(1,361

)

 

 

(1,339

)

Total intangible assets, net

$

725

 

 

$

862

 

 

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

8.

Accrued Compensation

Accrued compensation consisted of the following (in thousands):

 

 

March 31,

 

 

December 31,

 

 

2018

 

 

2017

 

Accrued payroll

$

10,985

 

 

$

13,064

 

Accrued commissions

 

8,905

 

 

 

7,928

 

Total accrued compensation

$

19,890

 

 

$

20,992

 

 

9.

Accrued and Other Current Liabilities

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

 

 

March 31,

 

 

December 31,

 

 

2018

 

 

2017

 

Accrued unused commitment fees and interest

$

7,816

 

 

$

7,445

 

Current portion of lease pass-through financing obligation

 

4,953

 

 

 

4,931

 

Accrued professional fees

 

4,012

 

 

 

3,977

 

Sales, use and property taxes payable

 

2,732

 

 

 

3,046

 

Accrued workers' compensation

 

1,887

 

 

 

1,446

 

Workmanship accrual

 

1,404

 

 

 

1,359

 

Current portion of deferred rent

 

934

 

 

 

937

 

Accrued inventory

 

496

 

 

 

4,122

 

Other accrued expenses

 

1,755

 

 

 

2,412

 

Total accrued and other current liabilities

$

25,989

 

 

$

29,675

 

 


11


 

10.

Debt Obligations

Debt obligations consisted of the following as of March 31, 2018 (in thousands, except interest rates):

 

Principal

 

 

Unamortized Debt

 

 

 

 

 

 

 

 

 

 

Unused

 

 

 

 

 

 

 

 

Borrowings

 

 

Issuance Costs

 

 

Net Carrying Value

 

 

Borrowing

 

 

Interest

 

 

Maturity

 

Outstanding

 

 

Current

 

 

Long-term

 

 

Current

 

 

Long-term

 

 

Capacity

 

 

Rate

 

 

Date

2017 Term loan facility

$

194,873

 

 

$

(172

)

 

$

(4,901

)

 

$

6,733

 

 

$

183,067

 

 

$

 

 

 

6.0

%

 

January 2035

2016 Term loan facility(1)

 

283,566

 

 

 

(125

)

 

 

(7,149

)

 

 

4,850

 

 

 

271,442

 

 

 

 

 

 

4.6

 

 

August 2021

Subordinated HoldCo facility

 

197,125

 

 

 

(32

)

 

 

(3,090

)

 

 

1,968

 

 

 

192,035

 

 

 

 

 

 

9.7

 

 

March 2020

Credit agreement

 

1,295

 

 

 

(2

)

 

 

(135

)

 

 

15

 

 

 

1,143

 

 

 

 

 

 

6.5

 

 

February 2023

Revolving lines of credit(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregation facility

 

175,000

 

 

 

 

 

 

 

 

 

 

 

 

175,000

 

 

 

200,000

 

 

 

4.8

 

 

September 2020

Working capital facility(3)

 

136,500

 

 

 

 

 

 

 

 

 

 

 

 

136,500

 

 

 

 

 

 

5.1

 

 

March 2020

Total debt

$

988,359

 

 

$

(331

)

 

$

(15,275

)

 

$

13,566

 

 

$

959,187

 

 

$

200,000

 

 

 

 

 

 

 

Debt obligations consisted of the following as of December 31, 2017 (in thousands, except interest rates):

 

Principal

 

 

Unamortized Debt

 

 

 

 

 

 

 

 

 

 

Unused

 

 

 

 

 

 

 

 

Borrowings

 

 

Issuance Costs

 

 

Net Carrying Value

 

 

Borrowing

 

 

Interest

 

 

Maturity

 

Outstanding