run-10q_20160331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

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

For the quarterly period ended March 31, 2016

OR

o

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

Commission File Number: 001-37511

 

Sunrun Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

26-2841711

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

595 Market Street, 29th Floor

San Francisco, California 94105

(Address of principal executive offices and Zip Code)

(415) 580-6900

(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  o

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  o

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 definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

o

 

 

Accelerated filer

o

 

 

 

 

 

 

Non-accelerated filer

x

 

(Do not check if a smaller reporting company)

Smaller reporting company

o

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

As of May 10, 2016, the number of shares of the registrant’s common stock outstanding was 101,962,958.

 

 

 

 


Table of Contents

 

 

 

 

 

Page

 

Item 1

 

 

Financial Statements (Unaudited)

 

2

 

 

Consolidated Balance Sheets

 

2

 

 

Consolidated Statements of Operations

 

4

 

 

Consolidated Statements of Comprehensive Income (Loss)

 

5

 

 

Consolidated Statements of Cash Flows

 

6

 

 

Notes to Consolidated Financial Statements

 

7

Item 2.

 

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

 

22

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

31

Item 4.

 

Controls and Procedures

 

32

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

32

Item 1A.

 

Risk Factors

 

33

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

56

Item 5.

 

Other Information

 

56

Item 6.

 

Exhibits

 

56

 

 

Signatures

 

57

 

 

 

1


Sunrun Inc.

Consolidated Balance Sheets

(In Thousands, Except Share Par Values)

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

208,313

 

 

$

203,864

 

Restricted cash

 

 

9,246

 

 

 

9,203

 

Accounts receivable (net of allowances for doubtful accounts of $1,167 and $1,641 as of

   March 31, 2016 and December 31, 2015, respectively)

 

 

56,774

 

 

 

60,275

 

State tax credits receivable

 

 

 

 

 

9,198

 

Inventories

 

 

94,682

 

 

 

71,258

 

Prepaid expenses and other current assets

 

 

13,903

 

 

 

5,917

 

Total current assets

 

 

382,918

 

 

 

359,715

 

Restricted cash

 

 

6,125

 

 

 

8,094

 

Solar energy systems, net

 

 

2,137,015

 

 

 

1,992,021

 

Property and equipment, net

 

 

51,897

 

 

 

44,866

 

Intangible assets, net

 

 

21,653

 

 

 

22,705

 

Goodwill

 

 

87,543

 

 

 

87,543

 

Prepaid tax asset

 

 

222,596

 

 

 

190,146

 

Other assets

 

 

31,833

 

 

 

29,502

 

Total assets(1)

 

$

2,941,580

 

 

$

2,734,592

 

Liabilities and total equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

93,701

 

 

$

104,133

 

Distributions payable to noncontrolling interests and redeemable noncontrolling interests

 

 

7,368

 

 

 

8,144

 

Accrued expenses and other liabilities

 

 

53,826

 

 

 

49,146

 

Deferred revenue, current portion

 

 

65,820

 

 

 

59,726

 

Deferred grants, current portion

 

 

14,399

 

 

 

13,949

 

Capital lease obligation, current portion

 

 

10,890

 

 

 

8,951

 

Long-term non-recourse debt, current portion

 

 

5,591

 

 

 

4,722

 

Lease pass-through financing obligation, current portion

 

 

4,540

 

 

 

3,710

 

Total current liabilities

 

 

256,135

 

 

 

252,481

 

Deferred revenue, net of current portion

 

 

577,220

 

 

 

559,066

 

Deferred grants, net of current portion

 

 

216,176

 

 

 

220,784

 

Capital lease obligation, net of current portion

 

 

17,154

 

 

 

15,042

 

Recourse debt

 

 

191,000

 

 

 

197,000

 

Long-term non-recourse debt, net of current portion

 

 

436,196

 

 

 

333,042

 

Lease pass-through financing obligation, net of current portion

 

 

143,020

 

 

 

153,188

 

Other liabilities

 

 

8,863

 

 

 

7,144

 

Deferred tax liabilities

 

 

222,596

 

 

 

190,146

 

Total liabilities(1)

 

 

2,068,360

 

 

 

1,927,893

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

 

138,049

 

 

 

147,139

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value—authorized, 200,000 shares as of March 31, 2016 and

   December 31, 2015; issued and outstanding, 0 shares as of March 31, 2016 and

   December 31, 2015

 

 

 

 

 

 

Common stock, $0.0001 par value—authorized, 2,000,000 shares as of March 31, 2016 and

   December 31, 2015; issued and outstanding, 101,578 and 101,282 shares as of

   March 31, 2016 and December 31, 2015, respectively

 

 

10

 

 

 

10

 

Additional paid-in capital

 

 

646,092

 

 

 

642,229

 

Accumulated other comprehensive loss

 

 

(6,194

)

 

 

(921

)

Accumulated deficit

 

 

(74,115

)

 

 

(87,249

)

Total stockholders’ equity

 

 

565,793

 

 

 

554,069

 

Noncontrolling interests

 

 

169,378

 

 

 

105,491

 

Total equity

 

 

735,171

 

 

 

659,560

 

Total liabilities, redeemable noncontrolling interests and total equity

 

$

2,941,580

 

 

$

2,734,592

 

 


2


(1)

The Company’s consolidated assets as of March 31, 2016 and December 31, 2015 include $1,551,054 and $1,363,615, respectively, in assets of variable interest entities, or VIEs, that can only be used to settle obligations of the VIEs. Solar energy systems, net, as of March 31, 2016 and December 31, 2015 were $1,440,936 and $1,305,420, respectively; cash as of March 31, 2016 and December 31, 2015 were $94,953 and $44,407, respectively; restricted cash as of March 31, 2016 and December 31, 2015 were $580 and $757, respectively; accounts receivable, net as of March 31, 2016 and December 31, 2015 were $14,558 and $12,965, respectively; prepaid expenses and other current assets as of March 31, 2016 and December 31, 2015 were $27 and $66, respectively. The Company’s consolidated liabilities as of March 31, 2016 and December 31, 2015 include $550,456 and $540,464, respectively, in liabilities of VIEs whose creditors have no recourse to the Company. These liabilities include accounts payable as of March 31, 2016 and December 31, 2015 of $10,857 and $11,025, respectively; distributions payable to noncontrolling interests and redeemable noncontrolling interests as of March 31, 2016 and December 31, 2015 of $7,318 and $8,063, respectively; accrued expenses and other liabilities as of March 31, 2016 and December 31, 2015 of $264 and $175, respectively; deferred revenue as of March 31, 2016 and December 31, 2015 of $387,867 and $374,736, respectively; deferred grants as of March 31, 2016 and December 31, 2015 of $113,901 and $115,726, respectively; and long-term non-recourse debt as of March 31, 2016 and December 31, 2015 of $30,249 and $30,739, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

 

 

3


Sunrun Inc.

Consolidated Statements of Operations

(In Thousands, Except Per Share Amounts)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Revenue:

 

 

 

 

 

 

 

 

Operating leases and incentives

 

$

34,540

 

 

$

22,308

 

Solar energy systems and product sales

 

 

64,203

 

 

 

27,369

 

Total revenue

 

 

98,743

 

 

 

49,677

 

Operating expenses:

 

 

 

 

 

 

 

 

Cost of operating leases and incentives

 

 

38,100

 

 

 

21,377

 

Cost of solar energy systems and product sales

 

 

57,512

 

 

 

25,330

 

Sales and marketing

 

 

43,188

 

 

 

24,926

 

Research and development

 

 

2,463

 

 

 

2,287

 

General and administrative

 

 

23,248

 

 

 

20,306

 

Amortization of intangible assets

 

 

1,052

 

 

 

542

 

Total operating expenses

 

 

165,563

 

 

 

94,768

 

Loss from operations

 

 

(66,820

)

 

 

(45,091

)

Interest expense, net

 

 

11,515

 

 

 

7,130

 

Other expenses (income), net

 

 

(532

)

 

 

299

 

Loss before income taxes

 

 

(77,803

)

 

 

(52,520

)

Income tax benefit

 

 

 

 

 

 

Net loss

 

 

(77,803

)

 

 

(52,520

)

Net loss attributable to noncontrolling interests and redeemable noncontrolling

   interests

 

 

(90,937

)

 

 

(34,525

)

Net income (loss) attributable to common stockholders

 

$

13,134

 

 

$

(17,995

)

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to common stockholders

 

 

 

 

 

 

 

 

Basic

 

$

0.13

 

 

$

(0.74

)

Diluted

 

$

0.13

 

 

$

(0.74

)

Weighted average shares used to compute net income (loss) per share

   attributable to common stockholders

 

 

 

 

 

 

 

 

Basic

 

 

101,273

 

 

 

24,427

 

Diluted

 

 

104,219

 

 

 

24,427

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

4


Sunrun Inc.

Consolidated Statements of Comprehensive Income (Loss)

(In Thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Net income (loss) attributable to common stockholders

 

$

13,134

 

 

$

(17,995

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

Unrealized loss on derivatives, net of tax benefit

 

 

(5,798

)

 

 

(1,793

)

Less interest expense on derivatives recognized into earnings

 

 

(525

)

 

 

 

Comprehensive income (loss)

 

$

7,861

 

 

$

(19,788

)

 

 

 

5


Sunrun Inc.

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(77,803

)

 

$

(52,520

)

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

 

 

 

 

 

 

 

 

Noncash losses

 

 

1,321

 

 

 

 

Depreciation and amortization, net of amortization of deferred grants

 

 

21,596

 

 

 

15,429

 

Bad debt expense

 

 

336

 

 

 

457

 

Interest on lease pass-through financing

 

 

3,002

 

 

 

3,474

 

Noncash interest expense

 

 

3,502

 

 

 

2,635

 

Stock-based compensation expense

 

 

3,809

 

 

 

3,220

 

Reduction in lease pass-through financing obligations

 

 

(4,236

)

 

 

(4,887

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

3,595

 

 

 

(5,535

)

Inventories

 

 

(23,314

)

 

 

(11,537

)

Prepaid and other assets

 

 

(4,355

)

 

 

5,069

 

Accounts payable

 

 

(10,103

)

 

 

26,932

 

Accrued expenses and other liabilities

 

 

(317

)

 

 

2,643

 

Deferred revenue

 

 

5,572

 

 

 

12,304

 

Net cash used in operating activities

 

 

(77,395

)

 

 

(2,316

)

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Payments for the costs of solar energy systems, leased and to be leased

 

 

(164,629

)

 

 

(131,291

)

Purchases of property and equipment

 

 

(5,023

)

 

 

(1,947

)

Net cash used in investing activities

 

 

(169,652

)

 

 

(133,238

)

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from grants and state tax credits, net of recapture

 

 

9,202

 

 

 

5,153

 

Proceeds from recourse debt

 

 

141,000

 

 

 

 

Repayment of recourse debt

 

 

(147,000

)

 

 

 

Proceeds from issuance of non-recourse debt

 

 

106,400

 

 

 

 

Repayment of non-recourse debt

 

 

(2,160

)

 

 

(690

)

Payment of debt fees

 

 

(9,369

)

 

 

 

Proceeds from lease pass-through financing obligations

 

 

9,746

 

 

 

35,130

 

Contributions received from noncontrolling interests and redeemable noncontrolling interests

 

 

154,944

 

 

 

59,341

 

Distributions paid to noncontrolling interests and redeemable noncontrolling interests

 

 

(9,986

)

 

 

(7,521

)

Proceeds from exercises of stock options, net of withholding taxes on restricted stock units

 

 

452

 

 

 

1,058

 

Offering costs paid related to initial public offering

 

 

(437

)

 

 

 

Payment of capital lease obligation

 

 

(3,115

)

 

 

(602

)

Change in restricted cash

 

 

1,819

 

 

 

(2,996

)

Net cash provided by financing activities

 

 

251,496

 

 

 

88,873

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

4,449

 

 

 

(46,681

)

Cash, beginning of period

 

 

203,864

 

 

 

152,154

 

Cash, end of period

 

$

208,313

 

 

$

105,473

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

4,681

 

 

$

991

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of noncash investing and financing activities

 

 

 

 

 

 

 

 

Costs of solar energy systems and property and equipment included in accounts payable and

   accrued expenses

 

$

15,769

 

 

$

19,165

 

Distributions payable to noncontrolling interests and redeemable noncontrolling interests

 

$

7,368

 

 

$

5,937

 

Vehicles acquired under capital leases

 

$

7,318

 

 

$

2,281

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

6


Sunrun Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

 

Note 1. Organization

Sunrun Inc. (“Sunrun” or the “Company”) was originally formed in 2007 as a California limited liability company, and was converted into a Delaware corporation in 2008. The Company is engaged in the design, development, installation sale, ownership, and maintenance of residential solar energy systems (“Projects”) in the United States.

Sunrun acquires customers directly and through relationships with various solar and strategic partners (“Partners”). The Projects are constructed either by Sunrun or by Sunrun’s Partners and are owned by the Company. Sunrun’s customers enter into a power purchase agreement (“PPA”) or a lease (each, a “Customer Agreement”) which typically has a term of 20 years. Sunrun monitors, maintains and insures the Projects. The Company also sells solar energy systems and products to customers.

The Company has formed various subsidiaries (“Funds”) to finance the development of Projects. These Funds, structured as limited liability companies, obtain financing from outside investors and purchase or lease Projects from Sunrun under master purchase or master lease agreements. The Company currently utilizes three legal structures in its investment Funds, which are referred to as: (i) lease pass-throughs, (ii) partnership-flips and (iii) joint venture (“JV”) inverted leases.

Sunrun acquired Clean Energy Experts, LLC (“CEE”), a consumer demand and solar lead generation company, in April 2015, to support the growth of the business, including reducing costs of obtaining customer leads externally. As a result of the acquisition, the Company also sells a portion of solar leads generated to customers.

The Company completed its initial public offering in August 2015 and its common stock is listed on the NASDAQ Global Select Market under the symbol “RUN”.

 

 

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and reflect the accounts and operations of the Company and those of its subsidiaries, including Funds, in which the Company has a controlling financial interest. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity. However, a controlling financial interest may also exist in entities, such as variable interest entities (“VIEs”), through arrangements that do not involve controlling financial interests. In accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 810 (“ASC 810”) Consolidation, the Company consolidates any VIE of which it is the primary beneficiary. The primary beneficiary, as defined in ASC 810, is the party that has (1) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb the losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company evaluates its relationships with its VIEs on an ongoing basis to determine whether it continues to be the primary beneficiary. The consolidated financial statements reflect the assets and liabilities of VIEs that are consolidated. All intercompany transactions and balances have been eliminated in consolidation.

7


Reclassifications

Certain prior period amounts have been reclassified to conform to current period presentation. In addition, the Company adopted Accounting Standards Update (“ASU”) 2015-03, Interest—Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs and ASU 2015-15, Interest—Imputation of Interest (Subtopic 835-30) Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangement. The impact of the Company’s adoption of the ASUs on the prior period consolidated balance sheet was as follows (in thousands):

 

 

 

December 31, 2015

 

 

 

As Previously Reported

 

 

Adoption of ASU

 

 

As Reclassified

 

Prepaid expenses and other

   current assets

 

$

6,696

 

 

$

(779

)

 

$

5,917

 

Other assets

 

 

32,277

 

 

 

(2,775

)

 

 

29,502

 

Long-term non-recourse debt,

   current portion

 

 

5,408

 

 

 

(686

)

 

 

4,722

 

Recourse debt

 

 

194,975

 

 

 

2,025

 

 

 

197,000

 

Long-term non-recourse debt,

   net of current portion

 

 

337,935

 

 

 

(4,893

)

 

 

333,042

 

 

Use of Estimates

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company regularly makes significant estimates and assumptions, including, but not limited to, the estimates that affect the collectability of accounts receivable, the valuation of inventories, the useful lives and estimated residual values of solar energy systems, the useful lives of property and equipment, the valuation and useful lives of intangible assets, the fair value of assets acquired and liabilities assumed in business combinations, the effective interest rate used to amortize lease pass-through financing obligations, the valuation of stock-based compensation, the determination of valuation allowances associated with deferred tax assets, fair value of debt instruments disclosed and the redemption value of redeemable noncontrolling interests. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable. Actual results may differ from such estimates.

Segment Information

The Company has one operating segment with one business activity, providing solar energy services and products to customers. The Company’s chief operating decision maker (“CODM”) is its Chief Executive Officer, who manages operations on a consolidated basis for purposes of allocating resources. When evaluating performance and allocating resources, the CODM reviews financial information presented on a consolidated basis.

Revenues from external customers for each group of similar products and services are as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Operating leases

 

$

25,327

 

 

$

17,132

 

Incentives

 

 

9,213

 

 

 

5,176

 

Operating leases and incentives

 

 

34,540

 

 

 

22,308

 

Solar energy systems

 

 

30,192

 

 

 

5,806

 

Products

 

 

34,011

 

 

 

21,563

 

Solar energy systems and product sales

 

 

64,203

 

 

 

27,369

 

Total revenue

 

$

98,743

 

 

$

49,677

 

 

 

Fair Value of Financial Instruments

The Company defines fair value as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses valuation techniques to measure

8


fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. FASB establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

 

·

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

 

·

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

 

·

Level 3—Inputs that are unobservable, significant to the measurement of the fair value of the assets or liabilities and are supported by little or no market data.

The Company’s financial instruments include cash, receivables, accounts payable, accrued expenses, distributions payable to noncontrolling interests, derivatives, and recourse and non-recourse debt.

Recently Issued Accounting Standards

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09 Revenue from Contracts with Customers (Topic 606), to replace the existing revenue recognition criteria for contracts with customers and to establish the disclosure requirements for revenue from contracts with customers. The core principle of this standard is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. This ASU is effective for the Company for annual reporting periods beginning after December 15, 2017 including the interim reporting periods within that fiscal year, and early adoption is permitted. Adoption of this ASU is either retrospective to each prior period presented or retrospective with a cumulative adjustment to retained earnings or accumulated deficit as of the adoption date. The Company is currently evaluating this guidance and the impact it may have on the Company’s consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, to specify that inventory should be subsequently measured at the lower of cost or net realizable value, which is the ordinary selling price less any completion, transportation and disposal costs. This ASU is effective for interim and annual periods beginning after December 15, 2016. Adoption of this ASU is prospective. The Company is currently evaluating this guidance and the impact it may have on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases. Under the new guidance, lessees will be required to recognize for all leases (with the exception of short-term leases) a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The accounting for lessors is largely unchanged. However, the new guidance now defines what qualifies as sales-type and direct financing leases, as well as the related accounting. This ASU is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. The Company is currently evaluating this guidance and the impact it may have on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation. The new guidance will require all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It will also allow an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. This ASU is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. The Company is currently evaluating this guidance and the impact it may have on the Company’s consolidated financial statements.

 

 

9


Note 3. Fair Value Measurement

At March 31, 2016 and December 31, 2015, the carrying value of receivables, accounts payable, accrued expenses, and distributions payable to noncontrolling interests approximates fair value due to their short-term nature. The carrying values and fair values of debt instruments are as follows (in thousands):

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

 

Carrying Value

 

 

Fair Value

 

 

Carrying Value

 

 

Fair Value

 

Lines of credit

 

$

268,100

 

 

$

268,100

 

 

$

197,000

 

 

$

197,000

 

Syndicated term loans

 

 

179,687

 

 

 

179,687

 

 

 

169,344

 

 

 

169,344

 

Bank term loan

 

 

46,774

 

 

 

49,330

 

 

 

30,739

 

 

 

32,692

 

Note payable

 

 

33,748

 

 

 

33,536

 

 

 

32,781

 

 

 

32,568

 

Solar asset-backed notes

 

 

104,478

 

 

 

112,568

 

 

 

104,900

 

 

 

110,103

 

Total

 

$

632,787

 

 

$

643,221

 

 

$

534,764

 

 

$

541,707

 

At March 31, 2016, the fair value of the Company’s lines of credit, syndicated term loans, and bank term loan due in September 2022 approximates their carrying values because their interest rates are variable rates that approximate rates currently available to the Company. At December 31, 2015, the fair value of the Company’s lines of credit and syndicated term loans approximates their carrying values because their interest rates are variable rates that approximate rates currently available to the Company. At March 31, 2016 and December 31, 2015, the fair value of the Company’s bank term loan due in April 2022, note payable and asset-backed notes are based on rates currently offered for debt with similar maturities and terms. The Company’s fair value of the debt instruments fell under the Level 3 hierarchy. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market.

The Company determines the fair value of its interest rate swaps using a discounted cash flow model which incorporates an assessment of the risk of non-performance by the interest rate swap counterparty and an evaluation of the Company’s credit risk in valuing derivative instruments. The valuation model uses various inputs including contractual terms, interest rate curves, credit spreads and measures of volatility.

The Company determines the fair value of its warrants issued using the Black-Scholes option-pricing model. The significant unobservable input used in the fair value measurement of the warrant liability was the expected volatility of the Company. Generally, increases (decreases) in the expected volatility of the Company would result in a directionally similar impact to the measurement of the Company’s stock options.

At March 31, 2016 and December 31, 2015, financial instruments measured at fair value on a recurring basis, based upon the fair value hierarchy are as follows (in thousands):

 

 

 

March 31, 2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Derivative liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

 

 

$

6,194

 

 

$

 

 

$

6,194

 

Warrants

 

 

 

 

 

 

 

 

20

 

 

 

20

 

Total

 

$

 

 

$

6,194

 

 

$

20

 

 

$

6,214

 

 

 

 

December 31, 2015

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Derivative liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

 

 

$

921

 

 

$

 

 

$

921

 

Warrants

 

 

 

 

 

 

 

 

557

 

 

 

557

 

Total

 

$

 

 

$

921

 

 

$

557

 

 

$

1,478

 

 

 

10


Note 4. Inventories

Inventories consist of the following (in thousands):

 

 

 

March 31, 2016

 

 

December 31, 2015

 

Raw materials

 

 

89,556

 

 

$

62,967

 

Work-in-process

 

 

5,126

 

 

 

8,291

 

Total

 

$

94,682

 

 

$

71,258

 

 

 

Note 5. Solar Energy Systems, net

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

 

 

 

March 31, 2016

 

 

December 31, 2015

 

Solar energy system equipment costs

 

$

1,994,193

 

 

$

1,846,103

 

Inverters

 

 

197,145

 

 

 

177,202

 

Initial direct costs

 

 

79,904

 

 

 

68,280

 

Total solar energy systems

 

 

2,271,242

 

 

 

2,091,585

 

Less: accumulated depreciation and

   amortization

 

 

(232,939

)

 

 

(212,671

)

Add: construction-in-progress

 

 

98,712

 

 

 

113,107

 

Total solar energy systems, net

 

$

2,137,015

 

 

$

1,992,021

 

 

All solar energy systems, construction-in-progress, and inverters have been leased to or are subject to signed Customer Agreements with customers. The Company recorded depreciation expense related to solar energy systems of $20.4 million and $15.5 million for the three months ended March 31, 2016 and 2015, respectively. The depreciation expense was reduced by the amortization of deferred grants of $4.0 million and $3.6 million for the three months ended March 31, 2016 and 2015, respectively

 

11


Note 6. Indebtedness

As of March 31, 2016, debt consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unused

 

 

Annual

 

 

 

 

 

 

 

 

Carrying Values, net of

 

 

Borrowing

 

 

Contractual

 

Interest

 

 

Maturity

 

 

debt discount

 

 

Capacity

 

 

Interest Rate

 

Rate

 

 

Date

 

 

Current

 

 

Long Term

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Recourse debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank line of credit

 

$

 

 

$

191,000

 

 

$

191,000

 

 

$

11,501

 

 

Varies (1)

 

3.45% - 5.75%

 

 

April 2018

Total recourse debt

 

$

 

 

$

191,000

 

 

$

191,000

 

 

$

11,501

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-recourse debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Line of credit

 

 

 

 

 

77,100

 

 

 

77,100

 

 

 

8,800

 

 

Varies (2)

 

2.93% - 3.16%

 

 

December 2020

Term Loans due in

   December 2020

   and 2021

 

 

117

 

 

 

33,032

 

 

 

33,149

 

 

 

1,400

 

 

LIBOR + 5.00%

 

 

6.00

%

 

December 2020

and 2021

Term Loan A due in

   December 2021

 

 

727

 

 

 

145,811

 

 

 

146,538

 

 

 

6,400

 

 

LIBOR + 2.75%

 

3.04% - 3.37%

 

 

December 2021

Bank term loan due in

   September 2022

 

 

306

 

 

 

16,219

 

 

 

16,525

 

 

 

4,000

 

 

LIBOR +2.25%

 

 

2.69

%

 

September 2022

Bank term loan due in

   April 2022

 

 

1,206

 

 

 

29,043

 

 

 

30,249

 

 

 

 

 

6.25% (3)

 

 

6.25

%

 

April 2022

Note payable

 

 

 

 

 

33,748

 

 

 

33,748

 

 

 

 

 

12.00%

 

 

12.00

%

 

December 2018

Solar asset-backed

   notes

 

 

3,235

 

 

 

101,243

 

 

 

104,478

 

 

 

 

 

4.40% - Class A

 

 

4.40

%

 

July 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5.38% - Class B

 

 

5.38

%

 

July 2024

Total non-recourse

   debt

 

 

5,591

 

 

 

436,196

 

 

 

441,787

 

 

 

20,600

 

 

 

 

 

 

 

 

 

Total debt

 

$

5,591

 

 

$

627,196

 

 

$

632,787

 

 

$

32,101

 

 

 

 

 

 

 

 

 

 

As of December 31, 2015, debt consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unused

 

 

Annual

 

 

 

 

 

 

 

 

Carrying Values, net of

 

 

Borrowing

 

 

Contractual

 

Interest

 

 

Maturity

 

 

debt discount

 

 

Capacity

 

 

Interest Rate

 

Rate

 

 

Date

 

 

Current

 

 

Long Term

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Recourse debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank line of credit

 

$

 

 

$

197,000

 

 

$

197,000

 

 

$

6,571

 

 

Varies (1)

 

 

3.67

%

 

April 2018

Total recourse debt

 

$

 

 

$

197,000

 

 

$

197,000

 

 

$

6,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-recourse debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term Loan A due in

   December 2021

 

 

589

 

 

 

146,625

 

 

 

147,214

 

 

 

5,600

 

 

LIBOR + 2.75%

 

 

3.07

%

 

December 2021

Term Loan B due in

   December 2021

 

 

116

 

 

 

22,014