SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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

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 No☒☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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 Act). Yes ☐ No ☒

The registrant had ~~83,980,885~~111,985,750 shares of common stock outstanding as of ~~August 19, 2019.~~

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Unless the context otherwise requires, the terms "Sunnova," "the Company," "we," "us" and "our" refer to Sunnova Energy International Inc. ("SEI") and its consolidated subsidiaries. Forward-looking statements generally relate to future events or Sunnova's future financial or operating performance.Actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. In some cases, you can identify these statements because they contain words such as "anticipate," "believe," "contemplate," "continue," "could," "estimate," "expect," "future," "goal," "intend," "likely," "may," "plan," "potential," "predict," "project," "seek," "should," "target," "will" or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this report include, but are not limited to, statements about:

•the benefits and risks of the Acquisition (as defined in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments");

•our future operations and financial performance following the Acquisition;

•the effects of the coronavirus ("COVID-19") pandemic on our business and operations, results of operations and financial position;

•federal, state and local statutes, regulations and policies;

•determinations of the Internal Revenue Service ("IRS") of the fair market value of our solar energy systems;

•the price of centralized utility-generated electricity and electricity from other sources and technologies;

•technical and capacity limitations imposed by operators of the power grid;

•the availability of tax rebates, credits and incentives, including changes to the rates of, or expiration of, federal tax credits and the availability of related safe harbors;

•our need and ability to raise capital to finance the installation and acquisition of distributed residential solar energy systems, refinance existing debt or otherwise meet our liquidity needs;

•our expectations concerning relationships with third parties, including the attraction, retention, performance and continued existence of our dealers;

•our ability to manage our supply chains and distribution channels and the impact of natural disasters and other events beyond our control, such as the COVID-19 pandemic;

•our ability to retain or upgrade current customers, further penetrate existing markets or expand into new markets;

•our investment in our platform and new product offerings and the demand for and expected benefits of our platform and product offerings;

•the ability of our solar energy systems, energy storage systems or other product offerings to operate or deliver energy for any reason, including if interconnection or transmission facilities on which we rely become unavailable;

•our ability to maintain our brand and protect our intellectual property and customer data;

•our ability to manage the cost of solar energy systems, energy storage systems and our service offerings;

•the willingness of and ability of our dealers and suppliers to fulfill their respective warranty and other contractual obligations;

•our expectations regarding litigation and administrative proceedings; and

•our ability to renew or replace expiring, canceled or terminated solar service agreements at favorable rates or on a long-term basis.

Our actual results and timing of these events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those discussed under "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations, except as required by law.

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TABLE OF CONTENTS


				Page
						~~Page~~
	PART 1I - FINANCIAL INFORMATION
Item 1.			~~Financial Statements (unaudited)~~	3
	~~Unaudited Condensed Consolidated Balance Sheet~~	4
	~~Notes to Unaudited Condensed Consolidated Balance Sheet~~	5
	~~Sunnova Energy Corporation~~ Unaudited Condensed Consolidated Balance Sheets	64
			~~Sunnova Energy Corporation~~ Unaudited Condensed Consolidated Statements of Operations	75
			~~Sunnova Energy Corporation~~ Unaudited Condensed Consolidated Statements of Cash Flows	86
			~~Sunnova Energy Corporation~~ Unaudited Condensed Consolidated Statements of Redeemable Noncontrolling Interests and ~~Stockholders'~~ Equity	109
			Notes to ~~Sunnova Energy Corporation~~ Unaudited Condensed Consolidated Financial Statements	1211
Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations	3236
Item 3.			Quantitative and Qualitative Disclosures About Market Risk	5357
Item 4.			Controls and Procedures	5357

PART II - OTHER INFORMATION
Item 1.			Legal Proceedings	~~Legal Proceedings~~59	55
Item 1A.			Risk Factors	~~Risk Factors~~59	55
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds	5560
Item 3.			Defaults Upon Senior Securities	5660
Item 4.			Mine Safety Disclosures	5660
Item 5.			Other Information	~~Other Information~~60	56
Item 6.			Exhibits	~~Exhibits~~61	57
			Signatures	5962

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PART I - FINANCIAL INFORMATION

~~Explanatory Note~~

The information contained in this report relates to periods that ended prior to the completion of the initial public offering ("IPO") of Sunnova Energy International Inc. ("SEI") and prior to the effective dates of some of the agreements discussed herein. Consequently, the interim unaudited condensed consolidated financial statements ("interim financial statements") and related discussion of financial condition and results of operations contained in this report pertain to Sunnova Energy Corporation, which was contributed to SEI in connection with the completion of the IPO. We have also provided the interim unaudited condensed consolidated balance sheets for SEI.

On July 24, 2019 SEI priced 14,000,000 shares of its common stock at a public offering price of $12.00 per share and on July 25, 2019 SEI's shares of common stock began trading on the New York Stock Exchange under the symbol "NOVA". On August 19, 2019, we issued and sold an additional 865,267 shares of our common stock at a public offering price of $12.00 per share pursuant to the underwriters' option to purchase additional shares.

Unless the context otherwise requires, references in this report to "Sunnova," the "Company," "we," "our," "us," or like terms, refer to Sunnova Energy Corporation and its subsidiaries, our predecessor for accounting purposes, when used in a historical context (periods prior to July 29, 2019, the closing date of the IPO), and to SEI and its subsidiaries when used in the present tense or prospectively (on or after July 29, 2019, the closing date of the IPO). See Note 15, Subsequent Events, to the Sunnova Energy Corporation interim financial statements for information regarding the closing of the IPO and related transactions.

While the interim financial statements contained herein have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and in compliance with the rules and regulations of the United States ("U.S.") Securities and Exchange Commission ("SEC"), we do not believe these interim financial statements are necessarily indicative of the financial results that will be reported by SEI for periods subsequent to the formation and other transactions that resulted in the capitalization and start-up of SEI. The information contained in this report should be read in conjunction with the information contained in SEI's prospectus dated July 24, 2019 filed with the SEC pursuant to Rule 424 promulgated under the Securities Act of 1933, as amended, when reviewing the interim financial statements of Sunnova Energy Corporation contained herein.

~~Table of Contents~~

Item 1. Financial ~~Statements~~Statements.

SUNNOVA ENERGY INTERNATIONAL INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts and share par values)

As of
June 30, 2019 As of
April 8, 2019
Assets
Current assets:
Cash $ 2
$ 2
Total current assets 2
2
Total assets $ 2
$ 2

Liabilities and Stockholder's Equity
Total liabilities $ —
$ —

Stockholder's equity:
Common stock, 100,000 shares issued at $0.01 par value 1
1
Additional paid-in capital 1
1
Total stockholder's equity 2
2
Total liabilities and stockholder's equity $ 2
$ 2

~~See accompanying notes to unaudited condensed consolidated balance sheets.~~

~~Table of Contents~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS~~


	As of June 30, 2021		As of December 31, 2020


Assets
Current assets:
Cash	$	368,626	$	209,859
Accounts receivable—trade, net	17,886		10,243
Accounts receivable—other	23,123		21,378

Other current assets, net of allowance of $1,041 and $707 as of June 30, 2021 and December 31, 2020, respectively	230,043		215,175
Total current assets	639,678		456,655

Property and equipment, net	2,591,041		2,323,169
Customer notes receivable, net of allowance of $24,977 and $16,961 as of June 30, 2021 and December 31, 2020, respectively	773,466		513,386
Intangible assets, net	200,097		49
Goodwill	4,096		0
Other assets	357,730		294,324
Total assets (1)	$	4,566,108	$	3,587,583

Liabilities, Redeemable Noncontrolling Interests and Equity
Current liabilities:
Accounts payable	$	39,955	$	39,908
Accrued expenses	42,676		34,049
Current portion of long-term debt	128,320		110,883
Other current liabilities	28,104		26,014
Total current liabilities	239,055		210,854

Long-term debt, net	2,592,797		1,924,653
Other long-term liabilities	321,693		171,395
Total liabilities (1)	3,153,545		2,306,902

Commitments and contingencies (Note 15)	0		0

Redeemable noncontrolling interests	140,185		136,124

Stockholders' equity:
Common stock, 111,985,517 and 100,412,036 shares issued as of June 30, 2021 and December 31, 2020, respectively, at $0.0001 par value	11		10
Additional paid-in capital—common stock	1,596,659		1,482,716
Accumulated deficit	(529,936)		(530,995)
Total stockholders' equity	1,066,734		951,731
Noncontrolling interests	205,644		192,826
Total equity	1,272,378		1,144,557
Total liabilities, redeemable noncontrolling interests and equity	$	4,566,108	$	3,587,583

~~(1)~~
~~Description of Business and Basis of Presentation~~

SEI and its consolidated subsidiary (collectively, the "Company") were formed as Delaware corporations on April 1, 2019 by Sunnova Energy Corporation, who was then the only stockholder of SEI, to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware including, but not limited to, actions to own, manage, acquire and invest in solar power generation, storage and management assets.

~~Basis of Presentation~~

The accompanying unaudited condensed consolidated balance sheets include the accounts of SEI and its consolidated subsidiary and have been prepared in accordance with GAAP. Separate statements of operations, cash flows, stockholder's equity and comprehensive income (loss) have not been presented because we have not had any operations to date. All intercompany accounts and transactions have been eliminated in consolidation.

~~(2)~~ ~~IPO~~

On June 27, 2019, we filed a Registration Statement on Form S-1 with the SEC relating to a proposed underwritten IPO of common stock, which was subsequently amended on July 3, 2019, July 12, 2019, July 17, 2019 and July 24, 2019 and became effective on July 24, 2019. On July 24, 2019, we priced 14,000,000 shares of common stock in our IPO at a public offering price of $12.00 per share and on July 25, 2019 our common stock began trading on the New York Stock Exchange under the symbol "NOVA". Upon the closing of the IPO on July 29, 2019, SEI became the holding company of Sunnova Energy Corporation and the historical financial statements of Sunnova Energy Corporation became the historical financial statements of SEI. Upon the closing of the IPO, SEI had 83,115,618 shares of common stock outstanding. On August 19, 2019, we issued and sold an additional 865,267 shares of our common stock at a public offering price of $12.00 per share pursuant to the underwriters' option to purchase additional shares, bringing SEI's total number of outstanding common stock to 83,980,885 shares.

We received aggregate net proceeds from the IPO of approximately $162.3 million, after deducting the underwriting discount and commissions of approximately $10.7 million and offering expenses of approximately $5.4 million. We used a portion of the net proceeds from the IPO to redeem our senior convertible notes due March 2021, of which $45.4 million aggregate principal amount was outstanding as of June 30, 2019. The aggregate redemption price for all our senior convertible notes was approximately $57.1 million, which includes a premium of $11.4 million plus a cash payment equal to accrued and unpaid cash interest and pay-in-kind interest to the date of redemption. We plan to use the remaining net proceeds from the IPO for general corporate purposes, including working capital, operating expenses, capital expenditures and repayment of indebtedness.

~~Table of Contents~~

~~SUNNOVA ENERGY CORPORATION~~

~~UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS~~

~~(in thousands, except share amounts and share par values)~~

As of
June 30, 2019 As of
December 31, 2018
Assets
Current assets:
Cash $ 58,776
$ 52,706
Accounts receivable—trade, net 11,150
6,312
Accounts receivable—other 4,531
3,721
Other current assets 34,546
26,794
Total current assets 109,003
89,533

Property and equipment, net 1,499,891
1,328,457
Customer notes receivable, net 223,645
172,031
Other assets 120,125
75,064
Total assets (1) $ 1,952,664
$ 1,665,085

Liabilities, Redeemable Noncontrolling Interests and Stockholders' Equity
Current liabilities:
Accounts payable $ 45,134
$ 20,075
Accrued expenses 18,861
18,650
Current portion of long-term debt 58,403
26,965
Current portion of long-term debt—affiliates 17,505
16,500
Other current liabilities 18,701
13,214
Total current liabilities 158,604
95,404

Long-term debt, net 1,081,360
872,249
Long-term debt, net—affiliates 71,524
44,181
Other long-term liabilities 92,044
66,453
Total liabilities (1) 1,403,532
1,078,287

Commitments and contingencies (Note 14)

Redeemable noncontrolling interests 107,547
85,680

Stockholders' equity:
Series A convertible preferred stock, 44,929,110 and 44,942,594 shares issued as of June 30, 2019 and December 31, 2018, respectively, at $0.01 par value 449
449
Series C convertible preferred stock, 13,006,780 shares issued as of June 30, 2019 and December 31, 2018 at $0.01 par value 130
130
Series A common stock, 8,612,728 shares issued as of June 30, 2019 and December 31, 2018 at $0.01 par value 86
86
Series B common stock, 23,870 and 21,727 shares issued as of June 30, 2019 and December 31, 2018, respectively, at $0.01 par value —
—
Additional paid-in capital—convertible preferred stock 701,635
701,326
Additional paid-in capital—common stock 86,437
85,439
Accumulated deficit (347,152 ) (286,312 )
Total stockholders' equity 441,585
501,118
Total liabilities, redeemable noncontrolling interests and stockholders' equity $ 1,952,664
$ 1,665,085

(1) The consolidated assets as of June 30, ~~2019~~2021 and December 31, ~~2018~~2020 include ~~$543,451~~$1,690,509 and ~~$411,325,~~$1,471,796, respectively, of assets of variable interest entities ("VIEs") that can only be used to settle obligations of the VIEs. These assets include cash of ~~$5,433~~$20,400 and ~~$3,674~~$13,407 as of June 30, ~~2019~~2021 and December 31, ~~2018,~~2020, respectively; accounts receivable—trade, net of ~~$1,352~~$5,304 and ~~$884~~$2,953 as of June 30, ~~2019~~2021 and December 31, ~~2018,~~2020, respectively; accounts receivable—other of $0$840 and ~~$109~~$583 as of June 30, ~~2019~~2021 and December 31, ~~2018,~~2020, respectively; other current assets of ~~$192~~$156,307 and ~~$4,821~~$182,646 as of June 30, ~~2019~~2021 and December 31, ~~2018,~~2020, respectively; property and equipment, net of ~~$531,354~~$1,485,775 and ~~$398,693~~$1,257,953 as of June 30, ~~2019~~2021 and December 31, ~~2018,~~2020, respectively; and other assets of ~~$5,120~~$21,883 and ~~$3,144~~$14,254 as of June 30, ~~2019~~2021 and December 31, ~~2018,~~2020, respectively. The consolidated liabilities as of June 30, ~~2019~~2021 and December 31, ~~2018~~2020 include ~~$7,605~~$38,682 and ~~$9,260,~~$32,345, respectively, of liabilities of VIEs whose creditors have no recourse to Sunnova Energy ~~Corporation.~~International Inc. These liabilities include accounts payable of ~~$1,082~~$4,006 and ~~$4,278~~$2,744 as of June 30, ~~2019~~2021 and December 31, ~~2018,~~2020, respectively; accrued expenses of ~~$49~~$92 and ~~$14~~$827 as of June 30, ~~2019~~2021 and December 31, ~~2018,~~2020, respectively; other current liabilities of ~~$206~~$3,049 and ~~$296~~$3,284 as of June 30, ~~2019~~2021 and December 31, ~~2018,~~2020, respectively; and other long-term liabilities of ~~$6,268~~$31,535 and ~~$4,672~~$25,490 as of June 30, ~~2019~~2021 and December 31, ~~2018,~~2020, respectively.

See accompanying notes to ~~Sunnova Energy Corporation~~ unaudited condensed consolidated financial statements.

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SUNNOVA ENERGY ~~CORPORATION~~INTERNATIONAL INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenue	$	66,556	$	42,790	$	107,832	$	72,619

Operating expense:
Cost of revenue—depreciation	18,548		14,021		35,956		27,007
Cost of revenue—other	4,996		2,869		6,230		3,912
Operations and maintenance	4,985		2,926		8,605		5,145
General and administrative	48,336		28,133		90,656		56,026
Other operating expense (income)	4,034		(16)		4,034		(22)
Total operating expense, net	80,899		47,933		145,481		92,068

Operating loss	(14,343)		(5,143)		(37,649)		(19,449)

Interest expense, net	50,109		30,532		58,160		97,850

Interest income	(7,988)		(6,680)		(15,168)		(11,300)
Loss on extinguishment of long-term debt, net	9,824		0		9,824		0

Other income	(16)		(266)		(129)		(266)
Loss before income tax	(66,272)		(28,729)		(90,336)		(105,733)

Income tax	0		0		0		0
Net loss	(66,272)		(28,729)		(90,336)		(105,733)
Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests	(2,876)		(3,471)		6,043		(9,400)
Net loss attributable to stockholders	$	(63,396)	$	(25,258)	$	(96,379)	$	(96,333)






Net loss per share attributable to common stockholders—basic and diluted	$	(0.57)	$	(0.30)	$	(0.88)	$	(1.15)
Weighted average common shares outstanding—basic and diluted	111,973,338		84,033,278		109,181,788		84,017,214

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
Revenue $ 34,612
$ 28,963
$ 61,327
$ 48,747

Operating expense:
Cost of revenue—depreciation 10,225
8,274
19,878
16,119
Cost of revenue—other 1,076
448
1,728
860
Operations and maintenance 2,289
2,251
4,543
4,591
General and administrative 23,794
15,578
42,475
31,933
Other operating income (62 ) (23 ) (80 ) (39 )
Total operating expense, net 37,322
26,528
68,544
53,464

Operating income (loss) (2,710 ) 2,435
(7,217 ) (4,717 )

Interest expense, net 37,310
10,724
68,971
15,707
Interest expense, net—affiliates 1,575
2,354
3,397
4,847
Interest income (2,967 ) (1,418 ) (5,461 ) (2,610 )
Loss on extinguishment of long-term debt, net—affiliates 10,645
—
10,645
—
Other (income) expense 534
(1 ) 534
(1 )
Loss before income tax (49,807 ) (9,224 ) (85,303 ) (22,660 )

Income tax —
—
—
—
Net loss (49,807 ) (9,224 ) (85,303 ) (22,660 )
Net income attributable to redeemable noncontrolling interests 931
3,350
3,949
4,124
Net loss attributable to stockholders (50,738 ) (12,574 ) (89,252 ) (26,784 )
Dividends earned on Series A convertible preferred stock (9,760 ) (9,198 ) (19,271 ) (17,328 )
Dividends earned on Series C convertible preferred stock (2,762 ) (1,497 ) (5,454 ) (1,546 )
Deemed dividends on convertible preferred stock exchange —
—
—
(19,332 )
Net loss attributable to common stockholders—basic and diluted $ (63,260 ) $ (23,269 ) $ (113,977 ) $ (64,990 )

Net loss per share attributable to common stockholders—basic and diluted $ (7.32 ) $ (2.69 ) $ (13.20 ) $ (7.53 )
Weighted average common shares outstanding—basic and diluted 8,636,598
8,634,455
8,636,065
8,634,455

See accompanying notes to ~~Sunnova Energy Corporation~~ unaudited condensed consolidated financial statements.

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SUNNOVA ENERGY ~~CORPORATION~~INTERNATIONAL INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Six Months Ended
June 30,
2019 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (85,303 ) $ (22,660 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 22,639
18,350
Impairment and loss on disposals, net 851
1,155
Amortization of intangible assets 7
67
Amortization of customer acquisition costs 14
—
Amortization of deferred financing costs 7,770
4,363
Amortization of debt discount 1,292
501
Non-cash effect of equity-based compensation plans 994
1,408
Non-cash payment-in-kind interest on loan—affiliates 2,201
2,700
Unrealized (gain) loss on derivatives 17,449
(13,658 )
Loss on fair value option securities 534
—
Loss on extinguishment of long-term debt, net—affiliates 10,645
—
Other non-cash items 3,449
2,558
Changes in components of operating assets and liabilities:
Accounts receivable (6,597 ) (4,482 )
Dealer advances —
(237 )
Other current assets (9,357 ) (6,605 )
Other assets (26,063 ) (3,600 )
Accounts payable 2,279
(579 )
Accrued expenses (1,995 ) (62 )
Other current liabilities 5,362
1,827
Long-term debt—paid-in-kind—affiliates —
(1,144 )
Other long-term liabilities (1,865 ) (463 )
Net cash used in operating activities (55,694 ) (20,561 )

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (164,796 ) (124,067 )
Payments for investments and customer notes receivable (62,360 ) (50,509 )
Proceeds from customer notes receivable 9,336
3,768
State utility rebates 227
450
Other, net 183
(1,485 )
Net cash used in investing activities (217,410 ) (171,843 )

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 526,045
82,907
Payments of long-term debt (287,363 ) (14,421 )
Proceeds of long-term debt from affiliates 15,000
15,000
Payments of long-term debt to affiliates —
(20,000 )
Payments on notes payable (248 ) —
Payments of deferred financing costs (7,268 ) (750 )
Payments of debt discounts (1,084 ) (70 )
Payments of IPO costs (484 ) —
Proceeds from issuance of convertible preferred stock, net (2,509 ) 97,146
Contributions from redeemable noncontrolling interests 50,237
34,865
Distributions to redeemable noncontrolling interests (5,143 ) (789 )
Payments of costs related to redeemable noncontrolling interests (1,622 ) (879 )
Other, net (7 ) (1 )
Net cash provided by financing activities 285,554
193,008
Net increase in cash and restricted cash 12,450
604
Cash and restricted cash at beginning of period 87,046
81,778
Cash and restricted cash at end of period 99,496
82,382
Restricted cash included in other current assets (482 ) (2,979 )
Restricted cash included in other assets (40,238 ) (25,680 )
Cash at end of period $ 58,776
$ 53,723

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	Six Months Ended June 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(90,336)	$	(105,733)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	40,325		30,814
Impairment and loss on disposals, net	1,612		1,222
Amortization of intangible assets	7,065		15
Amortization of deferred financing costs	8,833		5,409
Amortization of debt discount	6,047		7,610

Non-cash effect of equity-based compensation plans	10,844		6,044
Non-cash payment-in-kind interest on loan	0		679

Unrealized (gain) loss on derivatives	(2,932)		4,543
Unrealized (gain) loss on fair value instruments	4,169		(256)
Loss on extinguishment of long-term debt, net	9,824		0

Other non-cash items	3,742		7,287
Changes in components of operating assets and liabilities:
Accounts receivable	(9,301)		(1,941)

Other current assets	(67,854)		(81)
Other assets	(29,066)		(21,504)
Accounts payable	(2,274)		(706)
Accrued expenses	5,544		(16,033)
Other current liabilities	(4,328)		4,631


Other long-term liabilities	(2,598)		(4,928)
Net cash used in operating activities	(110,684)		(82,928)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment	(236,347)		(274,333)
Payments for investments and customer notes receivable	(305,498)		(99,016)
Proceeds from customer notes receivable	30,881		15,090
State utility rebates and tax credits	273		172
Other, net	1,502		490
Net cash used in investing activities	(509,189)		(357,597)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt	1,282,796		936,938
Payments of long-term debt	(570,068)		(629,268)


Payments on notes payable	(8,022)		(2,451)
Payments of deferred financing costs	(12,939)		(16,819)
Payments of debt discounts	(2,324)		(3,132)
Purchase of capped call transactions	(91,655)		0
Proceeds from issuance of common stock, net	9,822		(129)
Proceeds from equity component of debt instrument, net	0		73,657

Contributions from redeemable noncontrolling interests and noncontrolling interests	116,610		120,653
Distributions to redeemable noncontrolling interests and noncontrolling interests	(6,261)		(2,600)
Payments of costs related to redeemable noncontrolling interests and noncontrolling interests	(6,778)		(2,187)
Other, net	(103)		(1)
Net cash provided by financing activities	711,078		474,661
Net increase in cash and restricted cash	91,205		34,136
Cash and restricted cash at beginning of period	377,893		150,291
Cash and restricted cash at end of period	469,098		184,427
Restricted cash included in other current assets	(39,470)		(18,644)
Restricted cash included in other assets	(61,002)		(63,504)
Cash at end of period	$	368,626	$	102,279

Table of Contents


	Six Months Ended June 30,							Six Months Ended June 30,
	2019			2018				2021		2020
Non-cash investing and financing activities:							Non-cash investing and financing activities:

Change in accounts payable and accrued expenses related to purchases of property and equipment	$	28,343		$	1,136		Change in accounts payable and accrued expenses related to purchases of property and equipment	$	17,443	$	(318)
Change in accounts payable and accrued expenses related to payments for investments and customer notes receivable	$	(4,369	)	$	(4,735	)	Change in accounts payable and accrued expenses related to payments for investments and customer notes receivable	$	(17,614)	$	(7,738)
Change in accounts payable and accrued expenses related to financing costs	$	3,854		$	(1,888	)

Note payable for financing the purchase of inventory							Note payable for financing the purchase of inventory	$	28,994	$	0

Non-cash conversion of convertible senior notes for common stock							Non-cash conversion of convertible senior notes for common stock	$	95,648	$	0

Supplemental cash flow information:							Supplemental cash flow information:
Cash paid for interest	$	25,395		$	27,857		Cash paid for interest	$	48,279	$	38,476
Cash paid for income taxes	$	—		$	—		Cash paid for income taxes	$	0	$	0

See accompanying notes to ~~Sunnova Energy Corporation~~ unaudited condensed consolidated financial statements.

Table of Contents

SUNNOVA ENERGY ~~CORPORATION~~INTERNATIONAL INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE NONCONTROLLING INTERESTS AND ~~STOCKHOLDERS'~~ EQUITY

(in thousands, except share amounts)

Redeemable
Noncontrolling
Interests Series A
Convertible
Preferred Stock Series B
Convertible
Preferred Stock Series C
Convertible
Preferred Stock Series A
Common Stock Series B
Common Stock Series B
Treasury
Stock Additional
Paid-in
Capital -
Convertible
Preferred
Stock Additional
Paid-in
Capital -
Common
Stock Accumulated
Deficit Total
Stockholders'
Equity

Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
December 31, 2017 $ 38,590
40,179,508
$ 402
4,583,576
$ 46
—
$ —
8,612,728
$ 86
21,727
$ —
$ —
$ 530,951
$ 82,455
$ (242,757 ) $ 371,183
Net income (loss) 774
—
—
—
—
—
—
—
—
—
—
—
—
—
(14,210 ) (14,210 )
Issuance of common stock, net —
—
—
—
—
—
—
—
—
149
—
—
—
—
—
—
Issuance of convertible preferred stock, net —
—
—
13,013
—
7,390,218
74
—
—
—
—
—
97,256
—
—
97,330
Non-cash exchange of Series B convertible preferred stock for Series A convertible preferred stock —
4,763,086
47
(4,596,588 ) (46 ) —
—
—
—
—
—
—
(1 ) —
—
—
Contributions from redeemable noncontrolling interests 17,139
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Distributions to redeemable noncontrolling interests (339 ) —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Distributions payable to redeemable noncontrolling interests (111 ) —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Costs related to redeemable noncontrolling interests (701 ) —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Equity in subsidiaries attributable to parent (5,995 ) —
—
—
—
—
—
—
—
—
—
—
—
—
5,995
5,995
Equity-based compensation expense —
—
—
—
—
—
—
—
—
—
—
—
—
726
—
726
Acquisition of treasury stock —
—
—
—
—
—
—
—
—
—
—
(1 ) —
—
—
(1 )
Retirement of treasury stock —
—
—
—
—
—
—
—
—
(149 ) —
1
—
—
(1 ) —
Other, net —
—
—
(1 ) —
—
—
—
—
—
—
—
—
—
(1 ) (1 )
March 31, 2018 49,357
44,942,594
449
—
—
7,390,218
74
8,612,728
86
21,727
—
—
628,206
83,181
(250,974 ) 461,022
Net income (loss) 3,350
—
—
—
—
—
—
—
—
—
—
—
—
—
(12,574 ) (12,574 )
Contributions from redeemable noncontrolling interests 17,726
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Contributions receivable from redeemable noncontrolling interests 1,108
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Distributions to redeemable noncontrolling interests (450 ) —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Distributions payable to redeemable noncontrolling interests (178 ) —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Costs related to redeemable noncontrolling interests (91 ) —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Equity in subsidiaries attributable to parent (5,592 ) —
—
—
—
—
—
—
—
—
—
—
—
—
5,592
5,592
Equity-based compensation expense —
—
—
—
—
—
—
—
—
—
—
—
—
682
—
682
Other, net —
—
—
—
—
—
—
—
—
—
—
—
(68 ) —
—
(68 )
June 30, 2018 $ 65,230
44,942,594
$ 449
—
$ —
7,390,218
$ 74
8,612,728
$ 86
21,727
$ —
$ —
$ 628,138
$ 83,863
$ (257,956 ) $ 454,654


	Redeemable Noncontrolling Interests		Common Stock			Additional Paid-in Capital - Common Stock		Accumulated Deficit		Total Stockholders' Equity		Noncontrolling Interests		Total Equity


			Shares	Amount
December 31, 2019	$	127,129	83,980,885	$	8	$	1,007,751	$	(361,824)	$	645,935	$	45,176	$	691,111
Cumulative-effect adjustment	—		—	—		—		(9,908)		(9,908)		—		(9,908)
Net income (loss)	1,576		—	—		—		(71,075)		(71,075)		(7,505)		(78,580)
Issuance of common stock, net	—		45,405	—		214		—		214		—		214
Contributions from redeemable noncontrolling interests and noncontrolling interests	3,170		—	—		—		—		—		99,172		99,172
Distributions to redeemable noncontrolling interests	(1,373)		—	—		—		—		—		—		—
Costs related to redeemable noncontrolling interests and noncontrolling interests	187		—	—		—		—		—		(894)		(894)
Equity in subsidiaries attributable to parent	145		—	—		—		24,164		24,164		(24,309)		(145)
Equity-based compensation expense	—		—	—		2,690		—		2,690		—		2,690
Other, net	(44)		—	—		—		—		—		(3)		(3)
March 31, 2020	130,790		84,026,290	8		1,010,655		(418,643)		592,020		111,637		703,657
Net income (loss)	2,869		—	—		—		(25,258)		(25,258)		(6,340)		(31,598)
Issuance of common stock, net	—		29,742	—		558		—		558		—		558
Equity component of debt instrument, net	—		—	—		73,657		—		73,657		—		73,657
Contributions from noncontrolling interests	—		—	—		—		—		—		18,311		18,311
Distributions to redeemable noncontrolling interests and noncontrolling interests	(1,211)		—	—		—		—		—		(16)		(16)
Costs related to noncontrolling interests	—		—	—		—		—		—		(604)		(604)
Equity in subsidiaries attributable to parent	(68)		—	—		—		17,358		17,358		(17,290)		68
Equity-based compensation expense	—		—	—		3,354		—		3,354		—		3,354
Other, net	193		—	—		(1)		—		(1)		34		33
June 30, 2020	$	132,573	84,056,032	$	8	$	1,088,223	$	(426,543)	$	661,688	$	105,732	$	767,420

Table of Contents


	Redeemable Noncontrolling Interests		Common Stock			Additional Paid-in Capital - Common Stock		Accumulated Deficit		Total Stockholders' Equity		Noncontrolling Interests		Total Equity


			Shares	Amount
December 31, 2020	$	136,124	100,412,036	$	10	$	1,482,716	$	(530,995)	$	951,731	$	192,826	$	1,144,557
Cumulative-effect adjustment	—		—	—		—		2,254		2,254		—		2,254
Net income (loss)	2,110		—	—		—		(32,983)		(32,983)		6,809		(26,174)
Issuance of common stock, net	—		8,141,766	1		65,541		—		65,542		—		65,542
Equity component of debt instrument	—		—	—		(8,807)		—		(8,807)		—		(8,807)
Contributions from noncontrolling interests	—		—	—		—		—		—		40,802		40,802
Distributions to redeemable noncontrolling interests and noncontrolling interests	(1,090)		—	—		—		—		—		(1,743)		(1,743)
Costs related to noncontrolling interests	—		—	—		—		—		—		(55)		(55)
Equity in subsidiaries attributable to parent	40		—	—		—		37,213		37,213		(37,253)		(40)
Equity-based compensation expense	—		—	—		7,924		—		7,924		—		7,924
Other, net	(62)		—	—		1		—		1		(476)		(475)
March 31, 2021	137,122		108,553,802	11		1,547,375		(524,511)		1,022,875		200,910		1,223,785
Net income (loss)	4,236		—	—		—		(63,396)		(63,396)		(7,112)		(70,508)
Issuance of common stock, net	—		3,431,715	—		138,020		—		138,020		—		138,020
Capped call transactions	—		—	—		(91,655)		—		(91,655)		—		(91,655)
Contributions from noncontrolling interests	—		—	—		—		—		—		75,808		75,808
Distributions to redeemable noncontrolling interests and noncontrolling interests	(1,128)		—	—		—		—		—		(2,300)		(2,300)
Costs related to noncontrolling interests	—		—	—		—		—		—		(3,035)		(3,035)
Equity in subsidiaries attributable to parent	2		—	—		—		57,971		57,971		(57,973)		(2)
Equity-based compensation expense	—		—	—		2,920		—		2,920		—		2,920
Other, net	(47)		—	—		(1)		—		(1)		(654)		(655)
June 30, 2021	$	140,185	111,985,517	$	11	$	1,596,659	$	(529,936)	$	1,066,734	$	205,644	$	1,272,378

Redeemable
Noncontrolling
Interests Series A
Convertible
Preferred Stock Series C
Convertible
Preferred Stock Series A
Common Stock Series B
Common Stock Additional
Paid-in
Capital -
Convertible
Preferred
Stock Additional
Paid-in
Capital -
Common
Stock Accumulated
Deficit Total
Stockholders'
Equity

Shares Amount Shares Amount Shares Amount Shares Amount
December 31, 2018 $ 85,680
44,942,594
$ 449
13,006,780
$ 130
8,612,728
$ 86
21,727
$ —
$ 701,326
$ 85,439
$ (286,312 ) $ 501,118
Net income (loss) 3,018
—
—
—
—
—
—
—
—
—
—
(38,514 ) (38,514 )
Issuance of common stock —
—
—
—
—
—
—
2,143
—
—
4
—
4
Repurchase of convertible preferred stock —
(13,484 ) —
—
—
—
—
—
—
(183 ) —
(8 ) (191 )
Contributions from redeemable noncontrolling interests 18,030
—
—
—
—
—
—
—
—
—
—
—
—
Distributions to redeemable noncontrolling interests (3,652 ) —
—
—
—
—
—
—
—
—
—
—
—
Costs related to redeemable noncontrolling interests (1,562 ) —
—
—
—
—
—
—
—
—
—
—
—
Equity in subsidiaries attributable to parent (10,125 ) —
—
—
—
—
—
—
—
—
—
10,125
10,125
Equity-based compensation expense —
—
—
—
—
—
—
—
—
—
281
—
281
Other, net 2,627
—
—
—
—
—
—
—
—
493
—
(2 ) 491
March 31, 2019 94,016
44,929,110
449
13,006,780
130
8,612,728
86
23,870
—
701,636
85,724
(314,711 ) 473,314
Net income (loss) 931
—
—
—
—
—
—
—
—
—
—
(50,738 ) (50,738 )
Contributions from redeemable noncontrolling interests 32,207
—
—
—
—
—
—
—
—
—
—
—
—
Distributions to redeemable noncontrolling interests (1,491 ) —
—
—
—
—
—
—
—
—
—
—
—
Costs related to redeemable noncontrolling interests (419 ) —
—
—
—
—
—
—
—
—
—
—
—
Equity in subsidiaries attributable to parent (18,297 ) —
—
—
—
—
—
—
—
—
—
18,297
18,297
Equity-based compensation expense —
—
—
—
—
—
—
—
—
—
713
—
713
Other, net 600
—
—
—
—
—
—
—
—
(1 ) —
—
(1 )
June 30, 2019 $ 107,547
44,929,110
$ 449
13,006,780
$ 130
8,612,728
$ 86
23,870
$ —
$ 701,635
$ 86,437
$ (347,152 ) $ 441,585

See accompanying notes to ~~Sunnova Energy Corporation~~ unaudited condensed consolidated financial statements.

Table of Contents

NOTES TO ~~SUNNOVA ENERGY COPORATION~~

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Description of Business and Basis of Presentation

We are a leading residential solar and ~~battery~~energy storage service provider, serving ~~more than~~ ~~67,000~~over 162,000 customers in more than 2025 United States ("U.S.") states and territories. Sunnova Energy Corporation was incorporated in Delaware on October 22, 2012 and formed ~~SEI~~Sunnova Energy International Inc. ("SEI") as a Delaware corporation on April 1, 2019. We completed our ~~IPO~~initial public offering on July 29, ~~2019;~~2019 (our "IPO"); and in connection with ~~the~~our IPO, all of Sunnova Energy Corporation's ownership interests were contributed to SEI. ~~See Note 15, Subsequent Events.~~Unless the context otherwise requires, references in this report to "Sunnova," the "Company," "we," "our," "us," or like terms, refer to SEI and its consolidated subsidiaries.

Our goal is to be the leading provider of clean, affordable and reliable energy for consumers, and we operate with a simple mission: to power energy independence. We were founded to deliver customers a better energy service at a better price; and through solar and solar plus energy storage service offerings, we are disrupting the traditional energy landscape and the way the 21st century customer generates and consumes electricity.

We have a differentiated residential solar dealer model in which we partner with local dealers who originate, design and install ~~customers’~~our customers' solar energy systems and energy storage systems on our behalf. ~~The unique~~Our focus on ~~this~~our dealer model enables us to leverage ~~the dealers’~~our dealers' specialized knowledge, connections and experience in local markets to drive customer origination while providing ~~the~~our dealers with access to high quality products at competitive prices, ~~and~~as well as technical oversight and expertise. We believe this structure provides operational flexibility, reduces exposure to labor shortages and ~~lower~~lowers fixed costs relative to ~~peer companies,~~our peers, furthering our competitive advantage.

Our recently completed acquisition of SunStreet Energy Group, LLC, a Delaware limited liability company ("SunStreet"), focuses primarily on solar energy systems and energy storage systems for homebuilders. The acquisition is expected to enhance our position in the new homebuilder market. We believe the acquisition will provide us a new strategic path to further scale our business, reduce customer acquisition costs, provide a multi-year supply of homesites through the development of new home solar communities and develop clean and resilient residential microgrids across the U.S.

We provide our services through long-term residential solar service agreements with a diversified pool of ~~high~~ credit quality customers. Our solar service agreements typically are structured as either a legal-form lease (a "lease") of a solar energy system or energy storage system to the customer, the sale of the solar energy system's output to the customer under a power purchase agreement ("PPA") or the purchase of a solar energy system or energy storage system with financing provided by us (a "loan"). We also enable customers originated through our homebuilder channel the option of purchasing the system when the customer closes on the purchase of a new home. The initial term of our solar service agreements is typically 10, 15, 20 or 25 years, during which time we provide or arrange for ongoing services to customers, including monitoring, maintenance and warranty services. Our lease and PPA agreements typically include ~~two~~an opportunity for customers to renew for up to an additional 10 years, via 2 five-year ~~automatic extensions.~~or 1 ten-year renewal options. Customer payments and rates can be fixed for the duration of the solar service agreement or escalated at a pre-determined percentage annually. We also receive tax benefits and other incentives from leases and PPAs, a portion of which we finance through tax equity, non-recourse debt structures and hedging arrangements in order to fund our upfront costs, overhead and growth investments. Our future success depends in part on our ability to raise capital from third-party investors and commercial sources. We have an established track record of attracting capital from diverse sources. From our inception through June 30, 2021, we have raised more than $8.0 billion in total capital commitments from equity, debt and tax equity investors.

Basis of Presentation

The accompanying interim unaudited condensed consolidated financial statements ("interim financial statements") include our consolidated balance sheets, statements of operations, statements of redeemable noncontrolling interests and ~~stockholders'~~ equity and statements of cash flows and have been prepared in accordance with ~~GAAP~~accounting principles generally accepted in the United States of America ("GAAP") from records maintained by us. We have condensed or omitted certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP pursuant to the applicable rules and regulations of the ~~SEC~~Securities and Exchange Commission ("SEC") regarding interim financial reporting. As such, these ~~unaudited condensed consolidated~~interim financial statements should be read in conjunction with our ~~2018~~2020 annual audited ~~annual~~ consolidated financial statements and accompanying notes included in ~~the prospectus dated July 24, 2019~~our Annual Report on Form 10-K filed with the SEC ~~pursuant to Rule 424 promulgated under the Securities Act of 1933, as amended. The~~on February 25, 2021. Our interim financial statements reflect all normal recurring adjustments necessary, in our opinion, to state fairly our financial position and results of operations for the reported periods. Amounts reported for interim periods may not be indicative of a full year period because of our continual growth, seasonal fluctuations in demand for power, timing of maintenance and other expenditures, changes in interest expense and other factors.

Our interim financial statements ~~reflect~~include our accounts ~~and operations~~ and those of our subsidiaries in which we have a controlling financial interest. In accordance with the provisions of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 810, Consolidation, we consolidate any VIE of which we are the primary beneficiary. We form VIEs with our investors in the ordinary course of business to facilitate the funding and monetization of certain attributes associated with our solar energy systems. The typical condition for a controlling financial interest ~~ownership~~ is holding a majority of the voting interests of an ~~entity; however,~~entity. However, a controlling financial interest may also exist in entities, such as VIEs, through

Table of Contents

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

arrangements that do not involve ~~controlling~~holding a majority of the voting interests. ~~ASC 810 requires a variable interest holder to consolidate a VIE if~~A primary beneficiary is defined as the party that ~~party~~ has (a) the power to direct the activities of ~~the~~a VIE that most significantly impact the VIE's economic performance and (b) the obligation to absorb losses or ~~the right to~~ receive benefits from the VIE that could potentially be significant to the VIE. We do not consolidate a VIE in which we have a majority ownership interest when we are not considered the primary beneficiary. We have considered the provisions within the contractual arrangements that grant us power to manage and make decisions that affect the operation of our VIEs, including determining the solar energy systems contributed to the VIEs, and the installation, operation and maintenance of the solar energy systems. We consider the rights granted to the other investors under the contractual arrangements to be more protective in nature rather than substantive participating rights.

~~NOTES TO SUNNOVA ENERGY COPORATION~~

~~UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

As such, we have determined we are the primary beneficiary of our VIEs and evaluate our relationships with our VIEs on an ongoing basis to ~~ensure~~determine whether we continue to be the primary beneficiary. We have eliminated all intercompany ~~accounts and~~ transactions in consolidation.

~~Reverse Stock Split~~Revisions

~~In connection with the IPO, we decreased the total number of outstanding shares with a 1 for 2.333 reverse stock split effective July 29, 2019 and subsequent~~We have revised our previously issued interim financial statements to correct immaterial classification errors pertaining to the ~~date~~Class A members' interests in certain of our tax equity funds. We incorrectly classified the Class A members' interests as redeemable noncontrolling interests whereas these interests should have been classified as noncontrolling interests. These misclassifications impacted our consolidated statements of redeemable noncontrolling interests and equity. The following table presents the impact of these ~~interim~~revisions on the financial ~~statements. All current and past period amounts stated herein have given effect to the reverse stock split.~~statements:


	Redeemable Noncontrolling Interests						Noncontrolling Interests
	As Previously Reported		Revisions		As Revised		As Previously Reported		Revisions		As Revised
	(in thousands)
December 31, 2019	$	172,305	$	(45,176)	$	127,129	$	0	$	45,176	$	45,176
Net income (loss)	(5,929)		7,505		1,576		0		(7,505)		(7,505)
Contributions from redeemable noncontrolling interests and noncontrolling interests	102,342		(99,172)		3,170		0		99,172		99,172
Distributions to redeemable noncontrolling interests	(1,373)		0		(1,373)		0		0		0
Costs related to redeemable noncontrolling interests and noncontrolling interests	(707)		894		187		0		(894)		(894)
Equity in subsidiaries attributable to parent	(24,164)		24,309		145		0		(24,309)		(24,309)
Other, net	(47)		3		(44)		0		(3)		(3)
March 31, 2020	242,427		(111,637)		130,790		0		111,637		111,637
Net income (loss)	(3,471)		6,340		2,869		0		(6,340)		(6,340)
Contributions from noncontrolling interests	18,311		(18,311)		0		0		18,311		18,311
Distributions to redeemable noncontrolling interests and noncontrolling interests	(1,227)		16		(1,211)		0		(16)		(16)
Costs related to noncontrolling interests	(604)		604		0		0		(604)		(604)
Equity in subsidiaries attributable to parent	(17,359)		17,291		(68)		0		(17,290)		(17,290)
Other, net	228		(35)		193		0		34		34
June 30, 2020	$	238,305	$	(105,732)	$	132,573	$	0	$	105,732	$	105,732

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Reclassifications

Certain other prior period amounts have been reclassified to conform to the current period presentation. These reclassifications did not have a significant impact on ~~the Company's~~our interim financial statements.

Coronavirus ("COVID-19") Pandemic

The ongoing COVID-19 pandemic has resulted and may continue to result in widespread adverse impacts on the global economy. We have experienced some resulting disruptions to our business operations as the COVID-19 virus has continued to circulate through the states and U.S. territories in which we operate.

Social distancing guidelines, stay-at-home orders and similar government measures associated with the COVID-19 pandemic, as well as actions by individuals to reduce their potential exposure to the virus, contributed to a decline in origination. This decline reflected an inability by our dealers to perform in-person sales calls based on the stay-at-home orders in some locations. To adjust to these government measures, our dealers expanded the use of digital tools and origination channels and created new methods that offset restrictions on their ability to meet with potential new customers in person. Such efforts drove an increase in new contract originations. We have seen the use of websites, video conferencing and other virtual tools as part of our origination process expand widely and contribute to our growth.

Throughout the COVID-19 pandemic, we have continued to service and install solar energy systems and have seen minimal impact to our supply chain as our technicians and dealers have largely been able to successfully procure the equipment needed to service and install solar energy systems. We cannot predict the full impact the COVID-19 pandemic will have on our business, cash flows, liquidity, financial condition and results of operations at this time due to numerous uncertainties. We will continue to monitor developments affecting our workforce, our customers and our business operations generally, and will take actions we determine are necessary in order to mitigate these impacts.

(2) Significant Accounting Policies

Included below are updates to significant accounting policies disclosed in our ~~2018~~2020 annual audited ~~annual~~ consolidated financial statements.

Use of Estimates

The application of GAAP in the preparation of the interim financial statements requires us to make estimates and assumptions that affect the amounts reported in the interim financial statements and accompanying notes. We regularly make significant estimates and assumptions including, but not limited to, (a) the collectability of accounts receivable from customers and dealers, (b) the valuation of inventory, (c) the analysis of revenue recognition for PPAs and leases, (d) the assumptions for determining the performance guarantee obligations, (e) the collectability of customer notes receivable, (f) the allocation of consideration paid in connection with accounting for business combinations, (g) the useful lives of solar energy systems and other property and equipment and the capitalization methodology of the indirect costs on those assets, (h) the valuation of the assumptions regarding asset retirement obligations ("ARO"), (i) the assumptions and estimates utilized in determining any warranty obligations, (j) the determination of valuation allowances associated with deferred tax assets, (k) the assessment of asset impairments, (l) the assumptions and estimates utilized in determining the fair value of derivative instruments, (m) the assumptions and estimates utilized in determining equity-based compensation expense, (n) the redemption value of redeemable noncontrolling interests and (o) the discount rate used for operating and finance leases. We base our 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.

Accounts Receivable

Accounts Receivable—Trade. Accounts receivable—trade primarily represents trade receivables from residential customers ~~under PPAs and leases~~ that are generally collected in the subsequent ~~month and~~month. Accounts receivable—trade is recorded at net ~~realizable value. We maintain~~of an allowance for ~~doubtful~~credit losses, which is based on our assessment of the collectability of customer accounts ~~to reserve for potentially uncollectible accounts receivable.~~based on the best available data at the time. We review ~~our accounts receivable~~the allowance by considering factors such as historical experience, customer credit rating, contractual term, aging category and current economic conditions that may affect a customer's ability to pay to identify customers with ~~known~~potential disputes or collection issues. We write off accounts receivable when we deem them uncollectible. As of June 30, 2021, we have not experienced a significant increase in delinquent customer accounts and have not made any significant adjustments to our allowance for credit losses related to accounts receivable—trade as a result of the COVID-19 pandemic. The following table

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

presents the changes in the allowance for ~~doubtful accounts~~credit losses recorded against accounts receivable—trade, net in the unaudited condensed consolidated balance sheets:



	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(in thousands)
Balance at beginning of period	$	848	$	747	$	912	$	960
Impact of ASC 326 adoption	—		—		—		(240)
Provision for current expected credit losses	441		477		837		879

Write off of uncollectible accounts	(490)		(463)		(986)		(848)
Recoveries	58		13		94		22
Other, net	1		(1)		1		0
Balance at end of period	$	858	$	773	$	858	$	773

As of June 30,
2019 2018
(in thousands)
Balance at beginning of period $ 723
$ 427
Bad debt expense 638
359
Write off of uncollectible accounts (664 ) (399 )
Recoveries 49
26
Other, net —
(85 )
Balance at end of period $ 746
$ 328

Accounts Receivable—Other. Accounts receivable—other primarily represents receivables related to the sale of inventory.

~~NOTES TO SUNNOVA ENERGY COPORATION~~

~~UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Inventory

Inventory is stated at the lower of cost and net realizable value using the first-in, first-out method. Inventory primarily represents raw materials, such as energy storage systems, photovoltaic ~~("PV")~~ modules, inverters, meters, ~~batteries~~modems, homebuilder construction in progress and other associated equipment ~~purchased and~~purchased. These materials are typically sold to dealers or held for use as original parts on new solar energy systems or replacement parts on existing solar energy systems. We ~~record inventory in other current assets in the consolidated balance sheets at the lower of cost and net realizable value. We~~ remove these items from inventory ~~using~~and record the ~~weighted-average method and~~transaction in typically one of these manners: (a) expense to operations and maintenance expense when installed as a replacement part for a solar energy system, (b) expense to cost of sales if sold directly or ~~(b)~~(c) capitalize to property and equipment when ~~installed as an original part on a solar energy system.~~installed. We periodically evaluate our inventory ~~reserves and write down the estimated value of excess~~for unusable and obsolete ~~inventory~~items based ~~upon~~on assumptions about future demand and market conditions. Based on this evaluation, provisions are made to write inventory down to market value. The following table presents the detail of inventory as recorded in other current assets in the unaudited condensed consolidated balance sheets:


	As of June 30, 2021		As of December 31, 2020


	(in thousands)
Energy storage systems and components	$	30,563	$	18,122
Modules and inverters	79,376		83,904
Homebuilder construction in progress	16,773		0
Meters and modems	1,292		563
Total	$	128,004	$	102,589

As of
June 30, 2019 As of
December 31, 2018
(in thousands)
Batteries and components $ 16,279
$ 8,394
Modules and inverters 88
433
Meters 159
360
Total $ 16,526
$ 9,187

As of June 30, 2021 and December 31, 2020, we recorded accrued expenses of $13.4 million and $8.9 million, respectively, for inventory purchases.

Fair Value of Financial Instruments

Fair value is an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market ~~participants.~~participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions market participants would use in pricing an asset or a liability. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes inputs that may be used to measure fair value as follows:

•Level 1—Observable inputs that reflect unadjusted quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date.

•Level 2—Observable inputs other than Level 1 prices, such as quoted market prices for similar assets or liabilities in active markets, quoted market prices 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 assets or liabilities.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

•Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy must be determined based on the lowest level input that is significant to the fair value measurement. An assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability. Our financial instruments include cash, accounts receivable, notes receivable, accounts payable, accrued expenses, long-term debt, ~~and~~ interest rate swaps and ~~swaptions.~~contingent consideration. The carrying values of accounts receivable, accounts payable and accrued expenses approximate the fair values due to the fact that they are short-term in nature (Level 1). We estimate the fair value of our customer notes receivable based on interest rates currently offered under the ~~Easy Own~~loan program with similar maturities and terms (Level 3)~~, though we did not elect the fair value option for this class of financial instruments.~~. We estimate the fair value of our fixed-rate long-term debt ~~excluding the senior secured notes (see Note 7, Long-Term Debt) for which we selected the fair value option,~~ based on interest rates currently offered for debt with similar maturities and terms (Level 3). We determine the fair values of the interest rate derivative transactions based on a discounted cash flow method using contractual terms of the transactions. The floating interest rate is based on observable rates consistent with the frequency of the interest cash flows (Level 2). For contingent consideration, we estimate the fair value of the installation earnout using the Monte Carlo model and the microgrid earnout using a scenario-based methodology, both using Level 3 inputs. See Note 6, Customer Notes Receivable, Note 7, Long-Term Debt, ~~and~~ Note 8, Derivative ~~Instruments.~~Instruments and Note 10, Acquisitions.

We estimate the fair value of the senior secured notes based on a market approach model using Level 3 inputs that incorporates a binomial tree model in determining the value of the senior secured notes in probability scenarios of an IPO of SEI and a discounted future cash flow model in determining the value of the convertible notes upon no IPO occurrence, which we weight based on probability of occurrence. The significant Level 3 inputs used in the binomial tree model are (a) expected volatility and comparable metrics based on market competitors, (b) a discount for lack of marketability related to equity classes, (c) our risk-free rate and (d) the expected probability of occurrence of an IPO event to determine the value of equity classes in each IPO scenario. The significant Level 3 inputs used in the discounted future cash flow model are (a) projected customer growth rates by product, (b) projected operating results and free cash flows based on internal forecasts, (c) EBITDA

~~NOTES TO SUNNOVA ENERGY COPORATION~~

~~UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

multiples, (d) expected terminal value and (e) the weighted-average cost of capital used to discount future cash flows. Fair value measurements using the market approach model can be sensitive to significant changes in one or more of the inputs. A significant increase (decrease) in the expected volatility, risk-free rate or the probability of occurrence of an IPO event would result in a higher (lower) fair value for the senior secured notes.

Changes in fair value of the ~~senior secured notes~~contingent consideration are included in other operating expense (income) ~~expense~~ in the consolidated statements of operations. The following table summarizes the change in fair value of our financial liabilities accounted for at fair value on a recurring basis using Level 3 inputs as recorded in other long-term ~~debt, net—affiliates~~liabilities in the unaudited condensed consolidated balance sheets:

As of June 30,
2019 2018
(in thousands)
Balance at beginning of period $ —
$ —
Additions 55,506
—
Change in fair value 534
—
Balance at end of period $ 56,040
$ —


	Six Months Ended June 30,
	2021		2020
	(in thousands)
Balance at beginning of period	$	0	$	0
Additions	81,842		0
Change in fair value	4,299		0

Balance at end of period	$	86,141	$	0

~~Derivative Instruments~~

Our derivative instruments consist of interest rate swaps and swaptions that are not designated as cash flow hedges or fair value hedges under accounting guidance. We use interest rate swaps and swaptions to manage our net exposure to interest rate changes. We record the derivatives in other assets and other long-term liabilities in the consolidated balance sheets and the changes in fair value are recorded in interest expense, net in the consolidated statements of operations. We include unrealized gains and losses on derivatives as a non-cash reconciling item in operating activities in the consolidated statements of cash flows. We include realized gains and losses on derivatives as a change in components of operating assets and liabilities in operating activities in the consolidated statements of cash flows. See Note 8, Derivative Instruments.

Revenue

The following table presents the detail of revenue as recorded in the unaudited condensed consolidated statements of operations:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(in thousands)
PPA revenue	$	26,250	$	19,922	$	43,084	$	32,555
Lease revenue	17,523		12,338		33,920		23,880
Solar renewable energy certificate revenue	11,833		8,735		17,790		13,098
Cash sales revenue	6,938		0		6,938		0
Loan revenue	1,679		634		2,874		1,233
Other revenue	2,333		1,161		3,226		1,853
Total	$	66,556	$	42,790	$	107,832	$	72,619

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(in thousands)
Revenue under PPAs $ 13,954
$ 11,459
$ 23,566
$ 18,747
Revenue under leases 9,620
8,144
19,258
15,381
Solar renewable energy certificate revenue 9,716
8,898
16,308
13,862
Easy Own program revenue 363
224
734
402
Other revenue 959
238
1,461
355
Total $ 34,612
$ 28,963
$ 61,327
$ 48,747

We recognize revenue from contracts with customers as we satisfy our performance obligations at a transaction price reflecting an amount of consideration based upon an estimated rate of ~~return.~~return, net of cash incentives. We express this rate of return as the solar rate per ~~kWh~~kilowatt hour ("kWh") in the customer contract. The amount of revenue we recognize does not equal customer cash payments because we satisfy performance obligations ~~are satisfied~~ ahead of cash receipt or evenly as we provide continuous access on a stand-ready basis to the solar energy system. We reflect the differences between revenue recognition and cash payments received in accounts receivable, other assets or deferred revenue, as appropriate. Revenue allocated to remaining performance obligations represents contracted revenue we have not yet recognized and includes deferred revenue as well as

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

amounts that will be invoiced and recognized as revenue in future periods. Contracted but not yet recognized revenue was approximately ~~$1.0~~$1.8 billion as of June 30, ~~2019,~~2021, of which we expect to recognize approximately 4% over the next 12 months. We do not expect the annual recognition to vary significantly over approximately the next 20 years as the vast majority of existing solar service agreements have at least 20 years remaining, given the average age of the fleet of solar energy systems under contract is less than ~~three~~four years.

~~NOTES TO SUNNOVA ENERGY COPORATION~~Certain customers may receive cash incentives. We defer recognition of the payment of these cash incentives and recognize them over the life of the contract as a reduction to revenue. The deferred payment is recorded in other assets for customers who receive the cash incentives under our lease and PPA agreements, and as a contra-liability in other long-term liabilities for customers who receive the cash incentives under our loan agreements.

~~UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

PPAs. Customers purchase electricity from us under PPAs. Pursuant to ASC 606, we recognize revenue based upon the amount of electricity delivered as determined by remote monitoring equipment at solar rates specified under the PPAs. All customers must pass our credit evaluation process. The PPAs generally have a term of 20 or 25 years with an opportunity for customers to renew for up to an additional 10 years, via ~~two 5-year~~2 five-year or 1 ten-year renewal options.

Leases. We are the lessor under lease agreements for solar energy systems and energy storage systems, which do not meet the definition of a lease under ASC 842 and are accounted for as contracts with customers under ASC 606. We recognize revenue on a straight-line basis over the contract term as we satisfy our obligation to provide continuous access to the solar energy system. All customers must pass our credit evaluation process. The lease agreements generally have a term of 20 or 25 years with an opportunity for customers to renew for up to an additional 10 years, via ~~two 5-year~~2 five-year or 1 ten-year renewal options.

We ~~have provided~~provide customers under our ~~leases~~lease agreements a performance guarantee that each solar energy system will achieve a certain specified minimum solar energy production output, which is a significant proportion of its expected output. The ~~solar energy system may not achieve~~ specified minimum solar energy production output may not be achieved due to natural fluctuations in the weather ~~and~~or equipment failures from exposure and wear and tear outside of our control, among other factors. We determine the amount of the ~~guarantee~~guaranteed output based on a number of different factors, including: (a) the specific site information relating to the tilt of the panels, azimuth (a horizontal angle measured clockwise in degrees from a reference direction) of the panels, size of the system, and shading on site; (b) the calculated amount of available irradiance (amount of energy for a given flat surface facing a specific direction) based on historical average weather data and (c) the calculated amount of energy output of the solar energy system. While actual irradiance levels can significantly change year over year due to natural fluctuations in the weather, we expect the levels to average out over the term of a ~~25-year~~ lease and to approximate the levels used in determining the amount of the performance guarantee. Generally, weather fluctuations are the most likely reason a solar energy system may not achieve a certain specified minimum solar energy production output.

If the solar energy system does not produce the guaranteed production amount, we ~~may be~~are required to refund a portion of the previously remitted customer payments, where the repayment is calculated as the product of (a) the shortfall production amount and (b) the dollar amount (guaranteed rate) per kWh that is fixed throughout the term of the contract. These remittances of a customer's payments, if needed, are payable in January following the end of the first three years of the solar energy system's placed in service date and then every annual period ~~thereafter (see~~thereafter. See Note ~~14,~~15, Commitments and ~~Contingencies).~~Contingencies.

Solar Renewable Energy Certificates. Each solar renewable energy certificate ("SREC") represents one ~~MWh~~megawatt hour (1,000 kWh) generated by a solar energy system. SRECs can be sold with or without the actual electricity associated with the renewable-based generation source. We account for the SRECs we generate from our solar energy systems as governmental incentives with no costs incurred to obtain them and do not consider those SRECs output of the underlying solar energy systems. We classify these SRECs as inventory held until sold and delivered to third parties. As we did not incur costs to obtain these governmental incentives, the inventory carrying value for the SRECs was $0 as of June 30, ~~2019~~2021 and December 31, ~~2018.~~2020. We enter into economic hedges related to expected production of SRECs through forward contracts. The contracts require us to physically deliver the SRECs upon settlement. We recognize the related revenue under ASC 606 upon satisfaction of the performance obligation to transfer the SRECs to the stated counterparty. Payments are typically received within one month of transferring the SREC to the ~~customer.~~counterparty. The costs related to the sales of SRECs are generally limited to broker fees ~~(included~~(recorded in cost of revenue—other), which are only paid in connection with certain transactions. In certain circumstances we are required to purchase SRECs on the open market to fulfill minimum delivery requirements under our forward contracts.

~~Easy Own Program.~~Cash Sales. Cash sales revenue represents revenue from a customer's purchase of a solar energy system from us typically when purchasing a new home. We recognize the related revenue under ASC 606 upon verification of the home closing.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Loans. See discussion of ~~Easy Own~~loan revenue in the ~~"Easy Own Program"~~"Loans" section below.

~~Easy Own Program~~Other Revenue. Other revenue includes certain state and utility incentives, revenue from the direct sale of energy storage systems to customers and sales of service plans. We recognize revenue from state and utility incentives in the periods in which they are earned. We recognize revenue from the direct sale of energy storage systems in the period in which the storage components are placed in service. Service plans are available to customers whose solar energy system was not originally sold by Sunnova. We recognize revenue from service plan contracts over the life of the contract, which is typically five years or ten years.

Loans

We offer ~~an Easy Own~~a loan program, under which the customer finances the purchase of a solar energy system or energy storage system through a solar service agreement, typically for a term of 10, 15 or 25 years. We recognize cash payments received from customers on a monthly basis under ~~the Easy Own~~our loan program (a) as revenue under ASC 606, to the extent attributable to payments for operations and maintenance services we provide, which we recognize as a stand-ready obligation on a straight-line basis over the term of the contract; (b) as interest income, to the extent attributable to earned interest on the ~~contract; and (c)~~contract that financed the customer's purchase of the solar energy system or energy storage system; (b) as a reduction of a note receivable ~~included in current and long-term assets,~~on the balance sheet, to the extent attributable to a return of principal (whether scheduled or prepaid) on the ~~contract.~~

contract that financed the customer's purchase of the solar energy system or energy storage system; and (c) as revenue, to the extent attributable to payments for operations and maintenance services provided by us. To qualify for the ~~Easy Own~~loan program, a customer must pass our credit evaluation process, which requires the customer to have a minimum FICO® score of ~~650~~600 to ~~695~~720 depending on certain circumstances, and we secure the loans with the solar energy systems or energy storage systems financed. The credit evaluation process is performed once for each customer at the time the customer is entering into the solar service agreement with us.

Our investments in solar energy systems and energy storage systems related to the loan program that are not yet placed in service are recorded in other assets in the consolidated balance sheets and are transferred to customer notes receivable upon being placed in service. Customer notes receivable are recorded at amortized cost, net of an allowance for credit losses (as described below), in other current assets and customer notes receivable in the consolidated balance sheets. Accrued interest receivable related to our customer notes receivable is recorded in accounts receivable—trade, net in the consolidated balance sheets. Interest income from customer notes receivable is recorded in interest income in the consolidated statements of operations. The amortized cost of our customer notes receivable is equal to the principal balance of customer notes receivable outstanding and does not include accrued interest receivable. Customer notes receivable continue to accrue interest until they are written off against the allowance, which occurs when the balance is 180 days or more past due unless the balance is in the process of collection. Customer notes receivable are considered past due one day after the due date based on the contractual terms of the loan agreement. In all cases, customer notes receivable balances are placed on a nonaccrual status or written off at an earlier date when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously written off and expected to be written off. Accrued interest receivable for customer notes receivable placed on a nonaccrual status is recorded as a reduction to interest income. Interest received on such customer notes receivable is accounted for on a cash basis until the customer notes receivable qualifies for the return to accrual status. Customer notes receivable are returned to accrual status when there is no longer any principal or interest amounts past due and future payments are reasonably assured.

The allowance for credit losses is deducted from the customer notes receivable amortized cost to present the net amount expected to be collected. It is measured on a collective (pool) basis when similar risk characteristics (such as financial asset type, customer credit rating, contractual term and vintage) exist. In determining the allowance for ~~uncollectible notes receivable,~~credit losses, we identify customers with ~~known~~potential disputes or collection issues and consider our historical level of credit losses and current economic trends that might impact the level of future credit losses. ~~We write off~~Adjustments to historical loss information are made for differences in current loan-specific risk characteristics, such as differences in underwriting standards. Expected credit losses are estimated over the contractual term of the loan agreements based on the best available data at the time, and adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless either of the following applies: (a) we have a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual customer or (b) the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancelable by us. As of June 30, 2021, we have not experienced a significant increase in delinquent customer notes receivable ~~when they are deemed uncollectible. In addition, there were no~~

~~NOTES TO SUNNOVA ENERGY COPORATION~~

~~UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~customer notes receivable~~and have not ~~accruing interest and~~ ~~an insignificant amount~~made any significant adjustments to our allowance for credit losses related to loans as a result of ~~past due customer notes receivable as of June 30, 2019 and December 31, 2018.~~the COVID-19 pandemic. See Note 6, Customer Notes Receivable.

~~The following table presents the changes in the allowance for losses recorded against customer notes receivable in the unaudited condensed consolidated balance sheets:~~

As of June 30,
2019 2018
(in thousands)
Balance at beginning of period $ 710
$ 602
Bad debt expense 273
166
Write off of uncollectible accounts (39 ) —
Balance at end of period $ 944
$ 768

Deferred Revenue

Deferred revenue consists of amounts for which the criteria for revenue recognition have not yet been met and includes (a) down payments and partial or full prepayments from customers, (b) differences due to the timing of energy production versus billing for certain types of PPAs and (c) payments for unfulfilled performance obligations from the ~~Easy Own~~loan program which will be

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

recognized on a straight-line basis over the remaining term of the respective solar service ~~agreements.~~agreements, net of any cash incentives earned by the customers. Deferred revenue was $58.9 million as of December 31, 2019. The following table presents the detail of deferred revenue as recorded in other current liabilities and other long-term liabilities in the unaudited condensed consolidated balance sheets:


	As of June 30, 2021		As of December 31, 2020


	(in thousands)
Loans	$	162,985	$	93,859
PPAs and leases	13,855		11,787
SRECs	0		1,163
Total (1)	$	176,840	$	106,809

As of
June 30, 2019 As of
December 31, 2018
(in thousands)
Easy Own program $ 34,469
$ 27,793
PPAs and leases 6,271
6,255
Total (1) $ 40,740
$ 34,048

(1) Of this amount, ~~$651,000~~$9.7 million and ~~$1.6~~$3.8 million is recorded in other current liabilities as of June 30, ~~2019~~2021 and December 31, ~~2018,~~2020, respectively.

During the six months ended June 30, 2021 and 2020, we recognized revenue of $4.7 million and $2.2 million, respectively, from amounts recorded in deferred revenue at the beginning of the respective years.

Acquisitions

Business combinations are accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations, as amended by Accounting Standards Update ("ASU") No. 2017-01, Business Combinations: Clarifying the Definition of a Business. The purchase price of an acquisition is measured at the estimated fair value of the assets acquired, equity instruments issued and liabilities assumed at the acquisition date. Any noncontrolling interests acquired are also initially measured at fair value. Costs that are directly attributable to the acquisition are expensed as incurred to general and administrative expense. We recognize goodwill if the aggregate fair value of the total purchase consideration and the noncontrolling interests is in excess of the aggregate fair value of the assets acquired and liabilities assumed. We may engage third-party valuation firms to assist in determining the fair values. The operating results of an acquired business are included in our results of operations from the date of acquisition. We have up to one year from the acquisition date to complete the fair value purchase price allocation. See Note 10, Acquisitions.

Asset acquisitions are measured based on the cost to us, including transaction costs. Asset acquisition costs, or the consideration transferred by us, are assumed to be equal to the fair value of the net assets acquired. If the consideration transferred is cash, measurement is based on the amount of cash we paid to the seller, as well as transaction costs incurred. Consideration given in the form of non-monetary assets, liabilities incurred or equity instruments issued is measured based on either the cost to us or the fair value of the assets or net assets acquired, whichever is more clearly evident. The cost of an asset acquisition is allocated to the assets acquired based on their estimated fair values. Goodwill is not recognized in an asset acquisition.

Intangibles

Our purchased intangible assets are stated at cost less accumulated amortization. Our intangible assets acquired from a business combination or asset acquisition are stated at the estimated fair value on the date of the acquisition less accumulated amortization (see Note 10, Acquisitions). We amortize intangible assets to general and administrative expense using the

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

straight-line method. The following table presents the detail of intangible assets as recorded in other assets in the unaudited condensed consolidated balance sheets:


	Useful Lives	As of June 30, 2021		As of December 31, 2020


	(in years)	(in thousands)
Customer relationships - system sales	10	$	142,425	$	0
Customer relationships - servicing	10	3,856		0
Customer relationships - new customers	4	29,099		0
Trade name	15	11,712		0
Tax equity commitment	4	20,032		0
Software license	3	331		331
Trademark	3	68		68
Other	3	88		88
Intangible assets, gross		207,611		487
Less: accumulated amortization		(7,514)		(449)
Intangible assets, net		$	200,097	$	38

As of June 30, 2021, amortization expense related to intangible assets to be recognized is as follows:


	Amortization Expense
	(in thousands)
Remaining 2021	$	13,860
2022	27,700
2023	27,692
2024	27,692
2025	18,480
2026 and thereafter	84,673
Total	$	200,097

Goodwill

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed. The purchase price is allocated using the information currently available, and may be adjusted, up to one year from the acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates. Goodwill is reviewed for impairment at least annually or whenever events or changes in circumstances indicate the carrying amount may be impaired. When assessing goodwill for impairment, we use qualitative and if necessary, quantitative methods in accordance with GAAP.

New Accounting Guidance

New accounting pronouncements are issued by the FASB or other standard setting bodies and are adopted as of the specified effective date.

In ~~June 2016,~~August 2020, the FASB issued ASU No. ~~2016-13,~~2020-06, ~~Financial Instruments—Credit Losses~~Debt—Debt with Conversion and Other Options and Derivatives and Hedging—Contracts in Entity's Own Equity: Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, ~~which will require entities~~ to ~~use~~simplify the accounting for certain financial instruments with characteristics of liabilities and equity by removing the separation models for convertible debt with a ~~forward-looking expected loss approach instead~~cash conversion feature and convertible instruments with a beneficial conversion feature. This ASU also expands the required disclosures related to the terms and features of convertible instruments, how the ~~incurred loss approach in effect today when estimating~~instruments have been reported and information about events, conditions and circumstances that can affect how to assess the ~~allowance for credit losses.~~amount or timing of an entity's future cash flows related to those instruments. This ASU is effective for annual and interim reporting periods in ~~2020. In 2018 and 2019, the FASB issued the following ASUs related to ASU 2016-13: ASU No. 2018-19,~~ ~~Codification Improvements to Topic 326, Financial Instruments—Credit Losses, and ASU 2019-05,~~ ~~Financial Instruments—Credit Losses: Targeted Transition Relief. The supplemental ASUs must be~~2022. We adopted ~~simultaneously with ASU 2016-13. We have not yet determined the potential impact of~~ this ASU ~~on our consolidated financial statements and related disclosures.~~

~~In August 2018,~~in January 2021 using the ~~FASB issued ASU No. 2018-13,~~ ~~Fair Value Measurement: Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement~~,modified retrospective approach, which modifies the disclosure requirements on fair value measurements. This ASU is effective for annual and interim reporting periods in 2020. We have not yet determined the potential impact of this ASU on our consolidated financial statements and related disclosures.

~~In August 2018, the FASB issued ASU No. 2018-15,~~ ~~Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred~~resulted in a ~~Cloud Computing Arrangement that is a Service Contract, which requires certain implementation costs~~cumulative-effect adjustment to ~~be capitalized. This ASU is effective for annual and interim reporting periods in 2020. We have not yet determined the potential impact~~stockholders' equity of ~~this ASU on our consolidated financial statements and related disclosures.~~$2.3 million.

1719

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NOTES TO ~~SUNNOVA ENERGY COPORATION~~

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~In April 2019, the FASB issued ASU No. 2019-04,~~ ~~Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments~~, to clarify and address implementation issues around the new standards related to credit losses, hedging and recognizing and measuring financial instruments. Amendments in this ASU related to credit losses and hedging have the same effective dates as the respective standards unless an entity has already adopted the standards, in which case the amendments are effective for annual and interim reporting periods in 2020. Amendments in this ASU related to recognizing and measuring financial instruments are effective for annual and interim reporting periods in 2020. We have not yet determined the potential impact of this ASU on our financial statements and related disclosures.

~~In July 2019, the FASB issued ASU No. 2019-07,~~ ~~Codification Updates to SEC Sections~~, to reflect the recently adopted amendments to the SEC final rules that were done to modernize and simplify certain reporting requirements for public companies, investment advisers and investment companies. This ASU is effective upon issuance and did not have a significant impact on our consolidated financial statements and related disclosures.

(3) Property and Equipment

The following table presents the detail of property and equipment, net as recorded in the unaudited condensed consolidated balance sheets:


	Useful Lives	As of June 30, 2021		As of December 31, 2020


	(in years)	(in thousands)
Solar energy systems	35	$	2,609,830	$	2,298,427
Construction in progress		150,704		160,618
Asset retirement obligations	30	40,260		35,532
Information technology systems	3	37,722		35,077
Computers and equipment	3-5	2,328		1,727
Leasehold improvements	3-6	3,143		2,770
Furniture and fixtures	7	1,132		811
Vehicles	4-5	1,638		1,638
Other	5-6	157		157
Property and equipment, gross		2,846,914		2,536,757
Less: accumulated depreciation		(255,873)		(213,588)
Property and equipment, net		$	2,591,041	$	2,323,169

Useful Lives As of
June 30, 2019 As of
December 31, 2018
(in years) (in thousands)
Solar energy systems 35 $ 1,459,249
$ 1,311,458
Construction in progress
118,581
77,847
AROs 30 19,118
17,381
Information technology systems 3 20,488
17,380
Computers and equipment 3-5 1,433
1,251
Leasehold improvements 3-6 883
883
Furniture and fixtures 7 735
735
Vehicles 4 869
548
Other 5-6 116
52
Property and equipment, gross
1,621,472
1,427,535
Less: accumulated depreciation
(121,581 ) (99,078 )
Property and equipment, net
$ 1,499,891
$ 1,328,457

Solar Energy Systems. The amounts included in the above table for solar energy systems and substantially all the construction in progress relate to our customer contracts (including PPAs and leases). These assets had accumulated depreciation of ~~$107.4~~$224.5 million and ~~$87.6~~$188.8 million as of June 30, ~~2019~~2021 and December 31, ~~2018,~~2020, respectively.

(4) Detail of Certain Balance Sheet Captions

The following table presents the detail of other current assets as recorded in the unaudited condensed consolidated balance sheets:


	As of June 30, 2021		As of December 31, 2020


	(in thousands)
Inventory	$	128,004	$	102,589
Restricted cash	39,470		73,020
Current portion of customer notes receivable	36,194		24,035
Other prepaid assets	15,120		8,645
Prepaid inventory	5,012		3,352
Deferred receivables	5,450		2,678
Current portion of other notes receivable	787		853
Other	6		3
Total	$	230,043	$	215,175

As of
June 30, 2019 As of
December 31, 2018
(in thousands)
Inventory $ 16,526
$ 9,187
Current portion of notes receivable—Easy Own program 10,143
7,601
Prepaid assets 5,510
2,739
Current portion of notes receivable—other 1,043
1,522
Deferred receivables 842
555
Restricted cash 482
5,190
Total $ 34,546
$ 26,794

Table of Contents

NOTES TO ~~SUNNOVA ENERGY COPORATION~~

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the detail of other assets as recorded in the unaudited condensed consolidated balance sheets:


	As of June 30, 2021		As of December 31, 2020


	(in thousands)
Restricted cash	$	61,002	$	95,014
Construction in progress - customer notes receivable	145,639		85,604
Exclusivity and other bonus arrangements with dealers, net	73,542		55,709
Straight-line revenue adjustment, net	38,373		33,411

Other	39,174		24,586
Total	$	357,730	$	294,324

The following table presents the detail of other current liabilities as recorded in the unaudited condensed consolidated balance sheets:


	As of June 30, 2021		As of December 31, 2020


	(in thousands)
Interest payable	$	13,037	$	17,718
Deferred revenue	9,724		3,754
Current portion of performance guarantee obligations	2,896		3,308
Current portion of operating and finance lease liability	2,065		1,206
Other	382		28
Total	$	28,104	$	26,014

As of
June 30, 2019 As of
December 31, 2018
(in thousands)
Interest payable $ 13,486
$ 8,150
Current portion of performance guarantee obligations 3,618
2,580
Deferred revenue 651
1,613
Current portion of lease liability 946
871
Total $ 18,701
$ 13,214

(5) Asset Retirement Obligations ("ARO")

AROs consist primarily of costs to remove solar energy system assets and costs to restore the solar energy system sites to the original condition, which we estimate based on current market rates. For each solar energy system, we recognize the fair value of the ARO as a liability and capitalize that cost as part of the cost basis of the related solar energy system. The related assets are depreciated on a straight-line basis over 30 years, which is the estimated average time a solar energy system will be installed in a location before being removed, and the related liabilities are accreted to the full value over the same period of time. We revise our estimated future liabilities based on recent actual experiences, including third party cost estimates, average size of solar energy systems and inflation rates, which we evaluate at least annually. Changes in our estimated future liabilities are recorded as either a reduction or addition in the carrying amount of the remaining unamortized asset and the ARO and either decrease or increase our depreciation and accretion expense amounts prospectively. The following table presents the changes in AROs as recorded in other long-term liabilities in the unaudited condensed consolidated balance sheets:


	As of June 30,
	2021		2020
	(in thousands)
Balance at beginning of period	$	41,788	$	31,053
Additional obligations incurred	4,759		4,010
Accretion expense	1,349		1,013

Other	(40)		(33)
Balance at end of period	$	47,856	$	36,043

As of June 30,
2019 2018
(in thousands)
Balance at beginning of period $ 20,033
$ 15,347
Additional obligations incurred 1,755
2,041
Accretion expense 640
613
Other (21 ) (13 )
Balance at end of period $ 22,407
$ 17,988

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(6) Customer Notes Receivable

We offer ~~an Easy Own~~a loan program, under which the customer finances the purchase of a solar energy system or energy storage system through a solar service agreement ~~typically~~ for a term of 10, 15 or 25 years. AsThe following table presents the detail of ~~June 30, 2019, we recorded $233.8 million of notes receivable under the Easy Own program, of which $10.1 million is included in other current assets and $223.6 million is included in~~ customer notes receivable ~~net~~as recorded in the unaudited condensed consolidated balance ~~sheet. As of December 31, 2018, we recorded $179.6~~sheets and the corresponding fair values:


	As of June 30, 2021		As of December 31, 2020


	(in thousands)
Customer notes receivable	$	835,678	$	555,089
Allowance for credit losses	(26,018)		(17,668)
Customer notes receivable, net (1)	$	809,660	$	537,421
Estimated fair value, net	$	822,843	$	548,238

(1) Of this amount, $36.2 million ~~of notes receivable under the Easy Own program, of which $7.6~~and $24.0 million is ~~included~~recorded in other current assets as of June 30, 2021 and ~~$172.0 million is included~~December 31, 2020, respectively.

The following table presents the changes in the allowance for credit losses related to customer notes receivable ~~net~~as recorded in the unaudited condensed consolidated balance ~~sheet.~~ sheets:



	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(in thousands)
Balance at beginning of period	$	20,919	$	12,136	$	17,668	$	1,091
Impact of ASC 326 adoption	—		—		—		9,235
Provision for current expected credit losses (1)	5,098		1,407		8,349		3,218



Other, net	1		0		1		(1)
Balance at end of period	$	26,018	$	13,543	$	26,018	$	13,543

(1) In addition, we recognized $54,000 and $9,000 during the three months ended June 30, 2021 and 2020, respectively, and $116,000 and $62,000 during the six months ended June 30, 2021 and 2020, respectively, of provision for current expected credit losses related to our long-term receivables for our customer leases.

As of June 30, ~~2019~~2021 and December 31, ~~2018,~~2020, we invested ~~$23.1~~$145.6 million and ~~$20.4~~$85.6 million, respectively, in ~~Easy Own~~loan solar energy systems and energy storage systems not yet placed in ~~service, which is included in other assets in the unaudited condensed consolidated balance sheets. The fair values of our notes receivable and the corresponding carrying amounts are as follows:~~

~~Interest income from customer notes receivable is recorded in interest income in the consolidated statements of operations.~~service. For the three months ended June 30, ~~2019~~2021 and ~~2018,~~2020, interest income related to our customer notes receivable was ~~$2.7~~$7.9 million and ~~$1.4~~$6.6 million, respectively. For the six months ended June 30, ~~2019~~2021 and ~~2018,~~2020, interest income related to our customer notes receivable was ~~$5.0~~$15.0 million and ~~$2.5~~$10.9 million, respectively. As of June 30, 2021 and December 31, 2020, accrued interest receivable related to our customer notes receivable was $1.6 million and $1.2 million, respectively. As of June 30, 2021 and December 31, 2020, there were 0 customer notes receivable not accruing interest and thus, there was no allowance recorded for loans on nonaccrual status. For the three months ended June 30, 2021 and 2020, interest income of $0 was recognized for loans on nonaccrual status and accrued interest receivable of $0 was written off by reversing interest income. For the six months ended June 30, 2021 and 2020, interest income of $0 was recognized for loans on nonaccrual status and accrued interest receivable of $0 was written off by reversing interest income.

Table of Contents

NOTES TO ~~SUNNOVA ENERGY COPORATION~~

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We consider the performance of our customer notes receivable portfolio and its impact on our allowance for credit losses. We also evaluate the credit quality based on the aging status and payment activity. The following table presents the aging of the amortized cost of customer notes receivable:


	As of June 30, 2021		As of December 31, 2020


	(in thousands)
1-90 days past due	$	10,517	$	8,504
91-180 days past due	2,353		1,733
Greater than 180 days past due	7,951		6,855
Total past due	20,821		17,092
Not past due	814,857		537,997
Total	$	835,678	$	555,089

As of June 30, 2021 and December 31, 2020, the amortized cost of our customer notes receivable more than 90 days past due but not on nonaccrual status was $10.3 million and $8.6 million, respectively. The following table presents the amortized cost by origination year of our customer notes receivable based on payment activity.


	Amortized Cost by Origination Year
	2021		2020		2019		2018		2017		Prior		Total
	(in thousands)
Payment performance:
Performing	$	304,903	$	254,289	$	127,526	$	83,217	$	29,735	$	28,057	$	827,727
Nonperforming (1)	0		672		1,552		2,239		2,013		1,475		$	7,951
Total	$	304,903	$	254,961	$	129,078	$	85,456	$	31,748	$	29,532	$	835,678

(1) A nonperforming loan is a loan in which the customer is in default and has not made any scheduled principal or interest payments for 181 days or more.

(7) Long-Term Debt

Our subsidiaries with long-term debt include SEI, Sunnova Energy Corporation, ~~Sunnova Asset Portfolio 4, LLC ("AP4"), Sunnova AP 6 Warehouse II, LLC ("AP6WII"),~~ Helios Issuer, LLC ("HELI"~~), Sunnova LAP Holdings, LLC ("LAPH"~~), Sunnova EZ-Own Portfolio, LLC ("EZOP"), Sunnova ~~TEP I Holdings, LLC ("TEPIH"), Sunnova TEP II Holdings, LLC ("TEPIIH"),~~ Helios II Issuer, LLC ("HELII"), Sunnova RAYS I Issuer, LLC ("RAYSI") ~~and~~, Sunnova Helios III Issuer, LLC ("HELIII"), Sunnova TEP Holdings, LLC ("TEPH"), Sunnova TEP Inventory, LLC ("TEPINV"), Sunnova Sol Issuer, LLC ("SOLI"), Sunnova Helios IV Issuer, LLC ("HELIV"), Sunnova Asset Portfolio 8, LLC ("AP8"), Sunnova Sol II Issuer, LLC ("SOLII"), Sunnova Helios V Issuer, LLC ("HELV"), Moonroad Services Group, LLC ("MR") and Sunnova Sol III Issuer, LLC ("SOLIII"). The following table presents the detail of long-term debt, net ~~and long-term debt, net—affiliates~~ as recorded in the unaudited condensed consolidated balance sheets:

Six Months Ended
June 30, 2019
Weighted Average
Effective Interest
Rates As of June 30, 2019 Year Ended
December 31, 2018
Weighted Average
Effective Interest
Rates As of December 31, 2018
Long-term Current Long-term Current
(in thousands, except interest rates)
Sunnova Energy Corporation
Senior secured notes 10.10 % $ 56,040
$ —
14.89 % $ 40,000
$ —
Convertible notes 13.11 % 15,000
15,000
12.20 % —
15,000
Note payable —
1,798
—
—
Paid-in-kind 533
2,505
4,219
1,500
Deferred financing costs, net (49 ) —
(38 ) —
AP4
Secured term loan 5.98 % 91,365
4,354
5.25 % 101,026
3,036
Debt discount, net (667 ) —
(202 ) —
Deferred financing costs, net (289 ) —
(418 ) —
AP6WII
Warehouse credit facility 10.01 % —
—
8.47 % 54,603
—
Deferred financing costs, net —
—
(309 ) —
HELI
Solar asset-backed notes 6.63 % 217,920
9,746
6.47 % 224,835
10,522
Debt discount, net (3,635 ) —
(4,124 ) —
Deferred financing costs, net (6,390 ) —
(7,217 ) —
LAPH
Secured term loan 7.94 % 42,414
1,342
8.36 % 43,167
1,038
Debt discount, net (472 ) —
(552 ) —
Deferred financing costs, net (419 ) —
(482 ) —
EZOP
Warehouse credit facility 7.19 % 43,692
—
9.68 % 58,200
—
Debt discount, net (2,374 ) —
—
—
TEPIH
Secured term loan 25.17 % —
—
6.55 % 107,239
3,356
Debt discount, net —
—
(62 ) —
Deferred financing costs, net —
—
(4,892 ) —
TEPIIH
Warehouse credit facility 6.88 % 198,011
—
8.41 % 57,552
—
Debt discount, net (2,459 ) —
(1,710 ) —
Deferred financing costs, net —
—
(1,612 ) —
HELII
Solar asset-backed notes 5.75 % 246,173
13,312
5.60 % 253,687
9,013
Debt discount, net (52 ) —
(55 ) —
Deferred financing costs, net (6,279 ) —
(6,425 ) —
RAYSI
Solar asset-backed notes 5.48 % 131,175
6,189
—
—
Debt discount, net (1,625 ) —
—
—
Deferred financing costs, net (5,704 ) —
—
—
HELIII
Solar asset-backed notes 2.95 % 145,968
21,662
—
—
Debt discount, net (2,582 ) —
—
—
Deferred financing costs, net (2,411 ) —
—
—
Total $ 1,152,884
$ 75,908
$ 916,430
$ 43,465


	Six Months Ended June 30, 2021 Weighted Average Effective Interest Rates		As of June 30, 2021				Year Ended December 31, 2020 Weighted Average Effective Interest Rates		As of December 31, 2020
			Long-term		Current				Long-term		Current
	(in thousands, except interest rates)
SEI
9.75% convertible senior notes	21.70	%	$	0	$	0	14.53	%	$	95,648	$	0
0.25% convertible senior notes	0.70	%	575,000		0				0		0

Debt discount, net			(14,085)		0				(37,394)		0
Deferred financing costs, net			(473)		0				(239)		0
Sunnova Energy Corporation
Notes payable	14.47	%	0		0		7.14	%	0		2,254
HELI
Solar asset-backed notes	11.88	%	0		0		6.55	%	205,395		6,329
Debt discount, net			0		0				(2,241)		—
Deferred financing costs, net			0		0				(4,004)		0
EZOP

Table of Contents

NOTES TO ~~SUNNOVA ENERGY COPORATION~~

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Revolving credit facility	3.37	%	182,000		0		4.39	%	171,600		0
Debt discount, net			(1,143)		0				(1,431)		0
HELII
Solar asset-backed notes	5.76	%	221,668		10,606		5.71	%	227,574		11,707
Debt discount, net			(39)		0				(42)		0
Deferred financing costs, net			(4,710)		0				(5,085)		0
RAYSI
Solar asset-backed notes	5.55	%	118,163		5,723		5.49	%	120,391		5,836
Debt discount, net			(1,288)		0				(1,376)		0
Deferred financing costs, net			(4,122)		0				(4,334)		0
HELIII
Solar loan-backed notes	4.08	%	115,630		11,527		4.01	%	122,047		13,065
Debt discount, net			(2,365)		0				(2,423)		0
Deferred financing costs, net			(2,270)		0				(2,326)		0
TEPH
Revolving credit facility	6.05	%	218,950		0		5.81	%	239,570		0
Debt discount, net			(4,894)		0				(3,815)		0
TEPINV
Revolving credit facility	22.16	%	0		0		10.80	%	25,240		29,464
Debt discount, net			0		0				(1,322)		0
Deferred financing costs, net			0		0				(1,758)		0
SOLI
Solar asset-backed notes	3.93	%	376,238		15,480		3.91	%	384,258		15,416
Debt discount, net			(107)		0				(113)		0
Deferred financing costs, net			(8,405)		0				(8,915)		0
HELIV
Solar loan-backed notes	4.13	%	120,743		15,056		3.97	%	129,648		16,515
Debt discount, net			(810)		0				(885)		0
Deferred financing costs, net			(3,583)		0				(3,905)		0
AP8
Revolving credit facility	5.81	%	20,954		4,403		5.31	%	42,047		4,386
SOLII
Solar asset-backed notes	3.26	%	245,387		5,902		3.18	%	248,789		5,911
Debt discount, net			(79)		0				(80)		0
Deferred financing costs, net			(5,725)		0				(5,866)		0
HELV
Solar loan-backed notes	2.39	%	161,287		19,496				0		0
Debt discount, net			(914)		0				0		0
Deferred financing costs, net			(3,484)		0				0		0
MR
Note payable	7.04	%	0		23,227				0		0
SOLIII
Solar asset-backed notes	2.58	%	302,099		16,900				0		0
Debt discount, net			(139)		0				0		0
Deferred financing costs, net			(6,687)		0				0		0





Total			$	2,592,797	$	128,320			$	1,924,653	$	110,883

Availability. As of June 30, ~~2019,~~2021, we had ~~$156.3~~$294.4 million of available borrowing capacity under our various financing arrangements, consisting of $18.0 million under the EZOP ~~warehouse~~revolving credit facility, $241.8 million under the TEPH revolving credit facility and $34.6 million under the AP8 revolving credit facility. There was no available borrowing capacity ~~available~~ under any of our other financing arrangements. As of June 30, 2021, we were in compliance with all debt covenants under our financing arrangements.

Weighted Average Effective Interest Rates. The weighted average effective interest rates disclosed in the table above are the weighted average stated interest rates for each debt instrument plus the effect on interest expense for other items classified

Table of Contents

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

as interest expense, such as the amortization of deferred financing costs, amortization of debt discounts and commitment fees on unused ~~balances.~~balances for the period of time the debt was outstanding during the indicated periods.

~~Sunnova Energy Corporation Senior Secured Notes~~SEI Debt. In January 2019, we amended the terms of the senior secured notes to, among other things, extend the maturity date from January 2019 to July 2019. In April 2019, we further amended the terms of the senior secured notes to, among other things, (a) extend the maturity date from July 2019 to March 2021, (b) decrease the interest rate from 12.00% per annum to 9.50% per annum, of which 4.75% is payable in cash quarterly and the remaining 4.75% is payable in additional debt securities (i.e. payment-in-kind) and (c) include a conversion feature such that the notes will be convertible into common stock, at the election of the holder, upon the occurrence of an IPO of SEI or a successor of at least $225.0 million in gross proceeds. Each holder may elect to convert any or all of its notes at a price per share equal to the lesser of (a) $6.75 (as adjusted for any stock splits or other similar transactions which may occur prior to an IPO) and (b) 80% of the price per share to the public in an IPO (the "Conversion Price"). Upon the occurrence of an IPO, any notes that are not converted at the election of the holder are required to be redeemed at par, plus accrued and unpaid cash interest and a cash payment for any accrued and unpaid payment-in-kind interest, plus a cash payment equal to the value of a number of shares based on the price per share to the public in the IPO (such shares, the "IPO Redemption Premium") of common stock equal to the excess (if any) of (a) the quotient obtained by dividing the aggregate principal amount of the notes so redeemed by the applicable Conversion Price that would have been applicable to a conversion of notes had such notes been outstanding on the date of such IPO and converted in connection therewith over (b) the quotient obtained by dividing the aggregate principal amount of the notes being redeemed by the public offering price per share of common stock in such IPO. Under the amended terms of the notes, if there are gross proceeds of less than ~~$225.0 million~~ in an IPO, Sunnova Energy Corporation would only be obligated to redeem 50% of the notes not converted. If an IPO does not occur, the notes will remain outstanding until the maturity date and can be redeemed by Sunnova Energy Corporation at par at any time prior to maturity on the same terms as described above. In addition, if the notes are redeemed prior to the occurrence of an IPO, Sunnova Energy Corporation is required to issue a warrant for the number of shares equal to the IPO Redemption Premium as a condition to any redemption or retirement. Such warrant would be automatically exercisable on a cashless basis for a price of $0.01 upon consummation of the IPO (see Note 15, Subsequent Events). If issued, any warrants would expire in March 2021. The April 2019 amendment resulted in a loss on extinguishment under GAAP of ~~$10.6 million related to the difference between the net carrying value of the senior secured notes prior to the amendment and the fair value of the notes after the amendment~~.

For accounting purposes, only the conversion feature is required to be bifurcated and measured at fair value; however, we elected to make a one-time, irrevocable election to utilize the fair value option allowed under ASC 825, ~~Financial Instruments~~. Under the fair value option election, we record the entire hybrid instrument at fair value with changes in fair value recognized in other (income) expense in the consolidated statements of operations. The fair value election resulted in an unrealized loss ~~of $534,000~~ ~~for~~During the six months ended June 30, ~~2019.~~2021, the remaining holders of our 9.75% convertible senior notes converted approximately $97.1 million aggregate principal amount, including accrued and unpaid interest to the date of each conversion, of our 9.75% convertible senior notes into common stock. See Note 12, Stockholders' Equity.

In May 2021, we issued and sold an aggregate principal amount of $575.0 million of our 0.25% convertible senior notes ("0.25% convertible senior notes") in a private placement at a discount to the initial purchasers of 2.5%, for an aggregate purchase price of $560.6 million. The 0.25% convertible senior notes mature in December 2026 unless earlier redeemed, repurchased or converted. In connection with the pricing of the 0.25% convertible senior notes, we used proceeds of $91.7 million to enter into privately negotiated capped call transactions, which are expected to reduce the potential dilution to common shares and/or offset potential cash payments that could be required to be made in excess of the principal amount upon any exchange of notes. Such reduction and/or offset is subject to a cap initially equal to $60.00 per share, subject to adjustments. The capped call transactions cover, subject to customary adjustments, the number of shares of our common stock initially underlying the 0.25% convertible senior notes. As the capped call transactions meet certain accounting criteria, they are classified as stockholders' equity and therefore, are recorded in additional paid-in capital—common stock in the consolidated balance sheet and are not accounted for as derivatives.

~~Sunnova Energy Corporation Convertible Notes~~

TEPH Debt. In January ~~2019,~~2021, we amended the 2018 Note to, among other things, extend the maturity date from the earlier of (a) the repayment of the senior secured notes or (b) May 2019 to the earlier of (a) the repayment of the senior secured notes or (b) December 2019.

In June 2019, we issued a convertible note (the "2019 Note") for $15.0 million to a majority of our existing shareholders, which is subordinated to the senior secured notes, with a maturity date of September 2021. The 2019 Note bears interest at an annual rate of 12.0%, which is only payable by increasing the outstanding principal balance of the 2019 Note quarterly until maturity. Under the terms of the 2019 Note, we cannot make cash payments for interest or principal on the 2019 Note until the senior secured notes have been repaid in full. The 2019 Note allows, if a majority of holders elect, to convert the outstanding principal balance (including accrued paid-in-kind interest) into Series C convertible preferred stock at a rate equal to the lesser of $5.80 per share (adjusted for subsequent stock splits, combinations, recapitalizations or the like affecting convertible preferred stock) or the lowest purchase price per share of Series C convertible preferred stock issued after the date of the 2019 Note. The 2019 Note includes an automatic conversion feature upon the occurrence of an IPO of SEI or a successor of at least $175.0 million in gross proceeds at a per share public offering price of at least $6.6558 (as adjusted for any stock splits or other similar transactions which may occur prior to an IPO) upon which all the outstanding principal balance (including accrued paid-in-kind interest) will convert into Series C convertible preferred stock at a rate equal to the lesser of $5.80 per share (adjusted for subsequent stock splits, combinations, recapitalizations or the like affecting convertible preferred stock) or the

~~NOTES TO SUNNOVA ENERGY COPORATION~~

~~UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~lowest purchase price per share of Series C convertible preferred stock issued after the date of the 2019 Note.~~ ~~See Note 15, Subsequent Events~~.

~~Sunnova Energy Corporation Note Payable. In May 2019, we entered into an arrangement to finance $1.9 million in property insurance premiums at an annual interest rate of 5.5% over ten months.~~

~~AP4 Debt~~. As of March 31, 2019, AP4 was not in compliance with the debt covenant regarding the ratio of consolidated EBITDA to debt service, which is an event of default. In April 2019, AP4 exercised its right to an equity cure, which allowed Sunnova Energy Corporation to contribute approximately $106,000 to AP4 and allowed AP4 to add such amount to consolidated EBITDA for purposes of recalculating the ratio as of March 31, 2019. Subsequent to the equity cure, AP4 is in compliance with the debt covenants under the AP4 financing agreement. In June 2019, we amended the AP4 financing agreement to, among other things, (i) extend the maturity date from to July 2020 and to January 2021, (ii) decrease the applicable margin for LIBOR loans to 2.50% and (iii) change the debt covenant regarding the ratio of consolidated EBITDA to debt service to be calculated based on collections from customers and other cash receipts and disbursements (instead of consolidated EBITDA). In connection with this amendment we repaid ~~$5.0 million~~ ~~of outstanding borrowings under this facility.~~

~~AP6WII Debt. In June 2019, we fully repaid the aggregate outstanding principal amount and terminated the AP6WII warehouse credit facility.~~

~~EZOP Debt and Securitization. In March 2019, we amended the EZOP warehouse~~TEPH revolving credit facility to, among other things, ~~extend~~(a) permit certain transactions in SRECs (or proceeds therefrom) and related hedging arrangements and exclude certain of such amounts from the ~~maturity date~~calculation of net cash flow available to service the indebtedness and (b) allow for borrowings with respect to certain ancillary components. In June 2021, proceeds from ~~April 2019~~the SOLIII Notes (as defined below) were used to ~~November 2022 and increase the~~repay $105.1 million in aggregate ~~committed amount to $200.0 million.~~

~~TEPIH Debt. In March 2019, we fully repaid the aggregate outstanding~~ principal amount ~~under the TEPIH loan agreement and terminated the TEPIH loan agreement.~~outstanding of TEPH debt.

~~TEPIIH Debt~~HELV Debt.. In March 2019, we amended the TEPIIH warehouse credit facility to, among other things, extend the maturity date from August 2022 to November 2022, increase the aggregate committed amount to $150.0 million and increase the maximum commitment amount to $250.0 million.

~~RAYSI Debt and Securitization. In March 2019,~~February 2021, we pooled and transferred eligible solar ~~energy systems~~loans and the related ~~asset~~ receivables into ~~RAYSI,~~HELV, a special purpose entity, that issued ~~$118.1~~$150.1 million in aggregate principal amount of Series ~~2019-1~~2021-A Class A solar ~~asset-backed~~loan-backed notes ~~with a maturity date of April 2044~~ and ~~$15.0~~$38.6 million in aggregate principal amount of Series ~~2019-1~~2021-A Class B solar asset-backed notes with a maturity date of April 2034. The notes were issued with no discount for Class A and at a discount of 6.50% for Class B and bearing interest at an annual rate equal to 4.95% and 6.35%, respectively. In June 2019, RAYSI issued $6.4 million in aggregate principal amount of 2019-2 Class B solar asset-backed notes with a maturity date of April 2034 pursuant to a supplemental note purchase agreement at a discount rate of 10.50% and bearing interest at an annual rate equal to 6.35%. The notes issued by RAYSI are referred to as the "RAYSI Notes". The cash flows generated by these solar energy systems are used to service the semi-annual principal and interest payments on the RAYSI Notes and satisfy RAYSI's expenses, and any remaining cash can be distributed to Sunnova RAYS Depositor II, LLC, RAYSI's sole member. In connection with the RAYSI Notes, affiliates of Sunnova Energy Corporation receive a fee for managing and servicing the solar energy systems pursuant to management, servicing, facility administration and asset management agreements. In addition, we have guaranteed, among other things, (a) the obligations of certain of our subsidiaries to manage and service the solar energy systems pursuant to management, servicing, facility administration and asset management agreements, (b) the managing member’s obligations, in such capacity, under the related financing fund’s limited liability company agreement and (c) certain of our subsidiaries’ obligations to repurchase or substitute certain ineligible solar energy systems eventually sold to RAYSI pursuant to the related sale and contribution agreement. RAYSI is also required to maintain a liquidity reserve account, a supplemental reserve account for inverter replacement and financing fund purchase option exercises, a storage system reserve account and a cash trap reserve account for the benefit of the lenders under the RAYSI Notes, each of which must remain funded at all times to the levels specified in the RAYSI Notes. The creditors of RAYSI have no recourse to our other assets except as expressly set forth in the RAYSI Notes.

The terms of the RAYSI Notes contain certain events of default, including failure to comply with the terms of the transaction documents, failure of certain representations and warranties in the transaction documents to be incorrect in any material respect, subject to certain notice and cure periods, or our failure to maintain ownership of RAYSI and related depositor, managing member and financing fund. If an event of default occurs, RAYSI noteholders will be entitled to take various actions, including the acceleration of amounts due under the aggregation credit facility and foreclosure on the interests of the managing member and the financings fund that have been pledged to the indenture trustee. In addition to these events of default, the RAYSI Notes are subject to unscheduled prepayment events, including (a) a debt service coverage ratio falling or

~~NOTES TO SUNNOVA ENERGY COPORATION~~

~~UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

remaining below certain levels, (b) the failure to maintain insurance, (c) the failure to repay the RAYSI Notes in full prior to the applicable anticipated repayment date or (d) the occurrence of an event of default. The occurrence of an unscheduled prepayment event or an event of default could result in the more rapid repayment of the RAYSI Notes and the occurrence of an event of default could, in certain instances, result in the liquidation of the collateral securing the RAYSI Notes.

~~HELIII Debt~~. In June 2019, we pooled and transferred eligible solar energy systems and the related asset receivables into HELIII, a special purpose entity, that issued $139.7 million in aggregate principal amount of Series 2019-A Class A solar asset-backed notes, $14.9 million in aggregate principal amount of Series 2019-A Class B solar asset-backed notes and $13.0 million in aggregate principal amount of Series 2019-A Class C solar asset-backedloan-backed notes (collectively, the ~~"HELIII~~"HELV Notes") with a maturity date of ~~June 2046.~~February 2048. The ~~HELIII~~HELV Notes were issued at a discount of ~~0.03%~~0.001% for Class A ~~0.01%~~and 2.487% for Class B ~~and 0.03% for Class C~~ and bear interest at an annual rate of ~~3.75%, 4.49%~~1.80% and ~~5.32%~~3.15%, respectively. The cash flows generated by these solar ~~energy systems~~loans are used to service the ~~semi-annual~~monthly principal and interest payments on the ~~HELIII~~HELV Notes and satisfy ~~HELIII's~~HELV's expenses, and any remaining cash can be distributed to Sunnova Helios ~~III~~V Depositor, LLC, ~~HELIII's~~HELV's sole member. In connection with the ~~HELIII~~HELV Notes, ~~affiliates~~certain of ~~Sunnova Energy Corporation~~our affiliates receive a fee for managing and servicing the solar energy systems pursuant to management and ~~servicing~~service agreements. In addition, ~~we have~~Sunnova Energy Corporation has guaranteed, among other things, (a) the obligations of certain of our subsidiaries to manage and service the solar energy systems pursuant to management and servicing agreements and (b) certain of our subsidiaries' obligations to repurchase or substitute certain ineligible solar loans eventually sold to HELV pursuant to the related sale and contribution agreement. HELV is also required to maintain certain reserve accounts for the benefit of the holders of the HELV Notes, each of which must be funded at all times to the levels specified in the HELV Notes. The holders of the HELV Notes have no recourse to our other assets except as expressly set forth in the HELV Notes.

EZOP and AP8 Debt. In February 2021, proceeds from the HELV Notes were used to repay $107.3 million and $29.5 million in aggregate principal amount of outstanding EZOP and AP8 debt, respectively. In March 2021, we amended the EZOP revolving credit facility to, among other things, (a) extend the maturity date to November 2023 and (b) increase the maximum facility amount from $200.0 million to $350.0 million.

MR Debt. In April 2021, in connection with the Acquisition, we entered into an arrangement to finance the purchase of $29.0 million of inventory at an annual interest rate of 6.00% plus LIBOR (or acceptable replacement index) over twelve months.

TEPINV Debt. In May 2021, the aggregate principal amount outstanding under the TEPINV revolving credit facility of $48.2 million was fully repaid using proceeds from the 0.25% convertible senior notes, all related interest rate swaps were unwound and the debt facility was terminated.

SOLIII Debt. In June 2021, we pooled and transferred eligible solar energy systems and the related asset receivables into wholly-owned subsidiaries of SOLIII, a special purpose entity, that issued $319.0 million in aggregate principal amount of Series 2021-1 solar asset-backed notes (the "SOLIII Notes") with a maturity date of April 2056. The SOLIII Notes were issued at a discount of 0.04% and bear interest at an annual rate equal to 2.58%. The cash flows generated by the solar energy systems of SOLIII's subsidiaries are used to service the quarterly principal and interest payments on the SOLIII Notes and satisfy

Table of Contents

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SOLIII's expenses, and any remaining cash can be distributed to Sunnova Sol III Depositor, LLC, SOLIII's sole member. In connection with the SOLIII Notes, certain of our affiliates receive a fee for managing and servicing the solar energy systems pursuant to a transaction management agreement and managing and servicing agreements. In addition, Sunnova Energy Corporation has guaranteed (a) the obligations of certain of our subsidiaries to manage and service the solar energy systems pursuant to management, servicing and transaction management agreements, (b) the managing ~~member’s~~members' obligations, in such capacity, under the related financing ~~fund’s~~fund's limited liability company agreement and (c) certain of our ~~subsidiaries’~~subsidiaries' obligations to repurchase or substitute certain ineligible solar energy systems eventually sold to ~~HELIII~~SOLIII pursuant to the ~~related~~ sale and contribution agreement. ~~HELIII~~SOLIII is also required to maintain acertain reserve ~~account, a supplemental reserve account for inverter replacement and a capitalized interest reserve account~~accounts for the benefit of the ~~lenders under~~holders of the ~~HELIII~~SOLIII Notes, each of which must remain funded at all times to the levels specified in the ~~HELIII~~SOLIII Notes. The ~~creditors~~indenture requires SOLIII to track the debt service coverage ratio (such ratio, the "DSCR") of ~~HELIII~~(a) the amount of certain payments received from customers, certain performance based incentives, certain energy credits and any applicable insurance proceeds as of a specific date to (b) interest and scheduled principal due on the SOLIII Notes as of such date, with the potential to enter into an early amortization period if the DSCR drops below a certain threshold. The holders of the SOLIII Notes have no recourse to our other assets except as expressly set forth in the ~~HELIII~~SOLIII Notes.

HELI Debt. In June 2021, the aggregate principal amount outstanding under the HELI solar asset-backed notes of $205.7 million was fully repaid using proceeds from the SOLIII Notes and the debt facility was terminated, which resulted in a loss on extinguishment of long-term debt of $9.8 million.

Fair Values of Long-Term Debt. The fair values of our long-term debt and the corresponding carrying amounts are as follows:


	As of June 30, 2021				As of December 31, 2020


	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
	(in thousands)
SEI 9.75% convertible senior notes	$	0	$	0	$	95,648	$	100,482
SEI 0.25% convertible senior notes	575,000		579,206		0		0
Sunnova Energy Corporation notes payable	0		0		2,254		2,254
HELI solar asset-backed notes	0		0		211,724		220,941
EZOP revolving credit facility	182,000		182,000		171,600		171,600
HELII solar asset-backed notes	232,274		266,284		239,281		286,579
RAYSI solar asset-backed notes	123,886		136,950		126,227		146,506
HELIII solar loan-backed notes	127,157		134,790		135,112		149,489
TEPH revolving credit facility	218,950		218,950		239,570		239,570
TEPINV revolving credit facility	0		0		54,704		54,704
SOLI solar asset-backed notes	391,718		401,162		399,674		427,511
HELIV solar loan-backed notes	135,799		132,714		146,163		145,433
AP8 revolving credit facility	25,357		25,357		46,433		46,433
SOLII solar asset-backed notes	251,289		240,451		254,700		254,674
HELV solar loan-backed notes	180,783		176,987		0		0
MR note payable	23,227		23,227		0		0
SOLIII solar asset-backed notes	318,999		318,947		0		0


Total (1)	$	2,786,439	$	2,837,025	$	2,123,090	$	2,246,176

As of June 30, 2019 As of December 31, 2018
Carrying
Value Estimated
Fair Value Carrying
Value Estimated
Fair Value
(in thousands)
Sunnova Energy Corporation senior secured notes $ 56,573
$ 56,573
$ 44,219
$ 43,781
Sunnova Energy Corporation convertible notes 32,505
32,524
16,500
16,442
Sunnova Energy Corporation note payable 1,798
1,798
—
—
AP4 secured term loan 95,719
95,719
104,062
104,062
AP6WII warehouse credit facility —
—
54,603
54,603
HELI solar asset-backed notes 227,666
228,879
235,357
229,766
LAPH secured term loan 43,756
43,756
44,205
44,205
EZOP warehouse credit facility 43,692
43,692
58,200
58,200
TEPIH secured term loan —
—
110,595
110,595
TEPIIH warehouse credit facility 198,011
198,011
57,552
57,552
HELII solar asset-backed notes 259,485
286,149
262,700
274,857
RAYSI solar asset-backed notes 137,364
135,754
—
—
HELIII solar asset-backed notes 167,630
167,192
—
—
Total (1) $ 1,264,199
$ 1,290,047
$ 987,993
$ 994,063

(1) Amounts exclude the net deferred financing costs (classified as debt) and net debt discounts of ~~$35.4~~$65.3 million and ~~$28.1~~$87.6 million as of June 30, ~~2019~~2021 and December 31, ~~2018,~~2020, respectively.

For the ~~AP4, AP6WII, LAPH,~~ EZOP, ~~TEPIH~~TEPH, TEPINV and ~~TEPIIH~~AP8 debt, the estimated fair values ~~as of June 30, 2019 and December 31, 2018~~ approximate the carrying amounts due primarily to the variable nature of the interest rates of the underlying instruments. For the ~~note~~notes payable, the estimated fair value ~~as of June 30, 2019~~ approximates the carrying amount due primarily to the short-term nature of the ~~instrument.~~instruments. For the convertible senior notes and the HELI, HELII, RAYSI, HELIII, SOLI, HELIV, SOLII, HELV and ~~HELIII~~SOLIII debt, we determined the estimated fair values ~~as of June 30, 2019 and December 31, 2018~~ based on a yield analysis of similar type debt. ~~For the senior secured notes, we determined the estimated fair value as~~

Table of ~~June 30, 2019 based on a market approach model and~~Contents

NOTES TO ~~SUNNOVA ENERGY COPORATION~~

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

we determined the estimated fair value as of December 31, 2018 based on a yield analysis of similar type debt. The change in method was due to the amendment in April 2019 and the election of the fair value option.

(8) Derivative Instruments

~~(8)~~
~~Derivative Instruments~~

Interest Rate Swaps on ~~TEPIH~~EZOP Debt. ~~In March 2019,~~During the six months ended June 30, 2021 and 2020, EZOP unwound interest rate swaps with an aggregate ~~outstanding principal~~notional amount ~~under the TEPIH loan agreement was fully repaid~~of $131.7 million and ~~all TEPIH swaps were settled.~~$126.1 million, respectively, and recorded a realized loss of $68,000 and $6.0 million, respectively.

Interest Rate ~~Swaps~~Cap on ~~AP6WII~~TEPINV Debt. InDuring the six months ended June ~~2019,~~30, 2021, the aggregate ~~outstanding~~ principal amount outstanding under the ~~AP6WII warehouse~~TEPINV revolving credit facility was fully repaid, TEPINV unwound the only outstanding interest rate cap with an aggregate notional amount of $36.6 million and ~~all AP6WII swaps were settled.~~recorded a realized gain of an immaterial amount.

The following table presents a summary of the outstanding derivative instruments:


	As of June 30, 2021					As of December 31, 2020


	Effective Date	Termination Date	Fixed Interest Rate	Aggregate Notional Amount		Effective Date	Termination Date	Fixed Interest Rate	Aggregate Notional Amount
	(in thousands, except interest rates)
EZOP	March 2021	July 2033	1.000%	$	177,672	June 2020 - November 2020	September 2029 - February 2031	0.483% - 2.620%	$	130,373
TEPH	September 2018 - January 2023	January 2023 - April 2038	0.121% - 2.534%	270,170		September 2018 - January 2023	January 2023 - January 2038	0.528% - 2.114%	202,272
TEPINV			0%	0		December 2019	December 2022	2.500%	51,025
Total				$	447,842				$	383,670

As of June 30, 2019 As of December 31, 2018
Fixed
Interest
Rate Aggregate
Notional
Amount Fixed
Interest
Rate Aggregate
Notional
Amount
(in thousands, except interest rates)
AP4 2.338% $ 101,341
2.338% $ 102,921
AP6WII —% —
2.402% - 3.254% 72,025
LAPH 3.409% 43,721
3.409% 44,205
EZOP 2.620% 37,125
1.900% - 3.014% 55,290
TEPIH —% —
2.350% - 3.104% 99,536
TEPIIH 2.575% - 3.383% 189,915
2.995% - 3.383% 54,675
Total $ 372,102
$ 428,652

The following table presents the fair value of the interest rate swaps as recorded in the unaudited condensed consolidated balance sheets:


	As of June 30, 2021		As of December 31, 2020


	(in thousands)
Other assets	$	5,993	$	0

Other long-term liabilities	(7,475)		(13,407)
Total, net	$	(1,482)	$	(13,407)

As of
June 30, 2019 As of
December 31, 2018
(in thousands)
Other assets $ —
$ 270
Other long-term liabilities (25,341 ) (8,161 )
Total, net $ (25,341 ) $ (7,891 )

We did not designate the interest rate swaps ~~and swaptions~~ as hedging instruments for accounting purposes. As a result, we recognize changes in fair value immediately in interest expense, net. The following table presents the impact of the interest rate swaps ~~and swaptions~~ as recorded in the unaudited condensed consolidated statements of operations:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(in thousands)
Realized loss	$	516	$	6,105	$	1,107	$	38,003
Unrealized (gain) loss	15,773		(3,053)		(2,932)		4,543
Total	$	16,289	$	3,052	$	(1,825)	$	42,546

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(in thousands)
Realized (gain) loss $ 8,788
$ 147
$ 12,372
$ (178 )
Unrealized (gain) loss 10,417
(4,518 ) 17,449
(13,658 )
Total $ 19,205
$ (4,371 ) $ 29,821
$ (13,836 )

~~(9)~~
~~Income Taxes~~

Our effective income tax rate is 0% for the three and six months ended June 30, ~~2019~~2021 and ~~2018.~~2020. Total income tax differs from the amounts computed by applying the statutory income tax rate to loss before income tax primarily as a result of our valuation allowance. We assessed whether we had any significant uncertain tax positions ~~related~~taken in a filed tax return, planned to ~~open examination~~be taken in a future tax return or ~~other Internal Revenue Service ("IRS") issues~~claim, or otherwise subject to interpretation and determined there were ~~none.~~none not more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position, or prospectively approved when such approval may be sought in advance. Accordingly, we recorded no reserve for uncertain tax positions. Should a provision for any interest or penalties relative to unrecognized tax benefits be necessary, it is our policy to accrue for such in our income tax accounts. There were no0 such accruals as of June 30, ~~2019~~

Table of Contents

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2021 and December 31, ~~2018~~2020 and we do not expect a significant change in gross unrecognized tax benefits in the next twelve months. Our tax years ~~2015 through 2018~~

~~NOTES TO SUNNOVA ENERGY COPORATION~~

~~UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

after 2011 remain subject to examination by the IRS and by the taxing authorities in the states and territories in which we operate. ~~However, due~~

In February 2021, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with certain of our subsidiaries, SunStreet and LEN X, LLC, a Florida limited liability company, the sole member of SunStreet and a wholly owned subsidiary of Lennar Corporation ("Lenx"). Pursuant to the Merger Agreement, in April 2021, we acquired SunStreet, Lennar Corporation's ("Lennar") residential solar platform, in exchange for up to 6,984,225 shares of our ~~net losses and investment tax credits ("ITCs"~~common stock (the "Acquisition"), ~~our 2012 to 2014 tax returns are potentially~~comprised of 3,095,329 shares in initial consideration issued at closing, subject to ~~examination adjustments~~purchase price adjustment, and up to 3,888,896 shares issuable as earnout consideration after closing of the Acquisition. The Acquisition is expected to provide a new strategic path to further scale our business and develop clean and resilient residential microgrids across the U.S.

The purchase consideration was approximately $208.9 million, consisting of $127.1 million in the issuance of common stock shares and $81.8 million representing the fair value of contingent consideration based upon estimated new solar energy system installations through 2026 and the execution of certain binding agreements before the fifth anniversary of the closing of the Acquisition. Pursuant to the Earnout Agreement entered into between us and Lenx, Lenx will have the ability to earn up to an additional 3,888,896 shares of common stock over a five-year period in connection with the Acquisition. The earnout payments are conditioned on SunStreet meeting certain commercial milestones tied to achieving specified origination targets. There are 2 elements to the earnout arrangement. First, we will issue up to 2,777,784 shares to the extent we and our subsidiaries (including SunStreet) place target amounts of ~~those net losses~~solar energy systems into service and ~~ITC carryforwards.~~

~~(10)~~ ~~Related-Party Transactions~~

~~Sunnova Debt. As~~enter into qualifying customer agreements related to such solar energy systems through SunStreet's existing homebuilding process. The 2,777,784 shares of ~~June 30, 2019 and December 31, 2018, certain of our affiliates who have representatives on our board of directors (the "Board") were holders~~common stock issuable under this portion of the ~~senior secured notes,~~earnout can be earned in 4 installments on a yearly basis (if the ~~2018 Notes and~~origination target for each such year is achieved) or at the ~~2019 Notes. We have classified these related transactions as such~~end of the four-year period (if the cumulative origination target is achieved in the ~~unaudited condensed consolidated balance sheets~~fourth and final year), with the annual periods commencing on the closing date of the Acquisition. This earnout is recorded as contingent consideration. The second element of ~~June 30, 2019 and December 31, 2018,~~ the ~~unaudited condensed consolidated statements~~earnout is related to the development of ~~operations~~microgrid communities. Pursuant to this portion of the earnout, we will issue up to 1,111,112 shares in two separate tranches, each of which has different criteria, if, prior to the fifth anniversary of the closing date of the Acquisition, we enter into binding agreements for the ~~three~~development of microgrid communities. One of these tranches is recorded as contingent consideration. The amount of contingent consideration that could be paid to Lennar has an estimated maximum value of $127.7 million and ~~six months ended June 30, 2019~~a minimum value of $0. These values were determined based on the projected average share price over the five year earnout period multiplied by the number of shares to be transferred to Lennar if the targets for purchased solar energy systems placed in service are achieved. In connection with the Acquisition, Lennar has committed to contribute an aggregate $200.0 million (the "Funding Commitment") to 4 Sunnova tax equity funds, each formed annually during a period of four consecutive years (each such year, a "Contribution Year") commencing in 2021. The solar service agreements and ~~2018 and~~related solar energy systems acquired by each of these 4 tax equity funds will generally be originated by SunStreet, though a certain number of solar service agreements may be originated by our dealers if those originated by SunStreet do not fully utilize Lennar's Funding Commitment for a given Contribution Year. The favorable terms of the ~~unaudited condensed consolidated statements of cash flows for~~Funding Commitment result in an intangible asset. During the six months ended June 30, ~~2019 and 2018.~~2021, we incurred transaction costs of $5.5 million related to the Acquisition.

~~Promissory Notes. In March 2018, we entered into a bonus agreement with an executive officer providing that each year beginning in January 2019, one-fourth~~The fair value of the ~~outstanding loan balance (and related accrued~~assets acquired and ~~unpaid interest) under~~liabilities assumed are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The fair value is preliminary and may be adjusted if new information obtained regarding facts and circumstances that existed at the ~~promissory notes executed by that officer~~acquisition date warrants adjustments to the assets or liabilities initially recognized. Further adjustments to the fair value are expected as third-party and an entity controlled by that officer, in favor of Sunnova Energy Corporation, in combined aggregate principal amounts totaling $1.7 million (the "Officer Notes"), is to be forgiven provided that officer remains employed through the applicable forgiveness date, such that the full amountinternal valuations are finalized, certain tax aspects of the ~~Officer Notes will~~transaction are completed and customary post-closing reviews are concluded during the measurement period attributable to the Acquisition. As a result, adjustments to the fair value of assets acquired, and in some cases the total purchase price, may be ~~forgiven~~made to the fair values assigned. We expect to finalize the valuation as ~~of January 2022. In January 2019, one-fourth~~soon as practicable, but not later than one year from the acquisition date. We estimated the fair value of the ~~balance~~assets acquired at the acquisition date using a multi-period excess earnings methodology for customer relationships related to system sales and servicing, a cost savings methodology for customer relationships related to new customers, a relief from royalty methodology for the trade name and a discounted cash flow methodology for the tax equity commitment, all using Level 3 inputs. As of June 30, 2021, there has been no change in the initial amount recognized for the assets acquired and liabilities assumed, or any change in the range of outcomes or assumptions used to develop the estimates.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the fair value of the ~~Officer Notes was forgiven. In June 2019,~~assets acquired and liabilities assumed, with the excess recorded as ~~additional bonus compensation,~~goodwill:


	As of April 1, 2021
	(in thousands)
Cash	$	503
Other current assets (includes inventory of $26,792)	33,519
Property and equipment	217
Intangible assets	207,124
Other assets	1,060
Total assets acquired	242,423
Accounts payable	3,762
Accrued expenses	3,766
Current portion of long-term debt	28,994
Other current liabilities	363
Other long-term liabilities	697
Total liabilities assumed	37,582
Net assets acquired, excluding goodwill	204,841
Preliminary estimated purchase consideration	208,937
Goodwill	$	4,096

Goodwill represents the ~~remaining principal~~excess of the purchase consideration over the aggregate fair value of the assets acquired and ~~interest in~~liabilities assumed. Goodwill is primarily attributable to the ~~amount of $1.4 million~~acquired assembled workforce. We do not expect to take any tax deductions for the goodwill associated with the ~~Officer Notes was forgiven~~Acquisition unless we decide to make an asset election in the future that would make a portion of the goodwill deductible for tax purposes. The portion of revenue and ~~Sunnova Energy Corporation agreed to pay the officer a bonus to reimburse the officer for the expected tax liability~~earnings associated with ~~such forgiveness of $892,000.~~the acquired business was not separately identifiable due to the integration with our operations.

(11) Redeemable Noncontrolling Interests and Noncontrolling Interests

Redeemable Noncontrolling Interests

In January 2019, we admitted tax equity investors as the Class A members of Sunnova TEP III, LLC ("TEPIII"), a subsidiary of Sunnova TEP III Manager, LLC which is the Class B member of TEPIII. The Class A members made a total capital commitment of $50.0 million. In June 2019, the Class A member of Sunnova TEP II, LLC increased its commitment from $30.0 million to $45.0 million.

The carrying values of the redeemable noncontrolling interests were equal to or greater than the redemption values as of June 30, ~~2019~~2021 and December 31, ~~2018. S~~2020.

~~ee Note 15, Subsequent Events.~~

Noncontrolling Interests

~~(12)~~ ~~Equity-Based Compensation~~

In April 2021, we admitted a tax equity investor as the Class A member of Sunnova TEP V-D, LLC ("TEPVD"), a subsidiary of Sunnova TEP V-D Manager, LLC, which is the Class B member of TEPVD. The Class A member of TEPVD made a total capital commitment of approximately $50.0 million. In April 2021, we admitted a tax equity investor as the Class A member of Sunnova TEP V-A, LLC ("TEPVA"), a subsidiary of Sunnova TEP V-A Manager, LLC, which is the Class B member of TEPVA. The Class A member of TEPVA made a total capital commitment of approximately $25.0 million. In May 2021, we admitted a tax equity investor as the Class A member of Sunnova TEP V-B, LLC ("TEPVB"), a subsidiary of Sunnova TEP V-B Manager, LLC, which is the Class B member of TEPVB. The Class A member of TEPVB made a total capital commitment of approximately $150.0 million.

~~Effective December 2013~~

(12) Stockholders' Equity

During the six months ended June 30, 2021, the remaining holders of our 9.75% convertible senior notes converted approximately $97.1 million aggregate principal amount, including accrued and ~~January 2015, we established and adopted two stock option plans (the "Prior Plans") after approval by~~unpaid interest to the ~~Board. The termination~~ date of ~~the first plan is December 2023 and the termination date~~each conversion, of the second plan is January 2025 (ten years from the effective dates). The persons eligible to receive options are employees and directors ("director" for the Prior Plans is defined as a member of the Board). Shares issuable upon the exercise of a stock option areour 9.75% convertible senior notes into 7,196,035 shares of ~~the Series B non-voting~~our common stock. ~~The Prior Plans provide~~In April 2021, we issued 3,095,329 shares of common stock in connection with the Acquisition. See Note 10, Acquisitions.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(13) Equity-Based Compensation

In March 2021, the aggregate number of shares of common stock that may be issued pursuant to ~~options shall not exceed 26,032 shares, which was the total number of Series B common stock authorized for issuance by our Board.~~

~~Effective March 2016, we established and adopted a new stock option plan (the "2016 Plan") after approval by the Board. No further~~ awards ~~may be made~~ under the ~~Prior Plans. The 2016~~2019 Long-Term Incentive Plan ~~allows~~(the "LTIP") was increased by 2,214,561, an amount which, together with the shares remaining available for grant under the ~~issuance of non-qualified and incentive stock options. The persons eligible~~LTIP, is equal to ~~receive options are employees, consultants and independent directors ("independent director" for the 2016 Plan is defined as a member~~5,020,602, or 5% of the Board who is not an employee of the Company or its subsidiaries). Incentive stock options may only be issued to employees of the Company. Shares issuable upon the exercise of a stock option are shares of the Series B non-voting common stock. The 2016 Plan provides the aggregate number of shares of ~~Series B~~ common stock ~~that may be issued pursuant to options shall not exceed 4,288,950 shares.~~

~~We recognize the fair value~~outstanding as of employee equity-based compensation awards as compensation cost in the financial statements, beginning on the grant date. We base compensation cost on the fair value of the awards the entity expects to vest, recognized over the service period, and adjusted for actual forfeitures that occur before vesting. During the three months ended June 30, 2019 and 2018, we recognized $713,000 and $682,000, respectively, of compensation expense relating to equity-based compensation awards. During the six months ended June 30, 2019 and 2018, we recognized $994,000 and $1.4 million, respectively, of compensation expense relating to equity-based compensation awards.

The Prior Plans and the 2016 Plan will only allow for settlement of stock options by the issuance of shares of Series B common stock and we therefore classify the stock options as equity awards. A third-party appraisal firm is used for valuation purposes as deemed necessary by us.
~~See Note 15, Subsequent Events~~.

~~NOTES TO SUNNOVA ENERGY COPORATION~~

~~UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~We used the following assumptions to apply the Black-Scholes option-pricing model to options granted during the six months ended June 30, 2019:~~



	Six Months Ended June 30, 2019
~~Expected dividend yield~~	~~0.00%~~
~~Risk-free interest rate~~	~~2.62%~~
~~Expected term (in years)~~	~~7.94~~
~~Volatility~~	~~81%~~

The expected volatility was calculated based on the average historical volatilities of publicly traded peer companies determined by us. The risk-free interest rate used was based on the U.S. treasury yield curve in effect at the time of grant for the expected term of the stock options to be valued. The expected dividend yield is zero as we do not anticipate paying common stock dividends within the relevant time frame. The expected term has been estimated using the average of the contractual term and weighted average life of the options. The following table summarizes stock option activity:


	Number of Stock Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
							(in thousands)




Outstanding, December 31, 2020	3,266,348	$	16.06	5.82			$	94,962
Granted	75,031	$	40.50	9.72	$	18.35
Exercised	(501,671)	$	16.22				$	15,799

Outstanding, June 30, 2021	2,839,708	$	16.67	5.44			$	59,808
Exercisable, June 30, 2021	2,764,677	$	16.03	5.32			$	59,808
Vested and expected to vest, June 30, 2021	2,839,708	$	16.67	5.44			$	59,808

Non-vested, June 30, 2021	75,031				$	18.35

Number
of
Options Weighted
Average
Exercise
Price Weighted
Average
Remaining
Contractual
Term (Years) Weighted
Average
Fair
Value Aggregate
Intrinsic
Value
(in thousands)
Outstanding, December 31, 2018 4,808,390
$ 15.90
8.09 $ 129
Granted 94,295
$ 13.58
9.57 $ 3.11

Exercised (2,143 ) $ 1.85
$ 6
Forfeited (585,518 ) $ 15.89
$ 3.49

Outstanding, June 30, 2019 4,315,024
$ 15.86
7.59 $ 78
Exercisable, June 30, 2019 2,206,545
$ 15.86
7.01 $ 78
Vested and expected to vest, June 30, 2019 4,315,024
$ 15.86
7.59 $ 78
Non-vested, June 30, 2019 1,991,065
$ 3.51

The number of stock options that vested during the three months ended June 30, ~~2019~~2021 and ~~2018~~2020 was ~~230,101~~0 and ~~79,126,~~104,509, respectively. The number of stock options that vested during the six months ended June 30, ~~2019~~2021 and ~~2018~~2020 was ~~744,099~~0 and ~~576,578,~~369,716, respectively. The grant date fair value of stock options that vested during the three months ended June 30, ~~2019~~2021 and ~~2018~~2020 was ~~$933,000~~$0 and ~~$425,000,~~$428,000, respectively. The grant date fair value of stock options that vested during the six months ended June 30, ~~2019~~2021 and ~~2018~~2020 was ~~$2.5 million~~$0 and ~~$1.8~~$1.2 million, respectively. As of June 30, ~~2019,~~2021, there was ~~$6.4~~$1.3 million of total unrecognized compensation expense related to stock options, which is expected to be recognized over the weighted average period of ~~1.6~~1.98 years.

Restricted Stock Units

The following table summarizes restricted stock unit activity:


	Number of Restricted Stock Units	Weighted Average Grant Date Fair Value




Outstanding, December 31, 2020	2,059,184	$	11.95
Granted	503,836	$	38.48
Vested	(673,424)	$	18.37
Forfeited	(20,443)	$	21.62
Outstanding, June 30, 2021	1,869,153	$	16.69

The number of restricted stock units that vested during the three months ended June 30, 2021 and 2020 was 15,940 and 0, respectively. The number of restricted stock units that vested during the six months ended June 30, 2021 and 2020 was 673,424 and 27,083, respectively. The grant date fair value of restricted stock units that vested during the three months ended June 30, 2021 and 2020 was $210,000 and $0, respectively. The grant date fair value of restricted stock units that vested during the six months ended June 30, 2021 and 2020 was $12.4 million and $325,000, respectively. As of June 30, 2021, there was $26.1 million of total unrecognized compensation expense related to restricted stock units, which is expected to be recognized over the weighted average period of 1.74 years.

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NOTES TO ~~SUNNOVA ENERGY COPORATION~~

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~(13)~~ (14) Basic and Diluted Net Loss Per Share

The following table sets forth the computation of our basic and diluted net loss per share:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(in thousands, except share and per share amounts)





Net loss attributable to common stockholders—basic and diluted	$	(63,396)	$	(25,258)	$	(96,379)	$	(96,333)

Net loss per share attributable to common stockholders—basic and diluted	$	(0.57)	$	(0.30)	$	(0.88)	$	(1.15)
Weighted average common shares outstanding—basic and diluted	111,973,338		84,033,278		109,181,788		84,017,214

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(in thousands, except share and per share amounts)
Net loss attributable to stockholders $ (50,738 ) $ (12,574 ) $ (89,252 ) $ (26,784 )
Dividends earned on Series A convertible preferred stock (9,760 ) (9,198 ) (19,271 ) (17,328 )
Dividends earned on Series C convertible preferred stock (2,762 ) (1,497 ) (5,454 ) (1,546 )
Deemed dividends on convertible preferred stock exchange —
—
—
(19,332 )
Net loss attributable to common stockholders—basic and diluted $ (63,260 ) $ (23,269 ) $ (113,977 ) $ (64,990 )

Net loss per share attributable to common stockholders—basic and diluted $ (7.32 ) $ (2.69 ) $ (13.20 ) $ (7.53 )
Weighted average common shares outstanding—basic and diluted 8,636,598
8,634,455
8,636,065
8,634,455

The following table presents the weighted average shares of common stock equivalents that were excluded from the computation of diluted net loss per share for the periods presented because including them would have been anti-dilutive:


	Three Months Ended June 30,		Six Months Ended June 30,
	2021	2020	2021	2020
Equity-based compensation awards	4,707,697	6,650,994	4,804,704	6,261,779

Convertible senior notes	8,151,172	10,259,540	4,934,523	7,245,154

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
Stock option awards 4,323,658
4,322,366
4,396,926
3,883,704
Convertible preferred stock 59,179,925
53,540,302
59,163,392
49,440,509

~~(14)~~ (15) Commitments and Contingencies

Legal. We are a party to a number of lawsuits, claims and governmental proceedings which are ordinary, routine matters incidental to our business. In addition, in the ordinary course of business, we periodically have disputes with dealers and customers. We do not expect the outcomes of these matters to have, either individually or in the aggregate, a material adverse effect on our financial position or results of operations.

Performance Guarantee Obligations. As of June 30, ~~2019,~~2021, we recorded ~~$5.0~~$3.3 million relating to our guarantee of certain specified minimum solar energy production output under our leases and ~~Easy Own program,~~loans, of which ~~we include $3.6~~$2.9 million is recorded in other current liabilities and ~~$1.4 million~~$438,000 is recorded in other long-term liabilities in the unaudited condensed consolidated balance sheet. As of December 31, ~~2018,~~2020, we recorded ~~$6.0~~$5.7 million relating to these guarantees, of which ~~$2.6~~$3.3 million is ~~included~~recorded in other current liabilities and ~~$3.5~~$2.4 million is ~~included~~recorded in other long-term liabilities in the unaudited condensed consolidated balance sheet. The changes in our aggregate performance guarantee obligations are as follows:


	As of June 30,
	2021		2020
	(in thousands)
Balance at beginning of period	$	5,718	$	6,468
Accruals for obligations issued	873		1,384

Settlements	(3,256)		(3,861)
Balance at end of period	$	3,335	$	3,991

As of June 30,
2019 2018
(in thousands)
Balance at beginning of period $ 6,044
$ 4,173
Accruals for obligations issued 1,535
1,323
Settlements made in cash (2,582 ) (1,009 )
Balance at end of period $ 4,997
$ 4,487

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NOTES TO ~~SUNNOVA ENERGY COPORATION~~

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Operating and Finance Leases. We lease real estate and certain office equipment under operating leases and vehicles and certain other office equipment under finance leases. The following table presents the detail of lease ~~expense:~~expense as recorded in general and administrative expense in the unaudited condensed consolidated statements of operations:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(in thousands)
Operating lease expense	$	427	$	335	$	763	$	671
Finance lease expense:
Amortization expense	69		0		94		2
Interest on lease liabilities	7		0		10		0
Short-term lease expense	12		6		22		22
Variable lease expense	296		172		557		179

Total	$	811	$	513	$	1,446	$	874

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(in thousands)
Operating lease expense $ 270
$ 243
$ 570
$ 486
Finance lease amortization of right-of-use assets 2
—
4
—
Short-term lease expense 12
9
23
17
Variable lease expense 252
172
463
347
Sublease income (19 ) (23 ) (37 ) (39 )
Total $ 517
$ 401
$ 1,023
$ 811

The following table presents the detail of right-of-use assets and lease liabilities as recorded in other assets and other current ~~liabilities/~~liabilities/other long-term liabilities, respectively, in the unaudited condensed consolidated balance sheets:


	As of June 30, 2021		As of December 31, 2020


	(in thousands)
Right-of-use assets:
Operating leases	$	9,179	$	8,779
Finance leases	2,059		391
Total right-of-use assets	$	11,238	$	9,170

Current lease liabilities:
Operating leases	$	1,454	$	1,094
Finance leases	611		112
Long-term leases liabilities:
Operating leases	10,118		9,742
Finance leases	1,058		203
Total lease liabilities	$	13,241	$	11,151

As of
June 30, 2019 As of
December 31, 2018
(in thousands)
Right-of-use assets:
Operating leases $ 2,775
$ 2,586
Finance leases 8
—
Total right-of-use assets $ 2,783
$ 2,586

Current lease liabilities:
Operating leases $ 938
$ 871
Finance leases 8
—
Long-term leases liabilities
Operating leases 2,172
2,083
Finance leases 1
—
Total lease liabilities $ 3,119
$ 2,954

Other information related to leases was as follows:


	Six Months Ended June 30,
	2021		2020
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases (1)	$	427	$	263
Operating cash flows from finance leases	10		0
Financing cash flows from finance leases	103		1
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	927		0
Finance leases	1,762		0

Six Months Ended
June 30,
2019 2018
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 525
$ 429
Financing cash flows from finance leases 5
—
Right-of-use assets obtained in exchange for lease obligations:
Operating leases 680
—
Finance leases 13
—

(1)Includes reimbursements in 2021 of $423,000 for leasehold improvements.

Table of Contents

NOTES TO ~~SUNNOVA ENERGY COPORATION~~

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	As of June 30, 2021		As of December 31, 2020


Weighted average remaining lease term (years):
Operating leases	7.59		8.47
Finance leases	3.79		3.99
Weighted average discount rate:
Operating leases	3.94	%	3.93	%
Finance leases	3.13	%	3.39	%

As of June 30,
2019 2018
Weighted average remaining lease term (years):
Operating leases 3.08
3.85
Finance leases 1.17
—
Weighted average discount rate:
Operating leases 4.58 % 4.62 %
Finance leases 4.26 % — %

Future minimum lease payments under our non-cancelable leases as of June 30, ~~2019~~2021 were as follows:


	Operating Leases		Finance Leases
	(in thousands)
Remaining 2021	$	949	$	334
2022	1,926		569
2023	1,944		438
2024	1,616		316
2025	1,633		97
2026 and thereafter	5,984		0
Total	14,052		1,754
Amount representing interest	(1,953)		(85)
Amount representing leasehold incentives	(527)		0
Present value of future payments	11,572		1,669
Current portion of lease liability	(1,454)		(611)
Long-term portion of lease liability	$	10,118	$	1,058

Operating
Leases Finance
Leases
(in thousands)
Remaining 2019 $ 531
$ 4
2020 1,068
5
2021 1,095
—
2022 649
—
2023 —
—
2024 and thereafter —
—
Total 3,343
9
Amount representing interest (233 ) —
Present value of future payments 3,110
9
Current portion of lease liability (938 ) (8 )
Long-term portion of lease liability $ 2,172
$ 1

~~Future minimum lease payments under our non-cancelable leases as of December 31, 2018 were as follows:~~

Operating
Leases
(in thousands)
2019 $ 989
2020 842
2021 863
2022 512
2023 —
2024 and thereafter —
Total 3,206
Amount representing interest (252 )
Present value of future payments 2,954
Current portion of lease liability (871 )
Long-term portion of lease liability $ 2,083

Letters of Credit. In connection with various security arrangements for an office lease, ~~and merchant banking activities,~~ we have ~~letters~~a letter of credit outstanding of ~~$725,000~~$375,000 as of June 30, ~~2019~~2021 and December 31, ~~2018.~~2020. The ~~letters~~letter of credit ~~are~~is cash collateralized for the same amount or a lesser amount and this cash is classified as restricted ~~cash.~~cash recorded in other current assets and other assets in the consolidated balance sheets.

Guarantees or Indemnifications. We enter into contracts that include indemnifications and guarantee provisions. In general, we enter into contracts with indemnities for matters such as breaches of representations and warranties and covenants contained in the contract and/or against certain specified liabilities. Examples of these contracts include dealer agreements, debt agreements, asset purchases and sales agreements, service agreements and procurement agreements. We are unable to estimate

~~NOTES TO SUNNOVA ENERGY COPORATION~~

~~UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

our maximum potential exposure under these agreements until an event triggering payment occurs. We do not expect to make any material payments under these agreements.

Dealer Commitments. As of June 30, 2021 and December 31, 2020, the net unamortized balance of payments to dealers for exclusivity and other similar arrangements was $73.5 million and $55.7 million, respectively. Under these agreements, we paid $16.2 million and $11.4 million during the three months ended June 30, 2021 and 2020, respectively, and we paid $19.9

Table of Contents

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

million and $16.7 million during the six months ended June 30, 2021 and 2020, respectively. We could be obligated to make maximum payments, excluding additional amounts payable on a per watt basis if even higher thresholds are met, as follows:


	Dealer Commitments
	(in thousands)
Remaining 2021	$	15,914
2022	41,973
2023	18,110
2024	7,970
2025	938
2026 and thereafter	0
Total	$	84,905

Purchase Commitments.In August 2019, we ~~entered into exclusivity agreements~~amended an agreement with ~~certain key dealers pursuant to~~a supplier in which we ~~have~~ agreed to ~~pay~~purchase a minimum amount of energy storage systems and components for five years. In December 2020, we amended an ~~incentive if the dealers originate~~agreement with a supplier in which we agreed to purchase a certain ~~minimum number~~amount of ~~solar~~ energy storage systems ~~within certain periods.~~and components for one year. These ~~incentives~~purchases are recorded to inventory in other current assets in the consolidated balance ~~sheets and are amortized to general and administrative expense in the statements of operations generally over the term of the customer agreements.~~sheets. Under these agreements, we ~~paid $20.0 million and $22.0 million, respectively, during the three and six months ended June 30, 2019 and~~ could be obligated to ~~pay a maximum of approximately $13.0 million per year beginning in 2020 until 2022.~~make minimum purchases as follows:


	Purchase Commitments
	(in thousands)
Remaining 2021	$	0
2022	17,074
2023	26,605
2024	19,807
2025	0
2026 and thereafter	0
Total	$	63,486

Information Technology Commitments. We have certain long-term contractual commitments related to information technology software services and licenses. Future commitments as of June 30, ~~2019~~2021 were as follows:


	Information Technology Commitments
	(in thousands)
Remaining 2021	$	8,191
2022	2,589
2023	379
2024	26
2025	7
2026 and thereafter	0
Total	$	11,192

Information
Technology
Commitments
(in thousands)
Remaining 2019 $ 2,400
2020 3,125
2021 2,700
2022 —
2023 —
2024 and thereafter —
Total $ 8,225

(16) Subsequent Events

~~(15)~~ ~~Subsequent Events~~

~~IPO~~. On July 24, 2019, we priced 14,000,000 shares of our common stock at a public offering price of $12.00 per share and on July 25, 2019 our shares of common stock began trading on the New York Stock Exchange under the symbol "NOVA". On August 19, 2019, we issued and sold an additional 865,267 shares of our common stock at a public offering price of $12.00 per share pursuant to the underwriters' option to purchase additional shares. We received aggregate net proceeds from the IPO of approximately $162.3 million, after deducting underwriting discounts and commissions of approximately $10.7 million and offering expenses of approximately $5.4 million. We recorded the offering costs in other assets in our consolidated balance sheets until closing, at which time the costs were reclassified to additional paid-in capital—common stock.

~~Convertible Preferred Stock. In connection with our IPO in July 2019, we converted~~ ~~108,138,971~~ ~~shares of our Series A convertible preferred stock and~~ ~~32,958,645~~ ~~shares of our Series C convertible preferred stock, which represented all the outstanding shares of our Series A convertible preferred stock and Series C convertible preferred stock, into~~ ~~60,479,017~~ ~~shares of our common stock.~~

~~Series B Common Stock.~~Noncontrolling Interests. In ~~connection with our IPO in~~ July 2019, we converted 23,870 shares of our non-voting Series B common stock, which represented all the outstanding shares of our Series B common stock, into 23,870 shares of our voting Series A common stock.

~~Series A Common Stock. In connection with our IPO in July 2019, our Series A common stock was redesignated as common stock.~~

~~Sunnova Energy Corporation Senior Secured Notes~~. In connection with our IPO in July 2019, we exercised our right to redeem all the senior secured notes for an aggregate principal plus unpaid cash and paid-in-kind interest amount of $57.1 million for cash.

~~Sunnova Energy Corporation Convertible Notes~~. ~~In connection with our IPO in July 2019~~, holders of the 2018 Note converted the principal amount plus any accrued and unpaid interest as of the date of conversion into 3,319,312 shares of Series A convertible preferred stock, which in turn converted into 1,422,767 shares of common stock. In addition, holders of the 2019 Note converted the principal amount plus any accrued and unpaid interest as of the date of conversion into 2,613,818 shares of Series C convertible preferred stock, which in turn converted into 1,120,360 shares of common stock.

~~NOTES TO SUNNOVA ENERGY COPORATION~~

~~UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Reverse Merger~~. In connection with our IPO in July 2019, we implemented an internal reorganization that resulted in SEI owning all the outstanding capital stock of Sunnova Energy Corporation. SEI's wholly owned subsidiary merged into Sunnova Energy Corporation with Sunnova Energy Corporation surviving as a direct, wholly owned subsidiary of SEI. Each share of each class of Sunnova Energy Corporation stock issued and outstanding immediately prior to the merger, by virtue of the merger and without any action on the part of the holder thereof, automatically converted into an equivalent corresponding share of stock of SEI, having the same designations, rights, powers and preferences and the qualifications, limitations and restrictions with respect to SEI as the corresponding share of Sunnova Energy Corporation stock being converted with respect to Sunnova Energy Corporation. Accordingly, upon consummation of the merger, each of Sunnova Energy Corporation’s stockholders immediately prior to the consummation of the merger became a stockholder of SEI.

~~Reverse Stock Split~~. In connection with our IPO in July 2019, we decreased the total number of outstanding shares with a 1 for 2.333 reverse stock split effective July 29, 2019 and subsequent to the date of these interim financial statements. All current and past period amounts stated herein have given effect to the reverse stock split.

~~Stock Options~~. In connection with our IPO in July 2019, approximately 50% of the non-vested stock options outstanding at that time, or 995,517 stock options, became exercisable and the vesting terms for all remaining stock options were amended so all stock options will be fully vested on the first anniversary of the closing date of the IPO. We recorded an additional $3.2 million of expense in July 2019 related to the accelerated vesting periods.

~~Restricted Stock Units~~. In connection with our IPO in July 2019, our Board adopted the 2019 Long-Term Incentive Plan (the "LTIP") to incentivize employees, officers, directors and other service providers of SEI and its affiliates. The LTIP provides for the grant, from time to time, at the discretion of the Board or a committee thereof, of stock options, stock appreciation rights, stock awards, including restricted stock and restricted stock units, performance awards and cash awards. The LTIP provides the aggregate number of shares of common stock that may be issued pursuant to awards shall not exceed 5,229,318 shares. During July and August 2019, we granted 1,377,317 restricted stock units to certain employees with a grant date fair value of $16.5 million, which will be recognized over the applicable vesting period of each award (either one year, three years or seven years).

~~Redeemable Noncontrolling Interests. In August 2019,~~2021, we admitted a tax equity investor as the Class A member of Sunnova TEP ~~IV-A,~~V-C, LLC ("~~TEPIVA"~~TEPVC"), a subsidiary of Sunnova TEP ~~IV-A~~V-C Manager, LLC, which is the Class B member of ~~TEPIVA.~~TEPVC. The Class A member of TEPVC made a total capital commitment of ~~$75.0~~approximately $150.0 million.

HELVI Debt. In July 2021, we pooled and transferred eligible solar loans and the related receivables into Sunnova

Helios VI Issuer, LLC ("HELVI"), a special purpose entity, that issued $106.2 million in aggregate principal amount of Series 2021-B Class A solar loan-backed notes and $106.2 million in aggregate principal amount of Series 2021-B Class B solar loan-

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

backed notes (collectively, the "HELVI Notes") with a maturity date of July 2048. The HELVI Notes were issued at a discount of 0.01% for Class A and 0.04% for Class B and bear interest at an annual rate of 1.62% and 2.01%, respectively. The cash flows generated by these solar loans are used to service the monthly principal and interest payments on the HELVI Notes and satisfy HELVI's expenses, and any remaining cash can be distributed to Sunnova Helios VI Depositor, LLC, HELVI's sole member. In connection with the HELVI Notes, certain of our affiliates receive a fee for managing and servicing the solar energy systems pursuant to management and service agreements. In addition, Sunnova Energy Corporation has guaranteed, among other things, (a) the obligations of certain of our subsidiaries to manage and service the solar energy systems pursuant to management and servicing agreements and (b) certain of our subsidiaries' obligations to repurchase or substitute certain ineligible solar loans eventually sold to HELVI pursuant to the related sale and contribution agreement. HELVI is also required to maintain certain reserve accounts for the benefit of the holders of the HELVI Notes, each of which must be funded at all times to the levels specified in the HELVI Notes. The holders of the HELVI Notes have no recourse to our other assets except as expressly set forth in the HELVI Notes.

EZOP and AP8 Debt. In July 2021, proceeds from the HELVI Notes were used to repay $144.0 million and $24.9 million in aggregate principal amount of outstanding EZOP and AP8 debt, respectively.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of ~~Operations~~

Operations.

The following discussion and analysis ~~contains~~contain forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those discussed under "Special Note Regarding Forward-Looking Statements" above and "Special Note Regarding Forward-Looking Statements", "Risk Factors" and elsewhere in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on February 25, 2021, our Quarterly Report on Form 10-Q filed with the SEC on April 29, 2021 and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Unless the context otherwise requires, the terms "Sunnova," "the Company," "we," "us" and "our" refer to ~~(i) Sunnova Energy Corporation~~SEI and its consolidated ~~subsidiaries, our predecessor for accounting purposes, when used in a historical context~~ subsidiaries.

~~(periods prior to July 29, 2019, the closing date of the initial public offering ("IPO")) and (ii)~~ ~~Sunnova Energy International Inc. ("SEI") and its consolidated subsidiaries~~ ~~when used in the present tense or prospectively (on or after July 29, 2019, the closing date of the IPO~~).

Company Overview

We are a leading residential solar and energy storage service provider, serving ~~more than 67,000~~over 162,000 customers in more than 2025 United States ("U.S.") states and territories. Our goal is to be the leading provider of clean, affordable and reliable energy for consumers, and we operate with a simple mission: to power energy ~~independence.~~independence so homeowners have the freedom to live life uninterrupted. We were founded to deliver customers a better energy service at a better price; and, through our solar and solar plus energy storage service offerings, we are disrupting the traditional energy landscape and the way the 21st century customer generates and consumes electricity.

We have a differentiated residential solar dealer model in which we partner with local dealers who originate, design and install our ~~customers’~~customers' solar energy systems and energy storage systems on our behalf. Our ~~unique~~ focus on our dealer model enables us to leverage our ~~dealers’~~dealers' specialized knowledge, connections and experience in local markets to drive customer origination while providing our dealers with access to high quality products at competitive prices, ~~and~~as well as technical oversight and expertise. We believe this structure provides operational flexibility, reduces exposure to labor shortages and ~~lower~~lowers fixed costs relative to our peers, furthering our competitive advantage.

Our recently completed acquisition focuses primarily on solar energy systems and energy storage systems for homebuilders. The ~~services we~~acquisition is expected to enhance our position in the new homebuilder market. We believe the acquisition will provide us a new strategic path to further scale our business, reduce customer acquisition costs, provide a multi-year supply of homesites through the development of new home solar communities and develop clean and resilient residential microgrids across the U.S.

We offer customers products to power their homes with affordable solar energy. We are able to offer savings compared to utility-based retail rates with little to no up-front expense to the customer in conjunction with solar and solar plus energy storage, and in the case of the latter are able to also provide energy resiliency. We also make it possible in some states for a customer to obtain a new roof and other ancillary products as part of their solar loan. Our solar service agreements take the form of a lease, power purchase agreement ("PPA") or loan. We also enable customers originated through our homebuilder channel the option of purchasing the system when the customer closes on the purchase of a new home. The initial term of our solar service agreements is typically 10, 15, 20 or 25 years. Service is an integral topart of our ~~customers’ value proposition. These include~~agreements and includes operations and maintenance, monitoring, repairs and replacements, equipment upgrades, ~~onsite~~on-site power optimization for the customer (for both supply and demand), the ability to efficiently switch power sources among the solar panel, grid and energy storage system, ~~as appropriate, and diagnostics.~~

We offer customers products to power their homes with affordable solar energy. We are able to offer savings to our solar-only customers compared to utility-based retail rates with little to no up-front expense to the customer, and we are able to provide energy resiliency and reliability to our solar plus energy storage customers. Our solar service agreements take the form of a lease, power purchase agreement ("PPA") or loan. The initial term of our solar service agreements is typically 25 years, or in the case of standalone energy storage services, 10 years. Service is an integral part of our agreements and includes operations and maintenance, monitoring, repairs and replacements, equipment upgrades, onsite power optimization for the customer (for both supply and demand), the ability to efficiently switch power sources among the solar panel, grid and battery, as appropriate, and diagnostics. During the life of the contract we have the opportunity to integrate related and evolving home servicing and monitoring technologies to upgrade the flexibility and reduce the cost of our ~~customers’~~customers' energy supply.

In the case of leases and PPAs, we also currently receive tax benefits and other incentives from federal, state and local governments, a portion of which we finance through tax equity, non-recourse debt structures and hedging arrangements in order to fund our upfront costs, overhead and growth investments. We have an established track record of attracting capital from diverse sources. ~~Since~~From our inception through June 30, 2021, we have raised more than ~~$4.0~~$8.0 billion in total capital commitments from equity, debt and tax equity investors.

In addition to providing ongoing service as a standard component of our solar service agreements, we also offer ongoing energy services to customers who purchased their solar energy system through ~~unaffiliated~~ third parties. Under these arrangements, we agree to provide ~~such~~ monitoring, maintenance and repair services to these customers for the life of the service contract they sign

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with us. We believe the quality and scope of our comprehensive energy service offerings, whether to customers that obtained their solar energy system through us or through another party, is a key differentiator between us and our competitors.

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We commenced operations in January 2013 and began providing solar energy services under our first solar energy system in April 2013. Since then, our brand, innovation and focused execution have driven significant, rapid growth in our market share and in the number of customers on our platform. We operate one of the largest fleets of residential solar energy systems in the U.S., comprising more than ~~485~~940 megawatts of generation capacity and serving ~~more than 67,000~~over 162,000 customers.

Recent Developments

~~On July 24, 2019,~~Acquisition of SunStreet

In February 2021, we ~~priced 14,000,000~~entered into an Agreement and Plan of Merger (the "Merger Agreement") with certain of our subsidiaries, SunStreet Energy Group, LLC, a Delaware limited liability company ("SunStreet"), and LEN X, LLC, a Florida limited liability company, the sole member of SunStreet and a wholly owned subsidiary of Lennar Corporation ("Lenx"). Pursuant to the Merger Agreement, in April 2021, we acquired SunStreet, Lennar Corporation's ("Lennar") residential solar platform, in exchange for up to 6,984,225 shares of our common stock (the "Acquisition"), comprised of 3,095,329 shares in initial consideration issued at closing, subject to purchase price adjustment, and up to 3,888,896 shares issuable as earnout consideration after closing of the Acquisition as described below. In connection with the Acquisition, we entered into an agreement pursuant to which we would be the exclusive residential solar and storage service provider for Lennar's new home communities with solar across the U.S. for a ~~public offering price~~period of ~~$12.00 per share~~four years. The Acquisition is expected to provide a new strategic path to further scale our business and ~~on July 25, 2019 our~~develop clean and resilient residential microgrids across the U.S.

Earnout Agreement

Pursuant to the Earnout Agreement entered into between us and Lenx, Lenx will have the ability to earn up to an additional 3,888,896 shares of common stock ~~began trading~~over a five-year period in connection with the Acquisition. The earnout payments are conditioned on ~~the New York Stock Exchange under the symbol "NOVA". On August 19, 2019, we issued and sold an additional 865,267 shares of our common stock at a public offering price of $12.00 per share pursuant~~SunStreet meeting certain commercial milestones tied to achieving specified origination targets. There are two elements to the ~~underwriters' option~~earnout arrangement. First, we will issue up to ~~purchase additional shares. We received aggregate net proceeds from~~2,777,784 shares to the ~~IPO~~extent we and our subsidiaries (including SunStreet) place target amounts of ~~approximately $162.3 million, after deducting underwriting discounts~~solar energy systems into service and ~~commissions of approximately $10.7 million and offering expenses of approximately $5.4 million.~~

~~In connection with our IPO in July 2019, we completed a series of recapitalization transactions as follows:~~


•	~~we converted~~ ~~108,138,971~~ ~~shares of our Series A convertible preferred stock and~~ ~~32,958,645~~ ~~shares of our Series C convertible preferred stock, which represented all the outstanding shares of our Series A convertible preferred stock and Series C convertible preferred stock, into~~ ~~60,479,017~~ ~~shares of our common stock;~~

~~we converted 23,870 shares of our non-voting Series B common stock, which represented all the outstanding shares of our Series B common stock,~~enter into ~~23,870 shares of our voting Series A common stock.~~

~~our Series A common stock was redesignated as common stock;~~

~~we exercised our right~~qualifying customer agreements related to ~~redeem all the senior secured notes for an aggregate principal plus unpaid cash and paid-in-kind interest amount of $57.1 million for cash;~~

holders of the 2018 Note converted the principal amount plus any accrued and unpaid interest as of the date of conversion into 3,319,312 shares of Series A convertible preferred stock, which in turn converted into 1,422,767such solar energy systems through SunStreet's existing homebuilding process. The 2,777,784 shares of common ~~stock. In addition, holders~~stock issuable under this portion of the ~~2019 Note converted~~earnout can be earned in four installments on a yearly basis (if the ~~principal amount plus any accrued and unpaid interest as~~origination target for each such year is achieved) or at the end of the four-year period (if the cumulative origination target is achieved in the fourth and final year), with the annual periods commencing on the closing date of ~~conversion into 2,613,818~~the Acquisition. The second element of the earnout is related to the development of microgrid communities. Pursuant to this portion of the earnout, we will issue up to 1,111,112 shares ~~of Series C convertible preferred stock, which in turn converted into 1,120,360 shares of common stock;~~

we implemented an internal reorganization which resulted in SEI owning all the outstanding capital stock of Sunnova Energy Corporation. SEI's wholly owned subsidiary merged into Sunnova Energy Corporation with Sunnova Energy Corporation surviving as a direct, wholly owned subsidiary of SEI. Each share of each class of Sunnova Energy Corporation stock issued and outstanding immediatelyif, prior to the merger, by virtue of the merger and without any action on the part of the holder thereof, automatically converted into an equivalent corresponding share of stock of SEI, having the same designations, rights, powers and preferences and the qualifications, limitations and restrictions with respect to SEI as the corresponding share of Sunnova Energy Corporation stock being converted with respect to Sunnova Energy Corporation. Accordingly, upon consummation of the merger, each of Sunnova Energy Corporation’s stockholders immediately prior to the consummation of the merger became a stockholder of SEI;

we decreased the total number of outstanding shares with a 1 for 2.333 reverse stock split effective July 29, 2019 and subsequent to the date of these interim financial statements. All current and past period amounts stated herein have given effect to the reverse stock split;

approximately 50% of the non-vested stock options outstanding at that time, or 995,517 stock options, became exercisable and the vesting terms for all remaining stock options were amended so all stock options will be fully vested on the firstfifth anniversary of the closing date of the ~~IPO.~~Acquisition, we enter into binding agreements for the development of microgrid communities.

Tax Equity Commitment

In connection with the Acquisition, Lennar has committed to contribute an aggregate $200.0 million (the "Funding Commitment") to four Sunnova tax equity funds, each formed annually during a period of four consecutive years (each such year, a "Contribution Year") commencing in 2021. The solar service agreements and related solar energy systems acquired by each of these four tax equity funds will generally be originated by SunStreet, though a certain number of solar service agreements may be originated by our dealers if those originated by SunStreet do not fully utilize Lennar's Funding Commitment for a given Contribution Year. Any amount not utilized during the first and second Contribution Years will increase the Funding Commitment during the third and fourth Contribution Year by that amount. Any amount not utilized during the third Contribution Year will increase the Funding Commitment during the fourth Contribution Year by that amount. In connection with the Funding Commitment, each of the tax equity funds will enter into typical tax equity fund transaction documentation, including development and purchase agreements, servicing agreements and limited liability company agreements. See "—Liquidity and Capital Resources—Financing Arrangements—Tax Equity Fund Commitments" below.

COVID-19 Pandemic

The ongoing COVID-19 pandemic has resulted and may continue to result in widespread adverse impacts on the global economy. We ~~recorded~~have experienced some resulting disruptions to our business operations as the COVID-19 virus has continued to circulate through the states and U.S. territories in which we operate.

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Social distancing guidelines, stay-at-home orders and similar government measures associated with the COVID-19 pandemic, as well as actions by individuals to reduce their potential exposure to the virus, contributed to a decline in origination. This decline reflected an inability by our dealers to perform in-person sales calls based on the stay-at-home orders in some locations. To adjust to these government measures, our dealers expanded the use of digital tools and origination channels and created new methods that offset restrictions on their ability to meet with potential new customers in person. Such efforts drove an increase in new contract origination. We have seen the use of websites, video conferencing and other virtual tools as part of our origination process expand widely and contribute to our growth.

Throughout the COVID-19 pandemic, we have continued to service and install solar energy systems and have seen minimal impact to our supply chain as our technicians and dealers have largely been able to successfully procure the equipment needed to service and install solar energy systems. However, if supply chains become significantly disrupted due to additional ~~$3.2~~outbreaks of the COVID-19 virus or otherwise, or more stringent health and safety guidelines are implemented, our ability to install and service solar energy systems could become adversely impacted.

We cannot predict the full impact the COVID-19 pandemic will have on our business, cash flows, liquidity, financial condition and results of operations at this time due to numerous uncertainties. We will continue to monitor developments affecting our workforce, our customers and our business operations generally, and will take actions we determine are necessary in order to mitigate these impacts.

Financing Transactions

In April 2021, we admitted tax equity investors with a total capital commitment of approximately $75.0 million. In May 2021, we admitted a tax equity investor with a total capital commitment of approximately $150.0 million. In July 2021, we admitted a tax equity investor with a total capital commitment of approximately $150.0 million. See "—Liquidity and Capital Resources—Financing Arrangements—Tax Equity Fund Commitments" below.

In April 2021, in connection with the Acquisition, we entered into an arrangement to finance the purchase of $29.0 million of ~~expense~~inventory at an annual interest rate of 6.00% plus LIBOR (or acceptable replacement index) over twelve months. See "—Liquidity and Capital Resources—Financing Arrangements—Warehouse and Other Debt Financings" below.

In May 2021, we issued and sold an aggregate principal amount of $575.0 million of our 0.25% convertible senior notes ("0.25% convertible senior notes") in ~~July 2019 related~~a private placement at a discount to the ~~accelerated vesting periods;~~initial purchasers of 2.5%, for an aggregate purchase price of $560.6 million. The 0.25% convertible senior notes mature in December 2026 unless earlier redeemed, repurchased or converted. In connection with the pricing of the 0.25% convertible senior notes, we used proceeds of $91.7 million to enter into privately negotiated capped call transactions, which are expected to reduce the potential dilution to common shares and/or offset potential cash payments that could be required to be made in excess of the principal amount upon any exchange of notes. Such reduction and/or offset is subject to a cap initially equal to $60.00 per share, subject to adjustments. See "—Liquidity and Capital Resources—Financing Arrangements—Convertible Senior Notes" below.

In June 2021, one of our ~~Board adopted~~subsidiaries issued $319.0 million in aggregate principal amount of Series 2021-1 solar asset-backed notes (the "SOLIII Notes") with a maturity date of April 2056. The SOLIII Notes bear interest at an annual rate of 2.58%. In July 2021, one of our subsidiaries issued $106.2 million in aggregate principal amount of Series 2021-B Class A solar loan-backed notes and $106.2 million in aggregate principal amount of Series 2021-B Class B solar loan-backed notes (collectively, the ~~2019 Long-Term Incentive Plan (the "LTIP"~~"HELVI Notes") ~~to incentivize employees, officers, directors~~with a maturity date of July 2048. The HELVI Notes bear interest at an annual rate of 1.62% and ~~other service providers of SEI and its affiliates. The LTIP provides~~2.01% for the ~~grant, from time to time, at the discretion of the Board or a committee thereof, of stock options, stock appreciation rights, stock awards, including restricted stock~~Class A and ~~restricted stock units, performance awards~~Class B notes, respectively. See "—Liquidity and ~~cash awards. The LTIP provides the aggregate number of shares of common stock that may be issued pursuant to awards shall not exceed 5,229,318 shares.~~Capital Resources—Financing Arrangements—Securitizations" below.

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During July and August 2019, we granted 1,377,317 restricted stock units to certain employees with a grant date fair value of $16.5 million, which will be recognized over the applicable vesting period of each award (either one year, three years or seven years).

Securitizations

As a source of long-term financing, we securitize qualifying solar energy systems, energy storage systems and related solar service agreements into special purpose entities who issue solar asset-backed and solar loan-backed notes to institutional investors. We also securitize the cash flows generated by the membership interests in certain of our indirect, wholly-owned subsidiaries that are the managing member of a tax equity fund that owns a pool of solar energy systems, energy storage systems and related solar service agreements that were originated by one of our wholly-owned subsidiaries. ~~We do not securitize the~~The federal government currently provides business investment tax ~~credit ("ITC",~~ ~~as defined~~credits under Section 48(a) (the "Section 48(a) ITC") and residential energy credits under Section 25D (the "Section 25D Credit") of the U.S. Internal Revenue Code of 1986, as ~~amended~~)amended. We do not securitize the Section 48(a) ITC incentives associated with the solar energy systems and energy storage systems as part of these arrangements. We use the cash flows these solar energy systems and energy storage systems generate to service the monthly, quarterly or semi-annual principal and interest payments on the notes and satisfy the expenses and reserve

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requirements of the special purpose entities, with any remaining cash distributed to their sole members, who are typically our indirect wholly-owned subsidiaries. In connection with these securitizations, certain of our affiliates receive a fee for managing and servicing the solar energy systems and energy storage systems pursuant to management, servicing, facility administration and asset management agreements. The special purpose entities are also typically required to maintain a liquidity reserve account and a reserve account for ~~inverter~~equipment replacements and, in certain cases, reserve accounts for financing fund purchase option/withdrawal right exercises or storage system replacement for the benefit of the ~~lenders~~holders under the applicable series of notes, each of which are funded from initial deposits or cash flows to the levels specified therein. The creditors of these special purpose entities have no recourse to our other assets except as expressly set forth in the terms of the notes. ~~Since~~From our inception through June 30, 2021, we have issued ~~$824.7 million~~$2.2 billion in solar asset-backed ~~notes as of June 30, 2019.~~and solar loan-backed notes.

Tax Equity Funds

Our ability to offer long-term solar service agreements depends in part on our ability to finance the installation of the solar energy systems and energy storage systems by co-investing with tax equity investors, such as large banks who value the resulting customer receivables and Section 48(a) ITCs, accelerated tax depreciation and other incentives related to the solar energy systems and energy storage systems, primarily through structured investments known as "tax equity". Tax equity investments are generally structured as non-recourse project financings known as "tax equity funds". In the context of distributed generation solar energy, tax equity investors make ancontributions upfront ~~advance payment to a sponsor through a tax equity fund~~or in stages based on milestones in exchange for a share of the tax attributes and cash flows emanating from an underlying portfolio of solar energy systems and energy storage systems. In these tax equity funds, the U.S. federal tax attributes offset taxes that otherwise would have been payable on the ~~investors’~~investors' other operations. The terms and conditions of each tax equity fund vary significantly by investor and by fund. We continue to negotiate with ~~financial~~potential investors to create additional tax equity funds.

In general, our tax equity funds are structured using the "partnership flip" structure. Under partnership flip structures, we and our tax equity investors contribute cash into a partnership. The partnership uses this cash to acquire long-term solar service agreements, ~~and~~ solar energy systems and energy storage systems developed by us and sells energy from such solar energy systems and energy storage systems, as applicable, to customers or directly leases the solar energy systems and energy storage systems, as applicable, to customers. We assign these solar service agreements, solar energy systems, energy storage systems and related incentives to our tax equity funds in accordance with the criteria of the specific funds. Upon such assignment and the satisfaction of certain conditions precedent, we are able to draw down on the tax equity fund commitments. The conditions precedent to funding vary across our tax equity funds but generally require that we have entered into a solar service agreement with the customer, the customer meets certain credit criteria, the solar energy system is expected to be eligible for the Section 48(a) ITC, we have a recent appraisal from an independent appraiser establishing the fair market value of the solar energy system and the property is in an approved state or territory. ~~All the capital contributed by our~~Certain tax equity investors ~~into the tax equity funds is, depending on the tax equity fund structure, either paid~~agree to us to acquire solar energy systems or distributed to us following our contribution of solar energy systems to the tax equity fund. Some tax equity investors have additional criteria that are specific to those tax equity funds. Once received by us, these proceeds are generally used for working capital or capital expenditures to develop and deliver solar energy systems. Each tax equity investor receivesreceive a minimum target rate of return, typically on an after-tax basis, which varies by tax equity fund. Prior to receiving a contractual rate of return or a date ~~certain based on~~specified in the ~~expiration of the Section 48(a) ITC recapture period for the last project to be placed in service,~~contractual arrangements, the tax equity investor receives substantially all of the non-cash value attributable to the solar energy systems and energy storage systems, which includes accelerated depreciation and Section 48(a) ~~ITCs, and a scheduled cash distribution;~~ITCs; however, we typically receive a majority of the cash distributions, which are typically paid quarterly. After ~~such~~the tax equity investor receives its contractual rate of return or after a specified date, we receive substantially all of the cash. Under the partnership flip structure, in part owing to the allocation of depreciation benefits to the investor, the investor’s pre-tax return is much lower than the investor’s after-tax return.cash and tax allocations.

We have determined we are the primary beneficiary in these ~~partnership flip structures~~tax equity funds for accounting purposes. Accordingly, we consolidate the assets and liabilities and operating results of these partnerships in our consolidated financial

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statements. We recognize the tax equity ~~investors’~~investors' share of the net assets of the tax equity funds as redeemable noncontrolling interests and noncontrolling interests in our consolidated balance sheets. ~~These~~The income or loss allocations reflected in our consolidated ~~statement~~statements of operations may create significant volatility in our reported results of operations, including potentially changing net loss attributable to stockholders to net income attributable to stockholders, or vice versa, from quarter to quarter.

We typically have an option to acquire, and our tax equity investors may have an option to withdraw and require us to purchase, all the equity interests our tax equity investor holds in the tax equity funds starting approximately ~~six~~five years after the last solar energy system in ~~each~~the applicable tax equity fund is operational. If we or our tax equity investors exercise this option, we are typically required to pay at least the fair market value of the tax equity ~~investor’s~~investor's equity ~~interest. Following such exercise, we would receive 100% of the customer payments for the remainder of the term of the solar service agreements.~~

~~Since~~interest and, in certain cases, a contractual minimum amount. From our inception through June 30, 2021, we have received commitments of ~~$249.5 million~~ ~~as of~~ ~~June 30, 2019~~$1.0 billion through the use of tax equity funds, of which an aggregate of ~~$201.5~~$745.2 million has been funded. ~~In May 2019 and June 2019, we received non-binding indications of interest for up to $150.0 million and $185.7 million, respectively, of additional tax equity funds from third parties.~~

~~In August 2019, we closed on a new tax equity facility with a total capital commitment of $75.0 million.~~

Key Financial and Operational Metrics

We regularly review a number of metrics, including the following key operational and financial metrics, to evaluate our business, measure our performance and liquidity, identify trends affecting our business, formulate our financial projections and make strategic decisions.

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Number of ~~Customers.~~ Customers. We define number of customers to include ~~each customer that is party to~~every unique individual possessing an in-service solar energy system with respect to which Sunnova is obligated to perform a service ~~agreement.~~under a written agreement between Sunnova and the individual or between Sunnova and a third party. For ~~our leases, PPAs and loan agreements,~~all solar energy systems installed by us, in-service means the related solar energy system and, if applicable, energy storage system, must have met all the requirements to begin operation and be interconnected to the electrical grid. ~~For our Sunnova Protect services, in-service means the customer’s system must have met the requirements to have the service activated.~~ We do not include in our number of customers any customer under a lease, PPA or loan agreement that has reached mechanical completion but has not received permission to operate from the local utility or for whom we have terminated the contract and removed the solar energy system. We also do not include in our number of customers any customer ~~of our Sunnova Protect services~~ that has been in default under his or her solar service agreement in excess of six months. We track the total number of customers as an indicator of our historical growth and our rate of growth from period to period.


	As of June 30, 2021	As of December 31, 2020	Change


Number of customers	162,600	107,500	55,100

As of
June 30, 2019 As of
December 31, 2018 Change
Number of customers 67,600
60,300
7,300

Weighted Average Number of ~~Customers.~~ Systems.We calculate the weighted average number of ~~customers~~systems based on the number of months a ~~given~~ customer and any additional service obligation related to a solar energy system is in-service during a given measurement period. The weighted average ~~customer count~~number of systems reflects the number of ~~customers~~systems at the beginning of a period, plus the total number of new ~~customers~~systems added in the period adjusted by a factor that accounts for the partial period nature of those new ~~customers.~~systems. For purposes of this calculation, we assume all new ~~customers~~systems added during a month were added in the middle of that month. The number of systems for any end of period will exceed the number of customers, as defined above, for that same end of period as we are also including the additional services and/or contracts a customer or third party executed for the additional work for the same residence. We track the weighted average ~~customer~~system count in order to accurately reflect the contribution of the appropriate number of ~~customers~~systems to key financial metrics over the measurement period.


	Three Months Ended June 30,		Six Months Ended June 30,
	2021	2020	2021	2020
Weighted average number of systems (excluding loan agreements and cash sales)	126,900	75,100	109,300	72,700
Weighted average number of systems with loan agreements	24,600	13,300	22,700	12,500
Weighted average number of systems with cash sales	100	—	100	—
Weighted average number of systems	151,600	88,400	132,100	85,200

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
Weighted average number of customers (excluding loan agreements) 58,100
48,100
56,700
46,500
Weighted average number of customers with loan agreements 7,700
3,700
7,200
3,300
Weighted average number of customers 65,800
51,800
63,900
49,800

Adjusted EBITDA. We define Adjusted EBITDA as net income (loss) plus net interest expense, depreciation and amortization expense, income tax expense, financing deal costs, natural disaster losses and related charges, net, losses on extinguishment of long-term debt, realized and unrealized gains and losses on fair value instruments, amortization of payments to dealers for exclusivity and other bonus arrangements, legal settlements and excluding the effect of certain non-recurring items we do not consider to be indicative of our ongoing operating performance such as, but not limited to, costs of ~~the IPO~~our initial public offering ("IPO"), acquisition costs, losses on unenforceable contracts and other non-cash items such as non-cash compensation expense, asset retirement obligation ("ARO") accretion expense, provision for current expected credit losses and non-cash ~~compensation expense.~~inventory impairments.

Adjusted EBITDA is a non-GAAP financial measure we use as a performance measure. We believe investors and securities analysts

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also use Adjusted EBITDA in evaluating our operating performance. This measurement is not recognized in accordance with accounting principles generally accepted in the United States of America ("GAAP") and should not be viewed as an alternative to GAAP measures of performance. The GAAP measure most directly comparable to Adjusted EBITDA is net income (loss). The presentation of Adjusted EBITDA should not be construed to suggest our future results will be unaffected by non-cash or non-recurring items. In addition, our calculation of Adjusted EBITDA is not necessarily comparable to Adjusted EBITDA as calculated by other companies.

We believe Adjusted EBITDA is useful to management, investors and analysts in providing a measure of core financial performance adjusted to allow for comparisons of results of operations across reporting periods on a consistent basis. These adjustments are intended to exclude items that are not indicative of the ongoing operating performance of the business. Adjusted EBITDA is also used by our management for internal planning purposes, including our consolidated operating budget, and by our ~~board of directors~~Board in setting performance-based compensation targets. Adjusted EBITDA should not be considered an alternative to but viewed in conjunction with GAAP results, as we believe it provides a more complete understanding of ongoing business performance and trends than GAAP measures alone. Adjusted EBITDA has limitations as an analytical tool,

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and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.

We use per customer metrics, including Adjusted Operating Expense per weighted average customer (as described below), as an additional way to evaluate our performance. Specifically, we consider the change in these metrics from period to period as a way to evaluate our performance in the context of changes we experience in the overall customer base. While the Adjusted Operating Expense figure provides a valuable indicator of our overall performance, evaluating this metric on a per unit basis allows for further nuanced understanding by management, investors and analysts of the financial impact of each additional customer.


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(in thousands)
Reconciliation of Net Loss to Adjusted EBITDA:
Net loss	$	(66,272)	$	(28,729)	$	(90,336)	$	(105,733)
Interest expense, net	50,109		30,532		58,160		97,850

Interest income	(7,988)		(6,680)		(15,168)		(11,300)

Depreciation expense	20,782		15,868		40,325		30,814
Amortization expense	7,126		7		7,158		16
EBITDA	3,757		10,998		139		11,647
Non-cash compensation expense	2,920		3,354		10,844		6,044
ARO accretion expense	697		524		1,349		1,013
Financing deal costs	356		1,571		357		1,687
Natural disaster losses and related charges, net	—		—		—		31

Acquisition costs	1,478		—		5,488		—

Loss on extinguishment of long-term debt, net	9,824		—		9,824		—

Unrealized (gain) loss on fair value instruments	4,282		(256)		4,169		(256)

Amortization of payments to dealers for exclusivity and other bonus arrangements	643		396		1,257		747

Provision for current expected credit losses	5,152		1,416		8,465		3,280
Non-cash inventory impairments	982		—		982		—

Adjusted EBITDA	$	30,091	$	18,003	$	42,874	$	24,193

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(in thousands)
Reconciliation of Net Loss to Adjusted EBITDA:
Net loss $ (49,807 ) $ (9,224 ) $ (85,303 ) $ (22,660 )
Interest expense, net 37,310
10,724
68,971
15,707
Interest expense, net—affiliates 1,575
2,354
3,397
4,847
Interest income (2,967 ) (1,418 ) (5,461 ) (2,610 )
Depreciation expense 11,627
9,386
22,639
18,350
Amortization expense 7
34
12
67
EBITDA (2,255 ) 11,856
4,255
13,701
Non-cash compensation expense (1) 1,884
824
2,271
1,550
ARO accretion expense 327
402
640
613
Financing deal costs 849
(182 ) 968
1,341
Disaster losses and related charges, net —
296
—
612
IPO costs 1,307
1
2,046
1
Loss on extinguishment of long-term debt, net—affiliates 10,645
—
10,645
—
Unrealized loss on fair value option instruments 534
—
534
—
Legal settlements 293
—
293
—
Adjusted EBITDA $ 13,584
$ 13,197
$ 21,652
$ 17,818

~~(1)~~

~~Amount includes non-cash effect of equity-based compensation plans of $0.7 million~~ ~~for the three months ended~~ ~~June 30, 2019~~ ~~and~~ ~~2018~~ ~~and~~ $1.0 million and $1.4 million for the six months ended June 30, 2019 and 2018, respectively, and partial forgiveness of a loan to an executive officer used to purchase our capital stock of $1.2 million ~~and $0.1 million for the three months ended~~ ~~June 30, 2019~~ ~~and~~ ~~2018, respectively, and~~ ~~$1.3 million and $0.1 million for the six months ended June 30, 2019 and 2018, respectively.~~

Interest Income and Principal Payments from Customer Notes Receivable. Under our loan agreements, the customer obtains financing for the purchase of a solar energy system from us and we agree to operate and maintain the solar energy system throughout the duration of the agreement. Pursuant to the terms of the loan agreement, the customer makes scheduled

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principal and interest payments to us and has the option to prepay principal at any time in part or in full. Whereas we typically recognize payments from customers under our leases and PPAs as revenue, we recognize payments received from customers under our loan agreements ~~(i) as revenue, to the extent attributable to payments for operations and maintenance services provided by us; (ii)~~(a) as interest income, to the extent attributable to earned interest on the contract that financed the ~~customer’s~~customer's purchase of the solar energy system; ~~and (iii)~~(b) as a reduction of a note receivable on the balance sheet, to the extent attributable to a return of principal (whether scheduled or prepaid) on the contract that financed the ~~customer’s~~customer's purchase of the solar energy ~~system.~~system; and (c) as revenue, to the extent attributable to payments for operations and maintenance services provided by us.

While Adjusted EBITDA effectively captures the operating performance of our leases and PPAs, it only reflects the service portion of the operating performance under our loan agreements. We do not consider our types of solar service agreements differently when evaluating our operating performance. In order to present a measure of operating performance that provides comparability without regard to the different accounting treatment among our three types of solar service agreements, we consider interest income from customer notes receivable and principal proceeds from customer notes receivable, net of related ~~Easy Own~~ revenue, as key performance metrics. We believe these two metrics ~~together provides~~provide a more meaningful and ~~more~~ uniform method of analyzing our operating performance when viewed in light of our other key performance metrics across the three primary types of solar service agreements.


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(in thousands)
Interest income from customer notes receivable	$	7,862	$	6,568	$	14,959	$	10,940
Principal proceeds from customer notes receivable, net of related revenue	$	15,773	$	7,541	$	28,075	$	13,919

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(in thousands)
Interest income from customer notes receivable $ 2,692
$ 1,355
$ 5,020
$ 2,488
Principal proceeds from customer notes receivable, net of related Easy Own revenue $ 5,224
$ 2,031
$ 8,653
$ 3,380

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Adjusted Operating Cash Flow. We define Adjusted Operating Cash Flow as net cash used in operating activities plus principal proceeds from customer notes receivable, financed insurance payments and distributions to redeemable noncontrolling interests and noncontrolling interests less derivative origination and breakage fees from financing structure changes, payments to dealers for exclusivity and other bonus arrangements, net inventory and prepaid inventory ~~purchases.~~(sales) purchases, payments of non-capitalized costs related to our IPO, acquisitions and equity offerings, payments of direct sales costs, excluding inventory, to the extent the related solar energy system is financed through a loan, payments to installers and builders for homebuilder asset-development activities and payments of customer rewards. Adjusted Operating Cash Flow is a non-GAAP financial measure we use as a liquidity measure. This measurement is not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of liquidity. The GAAP measure most directly comparable to Adjusted Operating Cash Flow is net cash used in operating activities. We believe Adjusted Operating Cash Flow is a supplemental financial measure useful to management, analysts, investors, lenders and rating agencies as an indicator of our ability to internally fund origination activities, service or incur additional debt and service our contractual obligations. We believe investors and analysts will use Adjusted Operating Cash Flow to evaluate our liquidity and ability to service our contractual obligations. However, Adjusted Operating Cash Flow has limitations as an analytical tool because it does not account for all future expenditures and financial obligations of the business or reflect unforeseen circumstances that may impact our future cash flows, all of which could have a material effect on our financial condition and results from operations. In addition, our calculations of Adjusted Operating Cash Flow are not necessarily comparable to liquidity measures presented by other companies. Investors should not rely on these measures as a substitute for any GAAP measure, including net cash used in operating activities.


	Six Months Ended June 30,
	2021		2020
	(in thousands)
Reconciliation of Net Cash Used in Operating Activities to Adjusted Operating Cash Flow:
Net cash used in operating activities	$	(110,684)	$	(82,928)
Principal proceeds from customer notes receivable	30,881		15,090
Financed insurance payments	(2,254)		(2,451)
Derivative origination and breakage fees from financing structure changes	8,936		36,894
Distributions to redeemable noncontrolling interests and noncontrolling interests	(6,261)		(2,600)
Payments to dealers for exclusivity and other bonus arrangements	19,908		16,731
Net inventory and prepaid inventory purchases for asset-development activities	50,796		18,002

Payments of non-capitalized costs related to acquisitions	4,757		—
Payments of non-capitalized costs related to equity offerings	609		—

Payments to installers and builders for homebuilder asset-development activities	7,912		—


Adjusted Operating Cash Flow	$	4,600	$	(1,262)

Six Months Ended
June 30,
2019 2018
(in thousands)
Reconciliation of Net Cash Used in Operating Activities to Adjusted Operating Cash Flow:
Net cash used in operating activities $ (55,694 ) $ (20,561 )
Principal proceeds from customer notes receivable 9,336
3,768
Distributions to redeemable noncontrolling interests (5,143 ) (789 )
Payments to dealers for exclusivity and other bonus arrangements 22,000
—
Inventory purchases 9,517
5,360
Adjusted Operating Cash Flow $ (19,984 ) $ (12,222 )

Adjusted Operating Expense. We define Adjusted Operating Expense as total operating expense less depreciation and amortization expense, financing deal costs, natural disaster losses and related charges, net, amortization of payments to dealers for exclusivity and other bonus arrangements, legal settlements, direct sales costs, cost of revenue related to cash sales, unrealized losses on fair value instruments and excluding the effect of certain non-recurring items we do not consider to be indicative of our ongoing operating performance such as, but not limited to, costs of our IPO, acquisition costs, losses on unenforceable contracts and other non-cash items such as non-cash compensation expense, ARO accretion expense, ~~financing deal costs, disaster~~provision for current expected credit losses and ~~related charges, net, IPO costs and legal settlements.~~non-cash inventory impairments. Adjusted Operating Expense is a non-GAAP financial measure we use as a performance measure. We believe investors and securities analysts will also use Adjusted Operating Expense in evaluating our

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performance. This measurement is not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance. The GAAP measure most directly comparable to Adjusted Operating Expense is total operating expense. We believe Adjusted Operating Expense is a supplemental financial measure useful to management, analysts, investors, lenders and rating agencies as an indicator of the efficiency of our operations between reporting periods. Adjusted Operating Expense should not be considered an alternative to but viewed in conjunction with GAAP total operating expense, as we believe it provides a more complete understanding of our performance than GAAP measures alone. Adjusted Operating Expense has limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP, including total operating expense.

We use per system metrics, including Adjusted Operating Expense per weighted average ~~customer~~system, as an additional way to evaluate our performance. Specifically, we consider the change in this metric from period to period as a way to evaluate our performance in the context of changes we experience in the overall customer base. While the Adjusted Operating Expense

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figure provides a valuable indicator of our overall performance, evaluating this metric on a per ~~customer~~system basisallows for ~~a better~~further nuanced understanding by ~~us,~~management, investors and analysts of the financial impact of each additional ~~customer.~~system.


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(in thousands, except per system data)
Reconciliation of Total Operating Expense, Net to Adjusted Operating Expense:
Total operating expense, net	$	80,899	$	47,933	$	145,481	$	92,068
Depreciation expense	(20,782)		(15,868)		(40,325)		(30,814)
Amortization expense	(7,126)		(7)		(7,158)		(16)
Non-cash compensation expense	(2,920)		(3,354)		(10,844)		(6,044)
ARO accretion expense	(697)		(524)		(1,349)		(1,013)
Financing deal costs	(356)		(1,571)		(357)		(1,687)
Natural disaster losses and related charges, net	—		—		—		(31)

Acquisition costs	(1,478)		—		(5,488)		—

Amortization of payments to dealers for exclusivity and other bonus arrangements	(643)		(396)		(1,257)		(747)

Provision for current expected credit losses	(5,152)		(1,416)		(8,465)		(3,280)
Non-cash inventory impairments	(982)		—		(982)		—
Direct sales costs	(48)		—		(48)		—
Cost of revenue related to cash sales	(3,822)		—		(3,822)		—
Unrealized loss on fair value instruments	(4,298)		—		(4,298)		—

Adjusted Operating Expense	$	32,595	$	24,797	$	61,088	$	48,436
Adjusted Operating Expense per weighted average system	$	215	$	281	$	462	$	568

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(in thousands, except per customer data)
Reconciliation of Total Operating Expense, Net to Adjusted Operating Expense:
Total operating expense, net $ 37,322
$ 26,528
$ 68,544
$ 53,464
Depreciation expense (11,627 ) (9,386 ) (22,639 ) (18,350 )
Amortization expense (7 ) (34 ) (12 ) (67 )
Non-cash compensation expense (1,884 ) (824 ) (2,271 ) (1,550 )
ARO accretion expense (327 ) (402 ) (640 ) (613 )
Financing deal costs (849 ) 182
(968 ) (1,341 )
Disaster losses and related charges, net —
(296 ) —
(612 )
IPO costs (1,307 ) (1 ) (2,046 ) (1 )
Legal settlements (293 ) —
(293 ) —
Adjusted Operating Expense $ 21,028
$ 15,767
$ 39,675
$ 30,930
Adjusted Operating Expense per weighted average customer $ 320
$ 304
$ 621
$ 621

Estimated Gross Contracted Customer Value. We calculate estimated gross contracted customer value as defined below. We believe estimated gross contracted customer value can serve as a useful tool for investors and analysts in comparing the remaining value of our customer contracts to that of our peers.

Estimated gross contracted customer value as of a specific measurement date represents the sum of the present value of the remaining estimated future net cash flows we expect to receive from existing customers during the initial contract term of our leases and PPAs, which are typically 25 years in length, plus the present value of future net cash flows we expect to receive from the sale of related solar renewable energy certificates ("SREC"), either under existing contracts or in future sales, plus the cash flows we expect to receive from energy services programs such as grid services, plus the carrying value of outstanding customer loans on our balance sheet. From these aggregate estimated initial cash flows, we subtract the present value of estimated net cash distributions to redeemable noncontrolling interests and noncontrolling interests and estimated operating, maintenance and administrative expenses associated with the solar service agreements. These estimated future cash flows reflect the projected monthly customer payments over the life of our solar service agreements and depend on various factors including but not limited to solar service agreement type, contracted rates, expected sun hours and the projected production capacity of the solar equipment installed. For the purpose of calculating this metric, we discount all future cash flows at 6%4%.

The anticipated operating, maintenance and administrative expenses included in the calculation of estimated gross contracted customer value include, among other things, expenses related to accounting, reporting, audit, insurance, maintenance and repairs. In the aggregate, we estimate these expenses are $20 per kilowatt per year initially, with 2% annual increases for ~~inflation.~~inflation, and an additional $81 per year non-escalating expense included for energy storage systems. We do not include maintenance and repair costs for inverters and similar equipment as those are largely covered by the applicable product and dealer warranties for the life of the product, but we do include additional cost for energy storage systems, which are only covered by a 10-year warranty. Expected distributions to tax equity investors vary among the different tax equity funds and are based on individual tax equity fund contract provisions.

Estimated gross contracted customer value is forecasted as of a specific date. It is forward-looking and we use judgment in developing the assumptions used to calculate it. Factors that could impact estimated gross contracted customer value include, but are not limited to, customer payment defaults, or declines in utility rates or early termination of a contract in certain

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circumstances, including prior to installation. The following table presents the calculation of estimated gross contracted customer value as of June 30, ~~2019~~2021 and December 31, ~~2018,~~2020, calculated using a 6%4% discount rate.


	As of June 30, 2021		As of December 31, 2020


	(in millions)
Estimated gross contracted customer value	$	3,516	$	2,997

As of
June 30, 2019 As of
December 31, 2018
(in millions)
Estimated gross contracted customer value $ 1,652
$ 1,476

Sensitivity Analysis. The calculation of estimated gross contracted customer value and associated operational metrics requires us to make a number of assumptions regarding future revenues and costs which may not prove accurate. Accordingly, we present below a sensitivity analysis with a range of assumptions. We consider a discount rate of 6%4% to be appropriate based on ~~industry practice and~~ recent transactions that demonstrate a portfolio of residential solar service agreements is an asset class that can be securitized successfully on a long-term basis, with a coupon of less than 6%4%. We also present these metrics with a discount rate of 4% based on industry practice. The appropriate discount rate for these estimates may change in the future due to the level of inflation, rising interest rates, our cost of capital and consumer demand for solar energy systems. In addition, the table below provides a range of estimated gross contracted customer value amounts if different cumulative customer loss rate assumptions were used. We are presenting this information for illustrative purposes only and as a comparison to information published by our peers.


Estimated Gross Contracted Customer Value
	As of June 30, 2021
	Discount rate
Cumulative customer loss rate	2%		4%		6%
	(in millions)
5%	$	3,796	$	3,306	$	2,934
0%	$	4,080	$	3,516	$	3,090

Estimated Gross Contracted Customer Value
As of June 30, 2019
Discount rate
Cumulative customer loss rate 4% 6% 8%
(in millions)
5% $ 1,887
$ 1,626
$ 1,427
0% $ 1,920
$ 1,652
$ 1,447

Significant Factors and Trends Affecting Our Business

Our results of operations and our ability to grow our business over time could be impacted by a number of factors and trends that affect our industry generally, as well as new offerings of services and products we may acquire or seek to acquire in the future. Additionally, our business is concentrated in certain markets, putting us at risk of region-specific disruptions such as adverse economic, regulatory, political, weather and other conditions. See "~~Item 1A,~~ Risk Factors" in our Annual Report on Form 10-K filed with the SEC on February 25, 2021 and in this Quarterly Report on Form 10-Qfor further discussion of risks affecting our business.

Financing Availability. Our future growth depends, in significant part, on our ability to raise capital from third-party investors on competitive terms to help finance the origination of our solar energy systems under our solar service agreements. We have historically used debt, such as convertible senior notes, asset-backed and loan-backed securitizations and warehouse facilities, tax equity, preferred equity and other financing strategies to help fund our operations. From our inception tothrough June 30, ~~2019,~~2021, we have raised ~~over $4.0~~more than $8.0 billion in ~~indebtedness,~~total capital commitments from equity, debt and tax equity ~~funds and preferred equity.~~investors. With respect to tax equity, there are a limited number of potential tax equity investors, and the competition for this investment capital is intense. The principal tax credit on which tax equity investors in our industry rely is the Section 48(a) ITC. ~~The~~Starting January 1, 2020, the amount for the Section 48(a) ITC iswas equal to 30% of the ~~value~~basis of eligible solar ~~property.~~property that began construction before 2020 if placed in service before 2026. By statute, the Section 48(a) ITC percentage ~~is scheduled to decrease~~decreases to 26% ~~on January 1,~~for eligible solar property that began construction during 2020 or begins construction in 2021 or 2022, 22% ~~on January 1, 2021~~if construction begins in 2023 and 10% ~~on January 1, 2022.~~if construction begins after 2023 or if the property is placed into service after 2025. This reduction in the Section 48(a) ITC will likely reduce our ~~ability to~~ use of tax equity financing in the ~~future.~~future unless the Section 48(a) ITC is increased or replaced. IRS guidance includes a safe harbor that may apply when a taxpayer (or in certain cases, a contractor) pays or incurs 5% or more of the costs of a solar energy system before the end of the applicable year (the "5% ITC Safe Harbor"), even though the solar energy system is not placed in service until after the end of that year. For installations in 2021, we purchased prior to 2020 substantially all the inverters that we estimated would be deployed under our lease and PPA agreements that we expected would allow the related solar energy systems to qualify for the 30% Section 48(a) ITC by satisfying the 5% ITC Safe Harbor. Based on various market factors, however, not all solar energy systems installed in 2021 will qualify for the Section 48(a) ITC at 30%. For solar energy systems installed in 2021 not meeting all requirements for the 30% Section 48(a) ITC, such solar energy systems are expected to qualify for the 26% Section 48(a) ITC. Additionally, we may make further inventory purchases in future periods to extend the availability of each period's Section 48(a) ITC. Our ability to raise capital from third-party investors is ~~also~~ affected by general economic conditions, the state of the capital markets, inflation levels and concerns about our

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industry or business. Specifically, interest rates remain subject to volatility that may result from action taken by the Federal Reserve. Recent data have suggested inflationary pressures may be more durable than anticipated, which could result in interest rate increases and/or the tapering of quantitative easing policies enacted towards the outset of the COVID-19 pandemic sooner than previously expected.

Cost of Solar Energy Systems. Although the solar panel market has seen an increase in supply, upward pressure on prices may occur due to growth in the solar industry, regulatory policy changes, tariffs and duties, inflationary cost pressures and an increase in demand. As a result of these developments, we ~~will likely~~may pay higher prices on imported solar modules, which may make it less economical for us to serve certain markets. Attachment rates for energy storage systems have trended higher while the price to acquire has trended downward making the addition of energy storage systems a potential area of growth for us.

Energy Storage Systems. Our energy storage systems increase our ~~customers’~~customers' independence from the centralized utility and provide on-site backup power when there is a grid outage due to storms, wildfires, other natural disasters and general power failures caused by supply or transmission issues. In addition, at times it can be more economic to consume less energy from the grid or, alternatively, to export solar energy back to the grid. Recent technological advancements for energy storage systems allow the energy storage system to adapt to pricing and utility rate shifts by controlling the inflows and outflows of power, allowing customers to increase the value of their solar energy system plus energy storage system. The energy storage system charges during the day, making the energy it

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stores available to the home when needed. It also features software that can customize power usage for the individual customer, providing backup power, optimizing solar energy consumption versus grid consumption or preventing export to the grid as appropriate. The software is tailored based on utility regulation, economic indicators and grid conditions. The combination of energy control, increased energy resilience and independence from the grid is strong incentive for customers to adopt solar and energy storage. As energy storage systems and their related software features become more advanced, we expect to see increased adoption of energy storage systems.

Climate Change Action. As a result of increasing global awareness of and aversion to climate change impacts, we believe the renewable energy market in which we operate, and investment in climate solutions more broadly, will continue to grow as the impact of climate change increases. This trend, along with increasing commitments to reduce carbon emissions, is expected to result in increased demand for our products and services. Under the new presidential administration, the focus on cleaner energy sources and technology to decarbonize the U.S. economy continues to accelerate. The Biden administration has taken immediate steps that we believe signify support for cleaner energy sources, including, but not limited to, rejoining the Paris Climate Accord and re-establishing a social price on carbon used in cost/benefit analysis for policy making. We expect the Biden administration, combined with a closely divided Congress, to continue to take actions that are supportive of the renewable energy industry, such as incentivizing clean energy sources and supporting new investment in areas like renewables.

Government Regulations, Policies and Incentives. Our growth strategy depends in significant part on government policies and incentives that promote and support solar energy and enhance the economic viability of distributed residential solar. These policies and incentives come in various forms, including net metering, eligibility for accelerated depreciation such as the ~~Modified Accelerated Cost Recovery System,~~modified accelerated cost recovery system, SRECs, tax abatements, ~~rebate and~~rebates, renewable ~~target~~targets, incentive programs and tax credits, particularly the ~~federal tax credits.~~Section 48(a) ITC and the Section 25D Credit. Policies requiring solar on new homes or new roofs, such as those enacted in California and New York City, also support the growth of distributed solar. The sale of SRECs has constituted a significant portion of our revenue historically. A change in the value of SRECs or changes in other policies or a loss or reduction in such incentives could decrease the attractiveness of distributed residential solar to us, our dealers and our customers in applicable markets, which could reduce our customer acquisition opportunities. Such a lossor reduction could also reduce our willingness to pursue certain customer acquisitions due to decreased revenue or income under our solar service agreements. Additionally, such a loss or reduction may also impact the terms of and availability of third-party financing. If any of these government regulations, policies or incentives are adversely amended, delayed, eliminated, reduced, retroactively changed or not extended beyond their current expiration dates or there is a negative impact from the recent federal law changes or proposals, our operating results and the demand for, and the economics of, distributed residential solar energy may decline, which could harm our business.

Components of Results of Operations

Revenue. We recognize revenue from contracts with customers as we satisfy our performance obligations at a transaction price reflecting an amount of consideration based upon an estimated rate of ~~return.~~return, net of cash incentives. We express this rate of return as the solar rate per ~~kWh~~kilowatt hour ("kWh") in the customer contract. The amount of revenue we recognize does not equal customer cash payments because we satisfy performance obligations ahead of cash receipt or evenly as we provide continuous access on a stand-ready basis to the solar energy system. We reflect the differences between revenue recognition and cash payments received in accounts receivable, other assets or deferred revenue, as appropriate.

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PPAs. We have determined solar service agreements under which customers purchase electricity from us should be accounted for as revenue from contracts with customers. We recognize revenue based upon the amount of electricity delivered as determined by remote monitoring equipment at solar rates specified under the contracts. The PPAs generally have a term of 20 or 25 years with an opportunity for customers to renew for up to an additional 10 years, via two ~~5-year~~five-year or one ten-year renewal options.

Lease Agreements. We are the lessor under lease agreements for solar energy systems and energy storage systems, which we account for as revenue from contracts with customers. We recognize revenue on a straight-line basis over the contract term as we satisfy our obligation to provide continuous access to the solar energy system. The lease agreements generally have a term of 20 or 25 years with an opportunity for customers to renew for up to an additional 10 years, via two ~~5-year~~five-year or one ten-year renewal options.

We provide customers under our lease agreements a performance guarantee that each solar energy system will achieve a certain specified minimum solar energy production output. The specified minimum solar energy production output may not be achieved due to natural fluctuations in the weather or equipment failures from exposure and wear and tear outside of our control, among other factors. We determine the amount of guaranteed output based on a number of different factors, including (a) the specific site information relating to the tilt of the panels, azimuth (a horizontal angle measured clockwise in degrees from a reference direction) of the panels, size of the solar energy system and shading on site; (b) the calculated amount of available irradiance (amount of energy for a given flat surface facing a specific direction) based on historical average weather data and (c) the calculated amount of energy output of the solar energy system. While actual irradiance levels can significantly change year over year due to natural fluctuations in the weather, we expect the levels to average out over the term of a 25-year lease and to approximate the levels used in determining the amount of the performance guarantee.

If the solar energy system does not produce the guaranteed production amount, we ~~may be~~are required to provide a bill credit or refund a portion of the previously remitted customer payments, where the bill credit or repayment is calculated as the product of (a) the shortfall production amount and (b) the dollar amount (guaranteed rate) per kWh that is fixed throughout the term of the contract. These bill credits or remittances of a ~~customer’s~~customer's payments, if needed, are payable in January following the end of the first three years of the solar energy system's placed in service date and then every annual period thereafter. See Note ~~14,~~15, Commitments and Contingencies, to our interim unaudited condensed consolidated financial statements ("interim financial statements") included elsewhere in this Quarterly Report on Form 10-Q.

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~~Loan Agreements~~. We recognize payments received from customers under the loan agreements (a) as revenue, to the extent attributable to payments for operations and maintenance services provided by us, which are recognized on a straight-line basis over the term of the contract; (b) as interest income, to the extent attributable to earned interest on the contract; and (c) as a reduction of a note receivable included in current and long-term assets, to the extent attributable to a return of principal (whether scheduled or prepaid) on the contract. Similar to our lease agreements, we have provided customers under our loan agreements a performance guarantee that each solar energy system will achieve a certain specified minimum solar energy production output, which is a significant proportion of its expected output.

~~Solar Renewable Energy Certificates~~SRECs. Each SREC represents one ~~MWh~~megawatt hour (1,000 kWh) generated by a solar energy system. We ~~measure and issue SRECs to the owner of the solar energy system based on meter readings of actual production. We~~ sell SRECs to utilities ~~in order~~and other third parties who use the SRECs to meet renewable portfolio standards and can do so with or without the actual electricity associated with the renewable-based generation source. We account for SRECs generated from solar energy systems owned by us, as opposed to those owned by our customers, as governmental incentives with no costs incurred to obtain them and do not consider those SRECs output of the underlying solar energy systems. We classify SRECs as inventory held until sold and delivered to third parties. ~~As we did not incur costs to obtain these governmental incentives, the inventory carrying value for our SRECs was~~ $0 ~~as of June 30, 2019 and December 31, 2018.~~ We enter into economic hedges with major financial institutions related to expected production of SRECs through forward contracts to partially mitigate the risk of decreases in SREC market rates. The contracts require us to physically deliver the SRECs upon settlement. We recognize the related revenue upon the transfer of the SRECs to the counterparty. The costs related to the sales of SRECs are generally limited to fees for brokered transactions. Accordingly, the sale of SRECs in a period ~~favorably impacts~~generally has a favorable impact on our operating results for that period. In certain circumstances we are required to purchase SRECs on the open market to fulfill minimum delivery requirements under our forward contracts.

Cash Sales. Cash sales revenue represents revenue from a customer's purchase of a solar energy system from us typically when purchasing a new home. We recognize the related revenue upon verification of the home closing.

Loan Agreements. We recognize payments received from customers under loan agreements (a) as interest income, to the extent attributable to earned interest on the contract that financed the customer's purchase of the solar energy system; (b) as a reduction of a note receivable on the balance sheet, to the extent attributable to a return of principal (whether scheduled or prepaid) on the contract that financed the customer's purchase of the solar energy system; and (c) as revenue, to the extent attributable to payments for operations and maintenance services provided by us. Similar to our lease agreements, we provide customers under our loan agreements a performance guarantee that each solar energy system will achieve a certain specified minimum solar energy production output, which is a significant proportion of its expected output.

Other Revenue. Other revenue includes certain state and utility incentives, revenue from the direct sale of energy storage systems to customers and sales of service plans. We recognize revenue from state and utility incentives in the periods in which they are earned. We recognize revenue from the direct sale of energy storage systems in the period in which the storage components are placed in service. Service plans are available to customers whose solar energy system was not originally sold by Sunnova. We recognize revenue from service plan contracts over the life of the contract, which is typically five years or ten years.

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Cost of ~~Revenue~~—D~~epreciation.~~Revenue—Depreciation. Cost of ~~revenue~~—revenue—depreciation represents depreciation on solar energy systems under lease agreements and PPAs that have been placed in service.

Cost of ~~Revenue~~—O~~ther.~~Revenue—Other. Cost of ~~revenue~~—revenue—other represents costs to purchase SRECs on the open market, SREC broker fees and other items deemed to be a cost of providing the service of selling power to customers or potential customers, such as certain costs to service loan agreements, ~~and~~costs related to cash sales, costs for filing under the Uniform Commercial Code to maintain title, title searches, credit checks on potential customers at the time of initial contract and other similar costs, typically directly related to the volume of customers and potential customers.

Operations and Maintenance Expense. Operations and maintenance expense represents costs paid to third parties for maintaining and servicing the solar energy systems, property insurance and property taxes. In addition, operations and maintenance expense includes impairments due to natural disaster losses ~~losses on disposals and other impairments~~ net of insurance proceeds recovered under our business interruption and property damage insurance coverage for natural disasters, ~~such as Hurricane Maria, which occurred in Puerto Rico in September 2017~~write downs and ~~for which we incurred charges through the fourth quarter of 2018.~~write-offs related to inventory adjustments, losses on disposals and other impairments.

General and Administrative Expense. General and administrative expense represents costs for our employees, such as salaries, bonuses, benefits and all other employee-related costs, including stock-based compensation, professional fees related to legal, accounting, human resources, finance and training, information technology and software services, marketing and communications, IPO costs, acquisition costs, travel and rent and other office-related expenses. General and administrative expense also includes depreciation on assets not classified as solar energy systems, including information technology software and development projects, vehicles, furniture, fixtures, computer equipment and leasehold improvements and accretion expense on AROs. We capitalize a portion of general and administrative ~~expense,~~costs, such as payroll-related costs, that is related to employees who are directly involved in the design, construction, installation and testing of the solar energy systems but not directly associated with a particular asset. We also capitalize a portion of general and administrative ~~expense,~~costs, such as payroll-related costs, that is related to employees who are directly associated with and devote time to internal ~~computer~~information technology software and development projects, to the extent of the time spent directly on the application and development stage of such software project.

Other Operating Expense (Income). Other operating expense (income) primarily represents changes in the fair value of certain financial instruments.

Interest Expense, Net. Interest expense, net represents ~~interest, net of capitalized~~ interest on our borrowings under our various debt facilities and amortization of debt discounts and deferred financing costs.

~~Interest Expense, Net~~—~~Affiliates.~~ ~~Interest expense, net~~—~~affiliates represents interest expense on our debt facilities, including the amortization of the debt discounts, held by our affiliates.~~

Interest Income. Interest income represents interest income from the notes receivable under our loan program and income on short term investments with financial institutions.

Loss on Extinguishment of Long-Term Debt, ~~Net~~Net.—~~Affiliates.~~ Loss on extinguishment of long-term debt, net—~~affiliates~~ resulted from ~~the GAAP treatment of the amendment~~a make whole payment related to the ~~senior secured~~early repayment of one of our solar asset-backed notes ~~in April 2019 and represents the difference between the net carrying value of the senior secured notes prior to the amendment and the fair value of the notes after the~~

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~~amendment as discussed in~~securitizations. See Note 7, Long-Term Debt, to our ~~unaudited condensed consolidated~~interim financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Other ~~(Income) Expense.~~ Income.Other ~~(income) expense~~income primarily represents changes in the fair value of ~~the senior secured notes.~~certain financial instruments.

Income ~~Tax Provision.~~Tax. We account for income taxes under Accounting Standards Codification ~~("ASC")~~ 740, Income Taxes. As such, we determine deferred tax assets and liabilities based on temporary differences resulting from the different treatment of items for tax and financial reporting purposes. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. Additionally, we must assess the likelihood that deferred tax assets will be recovered as deductions from future taxable income. We have ~~provided~~ a full valuation allowance on our deferred tax assets because we believe it is more likely than not that our deferred tax assets will not be realized. We evaluate the recoverability of our deferred tax assets on a quarterly basis. Currently, for U.S. income tax purposes, there is no provision or benefit for income taxes as we have incurred losses to date.

Net Income (Loss) Attributable to Redeemable Noncontrolling Interests and Noncontrolling Interests. Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests represents ~~third-party~~tax equity interests in the net ~~assets~~income or loss of certain consolidated ~~subsidiaries.~~subsidiaries based on hypothetical liquidation at book value.

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Results of Operations—Three Months Ended June 30, ~~2019~~2021 Compared to Three Months Ended June 30, ~~2018~~2020

The following table sets forth our unaudited condensed consolidated statements of operations data for the periods indicated.


	Three Months Ended June 30,
	2021		2020		Change
	(in thousands)
Revenue	$	66,556	$	42,790	$	23,766

Operating expense:
Cost of revenue—depreciation	18,548		14,021		4,527
Cost of revenue—other	4,996		2,869		2,127
Operations and maintenance	4,985		2,926		2,059
General and administrative	48,336		28,133		20,203
Other operating expense (income)	4,034		(16)		4,050
Total operating expense, net	80,899		47,933		32,966

Operating loss	(14,343)		(5,143)		(9,200)

Interest expense, net	50,109		30,532		19,577

Interest income	(7,988)		(6,680)		(1,308)
Loss on extinguishment of long-term debt, net	9,824		—		9,824

Other income	(16)		(266)		250
Loss before income tax	(66,272)		(28,729)		(37,543)

Income tax	—		—		—
Net loss	(66,272)		(28,729)		(37,543)
Net loss attributable to redeemable noncontrolling interests and noncontrolling interests	(2,876)		(3,471)		595
Net loss attributable to stockholders	$	(63,396)	$	(25,258)	$	(38,138)

Three Months Ended
June 30,
2019 2018 Change
(in thousands)
Revenue $ 34,612
$ 28,963
$ 5,649

Operating expense:
Cost of revenue—depreciation 10,225
8,274
1,951
Cost of revenue—other 1,076
448
628
Operations and maintenance 2,289
2,251
38
General and administrative 23,794
15,578
8,216
Other operating income (62 ) (23 ) (39 )
Total operating expense, net 37,322
26,528
10,794

Operating income (loss) (2,710 ) 2,435
(5,145 )

Interest expense, net 37,310
10,724
26,586
Interest expense, net—affiliates 1,575
2,354
(779 )
Interest income (2,967 ) (1,418 ) (1,549 )
Loss on extinguishment of long-term debt, net—affiliates 10,645
—
10,645
Other (income) expense 534
(1 ) 535
Loss before income tax (49,807 ) (9,224 ) (40,583 )

Income tax —
—
—
Net loss (49,807 ) (9,224 ) (40,583 )
Net income attributable to redeemable noncontrolling interests 931
3,350
(2,419 )
Net loss attributable to stockholders $ (50,738 ) $ (12,574 ) $ (38,164 )

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Revenue

Three Months Ended
June 30,
2019 2018 Change
(in thousands)
Revenue under PPAs $ 13,954
$ 11,459
$ 2,495
Revenue under leases 9,620
8,144
1,476
Solar renewable energy certificate revenue 9,716
8,898
818
Loan agreement revenue 363
224
139
Other revenue 959
238
721
Total $ 34,612
$ 28,963
$ 5,649


	Three Months Ended June 30,
	2021		2020		Change
	(in thousands)
PPA revenue	$	26,250	$	19,922	$	6,328
Lease revenue	17,523		12,338		5,185
SREC revenue	11,833		8,735		3,098
Cash sales revenue	6,938		—		6,938
Loan revenue	1,679		634		1,045
Other revenue	2,333		1,161		1,172
Total	$	66,556	$	42,790	$	23,766

Revenue increased by ~~$5.6~~$23.8 million in the three months ended June 30, ~~2019~~2021 compared to the three months ended June 30, ~~2018~~2020 primarily as a result of an increased number of solar energy systems in ~~service.~~service and the April 2021 acquisition of SunStreet. The weighted average number of ~~customers~~systems (excluding ~~customers~~systems with loan ~~agreements)~~agreements and cash sales) increased from approximately ~~48,100~~75,100 for the three months ended June 30, ~~2018~~2020 to approximately ~~58,100~~126,900 for the three months ended June 30, ~~2019.~~2021. Excluding SREC revenue, ~~and~~ revenue under our loan agreements and cash sales revenue, on a weighted average number of ~~customers~~systems basis, revenue ~~increased~~decreased from ~~$412~~$445 per ~~customer~~system for the three months endedJune 30, ~~2018~~2020 to ~~$422~~$363 per ~~customer~~system for the

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same period in ~~2019 (2% increase). The quarter over quarter difference~~2021 (18% decrease) primarily due to an increase in ~~revenue per customer was affected by (a)~~ the ~~market mix~~number of ~~portfolio and relative yields in those markets, (b) weather variability and (c) the impact of Hurricane Maria on Puerto Rico revenues (for~~service-only customers acquired from SunStreet, which billing was largely curtailed for approximately two months beginning in September 2017 and then gradually increased over time until billing was materially resumed by August 2018) which are relatively highergenerate significantly less revenue per customer. SREC revenue increased by ~~$0.8~~$3.1 million in the three months ended June 30, ~~2019~~2021 compared to the three months ended June 30, ~~2018~~2020 primarily as a result of an increase in the number of solar energy systems ~~being placed~~ in service, which resulted in additional SREC production. ~~Including loan and SREC revenue, on a weighted average number of customers basis, revenues decreased from $559 per customer for the three months endedJune 30, 2018 to $528 per customer for the same period in 2019 (6% decrease).~~ The fluctuations in SREC revenue from period to period are also affected by the total number of solar energy systems, weather seasonality and hedge and spot prices associated with the timing of the sale of SRECs. On a weighted average number of systems basis, revenues under our loan agreements increased from $48 per system for the three months ended June 30, 2020 to $68 per system for the same period in 2021 (43% increase) primarily due to (a) higher battery attachment rates and (b) increasing expected battery replacement costs which are included in the loan resulting in larger customer loan balances.

Cost of Revenue—DDepreciation


	Three Months Ended June 30,
	2021		2020		Change
	(in thousands)
Cost of revenue—depreciation	$	18,548	$	14,021	$	4,527

~~epreciation~~

Three Months Ended
June 30,
2019 2018 Change
(in thousands)
Cost of revenue—depreciation $ 10,225
$ 8,274
$ 1,951

Cost of ~~revenue~~—revenue—depreciation increased by ~~$2.0~~$4.5 million in the three months ended June 30, ~~2019~~2021 compared to the three months ended June 30, ~~2018.~~2020. This increase was primarily ~~driven by~~due to an increase in the weighted average number of ~~customers~~systems (excluding ~~customers~~systems with loan ~~agreements)~~agreements, service-only agreements and cash sales) from approximately ~~48,100~~75,100 for the three months ended June 30, ~~2018~~2020 to approximately ~~58,100~~97,700 for the three months ended June 30, ~~2019.~~2021. On a weighted average number of ~~customers~~systems basis, cost of ~~revenue~~—revenue—depreciation remained relatively flat at ~~$172~~$187 per ~~customer~~system for the three months endedJune 30, ~~2018~~2020 compared to ~~$176~~$190 per ~~customer~~system for the same period in ~~2019.~~2021 (2% increase).

Cost of Revenue—Other

Three Months Ended
June 30,
2019 2018 Change
(in thousands)
Cost of revenue—other $ 1,076
$ 448
$ 628


	Three Months Ended June 30,
	2021		2020		Change
	(in thousands)
Cost of revenue—other	$	4,996	$	2,869	$	2,127

Cost of ~~revenue~~—revenue—other increased by ~~$0.6~~$2.1 million in the three months ended June 30, ~~2019~~2021 compared to the three months ended June 30, ~~2018.~~2020. This increase was primarily ~~driven by increases in~~due to costs related to ~~energy storage systems~~cash sales revenue, which began with the April 2021 acquisition of ~~$0.4 million as a result of the introduction of energy storage systems as a new product offering in late 2018.~~Sunstreet.

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Operations and Maintenance Expense

Three Months Ended
June 30,
2019 2018 Change
(in thousands)
Operations and maintenance $ 2,289
$ 2,251
$ 38


	Three Months Ended June 30,
	2021		2020		Change
	(in thousands)
Operations and maintenance	$	4,985	$	2,926	$	2,059

Operations and maintenance expense ~~was relatively flat for the~~ ~~three months endedJune 30, 2019~~ ~~compared to the~~ ~~three months endedJune 30, 2018. Operations and maintenance expense per customer, excluding net disaster losses, decreased to $39 per customer for the~~ ~~three months ended June 30, 2019~~ ~~compared to~~ ~~$57~~ ~~per customer for the~~ ~~three months endedJune 30, 2018~~ ~~as a result of operational efficiencies.~~

~~General and Administrative Expense~~

Three Months Ended
June 30,
2019 2018 Change
(in thousands)
General and administrative $ 23,794
$ 15,578
$ 8,216

~~General and administrative expense~~ increased by ~~$8.2~~$2.1 million in the three months ended June 30, ~~2019~~2021 compared to the three months ended June 30, ~~2018~~2020 primarily due to higher meter replacement costs and property insurance, offset by lower property tax expense. Operations and maintenance expense per weighted average system, excluding net natural disaster losses and non-cash inventory impairment, decreased from $39 per system for the three months ended June 30, 2020 to $31 per system for the three months ended June 30, 2021 primarily due to decreases in impairments and loss on disposals of assets and property taxes.

General and Administrative Expense


	Three Months Ended June 30,
	2021		2020		Change
	(in thousands)
General and administrative	$	48,336	$	28,133	$	20,203

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General and administrative expense increased by $20.2 million in the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to increases inof (a) $7.1 million of amortization expense primarily due to the amortization of intangible assets acquired from SunStreet, (b) $3.7 million of provision for current expected credit losses, (c) $3.4 million of payroll and employee related expenses of ~~$2.2 million~~primarily due to the hiring of personnel to support growth and the acquisition of personnel from SunStreet, (d) $1.9 million in consultants, contractors, and professional fees and (e) $1.5 million of ~~$1.3 million,~~ ~~IPO~~transaction costs ofrelated to the Acquisition.

~~$1.3 million, financing deal costs of $1.0 million and~~ ~~legal and settlement expenses of~~ ~~$0.6 million~~.

~~Interest~~Other Operating Expense ~~Net~~

Three Months Ended
June 30,
2019 2018 Change
(in thousands)
Interest expense, net $ 37,310
$ 10,724
$ 26,586

(Income)

~~Interest~~

Other operating expense ~~net~~(income) increased by ~~$26.6~~$4.1 million in the three months ended June 30, ~~2019~~2021 compared to the three months ended June 30, ~~2018. This increase was primarily driven by~~ ~~increases in unrealized loss on interest rate swaps~~ ~~of $14.9 million~~, ~~realized loss on interest rate swaps of~~ ~~$8.6 million~~ ~~and interest expense of $2.9 million~~ 2020 due to ~~an increase~~the change in the ~~principal debt balance after entering into new financing arrangements~~.fair value of certain financial instruments.

Interest Expense, ~~Net—Affiliates~~Net

Three Months Ended
June 30,
2019 2018 Change
(in thousands)
Interest expense, net—affiliates $ 1,575
$ 2,354
$ (779 )


	Three Months Ended June 30,
	2021		2020		Change
	(in thousands)
Interest expense, net	$	50,109	$	30,532	$	19,577

Interest expense, net—~~affiliates decreased~~ increased by ~~$0.8~~$19.6 million in the three months ended June 30, ~~2019~~2021 compared to the three months ended June 30, ~~2018~~2020. This increase was primarily due to increases in unrealized losses on interest rate swaps of $18.8 million, amortization of deferred financing costs of $4.8 million and amortization of debt discounts of $1.4 million. These were partially offset by a decrease in ~~interest expense due to a decrease in the principal debt balance between the periods.~~realized losses on swaps of $5.6 million.

Interest Income

Three Months Ended
June 30,
2019 2018 Change
(in thousands)
Interest income $ 2,967
$ 1,418
$ 1,549

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	Three Months Ended June 30,
	2021		2020		Change
	(in thousands)
Interest income	$	7,988	$	6,680	$	1,308

Interest income increased by ~~$1.5~~$1.3 million in the three months ended June 30, ~~2019~~2021 compared to the three months ended June 30, ~~2018.~~2020. This increase was primarily ~~driven by the~~due to an increase in the weighted average number of ~~customers~~systems with loan agreements from approximately ~~3,700~~13,300 for the three months ended June 30, ~~2018~~2020 to approximately ~~7,700~~24,600 for the three months ended June 30, ~~2019.~~2021. On a weighted average number of ~~customers~~systems basis, loan interest income decreased from ~~$366~~$494 per ~~customer~~system for the three months ended June 30, ~~2018~~2020 to ~~$349~~$320 per ~~customer~~system for the three months ended June 30, ~~2019 (5% decrease)~~2021 primarily due to a decrease in the ~~fact that~~annual interest rate for ~~the first 18 months on systems placed in service starting in July 2017 are based on 70% of the total amount financed under the loan, as the other 30% is interest free prior~~new loans due to ~~the due date of the 30% prepayment typically due on the 18~~market conditions.

^th ~~month; while interest on systems placed in service in prior periods was based on the entire financed amount.~~

Loss on Extinguishment of Long-Term Debt, Net

—~~Affiliates~~

Loss on extinguishment of long-term debt, net—~~affiliates~~ increased by ~~$10.6~~$9.8 million in the three months ended June 30, ~~2019~~2021 compared to the three months ended June 30, ~~2018~~2020 due to a make whole payment related to the ~~amendment~~early repayment of ~~the senior secured~~one of our solar asset-backed notes ~~in April 2019 that met the criteria for extinguishment accounting under GAAP.~~securitizations.

Income Tax

We do not have income tax expense or benefit due to pre-tax losses and a full valuation allowance recorded for the three months ended June 30, ~~2019~~2021 and ~~2018.~~2020. See "—Components of Results of ~~Operations~~—Operations—Income Tax ~~Provision~~".

Net ~~Income~~Loss Attributable to Redeemable Noncontrolling Interests and Noncontrolling Interests

Net ~~income~~loss attributable to redeemable noncontrolling interests and noncontrolling interests decreased by ~~$2.4 million~~$595,000 in the three months ended June 30, ~~2019~~2021 compared to the three months ended June 30, ~~2018~~2020 primarily due to ~~a decrease in the accretion of the redemption value of $3.1 million, partially offset by an increase in~~ income attributable to ~~redeemable~~ noncontrolling interests ~~of $0.7 million, both due to~~from tax equity funds added in ~~2018~~2020 and ~~2019.~~2021.

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Results of Operations—Six Months Ended June 30, ~~2019~~2021 Compared to Six Months Ended June 30, ~~2018~~2020

The following table sets forth our unaudited condensed consolidated statements of operations data for the periods indicated.


	Six Months Ended June 30,
	2021		2020		Change
	(in thousands)
Revenue	$	107,832	$	72,619	$	35,213

Operating expense:
Cost of revenue—depreciation	35,956		27,007		8,949
Cost of revenue—other	6,230		3,912		2,318
Operations and maintenance	8,605		5,145		3,460
General and administrative	90,656		56,026		34,630
Other operating expense (income)	4,034		(22)		4,056
Total operating expense, net	145,481		92,068		53,413

Operating loss	(37,649)		(19,449)		(18,200)

Interest expense, net	58,160		97,850		(39,690)

Interest income	(15,168)		(11,300)		(3,868)
Loss on extinguishment of long-term debt, net	9,824		—		9,824

Other income	(129)		(266)		137
Loss before income tax	(90,336)		(105,733)		15,397

Income tax	—		—		—
Net loss	(90,336)		(105,733)		15,397
Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests	6,043		(9,400)		15,443
Net loss attributable to stockholders	$	(96,379)	$	(96,333)	$	(46)

Six Months Ended
June 30,
2019 2018 Change
(in thousands)
Revenue $ 61,327
$ 48,747
$ 12,580

Operating expense:
Cost of revenue—depreciation 19,878
16,119
3,759
Cost of revenue—other 1,728
860
868
Operations and maintenance 4,543
4,591
(48 )
General and administrative 42,475
31,933
10,542
Other operating income (80 ) (39 ) (41 )
Total operating expense, net 68,544
53,464
15,080

Operating loss (7,217 ) (4,717 ) (2,500 )

Interest expense, net 68,971
15,707
53,264
Interest expense, net—affiliates 3,397
4,847
(1,450 )
Interest income (5,461 ) (2,610 ) (2,851 )
Loss on extinguishment of long-term debt, net—affiliates 10,645
—
10,645
Other (income) expense 534
(1 ) 535
Loss before income tax (85,303 ) (22,660 ) (62,643 )

Income tax —
—
—
Net loss (85,303 ) (22,660 ) (62,643 )
Net income attributable to redeemable noncontrolling interests 3,949
4,124
(175 )
Net loss attributable to stockholders $ (89,252 ) $ (26,784 ) $ (62,468 )

Revenue

Six Months Ended
June 30,
2019 2018 Change
(in thousands)
Revenue under PPAs $ 23,566
$ 18,747
$ 4,819
Revenue under leases 19,258
15,381
3,877
Solar renewable energy certificate revenue 16,308
13,862
2,446
Loan agreement revenue 734
402
332
Other revenue 1,461
355
1,106
Total $ 61,327
$ 48,747
$ 12,580


	Six Months Ended June 30,
	2021		2020		Change
	(in thousands)
PPA revenue	$	43,084	$	32,555	$	10,529
Lease revenue	33,920		23,880		10,040
SREC revenue	17,790		13,098		4,692
Cash sales revenue	6,938		—		6,938
Loan revenue	2,874		1,233		1,641
Other revenue	3,226		1,853		1,373
Total	$	107,832	$	72,619	$	35,213

Revenue increased by ~~$12.6~~$35.2 million in the six months ended June 30, ~~2019~~2021 compared to the six months ended June 30, ~~2018~~2020 primarily as a result of an increased number of solar energy systems in ~~service.~~service and the April 2021 acquisition of SunStreet. The weighted average number of ~~customers~~systems (excluding ~~customers~~systems with loan ~~agreements)~~agreements and cash sales) increased from approximately ~~46,500~~72,700 for the six months ended June 30, ~~2018~~2020 to approximately ~~56,700~~109,300 for the six months ended June 30, ~~2019.~~2021. Excluding SREC revenue, ~~and~~ revenue under our loan agreements and cash sales revenue, on a weighted average number of ~~customers~~

Table of Contents

systems basis, revenue ~~increased~~decreased from ~~$742~~$802 per ~~customer~~system for the six months endedJune 30, ~~2018~~2020 to ~~$781~~$734 per ~~customer~~system for the same period in ~~2019 (5% increase). The year over year difference~~2021 (8% decrease) primarily due to an increase in ~~revenue~~

~~Table~~the number of ~~Contents~~

~~per customer was affected by (a) the market mix of portfolio and relative yields in those markets, (b) weather variability and (c) the impact of Hurricane Maria on Puerto Rico revenues (for~~service-only customers acquired from SunStreet, which billing was largely curtailed for approximately two months beginning in September 2017 and then gradually increased over time until billing was materially resumed by August 2018) which are relatively highergenerate significantly less revenue per customer. SREC revenue increased by ~~$2.4~~$4.7 million in the six months ended June 30, ~~2019~~2021 compared to the six months ended June 30, ~~2018~~2020 primarily as a result of an increase in the number of solar energy systems ~~being placed~~ in service, which resulted in additional SREC production. ~~Including loan and SREC revenue, on a weighted average number of customers basis, revenues decreased from $979 per customer for the six months endedJune 30, 2018 to $963 per customer for the same period in 2019 (2% decrease).~~ The fluctuations in SREC revenue from period to period are also affected by the total number of solar energy systems, weather seasonality and hedge and spot prices associated with the timing of the sale of SRECs. On a weighted average number of systems basis, revenues under our loan agreements increased from $99 per system for the six months ended June 30, 2020 to $127 per system for the same period in 2021 (28% increase) primarily due to (a) higher battery attachment rates and (b) increasing expected battery replacement costs which are included in the loan resulting in larger customer loan balances.

Cost of Revenue—DDepreciation


	Six Months Ended June 30,
	2021		2020		Change
	(in thousands)
Cost of revenue—depreciation	$	35,956	$	27,007	$	8,949

~~epreciation~~

Six Months Ended
June 30,
2019 2018 Change
(in thousands)
Cost of revenue—depreciation $ 19,878
$ 16,119
$ 3,759

Cost of ~~revenue~~—revenue—depreciation increased by ~~$3.8~~$8.9 million in the six months ended June 30, ~~2019~~2021 compared to the six months ended June 30, ~~2018.~~2020. This increase was primarily ~~driven by~~due to an increase in the weighted average number of ~~customers~~systems (excluding ~~customers~~systems with loan ~~agreements)~~agreements, service-only agreements and cash sales) from approximately ~~46,500~~72,700 for the six months ended June 30, ~~2018~~2020 to approximately ~~56,700~~94,500 for the six months ended June 30, ~~2019.~~2021. On a weighted average number of ~~customers~~systems basis, cost of ~~revenue~~—revenue—depreciation remained relatively flat at ~~$347~~$371 per ~~customer~~system for the six months endedJune 30, ~~2018~~2020 compared to ~~$351~~$380 per ~~customer~~system for the same period in ~~2019.~~2021 (2% increase).

Cost of Revenue—Other

Six Months Ended
June 30,
2019 2018 Change
(in thousands)
Cost of revenue—other $ 1,728
$ 860
$ 868


	Six Months Ended June 30,
	2021		2020		Change
	(in thousands)
Cost of revenue—other	$	6,230	$	3,912	$	2,318

Cost of ~~revenue~~—revenue—other increased by ~~$0.9~~$2.3 million in the six months ended June 30, ~~2019~~2021 compared to the six months ended June 30, ~~2018.~~2020. This increase was primarily ~~driven by increases in~~due to costs related to ~~energy storage systems~~cash sales revenue, which began with the April 2021 acquisition of ~~$0.6 million as a result of the introduction of energy storage systems as a new product offering in late 2018.~~Sunstreet.

Operations and Maintenance Expense

Six Months Ended
June 30,
2019 2018 Change
(in thousands)
Operations and maintenance $ 4,543
$ 4,591
$ (48 )


	Six Months Ended June 30,
	2021		2020		Change
	(in thousands)
Operations and maintenance	$	8,605	$	5,145	$	3,460

Operations and maintenance expense ~~was relatively flat for the~~ ~~six months endedJune 30, 2019~~ ~~compared to the~~ ~~six months ended June 30, 2018. Operations and maintenance expense per customer, excluding net disaster losses, decreased to~~ ~~$80~~ ~~per customer for the~~ ~~six months endedJune 30, 2019~~ ~~compared to~~ ~~$105~~ ~~per customer for the~~ ~~six months ended June 30, 2018~~ ~~as a result of operational efficiencies.~~

~~General and Administrative Expense~~

Six Months Ended
June 30,
2019 2018 Change
(in thousands)
General and administrative $ 42,475
$ 31,933
$ 10,542

~~Table of Contents~~

~~General and administrative expense~~ increased by ~~$10.5~~$3.5 million in the six months ended June 30, ~~2019~~2021 compared to the six months ended June 30, ~~2018~~2020 primarily due to ~~increases inpayroll~~higher meter replacement costs and ~~employee related expenses of$2.8 million due to~~property insurance, offset by lower property tax expense. Operations and maintenance expense per weighted average system, excluding net natural disaster losses and non-cash inventory impairment, remained relatively flat at $70 per system for the ~~hiring of personnel to support growth,~~ ~~consultants, contractors~~six months ended June 30, 2020 and ~~professional fees of~~June 30, 2021.

~~$2.2 million~~, ~~IPO costs of $2.0 million,~~ ~~legal and settlement expenses of~~ ~~$0.6 million, marketing and communications expenses of~~ ~~$0.6 million, depreciation expense not related to solar energy systems of $0.5 million, travel and related business expenses of $0.5 million and bad debt expense of $0.4 million.~~

General and Administrative Expense

~~Interest Expense, Net~~


	Six Months Ended June 30,
	2021		2020		Change
	(in thousands)
General and administrative	$	90,656	$	56,026	$	34,630

Table of Contents

Six Months Ended
June 30,
2019 2018 Change
(in thousands)
Interest expense, net $ 68,971
$ 15,707
$ 53,264

~~Interest~~General and administrative expense ~~net~~ increased by ~~$53.3~~$34.6 million in the six months ended June 30, ~~2019~~2021 compared to the six months ended June 30, ~~2018.~~2020 primarily due to increases of (a) $11.0 million of payroll and employee related expenses primarily due to equity-based compensation expense, the hiring of personnel to support growth and the acquisition of personnel from SunStreet, (b) $7.1 million of amortization expense primarily due to the amortization of intangible assets acquired from SunStreet, (c) $5.5 million of transaction costs related to the Acquisition, (d) $5.2 million of provision for current expected credit losses and (e) $2.4 million in consultants, contractors, and professional fees.

Other Operating Expense (Income)

Other operating expense (income) increased by $4.1 million in the six months ended June 30, 2021 compared to the six months ended June 30, 2020 due to the change in the fair value of certain financial instruments.

Interest Expense, Net


	Six Months Ended June 30,
	2021		2020		Change
	(in thousands)
Interest expense, net	$	58,160	$	97,850	$	(39,690)

Interest expense, net decreased by $39.7 million in the six months ended June 30, 2021 compared to the six months ended June 30, 2020. This ~~increase~~decrease was primarily ~~driven by~~ ~~increases~~due to a decrease in ~~unrealized loss on interest rate swaps~~ ~~of $31.1 million~~, realized ~~loss~~losses on interest rate swaps of~~$12.6~~ $36.9 million due to the termination of certain debt facilities in 2020, an increase in unrealized gains on interest rate swaps of $7.5 million and a decrease in amortization of debt discounts of $1.6 million. These were partially offset by increases in amortization of deferred financing costs of $3.4 million and interest expense of ~~$5.5~~$2.5 million due to an increase in the principal debt balance after entering into new financing ~~arrangements~~ ~~and amortization of deferred financing costs of $3.4 million due to accelerated amortization from early pay-offs and retirement of debt in March 2019.~~arrangements.

Interest ~~Expense, Net—Affiliates~~Income

Six Months Ended
June 30,
2019 2018 Change
(in thousands)
Interest expense, net—affiliates $ 3,397
$ 4,847
$ (1,450 )


	Six Months Ended June 30,
	2021		2020		Change
	(in thousands)
Interest income	$	15,168	$	11,300	$	3,868

Interest ~~expense, net~~—~~affiliates decreased~~income increased by ~~$1.5~~$3.9 million in the six months ended June 30, ~~2019~~2021 compared to the six months ended June 30, ~~2018~~2020. This increase was primarily due to an increase in the weighted average number of systems with loan agreements from approximately 12,500 for the six months ended June 30, 2020 to approximately 22,700 for the six months ended June 30, 2021. On a weighted average number of systems basis, loan interest income decreased from $875 per system for the six months ended June 30, 2020 to $659 per system for the six months ended June 30, 2021 primarily due to a decrease in the annual interest ~~expense~~rate for new loans due to ~~a decrease in the principal~~market conditions.

Loss on Extinguishment of Long-Term Debt, Net

Loss on extinguishment of long-term debt, ~~balance between the periods.~~

~~Interest Income~~

Six Months Ended
June 30,
2019 2018 Change
(in thousands)
Interest income $ 5,461
$ 2,610
$ 2,851

~~Interest income~~net increased by ~~$2.9~~$9.8 million in the six months ended June 30, ~~2019~~2021 compared to the six months ended June 30, 2018. This increase was primarily driven by the increase in the weighted average number of customers with loan agreements from approximately 3,300 for the six months ended June 30, 2018 to approximately 7,200 for the six months ended June 30, 2019. On a weighted average number of customers basis, loan interest income decreased from $754 per customer for the six months ended June 30, 2018 to $697 per customer for the six months ended June 30, 2019 (8% decrease)2020 due to ~~the fact that interest for the first 18 months on systems placed in service starting in July 2017 are based on 70% of the total amount financed under the loan, as the other 30% is interest free prior~~a make whole payment related to the ~~due date~~early repayment of ~~the 30% prepayment typically due on the 18~~^th ~~month; while interest on systems placed in service in prior periods was based on the entire financed amount.~~

one of our solar asset-backed notes securitizations.

~~Loss on Extinguishment of Long-Term Debt, Net~~
—~~Affiliates~~

~~Loss on extinguishment of long-term debt, net~~—affiliates increased by $10.6 million in the six months ended June 30, 2019 compared to the six months ended June 30, 2018 due to the amendment of the senior secured notes in April 2019 that met the criteria for extinguishment accounting under GAAP.

Income Tax

We do not have income tax expense or benefit due to pre-tax losses and a full valuation allowance recorded for the six months ended June 30, ~~2019~~2021 and

~~Table of Contents~~

~~2018.~~ 2020. See "—Components of Results of ~~Operations~~—Operations—Income Tax ~~Provision~~".

Net Income (Loss) Attributable to Redeemable Noncontrolling Interests

and Noncontrolling Interests

Net income (loss) attributable to redeemable noncontrolling interests ~~decreased~~and noncontrolling interests changed by ~~$0.2~~$15.4 million ~~for~~in the six months ended June 30, ~~2019~~2021 compared to the six months ended June 30, ~~2018~~2020 primarily due to ~~a decrease in the accretion of the redemption value of $1.7 million due~~income attributable to noncontrolling interests from tax equity funds added in ~~2018, partially offset by an increase in income attributable to redeemable noncontrolling interests~~2020 and 2021.

Table of ~~$1.5 million due to tax equity funds added in 2018 and 2019.~~Contents

Liquidity and Capital Resources

As of June 30, ~~2019,~~2021, we had total cash of ~~$99.5~~$469.1 million, of which ~~$58.8~~$368.6 million was ~~unrestricted.~~ ~~On July 24, 2019, we priced 14,000,000 shares~~unrestricted, and $294.4 million of available borrowing capacity under our common stock at a public offering price of $12.00 per share and on July 25, 2019 our shares of common stock began trading on the New York Stock Exchange under the symbol "NOVA". On August 19, 2019, we issued and sold an additional 865,267 shares of our common stock at a public offering price of $12.00 per share pursuant to the underwriters' option to purchase additional shares. We received aggregate net proceeds from the IPO of approximately $162.3 million, after deducting underwriting discounts and commissions of approximately $10.7 million and offering expenses of approximately $5.4 million. We used a portion of the net proceeds from the IPO to redeem our senior convertible notes due March 2021, of which $45.4 million aggregate principal amount was outstanding as of June 30, 2019. The aggregate redemption price for all our senior convertible notes was approximately $57.1 million, which includes a premium of $11.4 million plus a cash payment equal to accrued and unpaid cash interest and pay-in-kind interest to the date of redemption. We plan to use the remaining net proceeds from the IPO for general corporate purposes, including working capital, operating expenses, capital expenditures and repayment of indebtedness. various financing arrangements. We seek to maintain diversified and cost-effective funding sources to finance and maintain our operations, fund capital expenditures, including customer acquisitions, and satisfy obligations arising from our indebtedness. For a discussion of cash requirements from contractual and other obligations, see Note 15, Commitments and Contingencies, to our interim financial statements included elsewhere in this Quarterly Report on Form 10-Q. Historically, our primary sources of liquidity included non-recourse and recourse debt, investor asset-backed and loan-backed securitizations and cash generated from operations. Our business model requires substantial outside financing arrangements to grow the business and facilitate the deployment of additional solar energy systems. We will seek to raise additional required capital, including from new and existing tax equity investors, additional borrowings, securitizations and other potential debt and equity financing ~~vehicles.~~

We expect the solar energy systems that are in service to generate a positive return rate over the customer agreement, typically 25 years. Typically, once residential solar energy systems commence operations, they do not require significant additional capital expenditures to maintain operating performance. However, in order to grow, we are currently dependent on financing from outside parties.sources. We believe ~~we will have sufficient~~our cash~~investment fund commitments~~ and ~~securitization commitments~~financing arrangements, as further described below, ~~and cash flows from operations~~will be sufficient to meet our ~~working capital, debt service obligations, contingencies and~~ anticipated ~~required capital expenditures, including customer acquisitions,~~cash needs for at least the next 12twelve months. ~~However,~~As of June 30, 2021, we ~~are subject to business and operational risks that could adversely affect~~were in compliance with all debt covenants under our ~~ability to raise additional financing. If~~ financing is not available to us on acceptable terms if and when needed, we may be unable to finance installation of our new customers’ solar energy systems in a manner consistent with our past performance, our cost of capital could increase, or we may be required to significantly reduce the scope of our operations, any of which would have a material adverse effect on our business, financial condition, results of operations and prospects. In addition, our tax equity funds and debt instruments impose restrictions on our ability to draw on financing commitments. If we are unable to satisfy such conditions, we may incur penalties for non-performance under certain tax equity funds, experience installation delays, or be unable to make installations in accordance with our plans or at all. Any of these factors could also impact customer satisfaction, our business, operating results, prospects and financial condition.arrangements.

Financing Arrangements

The following is an update to the description of our various financing arrangements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financing Arrangements" in our Annual Report on Form 10-K filed with the SEC on February 25, 2021 for a full description of our various financing arrangements.

Tax Equity Fund Commitments

As of June 30, ~~2019,~~2021, we had undrawn committed capital of approximately ~~$39.1~~$239.8 million under our tax equity funds, which may only be used to purchase and install solar energy systems. ~~We intend~~Additionally, in connection with the Acquisition, Lennar has committed to ~~establish new~~contribute an aggregate $200.0 million to four Sunnova tax equity funds, each formed annually during a period of four consecutive years commencing in ~~the future depending on the attractiveness of establishing new~~2021. In April 2021, we admitted tax equity funds, including the availability and size of Section 48(a) ITCs, and on the investor demand for such funding. In May 2019 and June 2019, we received non-binding indications of interest for up to $150.0 million and $185.7 million, respectively, of additional tax equity funds from third parties. ~~In August 2019, we closed on a new tax equity facility~~investors with a total capital commitment of approximately $75.0 million. In May 2021, we admitted a tax equity investor with a total capital commitment of approximately $150.0 million. In July 2021, we admitted a tax equity investor with a total capital commitment of approximately $150.0 million.

~~Table of Contents~~

~~TEPIIH Financing~~

Warehouse and Other Debt Financings

In ~~August 2018,~~January 2021, we amended the revolving credit facility entered into in September 2019 associated with one of our financing subsidiaries that owns certain tax equity funds to, among other things, (a) permit certain transactions in SRECs (or proceeds therefrom) and related hedging arrangements and exclude certain of such amounts from the calculation of net cash flow available to service the indebtedness and (b) allow for borrowings with respect to certain ancillary components. In February 2021, two of our subsidiaries used proceeds from the HELV Notes (as defined below) to repay $107.3 million and $29.5 million in aggregate principal amounts outstanding under their financing arrangements. In March 2021, we amended the revolving credit facility entered into in April 2017 to, among other things, (a) extend the maturity date to November 2023 and (b) increase the maximum facility amount from $200.0 million to $350.0 million. In April 2021, in connection with the Acquisition, we entered into an arrangement to finance the purchase of $29.0 million of inventory at an annual interest rate of 6.00% plus LIBOR (or acceptable replacement index) over twelve months. In May 2021, one of our subsidiaries ~~entered into a credit facility with Credit Suisse AG, New York Branch, as administrative agent,~~used proceeds from the 0.25% convertible senior notes to fully repay the aggregate principal amount outstanding under its financing arrangement of $48.2 million and the ~~lenders party thereto. The~~ credit facility was ~~amended~~terminated. In July 2021, two of our subsidiaries used proceeds from the HELVI Notes to repay $144.0 million and ~~restated~~$24.9 million in ~~March 2019. Under the credit facility, the subsidiary may borrow up to an initial $150.0 million with a maximum commitment amount of~~ ~~$250.0 million~~ ~~based on the~~ aggregate value of solar assets owned by the borrower’s subsidiaries, which are primarily tax equity funds, subject to certain concentration limitations. As of June 30, 2019, we had no unused borrowing capacityprincipal amounts outstanding under ~~the credit facility.~~their financing arrangements.

~~Warehouse Securitization Financings~~

Securitizations

In ~~April 2017,~~February 2021, one of our subsidiaries ~~entered into a secured revolving credit facility with Credit Suisse AG, New York Branch, as administrative agent, and the lenders party thereto. The credit facility was amended and restated~~issued $150.1 million in ~~March 2019. Under the amended credit facility, the subsidiary may borrow up to~~ ~~$200.0 million~~, subject to a borrowing base calculated based on a specified advance rate applied to the net outstanding principal balance of the solar loans securing the credit facility. As of June 30, 2019, we had $156.3 million of borrowing capacity under the credit facility.

~~In April 2016, one of our subsidiaries entered into a secured revolving credit facility with Goldman Sachs Bank USA. Under the credit facility, the subsidiary may borrow up to~~ ~~$175.0 million~~ ~~based on the~~ aggregate ~~discounted present value of remaining payments owed to the borrower in respect of its solar energy systems, with an availability period that expired in April 2019.~~ ~~In June 2019, we fully repaid the aggregate outstanding~~ principal amount of Series 2021-A Class A solar loan-backed notes and ~~terminated~~$38.6 million in aggregate principal amount of Series 2021-A Class B solar loan-backed notes (collectively, the ~~credit facility.~~

~~In July 2014, one~~"HELV Notes") with a maturity date of our subsidiaries entered into a collateral-based financing agreement with Texas Capital Bank, N.A., as administrative agent, and the lenders party thereto. As of June 30, 2019, there was no unused borrowing capacity available under the debt agreement.February 2048. The credit facility requires payments of excess cash flows to reduce the outstanding principal balance of the loan beginning in June 2019, which would reduce our liquidity. Outstanding advances under the credit facilityHELV Notes bear interest at an annual rate of ~~either adjusted LIBOR plus 3.00% or a base rate plus 2.00%. The credit facility has a maturity date occurring in~~ ~~January 2021~~. In April 2019, we contributed approximately $0.1 million to our subsidiary as an equity cure of an event of default under the credit facility caused by a failure of the subsidiary to comply with a debt covenant regarding the ratio of consolidated EBITDA to debt service1.80% and 3.15% for the ~~four quarters ending on March 31, 2019. We are only permitted to exercise our equity cure right for the credit facility three times over the course of the credit facility~~Class A and ~~once in any rolling four-quarter period and there is a risk we may not be in compliance with this covenant in future quarters.~~ Class B notes, respectively. In June ~~2019, we amended the credit facility to, among other things, (i) extend the maturity date to January~~ 2021, (ii) decrease the applicable margin for LIBOR loans to 2.50% and (iii) change the debt covenant regarding the ratio of consolidated EBITDA to debt service to be calculated based on collections from customers and other cash receipts and disbursements (instead of consolidated EBITDA). In connection with this amendment we repaid ~~$5.0 million~~ ~~of outstanding borrowings under this facility.~~

~~Rule 144A Securitization Financing~~

~~In June 2019,~~ one of our subsidiaries issued ~~$139.7~~$319.0 million in aggregate principal amount of Series 2019-A Class A solar asset-backed notes, $14.9 million in aggregate principal amount of Series 2019-A Class B solar asset-backed notes and $13.0 million in aggregate principal amount of Series 2019-A Class C2021-1 solar asset-backed notes with a maturity date of ~~June 2046.~~April 2056. The ~~notes~~SOLIII Notes bear interest at an annual rate of ~~3.75%, 4.49%~~2.58%. In June 2021, we used proceeds from the SOLIII Notes to fully repay the aggregate principal amount outstanding on our Series 2017-1 solar asset-backed notes of $205.7 million and ~~5.32%~~terminated the credit facility.

Table of Contents

In July 2021, one of our subsidiaries issued $106.2 million in aggregate principal amount of Series 2021-B Class A solar loan-backed notes and $106.2 million in aggregate principal amount of Series 2021-B Class B solar loan-backed notes with a maturity date of July 2048. The HELVI Notes bear interest at an annual rate of 1.62% and 2.01% for the Class A ~~Class B~~ and Class CB notes, respectively.

~~Private Placement Securitization Financing~~

Convertible Senior Notes

~~We have access to additional debt issuance capacity through a privately-placed asset-backed securitization.~~

In ~~March 2019, one~~January and February 2021, the remaining holders of our ~~subsidiaries entered into a note purchase agreement pursuant to which certain institutional investors committed to purchase up to $358.0~~9.75% convertible senior notes converted approximately $97.1 million aggregate principal amount, of notes ("RAYS notes") in one or more asset-backed securitization private placements. In March 2019, our subsidiary, the RAYS notes issuer, issued an aggregate $133.1 million principal amount of RAYS notes pursuant to this note purchase agreement. ~~In June 2019, the RAYS notes issuer issued an aggregate $6.4 million in principal amount of RAYS notes pursuant to a supplemental note purchase agreement.~~ ~~The remaining commitments to purchase RAYS notes expire in March 2020~~including accrued and ~~are subject to a variety of closing conditions set forth in the related purchase agreement and indenture, including a collateral test. We may elect to add assets~~unpaid interest to the ~~securitized pool, subject to certain requirements.~~

~~The RAYS notes issuer owns a pool~~date of ~~solar energy systems and related lease agreements and PPAs and ancillary rights and agreements both directly and through its interests in the managing member of one~~each conversion, of our ~~existing tax equity funds. The managing member~~9.75% convertible senior notes into 7,196,035 shares of our common stock. As of February 23, 2021, all of the ~~tax equity fund guarantees the RAYS~~holders of our 9.75% convertible senior notes ~~issuer’s obligations under the RAYS notes.~~have converted their notes into common stock. As such, there are no longer any 9.75% convertible senior notes outstanding. In addition, the RAYS notes issuer has pledged its interests in the managing member and the managing member has pledged its interests in the tax equity fund as security for the issuer’s obligations under the RAYS notes and for the guarantee, respectively. ~~We expect the~~

~~Table of Contents~~

engineering, procurement and construction cost related to the securitized pool financed would be split approximately evenly between tax equity and non-recourse debt in the form of asset-backed notes, assuming a 30% ITC. Although there is no guarantee this facility will close, this is representative of the way in which we seek to finance solar energy systems that are eligible for tax equity and we will seek to repeat this type of financing strategy in the future.

~~Convertible Notes~~

~~In April 2017,~~May 2021, we issued and sold an aggregate principal amount of ~~$80.0~~$575.0 million of our ~~12.00%~~0.25% convertible senior ~~secured~~ notes in a private placement at a discount to ~~a total~~the initial purchasers of ~~three institutional accredited investors at an issue price of 98%~~2.5%, for an aggregate purchase price of ~~$78.4~~$560.6 million. ~~In January 2019, the terms of these~~The 0.25% convertible senior ~~secured~~ notes ~~were amended to extend the maturity date from January 2019 to July 2019.~~ mature in December 2026 unless earlier redeemed, repurchased or converted. In connection with ~~our IPO~~the pricing of the 0.25% convertible senior notes, we used proceeds of $91.7 million to enter into privately negotiated capped call transactions, which are expected to reduce the potential dilution to common shares and/or offset potential cash payments that could be required to be made in ~~July 2019, we redeemed all the senior secured notes for an aggregate redemption price~~excess of ~~$57.1 million in cash, which includes a premium of $11.4 million plus a cash payment equal to accrued and unpaid cash interest and pay-in-kind interest to the date of redemption.~~

~~In March 2018, we issued a subordinated convertible note for~~ ~~$15.0 million~~ ~~to Energy Capital Partners ("ECP"), which is subordinated to the senior secured notes. In connection with our IPO in July 2019, ECP converted~~ the principal amount ~~plus~~upon any ~~accrued and unpaid interest as~~exchange of ~~the date of conversion into 3,319,312 shares of Series A convertible preferred stock, which in turn converted into 1,422,767 shares of common stock, see "Preferred Stock Conversion" below.~~

~~In June 2019, we issued~~notes. Such reduction and/or offset is subject to a convertible note for $15.0 million (the "2019 Note") to certain of our then existing shareholders with a maturity date of September 2021. The 2019 note bore interest at an annual rate of 12.0%, which is only payable by increasing the outstanding principal balance of the note quarterly until maturity. Under the terms of the 2019 Note, we cannot make cash payments for interest or principal on the 2019 Note until the senior secured notes have been repaid in full. The 2019 Note allows, if a majority of holders elect, to convert the outstanding principal balance (including accrued paid-in-kind interest) into Series C convertible preferred stock at a ratecap initially equal to ~~the lesser of $5.80~~$60.00 per share, (adjusted for subsequent stock splits, combinations, recapitalizations or the like affecting convertible preferred stock) or the lowest purchase price per share of Series C convertible preferred stock issued after the date of the 2019 Note. The 2019 Note includes an automatic conversion feature upon the occurrence of an IPO of SEI or a successor of at least $175.0 million in gross proceeds at a per share public offering price of at least $6.6558 (as adjusted for any stock splits or other similar transactions which may occur priorsubject to an IPO) upon which all the outstanding principal balance (including accrued paid-in-kind interest) will convert into Series C convertible preferred stock at a rate equal to the lesser of $5.80 per share (adjusted for subsequent stock splits, combinations, recapitalizations or the like affecting convertible preferred stock) or the lowest purchase price per share of Series C convertible preferred stock issued after the date of the 2019 Note. adjustments.

~~In connection with our IPO in July 2019~~, holders of the 2019 Note converted the principal amount plus any accrued and unpaid interest as of the date of conversion into 2,613,818 shares of Series C convertible preferred stock, which in turn converted into 1,120,360 shares of common stock, see "~~Preferred Stock Conversion" below.~~

~~Preferred Stock Conversion~~

In connection with our IPO in July 2019, 108,138,971 shares of our Series A convertible preferred stock and 32,958,645 shares of our Series C convertible preferred stock, which represent all the outstanding shares of our Series A convertible preferred stock and Series C convertible preferred stock, were converted into 60,479,017 shares of our common stock.

Historical Cash Flows—Six Months Ended June 30, ~~2019~~2021 Compared to Six Months Ended June 30, ~~2018~~2020

The following table summarizes our cash flows for the periods indicated:


	Six Months Ended June 30,
	2021		2020		Change
	(in thousands)
Net cash used in operating activities	$	(110,684)	$	(82,928)	$	(27,756)
Net cash used in investing activities	(509,189)		(357,597)		(151,592)
Net cash provided by financing activities	711,078		474,661		236,417
Net increase in cash and restricted cash	$	91,205	$	34,136	$	57,069

Six Months Ended
June 30,
2019 2018 Change
(in thousands)
Net cash used in operating activities $ (55,694 ) $ (20,561 ) $ (35,133 )
Net cash used in investing activities (217,410 ) (171,843 ) (45,567 )
Net cash provided by financing activities 285,554
193,008
92,546
Net increase in cash and restricted cash $ 12,450
$ 604
$ 11,846

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Operating Activities

Net cash used in operating activities increased by ~~$35.1~~$27.8 million in the six months ended June 30, ~~2019~~2021 compared to the six months ended June 30, ~~2018. The~~2020. This increase is primarily a result of ~~increased~~increases in purchases of inventory and prepaid inventory of $32.8 million and payments ~~made~~ to dealers for exclusivity and other bonus arrangements ~~and increased purchases~~ of ~~inventory with~~$3.2 million. This increase is offset by a decrease in net outflows of ~~$22.0 million~~ ~~and $9.5~~$0.8 million in the six months ended June 30, 2019, respectively, compared to an insignificant amount and $5.4 million in the six months ended June 30, 2018, respectively. The increase is also due to net outflows of $17.5 million in the six months ended June 30, 20192021 compared to net outflows of ~~$5.2~~$42.4 million in ~~the six months endedJune 30, 2018~~2020 based on: (a) our net loss of ~~$85.3~~$90.3 million ~~for the six months ended June 30, 2019~~in 2021 excluding non-cash operating items of ~~$67.8~~$89.5 million, primarily from depreciation, impairments and losses on disposals, amortization of deferred financing costs and debt discounts, unrealized net gains on derivatives, unrealized net losses on fair value instruments and equity-based compensation charges, which results in net outflows of $0.8 million and (b) our net loss of $105.7 million in 2020 excluding non-cash operating items of $63.4 million, primarily from depreciation, impairments and losses on disposals, amortization of deferred financing costs and debt discounts, unrealized net losses on derivatives ~~payment-in-kind interest on debt, loss on fair value option securities, loss on extinguishment of debt~~ and equity-based compensation charges, which results in net outflows of $17.5 million and (b) our net loss of $22.7 million for the six months ended June 30, 2018 excluding non-cash operating items of $17.4 million, primarily from depreciation, impairments and losses on disposals, amortization of deferred financing costs and debt discounts, unrealized net gains on derivatives, payment-in-kind interest on debt and equity-based compensation charges, results in net outflows of $5.2$42.4 million. These net differences between the two periods ~~result~~resulted in a net ~~decrease~~change in operating cash flows of ~~$12.3~~$41.6 million in ~~the six months endedJune 30, 2019~~2021 compared to ~~the six months endedJune 30, 2018.~~2020.

Investing Activities

Net cash used in investing activities increased by ~~$45.6~~$151.6 million in the six months ended June 30, ~~2019~~2021 compared to the six months ended June 30, ~~2018. The~~2020. This increase is ~~largely due to~~primarily a result of an increase in payments for investments and customer notes receivable of $305.5 million in 2021 compared to $99.0 million in 2020. This increase is partially offset by purchases of property and equipment, primarily solar energy systems, of ~~$164.8~~$236.3 million in 2021 compared to $274.3 million in 2020 and proceeds from customer notes receivable of $30.9 million (of which $24.1 million was prepaid) in 2021 compared to $15.1 million (of which $12.0 million was prepaid) in 2020.

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Financing Activities

Net cash provided by financing activities increased by $236.4 million in the six months ended June 30, 2019 compared to $124.1 million in the six months ended June 30, 2018 and payments for investments and customer notes receivable of $62.4 million in the six months ended June 30, 2019 compared to $50.5 million in the six months ended~~June 30, 2018. The increase is partially offset by proceeds from customer notes receivable of $9.3 million in the six months endedJune 30, 2019 compared to $3.8 million in the six months endedJune 30, 2018.~~

~~Financing Activities~~

~~Net~~ ~~cash provided by financing activities increased by $92.5 million in the six months ended June 30, 2019~~2021 compared to the six months ended June 30, ~~2018. The~~2020. This increase is primarily a result of increases in net borrowings under our debt facilities of ~~$253.4~~$704.7 million in ~~the six months ended June 30, 2019~~2021 compared to ~~$63.5~~$305.2 million in 2020 and proceeds from the ~~six months endedJune 30, 2018~~issuance of common stock with net inflows of $9.8 million in 2021 compared to net outflows of $0.1 million in 2020. This increase is partially offset by the purchase of capped call transactions of $91.7 million in 2021, net proceeds from the equity component of a debt instrument of $73.7 million in 2020 and a decrease in net contributions from our redeemable noncontrolling interests and noncontrolling interests of ~~$45.1~~$110.3 million in ~~the six months ended June 30, 2019~~2021 compared to ~~$34.1~~$118.1 million in ~~the six months ended~~2020.

~~June 30, 2018. This increase is partially offset by net payments related to the issuance of convertible preferred stock of $2.5 million in the six months endedJune 30, 2019 compared to net proceeds of $97.1 million in the six months endedJune 30, 2018 and payments of deferred financing costs and debt discounts of $8.4 million in the six months endedJune 30, 2019 compared to $0.8 million in the six months ended June 30, 2018.~~

Seasonality

The amount of electricity our solar energy systems produce is dependent in part on the amount of sunlight, or irradiation, where the assets are located. Because shorter daylight hours in winter months and poor weather conditions due to rain or snow results in less irradiation, the output of solar energy systems will vary depending on the season or the year. While we expect seasonal variability to occur, the geographic diversity in our assets helps to mitigate our aggregate seasonal variability.

Our Easy ~~Save Monthly~~Plan PPAs with variable billing are subject to seasonality because we sell all the solar energy ~~system’s~~system's energy output to the customer at a ~~fixed-price~~fixed price per kWh. Our Easy ~~Save Simple~~Plan PPAs with balanced billing are not subject to seasonality (from a cash flow perspective or the customer's perspective) within a given year because the ~~customer’s~~customer's payments are levelized on an annualized basis so ~~that~~ we insulate the customer from monthly fluctuations in production. However, our Easy Plan PPAs with balanced billing are subject to seasonality from a revenue perspective because, similar to the Easy Plan PPAs with variable billing, we sell all the solar energy system's energy output to the customer. Our lease agreements are ~~also~~ not subject to seasonality within a given year because we lease the solar energy system to the customer at a fixed monthly rate and the reference period for any production guarantee payments is a full year. Finally, our loan agreements are not subject to seasonality within a given year because the monthly installment payments for the financing of the ~~customers’~~customers' purchase of the solar energy system are fixed and the reference period for any production guarantee is a full year.

In addition, weather may impact our ~~dealers’~~dealers' ability to install solar energy systems and energy storage systems. For example, the ability to install solar energy systems and energy storage systems during the winter months in the Northeastern U.S. is limited. This can impact the timing of when solar energy systems and energy storage systems can be installed and when we can acquire and begin to generate revenue from solar energy systems and energy storage systems.

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Off-Balance Sheet Arrangements

As of June 30, ~~2019~~2021 and December 31, ~~2018,~~2020, we did not have any ~~off-balance-sheet~~off-balance sheet arrangements. We consolidate all our securitization vehicles and tax equity funds.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our interim financial statements, which have been prepared in accordance with GAAP. GAAP requires us to make estimates and ~~assumptions~~judgments that affect the reported amounts of assets, liabilities, revenue and expenses, cash flows and related disclosures. We base our estimates on historical experience and on various other assumptions ~~that~~ we believe to be reasonable under the circumstances. In many instances, we could have reasonably used different accounting estimates, and in other instances, changes in the accounting estimates are reasonably likely to occur from period to period. Actual results ~~could~~may differ ~~significantly~~ from ~~our~~these estimates. Our future financial statements will be affected to the extent our actual results materially differ from these estimates. For further information on our significant accounting policies, see Note 2, Significant Accounting Policies, in our ~~prospectus dated July 24, 2019~~Annual Report on Form 10-K filed with the ~~Securities~~SEC on February 25, 2021 and ~~Exchange Commission ("SEC") pursuant to Rule 424 promulgated under the Securities Act of 1933, as amended, and~~ Note 2, Significant Accounting Policies, to our interim financial statements included elsewhere in this Quarterly Report on Form 10-Q.

We identify our most critical accounting policies as those that are the most pervasive and important to the portrayal of our financial position and results of operations, and that require the most difficult, subjective, and/or complex judgments by management regarding estimates about matters that are inherently uncertain. We believe the assumptions and estimates associated with our principles of consolidation, ~~revenue recognition, performance guarantee obligations,~~acquisitions, the estimated useful life of our solar energy systems, the valuation assumptions regarding AROs ~~equity-based compensation, income taxes, impairment of long-lived assets,~~and the valuation assumptions regarding redeemable noncontrolling interests and ~~guarantees~~noncontrolling interests have the greatest subjectivity and impact on our ~~consolidated~~interim financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

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Recent Accounting Pronouncements

See Note 2, Significant Accounting Policies, to our ~~critical accounting policies and estimates as described~~interim financial statements included elsewhere in ~~our Prospectus.~~this Quarterly Report on Form 10-Q.

~~Emerging Growth Company Status~~

Section 107 of the JOBS Act provides an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards; and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not "emerging growth companies".

Item 3. Quantitative and Qualitative ~~Information about~~Disclosures About Market ~~Risk~~Risk.

We are exposed to various market risks in the ordinary course of our ~~normal business activities.~~business. Market risk is the potential loss that may result from market changes associated with our business or with an existing or forecasted financial or commodity ~~transactions.~~transaction. Our primary exposure includes changes in interest rates because certain borrowings bear interest at floating rates based on LIBOR or similar index plus a specified margin. We sometimes manage our interest rate exposure on floating-rate debt by entering into derivative instruments to hedge all or a portion of our interest rate exposure on certain debt facilities. We do not enter into any derivative instruments for trading or speculative purposes. Changes in economic conditions could result in higher interest rates, thereby increasing our interest expense and operating expenses and reducing funds available to capital investments, operations and other purposes. ~~For quantitative and qualitative disclosures about market risk, see "Quantitative and Qualitative Information about Market Risk" in our prospectus dated July 24, 2019 filed with the SEC pursuant to Rule 424 promulgated under the Securities Act of 1933, as amended.~~ A hypothetical 10% increase in our interest rates on our ~~variable~~variable-rate debt facilities would have increased our interest expense by ~~$0.7~~$548,000 and $1.0 million ~~and $1.5 million~~ for the three and six months ended June 30, ~~2019, respectively.~~2021.

Item 4. Controls and ~~Procedures~~Procedures.

Internal Control Over Financial Reporting

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer ("CEO") and our Chief Financial Officer ("CFO"), of the effectiveness of our ~~"disclosure~~disclosure controls and ~~procedures"~~procedures as of the end of the period covered by this Quarterly Report on Form 10-Q, pursuant to Rules 13a-15(e) and 15d-15(e) under the ~~Securities~~ Exchange ~~Act of 1934, as amended (the "Exchange Act").~~Act. In connection with that evaluation, our ~~Chief Executive Officer~~CEO and

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our ~~Chief Financial Officer~~CFO concluded our disclosure controls and procedures were effective and designed to provide reasonable assurance the information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms as of June 30, ~~2019~~.2021, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures. The term "disclosure controls and procedures", as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure information required to be disclosed by a company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the ~~SEC’s~~SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure information required to be disclosed by a company in the reports it files or submits under the Exchange Act is accumulated and communicated to the ~~company’s~~company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in Internal Control over Financial Reporting

~~There~~We completed the acquisition of SunStreet in April 2021. We will exclude SunStreet's internal control over financial reporting from the scope of management's 2021 annual assessment of the effectiveness of our disclosure controls and procedures. This exclusion is in accordance with the general guidance issued by the Staff of the SEC that an assessment of a recent business combination may be omitted from management's report on internal control over financial reporting in the first year of consolidation.

In connection with the Acquisition, we are integrating SunStreet's internal controls over financial reporting into our financial reporting framework. Such integration has resulted and may continue to result in changes that materially affect our internal control over financial reporting (as described in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Other than the changes that have and may continue to result from such integration, there was no change in our internal control over financial reporting that occurred during the ~~period covered by this Quarterly Report on Form 10-Q~~second quarter of 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Limitations on Effectiveness of Controls and Procedures

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. However, our management, including our principal executive and principal financial officers, does not expect that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company have been detected.

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PART II - OTHER INFORMATION

Item 1. Legal ~~Proceedings~~Proceedings.

Although we may, from time to time, be involved in litigation, claims and government proceedings arising in the ordinary course of business, we are not a party to any litigation or governmental or other proceeding ~~that~~ we believe will have a material adverse impact on our financial position, results of operations or liquidity. In the ordinary course of business, we have disputes with dealers and customers. In general, litigation claims or regulatory proceedings can be expensive and time consuming to bring or defend against, may result in the diversion of management attention and resources from our business and business goals and could result in settlement or damages that could significantly affect financial results and the conduct of our business.

Item 1A. Risk ~~Factors~~Factors.

There have been no material changes in the risks facing us as described in our ~~prospectus dated July 24, 2019~~Annual Report on Form 10-K filed with the SEC on February 25, 2021 except as described below.

Risks Related to Our Business

Increases in the cost or reduction in supply of PV system and energy storage system components due to tariffs imposed by the U.S. government could have an adverse effect on our business, financial condition and results of operations.

China is a major producer of solar cells and other solar products. Certain solar cells, modules, laminates and panels from China are subject to various U.S. antidumping and countervailing duty rates, depending on the exporter supplying the product, imposed by the U.S. government as a result of determinations that the U.S. was materially injured as a result of such imports being sold at less than fair value and subsidized by the Chinese government. While historically our dealers have purchased a number of these products from manufacturers in China, currently such purchases are immaterial and sourced from manufacturers in other jurisdictions. If these alternative sources are no longer available on competitive terms in the future, we and our dealers may seek to purchase these products from manufacturers in China. In addition, tariffs on solar cells, modules and inverters in China may put upward pressure on prices of these products in other jurisdictions from which our dealers currently purchase equipment, which could reduce its ability to offer competitive pricing to potential customers.

The antidumping and countervailing duties discussed above are subject to annual review and may be increased or decreased. Furthermore, under Section 301 of the Trade Act of 1974, the Office of the U.S. Trade Representative (the "USTR") imposed tariffs on $200 billion worth of imports from China, including inverters and certain alternating current modules and non-lithium-ion batteries, effective September 24, 2018. In May 2019, the tariffs were increased from 10% to 25% and may be raised by the USTR in the future. Since these tariffs impact the purchase price of the solar products, these tariffs raise the cost associated with purchasing these solar products from China and reduce the competitive pressure on providers of solar cells not subject to these tariffs.

In addition, in January 2018, the President of the United States announced, effective February 7, 2018, the imposition of a global 30% ad valorem tariff, with certain qualifications and exceptions, on certain imported solar cells and modules, which steps down by five percentage points each year and then phases out in 2022. Since such actions increase the cost of imported solar products, to the extent we or our dealers use imported solar products or domestic producers are able to raise their prices for their solar products, the overall cost of the solar energy systems will increase, which could inhibit our ability to offer competitive pricing in certain markets.

Additionally, the U.S. government has imposed various trade restrictions on Chinese entities determined to be acting contrary to U.S. foreign policy and national security interests. For example, the U.S. Department of Commerce's Bureau of Industry and Security has added a number of Chinese entities to its entity list for enabling human rights abuses in the Xinjiang Uyghur Autonomous Region ("XUAR") or for procuring U.S. technology to advance China's military modernization efforts, thereby imposing severe trade restrictions against these designated entities. Moreover, on June 23, 2021, U.S. Customs and Border Protection issued a Withhold Release Order pursuant to ~~Rule 424 promulgated~~Section 307 of the Tariff Act of 1930 excluding the entry into U.S. commerce silica-based products (such as polysilicon) made by Hoshine Silicon Industry Co. Ltd. and related companies, as well as goods made using those products, based on allegations relating to Hoshine labor practices in the XUAR to manufacture such products. Although we maintain policies and procedures to maintain compliance with all governmental laws and regulations, these and other similar trade restrictions that may be imposed against Chinese entities in the future may have the effect of restricting the global supply of, and raising prices for, polysilicon and solar products, which could increase the overall cost of solar energy systems and reduce our ability to offer competitive pricing in certain markets.

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We cannot predict what additional actions the U.S. may adopt with respect to tariffs or other trade regulations or what actions may be taken by other countries in retaliation for such measures. If additional measures are imposed or other negotiated outcomes occur, our ability or the ability of our dealers to purchase these products on competitive terms or to access specialized technologies from other countries could be further limited, which could adversely affect our business, financial condition and results of operations.

We are subject to counterparty credit risk with respect to the capped call transactions.

In connection with the pricing of the 0.25% convertible senior notes, we entered into privately negotiated capped call transactions with certain financial institutions (the "option counterparties"). The option counterparties are financial institutions or affiliates of financial institutions, and we will be subject to the risk that one or more of such option counterparties may default or otherwise fail to perform their obligations under the ~~Securities Act~~capped call transactions. Our exposure to the credit risk of ~~1933,~~the option counterparties will not be secured by any collateral.

If any option counterparty becomes subject to bankruptcy or other insolvency proceedings, with respect to such option counterparty's obligations under the relevant capped call transaction, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under our transactions with that counterparty. Our exposure will depend on many factors but, generally, our exposure will increase if the market price or the volatility of our common stock increases. In addition, upon a default or other failure to perform by an option counterparty, we may suffer more dilution than we currently anticipate with respect to our common stock. We can provide no assurance as ~~amended.~~to the financial stability or viability of any of the option counterparties.

Risks Related to Our Common Stock

The capped call transactions may affect the value of our common stock.

The capped call transactions are expected generally to reduce the potential dilution to our common stock upon any conversion of notes and/or offset any cash payments we are required to make in excess of the principal amount of converted notes, as the case may be, with such reduction and/or offset subject to a cap. In connection with establishing their initial hedges of the capped call transactions, we expect the option counterparties or their respective affiliates to purchase shares of our common stock and/or enter into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the 0.25% convertible senior notes. This activity could increase (or reduce the size of any decrease in) the market price of our common stock at that time.

In addition, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the 0.25% convertible senior notes (and are likely to do so during the observation period for conversions of the 0.25% convertible senior notes following September 1, 2026 or following any repurchase of the 0.25% convertible senior notes by us). This activity could also cause or avoid an increase or a decrease in the market price of our common stock.

The potential effect, if any, of these transactions and activities on the market price of our common stock will depend in part on market conditions and cannot be ascertained at this time.

Item 2. Unregistered Sales of Equity Securities and Use of ~~Proceeds~~Proceeds.

~~Unregistered Sales of Equity Securities~~Not applicable.

In June 2019, we issued the 2019 Note for $15.0 million to a majority of our existing shareholders, which was subordinated to the senior secured notes, with a maturity date of September 2021. The 2019 Note bore interest at an annual rate of 12.0%, which was only payable by increasing the outstanding principal balance of the 2019 Note quarterly until maturity. Under the terms of the 2019 Note, we could not make cash payments for interest or principal on the 2019 Note until the senior secured notes have been repaid in full. The 2019 Note allowed holders to convert the outstanding principal balance (including accrued paid-in-kind interest) into Series C convertible preferred stock at a rate equal to the lesser of $5.80 per share (adjusted for subsequent stock splits, combinations, recapitalizations or the like affecting convertible preferred stock) or the lowest purchase price per share of Series C convertible preferred stock issued after the date of the 2019 Note. The 2019 Note included an automatic conversion feature upon the occurrence of an IPO of SEI or a successor of at least $175.0 million in gross proceeds at a per share public offering price of at least $6.6558 (as adjusted for any stock splits or other similar transactions which may occur prior to an IPO) upon which all the outstanding principal balance (including accrued paid-in-kind interest) would convert into Series C convertible preferred stock at a rate equal to the lesser of $5.80 per share (adjusted for subsequent stock splits, combinations, recapitalizations or the like affecting convertible preferred stock) or the lowest purchase price per share of Series C convertible preferred stock issued after the date of the 2019 Note.

~~In connection with our IPO in July 2019, we completed a series of recapitalization transactions as follows:~~


•	~~we converted~~ ~~108,138,971~~ ~~shares of our Series A convertible preferred stock and~~ ~~32,958,645~~ ~~shares of our Series C convertible preferred stock, which represented all the outstanding shares of our Series A convertible preferred stock and Series C convertible preferred stock, into~~ ~~60,479,017~~ ~~shares of our common stock;~~

~~we converted 23,870 shares of our non-voting Series B common stock, which represented all the outstanding shares of our Series B common stock, into 23,870 shares of our voting Series A common stock;~~

~~our Series A common stock was redesignated as common stock;~~

holders of the 2018 Note converted the principal amount plus any accrued and unpaid interest as of the date of conversion into 3,319,312 shares of Series A convertible preferred stock, which in turn converted into 1,422,767 shares of common stock. In addition, holders of the 2019 Note converted the principal amount plus any accrued and unpaid interest as of the date of conversion into 2,613,818 shares of Series C convertible preferred stock, which in turn converted into 1,120,360 shares of common stock;

we implemented an internal reorganization which resulted in SEI owning all the outstanding capital stock of Sunnova Energy Corporation. SEI's wholly owned subsidiary merged into Sunnova Energy Corporation with Sunnova Energy Corporation surviving as a direct, wholly owned subsidiary of SEI. Each share of each class of Sunnova Energy Corporation stock issued and outstanding immediately prior to the merger, by virtue of the merger and without any action on the part of the holder thereof, automatically converted into an equivalent corresponding share of stock of SEI, having the same designations, rights, powers and preferences and the qualifications, limitations and restrictions with respect to SEI as the corresponding share of Sunnova Energy Corporation stock

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being converted with respect to Sunnova Energy Corporation. Accordingly, upon consummation of the merger, each of Sunnova Energy Corporation’s stockholders immediately prior to the consummation of the merger became a stockholder of SEI; and

None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering. We believe the offers, sales, and issuances of the foregoing securities were exempt from registration under the Securities Act by virtue of Section 4(a)(2) of the Securities Act because the issuance of securities to the recipients did not involve a public offering or Section 3(a)(9) of the Securities Act because the issuance involved existing security holders exclusively where no commission or other remuneration was paid or given directly or indirectly for soliciting such exchange. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof. All recipients had adequate access, through their relationships with us, to information about us. The sales of these securities were made without any general solicitation or advertising.

~~Use of Proceeds~~

On July 29, 2019, we sold 14,000,000 shares of our common stock in our IPO at a public offering price of $12.00 per share. On August 19, 2019, we issued and sold an additional 865,267 shares of our common stock at a public offering price of $12.00 per share pursuant to the underwriters' option to purchase additional shares, resulting in aggregate net proceeds from the IPO of approximately $162.3 million, after deducting underwriting discounts and commissions of approximately $10.7 million and offering expenses of approximately $5.4 million. The offer and sale of the shares in the IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-232393), which was declared effective by the SEC on July 24, 2019. We used $57.1 million of the net proceeds from the IPO to redeem our senior convertible notes. We plan to use the remaining net proceeds from the IPO for general corporate purposes, including working capital, operating expenses, capital expenditures and repayment of indebtedness. The representatives of the underwriters of our IPO were BofA Securities, Inc., J.P. Morgan Securities LLC and Goldman Sachs & Co. LLC. No payments were made by us to directors, officers or persons owning ten percent or more of our common stock or to their associates, or to our affiliates, other than payments in the ordinary course of business to officers for salaries and to non-employee directors pursuant to our director compensation policy. There has been no material change in the planned use of the IPO proceeds as described in our final prospectus filed with the SEC on July 26, 2019, pursuant to Rule 424(b) of the Securities Act.

Item 3. Defaults Upon Senior ~~Securities~~Securities.

Not applicable.

Item 4. Mine Safety ~~Disclosures~~Disclosures.

Not applicable.

Item 5. Other ~~Information~~Information.

None.

5660

Table of Contents

Item 6. ~~Exhibits~~Exhibits.



Exhibit No.			Description
~~2.1~~4.1			Indenture, dated May 20, 2021, between Sunnova Energy International Inc. and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.1 to Form 8-K filed on May 21, 2021).
~~Merger~~4.2			Form of 0.25% Convertible Senior Note due 2026 (included in Exhibit 4.1).
4.3∞			Indenture, between Sunnova Sol III Issuer, LLC and Wilmington Trust, National Association, dated June 17, 2021.
10.1∞			First Amendment to Amended and Restated Credit Agreement, by and among Sunnova TEP Holdings, LLC, Sunnova TE Management, LLC, Credit Suisse AG, New York Branch, the Funding Agents from time to time party thereto, the Lenders from time to time party thereto, Wells Fargo Bank, National Association and U.S. Bank National Association, dated May 6, 2021.
10.2			Purchase Agreement, dated ~~as of July 29, 2019,~~May 17, 2021, by and among Sunnova Energy International Inc., ~~Sunnova Energy Corporation and Sunnova Merger Sub Inc. (incorporated by reference to Exhibit 2.1 to Form 8-K filed on July 29, 2019).~~
~~3.1~~	~~Second Amended and Restated Certificate of Incorporation of Sunnova Energy International Inc. (incorporated by reference to Exhibit 3.3 to Form 8-K filed on July 29, 2019).~~
~~3.2~~	~~Second Amended and Restated Bylaws of Sunnova Energy International Inc. (incorporated by reference to Exhibit 3.5 to Form 8-K filed on July 29, 2019).~~
~~10.1∞~~	~~Note Purchase Agreement Supplement No. 2 and Amendment among Sunnova RAYS I Issuer, LLC, Sunnova RAYS I Depositor, LLC, Sunnova RAYS I Management~~Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC, as representatives of the ~~Purchasers~~several initial purchasers named therein ~~dated June 7, 2019 (incorporated by reference to Exhibit 10.2 to Form S-1 filed on June 27, 2019).~~
~~10.2∞~~	Amended and Restated Credit Agreement, among Sunnova Asset Portfolio 4, LLC, Texas Capital Bank, Viewpoint Bank, National Association, and the Lenders from time to time party thereto, dated June 28, 2019 (incorporated by reference to Exhibit 10.4 to Form S-1/A filed on July 3, 2019).
~~10.3~~	Amended and Restated Limited Performance Guaranty, among Sunnova Energy Corporation, Sunnova LAP Holdings, LLC, Sunnova LAP I, LLC, Sunnova LAP II, LLC, and Credit Suisse AG, New York Branch, dated June 27, 2019 (incorporated by reference to Exhibit 10.6 to Form S-1/A filed on July 3, 2019).
~~10.4~~	Third Amended and Restated Limited Performance Guaranty among Sunnova Energy Corporation, Sunnova EZ-Own Portfolio, LLC, and Credit Suisse AG, New York Branch, dated June 27, 2019. (incorporated by reference to Exhibit 10.8 to Form S-1/A filed on July 3, 2019).
~~10.5~~	Amended and Restated Parent Guaranty among Sunnova Energy Corporation, Sunnova TEP II Holdings, LLC, and Credit Suisse AG, New York Branch, dated June 27, 2019 (incorporated by reference to Exhibit 10.10 to Form S-1/A filed on July 3, 2019).
~~10.6+~~	~~Sunnova Energy International Inc. 2019 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.16 to Form 8-K filed on July 29, 2019).~~
~~10.7+~~	~~Form of Executive Severance Agreements (incorporated by reference to Exhibit 10.26 to Form S-1/A filed on July 17, 2019).~~
~~10.8+~~	~~Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and Stuart D. Allen~~ (incorporated by reference to Exhibit 10.1 to Form 8-K filed ~~on July 29, 2019)~~May 21, 2021).
~~10.9+~~10.3			~~Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and Walter A. Baker~~Form of Capped Call Confirmation (incorporated by reference to Exhibit 10.2 to Form 8-K filed ~~on July 29, 2019)~~May 21, 2021).
~~10.10+~~10.4			~~Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and William J. Berger~~Form of Additional Capped Call Confirmation (incorporated by reference to Exhibit ~~10.3~~10.1 to Form 8-K filed ~~on July 29, 2019)~~May 24, 2021).
~~10.11+~~10.5∞			~~Indemnification~~Note Purchase Agreement, ~~dated July 29, 2019,~~ by and ~~between~~among Sunnova Sol III Issuer, LLC, Sunnova Sol III Depositor, LLC, Sunnova Energy ~~International Inc.~~Corporation and ~~Rahman D’Argenio (incorporated by reference to Exhibit 10.4 to Form 8-K filed on July 29, 2019).~~Credit Suisse Securities (USA) LLC, dated June 11, 2021.
~~10.12+~~10.6			~~Indemnification~~Second Amendment to Amended and Restated Credit Agreement, ~~dated July 29, 2019,~~ by and ~~between~~among Sunnova ~~Energy International Inc.~~TEP Holdings, LLC, Sunnova TE Management, LLC, Credit Suisse AG, New York Branch, the Funding Agents from time to time party thereto, the Lenders from time to time party thereto, Wells Fargo Bank, National Association and ~~Matthew DeNichilo (incorporated by reference to Exhibit 10.5 to Form 8-K filed on July 29, 2019).~~U.S. Bank National Association, dated June 17, 2021.
~~10.13+~~		~~Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and Michael P. Grasso (incorporated by reference to Exhibit 10.6 to Form 8-K filed on July 29, 2019).~~31.1
~~10.14+~~	~~Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and Kris W. Hillstrand (incorporated by reference to Exhibit 10.7 to Form 8-K filed on July 29, 2019).~~
~~10.15+~~	~~Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and Doug Kimmelman (incorporated by reference to Exhibit 10.8 to Form 8-K filed on July 29, 2019).~~
~~10.16+~~	~~Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and Robert L. Lane (incorporated by reference to Exhibit 10.9 to Form 8-K filed on July 29, 2019).~~

~~Table of Contents~~



~~Exhibit No.~~	~~Description~~
~~10.17+~~	~~Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and Mark Longstreth (incorporated by reference to Exhibit 10.10 to Form 8-K filed on July 29, 2019).~~
~~10.18+~~	~~Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and Michael C. Morgan (incorporated by reference to Exhibit 10.11 to Form 8-K filed on July 29, 2019).~~
~~10.19+~~	~~Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and Meghan Nutting (incorporated by reference to Exhibit 10.12 to Form 8-K filed on July 29, 2019).~~
~~10.20+~~	Indemnification Agreement, dated July 29, 2019, by and between Sunnova Energy International Inc. and John T. Santo Salvo (incorporated by reference to Exhibit 10.13 to Form 8-K filed on July 29, 2019).
~~31.1~~	Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its tags are embedded within the inline XBRL document.
101.SCH		XBRL Taxonomy Extension Schema Linkbase Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File (embedded within the inline XBRL document).

__________________


+	~~Indicates management contract or compensatory plan.~~


∞	∞ Portions of this exhibit have been omitted.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			SUNNOVA ENERGY INTERNATIONAL INC.

Date: July 29, 2021			~~SUNNOVA ENERGY INTERNATIONAL INC.~~
By:
~~Date: August 19, 2019~~	~~By:~~	/s/ William J. Berger
				William J. Berger
				Chief Executive Officer and Director
				(Principal Executive Officer)


Date: July 29, 2021			By:
~~Date: August 19, 2019~~	~~By:~~	/s/ Robert L. Lane
				Robert L. Lane
				Chief Financial Officer
				(Principal Financial Officer)



Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value per share	NOVA	New York Stock Exchange



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



	As of June 30, 2019		As of April 8, 2019
Assets
Current assets:
Cash	$	2	$	2
Total current assets	2		2
Total assets	$	2	$	2

Liabilities and Stockholder's Equity
Total liabilities	$	—	$	—

Stockholder's equity:
Common stock, 100,000 shares issued at $0.01 par value	1		1
Additional paid-in capital	1		1
Total stockholder's equity	2		2
Total liabilities and stockholder's equity	$	2	$	2



	As of June 30, 2019			As of December 31, 2018
Assets
Current assets:
Cash	$	58,776		$	52,706
Accounts receivable—trade, net	11,150			6,312
Accounts receivable—other	4,531			3,721
Other current assets	34,546			26,794
Total current assets	109,003			89,533

Property and equipment, net	1,499,891			1,328,457
Customer notes receivable, net	223,645			172,031
Other assets	120,125			75,064
Total assets (1)	$	1,952,664		$	1,665,085

Liabilities, Redeemable Noncontrolling Interests and Stockholders' Equity
Current liabilities:
Accounts payable	$	45,134		$	20,075
Accrued expenses	18,861			18,650
Current portion of long-term debt	58,403			26,965
Current portion of long-term debt—affiliates	17,505			16,500
Other current liabilities	18,701			13,214
Total current liabilities	158,604			95,404

Long-term debt, net	1,081,360			872,249
Long-term debt, net—affiliates	71,524			44,181
Other long-term liabilities	92,044			66,453
Total liabilities (1)	1,403,532			1,078,287

Commitments and contingencies (Note 14)

Redeemable noncontrolling interests	107,547			85,680

Stockholders' equity:
Series A convertible preferred stock, 44,929,110 and 44,942,594 shares issued as of June 30, 2019 and December 31, 2018, respectively, at $0.01 par value	449			449
Series C convertible preferred stock, 13,006,780 shares issued as of June 30, 2019 and December 31, 2018 at $0.01 par value	130			130
Series A common stock, 8,612,728 shares issued as of June 30, 2019 and December 31, 2018 at $0.01 par value	86			86
Series B common stock, 23,870 and 21,727 shares issued as of June 30, 2019 and December 31, 2018, respectively, at $0.01 par value	—			—
Additional paid-in capital—convertible preferred stock	701,635			701,326
Additional paid-in capital—common stock	86,437			85,439
Accumulated deficit	(347,152		)	(286,312		)
Total stockholders' equity	441,585			501,118
Total liabilities, redeemable noncontrolling interests and stockholders' equity	$	1,952,664		$	1,665,085



	Redeemable Noncontrolling Interests			Series A Convertible Preferred Stock			Series B Convertible Preferred Stock					Series C Convertible Preferred Stock			Series A Common Stock			Series B Common Stock				Series B Treasury Stock			Additional Paid-in Capital - Convertible Preferred Stock			Additional Paid-in Capital - Common Stock		Accumulated Deficit			Total Stockholders' Equity
				Series A Convertible Preferred Stock			Series B Convertible Preferred Stock					Series C Convertible Preferred Stock			Series A Common Stock			Series B Common Stock
				Shares	Amount		Shares		Amount			Shares	Amount		Shares	Amount		Shares		Amount
December 31, 2017	$	38,590		40,179,508	$	402	4,583,576		$	46		—	$	—	8,612,728	$	86	21,727		$	—	$	—		$	530,951		$	82,455	$	(242,757	)	$	371,183
Net income (loss)	774			—	—		—		—			—	—		—	—		—		—		—			—			—		(14,210		)	(14,210		)
Issuance of common stock, net	—			—	—		—		—			—	—		—	—		149		—		—			—			—		—			—
Issuance of convertible preferred stock, net	—			—	—		13,013		—			7,390,218	74		—	—		—		—		—			97,256			—		—			97,330
Non-cash exchange of Series B convertible preferred stock for Series A convertible preferred stock	—			4,763,086	47		(4,596,588	)	(46		)	—	—		—	—		—		—		—			(1		)	—		—			—
Contributions from redeemable noncontrolling interests	17,139			—	—		—		—			—	—		—	—		—		—		—			—			—		—			—
Distributions to redeemable noncontrolling interests	(339		)	—	—		—		—			—	—		—	—		—		—		—			—			—		—			—
Distributions payable to redeemable noncontrolling interests	(111		)	—	—		—		—			—	—		—	—		—		—		—			—			—		—			—
Costs related to redeemable noncontrolling interests	(701		)	—	—		—		—			—	—		—	—		—		—		—			—			—		—			—
Equity in subsidiaries attributable to parent	(5,995		)	—	—		—		—			—	—		—	—		—		—		—			—			—		5,995			5,995
Equity-based compensation expense	—			—	—		—		—			—	—		—	—		—		—		—			—			726		—			726
Acquisition of treasury stock	—			—	—		—		—			—	—		—	—		—		—		(1		)	—			—		—			(1		)
Retirement of treasury stock	—			—	—		—		—			—	—		—	—		(149	)	—		1			—			—		(1		)	—
Other, net	—			—	—		(1	)	—			—	—		—	—		—		—		—			—			—		(1		)	(1		)
March 31, 2018	49,357			44,942,594	449		—		—			7,390,218	74		8,612,728	86		21,727		—		—			628,206			83,181		(250,974		)	461,022
Net income (loss)	3,350			—	—		—		—			—	—		—	—		—		—		—			—			—		(12,574		)	(12,574		)
Contributions from redeemable noncontrolling interests	17,726			—	—		—		—			—	—		—	—		—		—		—			—			—		—			—
Contributions receivable from redeemable noncontrolling interests	1,108			—	—		—		—			—	—		—	—		—		—		—			—			—		—			—
Distributions to redeemable noncontrolling interests	(450		)	—	—		—		—			—	—		—	—		—		—		—			—			—		—			—
Distributions payable to redeemable noncontrolling interests	(178		)	—	—		—		—			—	—		—	—		—		—		—			—			—		—			—
Costs related to redeemable noncontrolling interests	(91		)	—	—		—		—			—	—		—	—		—		—		—			—			—		—			—
Equity in subsidiaries attributable to parent	(5,592		)	—	—		—		—			—	—		—	—		—		—		—			—			—		5,592			5,592
Equity-based compensation expense	—			—	—		—		—			—	—		—	—		—		—		—			—			682		—			682
Other, net	—			—	—		—		—			—	—		—	—		—		—		—			(68		)	—		—			(68		)
June 30, 2018	$	65,230		44,942,594	$	449	—		$	—		7,390,218	$	74	8,612,728	$	86	21,727		$	—	$	—		$	628,138		$	83,863	$	(257,956	)	$	454,654



	As of June 30, 2019				As of December 31, 2018
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
	(in thousands)
Customer notes receivable	$	233,788	$	233,673	$	179,632	$	179,990



	Six Months Ended June 30, 2019 Weighted Average Effective Interest Rates		As of June 30, 2019					Year Ended December 31, 2018 Weighted Average Effective Interest Rates		As of December 31, 2018
			Long-term			Current				Long-term			Current
	(in thousands, except interest rates)
Sunnova Energy Corporation
Senior secured notes	10.10	%	$	56,040		$	—	14.89	%	$	40,000		$	—
Convertible notes	13.11	%	15,000			15,000		12.20	%	—			15,000
Note payable			—			1,798				—			—
Paid-in-kind			533			2,505				4,219			1,500
Deferred financing costs, net			(49		)	—				(38		)	—
AP4
Secured term loan	5.98	%	91,365			4,354		5.25	%	101,026			3,036
Debt discount, net			(667		)	—				(202		)	—
Deferred financing costs, net			(289		)	—				(418		)	—
AP6WII
Warehouse credit facility	10.01	%	—			—		8.47	%	54,603			—
Deferred financing costs, net			—			—				(309		)	—
HELI
Solar asset-backed notes	6.63	%	217,920			9,746		6.47	%	224,835			10,522
Debt discount, net			(3,635		)	—				(4,124		)	—
Deferred financing costs, net			(6,390		)	—				(7,217		)	—
LAPH
Secured term loan	7.94	%	42,414			1,342		8.36	%	43,167			1,038
Debt discount, net			(472		)	—				(552		)	—
Deferred financing costs, net			(419		)	—				(482		)	—
EZOP
Warehouse credit facility	7.19	%	43,692			—		9.68	%	58,200			—
Debt discount, net			(2,374		)	—				—			—
TEPIH
Secured term loan	25.17	%	—			—		6.55	%	107,239			3,356
Debt discount, net			—			—				(62		)	—
Deferred financing costs, net			—			—				(4,892		)	—
TEPIIH
Warehouse credit facility	6.88	%	198,011			—		8.41	%	57,552			—
Debt discount, net			(2,459		)	—				(1,710		)	—
Deferred financing costs, net			—			—				(1,612		)	—
HELII
Solar asset-backed notes	5.75	%	246,173			13,312		5.60	%	253,687			9,013
Debt discount, net			(52		)	—				(55		)	—
Deferred financing costs, net			(6,279		)	—				(6,425		)	—
RAYSI
Solar asset-backed notes	5.48	%	131,175			6,189				—			—
Debt discount, net			(1,625		)	—				—			—
Deferred financing costs, net			(5,704		)	—				—			—
HELIII
Solar asset-backed notes	2.95	%	145,968			21,662				—			—
Debt discount, net			(2,582		)	—				—			—
Deferred financing costs, net			(2,411		)	—				—			—
Total			$	1,152,884		$	75,908			$	916,430		$	43,465



	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Weighted Average Fair Value		Aggregate Intrinsic Value
								(in thousands)
Outstanding, December 31, 2018	4,808,390		$	15.90	8.09			$	129
Granted	94,295		$	13.58	9.57	$	3.11
Exercised	(2,143	)	$	1.85				$	6
Forfeited	(585,518	)	$	15.89		$	3.49
Outstanding, June 30, 2019	4,315,024		$	15.86	7.59			$	78
Exercisable, June 30, 2019	2,206,545		$	15.86	7.01			$	78
Vested and expected to vest, June 30, 2019	4,315,024		$	15.86	7.59			$	78
Non-vested, June 30, 2019	1,991,065					$	3.51



	Information Technology Commitments
	(in thousands)
Remaining 2019	$	2,400
2020	3,125
2021	2,700
2022	—
2023	—
2024 and thereafter	—
Total	$	8,225