UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q

(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,September 30, 2020
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 001-38995

Sunnova Energy International Inc.
(Exact name of registrant as specified in its charter)

Delaware30-1192746
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
20 East Greenway Plaza, Suite 475540
Houston,, Texas77046
(Address, including zip code, of principal executive offices)

(281) (281) 985-9904
(Registrant's telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value per shareNOVANew York Stock Exchange


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

Indicate by check mark whether the registrant has submitted electronically 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 ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☒Smaller reporting company☐
Emerging growth company☐

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

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

The registrant had 84,026,29093,587,398 shares of common stock outstanding as of May 12,October 26, 2020.

1
Table of Contents



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"). 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 "may," "will," "likely," "should," "expect," "anticipate," "could," "contemplate," "target," "future," "plan," "believe," "intend," "goal," "seek," "estimate," "project," "target," "predict," "potential," "continue" 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 effects of the coronavirus disease 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 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 coronavirus disease 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;
•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.


2
Table of Contents



TABLE OF CONTENTS

Page
Page
PART I - FINANCIAL INFORMATION
Item 1.
4
5
6
8
10
Item 2.
3233
Item 3.
4957
Item 4.
4957
PART II - OTHER INFORMATION
Item 1.
5158
Item 1A.
5158
Item 2.
5359
Item 3.
5359
Item 4.
5359
Item 5.
5359
Item 6.
5860
5961


3
Table of Contents



PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

SUNNOVA ENERGY INTERNATIONAL INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts and share par values)
As of 
 September 30, 2020		As of 
 December 31, 2019
Assets
Current assets:
Cash$84,635 $83,485 
Accounts receivable—trade, net11,799 10,672 
Accounts receivable—other13,354 6,147 
Other current assets, net of allowance of $591 and $112 as of September 30, 2020 and December 31, 2019, respectively199,637 174,016 
Total current assets309,425 274,320 
Property and equipment, net2,172,727 1,745,060 
Customer notes receivable, net of allowance of $14,177 and $979 as of September 30, 2020 and December 31, 2019, respectively428,586 297,975 
Other assets243,548 169,712 
Total assets (1)$3,154,286 $2,487,067 
Liabilities, Redeemable Noncontrolling Interests and Equity
Current liabilities:
Accounts payable$29,288 $36,190 
Accrued expenses27,944 39,544 
Current portion of long-term debt109,729 97,464 
Other current liabilities18,572 21,804 
Total current liabilities185,533 195,002 
Long-term debt, net1,795,039 1,346,419 
Other long-term liabilities162,395 127,406 
Total liabilities (1)2,142,967 1,668,827 
Commitments and contingencies (Note 14)
Redeemable noncontrolling interests135,847 127,129 
Stockholders' equity:
Common stock, 91,125,076 and 83,980,885 shares issued as of September 30, 2020 and December 31, 2019, respectively, at $0.0001 par value9 8 
Additional paid-in capital—common stock1,198,680 1,007,751 
Accumulated deficit(476,095)(361,824)
Total stockholders' equity722,594 645,935 
Noncontrolling interests152,878 45,176 
Total equity875,472 691,111 
Total liabilities, redeemable noncontrolling interests and equity$3,154,286 $2,487,067 
 As of 
 March 31, 2020		 As of 
 December 31, 2019
Assets   
Current assets:   
Cash$73,436
 $83,485
Accounts receivable—trade, net10,039
 10,672
Accounts receivable—other9,264
 6,147
Other current assets, net of allowance of $567 and $112 as of March 31, 2020 and December 31, 2019, respectively187,217
 174,016
Total current assets279,956
 274,320
    
Property and equipment, net1,884,576
 1,745,060
Customer notes receivable, net of allowance of $11,569 and $979 as of March 31, 2020 and December 31, 2019, respectively338,514
 297,975
Other assets179,134
 169,712
Total assets (1)$2,682,180
 $2,487,067
    
Liabilities, Redeemable Noncontrolling Interests and Stockholders' Equity   
Current liabilities:   
Accounts payable$59,657
 $36,190
Accrued expenses15,158
 39,544
Current portion of long-term debt100,716
 97,464
Other current liabilities15,324
 21,804
Total current liabilities190,855
 195,002
    
Long-term debt, net1,511,555
 1,346,419
Other long-term liabilities145,323
 127,406
Total liabilities (1)1,847,733
 1,668,827
    
Commitments and contingencies (Note 13)

 

    
Redeemable noncontrolling interests242,427
 172,305
    
Stockholders' equity:   
Common stock, 84,026,290 and 83,980,885 shares issued as of March 31, 2020 and December 31, 2019, respectively, at $0.0001 par value8
 8
Additional paid-in capital—common stock1,010,655
 1,007,751
Accumulated deficit(418,643) (361,824)
Total stockholders' equity592,020
 645,935
Total liabilities, redeemable noncontrolling interests and stockholders' equity$2,682,180
 $2,487,067

(1) The consolidated assets as of March 31,September 30, 2020 and December 31, 2019 include $1,038,771$1,254,660 and $790,211, respectively, of assets of variable interest entities ("VIEs") that can only be used to settle obligations of the VIEs. These assets include cash of $7,641$12,396 and $7,347 as of March 31,September 30, 2020 and December 31, 2019, respectively; accounts receivable—trade, net of $1,989$2,719 and $1,460 as of March 31,September 30, 2020 and December 31, 2019, respectively; accounts receivable—other of $42$903 and $4 as of March 31,September 30, 2020 and December 31, 2019, respectively; other current assets of $127,631$131,242 and $47,606 as of March 31,September 30, 2020 and December 31, 2019, respectively; property and equipment, net of $893,123$1,094,801 and $726,415 as of March 31,September 30, 2020 and December 31, 2019, respectively; and other assets of $8,345$12,599 and $7,379 as of March 31,September 30, 2020 and December 31, 2019, respectively. The consolidated liabilities as of March 31,September 30, 2020 and December 31, 2019 include $16,046$20,227 and $13,440, respectively, of liabilities of VIEs whose creditors have no recourse to Sunnova Energy International Inc. These liabilities include accounts payable of $1,972$2,133 and $1,926 as of March 31,September 30, 2020 and December 31, 2019, respectively; accrued expenses of $111$603 and $35 as of March 31,September 30, 2020 and December 31, 2019, respectively; other current liabilities of $1,137$277 and $612 as of March 31,September 30, 2020 and December 31, 2019, respectively; and other long-term liabilities of $12,826$17,214 and $10,867 as of March 31,September 30, 2020 and December 31, 2019, respectively.

See accompanying notes to unaudited condensed consolidated financial statements.

4
Table of Contents



SUNNOVA ENERGY INTERNATIONAL INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)

Three Months Ended 
 September 30,		Nine Months Ended 
 September 30,
2020201920202019
Revenue$50,177 $36,615 $122,796 $97,942 
Operating expense:
Cost of revenue—depreciation15,113 10,942 42,120 30,820 
Cost of revenue—other1,403 1,186 5,315 2,914 
Operations and maintenance3,469 1,925 8,614 6,468 
General and administrative28,549 28,509 84,575 70,984 
Other operating income(6)(49)(28)(129)
Total operating expense, net48,528 42,513 140,596 111,057 
Operating income (loss)1,649 (5,898)(17,800)(13,115)
Interest expense, net29,954 30,884 127,804 99,855 
Interest expense, net—affiliates0 701 0 4,098 
Interest income(5,999)(3,407)(17,299)(8,868)
Loss on extinguishment of long-term debt, net50,721 0 50,721 0 
Loss on extinguishment of long-term debt, net—affiliates0 0 0 10,645 
Other (income) expense91 293 (175)827 
Loss before income tax(73,118)(34,369)(178,851)(119,672)
Income tax expense176 0 176 0 
Net loss(73,294)(34,369)(179,027)(119,672)
Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests(9,113)3,221 (18,513)7,170 
Net loss attributable to stockholders(64,181)(37,590)(160,514)(126,842)
Dividends earned on Series A convertible preferred stock0 0 0 (19,271)
Dividends earned on Series C convertible preferred stock0 0 0 (5,454)
Net loss attributable to common stockholders—basic and diluted$(64,181)$(37,590)$(160,514)$(151,567)
Net loss per share attributable to common stockholders—basic and diluted$(0.73)$(0.62)$(1.88)$(5.77)
Weighted average common shares outstanding—basic and diluted87,768,712 60,890,129 85,276,841 26,245,493 
 Three Months Ended 
 March 31,
 2020 2019
Revenue$29,829
 $26,715
    
Operating expense:   
Cost of revenue—depreciation12,986
 9,653
Cost of revenue—other1,043
 652
Operations and maintenance2,219
 2,254
General and administrative27,893
 18,681
Other operating income(6) (18)
Total operating expense, net44,135
 31,222
    
Operating loss(14,306) (4,507)
    
Interest expense, net67,318
 31,661
Interest expense, net—affiliates—
 1,822
Interest income(4,620) (2,494)
Loss before income tax(77,004) (35,496)
    
Income tax—
 —
Net loss(77,004) (35,496)
Net income (loss) attributable to redeemable noncontrolling interests(5,929) 3,018
Net loss attributable to stockholders(71,075) (38,514)
Dividends earned on Series A convertible preferred stock—
 (9,511)
Dividends earned on Series C convertible preferred stock—
 (2,692)
Net loss attributable to common stockholders—basic and diluted$(71,075) $(50,717)
    
Net loss per share attributable to common stockholders—basic and diluted$(0.85) $(5.87)
Weighted average common shares outstanding—basic and diluted84,001,151
 8,635,527

See accompanying notes to unaudited condensed consolidated financial statements.


5
Table of Contents



SUNNOVA ENERGY INTERNATIONAL INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended 
 September 30,
20202019
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss$(179,027)$(119,672)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation47,811 34,987 
Impairment and loss on disposals, net1,768 1,236 
Amortization of deferred financing costs6,781 8,795 
Amortization of debt discount12,205 2,027 
Non-cash effect of equity-based compensation plans8,389 6,974 
Non-cash payment-in-kind interest on loan780 0 
Non-cash payment-in-kind interest on loan—affiliates0 2,716 
Unrealized loss on derivatives2,755 30,262 
Unrealized (gain) loss on fair value option instruments(165)97 
Loss on extinguishment of long-term debt, net50,721 0 
Loss on extinguishment of long-term debt, net—affiliates0 10,645 
Other non-cash items10,566 4,637 
Changes in components of operating assets and liabilities:
Accounts receivable(2,785)(8,006)
Other current assets(10,688)(11,753)
Other assets(32,541)(37,787)
Accounts payable(3,274)5,156 
Accrued expenses(8,566)(2,455)
Other current liabilities(2,781)75 
Long-term debt—paid-in-kind—affiliates0 (719)
Other long-term liabilities(3,745)(1,753)
Net cash used in operating activities(101,796)(74,538)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment(439,855)(299,199)
Payments for investments and customer notes receivable(180,725)(104,391)
Proceeds from customer notes receivable25,028 14,072 
State utility rebates and tax credits327 401 
Other, net950 (584)
Net cash used in investing activities(594,275)(389,701)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt1,182,912 588,153 
Payments of long-term debt(667,670)(318,855)
Proceeds of long-term debt from affiliates0 15,000 
Payments of long-term debt to affiliates0 (56,236)
Payments on notes payable(3,017)(2,177)
Payments of deferred financing costs(18,317)(10,435)
Payments of debt discounts(3,132)(1,084)
Proceeds from issuance of common stock, net4,269 164,695 
Proceeds from equity component of debt instrument, net73,657 0 
Proceeds from issuance of convertible preferred stock, net0 (2,510)
Contributions from redeemable noncontrolling interests and noncontrolling interests197,360 119,372 
Distributions to redeemable noncontrolling interests and noncontrolling interests(4,484)(6,289)
Payments of costs related to redeemable noncontrolling interests and noncontrolling interests(4,108)(3,155)
Other, net(1)(15)
Net cash provided by financing activities757,469 486,464 
Net increase in cash and restricted cash61,398 22,225 
Cash and restricted cash at beginning of period150,291 87,046 
Cash and restricted cash at end of period211,689 109,271 
Restricted cash included in other current assets(54,096)(16,688)
Restricted cash included in other assets(72,958)(41,557)
Cash at end of period$84,635 $51,026 
 Three Months Ended 
 March 31,
 2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES   
Net loss$(77,004) $(35,496)
Adjustments to reconcile net loss to net cash used in operating activities:   
Depreciation14,946
 11,012
Impairment and loss on disposals, net331
 364
Amortization of deferred financing costs3,494
 6,324
Amortization of debt discount4,663
 472
Non-cash effect of equity-based compensation plans2,690
 281
Non-cash payment-in-kind interest on loan—affiliates—
 1,158
Unrealized loss on derivatives7,596
 7,032
Other non-cash items3,424
 1,000
Changes in components of operating assets and liabilities:   
Accounts receivable(2,755) (1,167)
Other current assets4,124
 (8,961)
Other assets(8,682) (3,979)
Accounts payable13,768
 6,771
Accrued expenses(17,227) (4,455)
Other current liabilities(6,446) (2,206)
Other long-term liabilities(1,034) (2,580)
Net cash used in operating activities(58,112) (24,430)
    
CASH FLOWS FROM INVESTING ACTIVITIES   
Purchases of property and equipment(141,231) (68,902)
Payments for investments and customer notes receivable(50,448) (27,732)
Proceeds from customer notes receivable6,940
 3,757
State utility rebates and tax credits135
 111
Other, net289
 86
Net cash used in investing activities(184,315) (92,680)
    
CASH FLOWS FROM FINANCING ACTIVITIES   
Proceeds from long-term debt583,681
 227,930
Payments of long-term debt(408,695) (123,858)
Payments on notes payable(2,398) —
Payments of deferred financing costs(10,619) (5,281)
Payments of debt discounts(229) (525)
Proceeds from issuance of common stock, net(41) 6
Proceeds from issuance of convertible preferred stock, net—
 (2,253)
Contributions from redeemable noncontrolling interests102,342
 18,030
Distributions to redeemable noncontrolling interests(1,373) (3,652)
Payments of costs related to redeemable noncontrolling interests(1,295) (1,035)
Other, net(1) (11)
Net cash provided by financing activities261,372
 109,351
Net increase (decrease) in cash and restricted cash18,945
 (7,759)
Cash and restricted cash at beginning of period150,291
 87,046
Cash and restricted cash at end of period169,236
 79,287
Restricted cash included in other current assets(30,502) (430)
Restricted cash included in other assets(65,298) (34,999)
Cash at end of period$73,436
 $43,858


6
Table of Contents



Nine Months Ended 
 September 30,
20202019
Non-cash investing and financing activities:
Change in accounts payable and accrued expenses related to purchases of property and equipment$7,603 $25,576 
Change in accounts payable and accrued expenses related to payments for investments and customer notes receivable$(12,429)$(6,335)
Change in accounts payable and accrued expenses related to financing costs$(972)$(485)
Transfers of inventory to property and equipment, net and customer notes receivable$38,089 $1,628 
Non-cash conversion of convertible senior notes for common stock$84,196 $0 
Supplemental cash flow information:
Cash paid for interest$69,058 $48,866 
Cash paid for income taxes$58 $0 
 Three Months Ended 
 March 31,
 2020 2019
Non-cash investing and financing activities:   
Change in accounts payable and accrued expenses related to purchases of property and equipment$9,357
 $12,362
    
Supplemental cash flow information:   
Cash paid for interest$25,369
 $17,333
Cash paid for income taxes$—
 $—

See accompanying notes to unaudited condensed consolidated financial statements.

7
Table of Contents



SUNNOVA ENERGY INTERNATIONAL INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
Redeemable
Noncontrolling
Interests		Series A and Series C
Convertible
Preferred Stock		Series A and Series B
Common Stock		Common StockAdditional
Paid-in
Capital -
Convertible
Preferred
Stock		Additional
Paid-in
Capital -
Common
Stock		Accumulated
Deficit		Total
Stockholders'
Equity		Noncontrolling
Interests		Total
Equity
SharesAmountSharesAmountSharesAmount
December 31, 2018$85,680 57,949,374 $579 8,634,455 $86 0 $0 $701,326 $85,439 $(286,312)$501,118 $0 $501,118 
Net income (loss)3,018 — — — — — — — — (38,514)(38,514)— (38,514)
Issuance of common stock— — — 2,143 — — — — 4 — 4 — 4 
Repurchase of convertible preferred stock— (13,484)— — — — — (183)— (8)(191)— (191)
Contributions from redeemable noncontrolling interests18,030 — — — — — — — — — — — — 
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 — 10,125 
Equity-based compensation expense— — — — — — — — 281 — 281 — 281 
Other, net2,627 — — — — — — 493 — (2)491 — 491 
March 31, 201994,016 57,935,890 579 8,636,598 86 0 0 701,636 85,724 (314,711)473,314 0 473,314 
Net income (loss)931 — — — — — — — — (50,738)(50,738)— (50,738)
Contributions from redeemable noncontrolling interests32,207 — — — — — — — — — — — — 
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 — 18,297 
Equity-based compensation expense— — — — — — — — 713 — 713 — 713 
Other, net600 — — — — — — (1)— — (1)— (1)
June 30, 2019107,547 57,935,890 579 8,636,598 86 0 0 701,635 86,437 (347,152)441,585 0 441,585 
Net income (loss)3,028 — — — — — — — — (37,590)(37,590)193 (37,397)
Issuance of common stock, net— — — — — 14,865,267 1 — 164,391 — 164,392 — 164,392 
Non-cash conversion of convertible notes for Series A and Series C convertible preferred stock— 2,543,127 25 — — — — 32,809 — — 32,834 — 32,834 
Non-cash exchange of Series A and Series C convertible preferred stock and Series A and Series B common stock for common stock— (60,479,017)(605)(8,636,601)(86)69,115,618 7 (734,444)735,128 — — — — 
Contributions from redeemable noncontrolling interests and noncontrolling interests17,048 — — — — — — — — — — 52,087 52,087 
Distributions to redeemable noncontrolling interests(1,146)— — — — — — — — — — — — 
Costs related to redeemable noncontrolling interests and noncontrolling interests(116)— — — — — — — — — — (2,322)(2,322)
Equity in subsidiaries attributable to parent(5,105)— — — — — — — — 19,356 19,356 (14,251)5,105 
Equity-based compensation expense— — — — — — — — 5,980 — 5,980 — 5,980 
Other, net(385)— 1 3 — — — — — 2 3 — 3 
September 30, 2019$120,871 0 $0 0 $0 83,980,885 $8 $0 $991,936 $(365,384)$626,560 $35,707 $662,267 
 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 interests18,030
  —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
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, net2,627
  —
 —
 —
 —
 —
 —
 —
 —
 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


8
Table of Contents



Redeemable
Noncontrolling
Interests		Common StockAdditional
Paid-in
Capital -
Common
Stock		Accumulated
Deficit		Total
Stockholders'
Equity		Noncontrolling
Interests		Total
Equity
SharesAmount
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 interests3,170 — — — — — 99,172 99,172 
Distributions to redeemable noncontrolling interests(1,373)— — — — — — — 
Costs related to redeemable noncontrolling interests and noncontrolling interests187 — — — — — (894)(894)
Equity in subsidiaries attributable to parent145 — — — 24,164 24,164 (24,309)(145)
Equity-based compensation expense— — — 2,690 — 2,690 — 2,690 
Other, net(44)— — — — — (3)(3)
March 31, 2020130,790 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, net193 — — (1)— (1)34 33 
June 30, 2020132,573 84,056,032 8 1,088,223 (426,543)661,688 105,732 767,420 
Net income (loss)4,268 — — — (64,181)(64,181)(13,381)(77,562)
Issuance of common stock, net— 7,069,044 1 152,919 — 152,920 — 152,920 
Equity component of debt instrument, net— — — (44,808)— (44,808)— (44,808)
Contributions from redeemable noncontrolling interests and noncontrolling interests279 — — — — — 76,428 76,428 
Distributions to redeemable noncontrolling interests and noncontrolling interests(1,111)— — — — — (773)(773)
Costs related to noncontrolling interests— — — — — — (1,007)(1,007)
Equity in subsidiaries attributable to parent(718)— — — 14,629 14,629 (13,911)718 
Equity-based compensation expense— — — 2,345 — 2,345 — 2,345 
Other, net556 ——1 — 1 (210)(209)
September 30, 2020$135,847 91,125,076 $9 $1,198,680 $(476,095)$722,594 $152,878 $875,472 
 Redeemable
Noncontrolling
Interests		  Common Stock Additional
Paid-in
Capital -
Common
Stock		 Accumulated
Deficit		 Total
Stockholders'
Equity
      
      
   Shares Amount   
December 31, 2019$172,305
  83,980,885
 $8
 $1,007,751
 $(361,824) $645,935
Cumulative-effect adjustment—
  —
 —
 —
 (9,908) (9,908)
Net loss(5,929)  —
 —
 —
 (71,075) (71,075)
Issuance of common stock, net—
  45,405
 —
 214
 —
 214
Contributions from redeemable noncontrolling interests102,342
  —
 —
 —
 —
 —
Distributions to redeemable noncontrolling interests(1,373)  —
 —
 —
 —
 —
Costs related to redeemable noncontrolling interests(707)  —
 —
 —
 —
 —
Equity in subsidiaries attributable to parent(24,164)  —
 —
 —
 24,164
 24,164
Equity-based compensation expense—
  —
 —
 2,690
 —
 2,690
Other, net(47)  —
 —
 —
 —
 —
March 31, 2020$242,427
  84,026,290
 $8
 $1,010,655
 $(418,643) $592,020

See accompanying notes to unaudited condensed consolidated financial statements.

9
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Description of Business and Basis of Presentation

We are a leading residential solar and energy storage service provider, serving more thanover 85,00098,000 customers in more than 20 United States ("U.S.") states and territories. Sunnova Energy Corporation was incorporated in Delaware on October 22, 2012 and formed Sunnova Energy International Inc. ("SEI") as a Delaware corporation on April 1, 2019. We completed our initial public offering on July 29, 2019 (our "IPO"); and in connection with our IPO, all of Sunnova Energy Corporation's ownership interests were contributed to SEI. 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.

We have a differentiated residential solar dealer model in which we partner with local dealers who originate, design and install our customers' solar energy systems and energy storage systems on our behalf. Our focus on our dealer model enables us to leverage our 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 as well as technical oversight and expertise. We believe this structure provides operational flexibility, reduced exposure to labor shortages and lower fixed costs relative to our peers, furthering our competitive advantage.

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"). The initial term of our solar service agreements is typically either 10, 15 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 an opportunity for customers to renew for up to an additional 10 years, via 2 five-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.

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 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 Securities and Exchange Commission ("SEC") regarding interim financial reporting. As such, these interim financial statements should be read in conjunction with our 2019 annual audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K filed with the SEC on February 25, 2020. 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 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, a controlling financial interest may also exist in entities, such as VIEs, through arrangements that do not involve controlling voting interests. ASC 810 requires a variable interest holder to consolidate a VIE if that party has (a) the power to direct the activities of the 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 participating rights. As such, we have determined we are the primary beneficiary of our VIEs and evaluate our relationships with our VIEs on an ongoing basis

10
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ongoing basis to ensure we continue to be the primary beneficiary. We have eliminated all intercompany accounts and transactions in consolidation.

Adoption of ASU

In June 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments—Credit Losses, which requires entities to use a forward-looking expected loss approach, referred to as the current expected credit loss ("CECL") methodology, in accordance with ASC 326, Financial Instruments—Credit Losses, instead of the incurred loss approach previously in effect when estimating the allowance for credit losses. Under CECL, financial assets measured at amortized cost are presented at the net amount expected to be collected by using an estimate of credit losses for the remaining estimated life of the financial asset based on historical experience, current conditions and reasonable and supportable forecasts. 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, ASU 2019-05, Financial Instruments—Credit Losses: Targeted Transition Relief and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The supplemental ASUs must be adopted simultaneously with ASU 2016-13.2016-13. We adopted this ASU in January 2020 using the modified retrospective approach for our trade accounts receivable, customer notes receivable and long-term receivable for leases, which resulted in a cumulative-effect adjustment to stockholders' equity of approximately $9.9 million. Results for reporting periods prior to 2020 continue to be presented in accordance with previously applicable GAAP while results for subsequent reporting periods are presented under ASC 326. See Note 2, Significant Accounting Policies, and Note 6, Customer Notes Receivable. The following table presents the impact of the adoption of ASU No. 2016-13 on the unaudited condensed consolidated balance sheet:
As of January 1, 2020
As Reported
Under ASC 326		Impact of ASC
326 Adoption		Pre-ASC 326
Adoption
(in thousands)
Accounts receivable—trade, net$10,912 $240 $10,672 
Other current assets173,565 (451)174,016 
Customer notes receivable289,191 (8,784)297,975 
Other assets168,799 (913)169,712 
Accumulated deficit(371,732)(9,908)(361,824)
 As of January 1, 2020
 As Reported
Under ASC 326		 Impact of ASC
326 Adoption		 Pre-ASC 326
Adoption
 (in thousands)
Accounts receivable—trade, net$10,912
 $240
 $10,672
Other current assets173,565
 (451) 174,016
Customer notes receivable289,191
 (8,784) 297,975
Other assets168,799
 (913) 169,712
Accumulated deficit(371,732) (9,908) (361,824)

Revisions

We have revised our previously issued annual audited consolidated financial statements and interim financial statements to correct immaterial classification errors pertaining to the 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 balance sheets and consolidated statements of redeemable noncontrolling interests and equity. The following tables present the impact of these revisions on the financial statements:

As of December 31, 2019
As Previously
Reported		RevisionsAs
Revised
(in thousands)
Redeemable noncontrolling interests$172,305 $(45,176)$127,129 
Noncontrolling interests0 45,176 45,176 

11
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Redeemable
Noncontrolling
Interests		Noncontrolling
Interests
As Previously
Reported		RevisionsAs
Revised		As Previously
Reported		RevisionsAs
Revised
(unaudited, in thousands)
June 30, 2019$107,547 $0 $107,547 $0 $0 $0 
Net income3,221 (193)3,028 0 193 193 
Contributions from redeemable noncontrolling interests and noncontrolling interests69,135 (52,087)17,048 0 52,087 52,087 
Distributions to redeemable noncontrolling interests(1,146)0 (1,146)0 0 0 
Costs related to redeemable noncontrolling interests and noncontrolling interests(2,438)2,322 (116)0 (2,322)(2,322)
Equity in subsidiaries attributable to parent(19,356)14,251 (5,105)0 (14,251)(14,251)
Other, net(385)0 (385)0 0 0 
September 30, 2019$156,578 $(35,707)$120,871 $0 $35,707 $35,707 
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 interests102,342 (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, 2020242,427 (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 interests18,311 (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, net228 (35)193 0 34 34 
June 30, 2020$238,305 $(105,732)$132,573 $0 $105,732 $105,732 

12
Table of Contents
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 our interim financial statements.

Coronavirus Disease ("COVID-19") Pandemic

The ongoing COVID-19 pandemic has resulted in widespread adverse impacts on the global economy and on our employees, customers, dealers and other parties with whom we have business relations.economy. Our first priority in our response to this pandemic has been the health and safety of our employees, customers and dealers. To that end, we quickly implemented preventative measures to minimize unnecessary risk of exposure, and prevent infection.which we have continued to follow. We have experienced some resulting disruptions to our business operations as the COVID-19 pandemic has continued to spread through most of the states and U.S. territories in which we operate.

To adjust to federal social distancing guidelines, stay-at-home orders and similar government measures, our dealers have 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 in certain areas.person. The service and installation of solar energy systems has continued during the COVID-19 pandemic. This reflects residential solar services' designation as an essential service in all of our service territories. In order to adhere to all applicable state and federal health and safety guidelines, we and our dealers have moved to a contact-free process for installers and service technicians. In addition, certain regulators andan increasing number of jurisdictional authorities as well as local utilities have begunare accepting electronic submissions for permits, and inspections are now being performed in many locations through video calls and other electronic means. Throughout the COVID-19 pandemic, we 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.


11
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We cannot predict the full impact the COVID-19 pandemic or the significant disruption and volatility currently being experienced in the capital markets will have on our business, cash flows, liquidity, financial condition and results of operations at this time due to numerous uncertainties. The ultimate impact will depend on future developments, including, among other things, the ultimate geographic spread and duration of the COVID-19 virus, the depth and duration of the economic downturn and other economic effects of the COVID-19 pandemic, the consequences of governmental and other measures designed to prevent the spread of the COVID-19 virus, actions taken by governmental authorities, customers, suppliers, dealers and other third parties, our ability and the ability of our customers, potential customers and dealers to adapt to operating in a changed environment and the timing and extent to which normal economic and operating conditions resume.

(2) Significant Accounting Policies

Included below are updates to significant accounting policies disclosed in our 2019 annual audited 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 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. Accounts receivable—trade is recorded net of an allowance for credit losses, which is based on our assessment of the collectability of customer accounts. We review 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 potential disputes or collection issues. We write off accounts receivable when we deem them uncollectible. As of March 31,September 30, 2020, 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 presents the changes in the
13
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
allowance for credit losses recorded against accounts receivable—trade, net in the unaudited condensed consolidated balance sheets:
Three Months Ended 
 September 30,		Nine Months Ended 
 September 30,
2020201920202019
(in thousands)
Balance at beginning of period$773 $746 $960 $723 
Impact of ASC 326 adoption— — (240)— 
Provision for current expected credit losses458 — 1,337 — 
Bad debt expense— 511 — 1,149 
Write off of uncollectible accounts(419)(412)(1,267)(1,076)
Recoveries17 16 39 65 
Balance at end of period$829 $861 $829 $861 
 As of March 31,
 2020 2019
 (in thousands)
Balance at beginning of period$960
 $723
Impact of ASC 326 adoption(240) —
Provision for current expected credit losses402
 —
Bad debt expense—
 292
Write off of uncollectible accounts(385) (301)
Recoveries9
 27
Other, net1
 —
Balance at end of period$747
 $741


Accounts Receivable—Other.    Accounts receivable—other primarily represents receivables related to the sale of inventory and amounts owed from dealers in a net receivable position primarily as a result of customer contract cancelations or settlement agreements.

Inventory

Inventory primarily represents energy storage systems, photovoltaic modules, inverters, meters and other associated equipment purchased and 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 the weighted-average method and (a) expense to operations and

12
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

maintenance expense when installed as a replacement part for a solar energy system or (b) capitalize to property and equipment when installed as an original part on a solar energy system. We evaluate our inventory reserves and write down the estimated value of excess and obsolete inventory based upon assumptions about future demand and market conditions. The following table presents the detail of inventory as recorded in other current assets in the unaudited condensed consolidated balance sheets:
As of 
 September 30, 2020		As of 
 December 31, 2019
(in thousands)
Energy storage systems and components$18,467 $33,443 
Modules and inverters91,632 10,137 
Meters912 169 
Total$111,011 $43,749 
 As of 
 March 31, 2020		 As of 
 December 31, 2019
 (in thousands)
Energy storage systems and components$34,021
 $33,443
Modules and inverters80,932
 10,137
Meters154
 169
Total$115,107
 $43,749


As of March 31,September 30, 2020 and December 31, 2019, we recorded accrued expenses of $3.4$8.1 million and $15.2 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 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.
•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.
14
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 accounts receivable, notes receivable, accounts payable, accrued expenses, long-term debt and interest rate swaps. 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 loan program with similar maturities and terms (Level 3). We estimate the fair value of our fixed-rate long-term debt 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). See Note 6, Customer Notes Receivable, Note 7, Long-Term Debt and Note 8, Derivative Instruments.

Derivative Instruments

Our derivative instruments consist of interest rate swaps that are not designated as cash flow hedges or fair value hedges under accounting guidance. We use interest rate swaps to manage our net exposure to interest rate changes. We record the derivatives in other current assets, other assets, other current liabilities and other long-term liabilities, as appropriate, 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.


13
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Revenue

The following table presents the detail of revenue as recorded in the unaudited condensed consolidated statements of operations:
Three Months Ended 
 September 30,		Nine Months Ended 
 September 30,
2020201920202019
(in thousands)
PPA revenue$19,713 $14,329 $52,268 $37,895 
Lease revenue13,115 10,238 36,995 29,496 
Solar renewable energy certificate revenue14,147 10,603 27,245 26,911 
Loan revenue788 418 2,021 1,152 
Other revenue2,414 1,027 4,267 2,488 
Total$50,177 $36,615 $122,796 $97,942 
 Three Months Ended 
 March 31,
 2020 2019
 (in thousands)
PPA revenue$12,633
 $9,612
Lease revenue11,542
 9,638
Solar renewable energy certificate revenue4,363
 6,592
Loan revenue599
 371
Other revenue692
 502
Total$29,829
 $26,715


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. We express this rate of return as the solar rate per 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. Revenue allocated to remaining performance obligations represents contracted revenue we have not yet recognized and includes deferred revenue as well as amounts that will be invoiced and recognized as revenue in future periods. Contracted but not yet recognized revenue was approximately $1.2$1.4 billion as of March 31,September 30, 2020, 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 years.

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
15
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
customers must pass our credit evaluation process. The PPAs generally have a term of 25 years with an opportunity for customers to renew for up to an additional 10 years, via 2 five-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 25 years with an opportunity for customers to renew for up to an additional 10 years, via 2 five-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, which is a significant proportion of its expected 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 the 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 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

14
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 13,14, Commitments and Contingencies.

Solar Renewable Energy Certificates.    Each solar renewable energy certificate ("SREC") represents one 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 March 31,September 30, 2020 and December 31, 2019. 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 counterparty. The costs related to the sales of SRECs are generally limited to broker fees (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.

Loans.    See discussion of loan revenue in the "Loans""Loans" section below.

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.

Loans

We offer 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 our loan program (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 or energy storage 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 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 loan program, a customer must pass our credit evaluation process, which requires the customer to have a minimum FICO® score of 650 to 720 depending
16
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 credit losses, we identify customers with 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. Adjustments to historical loss information are made for differences in

15
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

current loan-specific risk characteristics, such as differences in underwriting standards. Expected credit losses are estimated over the contractual term of the loan agreements, 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 March 31,September 30, 2020, we have not experienced a significant increase in delinquent customer notes receivable and have not made any significant adjustments to our allowance for credit losses related to loans as a result of the COVID-19 pandemic. See Note 6, Customer Notes Receivable.

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 loan program which will be recognized on a straight-line basis over the remaining term of the respective solar service agreements. Deferred revenue was $34.0 million as of December 31, 2018. 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 
 September 30, 2020		As of 
 December 31, 2019
(in thousands)
Loans$73,417 $46,958 
PPAs and leases10,162 8,895 
SRECs1,420 3,000 
Total (1)$84,999 $58,853 
 As of 
 March 31, 2020		 As of 
 December 31, 2019
 (in thousands)
Loans$55,406
 $46,958
PPAs and leases10,151
 8,895
SRECs3,000
 3,000
Total (1)$68,557
 $58,853

(1) Of this amount, $2.9 million and $2.1 million is recorded in other current liabilities as of March 31,September 30, 2020 and December 31, 2019, respectively.

During the threenine months ended March 31,September 30, 2020 and 2019, we recognized revenue of $997,000$5.0 million and $653,000,$2.3 million, respectively, from amounts recorded in deferred revenue at the beginning of the respective years.

17
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 December 2019, the FASB issued ASU No. 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes, to remove certain exceptions and clarify and amend the existing guidance. This ASU is effective for annual and interim reporting periods in 2021. We have not yet determined the potential impact ofevaluated this ASU and determined it will not have a significant impact on our consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU No. 2020-03, Codification Improvements to Financial Instruments, to clarify and amend the existing guidance. The amendments in this ASU are effective either upon issuance of this ASU or for annual and interim reporting periods in 2020. We adopted this ASU in January 2020 and determined it did not have a significant impact on our consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting, to provide temporary optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. This ASU is effective frombeginning in March 2020 or prospectively from a date through December 2022. We adopted this ASU in October 2020 and determined it did not have a significant impact on our consolidated financial statements and related disclosures.

In August 2020, the FASB issued ASU No. 2020-06, 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, to simplify the accounting for certain financial instruments with characteristics of liabilities and equity by removing the separation models for convertible debt with a 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 instruments have been reported and information about events, conditions and circumstances that can affect how to assess the 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 2022. We have not yet determined the potential impact of this ASU on our consolidated financial statements and related disclosures.


16
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(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 LivesAs of 
 September 30, 2020		As of 
 December 31, 2019
(in years)(in thousands)
Solar energy systems35$2,131,054 $1,689,457 
Construction in progress167,246 143,449 
Asset retirement obligations3033,099 26,967 
Information technology systems329,398 28,320 
Computers and equipment3-51,694 1,499 
Leasehold improvements3-62,705 1,014 
Furniture and fixtures7811 735 
Vehicles4-52,073 1,632 
Other5-6158 146 
Property and equipment, gross2,368,238 1,893,219 
Less: accumulated depreciation(195,511)(148,159)
Property and equipment, net$2,172,727 $1,745,060 
 Useful Lives As of 
 March 31, 2020		 As of 
 December 31, 2019
 (in years) (in thousands)
Solar energy systems35 $1,836,111
 $1,689,457
Construction in progress  148,412
 143,449
Asset retirement obligations30 29,021
 26,967
Information technology systems3 28,495
 28,320
Computers and equipment3-5 1,644
 1,499
Leasehold improvements3-6 1,314
 1,014
Furniture and fixtures7 811
 735
Vehicles4-5 1,636
 1,632
Other5-6 157
 146
Property and equipment, gross  2,047,601
 1,893,219
Less: accumulated depreciation  (163,025) (148,159)
Property and equipment, net  $1,884,576
 $1,745,060


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 $143.8$172.6 million and $130.9 million as of March 31,September 30, 2020 and December 31, 2019, respectively.

18
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 
 September 30, 2020		As of 
 December 31, 2019
(in thousands)
Prepaid inventory$0 $96,167 
Inventory111,011 43,749 
Current portion of customer notes receivable20,083 13,758 
Other prepaid assets7,428 7,380 
Current portion of other notes receivable878 982 
Deferred receivables4,636 1,506 
Restricted cash54,096 10,474 
Other1,505 0 
Total$199,637 $174,016 
 As of 
 March 31, 2020		 As of 
 December 31, 2019
 (in thousands)
Prepaid inventory$17,100
 $96,167
Inventory115,107
 43,749
Current portion of customer notes receivable15,170
 13,758
Other prepaid assets7,123
 7,380
Current portion of other notes receivable947
 982
Deferred receivables1,222
 1,506
Restricted cash30,502
 10,474
Other46
 —
Total$187,217
 $174,016


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

As of 
 September 30, 2020		As of 
 December 31, 2019
(in thousands)
Restricted cash$72,958 $56,332 
Construction in progress - customer notes receivable65,288 37,137 
Exclusivity and other bonus arrangements with dealers, net54,543 32,791 
Straight-line revenue adjustment, net30,949 24,852 
Other19,810 18,600 
Total$243,548 $169,712 
17
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the detail of other current liabilities as recorded in the unaudited condensed consolidated balance sheets:
As of 
 September 30, 2020		As of 
 December 31, 2019
(in thousands)
Interest payable$11,669 $14,680 
Current portion of performance guarantee obligations2,921 4,067 
Current portion of lease liability1,075 561 
Deferred revenue2,882 2,086 
Other25 410 
Total$18,572 $21,804 
 As of 
 March 31, 2020		 As of 
 December 31, 2019
 (in thousands)
Interest payable$8,978
 $14,680
Current portion of performance guarantee obligations2,502
 4,067
Current portion of lease liability924
 561
Deferred revenue2,893
 2,086
Other27
 410
Total$15,324
 $21,804


The following table presents the detail of other assets as recorded in the unaudited condensed consolidated balance sheets:
 As of 
 March 31, 2020		 As of 
 December 31, 2019
 (in thousands)
Restricted cash$65,298
 $56,332
Construction in progress - customer notes receivable33,903
 37,137
Exclusivity and other bonus arrangements with dealers, net37,273
 32,791
Straight-line revenue adjustment26,183
 24,852
Other16,477
 18,600
Total$179,134
 $169,712


(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
19
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 September 30,
20202019
(in thousands)
Balance at beginning of period$31,053 $20,033 
Additional obligations incurred6,179 2,980 
Accretion expense1,577 989 
Other(58)(32)
Balance at end of period$38,751 $23,970 
 As of March 31,
 2020 2019
 (in thousands)
Balance at beginning of period$31,053
 $20,033
Additional obligations incurred2,067
 786
Accretion expense489
 313
Other(15) (9)
Balance at end of period$33,594
 $21,123



18
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(6) Customer Notes Receivable

We offer 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. The following table presents the detail of customer notes receivable as recorded in the unaudited condensed consolidated balance sheets and the corresponding fair values:
As of 
 September 30, 2020		As of 
 December 31, 2019
(in thousands)
Customer notes receivable$463,436 $312,823 
Allowance for credit losses(14,767)(1,091)
Customer notes receivable, net (1)$448,669 $311,732 
Estimated fair value, net$453,321 $314,222 
 As of 
 March 31, 2020		 As of 
 December 31, 2019
 (in thousands)
Customer notes receivable$365,820
 $312,823
Allowance for credit losses(12,136) (1,091)
Customer notes receivable, net (1)$353,684
 $311,732
Estimated fair value, net$357,032
 $314,222

(1) Of this amount, $15.2$20.1 million and $13.8 million is recorded in other current assets as of March 31,September 30, 2020 and December 31, 2019, respectively.

The following table presents the changes in the allowance for credit losses related to customer notes receivable as recorded in the unaudited condensed consolidated balance sheets:
Three Months Ended 
 September 30,		Nine Months Ended 
 September 30,
2020201920202019
(in thousands)
Balance at beginning of period$13,543 $944 $1,091 $710 
Impact of ASC 326 adoption— — 9,235 — 
Provision for current expected credit losses (1)1,483 — 4,701 — 
Bad debt expense— 5 — 278 
Write off of uncollectible accounts(258)0 (258)(39)
Other, net(1)0 (2)0 
Balance at end of period$14,767 $949 $14,767 $949 
 As of March 31,
 2020 2019
 (in thousands)
Balance at beginning of period$1,091
 $710
Impact of ASC 326 adoption9,235
 —
Provision for current expected credit losses (1)1,811
 —
Bad debt expense—
 111
Write off of uncollectible accounts—
 (39)
Other, net(1) (24)
Balance at end of period$12,136
 $758

(1) In addition, we recognized $53,000$61,000 and $123,000 of provision for current expected credit losses during the three and nine months ended March 31,September 30, 2020, respectively, related to our long-term receivables for our leases.

As of March 31,September 30, 2020 and December 31, 2019, we invested $33.9$65.3 million and $37.1 million, respectively, in loan solar energy systems and energy storage systems not yet placed in service. For the three months ended March 31,September 30, 2020 and 2019, interest income related to our customer notes receivable was $4.4$5.9 million and $2.3$3.1 million, respectively. For the nine months ended September 30, 2020 and 2019, interest income related to our customer notes receivable was $16.9 million and $8.2 million, respectively. As of March 31,September 30, 2020 and December 31, 2019, accrued interest receivable related to our customer notes receivable was $975,000$873,000 and $869,000, respectively. As of March 31,September 30, 2020 and December 31, 2019, there were no0 customer notes receivable not accruing interest and thus, there iswas no allowance recorded for loans on nonaccrual
20
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
status. For the three months ended March 31,September 30, 2020 and 2019, interest income of $0 was recognized for loans on nonaccrual status and accrued interest receivable of $9,000 and $0, respectively, was written off by reversing interest income. For the nine months ended September 30, 2020 and 2019, interest income of $0 was recognized for loans on nonaccrual status and accrued interest receivable of $9,000 and $0, respectively, was written off by reversing interest income.


19
Table of Contents
NOTES TO 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 March 31,September 30, 2020:
As of 
 September 30, 2020		As of 
 December 31, 2019
(in thousands)
1-90 days past due$6,546 $5,741 
91-180 days past due1,716 1,714 
Greater than 180 days past due5,747 3,331 
Total past due14,009 10,786 
Not past due449,427 302,037 
Total$463,436 $312,823 
 As of 
 March 31, 2020		 As of 
 December 31, 2019
 (in thousands)
1-90 days past due$6,120
 $5,741
91-180 days past due1,719
 1,714
Greater than 180 days past due2,044
 1,206
Total past due9,883
 8,661
Not past due355,937
 304,162
Total$365,820
 $312,823


As of March 31,September 30, 2020 and December 31, 2019, the amortized cost of our customer notes receivable more than 90 days past due but not on nonaccrual status was $3.8$7.5 million and $2.9$5.0 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
20202019201820172016PriorTotal
(in thousands)
Payment performance:
Performing$168,507 $138,644 $88,587 $31,939 $19,788 $10,224 $457,689 
Nonperforming (1)84 975 1,564 1,628 1,275 221 $5,747 
Total$168,591 $139,619 $90,151 $33,567 $21,063 $10,445 $463,436 
 Amortized Cost by Origination Year
 2020 2019 2018 2017 2016 Prior Total
 (in thousands)
Payment performance:             
Performing$58,936
 $147,020
 $91,375
 $33,815
 $21,515
 $11,115
 $363,776
Nonperforming (1)—
 324
 675
 794
 161
 90
 $2,044
Total$58,936
 $147,344
 $92,050
 $34,609
 $21,676
 $11,205
 $365,820

(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 180 days or more.


20
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(7) Long-Term Debt
(7)
Long-Term Debt

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

21
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended
September 30, 2020
Weighted Average
Effective Interest
Rates		As of September 30, 2020Year Ended
December 31, 2019
Weighted Average
Effective Interest
Rates		As of December 31, 2019
Long-termCurrentLong-termCurrent
(in thousands, except interest rates)
SEI
7.75% convertible senior notes17.41 %$0 $0 7.75 %$55,000 $0 
9.75% convertible senior notes14.39 %160,804 0 0 0 
Paid-in-kind780 0 0 0 
Debt discount, net(64,490)0 (16,913)0 
Deferred financing costs, net(416)0 (480)0 
Sunnova Energy Corporation
Notes payable8.50 %0 2,769 3.22 %0 2,428 
AP4
Secured term loan10.81 %0 0 5.61 %86,369 6,109 
Debt discount, net0 0 (452)0 
Deferred financing costs, net0 0 (196)0 
HELI
Solar asset-backed notes6.59 %205,394 6,328 6.56 %213,632 8,673 
Debt discount, net(2,445)0 (3,169)0 
Deferred financing costs, net(4,372)0 (5,586)0 
LAPH
Secured term loan10.11 %10,288 371 7.71 %41,484 1,392 
Debt discount, net(152)0 (401)0 
Deferred financing costs, net(123)0 (356)0 
EZOP
Warehouse credit facility4.64 %115,450 0 6.60 %121,400 0 
Debt discount, net(1,618)0 (2,178)0 
TEPIIH
Revolving credit facility19.47 %0 0 6.36 %234,650 0 
Debt discount, net0 0 (2,219)0 
HELII
Solar asset-backed notes5.73 %227,574 11,707 5.77 %241,309 13,005 
Debt discount, net(44)0 (49)0 
Deferred financing costs, net(5,277)0 (5,873)0 
RAYSI
Solar asset-backed notes5.49 %121,844 5,993 5.47 %126,828 6,327 
Debt discount, net(1,421)0 (1,547)0 
Deferred financing costs, net(4,441)0 (4,759)0 
HELIII
Solar loan-backed notes4.00 %124,660 14,704 4.03 %135,543 19,030 
Debt discount, net(2,451)0 (2,532)0 
Deferred financing costs, net(2,353)0 (2,410)0 
TEPH
Revolving credit facility5.72 %380,720 0 6.70 %90,325 0 
Debt discount, net(4,051)0 (645)0 
TEPINV
Revolving credit facility10.15 %35,819 36,640 7.95 %54,707 40,500 
Debt discount, net(1,811)0 (2,856)0 
Deferred financing costs, net(2,322)0 (2,207)0 
SOLI
Solar asset-backed notes3.91 %389,435 15,318 0 0 
Debt discount, net(117)0 0 0 
Deferred financing costs, net(9,169)0 0 0 
HELIV
Solar loan-backed notes3.91 %134,293 15,899 0 0 
Debt discount, net(921)0 0 0 
Deferred financing costs, net(4,028)0 0 0 
Total$1,795,039 $109,729 $1,346,419 $97,464 
 Three Months Ended
March 31, 2020
Weighted Average
Effective Interest
Rates		 As of March 31, 2020 Year Ended
December 31, 2019
Weighted Average
Effective Interest
Rates		 As of December 31, 2019
 Long-term Current Long-term Current
 (in thousands, except interest rates)
SEI           
7.75% convertible senior notes13.26% $55,000
 $—
 7.75% $55,000
 $—
Debt discount, net  (16,171) —
   (16,913) —
Deferred financing costs, net  (562) —
   (480) —
Sunnova Energy Corporation           
Notes payable10.16% —
 30
 3.22% —
 2,428
AP4           
Secured term loan10.81% —
 —
 5.61% 86,369
 6,109
Debt discount, net  —
 —
   (452) —
Deferred financing costs, net  —
 —
   (196) —
HELI           
Solar asset-backed notes6.58% 210,684
 6,736
 6.56% 213,632
 8,673
Debt discount, net  (2,940) —
   (3,169) —
Deferred financing costs, net  (5,176) —
   (5,586) —
LAPH           
Secured term loan12.07% 10,388
 355
 7.71% 41,484
 1,392
Debt discount, net  (189) —
   (401) —
Deferred financing costs, net  (152) —
   (356) —
EZOP           
Warehouse credit facility5.00% 168,450
 —
 6.60% 121,400
 —
Debt discount, net  (1,991) —
   (2,178) —
TEPIIH           
Revolving credit facility19.47% —
 —
 6.36% 234,650
 —
Debt discount, net  —
 —
   (2,219) —
HELII           
Solar asset-backed notes5.68% 233,064
 11,850
 5.77% 241,309
 13,005
Debt discount, net  (47) —
   (49) —
Deferred financing costs, net  (5,668) —
   (5,873) —
RAYSI           
Solar asset-backed notes5.53% 124,339
 6,207
 5.47% 126,828
 6,327
Debt discount, net  (1,501) —
   (1,547) —
Deferred financing costs, net  (4,656) —
   (4,759) —
HELIII           
Solar loan-backed notes3.99% 131,372
 17,687
 4.03% 135,543
 19,030
Debt discount, net  (2,506) —
   (2,532) —
Deferred financing costs, net  (2,386) —
   (2,410) —
TEPH           
Revolving credit facility5.68% 193,950
 —
 6.70% 90,325
 —
Debt discount, net  (1,006) —
   (645) —
TEPINV           
Revolving credit facility10.30% 44,040
 45,120
 7.95% 54,707
 40,500
Debt discount, net  (2,526) —
   (2,856) —
Deferred financing costs, net  (2,207) —
   (2,207) —
SOLI           
Solar asset-backed notes3.64% 399,769
 12,731
   —
 —
Debt discount, net  (124) —
   —
 —
Deferred financing costs, net  (9,693) —
   —
 —
Total  $1,511,555
 $100,716
   $1,346,419
 $97,464


Availability.    As of March 31,September 30, 2020, we had $43.6$224.1 million of available borrowing capacity under our various financing arrangements, consisting of $31.6$84.5 million under the EZOP warehouse credit facility, $6.1$56.8 million under the TEPH
22
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
revolving credit facility, $22.7 million under the TEPINV revolving credit facility and $6.0$60.0 million under the TEPINVAP8 revolving credit facility. There was no available borrowing capacity under any of our other financing arrangements. As of March 31,September 30, 2020, we were in compliance with all debt covenants under our financing arrangements.

22
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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

SEI Debt.    In May 2020, we issued and sold an aggregate principal amount of $130.0 million of our 9.75% convertible senior notes ("9.75% convertible senior notes") in a private placement at an issue price of 95%, for an aggregate purchase price of $123.5 million. The 9.75% convertible senior notes mature in April 2025 unless earlier redeemed, repurchased or converted. We granted the investors of the 9.75% convertible senior notes an option to purchase up to an additional $60.0 million aggregate principal amount of 9.75% convertible senior notes on the same terms and conditions, and the investors exercised this option and completed the purchase of such additional 9.75% convertible senior notes in June 2020. In May 2020, we also exchanged all $55.0 million aggregate principal amount outstanding of our 7.75% convertible senior notes for an equal principal amount of our 9.75% convertible senior notes. In the third quarter of 2020, certain holders of our 9.75% convertible senior notes converted approximately $84.8 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 11, Stockholders' Equity.

The investors in our 9.75% convertible senior notes may, at their option, convert all or any portion of their 9.75% convertible senior notes. Upon conversion, we may satisfy our conversion obligation by paying and/or delivering, as the case may be, cash, shares of common stock, or a combination of cash and shares of common stock, at our option, subject to certain terms and conditions. The conversion rate for the 9.75% convertible senior notes is 74.0741 shares of common stock per $1,000 principal amount of 9.75% convertible senior notes, plus accrued and unpaid interest, which is equivalent to an initial conversion price (excluding interest) of approximately $13.50 per share of common stock. The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the related indenture. On and after May 14, 2023, we have the right to cause the conversion of the 9.75% convertible senior notes if certain specified conditions are met, including minimum common stock price and minimum volume conditions.

At any time prior to May 14, 2022, we may, at our option, redeem for cash up to 33.33% aggregate principal amount of the then outstanding 9.75% convertible senior notes (after giving effect to any conversions on or prior to such redemption date) at a redemption price equal to 115% of aggregate principal amount of 9.75% convertible senior notes so redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date, using the net cash proceeds of one or more equity offerings by us, provided the redemption occurs within 180 days of the date of the closing of such equity offering.

At any time on or after May 14, 2023, we may, at our option, redeem for cash all (but not less than all) of the 9.75% convertible senior notes at the redemption price (expressed as percentages of principal amount) set forth below, plus any accrued and unpaid interest, if any, to, but excluding, the redemption date accrued and unpaid interest, if any, to, but excluding, the redemption date:
PeriodPercentage
At any time on and after May 14, 2023 but prior to May 14, 2024115%
At any time on and after May 14, 2024110%

On and after September 23, 2024, the holders of the 9.75% convertible senior notes have the option to require us to repurchase their 9.75% convertible senior notes for cash at a purchase price of 110% of the aggregate principal amount repurchased, plus accrued and unpaid interest to the date of repurchase.

For accounting purposes and in accordance with GAAP, the exchange of our 7.75% convertible senior notes for our 9.75% convertible senior notes was treated as a debt modification and we separated the 9.75% convertible senior notes into liability and equity components. As of September 30, 2020, the carrying amount of the liability component for the 9.75% convertible senior notes of approximately $96.7 million (net of an unamortized debt discount of $64.5 million and unamortized issuance costs of $416,000) was determined based on a discounted cash flow analysis and a binomial lattice model. The valuation required the use of Level 3 unobservable inputs and subjective assumptions, including but not limited to, the stock price volatility and bond yield. The use of alternative market assumptions and estimation methodologies could have had an effect on these estimates of fair value. As of September 30, 2020, the carrying amount of the equity component for the 9.75% convertible senior notes of approximately $42.8 million (net of unamortized issuance costs of $653,000), representing the
23
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
conversion option, was determined by deducting the carrying amount of the liability components from the principal amount of the 9.75% convertible senior notes. This difference between the principal amount of the 9.75% convertible senior notes and the liability component represents the debt discount, presented as a reduction to the 9.75% convertible senior notes in the unaudited condensed consolidated balance sheets and is amortized to interest expense, net using the effective interest method over the remaining term of the 9.75% convertible senior notes. The equity component of the 9.75% convertible senior notes is included in additional paid-in-capital—common stock in the unaudited condensed consolidated balance sheets and is not remeasured as long as it continues to meet the conditions for equity classification.

AP4 Debt, TEPIIH Debt and LAPH Debt.    InFebruary 2020, the aggregate principal amounts outstanding under the AP4 financing agreement and TEPIIH revolving credit facility of $92.0 million and $226.6 million, respectively, were fully repaid using proceeds from the SOLI Notes (as defined below), all related interest rate swaps were unwound and the debt facilities were terminated. In addition, proceeds from the SOLI Notes were used to repay $32.0 million of LAPH debt.

EZOP Debt.    In June 2020, proceeds from the HELIV Notes (as defined below) were used to repay $149.3 million in aggregate principal amount outstanding of EZOP debt.

TEPH Debt.    In March 2020, we amended the TEPH revolving credit facility to, among other things, (a) increase the maximum facility amount to $400.0 million, with all of the increased amount coming from Class A lenders on an uncommitted basis, (b) increase both the Class A and Class B interest rates by 0.40% and (c) modify the borrowing base calculation to shift a portion of the borrowing base from Class B to Class A lenders. In May 2020, we amended the TEPH revolving credit facility to, among other things, (a) increase the aggregate commitment amount from $200.0 million to $390.0 million and (b) increase the unused line fee on such committed amounts. In June 2020, we amended the TEPH revolving credit facility to, among other things, (a) increase the aggregate commitment amount from $390.0 million to $437.5 million, (b) modify the advance rates for solar energy systems and (c) modify the interest rates to an adjusted LIBOR rate plus a weighted average margin of 4.15%.

SOLI Debt.    In February 2020, we pooled and transferred eligible solar energy systems and the related asset receivables into wholly-owned subsidiaries of SOLI, a special purpose entity, that issued $337.1 million in aggregate principal amount of Series 2020-1 Class A solar asset-backed notes and $75.4 million in aggregate principal amount of Series 2020-1 Class B solar asset-backed notes (collectively, the "SOLI Notes") with a maturity date of January 2055. The SOLI Notes were issued at a discount of 0.89% for Class A and 0.85% for Class B and bear interest at an annual rate equal to 3.35% and 5.54%, respectively. The cash flows generated by the solar energy systems of SOLI's subsidiaries are used to service the quarterly principal and interest payments on the SOLI Notes and satisfy SOLI's expenses, and any remaining cash can be distributed to Sunnova Sol Depositor, LLC, SOLI's sole member. In connection with the SOLI 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 members' 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 SOLI pursuant to the sale and contribution agreement. SOLI is also required to maintain a liquidity reserve account, a tax loss insurance proceeds account and a supplemental reserve account for the benefit of the holders of the SOLI Notes, each of which must remain funded at all times to the levels specified in the SOLI Notes. The creditors of SOLI have no recourse to our other assets except as expressly set forth in the SOLI Notes.

AP4 Debt, TEPIIH Debt and LAPHHELIV Debt.    In FebruaryJune 2020,, the aggregate outstanding principal amounts under the AP4 financing agreement we pooled and TEPIIH revolving credit facility of $92.0 million and $226.6 million, respectively, were fully repaid using proceeds from the SOLI Notes, all related interest rate swaps were unwoundtransferred eligible solar loans and the debt facilitiesrelated receivables into HELIV, a special purpose entity, that issued $135.9 million in aggregate principal amount of Series 2020-A Class A solar loan-backed notes and $22.6 million in aggregate principal amount of Series 2020-A Class B solar loan-backed notes (collectively, the "HELIV Notes") with a maturity date of June 2047. The HELIV Notes were terminated.issued at a discount of 0.01% for Class A and 4.18% for Class B and bear interest at an annual rate of 2.98% and 7.25%, respectively. The cash flows generated by these solar loans are used to service the monthly principal and interest payments on the HELIV Notes and satisfy HELIV's expenses, and any remaining cash can be distributed to Sunnova Helios IV Depositor, LLC, HELIV's sole member. In connection with the HELIV Notes, certain of our affiliates receive a fee for managing and servicing the solar energy systems pursuant to management and service agreements. In addition, proceeds from the SOLI Notes were used to repay $32.0 million of LAPH debt.

TEPH Debt.    In March 2020, we amended the TEPH revolving credit facility to,Sunnova Energy Corporation has guaranteed, among other things, (a) increase the maximum facility amountobligations of certain of our subsidiaries to $400.0 million, with allmanage 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 HELIV pursuant to the related sale and contribution agreement. HELIV is also required to maintain a reserve account, a supplemental reserve account for equipment replacement and a capitalized interest reserve account for the benefit of the increased amount coming from Class A lenders on an uncommitted basis, (b) increase both the Class A and Class B interest rates by 0.40% and (c) modify the borrowing base calculation to shift a portionholders of the borrowing base from Class BHELIV Notes, each of which must be funded at all times to Class A lenders.the levels specified in the HELIV Notes. The creditors of HELIV have no recourse to our other assets except as expressly set forth in the HELIV Notes.


23
24
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AP8 Debt.    In September 2020, AP8 entered into a revolving credit facility with Banco Popular de Puerto Rico for an aggregate committed amount of $60.0 million with a maturity date of September 2023. The proceeds of the loans under the revolving credit facility, the first portion of which were not received until October 2020, are available to purchase or otherwise acquire solar loans, fund a reserve account that is required to be maintained by AP8 in accordance with the credit agreement and pay fees and expenses incurred in connection with the revolving credit facility. The amount available for borrowings at any one time under the revolving credit facility is limited to a borrowing base amount determined at each borrowing and calculated based on a specified advance rate applied to the net outstanding principal balance of the solar loans securing the revolving credit facility. Interest on the borrowings under the revolving credit facility is due monthly. Borrowings under the AP8 revolving credit facility bear interest at an annual rate of adjusted LIBOR plus an applicable margin.

In connection with the AP8 revolving credit facility, certain of our affiliates receive a fee for managing and servicing the solar loan agreements and related solar energy systems pursuant to management and servicing agreements. In addition, Sunnova Energy Corporation has guaranteed (a) the manager's obligations to manage the solar loan agreements and related solar energy systems pursuant to the management agreement, (b) the servicer's obligations to service the solar loan agreements and related solar energy systems pursuant to the servicing agreement, (c) Sunnova Asset Portfolio 8 Holdings, LLC's obligations to repurchase or substitute certain ineligible solar loans sold to AP8 pursuant to certain sale and contribution agreements, (d) certain indemnification obligations related to its affiliates in connection with the AP8 revolving credit facility and (e) the obligation of AP8 under the AP8 revolving credit facility to the extent a default is caused by a misappropriation of funds or certain insolvency events relating to AP8, but does not provide a general guarantee of the creditworthiness of the assets of AP8 pledged as the collateral for the revolving credit facility. Under the limited guarantee, Sunnova Energy Corporation is subject to certain financial covenants regarding tangible net worth, working capital and restrictions on the use of proceeds from the AP8 revolving credit facility.

Fair Values of Long-Term Debt.    The fair values of our long-term debt and the corresponding carrying amounts are as follows:
As of September 30, 2020As of December 31, 2019
Carrying
Value		Estimated
Fair Value		Carrying
Value		Estimated
Fair Value
(in thousands)
SEI 7.75% convertible senior notes$0 $0 $55,000 $37,964 
SEI 9.75% convertible senior notes161,584 170,114 0 0 
Sunnova Energy Corporation notes payable2,769 2,769 2,428 2,428 
AP4 secured term loan0 0 92,478 92,478 
HELI solar asset-backed notes211,722 220,307 222,305 223,895 
LAPH secured term loan10,659 10,659 42,876 42,876 
EZOP warehouse credit facility115,450 115,450 121,400 121,400 
TEPIIH revolving credit facility0 0 234,650 234,650 
HELII solar asset-backed notes239,281 290,893 254,314 281,850 
RAYSI solar asset-backed notes127,837 150,689 133,155 139,004 
HELIII solar loan-backed notes139,364 156,345 154,573 155,701 
TEPH revolving credit facility380,720 380,720 90,325 90,325 
TEPINV revolving credit facility72,459 72,459 95,207 95,207 
SOLI solar asset-backed notes404,753 438,874 0 0 
HELIV solar loan-backed notes150,192 150,794 0 0 
Total (1)$2,016,790 $2,160,073 $1,498,711 $1,517,778 
 As of March 31, 2020 As of December 31, 2019
 Carrying
Value		 Estimated
Fair Value		 Carrying
Value		 Estimated
Fair Value
 (in thousands)
SEI 7.75% convertible senior notes$55,000
 $31,408
 $55,000
 $37,964
Sunnova Energy Corporation notes payable30
 30
 2,428
 2,428
AP4 secured term loan—
 —
 92,478
 92,478
HELI solar asset-backed notes217,420
 228,905
 222,305
 223,895
LAPH secured term loan10,743
 10,743
 42,876
 42,876
EZOP warehouse credit facility168,450
 168,450
 121,400
 121,400
TEPIIH revolving credit facility—
 —
 234,650
 234,650
HELII solar asset-backed notes244,914
 299,601
 254,314
 281,850
RAYSI solar asset-backed notes130,546
 155,092
 133,155
 139,004
HELIII solar loan-backed notes149,059
 168,524
 154,573
 155,701
TEPH revolving credit facility193,950
 193,950
 90,325
 90,325
TEPINV revolving credit facility89,160
 89,160
 95,207
 95,207
SOLI solar asset-backed notes412,500
 444,509
 —
 —
Total (1)$1,671,772
 $1,790,372
 $1,498,711
 $1,517,778


(1) Amounts exclude the net deferred financing costs and net debt discounts of $59.5$112.0 million and $54.8 million as of March 31,September 30, 2020 and December 31, 2019, respectively.

For the AP4, and TEPIIH debt as of December 31, 2019 and for the LAPH, EZOP, TEPIIH, TEPH and TEPINV debt, as of March 31, 2020 and December 31, 2019, the estimated fair values approximate the carrying amounts due primarily to the variable nature of the interest rates of the underlying instruments. For the notes payable, the estimated fair value as of March 31, 2020 and December 31, 2019 approximates the carrying amount due primarily to the short-term nature of the instruments. For the SOLI debt as of March 31, 2020 and for the 7.75% convertible senior notes and the HELI, HELII, RAYSI, HELIII, SOLI and HELIIIHELIV debt, as of March 31, 2020 and December 31, 2019, we determined the estimated fair values based on a yield analysis of similar type debt.

25
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(8) Derivative Instruments

Interest Rate Swaps on AP4 Debt.    In February 2020, all AP4 interest rate swaps were unwound in connection with the termination of the AP4 financing agreement. See Note 7, Long-Term Debt.

Interest Rate Swaps on TEPIIH Debt.    In February 2020, all TEPIIH interest rate swaps were unwound in connection with the termination of the TEPIIH revolving credit facility. See Note 7, Long-Term Debt.


Interest Rate Swaps on EZOP Debt.    In June 2020, EZOP unwound interest rate swaps with a notional amount of $126.1 million and recorded a realized loss of $5.8 million in connection with the repayment of the aggregate principal amount outstanding of EZOP debt. See Note 7, Long-Term Debt.
24
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents a summary of the outstanding derivative instruments:
As of September 30, 2020As of December 31, 2019
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)
AP40%$0 March 2018July 20202.338%$99,762 
LAPHNovember 2018October 20363.409%10,584 November 2018October 20363.409%43,298 
EZOPJune 2020 -
September 2020		September 2029 -
September 2030
0.483% -
 2.620%
78,210 June 2019 -
November 2019		July 2029 -
March 2030
1.631% -
2.620%
100,083 
TEPIIH0%0 September 2018 -
November 2019		July 2031 -
October 2041
1.909% -
3.383%
225,845 
TEPHSeptember 2018 -
January 2023		January 2023 -
January 2038
0.528% -
3.125%
202,418 September 2019
- January 2023		January 2023
- July 2034
1.620% -
1.928%
55,115 
TEPINVDecember 2019December 20222.500%65,657 0%0 
Total$356,869 $524,103 
 As of March 31, 2020 As of December 31, 2019
 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)
AP4    —% $—
 March 2018 July 2020 2.338% $99,762
LAPHNovember 2018 October 2036 3.409% 10,692
 November 2018 October 2036 3.409% 43,298
EZOPJune 2019 -
January 2020		 July 2029 -
March 2030		 1.631% -
2.620%		 121,756
 June 2019 -
November 2019		 July 2029 -
March 2030		 1.631% -
2.620%		 100,083
TEPIIH    —% —
 September 2018 -
November 2019		 July 2031 -
October 2041		 1.909% -
3.383%		 225,845
TEPHSeptember 2019 -
January 2023		 January 2023 -
January 2038		 0.912% -
3.125%		 147,658
 September 2019
- January 2023		 January 2023
- July 2034		 1.620% -
1.928%		 55,115
TEPINVDecember 2019 December 2022 2.500% 88,935
     —% —
Total      $369,041
       $524,103

The following table presents the fair value of the interest rate swaps as recorded in the unaudited condensed consolidated balance sheets:
As of 
 September 30, 2020		As of 
 December 31, 2019
(in thousands)
Other assets$1 $360 
Other current liabilities0 (397)
Other long-term liabilities(29,931)(27,092)
Total, net$(29,930)$(27,129)
 As of 
 March 31, 2020		 As of 
 December 31, 2019
 (in thousands)
Other assets$1
 $360
Other current liabilities—
 (397)
Other long-term liabilities(34,771) (27,092)
Total, net$(34,770) $(27,129)


We did not designate the interest rate swaps 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 as recorded in the unaudited condensed consolidated statements of operations:
Three Months Ended 
 September 30,		Nine Months Ended 
 September 30,
2020201920202019
(in thousands)
Realized loss$665 $265 $38,668 $12,637 
Unrealized (gain) loss(1,788)12,813 2,755 30,262 
Total$(1,123)$13,078 $41,423 $42,899 
 Three Months Ended 
 March 31,
 2020 2019
 (in thousands)
Realized loss$31,898
 $3,584
Unrealized loss7,596
 7,032
Total$39,494
 $10,616


(9) Income Taxes
(9)
Income Taxes

Our effective income tax rate is 0% for the three and nine months ended March 31,September 30, 2020 and 2019. 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
26
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
our valuation allowance. We assessed whether we had any significant uncertain tax positions taken in a filed tax return, planned to be taken in a future tax return or claim, or otherwise subject to interpretation and determined there were 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 March 31,September 30, 2020 and December 31, 2019 and we do not expect a significant change in gross unrecognized tax benefits in the next twelve months. Our tax years 2012 through 2018after 2011 remain subject to examination by the Internal Revenue Service and by the taxing authorities in the states and territories in which we operate.

We conduct operations in the U.S. territories of Puerto Rico, Guam and the Commonwealth of the Northern Mariana Islands. As a result, our income tax expense includes the effects of taxes incurred in such jurisdictions where the tax code for the respective jurisdiction may have separate tax-reporting requirements. Jurisdiction-specific income taxes, in aggregate, do not adjust our effective income tax rate of 0%.

In March 2020, the U.S. enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), featuring significant tax provisions and relief measures to assist individuals and businesses impacted by the economic effects of the

25
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

COVID-19 pandemic. Relief measures intended to aid businesses in employee retention include payroll tax relief and a refundable tax credit for employers who retain employees during the COVID-19 pandemic. In addition, among other things, the CARES Act establishes (a) a five-year carryback of net operating losses generated in 2018, 2019 and 2020, (b) a temporary suspension of the 80% limitation on the use of net operating losses in 2018, 2019 and 2020 and (c) an increase to the adjusted taxable income limitation from 30% to 50% for business interest deductions under Section 163(j) of the U.S. Internal Revenue Code of 1986, as amended, for 2019 and 2020. We have historically maintained, and continue to maintain, a full valuation allowance against deferred tax assets. Due to our aggregate amount of net operating losses, we cannot utilize the carryback or limitation suspension provisions pertaining to the usage of net operating losses. However, the increase to the adjusted taxable income limitation for business interest deductions will resultresulted in a decrease to our deferred tax assets for unused business interest deductions and an offsetting increase to our net operating loss carryforward. The CARES Act does not have any impact on our valuation allowance.

(10) Redeemable Noncontrolling Interests and Noncontrolling Interests

In February 2020, we admitted a tax equity investor as the Class A member of Sunnova TEP IV-C, LLC ("TEPIVC"), a subsidiary of Sunnova TEP IV-C Manager, LLC, which is the Class B member of TEPIVC. The Class A member of TEPIVC made a total capital commitment of $75.0 million. In May 2020, we admitted a tax equity investor as the Class A member of Sunnova TEP IV-D, LLC ("TEPIVD"), a subsidiary of Sunnova TEP IV-D Manager, LLC, which is the Class B member of TEPIVD. The Class A member of TEPIVD made a total capital commitment of $75.0 million. In July 2020, we admitted a tax equity investor as the Class A member of Sunnova TEP IV-F, LLC ("TEPIVF"), a subsidiary of Sunnova TEP IV-F Manager, LLC, which is the Class B member of TEPIVF. The Class A member of TEPIVF made a total capital commitment of $10.0 million. In September 2020, we admitted a tax equity investor as the Class A member of Sunnova TEP IV-E, LLC ("TEPIVE"), a subsidiary of Sunnova TEP IV-E Manager, LLC, which is the Class B member of TEPIVE. The Class A member of TEPIVE made a total capital commitment of $75.0 million. The carrying values of the redeemable noncontrolling interests were equal to or greater than the redemption values as of March 31,September 30, 2020 and December 31, 2019, with2019.

(11) Stockholders' Equity

Common Stock

In the exceptionthird quarter of Sunnova TEP IV-A, LLC, Sunnova TEP IV-B, LLC2020, certain of the holders of our 9.75% convertible senior notes converted approximately $84.8 million aggregate principal amount, including accrued and TEPIVC,unpaid interest to the date of each conversion, of our 9.75% convertible senior notes into 6,277,982 shares of our common stock. Such conversions resulted in a loss on extinguishment of debt under GAAP of $50.7 million for which we are not required to carry a redemption value.the three and nine months ended September 30, 2020.

27
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(12) Equity-Based Compensation
(11)
Equity-Based Compensation

Stock 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, 20194,304,309 $15.86 7.08$242 
Exercised(569,512)$12.96 $9,938 
Forfeited(115,191)$19.19 $3.54 
Outstanding, September 30, 20203,619,606 $16.21 6.16$51,383 
Exercisable, September 30, 20203,619,606 $16.21 6.16$51,383 
Vested, September 30, 20203,619,606 $16.21 6.16$51,383 
Non-vested, September 30, 20200 $0 
 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, 20194,304,309
 $15.86
 7.08   $242
Exercised(25,245) $12.34
     $2
Forfeited(102,869) $19.01
   $3.55
  
Outstanding, March 31, 20204,176,195
 $15.81
 6.80   $212
Exercisable, March 31, 20203,518,154
 $15.83
 6.60   $212
Vested and expected to vest, March 31, 20204,176,195
 $15.81
 6.80   $212
Non-vested, March 31, 2020658,041
     $3.74
  


The number of stock options that vested during the three months ended March 31,September 30, 2020 and 2019 was 265,207545,785 and 513,998,1,020,026, respectively. The number of stock options that vested during the nine months ended September 30, 2020 and 2019 was 915,501 and 1,764,125, respectively. The grant date fair value of stock options that vested during the three months ended March 31,September 30, 2020 and 2019 was $791,000$2.0 million and $1.5$3.6 million, respectively. The grant date fair value of stock options that vested during the nine months ended September 30, 2020 and 2019 was $3.2 million and $6.0 million, respectively. As of March 31,September 30, 2020, there was $628,000 of total0 unrecognized compensation expense related to stock options, which is expected to be recognized over the weighted average period of 0.17 years.options.


26
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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, 20191,426,139 $11.93 
Granted1,130,312 $11.75 
Vested(443,620)$11.96 
Forfeited(43,703)$11.77 
Outstanding, September 30, 20202,069,128 $11.83 
 Number of
Restricted
Stock Units		 Weighted
Average
Grant Date
Fair Value
    
Outstanding, December 31, 20191,426,139
 $11.93
Granted1,080,528
 $11.49
Vested(27,083) $12.00
Outstanding, March 31, 20202,479,584
 $11.74

The number of restricted stock units that vested during the three and nine months ended March 31,September 30, 2020 was 27,083.416,537 and 443,620, respectively. The grant date fair value of restricted stock units that vested during the three and nine months ended March 31,September 30, 2020 was $325,000.$5.0 million and $5.3 million, respectively. As of March 31,September 30, 2020, there was $24.8$20.0 million of total unrecognized compensation expense related to restricted stock units, which is expected to be recognized over the weighted average period of 1.931.83 years.

28
(12) Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(13) 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 
 September 30,		Nine Months Ended 
 September 30,
2020201920202019
(in thousands, except share and per share amounts)
Net loss attributable to stockholders$(64,181)$(37,590)$(160,514)$(126,842)
Dividends earned on Series A convertible preferred stock0 0 0 (19,271)
Dividends earned on Series C convertible preferred stock0 0 0 (5,454)
Net loss attributable to common stockholders—basic and diluted$(64,181)$(37,590)$(160,514)$(151,567)
Net loss per share attributable to common stockholders—basic and diluted$(0.73)$(0.62)$(1.88)$(5.77)
Weighted average common shares outstanding—basic and diluted87,768,712 60,890,129 85,276,841 26,245,493 
 Three Months Ended 
 March 31,
 2020 2019
 (in thousands, except share and per share amounts)
Net loss attributable to stockholders$(71,075) $(38,514)
Dividends earned on Series A convertible preferred stock—
 (9,511)
Dividends earned on Series C convertible preferred stock—
 (2,692)
Net loss attributable to common stockholders—basic and diluted$(71,075) $(50,717)
    
Net loss per share attributable to common stockholders—basic and diluted$(0.85) $(5.87)
Weighted average common shares outstanding—basic and diluted84,001,151
 8,635,527


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 
 September 30,		Nine Months Ended 
 September 30,
2020201920202019
Equity-based compensation awards6,006,791 5,277,414 6,176,162 4,693,647 
Convertible preferred stock0 18,337,539 0 45,405,229 
Convertible senior notes14,970,678 0 9,839,125 0 
 Three Months Ended 
 March 31,
 2020 2019
Equity-based compensation awards5,872,563
 4,471,009
Convertible preferred stock—
 59,146,676
Convertible senior notes4,230,768
 —


(13) (14) 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 March 31,September 30, 2020, we recorded $3.3$4.9 million relating to our guarantee of certain specified minimum solar energy production output under our leases and loans, of which we include $2.5$2.9 million in other current liabilities and $805,000$2.0 million in other long-term liabilities in the unaudited condensed consolidated balance sheet. As of December 31, 2019, we recorded $6.5 million relating to these guarantees, of which $4.1 million is recorded in other current

27
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

liabilities and $2.4 million is 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 September 30,
20202019
(in thousands)
Balance at beginning of period$6,468 $6,044 
Accruals for obligations issued2,359 2,259 
Settlements made in cash(3,888)(2,628)
Balance at end of period$4,939 $5,675 
 As of March 31,
 2020 2019
 (in thousands)
Balance at beginning of period$6,468
 $6,044
Accruals for obligations issued683
 527
Settlements made in cash(3,844) (2,545)
Balance at end of period$3,307
 $4,026


Operating and Finance Leases.    We lease real estate and certain office equipment under operating leases and certain other office equipment under finance leases. The following table presents the detail of lease expense and lease income as
29
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
recorded in general and administrative expense and other operating expense (income),income, respectively, in the unaudited condensed consolidated statements of operations:
Three Months Ended 
 September 30,		Nine Months Ended 
 September 30,
2020201920202019
(in thousands)
Operating lease expense$336 $344 $1,007 $914 
Finance lease amortization expense0 2 2 6 
Short-term lease expense14 11 36 34 
Variable lease expense258 268 437 731 
Sublease income0 (18)0 (55)
Total$608 $607 $1,482 $1,630 
 Three Months Ended 
 March 31,
 2020 2019
 (in thousands)
Operating lease expense$336
 $300
Finance lease amortization expense2
 2
Short-term lease expense16
 11
Variable lease expense7
 211
Sublease income—
 (18)
Total$361
 $506


The following table presents the detail of right-of-use assets and lease liabilities as recorded in other assets and other current liabilities/other long-term liabilities, respectively, in the unaudited condensed consolidated balance sheets:
As of 
 September 30, 2020		As of 
 December 31, 2019
(in thousands)
Right-of-use assets:
Operating leases$8,997 $9,668 
Finance leases0 5 
Total right-of-use assets$8,997 $9,673 
Current lease liabilities:
Operating leases$1,075 $556 
Finance leases0 5 
Long-term leases liabilities:
Operating leases8,846 9,389 
Total lease liabilities$9,921 $9,950 
 As of 
 March 31, 2020		 As of 
 December 31, 2019
 (in thousands)
Right-of-use assets:   
Operating leases$9,434
 $9,668
Finance leases3
 5
Total right-of-use assets$9,437
 $9,673
    
Current lease liabilities:   
Operating leases$920
 $556
Finance leases4
 5
Long-term leases liabilities   
Operating leases9,113
 9,389
Total lease liabilities$10,037
 $9,950



28
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Other information related to leases was as follows:
Nine Months Ended 
 September 30,
20202019
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$358 $819 
Financing cash flows from finance leases1 7 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases0 8,053 
Finance leases0 13 
As of September 30,
20202019
Weighted average remaining lease term (years):
Operating leases8.699.68
Finance leases0.000.92
Weighted average discount rate:
Operating leases3.94 %3.94 %
Finance leases0 %4.26 %
30
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Three Months Ended 
 March 31,
 2020 2019
 (in thousands)
Cash paid for amounts included in the measurement of lease liabilities:   
Operating cash flows from operating leases$11
 $275
Financing cash flows from finance leases1
 3
Right-of-use assets obtained in exchange for lease obligations:   
Operating leases—
 755
Finance leases—
 13

 As of March 31,
 2020 2019
Weighted average remaining lease term (years):   
Operating leases9.17
 3.24
Finance leases0.25
 1.39
Weighted average discount rate:   
Operating leases3.94% 4.56%
Finance leases4.26% 4.25%


Future minimum lease payments under our non-cancelable leases as of March 31,September 30, 2020 were as follows:
Operating
Leases
(in thousands)
Remaining 2020$381 
20211,536 
20221,559 
20231,594 
20241,616 
2025 and thereafter7,617 
Total14,303 
Amount representing interest(2,254)
Amount representing leasehold incentives(2,128)
Present value of future payments9,921 
Current portion of lease liability(1,075)
Long-term portion of lease liability$8,846 
 Operating
Leases		 Finance
Leases
 (in thousands)
Remaining 2020$1,010
 $4
20211,536
 —
20221,559
 —
20231,594
 —
20241,616
 —
2025 and thereafter7,617
 —
Total14,932
 4
Amount representing interest(2,488) —
Amount representing leasehold incentives(2,411) —
Present value of future payments10,033
 4
Current portion of lease liability(920) (4)
Long-term portion of lease liability$9,113
 $—


Letters of Credit.    In connection with various security arrangements for an office lease, and merchant banking activities, we have lettersa letter of credit outstanding of $550,000$375,000 and $725,000 as of March 31,September 30, 2020 and December 31, 2019, respectively. The lettersletter of credit areis 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 unaudited condensed 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 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.


29
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Dealer Commitments.    As of March 31,September 30, 2020, the net unamortized balance of payments to dealers for exclusivity and other similar arrangements was $37.3$54.5 million. Under these agreements, we paid $5.3$7.7 million and $2.0$9.7 million during the three months ended March 31,September 30, 2020 and 2019, respectively, and we paid $24.4 million and $31.7 million during the nine months ended September 30, 2020 and 2019, 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 2020$484 
202133,312 
202233,477 
202310,505 
20249,766 
2025 and thereafter1,509 
Total$89,053 
 Dealer
Commitments
 (in thousands)
Remaining 2020$23,220
202128,200
202229,058
20234,886
20243,682
2025 and thereafter—
Total$89,046


Purchase Commitments.    In August 2019, we amended an agreement with a supplier in which we agreed to purchase a minimum amount of energy storage systems and components for five years. These purchases are recorded to inventory in other
31
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
current assets in the consolidated balance sheets. Under this agreement, we could be obligated to make minimum purchases as follows:
Purchase
Commitments
(in thousands)
Remaining 2020$3,327 
202126,629 
202226,810 
202326,605 
202419,807 
2025 and thereafter0 
Total$103,178 
 Purchase
Commitments
 (in thousands)
Remaining 2020$6,846
202127,359
202227,243
202327,053
202420,152
2025 and thereafter—
Total$108,653


Information Technology Commitments.    We have certain long-term contractual commitments related to information technology software services and licenses. Future commitments as of March 31,September 30, 2020 were as follows:
Information
Technology
Commitments
(in thousands)
Remaining 2020$1,475 
20215,322 
2022121 
202326 
202426 
2025 and thereafter7 
Total$6,977 
 Information
Technology
Commitments
 (in thousands)
Remaining 2020$2,889
20213,325
202237
202326
202426
2025 and thereafter7
Total$6,310


(15) Subsequent Events
(14) Subsequent Events

Paycheck Protection Program ("PPP")EZOP Debt.    In April October 2020, we applied for and received a loan under the PPP established as partportion of the CARES Act. Although we believe we qualified for the PPP loan and made the required certifications in good faith at the time of the loan application and receipt of funds, due to the uncertainty caused by changing guidance and statementsproceeds from the U.S. Department of Treasury and the U.S. Small Business Administration, we repaid the loanAP8 revolving credit facility were used to repay $28.0 million in full in May 2020.


30
Table of Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEI Convertible Senior Notes.    In May 2020, we issued and sold an aggregate principal amount of $130.0 million of our 9.75% convertible senior notes ("9.75% convertible senior notes") in a private placement at an issue price of 95%, for an aggregate purchase price of $123.5 million. The 9.75% convertible senior notes mature in April 2025 unless earlier redeemed, repurchased or converted. We granted the investors of the 9.75% convertible senior notes an option to purchase up to an additional $60.0 million aggregate principal amount of 9.75% convertible senior notes on the same terms and conditions, which such option will expire in June 2020. In addition, we exchanged all $55.0 million aggregate principal amount outstanding of our 7.75% convertible senior notes for an equal principal amount of our 9.75% convertible senior notes.EZOP debt.

TEPH Debt.    In May October 2020, we amended the TEPH revolving credit facility to, among other things, (a) increase the aggregate commitment amount from $200.0$437.5 million to $390.0 million and (b) increase the unused line fee on such committed amounts.$600.0 million.

Redeemable Noncontrolling InterestsCommon Stock.    In MayOctober 2020, we admitted a tax equity investor ascertain of the Class A memberholders of Sunnova TEP IV-D, LLC ("TEPIVD"), a subsidiaryour 9.75% convertible senior notes converted approximately $32.5 million aggregate principal amount, including accrued and unpaid interest to the date of Sunnova TEP IV-D Manager, LLC, which is the Class B membereach conversion, of TEPIVD. The Class A memberour 9.75% convertible senior notes into 2,406,523 shares of TEPIVD made a total capital commitment of $75.0 million.our common stock.

32

31
Table of Contents



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

The following discussion and analysis 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, 2020, our Quarterly Reports on Form 10-Q filed with the SEC on May 15, 2020 and July 30, 2020 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 Sunnova Energy International Inc. ("SEI") and its consolidated subsidiaries.

Company Overview

We are a leading residential solar and energy storage service provider, serving more than 85,000over 98,000 customers in more than 20 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' solar energy systems and energy storage systems on our behalf. Our focus on our dealer model enables us to leverage our 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 as well as technical oversight and expertise. We believe this structure provides operational flexibility, reduced exposure to labor shortages and lower fixed costs relative to our peers, furthering our competitive advantage.

We offer customers products to power their homes with affordable solar energy. We are able to offer savings and storage opportunities to most customers compared to utility-based retail rates with little to no up-front expense to the customer and we are able to provide savings and energy resiliency and reliability to our solar plus energy storage customers. We also make it possible in some states for a customer to obtain a new roof as part of their solar loan. 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 either 10, 15 or 25 years. Service is an integral part of our agreements and includes operations and maintenance, monitoring, repairs and replacements, equipment upgrades, 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. 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' 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. From our inception through March 31,September 30, 2020, we have raised more than $5.5$6.1 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 Sunnova Protect Services, which provideprovides 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 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.

We commenced operations in January 2013 and began providing solar energy services under our first solar energy system in April 2013. Since then, weour brand, innovation and focused execution have experienceddriven significant, rapid growth in our market
33
Table of Contents
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 625720 megawatts of generation capacity and serving more than 85,000over 98,000 customers.


32
Table of Contents



Recent Developments

Coronavirus Disease ("COVID-19") Pandemic

The ongoing COVID-19 pandemic has resulted in widespread adverse impacts on the global economy and on our employees, customers, dealers and other parties with whom we have business relations.economy. Our first priority in our response to this pandemic has been the health and safety of our employees, customers and dealers. To that end, we quickly implemented preventative measures to minimize unnecessary risk of exposure, and prevent infection.which we have continued to follow. We have experienced some resulting disruptions to our business operations as the COVID-19 pandemic has continued to spread through most of 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. Neworigination, with new contract origination, net of cancelations, declining in each of March and April 2020 was approximately 85% and 60% of contracts originated in February and March 2020, respectively, reflectingfrom the previous month. 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 have 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 in certain areas.person. Such efforts drove an increase in new contract origination, net of cancelations, in recent weeks.May through September 2020, with each of the months following May 2020 exceeding the number of new contracts originated, net of cancelations, in February 2020. We expecthave seen the use of websites, video conferencing and other virtual tools as part of our origination process to expand widely and contribute to our future growth. However, a significantlocal, state or extended decline in new contract origination because thefederal government extensions of COVID-19 pandemic precludes aresponse measures may further disrupt the return to in-person sales, becausewhich may have a material adverse effect on our business, cash flows, liquidity, financial condition and results of operations due to an inability by our dealers are unable to adjust to virtual sales methods or because such methods prove to be less successful with potential customers, may have a material adverse effect on our business, cash flows, liquidity, financial condition and results of operations. Regardless, any impact to our total number of customers or our financial results based on reduced levels of new contract origination will largely be delayed until the third quarter of 2020.customers.

The service and installation of solar energy systems has continued during the COVID-19 pandemic. This reflects residential solar services' designation as an essential service in all of our service territories. In order to adhere to all applicable state and federal health and safety guidelines, we and our dealers have moved to a contact-free process for installers and service technicians. In addition, certain regulators andan increasing number of jurisdictional authorities as well as local utilities have begunare accepting electronic submissions for permits, and inspections are now being performed in many locations through video calls and other electronic means. We expect our dealers' ability to install and our ability to service solar energy systems will continue in this manner. However, if there are additional outbreaks of the COVID-19 virus or more stringent health and safety guidelines are adopted, our and our dealers' ability to continue performing installations and service calls may be adversely impacted.

Throughout the COVID-19 pandemic, we 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 have established a geographically diverse group of suppliers, which helps ensure our dealers and customers have access to affordable and effective solar energy and storage options despite potential trade, geopolitical or event-driven risks. Further, we implemented a strategy in 2019, as a result of which the equipment necessary to install and service a significant majority of solar energy systems for the duration of 2020 is already available to us. Currently, we do not anticipate an inability to source parts for our solar energy systems or energy storage systems. However, if supply chains become significantly disrupted due to additional outbreaks of the COVID-19 virus or more stringent health and safety guidelines are implemented, our ability to install and service solar energy systems could become adversely impacted.

As part of our preventative measures to minimize unnecessary risk of exposure and prevent infection, in the early weeks after declaration of the COVID-19 pandemic we implemented ahave continued our work-from-home policy for employees in our Houston headquarters. In May 2020, we adopted a return tore-established critical operations policy that permits employees to return to the office in stages.rely on infrastructure available at headquarters. All employees are required to follow strict social distancing and health safety guidelines in conformity with the restrictions and best practices encouraged by the Centers for Disease Control and Prevention, the World Health Organization and other governmental and regulatory authorities. Throughout the COVID-19 pandemic, our call center has remained open and properly staffed to meet our customers' needs. If a customer requires a visit from a service technician, those technicians are available and in almost all cases can complete the service without entering the customer's home. We are continuing to address concerns to protect the health and safety of our employees and those of our customers and dealers, and this includes changes to comply with health-related guidelines as they are modified and supplemented.

There is considerable uncertainty regarding the extent to which the COVID-19 virus will continue to spread and the extent and duration of governmental and other measures implemented to try to slow the spread of the COVID-19 virus, such as large-scale travel bans and restrictions, border closures, quarantines, shelter-in-place orders and business and government shutdowns. Some states that had begun taking steps to reopen their economies
34
Table of Contents
experienced a subsequent surge in cases of COVID-19, causing these states to cease such reopening measures in some cases and reinstitute restrictions in others. Restrictions of this nature have caused, and may continue to cause, us and our dealers to experience operational delays and may

33
Table of Contents



cause milestones or deadlines relating to our exclusivity arrangements to be missed. To date, we have not received notices from our dealers regarding performance delays resulting from the COVID-19 pandemic. However, worsening economic conditions could result in such outcomes over time, which would impact our future financial performance. Further, the effects of the economic downturn associated with the COVID-19 pandemic and other economic factors, may increase unemployment and reduce consumer credit ratings and credit availability, which may adversely affect new customer origination and our existing customers' ability to make payments on their solar service agreements. Periods of high unemployment and a lack of availability of credit may lead to increased delinquency and default rates. We have not experienced a significant increase in default or delinquency rates to date. However, if existing economic conditions continue for a prolonged period of time or worsen, delinquencies on solar service agreements could increase, which would also negatively impact our future financial performance.

As of the date of this report, our efforts to respondresponses to the challenges presented by the conditions described above to minimize the impacts to our business have yielded encouraging results. However, our future success also depends on our ability to raise capital from third-party investors and commercial sources. In the initial weeks of the COVID-19 pandemic we saw access to capital markets reduced generally. Although the capital markets have not returned to full strength, we have since been able to raise funding during this challenging time. We have recently closed onetwo additional tax equity fund,funds, expanded capacity under one of our existing facilities, closed one additional credit facilitiesfacility and continue to have access to capacity under certain of our existing tax equity funds and warehouse facilities. If we are unable to regain access to the capital markets or are unable to raise funds through our tax equity and warehouse financing transactions at competitive terms, it would adversely impact both our ability to finance the deployment of our solar energy systems and energy storage systems and our future financial performance.

We cannot predict the full impact the COVID-19 pandemic or the significant disruption and volatility currently being experienced in the capital markets will have on our business, cash flows, liquidity, financial condition and results of operations at this time due to numerous uncertainties. The ultimate impact will depend on future developments, including, among other things, the ultimate geographic spread and duration of the COVID-19 virus, the depth and duration of the economic downturn and other economic effects of the COVID-19 pandemic, the consequences of governmental and other measures designed to prevent the spread of the COVID-19 virus, actions taken by governmental authorities, customers, suppliers, dealers and other third parties, our ability and the ability of our customers, potential customers and dealers to adapt to operating in a changed environment and the timing and extent to which normal economic and operating conditions resume. For additional discussion regarding risks associated with the COVID-19 pandemic, see "Risk Factors" elsewhere in this Quarterly Report on Form 10-Q.

Financing Transactions

In MayJuly 2020, we amended the revolving credit facility associated with one of ouradmitted a tax equity subsidiaries to, among other thingsinvestor with a total capital commitment of $10.0 million. , (a) increase the aggregate commitment amount from $200.0 million to $390.0 million and (b) increase the unused line fee on such committed amounts.

In MaySeptember 2020, we admitted a tax equity investor with a total capital commitment of $75.0 million.See "—Liquidity and Capital Resources—Financing Arrangements—Tax Equity Fund Commitments" below.

In May 2020, we issued and sold an aggregate principal amountthe third quarter, certain of $130.0 millionthe holders of our 9.75% convertible senior notes ("9.75% convertible senior notes") in a private placement at an issue price of 95%, for an aggregate purchase price of $123.5 million. The 9.75% convertible senior notes mature in April 2025 unless earlier redeemed, repurchased or converted. We granted the investors of the 9.75% convertible senior notes an option to purchase up to an additional $60.0converted approximately $84.8 million aggregate principal amount, including accrued and unpaid interest to the date of 9.75% convertible senior notes on the same terms and conditions, which such option will expire in June 2020. We also entered into privately negotiated exchanges with a small number of institutional investors in our 7.75% convertible senior notes due January 2027 ("7.75% convertible senior notes") whereby such investors exchanged all $55.0 million aggregate principal amount outstanding of our 7.75% convertible senior notes for an equal principal amounteach conversion, of our 9.75% convertible senior notes. See "Item 5. Other Information" for additional information regardingnotes into 6,277,982 shares of our common stock. In October 2020, certain of the holders of our 9.75% convertible senior notes.notes converted approximately $32.5 million aggregate principal amount, including accrued and unpaid interest to the date of each conversion, of our 9.75% convertible senior notes into 2,406,523 shares of our common stock. See "—Liquidity and Capital Resources—Financing Arrangements—Convertible Senior Notes" below.

In September 2020, one of our subsidiaries entered into a credit facility with Banco Popular de Puerto Rico. Under the credit facility, the subsidiary may borrow up to $60.0 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. In October 2020, we amended the revolving credit facility associated with one of our financing subsidiaries that owns certain tax equity funds to, among other things, increase the aggregate commitment amount from $437.5 million to $600.0 million. See "—Liquidity and Capital Resources—Financing Arrangements—Warehouse and Other Debt Financings" below.

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
35
Table of Contents
systems and related solar service agreements that were originated by one of our wholly-owned subsidiaries. The federal government currently provides business investment tax 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. We do not securitize the Section 48(a) ITC incentives associated with the solar

34
Table of Contents



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 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 inverterequipment replacements and, in certain cases, reserve accounts for financing fund purchase option/withdrawal right exercises or storage system replacement for the benefit of the holders ofunder 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. From our inception through March 31,September 30, 2020, we have issued $1.2$1.4 billion in solar asset-backed 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 contributions upfront 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' other operations. The terms and conditions of each tax equity fund vary significantly by investor and by fund. We continue to negotiate with 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 tax equity investors into the tax equity funds is, depending on the tax equity fund structure, either paid to us to acquire solar energy systems and energy storage systems or distributed to us following our contribution of solar energy systems and energy storage 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 and energy storage systems. EachCertain tax equity investor agreesinvestors agree to receive 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 specified in the 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 significant portion of the value attributable to customer payments; however, we receive a majority of the cash distributions, which are typically paid quarterly. After the tax equity investor receives its contractual rate of return or after the 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.

We have determined we are the primary beneficiary in these partnership flip structurestax equity funds for accounting purposes. Accordingly, we consolidate the assets and liabilities and operating results of these partnerships in our consolidated financial statements. We recognize the tax equity investors' share of the net assets of the tax equity funds as redeemable noncontrolling interests and noncontrolling interests in our consolidated balance sheets. These income or loss allocations, reflected in our consolidated 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.
36
Table of Contents

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 years after the last solar energy system in each 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 equity interest.interest and in certain cases, a contractual minimum amount. Following such exercise, we would receive 100% of the customer payments for the remainder of the term of the solar service agreements. From our inception through March 31,September 30, 2020, we have received commitments of $449.5$609.5 million through the use of tax equity funds, of which an

35
Table of Contents



aggregate of $410.7$505.7 million has been funded.

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.

Number of Customers. We define number of customers to include each customer that is party to an in-service solar service agreement. For our leases, PPAs and loan agreements, 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 solar energy 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 
 September 30, 2020		As of 
 December 31, 2019		Change
Number of customers98,600 78,600 20,000 
 As of 
 March 31, 2020		 As of 
 December 31, 2019		 Change
Number of customers85,400
 78,600
 6,800

Weighted Average Number of Customers. We calculate the weighted average number of customers based on the number of months a given customer is in-service during a given measurement period. The weighted average customer count reflects the number of customers at the beginning of a period, plus the total number of new customers added in the period adjusted by a factor that accounts for the partial period nature of those new customers. For purposes of this calculation, we assume all new customers added during a month were added in the middle of that month. We track the weighted average customer count in order to accurately reflect the contribution of the appropriate number of customers to key financial metrics over the measurement period.
Three Months Ended 
 September 30,		Nine Months Ended 
 September 30,
2020201920202019
Weighted average number of customers (excluding loan agreements)80,200 61,500 75,200 58,300 
Weighted average number of customers with loan agreements14,800 8,900 13,300 7,800 
Weighted average number of customers95,000 70,400 88,500 66,100 
 Three Months Ended 
 March 31,
 2020 2019
Weighted average number of customers (excluding loan agreements)70,100
 55,300
Weighted average number of customers with loan agreements11,800
 6,700
Weighted average number of customers81,900
 62,000

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, 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 our initial public offering ("IPO"), losses on unenforceable contracts, losses on extinguishment of long-term debt, realized and unrealized gains and losses on fair value option instruments and other non-cash items such as non-cash compensation expense, asset retirement obligation ("ARO") accretion expense and provision for current expected credit losses.

Adjusted EBITDA is a non-GAAP financial measure we use as a performance measure. We believe investors and securities analysts 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
37
Table of Contents
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 in setting performance-based compensation targets. Adjusted EBITDA should not be considered an

36
Table of Contents



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, 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 
 September 30,		Nine Months Ended 
 September 30,
2020201920202019
(in thousands)
Reconciliation of Net Loss to Adjusted EBITDA:
Net loss$(73,294)$(34,369)$(179,027)$(119,672)
Interest expense, net29,954 30,884 127,804 99,855 
Interest expense, net—affiliates— 701 — 4,098 
Interest income(5,999)(3,407)(17,299)(8,868)
Income tax expense176 — 176 — 
Depreciation expense16,997 12,348 47,811 34,987 
Amortization expense8 8 24 20 
EBITDA(32,158)6,165 (20,511)10,420 
Non-cash compensation expense (1)2,345 5,980 8,389 8,251 
ARO accretion expense564 349 1,577 989 
Financing deal costs1,819 60 3,506 1,028 
Natural disaster losses and related charges, net— 54 31 54 
IPO costs— 1,758 — 3,804 
Loss on extinguishment of long-term debt, net50,721 — 50,721 — 
Loss on extinguishment of long-term debt, net—affiliates— — — 10,645 
Unrealized (gain) loss on fair value option instruments91 (437)(165)97 
Realized loss on fair value option instruments— 730 — 730 
Amortization of payments to dealers for exclusivity and other bonus arrangements488 241 1,235 255 
Legal settlements— 967 — 1,260 
Provision for current expected credit losses1,544 — 4,824 — 
Adjusted EBITDA$25,414 $15,867 $49,607 $37,533 
 Three Months Ended 
 March 31,
 2020 2019
 (in thousands)
Reconciliation of Net Loss to Adjusted EBITDA:   
Net loss$(77,004) $(35,496)
Interest expense, net67,318
 31,661
Interest expense, net—affiliates—
 1,822
Interest income(4,620) (2,494)
Depreciation expense14,946
 11,012
Amortization expense9
 5
EBITDA649
 6,510
Non-cash compensation expense (1)2,690
 387
ARO accretion expense489
 313
Financing deal costs116
 119
Natural disaster losses and related charges, net31
 —
IPO costs—
 739
Amortization of payments to dealers for exclusivity and other bonus arrangements351
 —
Provision for current expected credit losses1,864
 —
Adjusted EBITDA$6,190
 $8,068

(1)    Amount includes the non-cash effect of equity-based compensation plans of $2.3 million and $6.0 million for the three months ended September 30, 2020 and 2019, respectively, and $8.4 million and $7.0 million for the nine months ended September 30, 2020 and 2019, respectively, and partial forgiveness of a loan to an executive officer used to purchase our capital stock of $1.3 million for the nine months ended September 30, 2019.

(1)Amount includes the non-cash effect of equity-based compensation plans of $2.7 million and $0.3 million for the three months ended March 31, 2020 and 2019, respectively, and partial forgiveness of a loan to an executive officer used to purchase our capital stock of $0.1 million for the three months ended March 31, 2019.

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
38
Table of Contents
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 (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.

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 revenue, as key performance metrics. We believe these two metrics provide a more meaningful and 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 
 September 30,		Nine Months Ended 
 September 30,
2020201920202019
(in thousands)
Interest income from customer notes receivable$5,939 $3,136 $16,879 $8,156 
Principal proceeds from customer notes receivable, net of related revenue$9,185 $4,333 $23,104 $12,986 
37
Table of Contents



 Three Months Ended 
 March 31,
 2020 2019
 (in thousands)
Interest income from customer notes receivable$4,372
 $2,328
Principal proceeds from customer notes receivable, net of related revenue$6,378
 $3,429

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 breakage fees from financing structure changes, payments to dealers for exclusivity and other bonus arrangements, net inventory and prepaid inventory (sales) purchases and payments of non-capitalized costs related to our IPO.IPO and equity offerings. 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.
Nine Months Ended 
 September 30,
20202019
(in thousands)
Reconciliation of Net Cash Used in Operating Activities to Adjusted Operating Cash Flow:
Net cash used in operating activities$(101,796)$(74,538)
Principal proceeds from customer notes receivable25,028 14,072 
Financed insurance payments(3,017)(2,177)
Derivative breakage fees from financing structure changes36,894 12,080 
Distributions to redeemable noncontrolling interests and noncontrolling interests(4,484)(6,289)
Payments to dealers for exclusivity and other bonus arrangements24,391 31,733 
Net inventory and prepaid inventory purchases22,065 8,183 
Payments of non-capitalized costs related to IPO— 4,060 
Payments of non-capitalized costs related to equity offerings1,420 — 
Adjusted Operating Cash Flow$501 $(12,876)
39
Table of Contents
 Three Months Ended 
 March 31,
 2020 2019
 (in thousands)
Reconciliation of Net Cash Used in Operating Activities to Adjusted Operating Cash Flow:   
Net cash used in operating activities$(58,112) $(24,430)
Principal proceeds from customer notes receivable6,940
 3,757
Financed insurance payments(2,398) —
Derivative breakage fees from financing structure changes31,122
 3,428
Distributions to redeemable noncontrolling interests(1,373) (3,652)
Payments to dealers for exclusivity and other bonus arrangements5,344
 2,000
Net inventory and prepaid inventory (sales) purchases(1,593) 2,967
Adjusted Operating Cash Flow$(20,070) $(15,930)

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 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, losses on unenforceable contracts and other non-cash items such as non-cash compensation expense, ARO accretion expense and provision for current expected credit losses. 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 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 Adjusted Operating Expense per weighted average customer 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

38
Table of Contents



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 customer basis provides a more contextualized understanding of our performance to us, investors and analysts of the financial impact of each additional customer.
Three Months Ended 
 September 30,		Nine Months Ended 
 September 30,
2020201920202019
(in thousands, except per customer data)
Reconciliation of Total Operating Expense, Net to Adjusted Operating Expense:
Total operating expense, net$48,528 $42,513 $140,596 $111,057 
Depreciation expense(16,997)(12,348)(47,811)(34,987)
Amortization expense(8)(8)(24)(20)
Non-cash compensation expense(2,345)(5,980)(8,389)(8,251)
ARO accretion expense(564)(349)(1,577)(989)
Financing deal costs(1,819)(60)(3,506)(1,028)
Natural disaster losses and related charges, net— (54)(31)(54)
IPO costs— (1,758)— (3,804)
Amortization of payments to dealers for exclusivity and other bonus arrangements(488)(241)(1,235)(255)
Legal settlements— (967)— (1,260)
Provision for current expected credit losses(1,544)— (4,824)— 
Adjusted Operating Expense$24,763 $20,748 $73,199 $60,409 
Adjusted Operating Expense per weighted average customer$261 $295 $827 $914 
 Three Months Ended 
 March 31,
 2020 2019
 (in thousands, except per customer data)
Reconciliation of Total Operating Expense, Net to Adjusted Operating Expense:   
Total operating expense, net$44,135
 $31,222
Depreciation expense(14,946) (11,012)
Amortization expense(9) (5)
Non-cash compensation expense(2,690) (387)
ARO accretion expense(489) (313)
Financing deal costs(116) (119)
Natural disaster losses and related charges, net(31) —
IPO costs—
 (739)
Amortization of payments to dealers for exclusivity and other bonus arrangements(351) —
Provision for current expected credit losses(1,864) —
Adjusted Operating Expense$23,639
 $18,647
Adjusted Operating Expense per weighted average customer$289
 $301

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 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
40
Table of Contents
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%.

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, 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 circumstances, including prior to installation. The following table presents the calculation of estimated gross contracted customer value as of March 31,September 30, 2020 and December 31, 2019, calculated using a 6% discount rate.
As of 
 September 30, 2020		As of 
 December 31, 2019
(in millions)
Estimated gross contracted customer value$2,424 $1,879 
 As of 
 March 31, 2020		 As of 
 December 31, 2019
 (in millions)
Estimated gross contracted customer value$2,035
 $1,879

39
Table of Contents




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% 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%. 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 September 30, 2020
Discount rate
Cumulative customer loss rate4%6%8%
(in millions)
5%$2,749 $2,388 $2,112 
0%$2,794 $2,424 $2,139 
Estimated Gross Contracted Customer Value
 As of March 31, 2020
 Discount rate
Cumulative customer loss rate4% 6% 8%
 (in millions)
5%$2,312
 $2,005
 $1,770
0%$2,351
 $2,035
 $1,794


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 "Risk Factors" in our Annual Report on Form 10-K filed with the SEC on February 25, 2020, our Quarterly Reports on Form 10-Q filed with the SEC on May 15, 2020 and July 30, 2020 and in this Quarterly Report on Form 10-Q for 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 through March 31,September 30, 2020, we have raised more than $5.5$6.1 billion in total capital commitments from equity, debt and tax 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.
41
Table of Contents
The amount for the Section 48(a) ITC wasis equal to 30% of the basis of eligible solar property that began construction before 2020.2020 if placed in service before 2024. By statute, the Section 48(a) ITC percentage decreaseddecreases to 26% for eligible solar property that beganbegins construction during 2020, and will decrease to 22% for 2021 and 10% if construction begins after 2021 or if the property is placed into service after 2023. This reduction in the Section 48(a) ITC will likely reduce our use of tax equity financing in the future unless the Section 48(a) ITC is increased or replaced. Internal Revenue Service 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 2020, we have purchased prior to 2020 substantially all the inverters that willwe estimated would be deployed under our lease and PPA agreements that we expect willexpected would allow the related solar energy systems to qualify for the 30% Section 48(a) ITC by satisfying the 5% ITC Safe Harbor. WeBased on various market factors, however, not all solar energy systems installed in 2020 will qualify for the Section 48(a) ITC at 30%. For solar energy systems installed in 2020 not meeting all requirements for the 30% Section 48(a) ITC, such solar energy systems will 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 affected by general economic conditions, the state of the capital markets, inflation levels and concerns about our industry or business.

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 and an increase in demand. As a result of these developments, we 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' 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

40
Table of Contents



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 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.

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 incentives come in various forms, including net metering, eligibility for accelerated depreciation such as the modified accelerated cost recovery system, SRECs, tax abatements, rebates, renewable targets, incentive programs and tax credits, particularly the 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 loss or 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. We express this rate of return as the solar rate per 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.
42
Table of Contents

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 25 years with an opportunity for customers to renew for up to an additional 10 years, via two five-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 25 years with an opportunity for customers to renew for up to an additional 10 years, via two five-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.

If the solar energy system does not produce the guaranteed production amount, we 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 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 13,14, Commitments and Contingencies, to our interim unaudited condensed consolidated financial statements ("interim financial

41
Table of Contents



statements") included elsewhere in this Quarterly Report on Form 10-Q.

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.

SRECs. Each SREC represents one megawatt hour (1,000 kWh) generated by a solar energy system. We sell SRECs to utilities 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. 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 impactsgenerally 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.

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 incurred.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.

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

Cost of Revenue—Other. Cost of 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
43
Table of Contents
certain costs to service loan agreements, and 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.disasters, write downs and 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, 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 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 costs, such as payroll-related costs, that is related to employees who are directly associated with and devote time to internal information technology software and development projects, to the extent of the time spent directly on the application and development stage of such software project.

Interest Expense, Net. Interest expense, net represents 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

42
Table of Contents



on short term investments with financial institutions.

Loss on Extinguishment of Long-Term Debt, Net. Loss on extinguishment of long-term debt, net resulted from the GAAP treatment of conversions of our 9.75% convertible senior notes into shares of our common stock and represents the difference between the net carrying value of the 9.75% convertible senior notes, including accrued and unpaid interest to the date of each conversion, and the fair value of the common stock issued for the converted notes. See Note 11, Stockholders' Equity, to our interim financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Loss on Extinguishment of Long-Term Debt, Net—Affiliates. Loss on extinguishment of long-term debt, net—affiliates resulted from the GAAP treatment of the amendment to the senior secured 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 amendment.

Other (Income) Expense. Other (income) expense primarily represents changes in the fair value of certain financial instruments, including the senior secured notes that were redeemed in July 2019.

Income Tax.Tax Expense. We account for income taxes under Accounting Standards Codification 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 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. The income tax expense includes the effects of taxes paid in U.S. territories where the tax code for the respective territory may have separate tax reporting requirements. We do not, however, report financial information on a jurisdictional basis.

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 interests in the net assetsincome or loss of certain consolidated subsidiaries.subsidiaries based on hypothetical liquidation at book value.

44
Table of Contents

45
Table of Contents
Results of Operations—Three Months Ended March 31,September 30, 2020 Compared to Three Months Ended March 31,September 30, 2019

The following table sets forth our unaudited condensed consolidated statements of operations data for the periods indicated.
Three Months Ended 
 September 30,
20202019Change
(in thousands)
Revenue$50,177 $36,615 $13,562 
Operating expense:
Cost of revenue—depreciation15,113 10,942 4,171 
Cost of revenue—other1,403 1,186 217 
Operations and maintenance3,469 1,925 1,544 
General and administrative28,549 28,509 40 
Other operating income(6)(49)43 
Total operating expense, net48,528 42,513 6,015 
Operating income (loss)1,649 (5,898)7,547 
Interest expense, net29,954 30,884 (930)
Interest expense, net—affiliates— 701 (701)
Interest income(5,999)(3,407)(2,592)
Loss on extinguishment of long-term debt, net50,721 — 50,721 
Other expense91 293 (202)
Loss before income tax(73,118)(34,369)(38,749)
Income tax expense176 — 176 
Net loss(73,294)(34,369)(38,925)
Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests(9,113)3,221 (12,334)
Net loss attributable to stockholders$(64,181)$(37,590)$(26,591)
 Three Months Ended 
 March 31,		  
 2020 2019 Change
 (in thousands)
Revenue$29,829
 $26,715
 $3,114
      
Operating expense:     
Cost of revenue—depreciation12,986
 9,653
 3,333
Cost of revenue—other1,043
 652
 391
Operations and maintenance2,219
 2,254
 (35)
General and administrative27,893
 18,681
 9,212
Other operating income(6) (18) 12
Total operating expense, net44,135
 31,222
 12,913
      
Operating loss(14,306) (4,507) (9,799)
      
Interest expense, net67,318
 31,661
 35,657
Interest expense, net—affiliates—
 1,822
 (1,822)
Interest income(4,620) (2,494) (2,126)
Loss before income tax(77,004) (35,496) (41,508)
      
Income tax—
 —
 —
Net loss(77,004) (35,496) (41,508)
Net income (loss) attributable to redeemable noncontrolling interests(5,929) 3,018
 (8,947)
Net loss attributable to stockholders$(71,075) $(38,514) $(32,561)


43
Table of Contents



Revenue
Three Months Ended 
 September 30,
20202019Change
(in thousands)
PPA revenue$19,713 $14,329 $5,384 
Lease revenue13,115 10,238 2,877 
SREC revenue14,147 10,603 3,544 
Loan revenue788 418 370 
Other revenue2,414 1,027 1,387 
Total$50,177 $36,615 $13,562 
 Three Months Ended 
 March 31,		  
 2020 2019 Change
 (in thousands)
PPA revenue$12,633
 $9,612
 $3,021
Lease revenue11,542
 9,638
 1,904
SREC revenue4,363
 6,592
 (2,229)
Loan revenue599
 371
 228
Other revenue692
 502
 190
Total$29,829
 $26,715
 $3,114

Revenue increased by $3.1$13.6 million in the three months ended March 31,September 30, 2020 compared to the three months ended March 31,September 30, 2019 primarily as a result of an increased number of solar energy systems in service. The weighted average number of customers (excluding customers with loan agreements) increased from approximately 55,30061,500 for the three months ended March 31,September 30, 2019 to approximately 70,10080,200 for the three months ended March 31,September 30, 2020. Excluding SREC revenue
46
Table of Contents
and revenue under our loan agreements, on a weighted average number of customers basis, revenue increased from $416 per customer for the three months endedSeptember 30, 2019 to $439 per customer for the same period in 2020 (6% increase). SREC revenue increased by $3.5 million in the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily due to (a) higher SREC pricing in New Jersey and (b) higher SREC volumes sold in New Jersey and Massachusetts. 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 customers basis, revenues under our loan agreements increased from $47 per customer for the three months endedSeptember 30, 2019 to $53 per customer for the same period in 2020 (13% increase) primarily due to higher battery attachment rates and battery replacement costs resulting in larger customer loan balances.

Cost of Revenue—Depreciation
Three Months Ended 
 September 30,
20202019Change
(in thousands)
Cost of revenue—depreciation$15,113 $10,942 $4,171 

Cost of revenue—depreciation increased by $4.2 million in the three months ended September 30, 2020 compared to the three months ended September 30, 2019. This increase was primarily due to an increase in the weighted average number of customers (excluding customers with loan agreements) from approximately 61,500 for the three months ended September 30, 2019 to approximately 80,200 for the three months ended September 30, 2020. On a weighted average number of customers basis, cost of revenue—depreciation increased from $178 per customer for the three months endedSeptember 30, 2019 to $188 per customer for the same period in 2020 (6% increase).

Cost of Revenue—Other
Three Months Ended 
 September 30,
20202019Change
(in thousands)
Cost of revenue—other$1,403 $1,186 $217 

Cost of revenue—other increased by $0.2 million in the three months ended September 30, 2020 compared to the three months ended September 30, 2019. This increase was primarily due to an increase in fees related to filings required under the Uniform Commercial Code to maintain title and title searches.

Operations and Maintenance Expense
Three Months Ended 
 September 30,
20202019Change
(in thousands)
Operations and maintenance$3,469 $1,925 $1,544 

Operations and maintenance expense increased by $1.5 million in the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019. Operations and maintenance expense per customer, excluding net natural disaster losses, increased from $30 per customer for the three months ended September 30, 2019 to $43 per customer for the three months ended September 30, 2020 primarily due to higher meter replacement costs and property insurance.

General and Administrative Expense
Three Months Ended 
 September 30,
20202019Change
(in thousands)
General and administrative$28,549 $28,509 $40 

General and administrative expense remained relatively flat at $28.5 million for the three months ended September 30,
47
Table of Contents
2020 and 2019. General and administrative expense had increases of (a) $1.8 million of financing deal costs, (b) $1.5 million of provisions for current expected credit losses related to the adoption of the new accounting standard in 2020, (c) $0.6 million of consultants, contractors and professional fees, (d) $0.5 million of depreciation expense not related to solar energy systems and (e) $0.4 million of insurance expenses. This increase is offset by decreases of (a) $2.5 million of payroll and employee related expenses primarily due to additional non-cash compensation expense in connection with our IPO in 2019, (b) $1.8 million of IPO costs and (c) $0.6 million of legal expenses.

Interest Expense, Net
Three Months Ended 
 September 30,
20202019Change
(in thousands)
Interest expense, net$29,954 $30,884 $(930)

Interest expense, net decreased by $0.9 million in the three months ended September 30, 2020 compared to the three months ended September 30, 2019. This decrease was primarily due to an increase in unrealized gain on interest rate swaps of $14.6 million. This decrease was partially offset by increases in interest expense of $9.0 million due to an increase in the principal debt balance after entering into new financing arrangements and debt discount amortization of $3.9 million.

Interest Expense, Net—Affiliates
Three Months Ended 
 September 30,
20202019Change
(in thousands)
Interest expense, net—affiliates$— $701 $(701)

Interest expense, net—affiliates decreased by $0.7 million in the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily due to a decrease in interest expense due to the redemption of the senior secured notes and conversion of the convertible notes in July 2019.

Interest Income
Three Months Ended 
 September 30,
20202019Change
(in thousands)
Interest income$5,999 $3,407 $2,592 

Interest income increased by $2.6 million in the three months ended September 30, 2020 compared to the three months ended September 30, 2019. This increase was primarily due to an increase in the weighted average number of customers with loan agreements from approximately 8,900 for the three months ended September 30, 2019 to approximately 14,800 for the three months ended September 30, 2020. On a weighted average number of customers basis, loan interest income increased from $352 per customer for the three months ended September 30, 2019 to $401 per customer for the three months ended September 30, 2020 primarily due to higher average loan storage balances.

Loss on Extinguishment of Long-Term Debt, Net

Loss on extinguishment of long-term debt, net increased by $50.7 million in the three months ended September 30, 2020 compared to the three months ended September 30, 2019 due to the conversion of approximately $84.8 million aggregate principal amount, including accrued and unpaid interest to the date of each conversion, of our 9.75% convertible senior notes that met the criteria for extinguishment accounting under GAAP.

Income Tax Expense

Income tax expense increased by $0.2 million in the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily due to an increase of loans in Puerto Rico.

48
Table of Contents
Net Income (Loss) Attributable to Redeemable Noncontrolling Interests and Noncontrolling Interests

Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests changed by $12.3 million in the three months ended September 30, 2020 compared to the three months ended September 30, 2019 primarily due to losses attributable to noncontrolling interests from tax equity funds added in late 2019 and in 2020.

49
Table of Contents
Results of Operations—Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

The following table sets forth our unaudited condensed consolidated statements of operations data for the periods indicated.
Nine Months Ended 
 September 30,
20202019Change
(in thousands)
Revenue$122,796 $97,942 $24,854 
Operating expense:
Cost of revenue—depreciation42,120 30,820 11,300 
Cost of revenue—other5,315 2,914 2,401 
Operations and maintenance8,614 6,468 2,146 
General and administrative84,575 70,984 13,591 
Other operating income(28)(129)101 
Total operating expense, net140,596 111,057 29,539 
Operating loss(17,800)(13,115)(4,685)
Interest expense, net127,804 99,855 27,949 
Interest expense, net—affiliates— 4,098 (4,098)
Interest income(17,299)(8,868)(8,431)
Loss on extinguishment of long-term debt, net50,721 — 50,721 
Loss on extinguishment of long-term debt, net—affiliates— 10,645 (10,645)
Other (income) expense(175)827 (1,002)
Loss before income tax(178,851)(119,672)(59,179)
Income tax expense176 — 176 
Net loss(179,027)(119,672)(59,355)
Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests(18,513)7,170 (25,683)
Net loss attributable to stockholders$(160,514)$(126,842)$(33,672)

Revenue
Nine Months Ended 
 September 30,
20202019Change
(in thousands)
PPA revenue$52,268 $37,895 $14,373 
Lease revenue36,995 29,496 7,499 
SREC revenue27,245 26,911 334 
Loan revenue2,021 1,152 869 
Other revenue4,267 2,488 1,779 
Total$122,796 $97,942 $24,854 

Revenue increased by $24.9 million in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily as a result of an increased number of solar energy systems in service. The weighted average number of customers (excluding customers with loan agreements) increased from approximately 58,300 for the nine months ended September 30, 2019 to approximately 75,200 for the nine months ended September 30, 2020. Excluding SREC revenue
50
Table of Contents
and revenue under our loan agreements, on a weighted average number of customers basis, revenue remained relatively flat at $357$1,199 per customer for the threenine months ended March 31,September 30, 2019 compared to $355$1,244 per customer for the same period in 2020 (1% decrease)(4% increase). SREC revenue decreasedincreased by $2.2$0.3 million in the threenine months ended March 31,September 30, 2020 compared to the threenine months ended March 31,September 30, 2019 primarily asdue to (a) higher New Jersey volumes and (b) higher SREC spot prices in Massachusetts. These increases were offset by a result of $2.8 million related to certain forward sales of SRECsdecrease in 2019.SREC revenues resulting from lower SREC pricing in Massachusetts and New Jersey. 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 customers basis, revenues under our loan agreements decreased from $55remained relatively flat at $148 per customer for the threenine months ended March 31,September 30, 2019 compared to $51$152 per customer for the same period in 2020 (8% decrease) primarily due to market changes.(3% increase).

Cost of Revenue—Depreciation
Nine Months Ended 
 September 30,
20202019Change
(in thousands)
Cost of revenue—depreciation$42,120 $30,820 $11,300 
 Three Months Ended 
 March 31,		  
 2020 2019 Change
 (in thousands)
Cost of revenue—depreciation$12,986
 $9,653
 $3,333

Cost of revenue—depreciation increased by $3.3$11.3 million in the threenine months ended March 31,September 30, 2020 compared to the threenine months ended March 31,September 30, 2019. This increase was primarily driven bydue to an increase in the weighted average number of customers (excluding customers with loan agreements) from approximately 55,30058,300 for the threenine months ended March 31,September 30, 2019 to approximately 70,10075,200 for the threenine months ended March 31,September 30, 2020. On a weighted average number of customers basis, cost of revenue—depreciation increased from $175$529 per customer for the threenine months ended March 31,September 30, 2019 to $185$560 per customer for the same period in 2020.2020 (6% increase).

Cost of Revenue—Other
Nine Months Ended 
 September 30,
20202019Change
(in thousands)
Cost of revenue—other$5,315 $2,914 $2,401 
 Three Months Ended 
 March 31,		  
 2020 2019 Change
 (in thousands)
Cost of revenue—other$1,043
 $652
 $391

Cost of revenue—other increased by $0.4$2.4 million in the threenine months ended March 31,September 30, 2020 compared to the threenine months ended March 31,September 30, 2019. This increase was primarily driven bydue to the purchase of SRECs of $1.9 million to fulfill minimum delivery requirements under our forward contract and an increase in fees related to filings required under the Uniform Commercial Code to maintain title, title searches and credit checks due to increased activity.title.


44
Table of Contents



Operations and Maintenance Expense
Nine Months Ended 
 September 30,
20202019Change
(in thousands)
Operations and maintenance$8,614 $6,468 $2,146 
 Three Months Ended 
 March 31,		  
 2020 2019 Change
 (in thousands)
Operations and maintenance$2,219
 $2,254
 $(35)

Operations and maintenance expense remained relatively flat at $2.2increased by $2.1 million forin the threenine months ended March 31,September 30, 2020 compared to $2.3 million for the threenine months ended March 31,September 30, 2019.primarily due to higher impairments and loss on disposals, meter replacement costs, property insurance and property tax. Operations and maintenance expense per customer, excluding net natural disaster losses, decreased toremained relatively flat at $31110 per customer for the threenine months ended September 30, 2019 compared March 31, 2020 compared to $41114 per customer for the threenine months ended March 31, 2019 as a result of operational efficiencies.September 30, 2020.

General and Administrative Expense
Nine Months Ended 
 September 30,
20202019Change
(in thousands)
General and administrative$84,575 $70,984 $13,591 
51
Table of Contents
 Three Months Ended 
 March 31,		  
 2020 2019 Change
 (in thousands)
General and administrative$27,893
 $18,681
 $9,212

General and administrative expense increased by $9.2$13.6 million in the threenine months ended March 31,September 30, 2020 compared to the threenine months ended March 31,September 30, 2019 primarily due to increases inof (a) $4.7 million of payroll and employee related expenses of$4.4 millionprimarily due to non-cash compensation expense and the hiring of personnel to support growth, (b) $3.8 million of insurance expenses and non-cash compensation expense,(c) $4.8 million of provision for current expected credit losses related to the adoption of $1.9 million, insurance expenses of $1.8 million and consultants, contractors and professional fees of $1.2 million.the new accounting standard in 2020.

Interest Expense, Net
Nine Months Ended 
 September 30,
20202019Change
(in thousands)
Interest expense, net$127,804 $99,855 $27,949 
 Three Months Ended 
 March 31,		  
 2020 2019 Change
 (in thousands)
Interest expense, net$67,318
 $31,661
 $35,657

Interest expense, net increased by $35.7$27.9 million in the threenine months ended March 31,September 30, 2020 compared to the threenine months ended March 31,September 30, 2019. This increase was primarily driven bydue to increases in realized loss on interest rate swaps of $28.326.0 million due to the termination of certain debt facilities in 2020, interest expense of $5.7$21.3 million due to an increase in the principal debt balance after entering into new financing arrangements and debt discount amortization of $4.2$10.2 million. This increase was partially offset by a decrease in unrealized loss on interest rate swaps of $27.5 million.

Interest Expense, Net—Affiliates
Nine Months Ended 
 September 30,
20202019Change
(in thousands)
Interest expense, net—affiliates$— $4,098 $(4,098)
 Three Months Ended 
 March 31,		  
 2020 2019 Change
 (in thousands)
Interest expense, net—affiliates$—
 $1,822
 $(1,822)

Interest expense, net—affiliates decreased by $1.8$4.1 million in the threenine months ended March 31,September 30, 2020 compared to the threenine months ended March 31,September 30, 2019 primarily due to a decrease in interest expense due to the redemption of the senior secured notes and conversion of the convertible notes in July 2019.

Interest Income
Nine Months Ended 
 September 30,
20202019Change
(in thousands)
Interest income$17,299 $8,868 $8,431 
 Three Months Ended 
 March 31,		  
 2020 2019 Change
 (in thousands)
Interest income$4,620
 $2,494
 $2,126


45
Table of Contents



Interest income increased by $2.1$8.4 million in the threenine months ended March 31,September 30, 2020 compared to the threenine months ended March 31,September 30, 2019. This increase was primarily driven bydue to an increase in the weighted average number of customers with loan agreements from approximately 6,7007,800 for the threenine months ended March 31,September 30, 2019 to approximately 11,80013,300 for the threenine months ended March 31,September 30, 2020. On a weighted average number of customers basis, loan interest income increased from $347$1,046 per customer for the threenine months ended March 31,September 30, 2019 to $371$1,269 per customer for the threenine months ended March 31,September 30, 2020 (7% increase) primarily due to higher average loan storage balances.

Loss on Extinguishment of Long-Term Debt, Net

Loss on extinguishment of long-term debt, net increased by $50.7 million in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 due to the conversion of approximately $84.8 million aggregate principal amount, including accrued and unpaid interest to the date of each conversion, of our 9.75% convertible senior notes that met the criteria for extinguishment accounting under GAAP.

52
Table of Contents
Loss on Extinguishment of Long-Term Debt, Net—Affiliates

Loss on extinguishment of long-term debt, net—affiliates decreased by $10.6 million in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 due to the amendment of the senior secured notes in April 2019 that met the criteria for extinguishment accounting under GAAP.

Income Tax

 Expense
We do not have income
Income tax expense or benefitincreased by $0.2 million in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 primarily due to pre-tax losses and a full valuation allowance recorded for the three months ended March 31, 2020 and 2019. See "—Componentsan increase of Results of Operations—Income Tax".loans in Puerto Rico.

Net Income (Loss) Attributable to Redeemable Noncontrolling Interests and Noncontrolling Interests

Net income (loss) attributable to redeemable noncontrolling interests decreasedand noncontrolling interests changed by $25.7 million$8.9 million for in the threenine months ended March 31,September 30, 2020 compared to the threenine months ended March 31,September 30, 2019 primarily due to a losslosses attributable to redeemable noncontrolling interests from a tax equity fundfunds added in late 2019.2019 and in 2020.

Liquidity and Capital Resources

As of March 31,September 30, 2020, we had total cash of $169.2$211.7 million, of which $73.4$84.6 million was unrestricted, and $43.6224.1 million of available borrowing capacity under our 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. 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 sources. As of March 31,September 30, 2020, we were in compliance with all debt covenants under our financing arrangements.

Additionally, from time-to-time we evaluate the potential acquisition of solar energy systems, energy storage systems and related businesses and joint ventures. As a part of these efforts, we may engage in discussions with potential sellers or other parties regarding the possible purchase of or investment in assets and operations that are strategic and complementary to our existing operations. In addition, we have in the past evaluated and pursued, and may in the future evaluate and pursue, the acquisition of or investment in other energy-related assets that have characteristics and opportunities similar to our existing business lines and enable us to leverage our assets, knowledge and skill sets. Such efforts may involve participation by us in processes that have been made public and involve a number of potential buyers or investors, commonly referred to as "auction" processes, as well as situations in which we believe we are the only party or one of a limited number of parties who are in negotiations with the potential seller or other party. These acquisition and investment efforts may involve assets which, if acquired or constructed, could have a material effect on our financial condition and results of operations.

We expect our solar energy systems 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. We believe we will have sufficient cash, investment fund commitments and securitization commitments, as described below, andtogether with cash flows from operations to meet our working capital, debt service obligations, contingencies and anticipated required capital expenditures, including customer acquisitions, for at least the next 12 months. However, we are subject to business and operational risks that could adversely affect 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.


46
Table of Contents



Financing Arrangements

The following is an update to the description of our various financing arrangements. See "Management's Discussion and
53
Table of Contents
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, 2020 for a full description of our various financing arrangements.

Tax Equity Fund Commitments

As of March 31,September 30, 2020, we had undrawn committed capital of approximately $23.7$85.8 million under our tax equity funds, which may only be used to purchase and install solar energy systems. We intend to establish new tax equity funds in the future depending on their attractiveness, including the availability and size of Section 48(a) ITCs and related safe harbors, and on the investor demand for such funding. In February 2020, we admitted a tax equity investor with a total capital commitment of $75.0 million. In May 2020, we admitted a tax equity investor with a total capital commitment of $75.0 million.In July 2020, we admitted a tax equity investor with a total capital commitment of $10.0 million. In September 2020, we admitted a tax equity investor with a total capital commitment of $75.0 million.

Securitizations

In February 2020, one of our subsidiaries issued $337.1 million in aggregate principal amount of Series 2020-1 Class A solar asset-backed notes and $75.4 million in aggregate principal amount of Series 2020-1 Class B solar asset-backed notes (collectively, the "SOLI Notes") with a maturity date of January 2055. The SOLI Notes bear interest at an annual rate of 3.35% and 5.54% for the Class A and Class B notes, respectively.

In June 2020, one of our subsidiaries issued $135.9 million in aggregate principal amount of Series 2020-A Class A solar loan-backed notes and $22.6 million in aggregate principal amount of Series 2020-A Class B solar loan-backed notes (collectively, the "HELIV Notes") with a maturity date of June 2047. The HELIV Notes bear interest at an annual rate of 2.98% and 7.25% for the Class A and Class B notes, respectively.

Warehouse and Other Debt Financings

In February 2020, two of our subsidiaries fully repaid the aggregate outstanding principal amounts outstanding under their financing arrangements of $92.0 million and $226.6 million using proceeds from the SOLI Notes, all related interest rate swaps were unwound and the debt facilities were terminated. In addition, one of our subsidiaries used proceeds from the SOLI Notes to repay $32.0 million in aggregate principal amount outstanding principal under its financing arrangement. In May 2020, we amended the revolving credit facility associated with one of our financing subsidiaries that owns certain tax equity subsidiariesfunds to, among other things, (a) increase the aggregate commitment amount from $200.0 million to $390.0 million and (b) increase the unused line fee on such committed amounts.In June 2020, we further amended this revolving credit facility to, among other things, (a) increase the aggregate commitment amount from $390.0 million to $437.5 million, (b) modify the advance rates for solar energy systems and (c) modify the interest rates to an adjusted LIBOR rate plus a weighted average margin of 4.15%. In addition, one of our subsidiaries used proceeds from the HELIV Notes to repay $149.3 million in aggregate principal amount outstanding under its financing arrangement.

In September 2020, one of our subsidiaries entered into a credit facility with Banco Popular de Puerto Rico. Under the credit facility, the subsidiary may borrow up to $60.0 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. The proceeds of the loans under the credit facility are available for funding the purchase of solar loans, making deposits in the subsidiary's reserve accounts and paying fees in connection with the credit facility. The credit facility bears interest at an annual rate of adjusted LIBOR plus an applicable margin. The credit facility has a maturity date occurring in September 2023. In addition, in October 2020 one of our subsidiaries used proceeds from this credit facility to repay $28.0 million of aggregate principal amount outstanding under its financing arrangement and we amended the revolving credit facility associated with one of our financing subsidiaries that owns certain tax equity funds to, among other things, increase the aggregate commitment amount from $437.5 million to $600.0 million.

Convertible Senior Notes

In May 2020, we issued and sold an aggregate principal amount of $130.0 million of our 9.75% convertible senior notes in a private placement at an issue price of 95%, for an aggregate purchase price of $123.5 million. The 9.75% convertible senior notes mature in April 2025 unless earlier redeemed, repurchased or converted. We granted the investors of the 9.75% convertible senior notes an option to purchase up to an additional $60.0 million aggregate principal amount of 9.75% convertible senior notes on the same terms and conditions, whichand the investors exercised this option and completed the purchase of such option will expireadditional 9.75% convertible senior notes in June 2020. WeIn May 2020, we also entered into privately negotiated
54
Table of Contents
exchanges with a small number of institutional investors in our 7.75% convertible senior notes whereby such investors exchanged all $55.0 million aggregate principal amount outstanding of our 7.75% convertible senior notes for an equal principal amount of our 9.75% convertible senior notes. See "

Item 5. Other Information" for additional information regardingIn the third quarter, certain of the holders of our 9.75% convertible senior notes.notes converted approximately $84.8 million aggregate principal amount, including accrued and unpaid interest to the date of each conversion, of our 9.75% convertible senior notes into 6,277,982 shares of our common stock. In October 2020, certain of the holders of our 9.75% convertible senior notes converted approximately $32.5 million aggregate principal amount, including accrued and unpaid interest to the date of each conversion, of our 9.75% convertible senior notes into 2,406,523 shares of our common stock. See Note 11, Stockholders' Equity, to our interim financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Historical Cash Flows—ThreeNine Months Ended March 31,September 30, 2020 Compared to ThreeNine Months Ended March 31,September 30, 2019

The following table summarizes our cash flows for the periods indicated:
Nine Months Ended 
 September 30,
20202019Change
(in thousands)
Net cash used in operating activities$(101,796)$(74,538)$(27,258)
Net cash used in investing activities(594,275)(389,701)(204,574)
Net cash provided by financing activities757,469 486,464 271,005 
Net increase in cash and restricted cash$61,398 $22,225 $39,173 
 Three Months Ended 
 March 31,		  
 2020 2019 Change
 (in thousands)
Net cash used in operating activities$(58,112) $(24,430) $(33,682)
Net cash used in investing activities(184,315) (92,680) (91,635)
Net cash provided by financing activities261,372
 109,351
 152,021
Net increase (decrease) in cash and restricted cash$18,945
 $(7,759) $26,704


47
Table of Contents



Operating Activities

Net cash used in operating activities increased by $33.7$27.3 million in the threenine months ended March 31,September 30, 2020 compared to the threenine months ended March 31,September 30, 2019. This increase is primarily a result of increasedan increase in purchases of inventory and prepaid inventory with net outflows of $22.1 million in 2020 compared to $8.2 million in 2019, offset by a decrease in payments to dealers for exclusivity and other bonus arrangements with net outflows of $5.324.4 million in 2020 compared to $2.0$31.7 million in 2019. This increase is also due to net outflows of $39.9$37.4 million in 2020 compared to net outflows of $7.9$17.3 million in 2019 based on: (a) our net loss of $77.0$179.0 million in 2020 excluding non-cash operating items of $37.1 million, primarily from depreciation, impairments and losses on disposals, amortization of deferred financing costs and debt discounts, unrealized net losses on derivatives and equity-based compensation charges, results in net outflows of $39.9 million and (b) our net loss of $35.5 million in 2019 excluding non-cash operating items of $27.6$141.6 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, unrealized net gains on fair value option securities, losses on extinguishment of long-term debt and equity-based compensation charges, which results in net outflows of $7.9$37.4 million and (b) our net loss of $119.7 million in 2019 excluding non-cash operating items of $102.4 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, unrealized net losses on fair value option securities, losses on extinguishment of long-term debt and equity-based compensation charges, which results in net outflows of $17.3 million. These net differences between the two periods result in a net change in operating cash flows of $32.0$20.1 million in 2020 compared to 2019 primarily driven bydue to an increase in realized loss on interest rate swaps of $28.326.0 million due to the termination of certain debt facilities in 2020.

Investing Activities

Net cash used in investing activities increased by $91.6$204.6 million in the threenine months ended March 31,September 30, 2020 compared to the threenine months ended March 31,September 30, 2019. This increase is largely due to an increaseprimarily a result of increases in purchases of property and equipment, primarily solar energy systems, of $141.2$439.9 million in 2020 compared to $68.9$299.2 million in 2019 and payments for investments and customer notes receivable of $50.4$180.7 million in 2020 compared to $27.7$104.4 million in 2019. This increase is partially offset by proceeds from customer notes receivable of $6.9$25.0 million (of which $5.5$20.1 million was prepaid) in 2020 compared to $3.8$14.1 million (of which $3.1$11.9 million was prepaid) in 2019.

Financing Activities

Net cash provided by financing activities increased by $152.0$271.0 million in the threenine months ended March 31,September 30, 2020 compared to the threenine months ended March 31,September 30, 2019. This increase is primarily a result of increases in net borrowings under our debt facilities of $172.6$512.2 million in 2020 compared to $104.1$225.9 million in 2019, and net contributions from our redeemable noncontrolling interests and noncontrolling interests of $101.0$192.9 million in 2020 compared to $14.4$113.1 million in 2019 and net proceeds from the equity component of a convertible debt instrument of $73.7 million in 2020 compared to an insignificant
55
Table of Contents
amount in 2019. This increase is partially offset by decreases in net proceeds from the issuance of common stock of $4.3 million in 2020 compared to $164.7 million in 2019 and payments of deferred financing costs and debt discounts of $10.8$21.4 million in 2020 compared to $5.8$11.5 million in 2019.


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 PPAs are subject to seasonality because we sell all the solar energy system's energy output to the customer at a fixed price per kWh. Our Easy Save Simple PPAs are not subject to seasonality (from a cash flow perspective or the customer's perspective) within a given year because the customer's payments are levelized on an annualized basis so we insulate the customer from monthly fluctuations in production. However, our Easy Save Simple PPAs are subject to seasonality from a revenue perspective because, similar to the Easy Save Monthly PPAs, we sell all the solar energy system's energy output to the customer. Our lease agreements are 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' 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' 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.

Off-Balance Sheet Arrangements

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

48
Table of Contents




Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. GAAP requires us to make estimates and 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 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 may differ from 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 Annual Report on Form 10-K filed with the SEC on February 25, 2020 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 the estimated useful life of our solar energy systems, the valuation of the assumptions regarding AROs and the valuation of redeemable noncontrolling interests and noncontrolling interests have the greatest subjectivity and impact on our interim financial statements. Therefore, we consider these to be our critical accounting policies and estimates. There have been no material changes to our critical accounting policies and estimates as described in our Annual Report on Form 10-K.

Recent Accounting Pronouncements

See Note 2, Significant Accounting Policies, to our interim financial statements included elsewhere in this Quarterly Report on Form 10-Q.

56
Table of Contents
Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to various market risks in the ordinary course of our 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 transaction. Our primary exposure includes changes in interest rates because certain borrowings bear interest at floating rates based on LIBOR 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. A hypothetical 10% increase in our interest rates on our variablevariable-rate debt facilities would have increased our interest expense by $0.7$567,000 and $1.9 million for the three and nine months ended March 31, 2020.September 30, 2020, respectively.

Item 4. Controls and 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 controls and 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 Exchange Act. In connection with that evaluation, our CEO and our 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 March 31,September 30, 2020. 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 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 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

49
Table of Contents



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 was no change in our internal control over financial reporting that occurred during the firstthird quarter of 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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.

57
50
Table of Contents



PART II - OTHER INFORMATION

Item 1. Legal 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 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.

There have been no material changes in the risks facing us as described in our Annual Report on Form 10-K filed with the SEC on February 25, 2020 and our Quarterly Reports on Form 10-Q filed with the SEC on May 15, 2020 and July 30, 2020 except as described below.

The ongoing COVID-19 pandemic could adversely affect our business, financial condition and results of operations.

The ongoing COVID-19 pandemic continues to be a rapidly evolving situation. The COVID-19 pandemic and efforts to respond to it have resulted in widespread adverse impacts on the global economy and on our employees, customers, dealers and other parties with whom we have business relations.economy. We have experienced some resulting disruptions to our business operations as the COVID-19 pandemic has continued to spread through most of the states and U.S. territories in which we operate. For example, 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. Neworigination, with new contract origination, net of cancelations, declining in each of March and April 2020 was approximately 85% and 60% of contracts originated in February and March 2020, respectively, reflectingfrom the previous month. This decline reflected an inability by our dealers to perform in-person sales calls based on the stay-at-home orders in some locations. A significant or extended decline in new contract origination may have a material adverse effect on our business, cash flows, liquidity, financial condition and results of operations.

We and our dealers have modified certain business and workforce practices (including those related to new contract origination, installation and servicing of solar energy systems and employee work locations) to conform to government restrictions and best practices encouraged by governmental and regulatory authorities. As a result, net contract origination, net of cancelations, increased in May through September 2020, with each of the months following May 2020 exceeding the number of new contracts originated, net of cancelations, in February 2020. Such modifications have allowed our dealers to continue to install and us to continue to service solar energy systems, but may also disrupt our operations, impede productivity or otherwise be ineffective in the future. If there are additional outbreaks of the COVID-19 virus or other viruses or more stringent health and safety guidelines are adopted, our and our dealers' ability to continue performing installations and service calls may be adversely impacted.

Our future success also depends on our ability to raise capital from third-party investors and commercial sources. In the initial weeks of the COVID-19 pandemic we saw access to capital markets reduced generally. If we are unable to regain access to the capital markets or are unable to raise funds through our tax equity and warehouse financing transactions at competitive terms, it would adversely impact both our ability to finance the deployment of our solar energy systems and energy storage systems and may have a material adverse effect on our business, cash flows, liquidity, financial condition and results of operations.

There is considerable uncertainty regarding the extent to which the COVID-19 virus will continue to spread and the extent and duration of governmental and other measures implemented to try to slow the spread of the COVID-19 virus, such as large-scale travel bans and restrictions, border closures, quarantines, shelter-in-place orders and business and government shutdowns. Some states that had begun taking steps to reopen their economies experienced a subsequent surge in cases of COVID-19, causing these states to cease such reopening measures in some cases and reinstitute restrictions in others. Restrictions of this nature have caused, and may continue to cause, us and our dealers to experience operational delays and may cause milestones or deadlines relating to our exclusivity arrangements to be missed. To date, we have not received notices from our dealers regarding performance delays resulting from the COVID-19 pandemic. However, worsening economic conditions could result in such outcomes over time, which would impact our future financial performance. Further, the effects of the economic downturn associated with the COVID-19 pandemic and other economic factors, may increase unemployment and reduce consumer credit ratings and credit availability, which may adversely affect new customer origination and our existing customers' ability to make payments on their solar service agreements. Periods of high unemployment and a lack of availability of credit may lead to increased delinquency and default rates. If existing economic conditions continue for a prolonged period of time or worsen, delinquencies on solar service agreements could increase, which would also negatively
58
Table of Contents
impact our future financial performance and the price of our common stock. Finally, if supply chains become significantly disrupted due to additional outbreaks of the COVID-19 virus or other viruses or more stringent health and safety guidelines are implemented, our ability to install and service solar energy systems could become adversely impacted.

51
Table of Contents




We cannot predict the full impact the COVID-19 pandemic or the significant disruption and volatility currently being experienced in the capital markets will have on our business, cash flows, liquidity, financial condition and results of operations at this time due to numerous uncertainties. The ultimate impact will depend on future developments, including, among other things, the ultimate geographic spread and duration of the COVID-19 virus, the depth and duration of the economic downturn and other economic effects of the COVID-19 pandemic, the consequences of governmental and other measures designed to prevent the spread of the COVID-19 virus, actions taken by governmental authorities, customers, dealers and other third parties, our ability and the ability of our customers, potential customers and dealers to adapt to operating in a changed environment and the timing and extent to which normal economic and operating conditions resume.

If our allowance for credit losses is not enough to cover actual credit losses from our customer notes receivable portfolio, our results of operations and financial condition could be negatively affected.

We maintain an allowance for credit losses, which is a reserve that represents our best estimate of actual credit losses we may experience in our existing customer notes receivable portfolio. The level of the allowance reflects our continuing evaluation of factors including the financial asset type, customer credit rating, contractual term, vintage, volume and trends in delinquencies, nonaccruals, write-offs and present economic, political and regulatory conditions. The determination of the appropriate level of the allowance for credit losses inherently involves subjectivity in our modeling and requires us to make estimates of current credit risks and future trends, all of which may undergo material changes or vary from our historical experience. Deterioration in economic conditions affecting our customers, new information regarding existing loans and other factors, both within and outside of our control, may require an increase in the allowance for credit losses. Furthermore, if write-offs in future periods exceed the allowance for credit losses we will need to increase the allowance for credit losses in future periods. Any increases in the allowance for credit losses will result in an increase in net loss and could have a material adverse effect on our business, financial condition and results of operations.

We adopted Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses, in January 2020, which requires entities to use a forward-looking expected loss approach, referred to as the current expected credit loss ("CECL") methodology in place of the previously-used incurred loss model. This resulted in an increase to the allowance for credit losses of $9.9 million. In future periods, CECL may result in increased reserves during or in advance of an economic downturn. If we are required to materially increase our level of allowance for credit losses for any reason, such increase could have a material adverse effect on our business, financial condition and results of operations.

If we or our dealers fail to hire and retain a sufficient number of employees and service providers in key functions, our growth and our ability to timely complete customer projects and successfully manage customer accounts would be constrained.

To support our growth, we and our dealers need to hire, train, deploy, manage and retain a substantial number of skilled employees, engineers, installers, electricians and sales and project finance specialists. Competition for qualified personnel in our industry has increased substantially, particularly for skilled personnel involved in the installation of solar energy systems. We and our dealers also compete with the homebuilding and construction industries for skilled labor. These industries are cyclical and when participants in these industries seek to hire additional workers, it puts upward pressure on our and our dealers' labor costs. Companies with whom our dealers compete to hire installers may offer compensation or incentive plans that certain installers may view as more favorable. As a result, our dealers may be unable to attract or retain qualified and skilled installation personnel. The further unionization of our industry's labor force or the homebuilding and construction industries' labor forces, either in response to the COVID-19 pandemic or otherwise, could also increase our dealers' labor costs. Shortages of skilled labor could significantly delay a project or otherwise increase our dealers' costs. Further, we need to continue to increase the training of our customer service team to provide high-end account management and service to our customers before, during and following the point of installation of our solar energy systems. Identifying and recruiting qualified personnel and training them requires significant time, expense and attention. It can take several months before a new customer service team member is fully trained and productive at the standards we have established. If we are unable to hire, develop and retain talented customer service or other personnel, we may not be able to grow our business.

We rely on net metering and related policies to offer competitive pricing to our customers in most of our current markets and changes to net metering policies may significantly reduce demand for electricity from residential solar energy systems.

Net metering and related policies concerning distributed generation have received attention from federal legislators and regulators and challenge by various stakeholders. For example, in April 2020, the New England Ratepayers Association petitioned the Federal Energy Regulatory Commission to declare its exclusive federal jurisdiction over distributed generation, including residential solar, and to establish new federal customer compensation rates for excess energy in lieu of state net

52
Table of Contents



metering programs. Changes in federal law, including those made by statute, regulation, rule or order, could negatively affect net metering or other related policies which otherwise promote and support solar energy and enhance the economic viability of distributed residential solar. For further discussion of net metering and related policies, see "Risk Factors—Risks Related to Regulations—We rely on net metering and related policies to offer competitive pricing to our customers in most of our current markets and changes to net metering policies may significantly reduce demand for electricity from residential solar energy systems." in our Annual Report on Form 10-K filed with the SEC on February 25, 2020.

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

Unregistered Sales of Equity Securities

Not applicable.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

TEPH Amendment

None.
On May 14, 2020, one of our wholly-owned subsidiaries ("TEPH") entered into that certain Omnibus Amendment (the "TEPH Amendment"), which amends that certain Credit Agreement, dated as of September 6, 2019 (the "TEPH Credit Agreement"), by and among the TEPH borrower, certain other of our subsidiaries, Credit Suisse AG, New York Branch, as agent, and the lenders and other financial institutions party thereto. The TEPH Amendment amended the TEPH Credit Agreement to, among other things, (a) increase the aggregate commitment amount from $200.0 million to $390.0 million, $375.0 million of which comes from Class A lenders and $15.0 million of which comes from Class B lenders, and (b) increase the unused line fee on such committed amounts.

59
The foregoing description of the TEPH Amendment is qualified in its entirety by reference to the full text of the TEPH Amendment, a copy of which we plan to file as an exhibit to our Quarterly Report on Form 10-Q for the three months ending June 30, 2020.

Convertible Notes Purchase and Exchange Agreement

On May 13, 2020, we entered into a purchase and exchange agreement (the "Purchase and Exchange Agreement") with certain investors signatory thereto (collectively, the "Investors"), to issue and sell an aggregate principal amount of $130.0 million of our 9.75% convertible senior notes in a private placement at an issue price of 95%, for an aggregate purchase price of $123.5 million. We granted certain Investors an option to purchase up to an additional $60.0 million aggregate principal amount of 9.75% convertible senior notes on the same terms and conditions, which such option will expire 30 days from the closing date. In addition, we entered into privately negotiated exchanges with a small number of institutional investors in our 7.75% convertible senior notes whereby such investors exchanged all $55.0 million aggregate principal amount outstanding of our 7.75% convertible senior notes for an equal principal amount of our 9.75% convertible senior notes.

The Purchase and Exchange Agreement includes customary representations, warranties and covenants by us and the Investors and customary closing conditions, as well as a consent right granted to certain Investors, for so long as such Investors hold a specified minimum amount of the 9.75% convertible senior notes, on any amendment or waiver of the indenture governing the 9.75% convertible senior notes, or the incurrence of any indebtedness by SEI which otherwise requires the consent of the holders of the 9.75% convertible senior notes under the indenture. Pursuant to the Purchase and Exchange Agreement, we have agreed to indemnify the Investors (and certain of their related parties) against certain liabilities arising from or relating to breaches of representations and warranties by us in, or a failure by us to comply with our covenants under, the Purchase and Exchange Agreement.


53
Table of Contents



On May 14, 2020, the private placement of the 9.75% convertible senior notes closed. The net proceeds from the private placement were approximately $123.5 million, after the purchasing Investors' discounts. In addition, on May 14, 2020, the exchange of $55.0 million aggregate principal amount outstanding of 7.75% convertible senior notes for newly $55.0 million of our 9.75% convertible senior notes, closed. We paid accrued and unpaid interest on the 7.75% convertible senior notes of approximately $0.2 million and did not receive any proceeds from the exchange.

We offered and sold the 9.75% convertible senior notes to the Investors in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act, in reliance upon the safe harbor provided by Rule 506(c) of Regulation D promulgated thereunder. We relied on these exemptions from registration based in part on representations made by the Investors in the Purchase and Exchange Agreement. The 9.75% convertible senior notes have not been registered under the Securities Act, or any state securities law and, unless so registered, may not be offered or sold in the U.S. except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. This Quarterly Report on Form 10-Q does not constitute an offer to sell, or a solicitation of an offer to buy, any security and shall not constitute an offer, solicitation or sale in any state or jurisdiction in which such offer, solicitation or sale would be unlawful.

The shares of the common stock issuable upon conversion of the 9.75% convertible senior notes, if any, have not been registered under the Securities Act and may not be offered or sold in the U.S. absent registration or an applicable exemption from registration requirements. If converted prior to the effectiveness of the shelf registration statement, to the extent that any shares of the common stock are issued upon conversion of the 9.75% convertible senior notes, they will be issued in transactions anticipated to be exempt from registration under the Securities Act by virtue of Section 3(a)(9) thereof because no commission or other remuneration is expected to be paid in connection with conversion of the 9.75% convertible senior notes and any resulting issuance of shares of the common stock.

Certain of the Investors and their respective affiliates are affiliated with a member of our board of directors, may also hold positions in our other loans or securities and have provided certain capital for us and our affiliates in the ordinary course of their business in the past and may do so in the future, for which they have received and may continue to receive certain fees and commissions.

The foregoing summary of the Purchase and Exchange Agreement does not purport to be complete and is subject to, and is qualified in its entirety by, the full text of the Purchase and Exchange Agreement, a copy of which we plan to file as an exhibit to our Quarterly Report on Form 10-Q for the three months ending June 30, 2020.

Convertible Notes Indenture

On May 14, 2020, the $185.0 million aggregate principal amount of our 9.75% convertible senior notes were issued pursuant to an indenture dated the same date (the "Indenture") by and between us and Wilmington Trust, National Association, as trustee. The 9.75% convertible senior notes are senior unsecured obligations and will mature in April 2025, unless earlier redeemed, repurchased or converted.

Interest and Maturity

The 9.75% convertible senior notes will bear interest at a rate of 9.75% per annum payable quarterly in arrears. Interest on the 9.75% convertible senior notes is payable 7.25% per annum in cash, and 2.50% per annum in cash or, at our option after the 9.75% convertible senior notes are eligible to be deposited with and held through the facilities of The Depository Trust Company, in kind. If we fail to satisfy certain registration requirements as set forth in the 2020 Registration Rights Agreement, and as described below, the 9.75% convertible senior notes will bear additional interest at a rate of 0.25% per annum for each 90-day period such requirements are not met, up to a maximum of 2.00% per annum.

Conversion

The Investors may, at their option, convert all or any portion of their 9.75% convertible senior notes. Upon conversion, we may satisfy our conversion obligation by paying and/or delivering, as the case may be, cash, shares of common stock, or a combination of cash and shares of common stock, at our option, subject to certain terms and conditions. The conversion rate for the 9.75% convertible senior notes is 74.0741 shares of common stock per $1,000 principal amount of 9.75% convertible senior notes, plus accrued and unpaid interest, which is equivalent to an initial conversion price (excluding interest) of approximately $13.50 per share of common stock. The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the Indenture. On and after May 14, 2023, we have the right to cause the conversion of the 9.75% convertible senior notes if certain specified conditions are met, including minimum common stock price and minimum volume conditions.

54
Table of Contents




Optional Redemption

At any time prior to May 14, 2022, we may, at our option, redeem for cash up to 33.33% aggregate principal amount of the then outstanding 9.75% convertible senior notes (after giving effect to any conversions on or prior to such redemption date) at a redemption price equal to 115% of aggregate principal amount of 9.75% convertible senior notes so redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date, using the net cash proceeds of one or more equity offerings by us, provided the redemption occurs within 180 days of the date of the closing of such equity offering.

At any time on or after May 14, 2023, we may, at our option, redeem for cash all (but not less than all) of the 9.75% convertible senior notes at the redemption price (expressed as percentages of principal amount) set forth below, plus any accrued and unpaid interest, if any, to, but excluding, the redemption date accrued and unpaid interest, if any, to, but excluding, the redemption date:
PeriodPercentage
At any time on and after May 14, 2023 but prior to May 14, 2024115%
At any time on and after May 14, 2024110%

On and after September 23, 2024, the holders of the 9.75% convertible senior notes have the option to require us to repurchase their 9.75% convertible senior notes for cash at a purchase price of 110% of the aggregate principal amount repurchased, plus accrued and unpaid interest to the date of repurchase.

Change of Control and Asset Sales

If we undergo a change of control (as defined in the Indenture) or if we or any of our subsidiaries consummate certain asset sales and do not apply the proceeds as specified within a specified time period, subject to certain limitations, holders of 9.75% convertible senior notes may require us to repurchase for cash all or part of their 9.75% convertible senior notes at a repurchase price equal to 110% of the aggregate principal amount of the 9.75% convertible senior notes to be repurchased, plus accrued and unpaid interest, if any, thereon to, but excluding, the date of settlement.

Certain Covenants

The Indenture includes covenants that, among other things, limit our ability (and in some cases, our subsidiaries') to (a) declare or pay dividends or distributions on or purchase or redeem our equity interests, (b) make investments, (c) incur or guarantee additional indebtedness or issue certain types of equity securities, (d) sell assets, (e) enter into new business lines or (f) consolidate, merge or transfer all or substantially all of our assets.

Events of Default

The Indenture contains customary events of defaults (subject to certain thresholds and grace periods) for failure to pay interest, failure to comply with covenants, cross-acceleration, judgment defaults and certain insolvency events. Upon a continuing event of default, the trustee or the holders of 25% of the principal amount of the 9.75% convertible senior notes may declare the 9.75% convertible senior notes immediately due and payable.

The foregoing summary of the Indenture and the 9.75% convertible senior notes does not purport to be complete and is subject to, and is qualified in its entirety by, the full text of the Indenture and form of 9.75% convertible senior notes, copies of which we plan to file as an exhibit to our Quarterly Report on Form 10-Q for the three months ending June 30, 2020.

Amendment to Amended and Restated Registration Rights Agreement

On May 14, 2020, in connection with the issuance of the 9.75% convertible senior notes, we, the requisite holders and the Investors entered into an amendment to the Second Amended and Restated Registration Rights Agreement (the "Amendment to Registration Rights Agreement") which amends certain provisions of the Second Amended and Restated Registration Rights Agreement (the "2019 Registration Rights Agreement"). The Amendment to Registration Rights Agreement adds the Investors as parties to the 2019 Registration Rights Agreement. In addition, the Amended Agreement provides for certain demand and piggyback registration rights to be granted to the Investors as more fully described therein.


55
Table of Contents



The foregoing summary of the Amendment to Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by, the full text of the Amended Agreement, a copy of which we plan to file as an exhibit to our Quarterly Report on Form 10-Q for the three months ending June 30, 2020.

2020 Registration Rights Agreement

On May 14, 2020, in connection with the issuance of the 9.75% convertible senior notes, we entered into a Registration Rights Agreement (the "2020 Registration Rights Agreement") with the Investors. Pursuant to, and subject to the limitations set forth in, the 2020 Registration Rights Agreement, we will use our commercially reasonable efforts to prepare and file a shelf registration statement registering the offer and sale of (a) the 9.75% convertible senior notes and (b) the shares of common stock issued or issuable upon conversion of the 9.75% convertible senior notes, and to cause such shelf registration statement to become effective on or prior to August 1, 2020 and to keep such shelf registration statement effective until all 9.75% convertible senior notes or shares of common stock issuable upon conversion of the outstanding 9.75% convertible senior notes have been sold or disposed of. These registration rights are subject to certain conditions and limitations, including our right to delay or withdraw a registration statement under certain circumstances. Subject to certain limitations, we will generally be obligated to pay all registration expenses in connection with our obligations under the 2020 Registration Rights Agreement. In addition, the 2020 Registration Rights Agreement provides that we will owe liquidated damages if we do not comply, subject to certain thresholds and grace periods, with our registration obligations. Such liquidated damages are payable as additional interest on the 9.75% convertible senior notes, which, if applicable, shall be paid to the relevant holders quarterly in arrears at a rate per year equal to 0.25% per annum of the principal amount of the relevant 9.75% convertible senior notes to, and including, the 90th day following a default by us of our registration obligations, increasing by 0.25% per annum every 90 days thereafter to a maximum 2.0% per annum.

The foregoing summary of the 2020 Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by, the full text of the Registration Rights Agreement, a copy of which we plan to file as an exhibit to our Quarterly Report on Form 10-Q for the three months ending June 30, 2020.

Termination of Prior Registration Rights Agreement

On May 14, 2020, in connection with the issuance of the 9.75% convertible senior notes, we and the Investors party to the Registration Rights Agreement dated December 2019 (the "Prior RRA") agreed to terminate the Prior RRA and our and their rights and obligations thereunder.

Director Nomination Agreement

On May 14, 2020, we entered into the Board Designation Agreement (the "Board Designation Agreement") with certain Investors (the "Kayne Investors") associated with Kayne Solutions Fund, L.P. (the "Investor Representative"), pursuant to which the Investor Representative, acting on behalf of the Kayne Investors, may designate an individual to serve as a non-voting observer at all meetings of our Board and any committee thereof for so long as the Kayne Investors collectively hold a principal amount of 9.75% convertible senior notes equal to at least 66 2/3% of the aggregate principal amount of 9.75% convertible senior notes purchased by the Kayne Investors pursuant to the Purchase and Exchange Agreement, less any portion of such 9.75% convertible senior notes which are optionally redeemed by us pursuant to the Indenture (the "Minimum Pre-Conversion Hold Amount") or if the Kayne Investors have a right to nominate a director to our Board under the Board Designation Agreement but elect not to do so. Following the date the Kayne Investors have converted 9.75% convertible senior notes into a number of shares of common stock equal to or greater than 50.1% of the number of shares of common stock issued or issuable in respect of the Minimum Pre-Conversion Hold Amount on an as converted basis (the "Conversion Threshold Amount") and for so long as the Kayne Investors collectively hold both (a) shares of our common stock equal to at least the Conversion Threshold Amount and (b) shares of our common stock issued on conversion of the 9.75% convertible senior notes, and issuable upon conversion of the 9.75% convertible senior notes then held by the Investors, on an as converted basis, equal to the number of shares of common stock issued or issuable in respect of the Minimum Pre-Conversion Hold Amount, on an as converted basis, we are obligated to take certain actions to ensure an individual designated by the Investor Representative, on behalf of the Kayne Investors (the "Designated Director") will serve on our Board.

In the event of the resignation, death or removal (for cause or otherwise) of the Designated Director from our Board, the Kayne Investor Representative, acting on behalf of the Kayne Investors, will have the right for the ensuing 90 days, or such longer period as agreed to by our Board, to designate a successor Designated Director to our Board to fill the resulting vacancy on our Board (and any applicable committee thereof), subject to certain qualification requirements specified in the Board Designation Agreement. The Board Designation Agreement will terminate automatically upon the earliest of (a) the date on

56
Table of Contents



which (i) the Investors collectively cease to hold the Minimum Pre-Conversion Hold Amount and (ii) the Investors cease to have a right to nominate a director and (b) written agreement of the parties thereto.

The foregoing summary of the Board Designation Agreement does not purport to be complete and is subject to, and is qualified in its entirety by, the full text of the Board Designation Agreement, a copy of which we plan to file as an exhibit to our Quarterly Report on Form 10-Q for the three months ending June 30, 2020.


57
Table of Contents



Item 6. Exhibits.

Exhibit No.Description
4.1∞4.1
10.1∞
Third Amendment to the Credit Agreement, among Sunnova TEP Holdings, LLC, Sunnova TE Management, LLC, Credit Suisse AG, New York Branch, the Funding Agents from time to time party thereto, and the Lenders from time to time party thereto, dated JanuaryJuly 31, 2020 (incorporated by reference to Exhibit 10.334.13.1 to Form 10-KS-3 filed on February 25,August 3, 2020).
10.2∞10.1
10.3∞
Note Purchase Agreement, by and among Sunnova Sol Issuer, LLC, Sunnova Sol Depositor, LLC, Sunnova Energy Corporation and Credit Suisse Securities (USA) LLC, dated February 5, 2020 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on February 11, 2020).
10.4∞
Fifth Amendment to the Credit Agreement, among Sunnova TEP Holdings, LLC, Sunnova TE Management, LLC, Credit Suisse AG, New York Branch, the Funding Agents from time to time party thereto, and the Lenders from time to time party thereto, dated March 31, 2020.
10.5
Amendment No. 56 to the Amended and Restated Credit Agreement, among Sunnova EZ-Own Portfolio, LLC, Sunnova SLA Management, LLC, Sunnova Asset Portfolio 7 Holdings, LLC, the Lenders party thereto, the Funding Agents party thereto and Credit Suisse AG, New York Branch, dated as of March 31,September 18, 2020.
10.610.2∞
10.3
10.4∞
10.710.5
31.1
31.2
32.1
32.2
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its tags are embedded within the inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema Linkbase Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.
101.LABXBRL Taxonomy Extension Label Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Data File (embedded within the inline XBRL document).
__________________
∞
∞    Portions of this exhibit have been omitted.


58
60
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: October 29, 2020SUNNOVA ENERGY INTERNATIONAL INC.
By:
Date: May 15, 2020By:/s/ William J. Berger
William J. Berger
Chief Executive Officer and Director
(Principal Executive Officer)

Date: May 15,October 29, 2020By:/s/ Robert L. Lane
Robert L. Lane
Chief Financial Officer
(Principal Financial Officer)


59
61