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 JuneSeptember 30, 2023
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 540
Houston, Texas 77046
(Address, including zip code, of principal executive offices)

(281) 892-1588
(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 filerAccelerated filer
Non-accelerated filerSmaller 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 116,401,041122,416,359 shares of common stock outstanding as of July 24,October 23, 2023.



TABLE OF CONTENTS

Page
PART I - FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II - OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2

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

federal, state and local statutes, regulations and policies;
determinations of the Internal Revenue Service ("IRS") of the fair market value of our solar energy systems;
the price of centralized utility-generated electricity and electricity from other sources and technologies;
technical and capacity limitations imposed by operators of the power grid;
the availability of tax rebates, credits and incentives, including changes to the rates of, or expiration of, federal tax credits and the availability of related safe harbors;
our need and ability to raise capital to finance the installation and acquisition of distributed 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;
our ability to retain or upgrade current customers, further penetrate existing markets or expand into new markets;
our investment in our platform and new product offerings and the demand for and expected benefits of our platform and product offerings;
the ability of our solar energy systems, energy storage systems or other product offerings to operate or deliver energy for any reason, including if interconnection or transmission facilities on which we rely become unavailable;
our ability to maintain our brand and protect our intellectual property and customer data;
our ability to manage the cost of solar energy systems, energy storage systems and our service offerings;
the willingness of and ability of our dealers and suppliers to fulfill their respective warranty and other contractual obligations;
our expectations regarding litigation and administrative proceedings; and
our ability to renew or replace expiring, canceled or terminated solar service agreements at favorable rates or on a long-term basis.

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

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Table of Contents
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 
 June 30, 2023
As of 
 December 31, 2022
As of 
 September 30, 2023
As of 
 December 31, 2022
AssetsAssetsAssets
Current assets:Current assets:Current assets:
Cash and cash equivalentsCash and cash equivalents$187,331 $360,257 Cash and cash equivalents$467,902 $360,257 
Accounts receivable—trade, netAccounts receivable—trade, net28,764 24,435 Accounts receivable—trade, net40,170 24,435 
Accounts receivable—otherAccounts receivable—other114,081 212,397 Accounts receivable—other101,907 212,397 
Other current assets, net of allowance of $4,093 and $3,250 as of June 30, 2023 and December 31, 2022, respectively416,590 351,300 
Other current assets, net of allowance of $4,276 and $3,250 as of September 30, 2023 and December 31, 2022, respectivelyOther current assets, net of allowance of $4,276 and $3,250 as of September 30, 2023 and December 31, 2022, respectively383,961 351,300 
Total current assetsTotal current assets746,766 948,389 Total current assets993,940 948,389 
Property and equipment, netProperty and equipment, net4,512,510 3,784,801 Property and equipment, net5,119,027 3,784,801 
Customer notes receivable, net of allowance of $98,244 and $77,998 as of June 30, 2023 and December 31, 2022, respectively3,228,299 2,466,149 
Customer notes receivable, net of allowance of $106,385 and $77,998 as of September 30, 2023 and December 31, 2022, respectivelyCustomer notes receivable, net of allowance of $106,385 and $77,998 as of September 30, 2023 and December 31, 2022, respectively3,531,083 2,466,149 
Intangible assets, netIntangible assets, net148,292 162,512 Intangible assets, net141,175 162,512 
GoodwillGoodwill13,150 13,150 Goodwill13,150 13,150 
Other assetsOther assets957,778 961,891 Other assets986,930 961,891 
Total assets (1)Total assets (1)$9,606,795 $8,336,892 Total assets (1)$10,785,305 $8,336,892 
Liabilities, Redeemable Noncontrolling Interests and EquityLiabilities, Redeemable Noncontrolling Interests and EquityLiabilities, Redeemable Noncontrolling Interests and Equity
Current liabilities:Current liabilities:Current liabilities:
Accounts payableAccounts payable$138,843 $116,136 Accounts payable$194,551 $116,136 
Accrued expensesAccrued expenses105,617 139,873 Accrued expenses107,140 139,873 
Current portion of long-term debtCurrent portion of long-term debt241,968 214,431 Current portion of long-term debt470,133 214,431 
Other current liabilitiesOther current liabilities94,042 71,506 Other current liabilities96,949 71,506 
Total current liabilitiesTotal current liabilities580,470 541,946 Total current liabilities868,773 541,946 
Long-term debt, netLong-term debt, net6,123,923 5,194,755 Long-term debt, net6,710,734 5,194,755 
Other long-term liabilitiesOther long-term liabilities914,277 712,741 Other long-term liabilities1,003,922 712,741 
Total liabilities (1)Total liabilities (1)7,618,670 6,449,442 Total liabilities (1)8,583,429 6,449,442 
Commitments and contingencies (Note 14)Commitments and contingencies (Note 14)Commitments and contingencies (Note 14)
Redeemable noncontrolling interestsRedeemable noncontrolling interests100,081 165,737 Redeemable noncontrolling interests124,082 165,737 
Stockholders' equity:Stockholders' equity:Stockholders' equity:
Common stock, 116,393,942 and 114,939,079 shares issued as of June 30, 2023 and December 31, 2022, respectively, at $0.0001 par value12 11 
Common stock, 122,405,788 and 114,939,079 shares issued as of September 30, 2023 and December 31, 2022, respectively, at $0.0001 par valueCommon stock, 122,405,788 and 114,939,079 shares issued as of September 30, 2023 and December 31, 2022, respectively, at $0.0001 par value12 11 
Additional paid-in capital—common stockAdditional paid-in capital—common stock1,661,949 1,637,847 Additional paid-in capital—common stock1,749,419 1,637,847 
Accumulated deficitAccumulated deficit(272,186)(364,782)Accumulated deficit(191,513)(364,782)
Total stockholders' equityTotal stockholders' equity1,389,775 1,273,076 Total stockholders' equity1,557,918 1,273,076 
Noncontrolling interestsNoncontrolling interests498,269 448,637 Noncontrolling interests519,876 448,637 
Total equityTotal equity1,888,044 1,721,713 Total equity2,077,794 1,721,713 
Total liabilities, redeemable noncontrolling interests and equityTotal liabilities, redeemable noncontrolling interests and equity$9,606,795 $8,336,892 Total liabilities, redeemable noncontrolling interests and equity$10,785,305 $8,336,892 

(1) The consolidated assets as of JuneSeptember 30, 2023 and December 31, 2022 include $3,813,101$4,712,182 and $3,201,271, respectively, of assets of variable interest entities ("VIEs") that can only be used to settle obligations of the VIEs. These assets include cash of $43,794$51,260 and $40,382 as of JuneSeptember 30, 2023 and December 31, 2022, respectively; accounts receivable—trade, net of $11,273$13,789 and $8,542 as of JuneSeptember 30, 2023 and December 31, 2022, respectively; accounts receivable—other of $486$1,198 and $810 as of JuneSeptember 30, 2023 and December 31, 2022, respectively; other current assets of $535,309$805,774 and $422,364 as of JuneSeptember 30, 2023 and December 31, 2022, respectively; property and equipment, net of $3,171,393$3,778,707 and $2,680,587 as of JuneSeptember 30, 2023 and December 31, 2022, respectively; and other assets of $50,846$61,454 and $48,586 as of JuneSeptember 30, 2023 and December 31, 2022, respectively. The consolidated liabilities as of JuneSeptember 30, 2023 and December 31, 2022 include $72,509$88,275 and $66,441, respectively, of liabilities of VIEs whose creditors have no recourse to Sunnova Energy International Inc. These liabilities include accounts payable of $10,870$17,502 and $9,015 as of JuneSeptember 30, 2023 and December 31, 2022, respectively; accrued expenses of $82$77 and $287 as of JuneSeptember 30, 2023 and December 31, 2022, respectively; other current liabilities of $4,504$6,112 and $4,420 as of JuneSeptember 30, 2023 and December 31, 2022, respectively; and other long-term liabilities of $57,053$64,584 and $52,719 as of JuneSeptember 30, 2023 and December 31, 2022, respectively.

See accompanying notes to unaudited condensed consolidated financial statements.
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SUNNOVA ENERGY INTERNATIONAL INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)

Three Months Ended 
 June 30,
Six Months Ended 
 June 30,
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
20232022202320222023202220232022
RevenueRevenue$166,377 $147,012 $328,073 $212,734 Revenue$198,398 $149,364 $526,471 $362,098 
Operating expense:Operating expense:Operating expense:
Cost of revenue—depreciationCost of revenue—depreciation30,322 23,314 58,519 45,272 Cost of revenue—depreciation33,743 24,663 92,262 69,935 
Cost of revenue—inventory salesCost of revenue—inventory sales26,543 48,967 78,322 48,967 Cost of revenue—inventory sales50,694 40,917 129,016 89,884 
Cost of revenue—otherCost of revenue—other31,394 9,838 50,618 17,407 Cost of revenue—other30,981 15,567 81,599 32,974 
Operations and maintenanceOperations and maintenance29,865 7,252 40,604 14,013 Operations and maintenance18,702 9,774 59,306 23,787 
General and administrativeGeneral and administrative101,384 68,242 202,645 138,465 General and administrative111,545 75,897 314,190 214,362 
Other operating (income) expenseOther operating (income) expense6,640 (7,870)5,917 (14,453)Other operating (income) expense(9,051)10,267 (3,134)(4,186)
Total operating expense, netTotal operating expense, net226,148 149,743 436,625 249,671 Total operating expense, net236,614 177,085 673,239 426,756 
Operating lossOperating loss(59,771)(2,731)(108,552)(36,937)Operating loss(38,216)(27,721)(146,768)(64,658)
Interest expense, netInterest expense, net56,947 24,571 142,554 23,556 Interest expense, net57,601 20,824 200,155 44,380 
Interest incomeInterest income(26,292)(13,311)(51,080)(24,243)Interest income(30,590)(16,185)(81,670)(40,428)
Other (income) expenseOther (income) expense3,172 (160)3,408 (315)Other (income) expense561 (12)3,969 (327)
Loss before income taxLoss before income tax(93,598)(13,831)(203,434)(35,935)Loss before income tax(65,788)(32,348)(269,222)(68,283)
Income tax expense7,183 — 7,693 — 
Income tax benefitIncome tax benefit(9,325)— (1,632)— 
Net lossNet loss(100,781)(13,831)(211,127)(35,935)Net loss(56,463)(32,348)(267,590)(68,283)
Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interestsNet income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests(14,690)27,306 (43,953)40,260 Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests6,684 32,195 (37,269)72,455 
Net loss attributable to stockholdersNet loss attributable to stockholders$(86,091)$(41,137)$(167,174)$(76,195)Net loss attributable to stockholders$(63,147)$(64,543)$(230,321)$(140,738)
Net loss per share attributable to stockholders—basic and dilutedNet loss per share attributable to stockholders—basic and diluted$(0.74)$(0.36)$(1.45)$(0.67)Net loss per share attributable to stockholders—basic and diluted$(0.53)$(0.56)$(1.97)$(1.23)
Weighted average common shares outstanding—basic and dilutedWeighted average common shares outstanding—basic and diluted116,236,741 114,548,970 115,658,570 114,027,097 Weighted average common shares outstanding—basic and diluted119,554,008 114,816,879 116,971,318 114,293,251 

See accompanying notes to unaudited condensed consolidated financial statements.

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SUNNOVA ENERGY INTERNATIONAL INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Six Months Ended 
 June 30,
Nine Months Ended 
 September 30,
2023202220232022
CASH FLOWS FROM OPERATING ACTIVITIESCASH FLOWS FROM OPERATING ACTIVITIESCASH FLOWS FROM OPERATING ACTIVITIES
Net lossNet loss$(211,127)$(35,935)Net loss$(267,590)$(68,283)
Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to reconcile net loss to net cash used in operating activities:
DepreciationDepreciation67,875 50,807 Depreciation107,957 78,401 
Impairment and loss on disposals, netImpairment and loss on disposals, net17,344 789 Impairment and loss on disposals, net24,930 2,971 
Amortization of intangible assetsAmortization of intangible assets14,216 14,224 Amortization of intangible assets21,324 21,333 
Amortization of deferred financing costsAmortization of deferred financing costs10,734 5,919 Amortization of deferred financing costs17,007 9,690 
Amortization of debt discountAmortization of debt discount7,909 3,705 Amortization of debt discount12,971 6,273 
Non-cash effect of equity-based compensation plansNon-cash effect of equity-based compensation plans14,318 15,596 Non-cash effect of equity-based compensation plans19,812 20,059 
Unrealized (gain) loss on derivatives8,011 (1,017)
Non-cash direct sales revenueNon-cash direct sales revenue(43,034)(4,448)
Provision for current expected credit losses and other bad debt expenseProvision for current expected credit losses and other bad debt expense35,085 28,773 
Unrealized gain on derivativesUnrealized gain on derivatives(10,208)(27,580)
Unrealized (gain) loss on fair value instruments and equity securitiesUnrealized (gain) loss on fair value instruments and equity securities9,328 (14,761)Unrealized (gain) loss on fair value instruments and equity securities846 (4,136)
Other non-cash itemsOther non-cash items2,441 (25,381)Other non-cash items2,633 (38,412)
Changes in components of operating assets and liabilities:Changes in components of operating assets and liabilities:Changes in components of operating assets and liabilities:
Accounts receivableAccounts receivable89,158 (61,246)Accounts receivable99,753 (100,537)
Other current assetsOther current assets(90,896)(71,994)Other current assets(77,976)(139,946)
Other assetsOther assets(98,175)(59,273)Other assets(95,321)(84,142)
Accounts payableAccounts payable(38)7,343 Accounts payable(6,711)1,403 
Accrued expensesAccrued expenses(29,876)15,500 Accrued expenses(35,193)41,571 
Other current liabilitiesOther current liabilities13,599 (2,931)Other current liabilities9,604 (4,243)
Other long-term liabilitiesOther long-term liabilities(7,363)(3,688)Other long-term liabilities(10,680)(4,542)
Net cash used in operating activitiesNet cash used in operating activities(182,542)(162,343)Net cash used in operating activities(194,791)(265,795)
CASH FLOWS FROM INVESTING ACTIVITIESCASH FLOWS FROM INVESTING ACTIVITIESCASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipmentPurchases of property and equipment(748,152)(380,435)Purchases of property and equipment(1,315,192)(637,556)
Payments for investments and customer notes receivablePayments for investments and customer notes receivable(517,099)(573,248)Payments for investments and customer notes receivable(716,972)(902,773)
Proceeds from customer notes receivableProceeds from customer notes receivable80,931 52,653 Proceeds from customer notes receivable126,980 79,870 
Proceeds from investments in solar receivablesProceeds from investments in solar receivables4,929 5,620 Proceeds from investments in solar receivables8,708 9,388 
Other, netOther, net5,468 1,418 Other, net4,707 (282)
Net cash used in investing activitiesNet cash used in investing activities(1,173,923)(893,992)Net cash used in investing activities(1,891,769)(1,451,353)
CASH FLOWS FROM FINANCING ACTIVITIESCASH FLOWS FROM FINANCING ACTIVITIESCASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debtProceeds from long-term debt1,760,680 1,239,903 Proceeds from long-term debt2,859,489 2,308,033 
Payments of long-term debtPayments of long-term debt(808,564)(348,716)Payments of long-term debt(1,090,338)(571,261)
Payments on notes payablePayments on notes payable(1,915)— Payments on notes payable(4,356)— 
Payments of deferred financing costsPayments of deferred financing costs(21,684)(16,052)Payments of deferred financing costs(60,336)(24,748)
Purchase of capped call transactionsPurchase of capped call transactions— (48,420)
Proceeds from issuance of common stock, netProceeds from issuance of common stock, net(1,049)(3,178)Proceeds from issuance of common stock, net81,329 (3,345)
Contributions from redeemable noncontrolling interests and noncontrolling interestsContributions from redeemable noncontrolling interests and noncontrolling interests319,356 177,279 Contributions from redeemable noncontrolling interests and noncontrolling interests520,611 236,661 
Distributions to redeemable noncontrolling interests and noncontrolling interestsDistributions to redeemable noncontrolling interests and noncontrolling interests(18,372)(12,330)Distributions to redeemable noncontrolling interests and noncontrolling interests(30,159)(20,847)
Payments of costs related to redeemable noncontrolling interests and noncontrolling interestsPayments of costs related to redeemable noncontrolling interests and noncontrolling interests(5,312)(8,172)Payments of costs related to redeemable noncontrolling interests and noncontrolling interests(8,475)(10,380)
Proceeds from sales of investment tax credits for redeemable noncontrolling interests and noncontrolling interestsProceeds from sales of investment tax credits for redeemable noncontrolling interests and noncontrolling interests4,950 — 
Other, netOther, net(6,375)(406)Other, net(6,662)(601)
Net cash provided by financing activitiesNet cash provided by financing activities1,216,765 1,028,328 Net cash provided by financing activities2,266,053 1,865,092 
Net decrease in cash, cash equivalents and restricted cash(139,700)(28,007)
Net increase in cash, cash equivalents and restricted cashNet increase in cash, cash equivalents and restricted cash179,493 147,944 
Cash, cash equivalents and restricted cash at beginning of periodCash, cash equivalents and restricted cash at beginning of period545,574 391,897 Cash, cash equivalents and restricted cash at beginning of period545,574 391,897 
Cash, cash equivalents and restricted cash at end of periodCash, cash equivalents and restricted cash at end of period405,874 363,890 Cash, cash equivalents and restricted cash at end of period725,067 539,841 
Restricted cash included in other current assetsRestricted cash included in other current assets(37,825)(53,842)Restricted cash included in other current assets(30,307)(14,584)
Restricted cash included in other assetsRestricted cash included in other assets(180,718)(101,934)Restricted cash included in other assets(226,858)(112,676)
Cash and cash equivalents at end of periodCash and cash equivalents at end of period$187,331 $208,114 Cash and cash equivalents at end of period$467,902 $412,581 
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Six Months Ended 
 June 30,
Nine Months Ended 
 September 30,
2023202220232022
Non-cash investing and financing activities:Non-cash investing and financing activities:Non-cash investing and financing activities:
Change in accounts payable and accrued expenses related to purchases of property and equipmentChange in accounts payable and accrued expenses related to purchases of property and equipment$4,315 $11,246 Change in accounts payable and accrued expenses related to purchases of property and equipment$66,022 $14,019 
Change in accounts payable and accrued expenses related to payments for investments and customer notes receivableChange in accounts payable and accrued expenses related to payments for investments and customer notes receivable$9,200 $1,904 Change in accounts payable and accrued expenses related to payments for investments and customer notes receivable$11,800 $21,750 
Non-cash issuance of common stock related to the settlement of contingent consideration$10,832 $16,014 
Non-cash settlement of receivables and payables with primarily dealers$12,803 $— 
Supplemental cash flow information:Supplemental cash flow information:Supplemental cash flow information:
Cash paid for interestCash paid for interest$123,966 $61,148 Cash paid for interest$213,016 $105,375 
Cash paid for income taxesCash paid for income taxes$9,193 $— Cash paid for income taxes$11,693 $— 

See accompanying notes to unaudited condensed consolidated financial statements.
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SUNNOVA ENERGY INTERNATIONAL INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
(in thousands, except share amounts)

Redeemable
Noncontrolling
Interests
Common StockAdditional
Paid-in
Capital -
Common
Stock
Accumulated
Deficit
Total
Stockholders'
Equity
Noncontrolling
Interests
Total
Equity
SharesAmount
December 31, 2021$145,336 113,386,600 $11 $1,649,199 $(459,715)$1,189,495 $286,782 $1,476,277 
Net income (loss)(2,432)— — — (35,058)(35,058)15,386 (19,672)
Issuance of common stock, net— 524,788 — (2,976)— (2,976)— (2,976)
Contributions from redeemable noncontrolling interests and noncontrolling interests3,757 — — — — — 48,132 48,132 
Distributions to redeemable noncontrolling interests and noncontrolling interests(1,122)— — — — — (4,732)(4,732)
Costs related to redeemable noncontrolling interests and noncontrolling interests(57)— — — — — (2,292)(2,292)
Equity in subsidiaries attributable to parent(173)— — — 69,769 69,769 (69,596)173 
Equity-based compensation expense— — — 10,864 — 10,864 — 10,864 
Other, net(123)— — — — — 174 174 
March 31, 2022145,186 113,911,388 11 1,657,087 (425,004)1,232,094 273,854 1,505,948 
Net income (loss)4,563 — — — (41,137)(41,137)22,743 (18,394)
Issuance of common stock, net— 745,829 — 15,828 — 15,828 — 15,828 
Contributions from redeemable noncontrolling interests and noncontrolling interests13,423 — — — — — 111,967 111,967 
Distributions to redeemable noncontrolling interests and noncontrolling interests(1,239)— — — — — (5,237)(5,237)
Costs related to redeemable noncontrolling interests and noncontrolling interests(193)— — — — — (2,417)(2,417)
Equity in subsidiaries attributable to parent(10,168)— — — 83,316 83,316 (73,148)10,168 
Equity-based compensation expense— — — 4,732 — 4,732 — 4,732 
Other, net(65)— — — (1)(1)(2,010)(2,011)
June 30, 2022$151,507 114,657,217 $11 $1,677,647 $(382,826)$1,294,832 $325,752 $1,620,584 

Redeemable
Noncontrolling
Interests
Common StockAdditional
Paid-in
Capital -
Common
Stock
Accumulated
Deficit
Total
Stockholders'
Equity
Noncontrolling
Interests
Total
Equity
SharesAmount
December 31, 2021$145,336 113,386,600 $11 $1,649,199 $(459,715)$1,189,495 $286,782 $1,476,277 
Net income (loss)(2,432)— — — (35,058)(35,058)15,386 (19,672)
Issuance of common stock, net— 524,788 — (2,976)— (2,976)— (2,976)
Contributions from redeemable noncontrolling interests and noncontrolling interests3,757 — — — — — 48,132 48,132 
Distributions to redeemable noncontrolling interests and noncontrolling interests(1,122)— — — — — (4,732)(4,732)
Costs related to redeemable noncontrolling interests and noncontrolling interests(57)— — — — — (2,292)(2,292)
Equity in subsidiaries attributable to parent(173)— — — 69,769 69,769 (69,596)173 
Equity-based compensation expense— — — 10,864 — 10,864 — 10,864 
Other, net(123)— — — — — 174 174 
March 31, 2022145,186 113,911,388 11 1,657,087 (425,004)1,232,094 273,854 1,505,948 
Net income (loss)4,563 — — — (41,137)(41,137)22,743 (18,394)
Issuance of common stock, net— 745,829 — 15,828 — 15,828 — 15,828 
Contributions from redeemable noncontrolling interests and noncontrolling interests13,423 — — — — — 111,967 111,967 
Distributions to redeemable noncontrolling interests and noncontrolling interests(1,239)— — — — — (5,237)(5,237)
Costs related to redeemable noncontrolling interests and noncontrolling interests(193)— — — — — (2,417)(2,417)
Equity in subsidiaries attributable to parent(10,168)— — — 83,316 83,316 (73,148)10,168 
Equity-based compensation expense— — — 4,732 — 4,732 — 4,732 
Other, net(65)— — — (1)(1)(2,010)(2,011)
June 30, 2022151,507 114,657,217 11 1,677,647 (382,826)1,294,832 325,752 1,620,584 
Net income (loss)(1,507)— — — (64,543)(64,543)33,702 (30,841)
Issuance of common stock, net— 238,653 — (183)— (183)— (183)
Capped call transactions— — — (48,420)— (48,420)— (48,420)
Contributions from redeemable noncontrolling interests and noncontrolling interests5,990 — — — — — 53,392 53,392 
Distributions to redeemable noncontrolling interests and noncontrolling interests(1,203)— — — — — (7,314)(7,314)
Costs related to redeemable noncontrolling interests and noncontrolling interests(8)— — — — — (226)(226)
Equity in subsidiaries attributable to parent(1,240)— — — 52,191 52,191 (50,951)1,240 
Equity-based compensation expense— — — 4,463 — 4,463 — 4,463 
Other, net(70)— — — — — (854)(854)
September 30, 2022$153,469 114,895,870 $11 $1,633,507 $(395,178)$1,238,340 $353,501 $1,591,841 
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Redeemable
Noncontrolling
Interests
Common StockAdditional
Paid-in
Capital -
Common
Stock
Accumulated
Deficit
Total
Stockholders'
Equity
Noncontrolling
Interests
Total
Equity
SharesAmount
December 31, 2022$165,737 114,939,079 $11 $1,637,847 $(364,782)$1,273,076 $448,637 $1,721,713 
Net loss(20,404)— — — (81,083)(81,083)(8,859)(89,942)
Issuance of common stock, net— 645,580 (1,625)— (1,624)— (1,624)
Contributions from redeemable noncontrolling interests and noncontrolling interests60,203 — — — — — 114,748 114,748 
Distributions to redeemable noncontrolling interests and noncontrolling interests(1,448)— — — — — (7,106)(7,106)
Costs related to redeemable noncontrolling interests and noncontrolling interests(2,605)— — — — — (1,460)(1,460)
Equity in subsidiaries attributable to parent(21,528)— — — 78,893 78,893 (57,365)21,528 
Equity-based compensation expense— — — 9,515 — 9,515 — 9,515 
Other, net(453)— — — — — (110)(110)
March 31, 2023179,502 115,584,659 12 1,645,737 (366,972)1,278,777 488,485 1,767,262 
Net income (loss)860 — — — (86,091)(86,091)(15,550)(101,641)
Issuance of common stock, net— 809,283 — 11,409 — 11,409 — 11,409 
Contributions from redeemable noncontrolling interests and noncontrolling interests40,201 — — — — — 104,204 104,204 
Distributions to redeemable noncontrolling interests and noncontrolling interests(2,498)— — — — — (7,320)(7,320)
Costs related to redeemable noncontrolling interests and noncontrolling interests(719)— — — — — (721)(721)
Equity in subsidiaries attributable to parent(111,121)— — — 180,877 180,877 (69,756)111,121 
Equity-based compensation expense— — — 4,803 — 4,803 — 4,803 
Other, net(6,144)— — — — — (1,073)(1,073)
June 30, 2023$100,081 116,393,942 $12 $1,661,949 $(272,186)$1,389,775 $498,269 $1,888,044 

Redeemable
Noncontrolling
Interests
Common StockAdditional
Paid-in
Capital -
Common
Stock
Accumulated
Deficit
Total
Stockholders'
Equity
Noncontrolling
Interests
Total
Equity
SharesAmount
December 31, 2022$165,737 114,939,079 $11 $1,637,847 $(364,782)$1,273,076 $448,637 $1,721,713 
Net loss(20,404)— — — (81,083)(81,083)(8,859)(89,942)
Issuance of common stock, net— 645,580 (1,625)— (1,624)— (1,624)
Contributions from redeemable noncontrolling interests and noncontrolling interests60,203 — — — — — 114,748 114,748 
Distributions to redeemable noncontrolling interests and noncontrolling interests(1,448)— — — — — (7,106)(7,106)
Costs related to redeemable noncontrolling interests and noncontrolling interests(2,605)— — — — — (1,460)(1,460)
Equity in subsidiaries attributable to parent(21,528)— — — 78,893 78,893 (57,365)21,528 
Equity-based compensation expense— — — 9,515 — 9,515 — 9,515 
Other, net(453)— — — — — (110)(110)
March 31, 2023179,502 115,584,659 12 1,645,737 (366,972)1,278,777 488,485 1,767,262 
Net income (loss)860 — — — (86,091)(86,091)(15,550)(101,641)
Issuance of common stock, net— 809,283 — 11,409 — 11,409 — 11,409 
Contributions from redeemable noncontrolling interests and noncontrolling interests40,201 — — — — — 104,204 104,204 
Distributions to redeemable noncontrolling interests and noncontrolling interests(2,498)— — — — — (7,320)(7,320)
Costs related to redeemable noncontrolling interests and noncontrolling interests(719)— — — — — (721)(721)
Equity in subsidiaries attributable to parent(111,121)— — — 180,877 180,877 (69,756)111,121 
Equity-based compensation expense— — — 4,803 — 4,803 — 4,803 
Other, net(6,144)— — — — — (1,073)(1,073)
June 30, 2023100,081 116,393,942 12 1,661,949 (272,186)1,389,775 498,269 1,888,044 
Net income (loss)(8,715)— — — (63,147)(63,147)15,399 (47,748)
Issuance of common stock, net— 6,011,846 — 81,976 — 81,976 — 81,976 
Contributions from redeemable noncontrolling interests and noncontrolling interests137,580 — — — — — 63,675 63,675 
Distributions to redeemable noncontrolling interests and noncontrolling interests(3,347)— — — — — (8,440)(8,440)
Costs related to redeemable noncontrolling interests and noncontrolling interests(2,575)— — — — — (155)(155)
Equity in subsidiaries attributable to parent(96,524)— — — 143,820 143,820 (47,296)96,524 
Equity-based compensation expense— — — 5,494 — 5,494 — 5,494 
Other, net(2,418)— — — — — (1,576)(1,576)
September 30, 2023$124,082 122,405,788 $12 $1,749,419 $(191,513)$1,557,918 $519,876 $2,077,794 

See accompanying notes to unaudited condensed consolidated financial statements.
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(1) Description of Business and Basis of Presentation

We are a leading Energy as a Service provider, serving over 348,000386,000 customers in more than 45 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 dealer model in which we partner with local dealers who originate, design and install our customers' solar energy systems, energy storage systems and related products and services 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, reduces exposure to labor shortages and lowers fixed costs relative to our peers, furthering our competitive advantage.

We provide our services through long-term agreements with a diversified pool of credit quality customers. Our solar service agreements typically are structured as either a legal-form lease (a "lease") of a solar energy system and/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, energy storage system and/or accessory either with financing provided by us (a "loan") or paid in full by the customer (a "sale"); however, we also offer service plans and repair services for systems we did not originate. We make it possible in some states for a customer to obtain a new roof and/or other ancillary products. We also allow customers originated through our homebuilder channel the option of purchasing the system when the customer closes on the purchase of a new home. The initial term of our solar service agreements is typically between 10 and 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 two five-year or one 10-year renewal options. Our ancillary products include both cash sales and loans with an initial term between one year and 20 years. Customer payments and rates can be fixed for the duration of the solar service agreement or escalated at a pre-determined percentage annually. We also receive tax benefits and other incentives from leases and PPAs, a portion of which we finance through tax equity, non-recourse debt structures and hedging arrangements in order to fund our upfront costs, overhead and growth investments. Our future success depends in part on our ability to raise capital from third-party investors and commercial sources. We have an established track record of attracting capital from diverse sources. From our inception through JuneSeptember 30, 2023, we have raised more than $13.3$14.5 billion in total capital commitments from equity, debt and tax equity investors.

Basis of Presentation

The accompanying interim unaudited condensed consolidated financial statements ("interim financial statements") include our consolidated balance sheets, statements of operations, statements of redeemable noncontrolling interests and 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 2022 annual audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K filed with the SEC on February 23, 2023. 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 include our accounts 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 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 holding a majority of the voting interests. A primary beneficiary is defined as the party that has (a) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and (b) the
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
obligation to absorb losses or receive benefits from the VIE that could potentially be significant to the VIE. We do not
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consolidate a VIE in which we have a majority ownership interest when we are not considered the primary beneficiary. We have considered the provisions within the contractual arrangements that grant us power to manage and make decisions that affect the operation of our VIEs, including determining the solar energy systems contributed to the VIEs, and the installation, operation and maintenance of the solar energy systems. We consider the rights granted to the other investors under the contractual arrangements to be more protective in nature rather than substantive participating rights. As such, we have determined we are the primary beneficiary of our VIEs and evaluate our relationships with our VIEs on an ongoing basis to determine whether we continue to be the primary beneficiary. We have eliminated all intercompany transactions in consolidation.

Reclassifications

Certain 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.

Revisions

We have revised our previously issued interim financial statements to correct immaterial errors pertaining to our interest rate derivative financial instruments, specifically the credit valuation adjustment to account for the counterparties' credit risk. We originally did not record the estimated reduction to the derivative assets related to the credit valuation adjustment as of March 31, 2022, June 30, 2022 and JuneSeptember 30, 2022. These immaterial errors impacted our consolidated balance sheets, consolidated statements of operations, consolidated statements of cash flows and consolidated statements of redeemable noncontrolling interests and equity. The following tables present the impact of these revisions on the interim financial statements:

Consolidated Balance Sheets
As of March 31, 2022
As Previously
Reported
RevisionsAs
Revised
(in thousands)
Other assets$662,456 $(1,475)$660,981 
Accumulated deficit$(423,529)$(1,475)$(425,004)

As of June 30, 2022
As Previously
Reported
RevisionsAs
Revised
(in thousands)
Other assets$802,862 $(5,609)$797,253 
Accumulated deficit$(377,217)$(5,609)$(382,826)

Consolidated Statements of Operations
Three Months Ended March 31, 2022
As Previously
Reported
RevisionsAs
Revised
(in thousands)
Interest expense, net$(2,490)$1,475 $(1,015)
Loss before income tax$(20,629)$(1,475)$(22,104)
Net loss$(20,629)$(1,475)$(22,104)
Net loss attributable to stockholders$(33,583)$(1,475)$(35,058)
Net loss per share attributable to stockholders—basic and diluted$(0.30)$(0.01)$(0.31)
As of September 30, 2022
As Previously
Reported
RevisionsAs
Revised
(in thousands)
Other assets$920,634 $(8,105)$912,529 
Accumulated deficit$(387,073)$(8,105)$(395,178)

Three Months Ended June 30, 2022Six Months Ended June 30, 2022
As Previously
Reported
RevisionsAs
Revised
As Previously
Reported
RevisionsAs
Revised
(in thousands)
Interest expense, net$20,437 $4,134 $24,571 $17,947 $5,609 $23,556 
Loss before income tax$(9,697)$(4,134)$(13,831)$(30,326)$(5,609)$(35,935)
Net loss$(9,697)$(4,134)$(13,831)$(30,326)$(5,609)$(35,935)
Net loss attributable to stockholders$(37,003)$(4,134)$(41,137)$(70,586)$(5,609)$(76,195)
Net loss per share attributable to stockholders—basic and diluted$(0.32)$(0.04)$(0.36)$(0.62)$(0.05)$(0.67)
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Consolidated Statements of Operations
Three Months Ended March 31, 2022
As Previously
Reported
RevisionsAs
Revised
(in thousands)
Interest expense, net$(2,490)$1,475 $(1,015)
Loss before income tax$(20,629)$(1,475)$(22,104)
Net loss$(20,629)$(1,475)$(22,104)
Net loss attributable to stockholders$(33,583)$(1,475)$(35,058)
Net loss per share attributable to stockholders—basic and diluted$(0.30)$(0.01)$(0.31)

Three Months Ended June 30, 2022Six Months Ended June 30, 2022
As Previously
Reported
RevisionsAs
Revised
As Previously
Reported
RevisionsAs
Revised
(in thousands)
Interest expense, net$20,437 $4,134 $24,571 $17,947 $5,609 $23,556 
Loss before income tax$(9,697)$(4,134)$(13,831)$(30,326)$(5,609)$(35,935)
Net loss$(9,697)$(4,134)$(13,831)$(30,326)$(5,609)$(35,935)
Net loss attributable to stockholders$(37,003)$(4,134)$(41,137)$(70,586)$(5,609)$(76,195)
Net loss per share attributable to stockholders—basic and diluted$(0.32)$(0.04)$(0.36)$(0.62)$(0.05)$(0.67)

Three Months Ended September 30, 2022Nine Months Ended September 30, 2022
As Previously
Reported
RevisionsAs
Revised
As Previously
Reported
RevisionsAs
Revised
(in thousands)
Interest expense, net$18,328 $2,496 $20,824 $36,275 $8,105 $44,380 
Loss before income tax$(29,852)$(2,496)$(32,348)$(60,178)$(8,105)$(68,283)
Net loss$(29,852)$(2,496)$(32,348)$(60,178)$(8,105)$(68,283)
Net loss attributable to stockholders$(62,047)$(2,496)$(64,543)$(132,633)$(8,105)$(140,738)
Net loss per share attributable to stockholders—basic and diluted$(0.54)$(0.02)$(0.56)$(1.16)$(0.07)$(1.23)

Consolidated Statements of Cash Flows
Three Months Ended March 31, 2022
As Previously
Reported
RevisionsAs
Revised
(in thousands)
Net loss$(20,629)$(1,475)$(22,104)
Unrealized gain on derivatives$(35,349)$1,475 $(33,874)
Net cash used in operating activities$(92,129)$— $(92,129)

Six Months Ended June 30, 2022
As Previously
Reported
RevisionsAs
Revised
(in thousands)
Net loss$(30,326)$(5,609)$(35,935)
Unrealized gain on derivatives$(6,626)$5,609 $(1,017)
Net cash used in operating activities$(162,343)$— $(162,343)

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 30, 2022
As Previously
Reported
RevisionsAs
Revised
(in thousands)
Net loss$(60,178)$(8,105)$(68,283)
Unrealized gain on derivatives$(35,685)$8,105 $(27,580)
Net cash used in operating activities$(265,795)$— $(265,795)

Consolidated Statements of Redeemable Noncontrolling Interests and Equity
Accumulated DeficitAccumulated Deficit
As Previously
Reported
RevisionsAs
Revised
As Previously
Reported
RevisionsAs
Revised
(in thousands)(in thousands)
December 31, 2021December 31, 2021$(459,715)$— $(459,715)December 31, 2021$(459,715)$— $(459,715)
Net loss attributable to stockholdersNet loss attributable to stockholders(33,583)(1,475)(35,058)Net loss attributable to stockholders(33,583)(1,475)(35,058)
Equity in subsidiaries attributable to parentEquity in subsidiaries attributable to parent69,769 — 69,769 Equity in subsidiaries attributable to parent69,769 — 69,769 
March 31, 2022March 31, 2022(423,529)(1,475)(425,004)March 31, 2022(423,529)(1,475)(425,004)
Net loss attributable to stockholdersNet loss attributable to stockholders(37,003)(4,134)(41,137)Net loss attributable to stockholders(37,003)(4,134)(41,137)
Equity in subsidiaries attributable to parentEquity in subsidiaries attributable to parent83,316 — 83,316 Equity in subsidiaries attributable to parent83,316 — 83,316 
Other, netOther, net(1)— (1)Other, net(1)— (1)
June 30, 2022June 30, 2022$(377,217)$(5,609)$(382,826)June 30, 2022(377,217)(5,609)(382,826)
Net loss attributable to stockholdersNet loss attributable to stockholders(62,047)(2,496)(64,543)
Equity in subsidiaries attributable to parentEquity in subsidiaries attributable to parent52,191 — 52,191 
September 30, 2022September 30, 2022$(387,073)$(8,105)$(395,178)

(2) Significant Accounting Policies

Included below are updates to significant accounting policies disclosed in our 2022 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 customers 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 based on the best available data at the time. 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. The following table presents
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the changes in the allowance for credit losses recorded against accounts receivabletrade, net in the unaudited condensed consolidated balance sheets:

Three Months Ended 
 June 30,
Six Months Ended 
 June 30,
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
20232022202320222023202220232022
(in thousands)(in thousands)
Balance at beginning of periodBalance at beginning of period$1,887 $1,065 $1,676 $1,044 Balance at beginning of period$2,143 $1,198 $1,676 $1,044 
Provision for current expected credit lossesProvision for current expected credit losses1,177 614 2,105 1,089 Provision for current expected credit losses1,474 802 3,579 1,891 
Write off of uncollectible accountsWrite off of uncollectible accounts(969)(546)(1,748)(1,052)Write off of uncollectible accounts(1,257)(717)(3,005)(1,769)
RecoveriesRecoveries48 65 110 117 Recoveries96 83 206 200 
Balance at end of periodBalance at end of period$2,143 $1,198 $2,143 $1,198 Balance at end of period$2,456 $1,366 $2,456 $1,366 

Accounts Receivable—Other.    Accounts receivable—other primarily represents receivables from our dealers or other parties related to the sale of inventory and the use of inventory procured by us.

Inventory

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

As of 
 June 30, 2023
As of 
 December 31, 2022
As of 
 September 30, 2023
As of 
 December 31, 2022
(in thousands)(in thousands)
Energy storage systems and componentsEnergy storage systems and components$109,800 $74,968 Energy storage systems and components$69,082 $74,968 
Homebuilder construction in progressHomebuilder construction in progress44,555 43,116 Homebuilder construction in progress43,179 43,116 
Modules and invertersModules and inverters23,362 32,798 Modules and inverters23,872 32,798 
Meters and modemsMeters and modems1,492 1,166 Meters and modems1,541 1,166 
OtherOther— 65 Other— 65 
TotalTotal$179,209 $152,113 Total$137,674 $152,113 

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

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy must be determined based on the lowest level input that is significant to the fair value measurement. An assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability. Our financial instruments include cash, cash equivalents, accounts receivable, customer notes receivable, investments in solar receivables, accounts payable, accrued expenses, long-term debt, interest rate swaps and caps and contingent consideration. The carrying values of accounts receivable, accounts payable and accrued expenses approximate the fair values due to the fact that they are short-term in nature (Level 1). We estimate the fair value of our customer notes receivable based on interest rates currently offered under the loan program with similar maturities and terms (Level 3). We estimate the fair value of our investments in solar receivables based on a discounted cash flows model that utilizes market data related to solar irradiance, production factors by region and projected electric utility rates in order to build up revenue projections (Level 3). In addition, lease-related revenue and maintenance and service costs were supported through the use of available market studies and data. We estimate the fair value of our fixed-rate long-term debt based on an analysis of debt with similar book values, maturities and required market yields based on current interest rates (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 and counterparty credit risk as key inputs. The floating interest rate is based on observable rates consistent with the frequency of the interest cash flows (Level 2). For contingent consideration, we estimate the fair value of the installation earnout using the Monte Carlo model based on the forecasted placements for the installations and the microgrid earnout using a scenario-based methodology based on the probabilities of the microgrid earnout, both using Level 3 inputs. See Note 6, Customer Notes Receivable, Note 7, Long-Term Debt and Note 8, Derivative Instruments.

The following tables present our financial instruments measured at fair value on a recurring basis as of JuneSeptember 30, 2023 and December 31, 2022:

As of June 30, 2023As of September 30, 2023
TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3
(in thousands)(in thousands)
Financial assets:Financial assets:Financial assets:
Investments in solar receivablesInvestments in solar receivables$68,362 $— $— $68,362 Investments in solar receivables$64,250 $— $— $64,250 
Derivative assetsDerivative assets122,271 — 122,271 — Derivative assets129,643 — 129,643 — 
TotalTotal$190,633 $— $122,271 $68,362 Total$193,893 $— $129,643 $64,250 
Financial liabilities:Financial liabilities:Financial liabilities:
Contingent considerationContingent consideration$22,243 $— $— $22,243 Contingent consideration$12,874 $— $— $12,874 
TotalTotal$22,243 $— $— $22,243 Total$12,874 $— $— $12,874 

As of December 31, 2022
TotalLevel 1Level 2Level 3
(in thousands)
Financial assets:
Investments in solar receivables$72,171 $— $— $72,171 
Derivative assets112,712 — 112,712 — 
Total$184,883 $— $112,712 $72,171 
Financial liabilities:
Contingent consideration$26,787 $— $— $26,787 
Total$26,787 $— $— $26,787 

Changes in the fair value of our investments in solar receivables are included in other operating expense/income in the consolidated statements of operations. The following table summarizes the change in the fair value of our financial assets
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accounted for at fair value on a recurring basis using Level 3 inputs as recorded in other current assets and other assets (see Note 4, Detail of Certain Balance Sheet Captions) in the unaudited condensed consolidated balance sheets:

Six Months Ended 
 June 30,
Nine Months Ended 
 September 30,
2023202220232022
(in thousands)(in thousands)
Balance at beginning of periodBalance at beginning of period$72,171 $82,658 Balance at beginning of period$72,171 $82,658 
AdditionsAdditions969 — Additions969 — 
SettlementsSettlements(5,145)(4,412)Settlements(8,931)(8,090)
Gain (loss) recognized in earningsGain (loss) recognized in earnings367 (3,376)Gain (loss) recognized in earnings41 (2,912)
Balance at end of periodBalance at end of period$68,362 $74,870 Balance at end of period$64,250 $71,656 

Changes in the fair value of our contingent consideration are included in other operating expense/income in the consolidated statements of operations. The following table summarizes the change in the fair value of our financial liabilities accounted for at fair value on a recurring basis using Level 3 inputs as recorded in other long-term liabilities in the unaudited condensed consolidated balance sheets:

Six Months Ended 
 June 30,
Nine Months Ended 
 September 30,
2023202220232022
(in thousands)(in thousands)
Balance at beginning of periodBalance at beginning of period$26,787 $67,895 Balance at beginning of period$26,787 $67,895 
SettlementsSettlements(10,831)(16,014)Settlements(10,831)(16,014)
(Gain) loss recognized in earnings6,287 (17,821)
Gain recognized in earningsGain recognized in earnings(3,082)(6,720)
Balance at end of periodBalance at end of period$22,243 $34,060 Balance at end of period$12,874 $45,161 

The following table summarizes the significant unobservable inputs used in the valuation of our liabilities as of JuneSeptember 30, 2023 using Level 3 inputs:

Unobservable
Input
Weighted
Average
Liabilities:
Contingent consideration - installation earnoutVolatility35.00%
Revenue risk premium15.30%15.00%
Risk-free discount rate5.00%5.25%
Contingent consideration - microgrid earnoutProbability of success25.00%10.00%
Risk-free discount rate5.00%5.25%

Significant increases or decreases in the volatility, revenue risk premium, probability of success or risk-free discount rate in isolation could result in a significantly higher or lower fair value measurement.

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Revenue

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

Three Months Ended 
 June 30,
Six Months Ended 
 June 30,
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
20232022202320222023202220232022
(in thousands)(in thousands)
PPA revenuePPA revenue$39,155 $31,159 $60,901 $52,344 PPA revenue$38,300 $31,891 $99,201 $84,235 
Lease revenueLease revenue34,159 24,025 65,502 45,805 Lease revenue37,966 25,912 103,468 71,717 
Inventory sales revenueInventory sales revenue26,492 54,245 86,406 54,245 Inventory sales revenue51,356 45,528 137,762 99,773 
Service revenueService revenue19,981 1,726 35,959 2,715 Service revenue19,323 4,309 55,282 7,024 
Solar renewable energy certificate revenueSolar renewable energy certificate revenue15,055 14,687 22,846 20,931 Solar renewable energy certificate revenue16,136 16,241 38,982 37,172 
Cash sales revenueCash sales revenue21,724 15,414 38,543 26,762 Cash sales revenue24,284 18,933 62,827 45,695 
Loan revenueLoan revenue8,112 4,194 15,255 7,570 Loan revenue9,283 5,012 24,538 12,582 
Other revenueOther revenue1,699 1,562 2,661 2,362 Other revenue1,750 1,538 4,411 3,900 
TotalTotal$166,377 $147,012 $328,073 $212,734 Total$198,398 $149,364 $526,471 $362,098 

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, net of cash incentives. 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 $4.1$4.7 billion as of JuneSeptember 30, 2023, of which we expect to recognize approximately 3% 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 four years.

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

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

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

In most cases, 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 related 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
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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 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 customer's payments, if needed, are payable as early as the first anniversary of the solar energy system's placed in service date and then every annual period thereafter. See Note 14, Commitments and Contingencies.

Inventory Sales.    Inventory sales revenue represents revenue from the direct sale of inventory to our dealers or other parties. We recognize the related revenue under ASC 606 upon shipment.shipment or upon sale when a bill and hold agreement is in place. Shipping and handling costs are included in cost of revenue—inventory sales in the consolidated statements of operations.

Service Revenue.    Service revenue includes revenue from the direct sale of solar energy systems and energy storage systems to customers with financing provided by us and sales of service plans and repair services. 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 on a straight-line basis over the life of the contract, which is typically 10 years. We recognize revenue from repair services in the period in which the service was performed.

Solar Renewable Energy Certificates.    Each solar renewable energy certificate ("SREC") represents the environmental benefit of one megawatt hour (1,000 kWh) generated by a solar energy system. SRECs can be sold separate from the actual electricity generated by 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 JuneSeptember 30, 2023 and December 31, 2022. We enter into economic hedges related to expected production of SRECs through forward contracts. While these fixed price forward contracts serve as an economic hedge against spot price fluctuations for the SRECs, the contracts do not qualify for hedge accounting and are not designated as cash flow hedges or fair value hedges. 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.

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

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

Other Revenue.    Other revenue includes certain state and utility incentives. We recognize revenue from state and utility incentives in the periods in which they are earned.

Loans

We offer a loan program, under which the customer finances the purchase of a solar energy system, energy storage system and/or accessory 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; (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; 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 600 to 710 depending on certain circumstances, and we secure the loans with the solar energy
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systems, energy storage systems or accessories 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.
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Our investments in solar energy systems, energy storage systems and accessories 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 current loan-specific risk characteristics, such as differences in underwriting standards. Expected credit losses are estimated over the contractual term of the loan agreements based on the best available data at the time and adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless either of the following applies: (a) we have a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual customer or (b) the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancelable by us. Expected credit losses are recorded in general and administrative expense in the consolidated statements of operations. 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) payments for unfulfilled performance obligations that will be recognized on a straight-line basis over the remaining term of the respective solar service agreements, net of any cash incentives earned by the customers, (b) down payments and partial or full prepayments from customers and (c) differences due to the timing of energy production versus billing for certain types of PPAs. Deferred revenue was $297.8 million as of December 31, 2021. The following table presents the detail of deferred revenue as recorded in other current liabilities and other long-term liabilities in the unaudited condensed consolidated balance sheets:

As of 
 June 30, 2023
As of 
 December 31, 2022
As of 
 September 30, 2023
As of 
 December 31, 2022
(in thousands)(in thousands)
LoansLoans$783,789 $586,128 Loans$871,981 $586,128 
PPAs and leasesPPAs and leases30,235 24,893 PPAs and leases34,122 24,893 
Solar receivablesSolar receivables4,471 4,602 Solar receivables4,405 4,602 
Other11 — 
Total (1)Total (1)$818,506 $615,623 Total (1)$910,508 $615,623 

(1) Of this amount, $41.3$46.4 million and $30.2 million is recorded in other current liabilities as of JuneSeptember 30, 2023 and December 31, 2022, respectively.

During the sixnine months ended JuneSeptember 30, 2023 and 2022, we recognized revenue of $12.0$28.8 million and $8.1$12.3 million, respectively, from amounts recorded in deferred revenue at the beginning of the respective years.

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Goodwill

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed. Goodwill is reviewed for impairment at least annually or whenever events or changes in circumstances indicate the carrying amount may be impaired. When assessing goodwill for impairment, we use qualitative and if necessary, quantitative methods in accordance with GAAP. As of September 30, 2023, we utilized a qualitative assessment and concluded it was more likely than not the fair value was greater than the carrying amount and thus, a goodwill impairment does not exist. As such, no further testing is required. Our review considered performance compared to released guidance, renewable market factors, liquidity and market capitalization including stock price along with other market factors including interest rate changes and inflation. Our annual assessment date is October 31 and should, among other events and circumstances, industry conditions deteriorate, the outlook for future operating results and cash flow decline or regulations change, costs of equity or debt capital increase, valuations for comparable public companies or our market capitalization experiences a sustained decline, we may need to further reassess the recoverability of goodwill in future periods.

Self-Insurance

In January 2023, we changed our health insurance policy for qualifying employees in the U.S. from a fully-insured policy to a self-insured policy in order to administer insurance coverage to our employees at a lower cost to us. The change in insurance policy did not have a significant impact on our consolidated financial statements and related disclosures. Under the self-insured policy, we maintain stop-loss coverage from a third party that limits our exposure to large claims. We record a liability associated with these benefits that includes an estimate of both claims filed and losses incurred but not yet reported based on historical claims experience. In estimating this accrual, we utilize a third-party actuary to estimate a range of expected losses, which are based on an analysis of historical data. Assumptions are monitored and adjusted when warranted by changing circumstances. We record our liability for estimated losses under our self-insured policy in accrued liabilities in the consolidated balance sheets. As of JuneSeptember 30, 2023, our liability for self-insured claims was $3.5$4.3 million, which represents our best estimate of the future cost of claims incurred as of that date. We believe we have adequate reserves for these claims as of JuneSeptember 30, 2023; however, the actual value of such claims could be significantly affected if future occurrences and claims differ from these assumptions.

Sales of Investment Tax Credits ("ITCs")

In September 2023, we entered into tax credit purchase agreements with a third-party purchaser to sell to such third-party purchaser, for cash, the Section 48(a) ITCs generated by certain solar energy systems that have or will be placed in service, subject to certain conditions set forth therein. We account for ITCs using the flow-through method. For tax credit purchase agreements entered into by certain of our consolidated tax equity partnerships, we record our share of the sale as income tax benefit and the tax equity investor's share as an increase to redeemable noncontrolling interest or noncontrolling interest. During the nine months ended September 30, 2023, we recognized ITC sales of $14.4 million, of which $11.8 million is recorded in income tax benefit in the unaudited condensed consolidated statements of operations and $2.6 million is recorded in redeemable noncontrolling interest in the unaudited condensed consolidated balance sheets.

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 March 2022, the FASB issued Accounting Standards Update ("ASU") No. 2022-02, Financial Instruments—Credit Losses: Troubled Debt Restructurings and Vintage Disclosures, to eliminate the accounting guidance for troubled debt restructurings while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. This ASU is effective for annual and interim reporting periods beginning in January 2023. We adopted this ASU in January 2023 and determined it did not have a significant impact on our consolidated financial statements and related disclosures.

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(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 
 June 30, 2023
As of 
 December 31, 2022
Useful LivesAs of 
 September 30, 2023
As of 
 December 31, 2022
(in years)(in thousands)(in years)(in thousands)
Solar energy systems and energy storage systemsSolar energy systems and energy storage systems35$4,295,288 $3,719,727 Solar energy systems and energy storage systems35$4,826,091 $3,719,727 
Construction in progressConstruction in progress528,008 329,893 Construction in progress619,171 329,893 
Asset retirement obligationsAsset retirement obligations3064,636 57,063 Asset retirement obligations3071,125 57,063 
Information technology systemsInformation technology systems384,871 72,797 Information technology systems3102,170 72,797 
Computers and equipmentComputers and equipment3-56,371 4,976 Computers and equipment3-56,944 4,976 
Leasehold improvementsLeasehold improvements3-66,015 5,558 Leasehold improvements3-66,170 5,558 
Furniture and fixturesFurniture and fixtures71,172 1,172 Furniture and fixtures71,172 1,172 
VehiclesVehicles4-51,640 1,640 Vehicles4-51,640 1,640 
OtherOther5-6158 157 Other5-6157 157 
Property and equipment, grossProperty and equipment, gross4,988,159 4,192,983 Property and equipment, gross5,634,640 4,192,983 
Less: accumulated depreciationLess: accumulated depreciation(475,649)(408,182)Less: accumulated depreciation(515,613)(408,182)
Property and equipment, netProperty and equipment, net$4,512,510 $3,784,801 Property and equipment, net$5,119,027 $3,784,801 

The amounts included in the above table for solar energy systems and energy storage systems and substantially all the construction in progress relate to our customer contracts (including PPAs and leases). These assets had accumulated depreciation of $418.2$451.9 million and $360.1 million as of JuneSeptember 30, 2023 and December 31, 2022, respectively.

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(4) Detail of Certain Balance Sheet Captions

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

As of 
 June 30, 2023
As of 
 December 31, 2022
As of 
 September 30, 2023
As of 
 December 31, 2022
(in thousands)(in thousands)
InventoryInventory$179,209 $152,113 Inventory$137,674 $152,113 
Current portion of customer notes receivableCurrent portion of customer notes receivable150,966 114,910 Current portion of customer notes receivable165,884 114,910 
Restricted cashRestricted cash37,825 51,733 Restricted cash30,307 51,733 
Prepaid assetsPrepaid assets29,713 17,492 Prepaid assets28,805 17,492 
Deferred receivablesDeferred receivables10,388 7,392 Deferred receivables12,984 7,392 
Current portion of investments in solar receivablesCurrent portion of investments in solar receivables7,804 7,107 Current portion of investments in solar receivables7,618 7,107 
OtherOther685 553 Other689 553 
TotalTotal$416,590 $351,300 Total$383,961 $351,300 

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

As of 
 June 30, 2023
As of 
 December 31, 2022
As of 
 September 30, 2023
As of 
 December 31, 2022
(in thousands)(in thousands)
Construction in progress - customer notes receivableConstruction in progress - customer notes receivable$247,588 $382,611 Construction in progress - customer notes receivable$190,019 $382,611 
Restricted cashRestricted cash180,718 133,584 Restricted cash226,858 133,584 
Exclusivity and other bonus arrangements with dealers, netExclusivity and other bonus arrangements with dealers, net173,799 121,313 Exclusivity and other bonus arrangements with dealers, net171,402 121,313 
Investments in solar receivablesInvestments in solar receivables60,558 65,064 Investments in solar receivables56,632 65,064 
Straight-line revenue adjustment, netStraight-line revenue adjustment, net57,803 53,086 Straight-line revenue adjustment, net60,059 53,086 
OtherOther237,312 206,233 Other281,960 206,233 
TotalTotal$957,778 $961,891 Total$986,930 $961,891 

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

As of 
 June 30, 2023
As of 
 December 31, 2022
As of 
 September 30, 2023
As of 
 December 31, 2022
(in thousands)(in thousands)
Interest payableInterest payable$42,910 $35,258 Interest payable$36,041 $35,258 
Deferred revenueDeferred revenue41,277 30,172 Deferred revenue46,403 30,172 
Current portion of operating and finance lease liabilityCurrent portion of operating and finance lease liability3,455 3,247 Current portion of operating and finance lease liability4,001 3,247 
Current portion of performance guarantee obligationsCurrent portion of performance guarantee obligations2,335 2,495 Current portion of performance guarantee obligations2,675 2,495 
OtherOther4,065 334 Other7,829 334 
TotalTotal$94,042 $71,506 Total$96,949 $71,506 

(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
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are recorded as either a reduction or addition in the carrying amount of the remaining unamortized asset and the ARO and either decrease or increase our depreciation and accretion expense amounts prospectively. The following table presents the changes in AROs as recorded in other long-term liabilities in the unaudited condensed consolidated balance sheets:

Six Months Ended 
 June 30,
Nine Months Ended 
 September 30,
2023202220232022
(in thousands)(in thousands)
Balance at beginning of periodBalance at beginning of period$69,869 $54,396 Balance at beginning of period$69,869 $54,396 
Additional obligations incurredAdditional obligations incurred7,604 5,390 Additional obligations incurred14,106 7,962 
Accretion expenseAccretion expense2,234 1,735 Accretion expense3,491 2,687 
OtherOther(44)(58)Other(61)(79)
Balance at end of periodBalance at end of period$79,663 $61,463 Balance at end of period$87,405 $64,966 

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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, energy storage system and/or accessory through a solar service agreement 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 
 June 30, 2023
As of 
 December 31, 2022
As of 
 September 30, 2023
As of 
 December 31, 2022
(in thousands)(in thousands)
Customer notes receivableCustomer notes receivable$3,481,602 $2,662,307 Customer notes receivable$3,807,628 $2,662,307 
Allowance for credit lossesAllowance for credit losses(102,337)(81,248)Allowance for credit losses(110,661)(81,248)
Customer notes receivable, netCustomer notes receivable, net$3,379,265 $2,581,059 Customer notes receivable, net$3,696,967 $2,581,059 
Estimated fair value, netEstimated fair value, net$3,316,523 $2,554,948 Estimated fair value, net$3,609,218 $2,554,948 

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 
 June 30,
Six Months Ended 
 June 30,
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
20232022202320222023202220232022
(in thousands)(in thousands)
Balance at beginning of periodBalance at beginning of period$91,459 $47,818 $81,248 $41,138 Balance at beginning of period$102,337 $57,043 $81,248 $41,138 
Provision for current expected credit lossesProvision for current expected credit losses10,878 9,225 21,089 15,869 Provision for current expected credit losses8,324 10,945 29,413 26,814 
RecoveriesRecoveries— — — 36 Recoveries— — — 36 
Balance at end of periodBalance at end of period$102,337 $57,043 $102,337 $57,043 Balance at end of period$110,661 $67,988 $110,661 $67,988 

As of JuneSeptember 30, 2023 and December 31, 2022, we invested $247.6$190.0 million and $382.6 million, respectively, in loan solar energy systems, energy storage systems and accessories not yet placed in service. For the three months ended JuneSeptember 30, 2023 and 2022, interest income related to our customer notes receivable was $23.1$26.8 million and $13.1$15.1 million, respectively. For the sixnine months ended JuneSeptember 30, 2023 and 2022, interest income related to our customer notes receivable was $43.2$69.9 million and $23.9$39.1 million, respectively. As of JuneSeptember 30, 2023 and December 31, 2022, accrued interest receivable related to our customer notes receivable was $23.2$25.8 million and $10.2 million, respectively. As of JuneSeptember 30, 2023 and December 31, 2022, there was $19.8$25.8 million and $12.6 million, respectively, of customer notes receivable not accruing interest and there was $436,000$568,000 and $278,000, respectively, of allowance recorded for loans on nonaccrual status. For the three months ended JuneSeptember 30, 2023 and 2022, interest income of $0 was recognized for loans on nonaccrual status and accrued interest receivable of $4,000$15,000 and $8,000, respectively, was written off by reversing interest income. For the sixnine months ended JuneSeptember 30, 2023 and 2022, interest income of $0 was recognized for loans on nonaccrual status and accrued interest receivable of $17,000$32,000 and $497,000,$505,000, respectively, was written off by reversing interest income.

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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 
 June 30, 2023
As of 
 December 31, 2022
As of 
 September 30, 2023
As of 
 December 31, 2022
(in thousands)(in thousands)
1-90 days past due1-90 days past due$116,075 $91,668 1-90 days past due$147,369 $91,668 
91-180 days past due91-180 days past due26,263 16,859 91-180 days past due32,861 16,859 
Greater than 180 days past dueGreater than 180 days past due48,912 14,504 Greater than 180 days past due62,252 14,504 
Total past dueTotal past due191,250 123,031 Total past due242,482 123,031 
Not past dueNot past due3,290,352 2,539,276 Not past due3,565,146 2,539,276 
TotalTotal$3,481,602 $2,662,307 Total$3,807,628 $2,662,307 

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of JuneSeptember 30, 2023 and December 31, 2022, the amortized cost of our customer notes receivable more than 90 days past due but not on nonaccrual status was $55.4$69.3 million and $31.4 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 YearAmortized Cost by Origination Year
20232022202120202019PriorTotal20232022202120202019PriorTotal
(in thousands)(in thousands)
Payment performance:Payment performance:Payment performance:
PerformingPerforming$882,708 $1,384,684 $714,073 $218,295 $110,807 $122,123 $3,432,690 Performing$1,237,601 $1,360,949 $703,184 $215,362 $111,257 $117,023 $3,745,376 
Nonperforming (1)Nonperforming (1)— 19,007 13,534 4,224 4,388 7,759 48,912 Nonperforming (1)1,655 26,752 16,337 4,979 4,543 7,986 62,252 
TotalTotal$882,708 $1,403,691 $727,607 $222,519 $115,195 $129,882 $3,481,602 Total$1,239,256 $1,387,701 $719,521 $220,341 $115,800 $125,009 $3,807,628 

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

(7) Long-Term Debt

Our subsidiaries with long-term debt include Sunnova Energy Corporation, Sunnova EZ-Own Portfolio, LLC ("EZOP"), Sunnova Helios II Issuer, LLC ("HELII"), Sunnova RAYS I Issuer, LLC ("RAYSI"), Sunnova Helios III Issuer, LLC ("HELIII"), Sunnova TEP Holdings, LLC ("TEPH"), Sunnova Sol Issuer, LLC ("SOLI"), Sunnova Helios IV Issuer, LLC ("HELIV"), Sunnova Asset Portfolio 8, LLC ("AP8"), Sunnova Sol II Issuer, LLC ("SOLII"), Sunnova Helios V Issuer, LLC ("HELV"), Sunnova Sol III Issuer, LLC ("SOLIII"), Sunnova Helios VI Issuer, LLC ("HELVI"), Sunnova Helios VII Issuer, LLC ("HELVII"), Sunnova Helios VIII Issuer, LLC ("HELVIII"), Sunnova Sol IV Issuer, LLC ("SOLIV"), Sunnova Helios IX Issuer, LLC ("HELIX"), Sunnova Helios X Issuer, LLC ("HELX"), Sunnova Inventory Supply, LLC ("IS"), Sunnova Sol V Issuer, LLC ("SOLV") and, Sunnova Helios XI Issuer, LLC ("HELXI"), Sunnova Helios XII Issuer, LLC ("HELXII") and Sunnova Asset Portfolio 9, LLC ("AP9"). The following table presents the detail of long-term debt, net as recorded in the unaudited condensed consolidated balance sheets:

Six Months Ended
June 30, 2023
Weighted Average
Effective Interest
Rates
As of June 30, 2023Year Ended
December 31, 2022
Weighted Average
Effective Interest
Rates
As of December 31, 2022Nine Months Ended
September 30, 2023
Weighted Average
Effective Interest
Rates
As of September 30, 2023Year Ended
December 31, 2022
Weighted Average
Effective Interest
Rates
As of December 31, 2022
Long-termCurrentLong-termCurrentLong-termCurrentLong-termCurrent
(in thousands, except interest rates)(in thousands, except interest rates)
SEISEISEI
0.25% convertible senior notes0.25% convertible senior notes0.71 %$575,000 $— 0.71 %$575,000 $— 0.25% convertible senior notes0.71 %$575,000 $— 0.71 %$575,000 $— 
2.625% convertible senior notes2.625% convertible senior notes3.05 %600,000 — 3.11 %600,000 — 2.625% convertible senior notes3.03 %600,000 — 3.11 %600,000 — 
Debt discount, netDebt discount, net(21,762)— (24,324)— Debt discount, net(20,471)— (24,324)— 
Deferred financing costs, netDeferred financing costs, net(856)— (920)— Deferred financing costs, net(802)— (920)— 
Sunnova Energy CorporationSunnova Energy CorporationSunnova Energy Corporation
Note payable8.34 %— 4,924 — — 
Notes payableNotes payable5.54 %— 5,878 — — 
5.875% senior notes5.875% senior notes6.59 %400,000 — 6.52 %400,000 — 5.875% senior notes6.55 %400,000 — 6.52 %400,000 — 
11.75% senior notes11.75% senior notes9.92 %400,000 — — — 
Debt discount, netDebt discount, net(3,141)— (3,767)— Debt discount, net(13,833)— (3,767)— 
Deferred financing costs, netDeferred financing costs, net(13,080)— (7,339)— 
EZOPEZOP
Revolving credit facilityRevolving credit facility8.65 %639,500 — 5.10 %500,000 — 
Debt discount, netDebt discount, net(343)— (532)— 
HELIIHELII
Solar asset-backed notesSolar asset-backed notes5.66 %194,933 9,065 5.69 %204,016 8,632 
Debt discount, netDebt discount, net(26)— (30)— 
Deferred financing costs, netDeferred financing costs, net(3,090)— (3,591)— 
RAYSIRAYSI
Solar asset-backed notesSolar asset-backed notes5.55 %106,666 6,280 5.54 %105,878 9,957 
Debt discount, netDebt discount, net(807)— (960)— 
Deferred financing costs, netDeferred financing costs, net(3,120)— (3,451)— 
HELIIIHELIII
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Deferred financing costs, net(6,349)— (7,339)— 
EZOP
Revolving credit facility8.51 %721,000 — 5.10 %500,000 — 
Debt discount, net(393)— (532)— 
HELII
Solar asset-backed notes5.69 %199,339 8,985 5.69 %204,016 8,632 
Debt discount, net(27)— (30)— 
Deferred financing costs, net(3,255)— (3,591)— 
RAYSI
Solar asset-backed notes5.62 %102,396 11,432 5.54 %105,878 9,957 
Debt discount, net(842)— (960)— 
Deferred financing costs, net(3,225)— (3,451)— 
HELIII
Solar loan-backed notesSolar loan-backed notes4.47 %90,342 10,208 4.42 %94,247 10,438 Solar loan-backed notes4.45 %87,862 10,095 4.42 %94,247 10,438 
Debt discount, netDebt discount, net(1,393)— (1,536)— Debt discount, net(1,318)— (1,536)— 
Deferred financing costs, netDeferred financing costs, net(1,337)— (1,474)— Deferred financing costs, net(1,265)— (1,474)— 
TEPHTEPHTEPH
Revolving credit facilityRevolving credit facility10.03 %473,840 — 7.74 %425,700 — Revolving credit facility9.99 %766,000 — 7.74 %425,700 — 
Debt discount, netDebt discount, net(1,510)— (2,043)— Debt discount, net(1,320)— (2,043)— 
SOLISOLISOLI
Solar asset-backed notesSolar asset-backed notes3.95 %342,701 14,807 3.92 %348,962 16,063 Solar asset-backed notes3.91 %339,489 13,672 3.92 %348,962 16,063 
Debt discount, netDebt discount, net(81)— (87)— Debt discount, net(77)— (87)— 
Deferred financing costs, netDeferred financing costs, net(6,302)— (6,827)— Deferred financing costs, net(6,035)— (6,827)— 
HELIVHELIVHELIV
Solar loan-backed notesSolar loan-backed notes4.19 %101,472 11,169 4.15 %105,655 11,494 Solar loan-backed notes4.17 %99,165 11,011 4.15 %105,655 11,494 
Debt discount, netDebt discount, net(488)— (564)— Debt discount, net(453)— (564)— 
Deferred financing costs, netDeferred financing costs, net(2,279)— (2,609)— Deferred financing costs, net(2,114)— (2,609)— 
AP8AP8AP8
Revolving credit facilityRevolving credit facility9.61 %177,000 — 20.52 %74,535 465 Revolving credit facility9.50 %— 213,400 20.52 %74,535 465 
SOLIISOLIISOLII
Solar asset-backed notesSolar asset-backed notes3.44 %226,853 7,003 3.41 %232,276 6,409 Solar asset-backed notes3.42 %224,368 7,340 3.41 %232,276 6,409 
Debt discount, netDebt discount, net(60)— (64)— Debt discount, net(58)— (64)— 
Deferred financing costs, netDeferred financing costs, net(4,263)— (4,576)— Deferred financing costs, net(4,106)— (4,576)— 
HELVHELVHELV
Solar loan-backed notesSolar loan-backed notes2.49 %139,219 13,925 2.47 %143,940 14,367 Solar loan-backed notes2.50 %136,508 13,709 2.47 %143,940 14,367 
Debt discount, netDebt discount, net(614)— (690)— Debt discount, net(577)— (690)— 
Deferred financing costs, netDeferred financing costs, net(2,378)— (2,661)— Deferred financing costs, net(2,234)— (2,661)— 
SOLIIISOLIIISOLIII
Solar asset-backed notesSolar asset-backed notes2.83 %266,311 16,776 2.78 %275,779 16,632 Solar asset-backed notes2.81 %261,947 16,763 2.78 %275,779 16,632 
Debt discount, netDebt discount, net(109)— (117)— Debt discount, net(106)— (117)— 
Deferred financing costs, netDeferred financing costs, net(5,247)— (5,616)— Deferred financing costs, net(5,061)— (5,616)— 
HELVIHELVIHELVI
Solar loan-backed notesSolar loan-backed notes2.12 %165,314 13,947 2.08 %167,669 16,770 Solar loan-backed notes2.11 %162,708 13,733 2.08 %167,669 16,770 
Debt discount, netDebt discount, net(36)— (40)— Debt discount, net(34)— (40)— 
Deferred financing costs, netDeferred financing costs, net(2,629)— (2,909)— Deferred financing costs, net(2,488)— (2,909)— 
HELVIIHELVIIHELVII
Solar loan-backed notesSolar loan-backed notes2.53 %125,963 11,786 2.50 %126,856 16,058 Solar loan-backed notes2.54 %125,045 10,384 2.50 %126,856 16,058 
Debt discount, netDebt discount, net(35)— (38)— Debt discount, net(33)— (38)— 
Deferred financing costs, netDeferred financing costs, net(2,000)— (2,193)— Deferred financing costs, net(1,898)— (2,193)— 
HELVIIIHELVIIIHELVIII
Solar loan-backed notesSolar loan-backed notes3.64 %245,888 25,490 3.54 %250,014 31,099 Solar loan-backed notes3.63 %243,105 22,967 3.54 %250,014 31,099 
Debt discount, netDebt discount, net(4,812)— (5,267)— Debt discount, net(4,579)— (5,267)— 
Deferred financing costs, netDeferred financing costs, net(3,751)— (4,080)— Deferred financing costs, net(3,570)— (4,080)— 
SOLIVSOLIVSOLIV
Solar asset-backed notesSolar asset-backed notes5.94 %332,915 8,240 5.76 %338,251 8,080 Solar asset-backed notes5.91 %329,677 8,355 5.76 %338,251 8,080 
Debt discount, netDebt discount, net(9,885)— (11,190)— 
Deferred financing costs, netDeferred financing costs, net(7,077)— (7,996)— 
HELIXHELIX
Solar loan-backed notesSolar loan-backed notes5.65 %191,394 23,945 5.46 %193,837 29,632 
Debt discount, netDebt discount, net(3,171)— (3,589)— 
Deferred financing costs, netDeferred financing costs, net(2,931)— (3,303)— 
HELXHELX
Solar loan-backed notesSolar loan-backed notes7.29 %200,868 22,671 6.23 %162,301 18,335 
Debt discount, netDebt discount, net(18,035)— (12,459)— 
Deferred financing costs, netDeferred financing costs, net(3,268)— (3,319)— 
ISIS
Revolving credit facilityRevolving credit facility8.67 %30,100 — — — 
SOLVSOLV
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Debt discount, net(10,324)— (11,190)— 
Deferred financing costs, net(7,395)— (7,996)— 
HELIX
Solar loan-backed notes5.68 %191,508 27,083 5.46 %193,837 29,632 
Debt discount, net(3,312)— (3,589)— 
Deferred financing costs, net(3,062)— (3,303)— 
HELX
Solar loan-backed notes7.36 %201,011 24,889 6.23 %162,301 18,335 
Debt discount, net(18,779)— (12,459)— 
Deferred financing costs, net(3,489)— (3,319)— 
IS
Revolving credit facility8.40 %37,100 — — — 
SOLV
Solar asset-backed notesSolar asset-backed notes6.70 %316,566 6,934 — — Solar asset-backed notes6.90 %314,261 7,554 — — 
Debt discount, netDebt discount, net(17,195)— — — Debt discount, net(16,344)— — — 
Deferred financing costs, netDeferred financing costs, net(7,515)— — — Deferred financing costs, net(7,054)— — — 
HELXIHELXIHELXI
Solar loan-backed notesSolar loan-backed notes6.00 %261,101 24,370 — — Solar loan-backed notes6.25 %251,057 29,644 — — 
Debt discount, netDebt discount, net(12,894)— — — Debt discount, net(12,451)— — — 
Deferred financing costs, netDeferred financing costs, net(5,777)— — — Deferred financing costs, net(5,494)— — — 
HELXIIHELXII
Solar loan-backed notesSolar loan-backed notes6.67 %215,462 23,667 — — 
Debt discount, netDebt discount, net(13,724)— — — 
Deferred financing costs, netDeferred financing costs, net(4,495)— — — 
AP9AP9
Revolving credit facilityRevolving credit facility11.79 %13,096 — — — 
Debt discount, netDebt discount, net(650)— — — 
TotalTotal$6,123,923 $241,968 $5,194,755 $214,431 Total$6,710,734 $470,133 $5,194,755 $214,431 

Availability.    As of JuneSeptember 30, 2023, we had $301.1$312.2 million of available borrowing capacity under our various financing arrangements, consisting of $54.0$235.5 million under the EZOP revolving credit facility, $226.2$3.3 million under the TEPH revolving credit facility, $8.0$1.6 million under the AP8 revolving credit facility, and $12.9$19.9 million under the IS revolving credit facility and $51.9 million under the AP9 revolving credit facility. There was no available borrowing capacity under any of our other financing arrangements. As of JuneSeptember 30, 2023, we were in compliance with all debt covenants under our financing arrangements.

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

EZOP Debt.    In February 2023, we amended the EZOP revolving credit facility to, among other things, (a) increase the aggregate commitment amount from $450.0 million to $675.0 million, (b) increase the uncommitted maximum facility amount from $575.0 million to $800.0 million, (c) amend certain provisions related to the allocation of certain payments made to the lenders, (d) amend certain provisions related to excess concentration limits and eligibility criteria to permit us and our affiliates to provide warranties of, and replacements for, load controllers and generators in connection with the related solar loan contracts and (e) add provisions to allow EZOP to request an increase in the aggregate commitment amount (subject to certain conditions) by adding additional lenders to the EZOP revolving credit facility. In February 2023, Credit Suisse AG ("Credit Suisse") sold a significant part of its Securitized Products Group (the "Credit Suisse Securitized Products Sale") to Apollo Global Management ("Apollo"). Subsequently, Apollo publicly announced the majority of the assets and professionals associated with the sale are now part of or managed by ATLAS SP Partners, a new stand-alone credit firm focused on asset-backed financing and capital markets solutions ("Atlas"). In March 2023, in connection with the Credit Suisse Securitized Products Sale, certain of our subsidiaries consented to the assignment of the loans and commitments of the Credit Suisse lenders to the Atlas lenders (such assignment, the "EZOP Assignment") under the EZOP revolving credit facility. In connection with the EZOP Assignment, Credit Suisse AG, New York Branch ("CSNYB") resigned as the agent under the EZOP revolving credit facility, Atlas Securitized Products Holdings, L.P. (the "Successor Agent") was appointed as the successor agent thereunder and, in connection with such appointment, the Successor Agent assumed the agent roles under the EZOP revolving credit facility. In connection with the appointment of Atlas as Successor Agent, the borrowers and the lenders party to the applicable agency resignation and appointment agreements consented to, among other things, Atlas' ability to assign the agent role under the EZOP revolving credit facility to one of its affiliates subject to certain conditions set forth therein. In March 2023, after the EZOP Assignment, we amended the EZOP revolving credit facility to, among other things, (a) increase the aggregate commitment amount from $675.0 million to $775.0 million, (b) increase the uncommitted maximum facility amount from $800.0 million to $900.0 million, (c) amend and supplement certain defaulting lender provisions and (d) update the references from CSNYB, the predecessor agent, to Atlas, the successor agent, and remove or modify certain provisions related to the borrowing, funding and allocation of payments among the previous lender syndicate (that previously included lenders
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
affiliated with Credit Suisse that, prior to the date of the amendment to the EZOP revolving credit facility and pursuant to the EZOP Assignment, had assigned their loans and commitments to lenders affiliated with Atlas). We currently do not haveIn August 2023, we amended the resourcesEZOP revolving credit facility to, repay thisamong other things, (a) increase the aggregate commitment amount from $775.0 million to $875.0 million, (b) increase the uncommitted maximum facility when it becomes due inamount from $900.0 million to $1.0 billion, (c) extend the maturity date from November 2024 however, we believe we will be able to satisfy this obligation through refinancingNovember 2025 and (d) amend the Advance Rate (as defined therein).
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Table of the facility. Although we believe it is probable we will refinance this facility, there can be no assurance about our ability to do so.Contents
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

TEPH Debt.    In March 2023, in connection with the Credit Suisse Securitized Products Sale, certain of our subsidiaries consented to the assignment of the loans and commitments of the Credit Suisse lenders to the Atlas lenders (such assignment, the "TEPH Assignment") under the TEPH revolving credit facility. In connection with the TEPH Assignment, CSNYB resigned as the agent under the TEPH revolving credit facility, Atlas was appointed as the successor agent thereunder and, in connection with such appointment, the Successor Agent assumed the agent roles under the TEPH revolving credit facility. In connection with the appointment of Atlas as Successor Agent, the borrowers and the lenders party to the applicable agency resignation and appointment agreements consented to, among other things, Atlas' ability to assign the agent role under the TEPH revolving credit facility to one of its affiliates subject to certain conditions set forth therein. In March 2023, after the TEPH Assignment, we amended the TEPH revolving credit facility to, among other things, (a) increase the aggregate commitment amount from $600.0 million to $700.0 million, (b) increase the uncommitted maximum facility amount from $689.7 million to $789.7 million, (c) add provisions to allow TEPH to request an increase in the aggregate commitment amount (subject to certain conditions) by adding additional lenders to the TEPH revolving credit facility, (d) amend and supplement certain defaulting lender provisions, (e) modify the hedging provisions to give all hedge counterparties the benefit of certain payment priorities and certain other terms previously limited to qualifying hedge counterparties (as defined by the TEPH revolving credit facility), to extend the time period for the event of default resulting from hedge counterparties ceasing to be qualifying hedge counterparties and to make other hedge-related amendments, (f) update the references from CSNYB, the predecessor administrative agent, to Atlas, the successor administrative agent, and remove or modify certain provisions related to the borrowing, funding and allocation of payments among the previous lender syndicate (that previously included lenders affiliated with Credit Suisse that, prior to the date of the amendment to the TEPH revolving credit facility and pursuant to the TEPH Assignment, had assigned their loans and commitments to lenders affiliated with Atlas), (g) add European Union bail-in provisions and (h) add certain syndication-related provisions. We currently do not haveIn August 2023, we amended the resourcesTEPH revolving credit facility to, repay thisamong other things, (a) increase the aggregate commitment amount from $700.0 million to $769.3 million, (b) increase the uncommitted maximum facility when it becomes due inamount from $789.7 million to $859.0 million and (c) extend the maturity date from November 2024 however, we believe we will be able to satisfy this obligation through refinancing of the facility. Although we believe it is probable we will refinance this facility, there can be no assurance about our ability to do so.November 2025.

AP8 Debt.    In March 2023, we amended the AP8 revolving credit facility to, among other things, increase the aggregate commitment amount from $75.0 million to $150.0 million. In June 2023, we amended the AP8 revolving credit facility to, among other things, increase the aggregate commitment amount from $150.0 million to $185.0 million. In August 2023, we amended the AP8 revolving credit facility to, among other things, increase the aggregate commitment amount from $185.0 million to $215.0 million. We believe we will be able to satisfy this obligation due in September 2024 through refinancing of the facility or alternatively through the use of our existing cash resources and liquidity.

IS Debt.    In March 2023, IS entered into a secured revolving credit facility with Texas Capital Bank, as agent, and the lenders party thereto, for an aggregate commitment amount of $50.0 million with a maturity date of the earlier of (a) March 2026 and (b) six months from the latest maturity date of any material parent credit facility (defined as a parent credit facility with a commitment amount of $250.0 million or more that, if terminated could individually be expected to result in a liquidity event (as defined by the IS revolving credit facility)). The proceeds of the loans under the IS revolving credit facility are available to purchase or otherwise acquire certain accounts receivable and inventory, fund certain reserve accounts that are required to be maintained by IS in accordance with the revolving credit agreement and pay fees and expenses incurred in connection with the IS revolving credit facility. Interest on the borrowings under the IS revolving credit facility is due monthly. Borrowings under the IS revolving credit facility bear interest at an annual rate based on Term SOFR (as defined by the IS revolving credit facility).

SOLV Debt.    In April 2023, we pooled and transferred eligible solar energy systems and the related asset receivables into wholly-owned subsidiaries of SOLV, a special purpose entity, that issued $300.0 million in aggregate principal amount of Series 2023-1 Class A solar asset-backed notes and $23.5 million in aggregate principal amount of Series 2023-1 Class B solar asset-backed notes (collectively, the "SOLV Notes") with a maturity date of April 2058. The SOLV Notes were issued at a discount of 5.01% and 11.63% for the Class A and Class B notes, respectively, and bear interest at an annual rate equal to 5.40% and 7.35% for the Class A and Class B notes, respectively. The cash flows generated by the solar energy systems of SOLV's subsidiaries are used to service the quarterly principal and interest payments on the SOLV Notes and satisfy SOLV's expenses, and any remaining cash can be distributed to Sunnova Sol V Depositor, LLC, SOLV's sole member. In connection with the SOLV Notes, certain of our affiliates receive a fee for managing and servicing the solar energy systems pursuant to a transaction management agreement and management 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 a transaction management agreement and management and servicing agreements, (b) the managing members' obligations, in such
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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 SOLV pursuant to the sale and contribution agreement. SOLV is also required to maintain certain reserve accounts for the benefit of the holders of the SOLV Notes, each of
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which must remain funded at all times to the levels specified in the SOLV Notes. The indenture requires SOLV to track the debt service coverage ratio (such ratio, the "DSCR") of (a) the amount of certain payments received from customers, certain performance based incentives, certain energy credits and any applicable insurance proceeds as of a specific date to (b) interest and scheduled principal due on the SOLV Notes as of such date, with the potential to enter into an early amortization period if the DSCR drops below a certain threshold. The holders of the SOLV Notes have no recourse to our other assets except as expressly set forth in the SOLV Notes.

HELXI Debt.    In May 2023, we pooled and transferred eligible solar loans and the related receivables into HELXI, a special purpose entity, that issued $174.9 million in aggregate principal amount of Series 2023-A Class A solar loan-backed notes, $80.1 million in aggregate principal amount of Series 2023-A Class B solar loan-backed notes and $31.7 million in aggregate principal amount of Series 2023-A Class C solar loan-backed notes (collectively, the "HELXI Notes") with a maturity date of May 2050. The HELXI Notes were issued at a discount of 2.57% for Class A, 5.31% for Class B and 13.56% for Class C and bear interest at an annual rate of 5.30%, 5.60% and 6.00%, for the Class A, Class B and Class C notes, respectively. The cash flows generated by these solar loans are used to service the monthly principal and interest payments on the HELXI Notes and satisfy HELXI's expenses, and any remaining cash can be distributed to Sunnova Helios XI Depositor, LLC, HELXI's sole member. In connection with the HELXI Notes, certain of our affiliates receive a fee for managing and servicing the solar energy systems pursuant to management and service agreements. In addition, Sunnova Energy Corporation has guaranteed, among other things, (a) the obligations of certain of our subsidiaries to manage and service the solar energy systems pursuant to management and servicing agreements and (b) certain of our subsidiaries' obligations to repurchase or substitute certain ineligible solar loans eventually sold to HELXI pursuant to the related sale and contribution agreement. HELXI is also required to maintain certain reserve accounts for the benefit of the holders of the HELXI Notes, each of which must be funded at all times to the levels specified in the HELXI Notes. The holders of the HELXI Notes have no recourse to our other assets except as expressly set forth in the HELXI Notes.

HELXII Debt.    In August 2023, we pooled and transferred eligible solar loans and the related receivables into HELXII, a special purpose entity, that issued $148.5 million in aggregate principal amount of Series 2023-B Class A solar loan-backed notes, $71.1 million in aggregate principal amount of Series 2023-B Class B solar loan-backed notes and $23.1 million in aggregate principal amount of Series 2023-B Class C solar loan-backed notes (collectively, the "HELXII Notes") with a maturity date of August 2050. The HELXII Notes were issued at a discount of 4.23% for Class A, 6.67% for Class B and 12.64% for Class C and bear interest at an annual rate of 5.30%, 5.60% and 6.00% for the Class A, Class B and Class C notes, respectively. The cash flows generated by these solar loans are used to service the monthly principal and interest payments on the HELXII Notes and satisfy HELXII's expenses, and any remaining cash can be distributed to Sunnova Helios XII Depositor, LLC, HELXII's sole member. In connection with the HELXII Notes, certain of our affiliates receive a fee for managing and servicing the solar energy systems pursuant to management and service agreements. In addition, Sunnova Energy Corporation has guaranteed, among other things, (a) the obligations of certain of our subsidiaries to manage and service the solar energy systems pursuant to management and servicing agreements and (b) certain of our subsidiaries' obligations to repurchase or substitute certain ineligible solar loans eventually sold to HELXII pursuant to the related sale and contribution agreement. HELXII is also required to maintain certain reserve accounts for the benefit of the holders of the HELXII Notes, each of which must be funded at all times to the levels specified in the HELXII Notes. The holders of the HELXII Notes have no recourse to our other assets except as expressly set forth in the HELXII Notes.

AP9 Debt.    In September 2023, AP9 entered into a secured revolving credit facility with Citibank, N.A., as administrative agent, and the lenders party thereto, for an aggregate commitment amount of $65.0 million with a maturity date of October 2027. The proceeds of the loans under the AP9 revolving credit facility are available to purchase or otherwise acquire home improvement loans, fund certain reserve accounts that are required to be maintained by AP9 in accordance with the AP9 revolving credit facility and pay fees and expenses incurred in connection with the AP9 revolving credit facility. Interest on the borrowings under the AP9 revolving credit facility is due monthly. Borrowings under the AP9 revolving credit facility bear interest at an annual rate based on either Term SOFR or a CP Yield Rate (as defined by the AP9 revolving credit facility).

Sunnova Energy Corporation Debt.    In June 2023, Sunnova Energy Corporation entered into an arrangement to finance $6.8 million of insurance premiums at an annual interest rate of 7.24% over ten months. In August 2023, Sunnova Energy Corporation entered into an arrangement to finance $1.5 million of insurance premiums at an annual interest rate of 7.49% over ten months. In September 2023, Sunnova Energy Corporation entered into an arrangement to finance $1.9 million of insurance premiums at an annual interest rate of 7.49% over nine months. In September 2023, Sunnova Energy Corporation issued and sold an aggregate principal amount of $400.0 million of 11.75% senior notes ("11.75% senior notes") at a discount to the initial purchasers of approximately 2.74%, for an aggregate purchase price of approximately $389.0 million. The 11.75% senior notes mature in October 2028 and are initially guaranteed on a senior unsecured basis by SEI and a wholly-owned subsidiary of Sunnova Energy Corporation.
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Fair Values of Long-Term Debt.    The fair values of our long-term debt and the corresponding carrying amounts are as follows:
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follows:

As of June 30, 2023As of December 31, 2022As of September 30, 2023As of December 31, 2022
Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
(in thousands)(in thousands)
SEI 0.25% convertible senior notesSEI 0.25% convertible senior notes$575,000 $509,103 $575,000 $511,733 SEI 0.25% convertible senior notes$575,000 $510,607 $575,000 $511,733 
SEI 2.625% convertible senior notesSEI 2.625% convertible senior notes600,000 572,133 600,000 574,693 SEI 2.625% convertible senior notes600,000 561,077 600,000 574,693 
Sunnova Energy Corporation note payable4,924 4,924 — — 
Sunnova Energy Corporation notes payableSunnova Energy Corporation notes payable5,878 5,878 — — 
Sunnova Energy Corporation 5.875% senior notesSunnova Energy Corporation 5.875% senior notes400,000 357,176 400,000 359,283 Sunnova Energy Corporation 5.875% senior notes400,000 358,407 400,000 359,283 
Sunnova Energy Corporation 11.75% senior notesSunnova Energy Corporation 11.75% senior notes400,000 399,397 — — 
EZOP revolving credit facilityEZOP revolving credit facility721,000 721,000 500,000 500,000 EZOP revolving credit facility639,500 639,500 500,000 500,000 
HELII solar asset-backed notesHELII solar asset-backed notes208,324 200,362 212,648 206,045 HELII solar asset-backed notes203,998 190,769 212,648 206,045 
RAYSI solar asset-backed notesRAYSI solar asset-backed notes113,828 102,976 115,835 104,594 RAYSI solar asset-backed notes112,946 98,595 115,835 104,594 
HELIII solar loan-backed notesHELIII solar loan-backed notes100,550 89,725 104,685 93,706 HELIII solar loan-backed notes97,957 85,697 104,685 93,706 
TEPH revolving credit facilityTEPH revolving credit facility473,840 473,840 425,700 425,700 TEPH revolving credit facility766,000 766,000 425,700 425,700 
SOLI solar asset-backed notesSOLI solar asset-backed notes357,508 310,552 365,025 313,174 SOLI solar asset-backed notes353,161 299,219 365,025 313,174 
HELIV solar loan-backed notesHELIV solar loan-backed notes112,641 97,524 117,149 100,913 HELIV solar loan-backed notes110,176 95,114 117,149 100,913 
AP8 revolving credit facilityAP8 revolving credit facility177,000 177,000 75,000 75,000 AP8 revolving credit facility213,400 213,400 75,000 75,000 
SOLII solar asset-backed notesSOLII solar asset-backed notes233,856 190,429 238,685 189,728 SOLII solar asset-backed notes231,708 184,006 238,685 189,728 
HELV solar loan-backed notesHELV solar loan-backed notes153,144 133,109 158,307 135,408 HELV solar loan-backed notes150,217 128,945 158,307 135,408 
SOLIII solar asset-backed notesSOLIII solar asset-backed notes283,087 237,785 292,411 237,425 SOLIII solar asset-backed notes278,710 226,217 292,411 237,425 
HELVI solar loan-backed notesHELVI solar loan-backed notes179,261 153,633 184,439 157,289 HELVI solar loan-backed notes176,441 149,601 184,439 157,289 
HELVII solar loan-backed notesHELVII solar loan-backed notes137,749 120,098 142,914 124,476 HELVII solar loan-backed notes135,429 116,533 142,914 124,476 
HELVIII solar loan-backed notesHELVIII solar loan-backed notes271,378 243,427 281,113 252,483 HELVIII solar loan-backed notes266,072 233,492 281,113 252,483 
SOLIV solar asset-backed notesSOLIV solar asset-backed notes341,155 326,515 346,331 334,335 SOLIV solar asset-backed notes338,032 315,855 346,331 334,335 
HELIX solar loan-backed notesHELIX solar loan-backed notes218,591 206,158 223,469 210,070 HELIX solar loan-backed notes215,339 198,336 223,469 210,070 
HELX solar loan-backed notesHELX solar loan-backed notes225,900 222,457 180,636 183,165 HELX solar loan-backed notes223,539 217,342 180,636 183,165 
IS revolving credit facilityIS revolving credit facility37,100 37,100 — — IS revolving credit facility30,100 30,100 — — 
SOLV solar asset-backed notesSOLV solar asset-backed notes323,500 314,433 — — SOLV solar asset-backed notes321,815 307,706 — — 
HELXI solar loan-backed notesHELXI solar loan-backed notes285,471 277,951 — — HELXI solar loan-backed notes280,701 268,627 — — 
HELXII solar loan-backed notesHELXII solar loan-backed notes239,129 235,836 — — 
AP9 revolving credit facilityAP9 revolving credit facility13,096 13,096 — — 
Total (1)Total (1)$6,534,807 $6,079,410 $5,539,347 $5,089,220 Total (1)$7,378,344 $6,849,352 $5,539,347 $5,089,220 

(1) Amounts exclude the net deferred financing costs (classified as debt) and net debt discounts of $168.9$197.5 million and $130.2 million as of JuneSeptember 30, 2023 and December 31, 2022, respectively.

For the notenotes payable, EZOP, TEPH, AP8, IS and ISAP9 debt, the estimated fair values approximate the carrying amounts primarily due to the variable nature of the interest rates of the underlying instruments. For the convertible senior notes, senior notes and the HELII, RAYSI, HELIII, SOLI, HELIV, SOLII, HELV, SOLIII, HELVI, HELVII, HELVIII, SOLIV, HELIX, HELX, SOLV, HELXI and HELXIHELXII debt, we determined the estimated fair values based on an analysis of debt with similar book values, maturities and required market yields based on current interest rates.

(8) Derivative Instruments

Interest Rate Swaps and Caps on EZOP Debt.    During the sixnine months ended JuneSeptember 30, 2023 and 2022, EZOP entered into interest rate swaps and caps for an aggregate notional amount of $153.0$924.4 million and $340.6$506.6 million, respectively, to economically hedge its exposure to the variable interest rates on a portion of the outstanding EZOP debt. No collateral was
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posted for the interest rate swaps and caps as they are secured under the EZOP revolving credit facility. In August 2022,2023, the notional amount of the interest rate swaps and caps began decreasing to match EZOP's estimated monthly principal payments on the debt. During the sixnine months ended JuneSeptember 30, 2023 and 2022, EZOP unwound interest rate swaps and caps with an aggregate notional amount of $0$659.6 million and $360.2 million, respectively, and recorded a realized gain of $11.1$26.8 million and $15.7$19.6 million, respectively.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Interest Rate Swaps and Caps on TEPH Debt.    During the sixnine months ended JuneSeptember 30, 2023 and 2022, TEPH entered into interest rate swaps and caps for an aggregate notional amount of $314.6$601.6 million and $421.1$333.7 million, respectively, to economically hedge its exposure to the variable interest rates on a portion of the outstanding TEPH debt. No collateral was posted for the interest rate swaps and caps as they are secured under the TEPH revolving credit facility. In October 2023, the notional amount of the interest rate swaps and caps will begin decreasing to match TEPH's estimated quarterly principal payments on the debt. During the sixnine months ended JuneSeptember 30, 2023 and 2022, TEPH unwound interest rate swaps and caps with an aggregate notional amount of $241.1 million and $515.4 million, respectively, and recorded a realized gain of $4.5$6.2 million and $29.8$27.8 million, respectively.

Interest Rate Swaps and Caps on AP8 Debt.    During the sixnine months ended JuneSeptember 30, 2023 and 2022, AP8 entered into interest rate swaps and caps for an aggregate notional amount of $110.0$140.0 million and $0, respectively, to economically hedge its exposure to the variable interest rates on a portion of the outstanding AP8 debt. No collateral was posted for the interest rate swaps and caps as they are secured under the AP8 revolving credit facility. The notional amount of the interest rate swaps and caps is locked for the life of the contract. During the sixnine months ended JuneSeptember 30, 2023 and 2022, AP8 unwound interest rate swaps and caps with an aggregate notional amount of $0 and recorded a realized gain of $116,000$470,000 and $0, respectively.

Interest Rate Swaps and Caps on AP9 Debt.    During the nine months ended September 30, 2023 and 2022, AP9 entered into interest rate swaps and caps for an aggregate notional amount of $25.0 million and $0, respectively, to economically hedge its exposure to the variable interest rates on a portion of the outstanding AP9 debt. No collateral was posted for the interest rate swaps and caps as they are secured under the AP9 revolving credit facility. In September 2025, the notional amount of the interest rate swaps and caps will begin decreasing to match AP9's estimated monthly principal payments on the debt. During the nine months ended September 30, 2023 and 2022, AP9 unwound interest rate swaps and caps with an aggregate notional amount of $0 and recorded a realized gain of $0.

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

As of June 30, 2023As of December 31, 2022As of September 30, 2023As of December 31, 2022
Effective
Date
Termination
Date
Fixed
Interest
Rate
Aggregate
Notional
Amount
Effective
Date
Termination
Date
Fixed
Interest
Rate
Aggregate
Notional
Amount
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)(in thousands, except interest rates)
EZOPEZOPJune 2022 -
February 2023
October 2031 -
November 2035
0.890%$609,294 June 2022 -
July 2022
July 20340.890%$489,477 EZOP
July 2023 -
September 2023
September 2029 -
November 2035
2.000%$575,550 June 2022 -
July 2022
July 20340.890%$489,477 
TEPHTEPHJuly 2022 -
July 2023
October 2031 -
October 2041
2.620% - 3.472%312,200 July 2022 -
December 2022
January 2035 -
April 2041
1.520% -
2.630%
383,749 TEPH
July 2022 -
September 2023
October 2031 -
October 2041
2.620% - 4.035%743,740 July 2022 -
December 2022
January 2035 -
April 2041
1.520% -
2.630%
383,749 
AP8AP8November 2022
 - June 2023
September 20254.250%185,000 November 2022September 20254.250%75,000 AP8
November 2022
 - August 2023
September 20254.250%215,000 November 2022September 20254.250%75,000 
AP9AP9September 2023September 20274.250%25,000 — 
TotalTotal$1,106,494 $948,226 Total$1,559,290 $948,226 

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

As of 
 June 30, 2023
As of 
 December 31, 2022
(in thousands)
Other assets$122,271 $112,712 
As of 
 September 30, 2023
As of 
 December 31, 2022
(in thousands)
Other assets$129,643 $112,712 

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

Three Months Ended 
 June 30,
Six Months Ended 
 June 30,
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
20232022202320222023202220232022
(in thousands)(in thousands)
Realized gainRealized gain$(9,062)$(46,097)$(15,769)$(45,506)Realized gain$(17,753)$(1,928)$(33,522)$(47,434)
Unrealized (gain) loss(15,605)32,857 8,011 (1,017)
Unrealized gainUnrealized gain(18,219)(26,563)(10,208)(27,580)
TotalTotal$(24,667)$(13,240)$(7,758)$(46,523)Total$(35,972)$(28,491)$(43,730)$(75,014)

(9) Income Taxes

Our effective income tax rate is (8)%14% and 0% for the three months ended JuneSeptember 30, 2023 and 2022, respectively, and is (4)%1% and 0% for the sixnine months ended JuneSeptember 30, 2023 and 2022, respectively. Total income tax differs from the amounts computed by applying the statutory income tax rate to loss before income tax primarily as a result of our full valuation allowance.
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allowance, foreign tax expense and tax benefit from ITC sales. 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 no such accruals as of JuneSeptember 30, 2023 and December 31, 2022 and we do not expect a significant change in gross unrecognized tax benefits in the next twelve months. Our tax years after 2011 remain subject to examination by the Internal Revenue Service and by the taxing authorities in the states and territories in which we operate.

(10) Redeemable Noncontrolling Interests and Noncontrolling Interests

Redeemable Noncontrolling Interests

In February 2023, the Class A member of Sunnova TEP 7-B, LLC increased its capital commitment from approximately $30.0 million to approximately $125.0 million. In March 2023, the Class A member of Sunnova TEP 7-C, LLC increased its capital commitment from approximately $41.0 million to approximately $51.3 million. In May 2023, we admitted a tax equity investor as the Class A member of Sunnova TEP 7-E, LLC ("TEP7E"), a subsidiary of Sunnova TEP 7-E Manager, LLC, which is the Class B member of TEP7E. The Class A member of TEP7E made a total capital commitment of approximately $51.0 million. In June 2023, we exercised our purchase option to purchase 100% of the Class A member's interest in Sunnova TEP I, LLC ("TEPI") for $5.9 million. This purchase resulted in an increase in our equity in TEPI of $67.0 million. In August 2023, we admitted a tax equity investor as the Class A member of Sunnova TEP 7-G, LLC ("TEP7G"), a subsidiary of Sunnova TEP 7-G Manager, LLC, which is the Class B member of TEP7G. The Class A member of TEP7G made a total capital commitment of approximately $104.0 million. In September 2023, we admitted a tax equity investor as the Class A member of Sunnova TEP 7-F, LLC ("TEP7F"), a subsidiary of Sunnova TEP 7-F Manager, LLC, which is the Class B member of TEP7F. The Class A member of TEP7F made a total capital commitment of approximately $134.9 million. The carrying values of the redeemable noncontrolling interests were equal to or greater than the redemption values as of JuneSeptember 30, 2023 and December 31, 2022.

Noncontrolling Interests

In April 2023, the Class A member of Sunnova TEP V-C, LLC increased its capital commitment from approximately $150.0 million to approximately $150.2 million. In April 2023, the Class A member of Sunnova TEP 6-A, LLC increased its capital commitment from approximately $50.0 million to approximately $57.7 million. In June 2023, the Class A member of Sunnova TEP 7-D, LLC increased its capital commitment from approximately $150.0 million to approximately $250.0 million.

(11) Stockholders' Equity

During the sixnine months ended JuneSeptember 30, 2023 and 2022, we issued 693,443 and 694,446 shares of our common stock to Lenx, LLC pursuant to the terms of the earnout agreement, as amended, entered into in connection with the acquisition of SunStreet Energy Group, LLC.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In August 2023, we sold 5,865,000 shares of common stock at a public offering price of $14.75 per share. We received aggregate net proceeds of approximately $82.2 million, after deducting underwriting discounts and commissions of approximately $3.9 million and offering expenses of approximately $400,000. We used the net proceeds from the offering for general corporate purposes.

(12) Equity-Based Compensation

In February 2023, the aggregate number of shares of common stock that may be issued pursuant to awards under the 2019 Long-Term Incentive Plan (the "LTIP") was increased by 1,525,652, an amount that, together with the shares remaining available for grant under the LTIP, is equal to 5,746,588 shares, or approximately 5% of the number of shares of common stock outstanding as of December 31, 2022.

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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
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)(in thousands)
Outstanding, December 31, 2022Outstanding, December 31, 20223,259,459 $18.48 4.75$10,341 Outstanding, December 31, 20223,259,459 $18.48 4.75$10,341 
GrantedGranted942,348 $15.13 9.74$8.85 Granted1,017,493 $15.01 9.49$8.82 
ExercisedExercised(31,360)$13.22 $132 Exercised(36,360)$13.11 $182 
ForfeitedForfeited(138,941)$22.02 $11.80 Forfeited(140,680)$21.96 $11.70 
Outstanding, June 30, 20234,031,506 $17.61 5.36$13,561 
Exercisable, June 30, 20232,663,597 $16.43 3.32$10,734 
Vested and expected to vest, June 30, 20234,031,506 $17.61 5.36$13,561 
Outstanding, September 30, 2023Outstanding, September 30, 20234,099,912 $17.54 5.19$102 
Exercisable, September 30, 2023Exercisable, September 30, 20232,656,858 $16.44 3.07$102 
Vested and expected to vest, September 30, 2023Vested and expected to vest, September 30, 20234,099,912 $17.54 5.19$102 
Non-vested, June 30, 20231,367,909 $10.90 
Non-vested, September 30, 2023Non-vested, September 30, 20231,443,054 $10.78 

The number of stock options that vested during the three months ended JuneSeptember 30, 2023 and 2022 was 0. The number of stock options that vested during the sixnine months ended JuneSeptember 30, 2023 and 2022 was 16,816. The grant date fair value of stock options that vested during the three months ended JuneSeptember 30, 2023 and 2022 was $0. The grant date fair value of stock options that vested during the sixnine months ended JuneSeptember 30, 2023 and 2022 was $309,000. As of JuneSeptember 30, 2023, there was $11.2$10.5 million of total unrecognized compensation expense related to stock options, which is expected to be recognized over the remaining weighted average period of 2.272.04 years.

Restricted Stock Units

The following table summarizes restricted stock unit activity:

Number of
Restricted
Stock Units
Weighted
Average
Grant Date
Fair Value
Number of
Restricted
Stock Units
Weighted
Average
Grant Date
Fair Value
Outstanding, December 31, 2022Outstanding, December 31, 20221,609,615 $20.62 Outstanding, December 31, 20221,609,615 $20.62 
GrantedGranted1,810,918 $14.53 Granted2,085,532 $14.67 
VestedVested(816,567)$18.34 Vested(961,682)$17.88 
ForfeitedForfeited(209,348)$18.28 Forfeited(311,648)$17.94 
Outstanding, June 30, 20232,394,618 $17.00 
Outstanding, September 30, 2023Outstanding, September 30, 20232,421,817 $16.93 

The number of restricted stock units that vested during the three months ended JuneSeptember 30, 2023 and 2022 was 75,588145,115 and 58,198,245,740, respectively. The number of restricted stock units that vested during the sixnine months ended JuneSeptember 30, 2023 and 2022 was 816,567961,682 and 702,664,948,404, respectively. The grant date fair value of restricted stock units that vested during the three months ended JuneSeptember 30, 2023 and 2022 was $1.5$2.2 million and $1.9$3.4 million, respectively. The grant date fair value of restricted stock units that vested during the sixnine months ended JuneSeptember 30, 2023 and 2022 was $15.0$17.2 million and $15.1 $18.5
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
million, respectively. As of JuneSeptember 30, 2023, there was $33.0$31.3 million of total unrecognized compensation expense related to restricted stock units, which is expected to be recognized over the remaining weighted average period of 1.631.54 years.

Employee Stock Purchase Plan ("ESPP")

As of JuneSeptember 30, 2023 and December 31, 2022, the number of shares of common stock issued under the ESPP was 20,966 and 7,106, respectively.

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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 
 June 30,
Six Months Ended 
 June 30,
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
20232022202320222023202220232022
(in thousands, except share and per share amounts)(in thousands, except share and per share amounts)
Net loss attributable to stockholders—basic and dilutedNet loss attributable to stockholders—basic and diluted$(86,091)$(41,137)$(167,174)$(76,195)Net loss attributable to stockholders—basic and diluted$(63,147)$(64,543)$(230,321)$(140,738)
Net loss per share attributable to stockholders—basic and dilutedNet loss per share attributable to stockholders—basic and diluted$(0.74)$(0.36)$(1.45)$(0.67)Net loss per share attributable to stockholders—basic and diluted$(0.53)$(0.56)$(1.97)$(1.23)
Weighted average common shares outstanding—basic and dilutedWeighted average common shares outstanding—basic and diluted116,236,741 114,548,970 115,658,570 114,027,097 Weighted average common shares outstanding—basic and diluted119,554,008 114,816,879 116,971,318 114,293,251 

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

Three Months Ended 
 June 30,
Six Months Ended 
 June 30,
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
20232022202320222023202220232022
Equity-based compensation awardsEquity-based compensation awards6,460,556 5,192,317 5,753,120 4,841,388 Equity-based compensation awards6,400,263 5,033,658 5,971,205 4,906,182 
Convertible senior notesConvertible senior notes34,150,407 16,628,073 34,150,407 16,628,073 Convertible senior notes34,150,407 25,294,010 34,150,407 19,548,462 

(14) Commitments and Contingencies

Legal.    We are a party to a number of lawsuits, claims and governmental proceedings that 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 JuneSeptember 30, 2023, we recorded $4.5$5.6 million related to our guarantee of certain specified minimum solar energy production output under our leases and loans, of which $2.3$2.7 million is recorded in other current liabilities and $2.2$2.9 million is recorded in other long-term liabilities in the unaudited condensed consolidated balance sheet. As of December 31, 2022, we recorded $4.8 million related to these guarantees, of which $2.5 million is recorded in other current liabilities and $2.3 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:

Six Months Ended 
 June 30,
Nine Months Ended 
 September 30,
2023202220232022
(in thousands)(in thousands)
Balance at beginning of periodBalance at beginning of period$4,845 $5,293 Balance at beginning of period$4,845 $5,293 
AccrualsAccruals2,485 1,052 Accruals3,620 1,811 
SettlementsSettlements(2,791)(3,161)Settlements(2,855)(3,170)
Balance at end of periodBalance at end of period$4,539 $3,184 Balance at end of period$5,610 $3,934 

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

Three Months Ended 
 June 30,
Six Months Ended 
 June 30,
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
20232022202320222023202220232022
(in thousands)(in thousands)
Operating lease expenseOperating lease expense$692 $693 $1,384 $1,385 Operating lease expense$754 $676 $2,138 $2,061 
Finance lease expense:Finance lease expense:Finance lease expense:
Amortization expenseAmortization expense249 186 479 361 Amortization expense308 201 787 562 
Interest on lease liabilitiesInterest on lease liabilities20 13 38 27 Interest on lease liabilities31 15 69 42 
Short-term lease expenseShort-term lease expense39 33 66 60 Short-term lease expense62 37 128 97 
Variable lease expenseVariable lease expense235 267 468 522 Variable lease expense367 190 835 712 
TotalTotal$1,235 $1,192 $2,435 $2,355 Total$1,522 $1,119 $3,957 $3,474 

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 
 June 30, 2023
As of 
 December 31, 2022
As of 
 September 30, 2023
As of 
 December 31, 2022
(in thousands)(in thousands)
Right-of-use assets:Right-of-use assets:Right-of-use assets:
Operating leasesOperating leases$13,677 $14,706 Operating leases$13,805 $14,706 
Finance leasesFinance leases2,897 2,476 Finance leases3,523 2,476 
Total right-of-use assetsTotal right-of-use assets$16,574 $17,182 Total right-of-use assets$17,328 $17,182 
Current lease liabilities:Current lease liabilities:Current lease liabilities:
Operating leasesOperating leases$2,510 $2,451 Operating leases$2,845 $2,451 
Finance leasesFinance leases945 796 Finance leases1,156 796 
Long-term leases liabilities:Long-term leases liabilities:Long-term leases liabilities:
Operating leasesOperating leases14,729 15,751 Operating leases14,406 15,751 
Finance leasesFinance leases1,120 957 Finance leases1,393 957 
Total lease liabilitiesTotal lease liabilities$19,304 $19,955 Total lease liabilities$19,800 $19,955 

Other information related to leases was as follows:

Six Months Ended 
 June 30,
Nine Months Ended 
 September 30,
2023202220232022
(in thousands)(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:Cash paid for amounts included in the measurement of lease liabilities:Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases (1)Operating cash flows from operating leases (1)$1,319 $809 Operating cash flows from operating leases (1)$2,187 $1,242 
Operating cash flows from finance leasesOperating cash flows from finance leases$38 $27 Operating cash flows from finance leases$69 $42 
Financing cash flows from finance leasesFinancing cash flows from finance leases$439 $406 Financing cash flows from finance leases$725 $601 
Right-of-use assets obtained in exchange for lease obligations:Right-of-use assets obtained in exchange for lease obligations:Right-of-use assets obtained in exchange for lease obligations:
Operating leasesOperating leases$703 $226 
Finance leasesFinance leases$901 $570 Finance leases$1,835 $758 

(1)Includes reimbursements in 2023 and 2022 of approximately $225,000 and $45,000, respectively, for leasehold improvements.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of 
 June 30, 2023
As of 
 December 31, 2022
Weighted average remaining lease term (years):
Operating leases6.136.60
Finance leases4.542.86
Weighted average discount rate:
Operating leases3.95 %3.95 %
Finance leases5.27 %4.37 %

As of 
 September 30, 2023
As of 
 December 31, 2022
Weighted average remaining lease term (years):
Operating leases5.746.60
Finance leases3.062.86
Weighted average discount rate:
Operating leases4.07 %3.95 %
Finance leases5.81 %4.37 %

Future minimum lease payments under our non-cancelable leases as of JuneSeptember 30, 2023 were as follows:

Operating
Leases
Finance
Leases
Operating
Leases
Finance
Leases
(in thousands)(in thousands)
Remaining 2023Remaining 2023$1,607 $560 Remaining 2023$894 $351 
202420243,118 881 20243,496 1,180 
202520253,168 504 20253,392 716 
202620263,236 220 20263,236 370 
202720273,304 56 20273,304 147 
2028 and thereafter2028 and thereafter5,485 — 2028 and thereafter5,485 — 
TotalTotal19,918 2,221 Total19,807 2,764 
Amount representing interestAmount representing interest(2,283)(156)Amount representing interest(2,160)(215)
Amount representing leasehold incentivesAmount representing leasehold incentives(396)— Amount representing leasehold incentives(396)— 
Present value of future paymentsPresent value of future payments17,239 2,065 Present value of future payments17,251 2,549 
Current portion of lease liabilityCurrent portion of lease liability(2,510)(945)Current portion of lease liability(2,845)(1,156)
Long-term portion of lease liabilityLong-term portion of lease liability$14,729 $1,120 Long-term portion of lease liability$14,406 $1,393 

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.

Dealer Commitments.    As of JuneSeptember 30, 2023 and December 31, 2022, the net unamortized balance of payments to dealers for exclusivity and other similar arrangements was $173.8$171.4 million and $121.3 million, respectively. Under these agreements, we paid $31.1$55.0 million and $13.7$33.6 million during the threenine months ended June 30, 2023 and 2022, respectively, and we paid $55.7 million and $26.9 million during the six months ended JuneSeptember 30, 2023 and 2022, 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
Dealer
Commitments
(in thousands)(in thousands)
Remaining 2023Remaining 2023$13,235 Remaining 2023$7,845 
2024202475,691 202478,529 
2025202560,561 202560,561 
2026202636,904 202636,904 
2027202730,000 202730,000 
2028 and thereafter2028 and thereafter— 2028 and thereafter— 
TotalTotal$216,391 Total$213,839 

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Purchase Commitments.    In December 2021,October 2023, we amended an agreement with a supplier in which we agreed to purchase at least 1,420 megawatt hoursapproximately $325.0 million of solar energy systems, energy storage systems and accessories through December 2023. The amendment does not contain specific dollar amounts or thresholds; however, we estimate these remaining purchase commitments to be2024, with approximately $334.6 million.$80.0 million in the fourth quarter of 2023 and approximately $245.0 million in 2024. Under this agreement, we purchased $40.1$12.8 million and $43.9$55.4 million during the three months ended JuneSeptember 30, 2023 and 2022, respectively, and we purchased $118.5$119.3 million and $85.7$141.1 million during the sixnine months ended JuneSeptember 30, 2023 and 2022, respectively.

Information Technology Commitments.    We have certain long-term contractual commitments related to information technology software services and licenses. Future commitments as of JuneSeptember 30, 2023 were as follows:

Information
Technology
Commitments
Information
Technology
Commitments
(in thousands)(in thousands)
Remaining 2023Remaining 2023$24,111 Remaining 2023$22,649 
202420247,049 202410,181 
202520251,682 20254,282 
20262026— 20262,561 
20272027— 20273,300 
2028 and thereafter2028 and thereafter— 2028 and thereafter— 
TotalTotal$32,842 Total$42,973 

(15) Subsequent Events

EZOP Debt.     In October 2023, we amended the EZOP revolving credit facility to, among other things, reallocate commitments among the lenders.

HESI Debt.     In October 2023, we entered into a note purchase agreement, which at closing will indirectly benefit from a partial guarantee provided by the U.S. Department of Energy ("DOE") Loan Programs Office. The notes will not be directly guaranteed by the DOE. The offering consists of $219.6 million in aggregate principal amount of Series 2023-GRID1 Class A solar loan-backed notes and $24.4 million in aggregate principal amount of Series 2023-GRID1 Class B solar loan-backed notes (collectively, the "HESI Notes") with a maturity date of December 2050. The HESI Notes were issued at a discount of 2.46% for Class A and 9.40% for Class B and bear interest at an annual rate of 5.75% and 8.25% for the Class A and Class B notes, respectively. The offering is expected to close in November 2023, subject to customary closing conditions.
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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 23, 2023, our Quarterly ReportReports on Form 10-Q filed with the SEC on April 27, 2023 and July 27, 2023 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 SEI and its consolidated subsidiaries.

Company Overview

We are a leading Energy as a Service provider, serving over 348,000386,000 customers in more than 45 United States ("U.S.") states and territories. Our goal is to be the source of clean, affordable and reliable energy with a simple mission: to power energy independence so home and business owners have the freedom to live life uninterrupted. We were founded to deliver customers a better energy service at a better price; and, through our energy service offerings, we are disrupting the traditional energy landscape and the way the 21st century customer generates and consumes electricity.

We have a differentiated dealer model in which we partner with local dealers who originate, design and install our customers' solar energy systems, energy storage systems and related products and services 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, reduces exposure to labor shortages and lowers fixed costs relative to our peers, furthering our competitive advantage.

We offer customers products to power their homes and businesses with affordable solar energy and related products and services. We are able to offer savings compared to utility-based retail rates with little to no up-front expense to the customer in conjunction with solar and solar plus energy storage, and, in the case of the latter, are able to also provide energy resiliency. Our solar service agreements typically take the form of a lease, power purchase agreement ("PPA"), loan or cash purchase; however, we also offer service plans for systems we did not originate. We make it possible in some states for a customer to obtain a new roof and/or other ancillary products. We also allow customers originated through our homebuilder channel the option of purchasing the system when the customer closes on the purchase of a new home. The initial term of our solar service agreements is typically between 10 and 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 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 JuneSeptember 30, 2023, we have raised more than $13.3$14.5 billion in total capital commitments from equity, debt and tax equity investors.

In addition to providing ongoing service as a standard component of our solar service agreements, we also offer ongoing energy services to customers who purchased their solar energy system through third parties. Under these arrangements, we agree to provide monitoring, maintenance and repair services to these customers for the life of the service contract they sign with us. In addition, we offer one-time repair services to customers who purchased their solar energy systems through third parties. We also offer complementary products as well as non-solar financing. Specifically, our offerings include a non-solar loan program enabling customers to finance the purchase of products independent of a solar energy system or energy storage system. We believe the quality and scope of our comprehensive energy service offerings, whether to customers that obtained their solar energy system through us or through another party, is a key differentiator between us and our competitors.

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In April 2021, we acquired SunStreet Energy Group, LLC, Lennar Corporation's ("Lennar") residential solar platform that focuses primarily on solar energy systems and energy storage systems for homebuilders. In connection with that acquisition, we entered into an agreement pursuant to which we would be the exclusive solar and storage provider for Lennar's new home communities with solar across the U.S. for a period of four years. We believe the acquisition provides a new strategic path to further scale our solar business, reduces customer acquisition costs, provides a multi-year supply of sites through the development of new solar communities and allows us to pursue the development of clean and resilient microgrids across the U.S.

We also enter into leases with third-party owners of pools of solar energy systems to receive such third party's interest in those systems. In connection therewith, we assume the related customer PPA and lease obligations, entitling us to future customer cash flows as well as certain credits, rebates and incentives (including SRECs) under those agreements, in exchange for a lease payment, whether upfront or over time, to the third-party owner, which may be made in the form of cash or shares of our common stock. We believe such arrangements enhance our long-term contracted cash flows and are complementary to our overall business model.

We commenced operations in January 2013 and began providing solar energy services under our first solar energy system in April 2013. Since then, our brand, innovation and focused execution have driven significant, rapid growth in our market share and in the number of customers on our platform. We operate one of the largest residential fleets of solar energy systems in the U.S., comprising more than 1,9192,099 megawatts of generation capacity and serving over 348,000386,000 customers.

Recent Developments

Financing Transactions

In April 2023, two tax equity investors increased their capital commitment from approximately $200.0 million to approximately $207.8 million. In MayAugust 2023, we admitted a tax equity investor with a total capital commitment of approximately $51.0$104.0 million. In JuneSeptember 2023, we admitted a tax equity investor increased itswith a total capital commitment fromof approximately $150.0 million to approximately $250.0$134.9 million. See "—Liquidity and Capital Resources—Financing Arrangements—Tax Equity Fund Commitments" below.

In AprilAugust 2023, we amended the U.S. Department of Energy (the "DOE"revolving credit facility by and among Sunnova EZ-Own Portfolio, LLC ("EZOP") announced a conditional commitment to guarantee 90% of up to approximately $3.3 billion of, certain of our future financing arrangements under its Innovative Clean Energy Loan Guarantee Program. Theother subsidiaries party thereto, Atlas Securitized Products Holdings, L.P., as administrative agent, and the lenders and other financial institutions party thereto, to, among other things, (a) increase the aggregate commitment is subjectamount from $775.0 million to various customary conditions. There is no assurance$875.0 million, (b) increase the DOE's conditionaluncommitted maximum facility amount from $900.0 million to $1.0 billion, (c) extend the maturity date from November 2024 to November 2025 and (d) amend the Advance Rate (as defined therein). In October 2023, we amended the EZOP revolving credit facility to, among other things, reallocate commitments among the lenders. In August 2023, we amended the revolving credit facility by and among Sunnova TEP Holdings, LLC ("TEPH"), certain of our other subsidiaries party thereto, Atlas Securitized Products Holdings, L.P., as administrative agent, and the lenders and other financial institutions party thereto, to, among other things, (a) increase the aggregate commitment will be fulfilled onamount from $700.0 million to $769.3 million, (b) increase the terms announced or at all or thatuncommitted maximum facility amount from $789.7 million to $859.0 million and (c) extend the related guarantees will provide the anticipated benefitsmaturity date from November 2024 to us.November 2025. In JuneAugust 2023, the revolving credit facility by and among Sunnova Asset Portfolio 8, LLC ("AP8"), certain of our other subsidiaries party thereto, Banco Popular de Puerto Rico, as agent, and the lenders and other financial institutions party thereto was amended to, among other things, increase the aggregate commitment amount from $150.0$185.0 million to $185.0$215.0 million. In September 2023, one of our subsidiaries, Sunnova Asset Portfolio 9, LLC ("AP9") entered into a secured revolving credit facility with Citibank, N.A., as administrative agent, and the lenders party thereto, for an aggregate commitment amount of $65.0 million with a maturity date of October 2027. Interest on the borrowings under the AP9 revolving credit facility is due monthly. Borrowings under the AP9 revolving credit facility bear interest at an annual rate based on either Term SOFR or a CP Yield Rate (as defined by the AP9 revolving credit facility). See "—Liquidity and Capital Resources—Financing Arrangements—Warehouse and Other Debt Financings" below.

In AprilAugust 2023, one of our subsidiaries issued $300.0$148.5 million in aggregate principal amount of Series 2023-12023-B Class A solar asset-backedloan-backed notes, and $23.5$71.1 million in aggregate principal amount of Series 2023-12023-B Class B solar asset-backedloan-backed notes and $23.1 million in aggregate principal amount of Series 2023-B Class C solar loan-backed notes (collectively, the "SOLV"HELXII Notes") with a maturity date of April 2058.August 2050. The SOLVHELXII Notes were issued at a discount of 5.01%4.23%, 6.67% and 11.63% for the Class A and Class B notes, respectively, and bear interest at an annual rate of 5.40% and 7.35% for the Class A and Class B notes, respectively. In May 2023, one of our subsidiaries issued $174.9 million in aggregate principal amount of Series 2023-A Class A solar loan-backed notes, $80.1 million in aggregate principal amount of Series 2023-A Class B solar loan-backed notes and $31.7 million in aggregate principal amount of Series 2023-A Class C solar loan-backed notes (collectively, the "HELXI Notes") with a maturity date of May 2050. The HELXI Notes were issued at a discount of 2.57%, 5.31% and 13.56%12.64% for the Class A, Class B and Class C notes, respectively, and bear interest at an annual rate of 5.30%, 5.60% and 6.00%, for the Class A, Class B and Class C notes, respectively. In October 2023, we entered into a note purchase agreement, which at closing will indirectly benefit from a partial guarantee provided by the U.S. Department of Energy ("DOE") Loan Programs Office. The notes will not be directly guaranteed by the DOE. The offering consists of $219.6 million in aggregate principal amount of Series 2023-GRID1 Class A solar loan-backed notes and $24.4 million in aggregate principal amount of Series 2023-GRID1 Class B solar loan-backed notes (collectively, the "HESI Notes") with a maturity date of December 2050. The HESI Notes were issued at a discount of 2.46% and 9.40% for the Class A and Class B notes respectively, and bear interest at an annual rate of
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5.75% and 8.25% for the Class A and Class B notes, respectively. The offering is expected to close in November 2023, subject to customary closing conditions. See "—Liquidity and Capital Resources—Financing Arrangements—Securitizations" below.

In September 2023, one of our subsidiaries issued and sold an aggregate principal amount of $400.0 million of 11.75% senior notes ("11.75% senior notes") at a discount to the initial purchasers of approximately 2.74%, for an aggregate purchase price of approximately $389.0 million. The 11.75% senior notes mature in October 2028. See "—Liquidity and Capital Resources—Financing Arrangements—Senior Notes" below.

In August 2023, we sold 5,865,000 shares of common stock at a public offering price of $14.75 per share. We received aggregate net proceeds of approximately $82.2 million, after deducting underwriting discounts and commissions of approximately $3.9 million and offering expenses of approximately $400,000. See "—Liquidity and Capital Resources—Financing Arrangements—Public Offerings" 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 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
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energy credits under Section 25D (the "Section 25D Credit") of the U.S. Internal Revenue Code of 1986, as amended. For projects that begin construction after December 31, 2024, the Section 48(a) ITC will be replaced with investment tax credits under Section 48E(a) (the "Section 48E ITC"). We do not securitize the Section 48(a) ITC incentives, and currently do not plan to securitize any Section 48E ITC incentives, associated with the solar energy systems and energy storage systems as part of these arrangements. However, we may in the future securitize the expected proceeds from the sale of such tax credits. 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 equipment replacements and, in certain cases, reserve accounts for financing fund purchase option/withdrawal right exercises or storage system replacement for the benefit of the holders under the applicable series of notes, each of which are funded from initial deposits or cash flows to the levels specified therein. The creditors of these special purpose entities have no recourse to our other assets except as expressly set forth in the terms of the notes. From our inception through JuneSeptember 30, 2023, we have issued $4.3$4.5 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 or, in the future, Section 48E 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 income 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, 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
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with the customer, the customer meets certain credit criteria, the solar energy system is expected to be eligible for the Section 48(a) ITC or the Section 48E ITC, as applicable, 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. Certain tax equity investors 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 or Section 48E ITCs, as applicable; however, we typically 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 a specified date, we receive substantially all of the cash and tax allocations.

We have determined we are the primary beneficiary in these tax 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. The 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.

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 five years after the last solar energy system in the applicable tax equity fund is operational. If we or our tax equity investors exercise this option, we are typically required to pay at least the fair market value of the tax equity investor's equity interest and, in certain cases, a contractual minimum amount. From our inception through JuneSeptember 30, 2023, we have received commitments of approximately
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$2.0 $2.3 billion through the use of tax equity funds, of which an aggregate of $1.7$1.9 billion has been funded and $158.8$199.3 million remains available for use.

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, identify trends affecting our business, formulate our financial projections and make strategic decisions.

Number of Customers. We define number of customers to include every unique premises on which a Sunnova product is installed or on which Sunnova is obligated to perform services for a counterparty. We track the total number of customers as an indicator of our historical growth and our rate of growth from period to period.

As of 
 June 30, 2023
As of 
 December 31, 2022
Change
Number of customers348,600279,40069,200
As of 
 September 30, 2023
As of 
 December 31, 2022
Change
Number of customers386,200279,400106,800

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

Three Months Ended 
 June 30,
Six Months Ended 
 June 30,
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
20232022202320222023202220232022
Weighted average number of systems (excluding loan agreements and cash sales)Weighted average number of systems (excluding loan agreements and cash sales)210,100 163,700 203,800 159,800 Weighted average number of systems (excluding loan agreements and cash sales)225,200 171,600 210,900 163,800 
Weighted average number of systems with loan agreementsWeighted average number of systems with loan agreements109,500 50,300 99,100 46,000 Weighted average number of systems with loan agreements133,300 60,800 110,500 50,900 
Weighted average number of systems with cash salesWeighted average number of systems with cash sales8,500 3,200 7,900 2,800 Weighted average number of systems with cash sales10,000 4,300 8,600 3,300 
Weighted average number of systemsWeighted average number of systems328,100 217,200 310,800 208,600 Weighted average number of systems368,500 236,700 330,000 218,000 
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Adjusted EBITDA. We define Adjusted EBITDA as net income (loss) plus net interest expense, depreciation and amortization expense, income tax expense, financing deal costs, natural disaster losses and related charges, net, losses on extinguishment of long-term debt, realized and unrealized gains and losses on fair value instruments and equity securities, amortization of payments to dealers for exclusivity and other bonus arrangements, legal settlements, investment tax credit ("ITC") sales 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, acquisition costs, losses on unenforceable contracts, indemnification payments to tax equity investors and other non-cash items such as non-cash compensation expense, asset retirement obligation ("ARO") accretion expense, provision for current expected credit losses and non-cash inventory and other impairments.

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 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,
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and by our board of directors in setting performance-based compensation targets. Adjusted EBITDA should not be considered an alternative to but viewed in conjunction with GAAP results, as we believe it provides a more complete understanding of ongoing business performance and trends than GAAP measures alone. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.

Three Months Ended 
 June 30,
Six Months Ended 
 June 30,
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
20232022202320222023202220232022
(in thousands)(in thousands)
Reconciliation of Net Loss to Adjusted EBITDA:Reconciliation of Net Loss to Adjusted EBITDA:Reconciliation of Net Loss to Adjusted EBITDA:
Net lossNet loss$(100,781)$(13,831)$(211,127)$(35,935)Net loss$(56,463)$(32,348)$(267,590)$(68,283)
Interest expense, netInterest expense, net56,947 24,571 142,554 23,556 Interest expense, net57,601 20,824 200,155 44,380 
Interest incomeInterest income(26,292)(13,311)(51,080)(24,243)Interest income(30,590)(16,185)(81,670)(40,428)
Income tax expense7,183 — 7,693 — 
Income tax benefitIncome tax benefit(9,325)— (1,632)— 
Depreciation expenseDepreciation expense35,204 26,067 67,875 50,807 Depreciation expense40,082 27,594 107,957 78,401 
Amortization expenseAmortization expense7,358 7,297 14,696 14,585 Amortization expense7,416 7,309 22,112 21,894 
EBITDAEBITDA(20,381)30,793 (29,389)28,770 EBITDA8,721 7,194 (20,668)35,964 
Non-cash compensation expenseNon-cash compensation expense4,803 4,732 14,318 15,596 Non-cash compensation expense5,494 4,463 19,812 20,059 
ARO accretion expenseARO accretion expense1,153 895 2,234 1,735 ARO accretion expense1,257 952 3,491 2,687 
Financing deal costsFinancing deal costs501 36 674 420 Financing deal costs608 162 1,282 582 
Natural disaster losses and related charges, netNatural disaster losses and related charges, net809 — 946 — Natural disaster losses and related charges, net1,442 1,161 2,388 1,161 
Acquisition costsAcquisition costs244 1,358 987 2,617 Acquisition costs150 3,005 1,137 5,622 
Unrealized (gain) loss on fair value instruments and equity securitiesUnrealized (gain) loss on fair value instruments and equity securities9,815 (8,399)9,328 (14,761)Unrealized (gain) loss on fair value instruments and equity securities(8,482)10,625 846 (4,136)
Amortization of payments to dealers for exclusivity and other bonus arrangementsAmortization of payments to dealers for exclusivity and other bonus arrangements1,575 997 2,961 1,925 Amortization of payments to dealers for exclusivity and other bonus arrangements1,996 1,185 4,957 3,110 
Legal settlementsLegal settlements— — 750 — Legal settlements— (1,001)750 (1,001)
Provision for current expected credit lossesProvision for current expected credit losses10,848 9,257 21,107 15,914 Provision for current expected credit losses8,360 10,967 29,467 26,881 
Non-cash inventory and other impairmentsNon-cash inventory and other impairments15,663 — 15,663 — Non-cash inventory and other impairments6,443 864 22,106 864 
Indemnification payments to tax equity investorsIndemnification payments to tax equity investors3,049 — 3,053 — Indemnification payments to tax equity investors— 1,727 3,053 1,727 
ITC salesITC sales14,422 — 14,422 — 
Adjusted EBITDAAdjusted EBITDA$28,079 $39,669 $42,632 $52,216 Adjusted EBITDA$40,411 $41,304 $83,043 $93,520 
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Interest Income from Customer Notes Receivable; Principal Proceeds from Customer Notes Receivable, Net of Related Revenue; and Proceeds from Investments in Solar Receivables. 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 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. We also enter into leases with third-party owners of pools of solar energy systems to receive such third party's interest in those systems. In connection therewith, we assume the related customer PPA and lease obligations, entitling us to future customer cash flows as well as certain credits, rebates and incentives (including SRECs) under those agreements. We recognize payments received from such third parties as proceeds from investments in solar receivables.

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 different types of solar service agreements, we consider interest income from customer notes receivable, principal proceeds from customer notes receivable, net of related revenue, and proceeds from investments in solar receivables as key performance metrics. We believe these 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 primary types of solar service agreements.
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Three Months Ended 
 June 30,
Six Months Ended 
 June 30,
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
20232022202320222023202220232022
(in thousands)(in thousands)
Interest income from customer notes receivableInterest income from customer notes receivable$23,101 $13,100 $43,189 $23,932 Interest income from customer notes receivable$26,761 $15,119 $69,950 $39,051 
Principal proceeds from customer notes receivable, net of related revenuePrincipal proceeds from customer notes receivable, net of related revenue$36,850 $24,781 $65,948 $45,194 Principal proceeds from customer notes receivable, net of related revenue$36,966 $22,284 $102,914 $67,478 
Proceeds from investments in solar receivablesProceeds from investments in solar receivables$2,797 $3,822 $4,929 $5,620 Proceeds from investments in solar receivables$3,779 $3,768 $8,708 $9,388 

Adjusted Operating Expense. We define Adjusted Operating Expense as total operating expense less depreciation and amortization expense, financing deal costs, natural disaster losses and related charges, net, amortization of payments to dealers for exclusivity and other bonus arrangements, legal settlements, direct sales costs, cost of revenue related to cash sales, cost of revenue related to inventory sales, unrealized gains and losses on fair value instruments, gains and losses on held-for-sale loans 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, acquisition costs, losses on unenforceable contracts, indemnification payments to tax equity investors and other non-cash items such as non-cash compensation expense, ARO accretion expense, provision for current expected credit losses and non-cash inventory and other impairments. Adjusted Operating Expense is a non-GAAP financial measure we use as a performance measure. We believe investors and securities analysts will also use Adjusted Operating Expense in evaluating our performance. This measurement is not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance. The GAAP measure most directly comparable to Adjusted Operating Expense is total operating expense. We believe Adjusted Operating Expense is a supplemental financial measure useful to management, analysts, investors, lenders and rating agencies as an indicator of the efficiency of our operations between reporting periods. Adjusted Operating Expense should not be considered an alternative to but viewed in conjunction with GAAP total operating expense, as we believe it provides a more complete understanding of our performance than GAAP measures alone. Adjusted Operating Expense has limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP, including total operating expense.

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

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Three Months Ended 
 June 30,
Six Months Ended 
 June 30,
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
20232022202320222023202220232022
(in thousands, except per system data)(in thousands, except per system data)
Reconciliation of Total Operating Expense, Net to Adjusted Operating Expense:Reconciliation of Total Operating Expense, Net to Adjusted Operating Expense:Reconciliation of Total Operating Expense, Net to Adjusted Operating Expense:
Total operating expense, netTotal operating expense, net$226,148 $149,743 $436,625 $249,671 Total operating expense, net$236,614 $177,085 $673,239 $426,756 
Depreciation expenseDepreciation expense(35,204)(26,067)(67,875)(50,807)Depreciation expense(40,082)(27,594)(107,957)(78,401)
Amortization expenseAmortization expense(7,358)(7,297)(14,696)(14,585)Amortization expense(7,416)(7,309)(22,112)(21,894)
Non-cash compensation expenseNon-cash compensation expense(4,803)(4,732)(14,318)(15,596)Non-cash compensation expense(5,494)(4,463)(19,812)(20,059)
ARO accretion expenseARO accretion expense(1,153)(895)(2,234)(1,735)ARO accretion expense(1,257)(952)(3,491)(2,687)
Financing deal costsFinancing deal costs(501)(36)(674)(420)Financing deal costs(608)(162)(1,282)(582)
Natural disaster losses and related charges, netNatural disaster losses and related charges, net(809)— (946)— Natural disaster losses and related charges, net(1,442)(1,161)(2,388)(1,161)
Acquisition costsAcquisition costs(244)(1,358)(987)(2,617)Acquisition costs(150)(3,005)(1,137)(5,622)
Amortization of payments to dealers for exclusivity and other bonus arrangementsAmortization of payments to dealers for exclusivity and other bonus arrangements(1,575)(997)(2,961)(1,925)Amortization of payments to dealers for exclusivity and other bonus arrangements(1,996)(1,185)(4,957)(3,110)
Legal settlementsLegal settlements— — (750)— Legal settlements— 1,001 (750)1,001 
Provision for current expected credit lossesProvision for current expected credit losses(10,848)(9,257)(21,107)(15,914)Provision for current expected credit losses(8,360)(10,967)(29,467)(26,881)
Non-cash inventory and other impairmentsNon-cash inventory and other impairments(15,663)— (15,663)— Non-cash inventory and other impairments(6,443)(864)(22,106)(864)
Direct sales costsDirect sales costs(12,967)(493)(20,564)(873)Direct sales costs(12,635)(3,237)(33,199)(4,110)
Cost of revenue related to cash salesCost of revenue related to cash sales(11,958)(7,906)(21,303)(13,721)Cost of revenue related to cash sales(12,698)(10,225)(34,001)(23,946)
Cost of revenue related to inventory salesCost of revenue related to inventory sales(26,543)(48,967)(78,322)(48,967)Cost of revenue related to inventory sales(50,694)(40,917)(129,016)(89,884)
Unrealized gain (loss) on fair value instrumentsUnrealized gain (loss) on fair value instruments(6,643)8,239 (5,920)14,446 Unrealized gain (loss) on fair value instruments9,043 (10,637)3,123 3,809 
Indemnification payments to tax equity investorsIndemnification payments to tax equity investors(3,049)— (3,053)— Indemnification payments to tax equity investors— (1,727)(3,053)(1,727)
Gain on held-for-sale loansGain on held-for-sale loans— — Gain on held-for-sale loans— 11 — 
Adjusted Operating ExpenseAdjusted Operating Expense$86,833 $49,977 $165,255 $96,957 Adjusted Operating Expense$96,390 $53,681 $261,645 $150,638 
Adjusted Operating Expense per weighted average systemAdjusted Operating Expense per weighted average system$265 $230 $532 $465 Adjusted Operating Expense per weighted average system$262 $227 $793 $691 

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 customer agreements, 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 ("SRECs"), either under existing contracts or in future sales, plus the cash flows we expect to receive from energy services programs such as grid services, plus the carrying value of outstanding customer loans on our balance sheet. From these aggregate estimated initial cash flows, we subtract the present value of estimated net cash distributions to redeemable noncontrolling interests and noncontrolling interests and estimated operating, maintenance and administrative expenses associated with the solar service agreements. These estimated future cash flows reflect the projected monthly customer payments over the life of our solar service agreements and depend on various factors including but not limited to solar service agreement type, contracted rates, expected sun hours and the projected production capacity of the solar equipment installed. For the purpose of calculating this metric, we discount all future cash flows at 6%.

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.

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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 JuneSeptember 30, 2023 and December 31, 2022, calculated using a 6% discount rate.

As of 
 June 30, 2023
As of 
 December 31, 2022
(in millions)
Estimated gross contracted customer value$7,330 $5,875 
As of 
 September 30, 2023
As of 
 December 31, 2022
(in millions)
Estimated gross contracted customer value$8,244 $5,875 

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 that 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 recent transactions that demonstrate a portfolio of solar service agreements is an asset class that can be securitized successfully on a long-term basis with a weighted-average coupon of less than 6%. We also present these metrics with a discount rate of 6% based on industry practice. The appropriate discount rate for these estimates may change in the future due to the level of inflation, rising interest rates, our cost of capital and consumer demand for solar energy systems. In addition, the table below provides a range of estimated gross contracted customer value amounts if different cumulative customer loss rate assumptions were used. We are presenting this information for illustrative purposes only and as a comparison to information published by our peers.

Estimated Gross Contracted Customer ValueEstimated Gross Contracted Customer ValueEstimated Gross Contracted Customer Value
As of June 30, 2023As of September 30, 2023
Discount rateDiscount rate
Cumulative customer loss rateCumulative customer loss rate4%5%6%7%8%Cumulative customer loss rate4%5%6%7%8%
(in millions)(in millions)
5%5%$7,757 $7,414 $7,114 $6,850 $6,617 5%$8,741 $8,338 $7,985 $7,675 $7,402 
0%0%$8,043 $7,662 $7,330 $7,039 $6,783 0%$9,085 $8,635 $8,244 $7,901 $7,600 

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 23, 2023, our Quarterly ReportReports on Form 10-Q filed with the SEC on April 27, 2023 and July 27, 2023 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, senior notes, asset-backed and loan-backed securitizations and warehouse facilities, tax equity, preferred equity, common equity and other financing strategies to help fund our operations. From our inception through JuneSeptember 30, 2023, we have raised more than $13.3$14.5 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. Prior to the Inflation Reduction Act of 2022 ("IRA"), which was enacted in August 2022, the amount for the Section 48(a) ITC was equal to (a) 30% of the basis of eligible solar property that began construction before 2020 or (b) 26% of the basis of eligible solar property that began construction during 2020, 2021 or 2022. Under the IRA, the Section 48(a) ITC is (a) 26% for eligible solar property that began construction after 2019 and was placed in service before 2022 and (b) 30% for eligible solar property or eligible energy storage property that begins construction before 2025 provided (i) the project satisfies certain labor and apprenticeship requirements, (ii) the project has a maximum net output of less than one megawatt (as measured in alternating current) or (iii) the project began construction prior to January 29, 2023. If no criterion is satisfied, the base amount of the Section 48(a) ITC will be equal to 6%. In addition, the Section 48(a) ITC will be replaced by the Section 48E ITC for eligible solar energy property or eligible energy storage property that begins construction after 2024, and the Section 48E ITC percentage will be the same as the percentage for the Section 48(a) ITC and subject to the same requirements in order to receive the full benefit. The Section 48E ITC percentage will begin to phase down for projects that begin
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construction after (a) 2033 or (b) if later, the first year after the year in which the U.S. Department of Treasury determines greenhouse gas emissions from the production of electricity in the United States are no more than 25% of 2022 levels. We believe our solar energy systems and energy storage systems generally will not be subject to the labor and apprenticeship requirements of the IRA due to the maximum net output of most of our solar energy systems and energy storage systems. However, solar energy systems and energy storage systems systems financed by Hestia securitizations will be subject to applicable labor requirements imposed by the DOE and the U.S. Department of Labor. In addition, the IRA added a new provision that allows taxpayers to transfer certain federal income tax credits that arise after 2022, such as the Section 48(a) ITC, to third parties for cash. In September 2023, we entered into our first tax credit purchase agreements. It is unclear what long-term effect the ability to transfer Section 48(a) ITCs will have on tax equity structures, although we expect the market for tax equity structures to continue for investors who will continue to value benefits that are not transferable, such as accelerated depreciation. We are continuing to evaluate the overall impact and applicability of the IRA to our ability to raise capital from third-party investors.

Our ability to raise capital from third-party investors is also affected by general economic conditions, the state of the capital markets, inflation levels and concerns about our industry or business. Specifically, interest rates have risen and remain subject to volatility that may result from action taken by the Federal Reserve. Recent data have suggested inflationary pressures may be more durable than anticipated, which could result in interest rate increases or continued higher interest rates and/or further tapering of quantitative easing policies enacted towards the outset of the COVID-19 pandemic sooner than previously expected.

Cost of Solar Energy Systems and Energy Storage Systems. Upward pressure on prices of solar energy systems and energy storage systems may occur due to growth in the solar industry, regulatory policy changes, tariffs and duties, inflationary cost pressures and an increase in demand. As a result of these developments, we may pay higher prices on 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 lower making the addition of energy storage systems a potential area of growth for us. Downward pressure on prices of solar energy systems and energy storage systems may lead to impairment of our inventory.

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

Climate Change Action. As a result of increasing global awareness of and aversion to climate change impacts, we believe the renewable energy market in which we operate, and investment in climate solutions more broadly, will continue to grow as the impact of climate change increases. This trend, along with increasing commitments to reduce carbon emissions, is expected to result in increased demand for our products and services. Under the current presidential administration, the focus on cleaner energy sources and technology to decarbonize the U.S. economy continues to accelerate. The federal government's administration under President Joe Biden ("Biden administration") has taken immediate steps that we believe signify support for cleaner energy sources, including, but not limited to, rejoining the Paris Climate Accord, re-establishing a social price on carbon used in cost/benefit analysis for policy making and announcing a commitment to transition the U.S. economy to a net-zero carbon economy by 2050. We expect the Biden administration, combined with a closely divided Congress, to continue to take actions that are supportive of the renewable energy industry, such as incentivizing clean energy sources and supporting new investment in areas like renewables.

Government Regulations, Policies and Incentives. Our growth strategy depends in significant part on government policies and incentives that promote and support solar energy and enhance the economic viability of distributed solar. These policies and 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, DOE loan guarantee programs, incentive programs and tax credits, particularly the Section 48(a) ITC and the Section 25D Credit. The recently enacted IRA expanded and extended the tax credits available to solar energy projects in an effort to achieve the Biden administration's non-binding target of net-zero emissions by 2050, which we expect will increase demand for our services. The IRA allows qualifying
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homeowners to deduct up to 30% of the cost of installing residential solar energy systems from their U.S. federal income taxes, thereby returning a significant portion of the purchase price of the residential solar energy system to homeowners that may participate in our solar loan programs. Under the terms of the current extension, the residential tax credit will remain at 30% through the end of 2032,
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reduce to 26% for 2033, reduce to 22% for 2034, and further reduce to 0% after the end of 2034 for residential solar energy systems, unless it is extended before that time. The IRA also extended the investment tax credit for solar energy projects through at least 2033 and, depending on the location of a particular project, its size, its ability to satisfy certain labor and domestic content requirements and the category of consumers it serves, the investment tax credit percentage can range between 6% and 70%. Policies requiring solar on 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 net metering credits or SRECs or changes in other policies or a loss or reduction in such incentives could decrease the attractiveness of distributed 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 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, net of cash incentives. 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.

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

Lease Agreements. We are the lessor under lease agreements for solar energy systems and energy storage systems, which we account for as revenue from contracts with customers. We recognize revenue on a straight-line basis over the contract term as we satisfy our obligation to provide continuous access to the solar energy system. The lease agreements generally have a term of 20 or 25 years with an opportunity for customers to renew for up to an additional 10 years, via two five-year or one 10-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 related 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 14, Commitments and Contingencies, to our interim unaudited condensed consolidated financial statements ("interim financial statements") included elsewhere in this Quarterly Report on Form 10-Q.

Inventory Sales. Inventory sales revenue represents revenue from the direct sale of inventory to our dealers or other parties. We recognize the related revenue under ASC 606 upon shipment.shipment or upon sale when a bill and hold agreement is in place.
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Service Revenue. Service revenue includes revenue from the direct sale of solar energy systems and energy storage systems to customers with financing provided by us and sales of service plans and repair services. 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
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available to customers whose solar energy system was not originally sold by Sunnova. We recognize revenue from service plan contracts on a straight-line basis over the life of the contract, which is typically 10 years. We recognize revenue from repair services in the period in which the service was performed.

SRECs. Each SREC represents the environmental benefit of 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 separate from the actual electricity generated by 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. While these fixed price forward contracts serve as an economic hedge against spot price fluctuations for the SRECs, the contracts do not qualify for hedge accounting and are not designated as cash flow hedges or fair value hedges. 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 generally has a favorable impact on our operating results for that period. In certain circumstances we are required to purchase SRECs on the open market to fulfill minimum delivery requirements under our forward contracts.

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

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

Other Revenue. Other revenue includes certain state and utility incentives. We recognize revenue from state and utility incentives in the periods in which they are earned.

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—Inventory Sales. Cost of revenue—inventory sales represents costs related to the procurement and direct sale of inventory to our dealers or other parties, including shipping and handling costs.

Cost of Revenue—Other. Cost of revenue—other represents costs related to cash sales, costs to purchase SRECs on the open market, SREC broker fees, payroll and related costs for Sunnova personnel who install solar energy systems and energy storage systems and other items deemed to be a cost of providing the service of selling power to customers or potential customers, such as certain costs to service loan agreements, 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 from third parties for maintaining and servicing the solar energy systems, property insurance, property taxes and warranties. When services for maintaining and servicing solar energy systems are provided by Sunnova personnel rather than third parties, those amounts are included in payroll costs classified within general and administrative expense. During the sixnine months ended JuneSeptember 30, 2023 and 2022, we incurred $21.7$26.6 million and $8.3$13.3 million, respectively, of Sunnova personnel costs related to maintaining and servicing solar energy systems, which are classified in general and administrative expense. In addition, operations and maintenance expense includes write downs and write-offs related to inventory adjustments, gains and losses on disposals and other impairments and impairments and costs due to natural disaster losses net of insurance proceeds recovered under our business interruption and property damage insurance coverage for natural disasters.

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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, acquisition costs, travel and rent and other office-related expenses. General and administrative expense also
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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.

Other Operating (Income) Expense. Other operating (income) expense primarily represents changes in the fair values of certain financial instruments related to our investments in solar receivables and contingent consideration related to the installation and microgrid earnouts.

Interest Expense, Net. Interest expense, net represents interest on our borrowings under our various debt facilities, amortization of debt discounts and deferred financing costs and realized and unrealized gains and losses on derivative instruments.

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

Other (Income) Expense. Other (income) expense primarily represents changes in the fair value of certain financial instruments related to non-operating assets.

Income Tax Expense.Benefit. 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. The income tax expensebenefit includes the effects of taxes incurred in U.S. territories where the tax code for the respective territory may have separate tax reporting requirements, as applicable. We account for ITCs using the flow-through method. For tax credit purchase agreements entered into by certain of our consolidated tax equity partnerships, we record our share of the sale as income tax benefit and the tax equity investor's share as an increase to redeemable noncontrolling interest or noncontrolling interest.

Net Income (Loss) Attributable to Redeemable Noncontrolling Interests and Noncontrolling Interests. Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests represents tax equity interests in the net income or loss of certain consolidated subsidiaries based on hypothetical liquidation at book value.
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Results of Operations—Three Months Ended JuneSeptember 30, 2023 Compared to Three Months Ended JuneSeptember 30, 2022

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

Three Months Ended 
 June 30,
Three Months Ended 
 September 30,
20232022Change20232022Change
(in thousands)(in thousands)
RevenueRevenue$166,377 $147,012 $19,365 Revenue$198,398 $149,364 $49,034 
Operating expense:Operating expense:Operating expense:
Cost of revenue—depreciationCost of revenue—depreciation30,322 23,314 7,008 Cost of revenue—depreciation33,743 24,663 9,080 
Cost of revenue—inventory salesCost of revenue—inventory sales26,543 48,967 (22,424)Cost of revenue—inventory sales50,694 40,917 9,777 
Cost of revenue—otherCost of revenue—other31,394 9,838 21,556 Cost of revenue—other30,981 15,567 15,414 
Operations and maintenanceOperations and maintenance29,865 7,252 22,613 Operations and maintenance18,702 9,774 8,928 
General and administrativeGeneral and administrative101,384 68,242 33,142 General and administrative111,545 75,897 35,648 
Other operating (income) expenseOther operating (income) expense6,640 (7,870)14,510 Other operating (income) expense(9,051)10,267 (19,318)
Total operating expense, netTotal operating expense, net226,148 149,743 76,405 Total operating expense, net236,614 177,085 59,529 
Operating lossOperating loss(59,771)(2,731)(57,040)Operating loss(38,216)(27,721)(10,495)
Interest expense, netInterest expense, net56,947 24,571 32,376 Interest expense, net57,601 20,824 36,777 
Interest incomeInterest income(26,292)(13,311)(12,981)Interest income(30,590)(16,185)(14,405)
Other (income) expenseOther (income) expense3,172 (160)3,332 Other (income) expense561 (12)573 
Loss before income taxLoss before income tax(93,598)(13,831)(79,767)Loss before income tax(65,788)(32,348)(33,440)
Income tax expense7,183 — 7,183 
Income tax benefitIncome tax benefit(9,325)— (9,325)
Net lossNet loss(100,781)(13,831)(86,950)Net loss(56,463)(32,348)(24,115)
Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests(14,690)27,306 (41,996)
Net income attributable to redeemable noncontrolling interests and noncontrolling interestsNet income attributable to redeemable noncontrolling interests and noncontrolling interests6,684 32,195 (25,511)
Net loss attributable to stockholdersNet loss attributable to stockholders$(86,091)$(41,137)$(44,954)Net loss attributable to stockholders$(63,147)$(64,543)$1,396 

Revenue

Three Months Ended 
 June 30,
Three Months Ended 
 September 30,
20232022Change20232022Change
(in thousands)(in thousands)
PPA revenuePPA revenue$39,155 $31,159 $7,996 PPA revenue$38,300 $31,891 $6,409 
Lease revenueLease revenue34,159 24,025 10,134 Lease revenue37,966 25,912 12,054 
Inventory sales revenueInventory sales revenue26,492 54,245 (27,753)Inventory sales revenue51,356 45,528 5,828 
Service revenueService revenue19,981 1,726 18,255 Service revenue19,323 4,309 15,014 
SREC revenueSREC revenue15,055 14,687 368 SREC revenue16,136 16,241 (105)
Cash sales revenueCash sales revenue21,724 15,414 6,310 Cash sales revenue24,284 18,933 5,351 
Loan revenueLoan revenue8,112 4,194 3,918 Loan revenue9,283 5,012 4,271 
Other revenueOther revenue1,699 1,562 137 Other revenue1,750 1,538 212 
TotalTotal$166,377 $147,012 $19,365 Total$198,398 $149,364 $49,034 

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Revenue increased by $19.4$49.0 million in the three months ended JuneSeptember 30, 2023 compared to the three months ended JuneSeptember 30, 2022 primarily due to an increased number of solar energy systems in service. The weighted average number of
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systems (excluding systems with loan agreements, service-only agreements and cash sales) increased from approximately 124,200132,000 for the three months ended JuneSeptember 30, 2022 to approximately 159,700173,500 for the three months ended JuneSeptember 30, 2023. Excluding SREC revenue, revenue under our loan agreements, inventory sales revenue, cash sales revenue and service revenue, on a weighted average number of systems basis, revenue remained relatively flat at $457$450 per system for the three months ended JuneSeptember 30, 2022 compared to $470 per system for the same period in 2023 (3% increase).and 2023. Inventory sales revenue decreasedincreased by $27.8$5.8 million in the three months ended JuneSeptember 30, 2023 compared to the three months ended JuneSeptember 30, 2022 primarily due to the sale of inventory to our dealers having sufficient inventory on hand from prior purchases.or other parties. Service revenue increased by $18.3$15.0 million in the three months ended JuneSeptember 30, 2023 compared to the three months ended JuneSeptember 30, 2022 primarily due to an increased focus on direct sales of additional services to existing customers. SREC revenue increaseddecreased by $368,000$105,000 in the three months ended JuneSeptember 30, 2023 compared to the three months ended JuneSeptember 30, 2022 primarily due to an increasea decrease in SREC pricesvolume in New Jersey. The amount of SREC revenue recognized in each period is also affected by the total number of solar energy systems, weather seasonality and hedge and spot prices associated with the timing of the sale of SRECs. On a weighted average number of systems basis, revenues under our loan agreements decreased(excluding accessory loans, which do not generate revenue) increased from $83$87 per system for the three months ended JuneSeptember 30, 2022 to $74$103 per system for the same period in 2023 (11% decrease)(19% increase) primarily due to lower battery attachment rates.an increase in the fees charged for operations and maintenance services.

Cost of Revenue—Depreciation

Three Months Ended 
 June 30,
20232022Change
(in thousands)
Cost of revenue—depreciation$30,322 $23,314 $7,008 
Three Months Ended 
 September 30,
20232022Change
(in thousands)
Cost of revenue—depreciation$33,743 $24,663 $9,080 

Cost of revenue—depreciation increased by $7.0$9.1 million in the three months ended JuneSeptember 30, 2023 compared to the three months ended JuneSeptember 30, 2022. This increase was primarily due to an increase in the weighted average number of systems (excluding systems with loan agreements, service-only agreements and cash sales) from approximately 124,200132,000 for the three months ended JuneSeptember 30, 2022 to approximately 159,700173,500 for the three months ended JuneSeptember 30, 2023. On a weighted average number of systems basis, cost of revenue—depreciation remained relatively flat at $188$187 per system for the three months ended JuneSeptember 30, 2022 compared to $190$194 per system for the same period in 2023 (1%(4% increase).

Cost of Revenue—Inventory Sales

Three Months Ended 
 June 30,
20232022Change
(in thousands)
Cost of revenue—inventory sales$26,543 $48,967 $(22,424)
Three Months Ended 
 September 30,
20232022Change
(in thousands)
Cost of revenue—inventory sales$50,694 $40,917 $9,777 

Cost of revenue—inventory sales decreasedincreased by $22.4$9.8 million in the three months ended JuneSeptember 30, 2023 compared to the three months ended JuneSeptember 30, 2022 due to lowerhigher inventory sales activity.

Cost of Revenue—Other

Three Months Ended 
 June 30,
20232022Change
(in thousands)
Cost of revenue—other$31,394 $9,838 $21,556 
Three Months Ended 
 September 30,
20232022Change
(in thousands)
Cost of revenue—other$30,981 $15,567 $15,414 

Cost of revenue—other increased by $21.6$15.4 million in the three months ended JuneSeptember 30, 2023 compared to the three months ended JuneSeptember 30, 2022. This increase was primarily due to costs related to services of $16.2 million and costs related to cash sales revenue of $4.1$12.4 million.

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Operations and Maintenance Expense

Three Months Ended 
 June 30,
20232022Change
(in thousands)
Operations and maintenance$29,865 $7,252 $22,613 
Three Months Ended 
 September 30,
20232022Change
(in thousands)
Operations and maintenance$18,702 $9,774 $8,928 

Operations and maintenance expense increased by $22.6$8.9 million in the three months ended JuneSeptember 30, 2023 compared to the three months ended JuneSeptember 30, 2022 primarily due to higher impairments and losses on disposals, truck roll costs and property insurance costs. Operations and maintenance expense per weighted average system, excluding net natural disaster losses and non-cash inventory and other impairments, increased from $43$45 per system for the three months ended JuneSeptember 30, 2022 to $64$47 per system for the three months ended JuneSeptember 30, 2023 primarily due to higher truck roll and property insurance costs.

General and Administrative Expense

Three Months Ended 
 June 30,
20232022Change
(in thousands)
General and administrative$101,384 $68,242 $33,142 
Three Months Ended 
 September 30,
20232022Change
(in thousands)
General and administrative$111,545 $75,897 $35,648 

General and administrative expense increased by $33.1$35.6 million in the three months ended JuneSeptember 30, 2023 compared to the three months ended JuneSeptember 30, 2022 primarily due to increases in (a) payroll and employee related expenses primarily due to the hiring of personnel to support growth of $14.6$20.6 million, (b) fees of $3.7 million, (c) consultants, contractors, and professional fees of $2.7$3.8 million, (c) depreciation expense of $3.4 million, (d) information technology expense of $3.2 million, (e) marketing expense of $2.4 million, (e)(f) other personnel expense of $1.6 million and (g) legal expense of $2.3 million, (f) depreciation expense of $2.1 million and (g) provision for current expected credit losses due to the growth in loan customers of $1.6$1.4 million.

Other Operating (Income) Expense

Three Months Ended 
 June 30,
20232022Change
(in thousands)
Other operating (income) expense$6,640 $(7,870)$14,510 
Three Months Ended 
 September 30,
20232022Change
(in thousands)
Other operating (income) expense$(9,051)$10,267 $(19,318)

Other operating (income) expense changed by $14.5$19.3 million in the three months ended JuneSeptember 30, 2023 compared to the three months ended JuneSeptember 30, 2022 primarily due to changes in the fair value of certain financial instruments and contingent consideration.

Interest Expense, Net

Three Months Ended 
 June 30,
20232022Change
(in thousands)
Interest expense, net$56,947 $24,571 $32,376 
Three Months Ended 
 September 30,
20232022Change
(in thousands)
Interest expense, net$57,601 $20,824 $36,777 

Interest expense, net increased by $32.4$36.8 million in the three months ended JuneSeptember 30, 2023 compared to the three months ended JuneSeptember 30, 2022. This increase was primarily due to an increase in interest expense of $38.9$39.5 million due to higher levels of debt outstanding in 2023 compared to 2022 and a decrease in realizedunrealized gains on derivatives of $37.0$8.3 million. This was partially offset by an increase in unrealizedrealized gains on derivatives of $48.5$15.8 million.

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Interest Income

Three Months Ended 
 June 30,
20232022Change
(in thousands)
Interest income$26,292 $13,311 $12,981 
Three Months Ended 
 September 30,
20232022Change
(in thousands)
Interest income$30,590 $16,185 $14,405 

Interest income increased by $13.0$14.4 million in the three months ended JuneSeptember 30, 2023 compared to the three months ended JuneSeptember 30, 2022. This increase was primarily due to an increase in the weighted average number of systems with loan agreements from approximately 50,30060,800 for the three months ended JuneSeptember 30, 2022 to approximately 109,500133,300 for the three months ended JuneSeptember 30, 2023. On a weighted average number of systems basis, loan interest income decreased from $260$249 per system for the three months ended JuneSeptember 30, 2022 to $211$201 per system for the three months ended JuneSeptember 30, 2023 primarily due to an increase in the volume of accessory loans, which have smaller principal balances.

Income Tax ExpenseBenefit

Income tax expensebenefit increased by $7.2$9.3 million in the three months ended JuneSeptember 30, 2023 compared to the three months ended JuneSeptember 30, 2022 primarily due to ITC sales that resulted in an income tax benefit offset by an increase in taxable income related to tax gains recognized on the sale of solar energy systems and energy storage systems located in separate tax-reporting jurisdictions.

Net Income Attributable to Redeemable Noncontrolling Interests and Noncontrolling Interests

Net income attributable to redeemable noncontrolling interests and noncontrolling interests decreased by $25.5 million in the three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily due to a decrease in income attributable to noncontrolling interests from tax equity funds added in 2021, 2022 and 2023.

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Results of Operations—Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

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

Nine Months Ended 
 September 30,
20232022Change
(in thousands)
Revenue$526,471 $362,098 $164,373 
Operating expense:
Cost of revenue—depreciation92,262 69,935 22,327 
Cost of revenue—inventory sales129,016 89,884 39,132 
Cost of revenue—other81,599 32,974 48,625 
Operations and maintenance59,306 23,787 35,519 
General and administrative314,190 214,362 99,828 
Other operating income(3,134)(4,186)1,052 
Total operating expense, net673,239 426,756 246,483 
Operating loss(146,768)(64,658)(82,110)
Interest expense, net200,155 44,380 155,775 
Interest income(81,670)(40,428)(41,242)
Other (income) expense3,969 (327)4,296 
Loss before income tax(269,222)(68,283)(200,939)
Income tax benefit(1,632)— (1,632)
Net loss(267,590)(68,283)(199,307)
Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests(37,269)72,455 (109,724)
Net loss attributable to stockholders$(230,321)$(140,738)$(89,583)

Revenue

Nine Months Ended 
 September 30,
20232022Change
(in thousands)
PPA revenue$99,201 $84,235 $14,966 
Lease revenue103,468 71,717 31,751 
Inventory sales revenue137,762 99,773 37,989 
Service revenue55,282 7,024 48,258 
SREC revenue38,982 37,172 1,810 
Cash sales revenue62,827 45,695 17,132 
Loan revenue24,538 12,582 11,956 
Other revenue4,411 3,900 511 
Total$526,471 $362,098 $164,373 

Revenue increased by $164.4 million in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to an increased number of solar energy systems in service. The weighted average number of
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systems (excluding systems with loan agreements, service-only agreements and cash sales) increased from approximately 124,200 for the nine months ended September 30, 2022 to approximately 161,000 for the nine months ended September 30, 2023. Excluding SREC revenue, revenue under our loan agreements, inventory sales revenue, cash sales revenue and service revenue, on a weighted average number of systems basis, revenue remained relatively flat at $1,287 per system for the nine months ended September 30, 2022 compared to $1,286 per system for the same period in 2023. Inventory sales revenue increased by $38.0 million in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 due to the sale of inventory to our dealers or other parties, which began in April 2022. Service revenue increased by $48.3 million in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to an increased focus on direct sales of additional services to existing customers. SREC revenue increased by $1.8 million in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to increases in SREC prices in Connecticut, Puerto Rico and Pennsylvania. The amount of SREC revenue recognized in each period is also affected by the total number of solar energy systems, weather seasonality and hedge and spot prices associated with the timing of the sale of SRECs. On a weighted average number of systems basis, revenues under our loan agreements (excluding accessory loans, which do not generate revenue) increased from $253 per system for the nine months ended September 30, 2022 to $297 per system for the same period in 2023 (17% increase) primarily due to an increase in the fees charged for operations and maintenance services.

Cost of Revenue—Depreciation

Nine Months Ended 
 September 30,
20232022Change
(in thousands)
Cost of revenue—depreciation$92,262 $69,935 $22,327 

Cost of revenue—depreciation increased by $22.3 million in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. This increase was primarily due to an increase in the weighted average number of systems (excluding systems with loan agreements, service-only agreements and cash sales) from approximately 124,200 for the nine months ended September 30, 2022 to approximately 161,000 for the nine months ended September 30, 2023. On a weighted average number of systems basis, cost of revenue—depreciation remained relatively flat at $563 per system for the nine months ended September 30, 2022 compared to $573 per system for the same period in 2023 (2% increase).

Cost of Revenue—Inventory Sales

Nine Months Ended 
 September 30,
20232022Change
(in thousands)
Cost of revenue—inventory sales$129,016 $89,884 $39,132 

Cost of revenue—inventory sales increased by $39.1 million in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. This increase was due to costs from the sale of inventory to our dealers or other parties, which began in April 2022.

Cost of Revenue—Other

Nine Months Ended 
 September 30,
20232022Change
(in thousands)
Cost of revenue—other$81,599 $32,974 $48,625 

Cost of revenue—other increased by $48.6 million in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. This increase was primarily due to costs related to services of $35.8 million and costs related to cash sales revenue of $10.1 million.

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Operations and Maintenance Expense

Nine Months Ended 
 September 30,
20232022Change
(in thousands)
Operations and maintenance$59,306 $23,787 $35,519 

Operations and maintenance expense increased by $35.5 million in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to higher impairments and losses on disposals, truck roll costs and property insurance costs. Operations and maintenance expense per weighted average system, excluding net natural disaster losses and non-cash inventory and other impairments, increased from $131 per system for the nine months ended September 30, 2022 to $163 per system for the nine months ended September 30, 2023 primarily due to higher truck roll costs.

General and Administrative Expense

Nine Months Ended 
 September 30,
20232022Change
(in thousands)
General and administrative$314,190 $214,362 $99,828 

General and administrative expense increased by $99.8 million in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to increases in (a) payroll and employee related expenses primarily due to the hiring of personnel to support growth of $51.1 million, (b) consultants, contractors and professional fees of $9.9 million, (c) depreciation expense of $7.2 million, (d) information technology expense of $7.0 million, (e) legal expense of $6.0 million, (f) marketing expense of $4.9 million, (g) fees of $4.6 million and (h) provision for current expected credit losses primarily due to the growth in loan customers of $2.6 million.

Other Operating Income

Nine Months Ended 
 September 30,
20232022Change
(in thousands)
Other operating income$(3,134)$(4,186)$1,052 

Other operating income decreased by $1.1 million in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to changes in the fair value of certain financial instruments and contingent consideration.

Interest Expense, Net

Nine Months Ended 
 September 30,
20232022Change
(in thousands)
Interest expense, net$200,155 $44,380 $155,775 

Interest expense, net increased by $155.8 million in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. This increase was primarily due to an increase in interest expense of $111.0 million primarily due to higher levels of debt outstanding in 2023 compared to 2022, a decrease in unrealized gains on derivatives of $17.4 million and a decrease in realized gains on derivatives of $13.9 million.

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Interest Income

Nine Months Ended 
 September 30,
20232022Change
(in thousands)
Interest income$81,670 $40,428 $41,242 

Interest income increased by $41.2 million in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. This increase was primarily due to an increase in the weighted average number of systems with loan agreements from approximately 50,900 for the nine months ended September 30, 2022 to approximately 110,500 for the nine months ended September 30, 2023. On a weighted average number of systems basis, loan interest income decreased from $767 per system for the nine months ended September 30, 2022 to $633 per system for the nine months ended September 30, 2023 primarily due to an increase in the volume of accessory loans, which have smaller principal balances.

Income Tax Benefit

Income tax benefit increased by $1.6 million in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to ITC sales that resulted in an income tax benefit offset by an increase in taxable income related to tax gains recognized on the sale of solar energy systems and energy storage systems located in separate tax-reporting jurisdictions.

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

Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests changed by $42.0$109.7 million in the threenine months ended JuneSeptember 30, 2023 compared to the threenine months ended June 30, 2022 primarily due to an increase in loss attributable to noncontrolling interests from tax equity funds added in 2021, 2022 and 2023.

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Results of Operations—Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

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

Six Months Ended 
 June 30,
20232022Change
(in thousands)
Revenue$328,073 $212,734 $115,339 
Operating expense:
Cost of revenue—depreciation58,519 45,272 13,247 
Cost of revenue—inventory sales78,322 48,967 29,355 
Cost of revenue—other50,618 17,407 33,211 
Operations and maintenance40,604 14,013 26,591 
General and administrative202,645 138,465 64,180 
Other operating (income) expense5,917 (14,453)20,370 
Total operating expense, net436,625 249,671 186,954 
Operating loss(108,552)(36,937)(71,615)
Interest expense, net142,554 23,556 118,998 
Interest income(51,080)(24,243)(26,837)
Other (income) expense3,408 (315)3,723 
Loss before income tax(203,434)(35,935)(167,499)
Income tax expense7,693 — 7,693 
Net loss(211,127)(35,935)(175,192)
Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests(43,953)40,260 (84,213)
Net loss attributable to stockholders$(167,174)$(76,195)$(90,979)

Revenue

Six Months Ended 
 June 30,
20232022Change
(in thousands)
PPA revenue$60,901 $52,344 $8,557 
Lease revenue65,502 45,805 19,697 
Inventory sales revenue86,406 54,245 32,161 
Service revenue35,959 2,715 33,244 
SREC revenue22,846 20,931 1,915 
Cash sales revenue38,543 26,762 11,781 
Loan revenue15,255 7,570 7,685 
Other revenue2,661 2,362 299 
Total$328,073 $212,734 $115,339 

Revenue increased by $115.3 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to inventory sales and an increased number of solar energy systems in service. The weighted average
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number of systems (excluding systems with loan agreements, service-only agreements and cash sales) increased from approximately 120,300 for the six months ended June 30, 2022 to approximately 154,800 for the six months ended June 30, 2023. Excluding SREC revenue, revenue under our loan agreements, inventory sales revenue, cash sales revenue and service revenue, on a weighted average number of systems basis, revenue remained relatively flat at $836 per system for the six months ended June 30, 2022 compared to $834 per system for the same period in 2023. Inventory sales revenue increased by $32.2 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 due to the sale of inventory to our dealers or other parties, which began in April 2022. Service revenue increased by $33.2 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to an increased focus on direct sales of additional services to existing customers. SREC revenue increased by $1.9 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to an increase in SREC prices in New Jersey. The amount of SREC revenue recognized in each period is also affected by the total number of solar energy systems, weather seasonality and hedge and spot prices associated with the timing of the sale of SRECs. On a weighted average number of systems basis, revenues under our loan agreements decreased from $165 per system for the six months ended June 30, 2022 to $154 per system for the same period in 2023 (6% decrease) primarily due to lower battery attachment rates.

Cost of Revenue—Depreciation

Six Months Ended 
 June 30,
20232022Change
(in thousands)
Cost of revenue—depreciation$58,519 $45,272 $13,247 

Cost of revenue—depreciation increased by $13.2 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This increase was primarily due to an increase in the weighted average number of systems (excluding systems with loan agreements, service-only agreements and cash sales) from approximately 120,300 for the six months ended June 30, 2022 to approximately 154,800 for the six months ended June 30, 2023. On a weighted average number of systems basis, cost of revenue—depreciation remained relatively flat at $376 per system for the six months ended June 30, 2022 compared to $378 per system for the same period in 2023.

Cost of Revenue—Inventory Sales

Six Months Ended 
 June 30,
20232022Change
(in thousands)
Cost of revenue—inventory sales$78,322 $48,967 $29,355 

Cost of revenue—inventory sales increased by $29.4 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This increase was due to costs from the sale of inventory to our dealers or other parties, which began in April 2022.

Cost of Revenue—Other

Six Months Ended 
 June 30,
20232022Change
(in thousands)
Cost of revenue—other$50,618 $17,407 $33,211 

Cost of revenue—other increased by $33.2 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This increase was primarily due to costs related to services of $23.4 million and costs related to cash sales revenue of $7.6 million.

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Operations and Maintenance Expense

Six Months Ended 
 June 30,
20232022Change
(in thousands)
Operations and maintenance$40,604 $14,013 $26,591 

Operations and maintenance expense increased by $26.6 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to higher truck roll costs, impairments and losses on disposals and property insurance costs. Operations and maintenance expense per weighted average system, excluding net natural disaster losses and non-cash inventory and other impairments, increased from $86 per system for the six months ended June 30, 2022 to $116 per system for the six months ended June 30, 2023 primarily due to higher truck roll costs.

General and Administrative Expense

Six Months Ended 
 June 30,
20232022Change
(in thousands)
General and administrative$202,645 $138,465 $64,180 

General and administrative expense increased by $64.2 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to increases in (a) payroll and employee related expenses primarily due to the hiring of personnel to support growth of $30.5 million, (b) consultants, contractors and professional fees of $6.1 million, (c) provision for current expected credit losses primarily due to the growth in loan customers of $5.2 million, (d) legal expense of $4.7 million, (e) fees of $4.3 million, (f) information technology expense of $3.9 million and (g) depreciation expense of $3.8 million.

Other Operating (Income) Expense

Six Months Ended 
 June 30,
20232022Change
(in thousands)
Other operating (income) expense$5,917 $(14,453)$20,370 

Other operating (income) expense changed by $20.4 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to changes in the fair value of certain financial instruments and contingent consideration.

Interest Expense, Net

Six Months Ended 
 June 30,
20232022Change
(in thousands)
Interest expense, net$142,554 $23,556 $118,998 

Interest expense, net increased by $119.0 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This increase was primarily due to an increase in interest expense of $71.6 million primarily due to the issuance of additional debt in 2022 and 2023, an increase in unrealized losses on derivatives of $9.0 million and a decrease in realized gains on derivatives of $29.7 million.

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Interest Income

Six Months Ended 
 June 30,
20232022Change
(in thousands)
Interest income$51,080 $24,243 $26,837 

Interest income increased by $26.8 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This increase was primarily due to an increase in the weighted average number of systems with loan agreements from approximately 46,000 for the six months ended June 30, 2022 to approximately 99,100 for the six months ended June 30, 2023. On a weighted average number of systems basis, loan interest income decreased from $520 per system for the six months ended June 30, 2022 to $436 per system for the six months ended June 30, 2023 primarily due to an increase in the volume of accessory loans, which have smaller principal balances.

Income Tax Expense

Income tax expense increased by $7.7 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to an increase in taxable income related to tax gains recognized on the sale of solar energy systems and energy storage systems located in separate tax-reporting jurisdictions.

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

Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests changed by $84.2 million in the six months ended June 30, 2023 compared to the six months ended JuneSeptember 30, 2022 primarily due to an increase in loss attributable to noncontrolling interests from tax equity funds added in 2021, 2022 and 2023.

Liquidity and Capital Resources

As of JuneSeptember 30, 2023, we had total cash of $405.9$725.1 million, of which $187.3$467.9 million was unrestricted, and $301.1$312.2 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, which may include reducing debt prior to scheduled maturities through debt repurchases, either in the open market or in privately negotiated transactions, through debt redemptions or tender offers, or through repayments of bank borrowings. For a discussion of cash requirements from contractual and other obligations, see Note 14, Commitments and Contingencies, to our interim financial statements included elsewhere in this Quarterly Report on Form 10-Q. Historically, our primary sources of liquidity have 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. We believe our cash and financing arrangements, as further described below, will be sufficient to meet our anticipated cash needs for at least the next twelve months. As of JuneSeptember 30, 2023, we were in compliance with all debt covenants under our financing arrangements.

As of JuneSeptember 30, 2023, our liquidity and financial condition had not been materially affected by the recent adverse developments affecting financial institutions and companies in the financial services industry, including Silicon Valley Bank and Credit Suisse. For a discussion of the potential impact of these adverse developments, see Item 1A. Risk Factors included elsewhere in this Quarterly Report on Form 10-Q.

Financing Arrangements

The following is an update to the description of our various financing arrangements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financing Arrangements" in our Annual Report on Form 10-K filed with the SEC on February 23, 2023 for a full description of our various financing arrangements.

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Tax Equity Fund Commitments

As of JuneSeptember 30, 2023, we had undrawn committed capital of approximately $158.8$199.3 million under our tax equity funds, which may only be used to purchase and install solar energy systems. In February 2023, a tax equity investor increased its capital commitment from approximately $30.0 million to approximately $125.0 million. In March 2023, a tax equity investor increased its capital commitment from approximately $41.0 million to approximately $51.3 million. In April 2023, two tax equity investors increased their capital commitment from approximately $200.0 million to approximately $207.8 million. In May 2023, we admitted a tax equity investor with a total capital commitment of approximately $51.0 million. In June 2023, a tax equity investor increased its capital commitment from approximately $150.0 million to approximately $250.0 million. In August 2023, we admitted a tax equity investor with a total capital commitment of approximately $104.0 million. In September 2023, we admitted a tax equity investor with a total capital commitment of approximately $134.9 million.

Warehouse and Other Debt Financings

In February 2023, we amended the revolving credit facility by and among Sunnova EZ-Own Portfolio, LLC ("EZOP"),EZOP, certain of our other subsidiaries party thereto, Atlas Securitized Products Holdings, L.P. (as successor to Credit Suisse AG, New York Branch), as agent, and the lenders and other financial institutions party thereto, to, among other things, (a) increase the aggregate commitment amount from $450.0 million to $675.0 million, (b) increase the uncommitted maximum facility amount from $575.0 million to $800.0 million, (c) amend certain provisions related to the allocation of certain payments made to the lenders, (d) amend certain provisions related to excess concentration limits and eligibility criteria to permit us and our affiliates to provide warranties of, and replacements for, load controllers and generators in connection with the related solar loan contracts and (e) add provisions to allow EZOP to request an increase in the aggregate commitment amount (subject to certain conditions) by adding additional lenders to the EZOP revolving credit facility. In February 2023, Credit Suisse AG ("Credit Suisse") sold a significant part of its Securitized Products Group (the "Credit Suisse Securitized Products Sale") to Apollo Global Management ("Apollo"). Subsequently, Apollo publicly announced the majority of the assets and professionals associated with the sale are now part of or managed by ATLAS SP Partners, a new stand-alone credit firm focused on asset-backed financing and capital markets solutions ("Atlas"). In March 2023, in connection with the Credit Suisse Securitized Products Sale, certain of our subsidiaries consented to the assignment of the loans and commitments of the Credit Suisse lenders to the Atlas lenders (such assignment, the "EZOP Assignment") under the EZOP revolving credit facility. In connection with the EZOP Assignment, Credit Suisse AG, New York Branch ("CSNYB") resigned as the agent under the EZOP revolving credit facility, Atlas Securitized Products Holdings, L.P. (the "Successor Agent") was appointed as the successor agent thereunder and, in connection with such appointment, the Successor Agent assumed the agent roles under the EZOP revolving credit facility. In connection with the appointment of Atlas as Successor Agent, the borrowers and the lenders party to the applicable agency resignation and appointment agreements consented to, among other things, Atlas' ability to assign the agent role under the EZOP revolving credit facility to one of its affiliates subject to certain conditions set forth therein. In March 2023, after the EZOP Assignment, we amended the EZOP revolving credit facility to, among other things, (a) increase the aggregate commitment amount from $675.0 million to $775.0 million, (b) increase the uncommitted maximum facility amount from $800.0 million to $900.0 million, (c) amend and supplement certain defaulting lender provisions and (d) update the references from CSNYB, the predecessor agent, to Atlas, the successor agent, and remove or modify certain provisions related to the borrowing, funding and allocation of payments among the previous lender syndicate (that previously included lenders affiliated with Credit Suisse that, prior to the date of the amendment to the EZOP revolving credit facility and pursuant to the EZOP Assignment, had assigned their loans and commitments to lenders affiliated with Atlas). We believeIn August 2023, we will be ableamended the EZOP revolving credit facility to, meet this obligation due inamong other things, (a) increase the aggregate commitment amount from $775.0 million to $875.0 million, (b) increase the uncommitted maximum facility amount from $900.0 million to $1.0 billion, (c) extend the maturity date from November 2024 through refinancing ofto November 2025 and (d) amend the facility. We intendAdvance Rate (as defined therein). In October 2023, we amended the EZOP revolving credit facility to, complete this refinancing duringamong other things, reallocate commitments among the third quarter of 2023.lenders.

In March 2023, in connection with the Credit Suisse Securitized Products Sale, certain of our subsidiaries consented to the assignment of the loans and commitments of the Credit Suisse lenders to the Atlas lenders (such assignment, the "TEPH Assignment") under the revolving credit facility by and among Sunnova TEP Holdings, LLC ("TEPH"),TEPH, certain of our other subsidiaries party thereto, Atlas Securitized Products Holdings, L.P. (as successor to CSNYB), as agent, and the lenders and other financial institutions party thereto. In connection with the TEPH Assignment, CSNYB resigned as the agent under the TEPH revolving credit facility, Atlas was appointed as the successor agent thereunder and, in connection with such appointment, the Successor Agent assumed the agent roles under the TEPH revolving credit facility. In connection with the appointment of Atlas as Successor Agent, the borrowers and the lenders party to the applicable agency resignation and appointment agreements consented to, among other things, Atlas' ability to assign the agent role under the TEPH revolving credit facility to one of its affiliates subject to certain conditions set forth therein. In March 2023, after the TEPH Assignment, we amended the TEPH revolving credit facility to, among other things, (a) increase the aggregate commitment amount from $600.0 million to $700.0 million, (b) increase the uncommitted maximum facility amount from $689.7 million to $789.7 million, (c) add provisions to allow TEPH to request an
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increase in the aggregate commitment amount (subject to certain conditions) by adding additional lenders to the TEPH revolving credit facility, (d) amend and supplement certain defaulting lender provisions, (e) modify the hedging provisions to give all hedge counterparties the benefit of certain payment priorities and certain other terms previously limited to qualifying hedge counterparties (as defined by the TEPH revolving credit facility),
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to extend the time period for the event of default resulting from hedge counterparties ceasing to be qualifying hedge counterparties and to make other hedge-related amendments, (f) update the references from CSNYB, the predecessor administrative agent, to Atlas, the successor administrative agent, and remove or modify certain provisions related to the borrowing, funding and allocation of payments among the previous lender syndicate (that previously included lenders affiliated with Credit Suisse that, prior to the date of the amendment to the TEPH revolving credit facility and pursuant to the TEPH Assignment, had assigned their loans and commitments to lenders affiliated with Atlas), (g) add European Union bail-in provisions and (h) add certain syndication-related provisions. We believeIn August 2023, we will be ableamended the TEPH revolving credit facility to, meet this obligation due inamong other things, (a) increase the aggregate commitment amount from $700.0 million to $769.3 million, (b) increase the uncommitted maximum facility amount from $789.7 million to $859.0 million and (c) extend the maturity date from November 2024 through refinancing of the facility. We intend to complete this refinancing during the third quarter of 2023.November 2025.

In March 2023, the AP8 revolving credit facility was amended to, among other things, increase the aggregate commitment amount from $75.0 million to $150.0 million. In June 2023, the AP8 revolving credit facility by and among AP8, certain of our other subsidiaries party thereto, Banco Popular de Puerto Rico, as agent, and the lenders and other financial institutions party thereto was amended to, among other things, increase the aggregate commitment amount from $150.0 million to $185.0 million. In August 2023, the AP8 revolving credit facility was amended to, among other things, increase the aggregate commitment amount from $185.0 million to $215.0 million. We believe we will be able to meetsatisfy this obligation due in September 2024 through refinancing of the facility or alternatively through the use of our existing cash resources and liquidity.

In March 2023, Sunnova Inventory Supply, LLC, ("IS") entered into a secured revolving credit facility with Texas Capital Bank, as agent, and the lenders party thereto, for an aggregate commitment amount of $50.0 million with a maturity date of the earlier of (a) March 2026 and (b) six months from the latest maturity date of any material parent credit facility (defined as a parent credit facility with a commitment of $250.0 million or more that, if terminated could individually be expected to result in a liquidity event (as defined by the IS revolving credit facility)). The proceeds of the loans under the IS revolving credit facility are available to purchase or otherwise acquire certain accounts receivable and inventory, fund certain reserve accounts that are required to be maintained by IS in accordance with the revolving credit agreement and pay fees and expenses incurred in connection with the IS revolving credit facility. Interest on the borrowings under the IS revolving credit facility is due monthly. Borrowings under the IS revolving credit facility bear interest at an annual rate based on Term SOFR (as defined by the IS revolving credit facility).

In AprilSeptember 2023, AP9 entered into a secured revolving credit facility with Citibank, N.A., as administrative agent, and the DOE announcedlenders party thereto, for an aggregate commitment amount of $65.0 million with a conditional commitment to guarantee 90%maturity date of up to approximately $3.3 billion of certain of our future financing arrangements under its Innovative Clean Energy Loan Guarantee Program. The commitment is subject to various customary conditions. There is no assurance the DOE's conditional commitment will be fulfilledOctober 2027. Interest on the terms announcedborrowings under the AP9 revolving credit facility is due monthly. Borrowings under the AP9 revolving credit facility bear interest at an annual rate based on either Term SOFR or at all or thata CP Yield Rate (as defined by the related guarantees will provide the anticipated benefits to us.AP9 revolving credit facility).

Securitizations

In April 2023, one of our subsidiaries issued $300.0 million in aggregate principal amount of Series 2023-1 Class A solar asset-backed notes and $23.5 million in aggregate principal amount of Series 2023-1 Class B solar asset-backed notes (collectively, the "SOLV Notes") with a maturity date of April 2058. The SOLV Notes were issued at a discount of 5.01% and 11.63% for the Class A and Class B notes, respectively, and bear interest at an annual rate of 5.40% and 7.35% for the Class A and Class B notes, respectively.

In May 2023, one of our subsidiaries issued $174.9 million in aggregate principal amount of Series 2023-A Class A solar loan-backed notes, $80.1 million in aggregate principal amount of Series 2023-A Class B solar loan-backed notes and $31.7 million in aggregate principal amount of Series 2023-A Class C solar loan-backed notes (collectively, the "HELXI Notes") with a maturity date of May 2050. The HELXI Notes were issued at a discount of 2.57%, 5.31% and 13.56% for the Class A, Class B and Class C notes, respectively, and bear interest at an annual rate of 5.30%, 5.60% and 6.00% for the Class A, Class B and Class C notes, respectively.

In August 2023, one of our subsidiaries issued $148.5 million in aggregate principal amount of Series 2023-B Class A solar loan-backed notes, $71.1 million in aggregate principal amount of Series 2023-B Class B solar loan-backed notes and $23.1 million in aggregate principal amount of Series 2023-B Class C solar loan-backed notes with a maturity date of August 2050. The HELXII Notes were issued at a discount of 4.23%, 6.67% and 12.64% for the Class A, Class B and Class C notes, respectively, and bear interest at an annual rate of 5.30%, 5.60% and 6.00%, for the Class A, Class B and Class C notes, respectively.
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In April 2023, the DOE announced a conditional commitment to guarantee 90% of up to approximately $3.3 billion of certain of our future financing arrangements under its Innovative Clean Energy Loan Guarantee Program. The commitment is subject to various customary conditions. There is no assurance the DOE's conditional commitment will be fulfilled on the terms announced or at all or that the related guarantees will provide the anticipated benefits to us. In September 2023, we entered into a $3.0 billion partial loan guarantee agreement (the "Hestia Agreement") with the DOE to support certain loans originated by us. We anticipate the Hestia Agreement will support future loan originations, reduce our weighted average cost of capital and generate interest savings. Before the DOE issues loan guarantees under the Hestia Agreement, various customary conditions must be fulfilled. In October 2023, we entered into a note purchase agreement, which at closing will indirectly benefit from a partial guarantee provided by the DOE Loan Programs Office. The notes will not be directly guaranteed by the DOE. The offering consists of $219.6 million in aggregate principal amount of Series 2023-GRID1 Class A solar loan-backed notes and $24.4 million in aggregate principal amount of Series 2023-GRID1 Class B solar loan-backed notes with a maturity date of December 2050. The HESI Notes were issued at a discount of 2.46% and 9.40% for the Class A and Class B notes respectively, and bear interest at an annual rate of 5.75% and 8.25% for the Class A and Class B notes, respectively. The offering is expected to close in November 2023, subject to customary closing conditions.

Senior Notes

In September 2023, one of our subsidiaries issued and sold an aggregate principal amount of $400.0 million of 11.75% senior notes at a discount to the initial purchasers of approximately 2.74%, for an aggregate purchase price of approximately $389.0 million. The 11.75% senior notes mature in October 2028.

Public Offerings

In August 2023, we sold 5,865,000 shares of common stock at a public offering price of $14.75 per share. We received aggregate net proceeds of approximately $82.2 million, after deducting underwriting discounts and commissions of approximately $3.9 million and offering expenses of approximately $400,000.

Historical Cash Flows—SixNine Months Ended JuneSeptember 30, 2023 Compared to SixNine Months Ended JuneSeptember 30, 2022

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

Six Months Ended 
 June 30,
Nine Months Ended 
 September 30,
20232022Change20232022Change
(in thousands)(in thousands)
Net cash used in operating activitiesNet cash used in operating activities$(182,542)$(162,343)$(20,199)Net cash used in operating activities$(194,791)$(265,795)$71,004 
Net cash used in investing activitiesNet cash used in investing activities(1,173,923)(893,992)(279,931)Net cash used in investing activities(1,891,769)(1,451,353)(440,416)
Net cash provided by financing activitiesNet cash provided by financing activities1,216,765 1,028,328 188,437 Net cash provided by financing activities2,266,053 1,865,092 400,961 
Net decrease in cash, cash equivalents and restricted cash$(139,700)$(28,007)$(111,693)
Net increase in cash, cash equivalents and restricted cashNet increase in cash, cash equivalents and restricted cash$179,493 $147,944 $31,549 

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Operating Activities

Net cash used in operating activities increaseddecreased by $20.2$71.0 million in the sixnine months ended JuneSeptember 30, 2023 compared to the sixnine months ended JuneSeptember 30, 2022. This increasedecrease is primarily due to a resultdecrease in purchases of inventory and prepaid inventory of $176.2 million, offset by an increase in payments to dealers for exclusivity and other bonus arrangements of $28.8 million, offset by a decrease in purchases of inventory and prepaid inventory of $56.7$21.4 million. This increasedecrease is also due to net outflows of $59.0$78.3 million in 2023 compared to net inflows of $13.9$24.6 million in 2022 based on: (a) our net loss of $211.1$267.6 million in 2023 excluding non-cash operating items of $152.2$189.3 million, primarily from depreciation, impairments and losses on disposals, amortization of intangible assets, amortization of deferred financing costs and debt discounts, non-cash direct sales revenue, provision for current expected credit losses and other bad debt expense, unrealized net lossesgains on derivatives, unrealized net losses on fair value instruments and equity securities and equity-based compensation charges, which results in net outflows of $59.0$78.3 million and (b) our net loss of $35.9$68.3 million in 2022 excluding non-cash operating items of $49.9$92.9 million, primarily from depreciation, impairments and losses on disposals, amortization of intangible assets, amortization of deferred financing costs and debt discounts, non-cash direct sales revenue, provision for current expected credit losses and other bad debt expense, unrealized net gains on derivatives, unrealized net gains on fair value instruments and equity-based compensation charges, which results in net inflows of $13.9$24.6 million. These net differences between the two periods resulted in a net change in operating cash flows of $72.9$102.9 million in 2023 compared to 2022.
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Investing Activities

Net cash used in investing activities increased by $279.9$440.4 million in the sixnine months ended JuneSeptember 30, 2023 compared to the sixnine months ended JuneSeptember 30, 2022. This increase is primarily a result ofdue to an increase in purchases of property and equipment, primarily solar energy systems, of $367.7$677.6 million. This increase is partially offset by a decrease in payments for investments and customer notes receivable of $56.1$185.8 million and an increase in proceeds from customer notes receivable of $28.3$47.1 million.

Financing Activities

Net cash provided by financing activities increased by $188.4$401.0 million in the sixnine months ended JuneSeptember 30, 2023 compared to the sixnine months ended JuneSeptember 30, 2022. This increase is primarily a result ofdue to increases in net contributions from our redeemable noncontrolling interests and noncontrolling interests of $136.0$274.6 million, net proceeds from the issuance of common stock of $84.7 million and net borrowings under our debt facilities of $59.0$28.0 million.

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 cloud cover, 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 Plan PPAs with variable billing, Solar 20/20 Plan Agreements and Fixed Rate Power Purchase Agreements are subject to seasonality because we sell all the solar energy system's energy output to the customer at either a fixed price per kWh or indexed, variable rate per kWh. Our Easy Plan PPAs with balanced billing are not subject to seasonality (from a cash flow perspective or the customer's perspective) within a given year because the customer's payments are levelized on an annualized basis so we insulate the customer from monthly fluctuations in production. In addition, energy production true-ups and production estimate adjustments for Easy Plan PPAs with balanced billing are calculated over an entire year. However, our Easy Plan PPAs with balanced billing are subject to seasonality from a revenue recognition perspective because, similar to the Easy Plan PPAs with variable billing, we sell all the solar energy system's energy output to the customer. Our lease agreements are 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.

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Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our interim financial statements, which have been prepared in accordance with GAAP, which requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, 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 23, 2023 and Note 2, Significant Accounting Policies, to our interim financial statements included elsewhere in this Quarterly Report on Form 10-Q.

We identify our most critical accounting policies as those that are the most pervasive and important to the portrayal of our financial position and results of operations, and that require the most difficult, subjective, and/or complex judgments by management regarding estimates about matters that are inherently uncertain. We believe the assumptions and estimates associated with our principles of consolidation, the valuation of assets acquired and liabilities assumed in acquisitions, the
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estimated useful life of our solar energy systems, the valuation of the removal assumptions, including costs, associated with AROs, the valuation of redeemable noncontrolling interests and noncontrolling interests and our allowance for current expected credit losses 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.

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 SOFR or a similar index plus a specified margin. We sometimes manage our interest rate exposure on floating-rate debt by entering into derivative instruments to hedge all or a portion of our interest rate exposure on certain debt facilities. We do not enter into any derivative instruments for trading or speculative purposes. Changes in economic conditions could result in higher interest rates, thereby increasing our interest expense and operating expenses and reducing funds available to capital investments, operations and other purposes. A hypothetical 10% increase in our interest rates on our variable-rate debt facilities would have increased our interest expense by $2.8$3.4 million and $5.0$8.5 million for the three and sixnine months ended JuneSeptember 30, 2023, 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 JuneSeptember 30, 2023, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures. The term "disclosure controls and procedures", as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure information required to be disclosed by a company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure information required to be
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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 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 secondthird quarter of 2023 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
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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.

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 23, 2023 except as described below.

Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely impact our business, financial condition and results of operations.

Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, in March 2023, Silicon Valley Bank ("SVB") was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation as receiver. Similarly, in March 2023, Signature Bank and Silvergate Capital Corp. were each swept into receivership. Further, uncertainty remains over liquidity concerns in the broader financial services industry, including for example in the case of First Republic Bank and Credit Suisse ("CS") during March 2023. In March 2023, CS agreed to be acquired by UBS following the intervention of the Swiss Federal Department of Finance, the Swiss National Bank and the Swiss Financial Market Supervisory Authority. While we have no deposits with CS or SVB, we continue to have ongoing relationships with both banks. CS was the primary lender and agent for our EZOP and TEPH revolving credit facilities until March 2023; and CS was and remains an interest rate counterparty. SVB and its successor, Silicon Valley Bridge Bank ("SVBB") were and are lenders of our TEPH revolving credit facility. To date, CS and SVBB have performed their obligations to us and have been responsive to our requests, although there can be no assurances such performance will continue in the future.

We maintain deposits at financial institutions as a part of doing business that could be at risk if another similar event were to occur. Our ongoing cash management strategy is to maintain the majority of our deposit accounts in large "money center" financial institutions, but there can be no assurance this strategy will be successful. Increasing concerns regarding the U.S. or international financial systems, including bank failures and bailouts, and their potential broader effects and potential systemic
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risk on the banking sector generally, may adversely affect our access to capital. Any decline in available funding or access to our cash and liquidity resources could, among other risks, limit our ability to meet our capital needs and fund future growth or fulfill our other obligations, or result in breaches of our financial and/or contractual obligations. Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors not described above, could have material adverse impacts on our business, financial condition and results of operations.

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

In February 2021, we entered into an Earnout Agreement (the "Earnout Agreement"), as amended, in connection with the April 2021 SunStreet acquisition. Pursuant to the terms of the Earnout Agreement, we are required to issue a number of earnout shares to Lenx, LLC, a subsidiary of Lennar Corporation, ("Lenx") if we meet certain commercial milestones, including if (a) we place a certain number of solar systems into service and enter into qualifying customer agreements related to such solar system for annual periods over four years commencing on the closing date of the acquisition and (b) prior to the fifth anniversary of the closing date of the acquisition, certain legally binding agreements relating to the development of microgrid communities are entered into. In April 2023, we issued 690,122 shares of common stock (the "April 2023 Earnout Shares") to Lenx pursuant to the terms of the Earnout Agreement. In June 2023, we issued 3,321 shares of common stock (the "June 2023 Earnout Shares" and together with the April 2023 Earnout Shares, the "Earnout Shares"). Neither issuance of the Earnout Shares involved a public offering and each issuance of the Earnout Shares was exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act, which exempts transactions by an issuer not involving any public offering. In June 2023, we amended the Earnout Agreement to extend the delivery period of the Installation Earnout Statement (as defined in the Earnout Agreement).Not applicable.

Item 3. Defaults Upon Senior Securities.

Not applicable.

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Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Bylaws Amendment and Restatement

On May 2,October 25, 2023, William J. Berger, Presidentour Board of Directors adopted amendments to our bylaws, effective as of such date of adoption (the "Amended and Chief Executive Officer, adoptedRestated Bylaws"). The Amended and Restated Bylaws, among other things, provide for reasonable steps to ensure the list of stockholders entitled to vote at a trading plan intendedmeeting would be made available electronically only to satisfystockholders before the affirmative defense conditionsmeeting (Section 1.5), address the adjournment of stockholders meetings (Section 1.7), clarify that, in relation to an action at a stockholder meeting, abstentions and broker non-votes will not be considered votes cast in determining the outcome of a matter (Section 1.9) and update the provisions regarding the obligations of a stockholder who intends to propose certain business or nominations of persons for the election of directors before a meeting of stockholders, including deadlines and obligations to provide and update information and representations, and to comply with applicable rules regarding the solicitation of proxies (including Rule 10b5-1(c)14a-19 under the Securities Exchange Act (a "10b5-1 Plan")of 1934) (Section 1.10).

The 10b5-1 Plan authorizes an agent to sell, from August 1, 2023 until September 1, 2023, such securities as are necessary to satisfy tax withholding obligations, commissions and any fees arising exclusively from the vesting on July 29, 2023,foregoing summary of the compensatory awardAmended and Restated Bylaws is qualified in its entirety by reference to the full text of 119,047 restricted stock units granted July 29, 2019.the Amended and Restated Bylaws attached to this report as Exhibit 3.2 in unmarked form, and as Exhibit 3.3 to this report in redline form marking the amendments as described above, and are incorporated herein by reference.

10b5-1 Plans

During the three months ended JuneSeptember 30, 2023, there were no other director or officer adopted or terminated a "Rule 10b5-1 trading arrangement"plans" or "non-Rule 10b5-1 trading arrangement", asarrangements" adopted, modified or terminated by any of our directors or officers (as each term is defined in Item 408(a) of Regulation S-K. Prior to the three months ended June 30, 2023, Chris Hayden, Executive Vice President, Chief Technology Officer, adopted a Rule 10b5-1 trading arrangement that was intended to satisfy the affirmative defense of Rule 10b5-1(c) for the exercise of up to 5,715 stock options and sale of the underlying shares of our common stock until April 1, 2024.S-K).
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PART IV

Item 6. Exhibits.

Exhibit No.Description
2.1
2.2
3.1
3.2
3.3
4.1∞
4.2
4.3
4.4∞4.4
4.5
4.6
10.1∞
4.5
4.6
4.7
10.1∞10.2∞
10.210.3∞
10.4∞
10.5∞
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.
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Exhibit No.Description
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 in accordance with Items 601(a)(5) and 601(b)(10) of Regulation S-K. We agree to furnish a copy of any omitted schedule or exhibit to the SEC upon request.

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SIGNATURES

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

SUNNOVA ENERGY INTERNATIONAL INC.
Date: July 27,October 26, 2023By:/s/ William J. Berger
William J. Berger
Chief Executive Officer and Director
(Principal Executive Officer)

Date: July 27,October 26, 2023By:/s/ Robert L. Lane
Robert L. Lane
Chief Financial Officer
(Principal Financial Officer)

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