0001772695-20-000061.txt : 20200515 0001772695-20-000061.hdr.sgml : 20200515 20200515070726 ACCESSION NUMBER: 0001772695-20-000061 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 97 CONFORMED PERIOD OF REPORT: 20200331 FILED AS OF DATE: 20200515 DATE AS OF CHANGE: 20200515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Sunnova Energy International Inc. CENTRAL INDEX KEY: 0001772695 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38995 FILM NUMBER: 20880561 BUSINESS ADDRESS: STREET 1: 20 GREENWAY PLAZA, SUITE 475 CITY: HOUSTON STATE: TX ZIP: 77046 BUSINESS PHONE: (281) 985-9900 MAIL ADDRESS: STREET 1: 20 GREENWAY PLAZA, SUITE 475 CITY: HOUSTON STATE: TX ZIP: 77046 10-Q 1 q12020form10-qdocument.htm 10-Q Q1 2020 Form 10-Q Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________________

FORM 10-Q
_______________________________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 001-38995
_______________________________________________________________________________
Sunnova Energy International Inc.
(Exact name of registrant as specified in its charter)
_______________________________________________________________________________
Delaware
 
30-1192746
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
20 East Greenway Plaza, Suite 475
Houston, Texas 77046
(Address, including zip code, of principal executive offices)

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

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

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

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

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

The registrant had 84,026,290 shares of common stock outstanding as of May 12, 2020.

1


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

the effects of the coronavirus disease pandemic on our business and operations, results of operations and financial position;
federal, state and local statutes, regulations and policies;
determinations of the Internal Revenue Service of the fair market value of our solar energy systems;
the price of centralized utility-generated electricity and electricity from other sources and technologies;
technical and capacity limitations imposed by operators of the power grid;
the availability of tax rebates, credits and incentives, including changes to the rates of, or expiration of, federal tax credits and the availability of related safe harbors;
our need and ability to raise capital to finance the installation and acquisition of distributed residential solar energy systems, refinance existing debt or otherwise meet our liquidity needs;
our expectations concerning relationships with third parties, including the attraction, retention, performance and continued existence of our dealers;
our ability to manage our supply chains and distribution channels and the impact of natural disasters and other events beyond our control, such as the coronavirus disease pandemic;
our ability to retain or upgrade current customers, further penetrate existing markets or expand into new markets;
our investment in our platform and new product offerings and the demand for and expected benefits of our platform and product offerings;
the ability of our solar energy systems, energy storage systems or other product offerings to operate or deliver energy for any reason, including if interconnection or transmission facilities on which we rely become unavailable;
our ability to maintain our brand and protect our intellectual property and customer data;
our ability to manage the cost of solar energy systems, energy storage systems and our service offerings;
the willingness of and ability of our dealers and suppliers to fulfill their respective warranty and other contractual obligations;
our expectations regarding litigation and administrative proceedings; and
our ability to renew or replace expiring, canceled or terminated solar service agreements at favorable rates or on a long-term basis.

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


2


TABLE OF CONTENTS

 
 
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.
 


3


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 
 March 31, 2020
 
As of 
 December 31, 2019
Assets
 
 
 
Current assets:
 
 
 
Cash
$
73,436

 
$
83,485

Accounts receivable—trade, net
10,039

 
10,672

Accounts receivable—other
9,264

 
6,147

Other current assets, net of allowance of $567 and $112 as of March 31, 2020 and December 31, 2019, respectively
187,217

 
174,016

Total current assets
279,956

 
274,320

 
 
 
 
Property and equipment, net
1,884,576

 
1,745,060

Customer notes receivable, net of allowance of $11,569 and $979 as of March 31, 2020 and December 31, 2019, respectively
338,514

 
297,975

Other assets
179,134

 
169,712

Total assets (1)
$
2,682,180

 
$
2,487,067

 
 
 
 
Liabilities, Redeemable Noncontrolling Interests and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
59,657

 
$
36,190

Accrued expenses
15,158

 
39,544

Current portion of long-term debt
100,716

 
97,464

Other current liabilities
15,324

 
21,804

Total current liabilities
190,855

 
195,002

 
 
 
 
Long-term debt, net
1,511,555

 
1,346,419

Other long-term liabilities
145,323

 
127,406

Total liabilities (1)
1,847,733

 
1,668,827

 
 
 
 
Commitments and contingencies (Note 13)

 

 
 
 
 
Redeemable noncontrolling interests
242,427

 
172,305

 
 
 
 
Stockholders' equity:
 
 
 
Common stock, 84,026,290 and 83,980,885 shares issued as of March 31, 2020 and December 31, 2019, respectively, at $0.0001 par value
8

 
8

Additional paid-in capital—common stock
1,010,655

 
1,007,751

Accumulated deficit
(418,643
)
 
(361,824
)
Total stockholders' equity
592,020

 
645,935

Total liabilities, redeemable noncontrolling interests and stockholders' equity
$
2,682,180

 
$
2,487,067


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

See accompanying notes to unaudited condensed consolidated financial statements.

4


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

 
Three Months Ended 
 March 31,
 
2020
 
2019
Revenue
$
29,829

 
$
26,715

 
 
 
 
Operating expense:
 
 
 
Cost of revenue—depreciation
12,986

 
9,653

Cost of revenue—other
1,043

 
652

Operations and maintenance
2,219

 
2,254

General and administrative
27,893

 
18,681

Other operating income
(6
)
 
(18
)
Total operating expense, net
44,135

 
31,222

 
 
 
 
Operating loss
(14,306
)
 
(4,507
)
 
 
 
 
Interest expense, net
67,318

 
31,661

Interest expense, net—affiliates

 
1,822

Interest income
(4,620
)
 
(2,494
)
Loss before income tax
(77,004
)
 
(35,496
)
 
 
 
 
Income tax

 

Net loss
(77,004
)
 
(35,496
)
Net income (loss) attributable to redeemable noncontrolling interests
(5,929
)
 
3,018

Net loss attributable to stockholders
(71,075
)
 
(38,514
)
Dividends earned on Series A convertible preferred stock

 
(9,511
)
Dividends earned on Series C convertible preferred stock

 
(2,692
)
Net loss attributable to common stockholders—basic and diluted
$
(71,075
)
 
$
(50,717
)
 
 
 
 
Net loss per share attributable to common stockholders—basic and diluted
$
(0.85
)
 
$
(5.87
)
Weighted average common shares outstanding—basic and diluted
84,001,151

 
8,635,527


See accompanying notes to unaudited condensed consolidated financial statements.


5


SUNNOVA ENERGY INTERNATIONAL INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Three Months Ended 
 March 31,
 
2020
 
2019
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net loss
$
(77,004
)
 
$
(35,496
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation
14,946

 
11,012

Impairment and loss on disposals, net
331

 
364

Amortization of deferred financing costs
3,494

 
6,324

Amortization of debt discount
4,663

 
472

Non-cash effect of equity-based compensation plans
2,690

 
281

Non-cash payment-in-kind interest on loanaffiliates

 
1,158

Unrealized loss on derivatives
7,596

 
7,032

Other non-cash items
3,424

 
1,000

Changes in components of operating assets and liabilities:
 
 
 
Accounts receivable
(2,755
)
 
(1,167
)
Other current assets
4,124

 
(8,961
)
Other assets
(8,682
)
 
(3,979
)
Accounts payable
13,768

 
6,771

Accrued expenses
(17,227
)
 
(4,455
)
Other current liabilities
(6,446
)
 
(2,206
)
Other long-term liabilities
(1,034
)
 
(2,580
)
Net cash used in operating activities
(58,112
)
 
(24,430
)
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Purchases of property and equipment
(141,231
)
 
(68,902
)
Payments for investments and customer notes receivable
(50,448
)
 
(27,732
)
Proceeds from customer notes receivable
6,940

 
3,757

State utility rebates and tax credits
135

 
111

Other, net
289

 
86

Net cash used in investing activities
(184,315
)
 
(92,680
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from long-term debt
583,681

 
227,930

Payments of long-term debt
(408,695
)
 
(123,858
)
Payments on notes payable
(2,398
)
 

Payments of deferred financing costs
(10,619
)
 
(5,281
)
Payments of debt discounts
(229
)
 
(525
)
Proceeds from issuance of common stock, net
(41
)
 
6

Proceeds from issuance of convertible preferred stock, net

 
(2,253
)
Contributions from redeemable noncontrolling interests
102,342

 
18,030

Distributions to redeemable noncontrolling interests
(1,373
)
 
(3,652
)
Payments of costs related to redeemable noncontrolling interests
(1,295
)
 
(1,035
)
Other, net
(1
)
 
(11
)
Net cash provided by financing activities
261,372

 
109,351

Net increase (decrease) in cash and restricted cash
18,945

 
(7,759
)
Cash and restricted cash at beginning of period
150,291

 
87,046

Cash and restricted cash at end of period
169,236

 
79,287

Restricted cash included in other current assets
(30,502
)
 
(430
)
Restricted cash included in other assets
(65,298
)
 
(34,999
)
Cash at end of period
$
73,436

 
$
43,858



6


 
Three Months Ended 
 March 31,
 
2020
 
2019
Non-cash investing and financing activities:
 
 
 
Change in accounts payable and accrued expenses related to purchases of property and equipment
$
9,357

 
$
12,362

 
 
 
 
Supplemental cash flow information:
 
 
 
Cash paid for interest
$
25,369

 
$
17,333

Cash paid for income taxes
$

 
$


See accompanying notes to unaudited condensed consolidated financial statements.

7


SUNNOVA ENERGY INTERNATIONAL INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
 
Redeemable
Noncontrolling
Interests
 
 
Series A
Convertible
Preferred Stock
 
Series C
Convertible
Preferred Stock
 
Series A
Common Stock
 
Series B
Common Stock
 
Additional
Paid-in
Capital -
Convertible
Preferred
Stock
 
Additional
Paid-in
Capital -
Common
Stock
 
Accumulated
Deficit
 
Total
Stockholders'
Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
December 31, 2018
$
85,680

 
 
44,942,594

 
$
449

 
13,006,780

 
$
130

 
8,612,728

 
$
86

 
21,727

 
$

 
$
701,326

 
$
85,439

 
$
(286,312
)
 
$
501,118

Net income (loss)
3,018

 
 

 

 

 

 

 

 

 

 

 

 
(38,514
)
 
(38,514
)
Issuance of common stock

 
 

 

 

 

 

 

 
2,143

 

 

 
4

 

 
4

Repurchase of convertible preferred stock

 
 
(13,484
)
 

 

 

 

 

 

 

 
(183
)
 

 
(8
)
 
(191
)
Contributions from redeemable noncontrolling interests
18,030

 
 

 

 

 

 

 

 

 

 

 

 

 

Distributions to redeemable noncontrolling interests
(3,652
)
 
 

 

 

 

 

 

 

 

 

 

 

 

Costs related to redeemable noncontrolling interests
(1,562
)
 
 

 

 

 

 

 

 

 

 

 

 

 

Equity in subsidiaries attributable to parent
(10,125
)
 
 

 

 

 

 

 

 

 

 

 

 
10,125

 
10,125

Equity-based compensation expense

 
 

 

 

 

 

 

 

 

 

 
281

 

 
281

Other, net
2,627

 
 

 

 

 

 

 

 

 

 
493

 

 
(2
)
 
491

March 31, 2019
$
94,016

 
 
44,929,110

 
$
449

 
13,006,780

 
$
130

 
8,612,728

 
$
86

 
23,870

 
$

 
$
701,636

 
$
85,724

 
$
(314,711
)
 
$
473,314



8


 
Redeemable
Noncontrolling
Interests
 
 
Common Stock
 
Additional
Paid-in
Capital -
Common
Stock
 
Accumulated
Deficit
 
Total
Stockholders'
Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
 
 
December 31, 2019
$
172,305

 
 
83,980,885

 
$
8

 
$
1,007,751

 
$
(361,824
)
 
$
645,935

Cumulative-effect adjustment

 
 

 

 

 
(9,908
)
 
(9,908
)
Net loss
(5,929
)
 
 

 

 

 
(71,075
)
 
(71,075
)
Issuance of common stock, net

 
 
45,405

 

 
214

 

 
214

Contributions from redeemable noncontrolling interests
102,342

 
 

 

 

 

 

Distributions to redeemable noncontrolling interests
(1,373
)
 
 

 

 

 

 

Costs related to redeemable noncontrolling interests
(707
)
 
 

 

 

 

 

Equity in subsidiaries attributable to parent
(24,164
)
 
 

 

 

 
24,164

 
24,164

Equity-based compensation expense

 
 

 

 
2,690

 

 
2,690

Other, net
(47
)
 
 

 

 

 

 

March 31, 2020
$
242,427

 
 
84,026,290

 
$
8

 
$
1,010,655

 
$
(418,643
)
 
$
592,020


See accompanying notes to unaudited condensed consolidated financial statements.

9

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
(1) Description of Business and Basis of Presentation

We are a leading residential solar and energy storage service provider, serving more than 85,000 customers in more than 20 United States ("U.S.") states and territories. Sunnova Energy Corporation was incorporated in Delaware on October 22, 2012 and formed Sunnova Energy International Inc. ("SEI") as a Delaware corporation on April 1, 2019. We completed our initial public offering on July 29, 2019 (our "IPO"); and in connection with our IPO, all of Sunnova Energy Corporation's ownership interests were contributed to SEI. Unless the context otherwise requires, references in this report to "Sunnova," the "Company," "we," "our," "us," or like terms, refer to SEI and its subsidiaries.

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

We provide our services through long-term residential solar service agreements with a diversified pool of high credit quality customers. Our solar service agreements typically are structured as either a legal-form lease (a "lease") of a solar energy system 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 with financing provided by us (a "loan"). The initial term of our solar service agreements is typically either 10 or 25 years, during which time we provide or arrange for ongoing services to customers, including monitoring, maintenance and warranty services. Our lease and PPA agreements typically include an opportunity for customers to renew for up to an additional 10 years, via two five-year renewal options. Customer payments and rates can be fixed for the duration of the solar service agreement or escalated at a pre-determined percentage annually. We also receive tax benefits and other incentives from leases and PPAs, a portion of which we finance through tax equity, non-recourse debt structures and hedging arrangements in order to fund our upfront costs, overhead and growth investments.

Basis of Presentation

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

Our interim financial statements reflect our accounts and operations and those of our subsidiaries in which we have a controlling financial interest. In accordance with the provisions of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 810, Consolidation, we consolidate any VIE of which we are the primary beneficiary. We form VIEs with our investors in the ordinary course of business to facilitate the funding and monetization of certain attributes associated with our solar energy systems. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity; however, a controlling financial interest may also exist in entities, such as VIEs, through arrangements that do not involve controlling voting interests. ASC 810 requires a variable interest holder to consolidate a VIE if that party has (a) the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and (b) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. We do not consolidate a VIE in which we have a majority ownership interest when we are not considered the primary beneficiary. We have considered the provisions within the contractual arrangements that grant us power to manage and make decisions that affect the operation of our VIEs, including determining the solar energy systems contributed to the VIEs, and the installation, operation and maintenance of the solar energy systems. We consider the rights granted to the other investors under the contractual arrangements to be more protective in nature rather than participating rights. As such, we have determined we are the primary beneficiary of our VIEs and evaluate our relationships with our VIEs on an

10

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Adoption of ASU

In June 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments—Credit Losses, which requires entities to use a forward-looking expected loss approach, referred to as the current expected credit loss ("CECL") methodology, in accordance with ASC 326, Financial Instruments—Credit Losses, instead of the incurred loss approach previously in effect when estimating the allowance for credit losses. Under CECL, financial assets measured at amortized cost are presented at the net amount expected to be collected by using an estimate of credit losses for the remaining estimated life of the financial asset based on historical experience, current conditions and reasonable and supportable forecasts. This ASU is effective for annual and interim reporting periods in 2020. In 2018 and 2019, the FASB issued the following ASUs related to ASU 2016-13: ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, ASU 2019-05, Financial Instruments—Credit Losses: Targeted Transition Relief and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The supplemental ASUs must be adopted simultaneously with ASU 2016-13. We adopted this ASU in January 2020 using the modified retrospective approach for our trade accounts receivable, customer notes receivable and long-term receivable for leases, which resulted in a cumulative-effect adjustment to stockholders' equity of approximately $9.9 million. Results for reporting periods prior to 2020 continue to be presented in accordance with previously applicable GAAP while results for subsequent reporting periods are presented under ASC 326. See Note 2, Significant Accounting Policies, and Note 6, Customer Notes Receivable. The following table presents the impact of the adoption of ASU No. 2016-13 on the unaudited condensed consolidated balance sheet:
 
As of January 1, 2020
 
As Reported
Under ASC 326
 
Impact of ASC
326 Adoption
 
Pre-ASC 326
Adoption
 
(in thousands)
Accounts receivable—trade, net
$
10,912

 
$
240

 
$
10,672

Other current assets
173,565

 
(451
)
 
174,016

Customer notes receivable
289,191

 
(8,784
)
 
297,975

Other assets
168,799

 
(913
)
 
169,712

Accumulated deficit
(371,732
)
 
(9,908
)
 
(361,824
)


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.

Coronavirus Disease ("COVID-19") Pandemic

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

To adjust to federal social distancing guidelines, stay-at-home orders and similar government measures, our dealers have expanded the use of digital tools and origination channels and created new methods that offset restrictions on their ability to meet with potential new customers in-person in certain areas. The service and installation of solar energy systems continued during the COVID-19 pandemic. This reflects residential solar services' designation as an essential service in all of our service territories. In order to adhere to all applicable state and federal health and safety guidelines, we and our dealers have moved to a contact-free process for installers and service technicians. In addition, certain regulators and local utilities have begun accepting electronic submissions for permits and inspections are now being performed in many locations through video calls and other electronic means. Throughout the COVID-19 pandemic, we have seen minimal impact to our supply chain as our technicians and dealers have largely been able to successfully procure the equipment needed to service and install solar energy systems.


11

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(2) Significant Accounting Policies

Included below are updates to significant accounting policies disclosed in our 2019 annual audited consolidated financial statements.

Use of Estimates

The application of GAAP in the preparation of the interim financial statements requires us to make estimates and assumptions that affect the amounts reported in the interim financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ materially from those estimates.

Accounts Receivable

Accounts ReceivableTrade.    Accounts receivabletrade primarily represents trade receivables from residential customers under PPAs and leases that are generally collected in the subsequent month. Accounts receivabletrade is recorded net of an allowance for credit losses, which is based on our assessment of the collectability of customer accounts. We review the allowance by considering factors such as historical experience, customer credit rating, contractual term, aging category and current economic conditions that may affect a customer's ability to pay to identify customers with potential disputes or collection issues. We write off accounts receivable when we deem them uncollectible. As of March 31, 2020, we have not experienced a significant increase in delinquent customer accounts and have not made any significant adjustments to our allowance for credit losses related to accounts receivabletrade as a result of the COVID-19 pandemic. The following table presents the changes in the allowance for credit losses recorded against accounts receivabletrade, net in the unaudited condensed consolidated balance sheets:
 
As of March 31,
 
2020
 
2019
 
(in thousands)
Balance at beginning of period
$
960

 
$
723

Impact of ASC 326 adoption
(240
)
 

Provision for current expected credit losses
402

 

Bad debt expense

 
292

Write off of uncollectible accounts
(385
)
 
(301
)
Recoveries
9

 
27

Other, net
1

 

Balance at end of period
$
747

 
$
741



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

Inventory

Inventory primarily represents energy storage systems, photovoltaic modules, inverters, meters and other associated equipment purchased and held for use as original parts on new solar energy systems or replacement parts on existing solar energy systems. We record inventory in other current assets in the consolidated balance sheets at the lower of cost and net realizable value. We remove these items from inventory using the weighted-average method and (a) expense to operations and

12

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

maintenance expense when installed as a replacement part for a solar energy system or (b) capitalize to property and equipment when installed as an original part on a solar energy system. We evaluate our inventory reserves and write down the estimated value of excess and obsolete inventory based upon assumptions about future demand and market conditions. The following table presents the detail of inventory as recorded in other current assets in the unaudited condensed consolidated balance sheets:
 
As of 
 March 31, 2020
 
As of 
 December 31, 2019
 
(in thousands)
Energy storage systems and components
$
34,021

 
$
33,443

Modules and inverters
80,932

 
10,137

Meters
154

 
169

Total
$
115,107

 
$
43,749



As of March 31, 2020 and December 31, 2019, we recorded accrued expenses of $3.4 million and $15.2 million, respectively, for inventory purchases.

Fair Value of Financial Instruments

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

Level 1—Observable inputs that reflect unadjusted quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date.
Level 2—Observable inputs other than Level 1 prices, such as quoted market prices for similar assets or liabilities in active markets, quoted market prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy must be determined based on the lowest level input that is significant to the fair value measurement. An assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability. Our financial instruments include accounts receivable, notes receivable, accounts payable, accrued expenses, long-term debt and interest rate swaps. The carrying values of accounts receivable, accounts payable and accrued expenses approximate the fair values due to the fact that they are short-term in nature (Level 1). We estimate the fair value of our customer notes receivable based on interest rates currently offered under the loan program with similar maturities and terms (Level 3). We estimate the fair value of our fixed-rate long-term debt based on interest rates currently offered for debt with similar maturities and terms (Level 3). We determine the fair values of the interest rate derivative transactions based on a discounted cash flow method using contractual terms of the transactions. The floating interest rate is based on observable rates consistent with the frequency of the interest cash flows (Level 2). See Note 6, Customer Notes Receivable, Note 7, Long-Term Debt and Note 8, Derivative Instruments.

Derivative Instruments

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


13

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Revenue

The following table presents the detail of revenue as recorded in the unaudited condensed consolidated statements of operations:
 
Three Months Ended 
 March 31,
 
2020
 
2019
 
(in thousands)
PPA revenue
$
12,633

 
$
9,612

Lease revenue
11,542

 
9,638

Solar renewable energy certificate revenue
4,363

 
6,592

Loan revenue
599

 
371

Other revenue
692

 
502

Total
$
29,829

 
$
26,715



We recognize revenue from contracts with customers as we satisfy our performance obligations at a transaction price reflecting an amount of consideration based upon an estimated rate of return. We express this rate of return as the solar rate per kilowatt hour ("kWh") in the customer contract. The amount of revenue we recognize does not equal customer cash payments because we satisfy performance obligations ahead of cash receipt or evenly as we provide continuous access on a stand-ready basis to the solar energy system. We reflect the differences between revenue recognition and cash payments received in accounts receivable, other assets or deferred revenue, as appropriate. Revenue allocated to remaining performance obligations represents contracted revenue we have not yet recognized and includes deferred revenue as well as amounts that will be invoiced and recognized as revenue in future periods. Contracted but not yet recognized revenue was approximately $1.2 billion as of March 31, 2020, of which we expect to recognize approximately 4% over the next 12 months. We do not expect the annual recognition to vary significantly over approximately the next 20 years as the vast majority of existing solar service agreements have at least 20 years remaining, given the average age of the fleet of solar energy systems under contract is less than three years.

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

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

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

If the solar energy system does not produce the guaranteed production amount, we are required to refund a portion of the previously remitted customer payments, where the repayment is calculated as the product of (a) the shortfall production amount and (b) the dollar amount (guaranteed rate) per kWh that is fixed throughout the term of the contract. These remittances of a

14

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

customer's payments, if needed, are payable in January following the end of the first three years of the solar energy system's placed in service date and then every annual period thereafter. See Note 13, Commitments and Contingencies.

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

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

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

Loans

We offer a loan program, under which the customer finances the purchase of a solar energy system or energy storage system through a solar service agreement, typically for a term of 10 or 25 years. We recognize cash payments received from customers on a monthly basis under our loan program (a) as interest income, to the extent attributable to earned interest on the contract that financed the customer's purchase of the solar energy system or energy storage system; (b) as a reduction of a note receivable on the balance sheet, to the extent attributable to a return of principal (whether scheduled or prepaid) on the contract that financed the customer's purchase of the solar energy system or energy storage system; and (c) as revenue, to the extent attributable to payments for operations and maintenance services provided by us. To qualify for the loan program, a customer must pass our credit evaluation process, which requires the customer to have a minimum FICO® score of 650 to 720 depending on certain circumstances, and we secure the loans with the solar energy systems or energy storage systems financed. The credit evaluation process is performed once for each customer at the time the customer is entering into the solar service agreement with us.

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

The allowance for credit losses is deducted from the customer notes receivable amortized cost to present the net amount expected to be collected. It is measured on a collective (pool) basis when similar risk characteristics (such as financial asset type, customer credit rating, contractual term and vintage) exist. In determining the allowance for credit losses, we identify customers with potential disputes or collection issues and consider our historical level of credit losses and current economic trends that might impact the level of future credit losses. Adjustments to historical loss information are made for differences in

15

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

current loan-specific risk characteristics, such as differences in underwriting standards. Expected credit losses are estimated over the contractual term of the loan agreements, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless either of the following applies: (a) we have a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual customer or (b) the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancelable by us. As of March 31, 2020, we have not experienced a significant increase in delinquent customer notes receivable and have not made any significant adjustments to our allowance for credit losses related to loans as a result of the COVID-19 pandemic. See Note 6, Customer Notes Receivable.

Deferred Revenue

Deferred revenue consists of amounts for which the criteria for revenue recognition have not yet been met and includes (a) down payments and partial or full prepayments from customers, (b) differences due to the timing of energy production versus billing for certain types of PPAs and (c) payments for unfulfilled performance obligations from the loan program which will be recognized over the remaining term of the respective solar service agreements. Deferred revenue was $34.0 million as of December 31, 2018. The following table presents the detail of deferred revenue as recorded in other current liabilities and other long-term liabilities in the unaudited condensed consolidated balance sheets:
 
As of 
 March 31, 2020
 
As of 
 December 31, 2019
 
(in thousands)
Loans
$
55,406

 
$
46,958

PPAs and leases
10,151

 
8,895

SRECs
3,000

 
3,000

Total (1)
$
68,557

 
$
58,853


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

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

New Accounting Guidance

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

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes, to remove certain exceptions and clarify and amend the existing guidance. This ASU is effective for annual and interim reporting periods in 2021. We have not yet determined the potential impact of this ASU on our consolidated financial statements and related disclosures.

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

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


16

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(3) Property and Equipment

The following table presents the detail of property and equipment, net as recorded in the unaudited condensed consolidated balance sheets:
 
Useful Lives
 
As of 
 March 31, 2020
 
As of 
 December 31, 2019
 
(in years)
 
(in thousands)
Solar energy systems
35
 
$
1,836,111

 
$
1,689,457

Construction in progress
 
 
148,412

 
143,449

Asset retirement obligations
30
 
29,021

 
26,967

Information technology systems
3
 
28,495

 
28,320

Computers and equipment
3-5
 
1,644

 
1,499

Leasehold improvements
3-6
 
1,314

 
1,014

Furniture and fixtures
7
 
811

 
735

Vehicles
4-5
 
1,636

 
1,632

Other
5-6
 
157

 
146

Property and equipment, gross
 
 
2,047,601

 
1,893,219

Less: accumulated depreciation
 
 
(163,025
)
 
(148,159
)
Property and equipment, net
 
 
$
1,884,576

 
$
1,745,060



Solar Energy Systems.    The amounts included in the above table for solar energy systems and substantially all the construction in progress relate to our customer contracts (including PPAs and leases). These assets had accumulated depreciation of $143.8 million and $130.9 million as of March 31, 2020 and December 31, 2019, respectively.

(4) Detail of Certain Balance Sheet Captions

The following table presents the detail of other current assets as recorded in the unaudited condensed consolidated balance sheets:
 
As of 
 March 31, 2020
 
As of 
 December 31, 2019
 
(in thousands)
Prepaid inventory
$
17,100

 
$
96,167

Inventory
115,107

 
43,749

Current portion of customer notes receivable
15,170

 
13,758

Other prepaid assets
7,123

 
7,380

Current portion of other notes receivable
947

 
982

Deferred receivables
1,222

 
1,506

Restricted cash
30,502

 
10,474

Other
46

 

Total
$
187,217

 
$
174,016




17

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the detail of other current liabilities as recorded in the unaudited condensed consolidated balance sheets:
 
As of 
 March 31, 2020
 
As of 
 December 31, 2019
 
(in thousands)
Interest payable
$
8,978

 
$
14,680

Current portion of performance guarantee obligations
2,502

 
4,067

Current portion of lease liability
924

 
561

Deferred revenue
2,893

 
2,086

Other
27

 
410

Total
$
15,324

 
$
21,804



The following table presents the detail of other assets as recorded in the unaudited condensed consolidated balance sheets:
 
As of 
 March 31, 2020
 
As of 
 December 31, 2019
 
(in thousands)
Restricted cash
$
65,298

 
$
56,332

Construction in progress - customer notes receivable
33,903

 
37,137

Exclusivity and other bonus arrangements with dealers, net
37,273

 
32,791

Straight-line revenue adjustment
26,183

 
24,852

Other
16,477

 
18,600

Total
$
179,134

 
$
169,712



(5) Asset Retirement Obligations ("ARO")

AROs consist primarily of costs to remove solar energy system assets and costs to restore the solar energy system sites to the original condition, which we estimate based on current market rates. For each solar energy system, we recognize the fair value of the ARO as a liability and capitalize that cost as part of the cost basis of the related solar energy system. The related assets are depreciated on a straight-line basis over 30 years, which is the estimated average time a solar energy system will be installed in a location before being removed, and the related liabilities are accreted to the full value over the same period of time. We revise our estimated future liabilities based on recent actual experiences, including third party cost estimates, average size of solar energy systems and inflation rates, which we evaluate at least annually. Changes in our estimated future liabilities are recorded as either a reduction or addition in the carrying amount of the remaining unamortized asset and the ARO and either decrease or increase our depreciation and accretion expense amounts prospectively. The following table presents the changes in AROs as recorded in other long-term liabilities in the unaudited condensed consolidated balance sheets:
 
As of March 31,
 
2020
 
2019
 
(in thousands)
Balance at beginning of period
$
31,053

 
$
20,033

Additional obligations incurred
2,067

 
786

Accretion expense
489

 
313

Other
(15
)
 
(9
)
Balance at end of period
$
33,594

 
$
21,123




18

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(6) Customer Notes Receivable

We offer a loan program, under which the customer finances the purchase of a solar energy system or energy storage system through a solar service agreement, typically for a term of 10 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 
 March 31, 2020
 
As of 
 December 31, 2019
 
(in thousands)
Customer notes receivable
$
365,820

 
$
312,823

Allowance for credit losses
(12,136
)
 
(1,091
)
Customer notes receivable, net (1)
$
353,684

 
$
311,732

Estimated fair value, net
$
357,032

 
$
314,222


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

The following table presents the changes in the allowance for credit losses related to customer notes receivable as recorded in the unaudited condensed consolidated balance sheets:
 
As of March 31,
 
2020
 
2019
 
(in thousands)
Balance at beginning of period
$
1,091

 
$
710

Impact of ASC 326 adoption
9,235

 

Provision for current expected credit losses (1)
1,811

 

Bad debt expense

 
111

Write off of uncollectible accounts

 
(39
)
Other, net
(1
)
 
(24
)
Balance at end of period
$
12,136

 
$
758


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

As of March 31, 2020 and December 31, 2019, we invested $33.9 million and $37.1 million, respectively, in loan solar energy systems and energy storage systems not yet placed in service. For the three months ended March 31, 2020 and 2019, interest income related to our customer notes receivable was $4.4 million and $2.3 million, respectively. As of March 31, 2020 and December 31, 2019, accrued interest receivable related to our customer notes receivable was $975,000 and $869,000, respectively. As of March 31, 2020 and December 31, 2019, there were no customer notes receivable not accruing interest and thus, there is no allowance recorded for loans on nonaccrual status. For the three months ended March 31, 2020 and 2019, interest income of $0 was recognized for loans on nonaccrual status and accrued interest receivable of $0 was written off by reversing interest income.


19

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We consider the performance of our customer notes receivable portfolio and its impact on our allowance for credit losses. We also evaluate the credit quality based on the aging status and payment activity. The following table presents the aging of the amortized cost of customer notes receivable as of March 31, 2020:
 
As of 
 March 31, 2020
 
As of 
 December 31, 2019
 
(in thousands)
1-90 days past due
$
6,120

 
$
5,741

91-180 days past due
1,719

 
1,714

Greater than 180 days past due
2,044

 
1,206

Total past due
9,883

 
8,661

Not past due
355,937

 
304,162

Total
$
365,820

 
$
312,823



As of March 31, 2020 and December 31, 2019, the amortized cost of our customer notes receivable more than 90 days past due but not on nonaccrual status was $3.8 million and $2.9 million, respectively. The following table presents the amortized cost of our customer notes receivable based on payment activity.
 
Amortized Cost by Origination Year
 
2020
 
2019
 
2018
 
2017
 
2016
 
Prior