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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, 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)
_________________________________________________________________________________________
Delaware
30-1192746
(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 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 116,290,106 shares of common stock outstanding as of April 24, 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

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, such as hurricanes and the coronavirus ("COVID-19") pandemic;
our ability to retain or upgrade current customers, further penetrate existing markets or expand into new markets;
our investment in our platform and new product offerings and the demand for and expected benefits of our platform and product offerings;
the ability of our solar energy systems, energy storage systems or other product offerings to operate or deliver energy for any reason, including if interconnection or transmission facilities on which we rely become unavailable;
our ability to maintain our brand and protect our intellectual property and customer data;
our ability to manage the cost of solar energy systems, energy storage systems and our service offerings;
the willingness of and ability of our dealers and suppliers to fulfill their respective warranty and other contractual obligations;
our expectations regarding litigation and administrative proceedings; and
our ability to renew or replace expiring, canceled or terminated solar service agreements at favorable rates or on a long-term basis.

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

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, 2023
As of 
 December 31, 2022
Assets
Current assets:
Cash and cash equivalents$210,884 $360,257 
Accounts receivable—trade, net25,614 24,435 
Accounts receivable—other188,642 212,397 
Other current assets, net of allowance of $3,658 and $3,250 as of March 31, 2023 and December 31, 2022, respectively
402,975 351,300 
Total current assets828,115 948,389 
Property and equipment, net4,054,373 3,784,801 
Customer notes receivable, net of allowance of $87,801 and $77,998 as of March 31, 2023 and December 31, 2022, respectively
2,864,545 2,466,149 
Intangible assets, net155,400 162,512 
Goodwill13,150 13,150 
Other assets986,625 961,891 
Total assets (1)$8,902,208 $8,336,892 
Liabilities, Redeemable Noncontrolling Interests and Equity
Current liabilities:
Accounts payable$123,498 $116,136 
Accrued expenses122,233 139,873 
Current portion of long-term debt209,335 214,431 
Other current liabilities72,884 71,506 
Total current liabilities527,950 541,946 
Long-term debt, net5,621,437 5,194,755 
Other long-term liabilities806,057 712,741 
Total liabilities (1)6,955,444 6,449,442 
Commitments and contingencies (Note 13)
Redeemable noncontrolling interests179,502 165,737 
Stockholders' equity:
Common stock, 115,584,659 and 114,939,079 shares issued as of March 31, 2023 and December 31, 2022, respectively, at $0.0001 par value
12 11 
Additional paid-in capital—common stock1,645,737 1,637,847 
Accumulated deficit(366,972)(364,782)
Total stockholders' equity1,278,777 1,273,076 
Noncontrolling interests488,485 448,637 
Total equity1,767,262 1,721,713 
Total liabilities, redeemable noncontrolling interests and equity$8,902,208 $8,336,892 

(1) The consolidated assets as of March 31, 2023 and December 31, 2022 include $3,454,737 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 $42,467 and $40,382 as of March 31, 2023 and December 31, 2022, respectively; accounts receivable—trade, net of $9,681 and $8,542 as of March 31, 2023 and December 31, 2022, respectively; accounts receivable—other of $457 and $810 as of March 31, 2023 and December 31, 2022, respectively; other current assets of $412,743 and $422,364 as of March 31, 2023 and December 31, 2022, respectively; property and equipment, net of $2,936,828 and $2,680,587 as of March 31, 2023 and December 31, 2022, respectively; and other assets of $52,561 and $48,586 as of March 31, 2023 and December 31, 2022, respectively. The consolidated liabilities as of March 31, 2023 and December 31, 2022 include $74,245 and $66,441, respectively, of liabilities of VIEs whose creditors have no recourse to Sunnova Energy International Inc. These liabilities include accounts payable of $9,597 and $9,015 as of March 31, 2023 and December 31, 2022, respectively; accrued expenses of $239 and $287 as of March 31, 2023 and December 31, 2022, respectively; other current liabilities of $7,013 and $4,420 as of March 31, 2023 and December 31, 2022, respectively; and other long-term liabilities of $57,396 and $52,719 as of March 31, 2023 and December 31, 2022, 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,
20232022
Revenue$161,696 $65,722 
Operating expense:
Cost of revenue—depreciation28,197 21,958 
Cost of revenue—inventory sales51,779  
Cost of revenue—other19,224 7,569 
Operations and maintenance10,739 6,761 
General and administrative101,261 70,223 
Other operating income(723)(6,583)
Total operating expense, net210,477 99,928 
Operating loss(48,781)(34,206)
Interest expense, net85,607 (1,015)
Interest income(24,788)(10,932)
Other (income) expense236 (155)
Loss before income tax(109,836)(22,104)
Income tax expense510  
Net loss(110,346)(22,104)
Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests(29,263)12,954 
Net loss attributable to stockholders$(81,083)$(35,058)
Net loss per share attributable to stockholders—basic and diluted$(0.70)$(0.31)
Weighted average common shares outstanding—basic and diluted115,073,975 113,499,426 

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,
20232022
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss$(110,346)$(22,104)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation32,671 24,740 
Impairment and loss on disposals, net647 402 
Amortization of intangible assets7,108 7,113 
Amortization of deferred financing costs5,171 2,626 
Amortization of debt discount3,512 1,784 
Non-cash effect of equity-based compensation plans9,515 10,864 
Unrealized (gain) loss on derivatives23,616 (33,874)
Unrealized gain on fair value instruments and equity securities(487)(6,362)
Other non-cash items2,958 9,482 
Changes in components of operating assets and liabilities:
Accounts receivable20,837 4,958 
Other current assets(43,060)(48,228)
Other assets(80,308)(22,639)
Accounts payable(10,618)(2,086)
Accrued expenses(11,588)9,620 
Other current liabilities(3,470)(10,204)
Other long-term liabilities(15,485)(18,221)
Net cash used in operating activities(169,327)(92,129)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment(289,296)(138,181)
Payments for investments and customer notes receivable(274,362)(246,270)
Proceeds from customer notes receivable36,111 23,740 
Proceeds from investments in solar receivables2,132 1,798 
Other, net1,120 1,263 
Net cash used in investing activities(524,295)(357,650)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt604,240 391,903 
Payments of long-term debt(188,724)(39,639)
Payments of deferred financing costs(6,832)(5,084)
Proceeds from issuance of common stock, net(1,488)(2,820)
Contributions from redeemable noncontrolling interests and noncontrolling interests174,951 51,889 
Distributions to redeemable noncontrolling interests and noncontrolling interests(8,554)(5,854)
Payments of costs related to redeemable noncontrolling interests and noncontrolling interests(4,511)(7,383)
Other, net(211)(199)
Net cash provided by financing activities568,871 382,813 
Net decrease in cash, cash equivalents and restricted cash(124,751)(66,966)
Cash, cash equivalents and restricted cash at beginning of period545,574 391,897 
Cash, cash equivalents and restricted cash at end of period420,823 324,931 
Restricted cash included in other current assets(52,699)(34,958)
Restricted cash included in other assets(157,240)(81,478)
Cash and cash equivalents at end of period$210,884 $208,495 
6

Three Months Ended 
 March 31,
20232022
Non-cash investing and financing activities:
Change in accounts payable and accrued expenses related to purchases of property and equipment$(142)$10,026 
Change in accounts payable and accrued expenses related to payments for investments and customer notes receivable$11,462 $3,050 
Supplemental cash flow information:
Cash paid for interest$69,033 $36,926 
Cash paid for income taxes$510 $ 

See accompanying notes to unaudited condensed consolidated financial statements.
7

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, 2022$145,186 113,911,388 $11 $1,657,087 $(425,004)$1,232,094 $273,854 $1,505,948 

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 (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, 2023$179,502 115,584,659 $12 $1,645,737 $(366,972)$1,278,777 $488,485 $1,767,262 

See accompanying notes to unaudited condensed consolidated financial statements.
8

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Description of Business and Basis of Presentation

We are a leading Energy as a Service provider, serving over 309,000 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 and/or energy storage system 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. 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 March 31, 2023, we have raised more than $12.5 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 obligation to absorb losses or receive benefits from the VIE that could potentially be significant to the VIE. We do not
9

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.

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 did not record the estimated reduction to the derivative assets related to the credit valuation adjustment as of March 31, 2022. These immaterial errors impacted our consolidated balance sheet, consolidated statement of operations, consolidated statement of cash flows and consolidated statement of redeemable noncontrolling interests and equity. The following tables present the impact of these revisions on the interim financial statements:

Consolidated Balance Sheet
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)

Consolidated Statement 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)

Consolidated Statement 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)

10

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Redeemable Noncontrolling Interests and Equity
Accumulated Deficit
As Previously
Reported
RevisionsAs
Revised
(in thousands)
December 31, 2021$(459,715)$ $(459,715)
Net loss attributable to stockholders(33,583)(1,475)(35,058)
Equity in subsidiaries attributable to parent69,769  69,769 
March 31, 2022$(423,529)$(1,475)$(425,004)

(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 the changes in the allowance for credit losses recorded against accounts receivabletrade, net in the unaudited condensed consolidated balance sheets:

Three Months Ended 
 March 31,
20232022
(in thousands)
Balance at beginning of period$1,676 $1,044 
Provision for current expected credit losses928 475 
Write off of uncollectible accounts(779)(506)
Recoveries62 52 
Balance at end of period$1,887 $1,065 

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—
11

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 
 March 31, 2023
As of 
 December 31, 2022
(in thousands)
Energy storage systems and components$107,567 $74,968 
Homebuilder construction in progress46,443 43,116 
Modules and inverters28,049 32,798 
Meters and modems890 1,166 
Other 65 
Total$182,949 $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.
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 and based on quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date (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.

12

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following tables present our financial instruments measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022:

As of March 31, 2023
TotalLevel 1Level 2Level 3
(in thousands)
Financial assets:
Investments in solar receivables$70,722 $ $ $70,722 
Derivative assets133,873  133,873  
Total$204,595 $ $133,873 $70,722 
Financial liabilities:
Contingent consideration$15,040 $ $ $15,040 
Total$15,040 $ $ $15,040 

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 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:

Three Months Ended 
 March 31,
20232022
(in thousands)
Balance at beginning of period$72,171 $82,658 
Additions969  
Settlements(2,173)(1,320)
Loss recognized in earnings(245)(3,760)
Balance at end of period$70,722 $77,578 

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
13

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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:

Three Months Ended 
 March 31,
20232022
(in thousands)
Balance at beginning of period$26,787 $67,895 
Settlements(10,779)(16,013)
Gain recognized in earnings(968)(9,967)
Balance at end of period$15,040 $41,915 

The following table summarizes the significant unobservable inputs used in the valuation of our liabilities as of March 31, 2023 using Level 3 inputs:

Unobservable
Input
Weighted
Average
Liabilities:
Contingent consideration - installation earnoutVolatility35.00%
Revenue risk premium16.00%
Risk-free discount rate4.06%
Contingent consideration - microgrid earnoutProbability of success25.00%
Risk-free discount rate4.06%

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.

Revenue

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

Three Months Ended 
 March 31,
20232022
(in thousands)
PPA revenue$21,746 $21,185 
Lease revenue31,343 21,780 
Inventory sales revenue59,914  
Solar renewable energy certificate revenue7,791 6,244 
Cash sales revenue16,819 11,348 
Loan revenue7,143 3,376 
Other revenue16,940 1,789 
Total$161,696 $65,722 

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
14

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
approximately $3.7 billion as of March 31, 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 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 13, 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. Shipping and handling costs are included in cost of revenue—inventory sales in the consolidated statements of operations.

Solar Renewable Energy Certificates.    Each solar renewable energy certificate ("SREC") represents the environmental