Sunnova Energy International Inc. - Quarter Report: 2022 September (Form 10-Q)

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 September 30, 2022


☐			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 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 114,909,899 shares of common stock outstanding as of October 24, 2022.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

•our future operations and financial performance following the acquisition of SunStreet Energy Group, LLC, a Delaware limited liability company ("SunStreet");

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

•the impact of Hurricane Fiona and Hurricane Ian on our business and operations, results of operations and financial position;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

•our expectations regarding litigation and administrative proceedings; and

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

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

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TABLE OF CONTENTS


		Page
PART I - FINANCIAL INFORMATION
Item 1.	Unaudited Condensed Consolidated Balance Sheets	4
	Unaudited Condensed Consolidated Statements of Operations	5
	Unaudited Condensed Consolidated Statements of Cash Flows	6
	Unaudited Condensed Consolidated Statements of Redeemable Noncontrolling Interests and Equity	8
	Notes to Unaudited Condensed Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58
Item 4.	Controls and Procedures	59

PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	59
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3.	Defaults Upon Senior Securities	60
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	60
Item 6.	Exhibits	60
	Signatures	62

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

SUNNOVA ENERGY INTERNATIONAL INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

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


	As of September 30, 2022		As of December 31, 2021


Assets
Current assets:
Cash and cash equivalents	$	412,581	$	243,101
Accounts receivable—trade, net	35,743		18,584
Accounts receivable—other	152,942		57,736

Other current assets, net of allowance of $5,306 and $1,646 as of September 30, 2022 and December 31, 2021, respectively	336,047		296,321
Total current assets	937,313		615,742

Property and equipment, net	3,537,177		2,909,613
Customer notes receivable, net of allowance of $62,682 and $39,492 as of September 30, 2022 and December 31, 2021, respectively	2,072,264		1,204,073
Intangible assets, net	169,187		190,520
Goodwill	13,150		13,150
Other assets	920,634		571,136
Total assets (1)	$	7,649,725	$	5,504,234

Liabilities, Redeemable Noncontrolling Interests and Equity
Current liabilities:
Accounts payable	$	94,647	$	55,033
Accrued expenses	121,195		81,721
Current portion of long-term debt	191,131		129,793
Other current liabilities	51,093		44,350
Total current liabilities	458,066		310,897

Long-term debt, net	4,807,107		3,135,681
Other long-term liabilities	631,137		436,043
Total liabilities (1)	5,896,310		3,882,621

Commitments and contingencies (Note 15)

Redeemable noncontrolling interests	153,469		145,336

Stockholders' equity:
Common stock, 114,895,870 and 113,386,600 shares issued as of September 30, 2022 and December 31, 2021, respectively, at $0.0001 par value	11		11
Additional paid-in capital—common stock	1,633,507		1,649,199
Accumulated deficit	(387,073)		(459,715)
Total stockholders' equity	1,246,445		1,189,495
Noncontrolling interests	353,501		286,782
Total equity	1,599,946		1,476,277
Total liabilities, redeemable noncontrolling interests and equity	$	7,649,725	$	5,504,234

(1) The consolidated assets as of September 30, 2022 and December 31, 2021 include $2,721,620 and $2,148,398, respectively, of assets of variable interest entities ("VIEs") that can only be used to settle obligations of the VIEs. These assets include cash of $33,695 and $23,538 as of September 30, 2022 and December 31, 2021, respectively; accounts receivable—trade, net of $9,834 and $6,167 as of September 30, 2022 and December 31, 2021, respectively; accounts receivable—other of $739 and $410 as of September 30, 2022 and December 31, 2021, respectively; other current assets of $273,175 and $272,421 as of September 30, 2022 and December 31, 2021, respectively; property and equipment, net of $2,362,041 and $1,817,471 as of September 30, 2022 and December 31, 2021, respectively; and other assets of $42,136 and $28,391 as of September 30, 2022 and December 31, 2021, respectively. The consolidated liabilities as of September 30, 2022 and December 31, 2021 include $59,908 and $47,225, respectively, of liabilities of VIEs whose creditors have no recourse to Sunnova Energy International Inc. These liabilities include accounts payable of $8,965 and $6,014 as of September 30, 2022 and December 31, 2021, respectively; accrued expenses of $178 and $88 as of September 30, 2022 and December 31, 2021, respectively; other current liabilities of $2,894 and $3,845 as of September 30, 2022 and December 31, 2021, respectively; and other long-term liabilities of $47,871 and $37,278 as of September 30, 2022 and December 31, 2021, respectively.

See accompanying notes to unaudited condensed consolidated financial statements.

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SUNNOVA ENERGY INTERNATIONAL INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue	$	149,364	$	68,901	$	362,098	$	176,733

Operating expense:
Cost of revenue—depreciation	24,663		19,665		69,935		55,621
Cost of revenue—inventory sales	40,917		—		89,884		—
Cost of revenue—other	15,567		7,342		32,974		13,572
Operations and maintenance	9,774		6,035		23,787		14,640
General and administrative	75,897		53,372		214,362		144,028
Other operating expense (income)	10,267		(9,337)		(4,186)		(5,303)
Total operating expense, net	177,085		77,077		426,756		222,558

Operating loss	(27,721)		(8,176)		(64,658)		(45,825)

Interest expense, net	18,328		26,588		36,275		84,748

Interest income	(16,185)		(9,098)		(40,428)		(24,266)
Loss on extinguishment of long-term debt, net	—		—		—		9,824

Other (income) expense	(12)		189		(327)		60
Loss before income tax	(29,852)		(25,855)		(60,178)		(116,191)

Income tax expense	—		64		—		64
Net loss	(29,852)		(25,919)		(60,178)		(116,255)
Net income attributable to redeemable noncontrolling interests and noncontrolling interests	32,195		1,622		72,455		7,665
Net loss attributable to stockholders	$	(62,047)	$	(27,541)	$	(132,633)	$	(123,920)






Net loss per share attributable to common stockholders—basic and diluted	$	(0.54)	$	(0.25)	$	(1.16)	$	(1.12)
Weighted average common shares outstanding—basic and diluted	114,816,879		112,159,698		114,293,251		110,185,333

See accompanying notes to unaudited condensed consolidated financial statements.

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SUNNOVA ENERGY INTERNATIONAL INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Nine Months Ended September 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(60,178)	$	(116,255)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	78,401		62,286
Impairment and loss on disposals, net	2,971		3,522
Amortization of intangible assets	21,333		14,111
Amortization of deferred financing costs	9,690		11,556
Amortization of debt discount	6,273		8,231

Non-cash effect of equity-based compensation plans	20,059		13,937


Unrealized gain on derivatives	(35,685)		(5,574)
Unrealized gain on fair value instruments	(4,136)		(4,665)
Loss on extinguishment of long-term debt, net	—		9,824

Other non-cash items	(14,087)		12,622
Changes in components of operating assets and liabilities:
Accounts receivable	(100,537)		(27,194)

Other current assets	(139,946)		(99,731)
Other assets	(84,142)		(41,404)
Accounts payable	1,403		(5,226)
Accrued expenses	41,571		19,923
Other current liabilities	(4,243)		(1,617)


Other long-term liabilities	(4,542)		(1,193)
Net cash used in operating activities	(265,795)		(146,847)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment	(637,556)		(344,044)
Payments for investments and customer notes receivable	(902,773)		(553,475)
Proceeds from customer notes receivable	79,870		47,300

Proceeds from investments in solar receivables	9,388		—

Other, net	(282)		3,038
Net cash used in investing activities	(1,451,353)		(847,181)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt	2,308,033		1,890,185
Payments of long-term debt	(571,261)		(815,710)


Payments on notes payable	—		(34,555)
Payments of deferred financing costs	(24,748)		(27,031)
Payments of debt discounts	—		(2,324)
Purchase of capped call transactions	(48,420)		(91,655)
Proceeds from issuance of common stock, net	(3,345)		9,911


Contributions from redeemable noncontrolling interests and noncontrolling interests	236,661		226,432
Distributions to redeemable noncontrolling interests and noncontrolling interests	(20,847)		(10,407)
Payments of costs related to redeemable noncontrolling interests and noncontrolling interests	(10,380)		(8,159)
Other, net	(601)		(283)
Net cash provided by financing activities	1,865,092		1,136,404
Net increase in cash, cash equivalents and restricted cash	147,944		142,376
Cash, cash equivalents and restricted cash at beginning of period	391,897		377,893
Cash, cash equivalents and restricted cash at end of period	539,841		520,269
Restricted cash included in other current assets	(14,584)		(52,042)
Restricted cash included in other assets	(112,676)		(60,071)
Cash and cash equivalents at end of period	$	412,581	$	408,156

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	Nine Months Ended September 30,
	2022		2021
Non-cash investing and financing activities:

Change in accounts payable and accrued expenses related to purchases of property and equipment	$	14,019	$	50,057
Change in accounts payable and accrued expenses related to payments for investments and customer notes receivable	$	21,750	$	(37,086)




Non-cash issuance of common stock related to the settlement of contingent consideration	$	16,014	$	—
Non-cash conversion of convertible senior notes for common stock	$	—	$	95,648

Supplemental cash flow information:
Cash paid for interest	$	105,375	$	70,415
Cash paid for income taxes	$	—	$	94

See accompanying notes to unaudited condensed consolidated financial statements.

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SUNNOVA ENERGY INTERNATIONAL INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

(in thousands, except share amounts)


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


			Shares	Amount
December 31, 2020	$	136,124	100,412,036	$	10	$	1,482,716	$	(530,995)	$	951,731	$	192,826	$	1,144,557
Cumulative-effect adjustment	—		—	—		—		2,254		2,254		—		2,254
Net income (loss)	2,110		—	—		—		(32,983)		(32,983)		6,809		(26,174)
Issuance of common stock, net	—		8,141,766	1		65,541		—		65,542		—		65,542
Equity component of debt instrument	—		—	—		(8,807)		—		(8,807)		—		(8,807)
Contributions from noncontrolling interests	—		—	—		—		—		—		40,802		40,802
Distributions to redeemable noncontrolling interests and noncontrolling interests	(1,090)		—	—		—		—		—		(1,743)		(1,743)
Costs related to noncontrolling interests	—		—	—		—		—		—		(55)		(55)
Equity in subsidiaries attributable to parent	40		—	—		—		37,213		37,213		(37,253)		(40)
Equity-based compensation expense	—		—	—		7,924		—		7,924		—		7,924
Other, net	(62)		—	—		1		—		1		(476)		(475)
March 31, 2021	137,122		108,553,802	11		1,547,375		(524,511)		1,022,875		200,910		1,223,785
Net income (loss)	4,236		—	—		—		(63,396)		(63,396)		(7,112)		(70,508)
Issuance of common stock, net	—		3,431,715	—		138,020		—		138,020		—		138,020
Capped call transactions	—		—	—		(91,655)		—		(91,655)		—		(91,655)
Contributions from noncontrolling interests	—		—	—		—		—		—		75,808		75,808
Distributions to redeemable noncontrolling interests and noncontrolling interests	(1,128)		—	—		—		—		—		(2,300)		(2,300)
Costs related to noncontrolling interests	—		—	—		—		—		—		(3,035)		(3,035)
Equity in subsidiaries attributable to parent	2		—	—		—		57,971		57,971		(57,973)		(2)
Equity-based compensation expense	—		—	—		2,920		—		2,920		—		2,920
Other, net	(47)		—	—		(1)		—		(1)		(654)		(655)
June 30, 2021	140,185		111,985,517	11		1,596,659		(529,936)		1,066,734		205,644		1,272,378
Net income (loss)	3,332		—	—		—		(27,541)		(27,541)		(1,710)		(29,251)
Issuance of common stock, net	—		279,137	—		1,188		—		1,188		—		1,188

Contributions from noncontrolling interests	—		—	—		—		—		—		109,822		109,822
Distributions to redeemable noncontrolling interests and noncontrolling interests	(1,146)		—	—		—		—		—		(3,000)		(3,000)
Costs related to noncontrolling interests	—		—	—		—		—		—		(3,037)		(3,037)
Equity in subsidiaries attributable to parent	5		—	—		—		51,683		51,683		(51,688)		(5)
Equity-based compensation expense	—		—	—		3,093		—		3,093		—		3,093
Other, net	1		—	—		—		1		1		(1,392)		(1,391)
September 30, 2021	$	142,377	112,264,654	$	11	$	1,600,940	$	(505,793)	$	1,095,158	$	254,639	$	1,349,797

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


			Shares	Amount
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)		—	—		—		(33,583)		(33,583)		15,386		(18,197)
Issuance of common stock, net	—		524,788	—		(2,976)		—		(2,976)		—		(2,976)
Contributions from redeemable noncontrolling interests and noncontrolling interests	3,757		—	—		—		—		—		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		(423,529)		1,233,569		273,854		1,507,423
Net income (loss)	4,563		—	—		—		(37,003)		(37,003)		22,743		(14,260)
Issuance of common stock, net	—		745,829	—		15,828		—		15,828		—		15,828
Contributions from redeemable noncontrolling interests and noncontrolling interests	13,423		—	—		—		—		—		111,967		111,967
Distributions to redeemable noncontrolling interests and noncontrolling interests	(1,239)		—	—		—		—		—		(5,237)		(5,237)
Costs related to redeemable noncontrolling interests and noncontrolling interests	(193)		—	—		—		—		—		(2,417)		(2,417)
Equity in subsidiaries attributable to parent	(10,168)		—	—		—		83,316		83,316		(73,148)		10,168
Equity-based compensation expense	—		—	—		4,732		—		4,732		—		4,732
Other, net	(65)		—	—		—		(1)		(1)		(2,010)		(2,011)
June 30, 2022	151,507		114,657,217	11		1,677,647		(377,217)		1,300,441		325,752		1,626,193
Net income (loss)	(1,507)		—	—		—		(62,047)		(62,047)		33,702		(28,345)
Issuance of common stock, net	—		238,653	—		(183)		—		(183)		—		(183)
Capped call transactions	—		—	—		(48,420)		—		(48,420)		—		(48,420)
Contributions from redeemable noncontrolling interests and noncontrolling interests	5,990		—	—		—		—		—		53,392		53,392
Distributions to redeemable noncontrolling interests and noncontrolling interests	(1,203)		—	—		—		—		—		(7,314)		(7,314)
Costs related to redeemable noncontrolling interests and noncontrolling interests	(8)		—	—		—		—		—		(226)		(226)
Equity in subsidiaries attributable to parent	(1,240)		—	—		—		52,191		52,191		(50,951)		1,240
Equity-based compensation expense	—		—	—		4,463		—		4,463		—		4,463
Other, net	(70)		—	—		—		—		—		(854)		(854)
September 30, 2022	$	153,469	114,895,870	$	11	$	1,633,507	$	(387,073)	$	1,246,445	$	353,501	$	1,599,946

See accompanying notes to unaudited condensed consolidated financial statements.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Description of Business and Basis of Presentation

We are a leading residential energy service provider, serving over 246,000 customers in more than 35 United States ("U.S.") states and territories. Sunnova Energy Corporation was incorporated in Delaware on October 22, 2012 and formed Sunnova Energy International Inc. ("SEI") as a Delaware corporation on April 1, 2019. We completed our initial public offering on July 29, 2019 (our "IPO"); and in connection with our IPO, all of Sunnova Energy Corporation's ownership interests were contributed to SEI. Unless the context otherwise requires, references in this report to "Sunnova," the "Company," "we," "our," "us," or like terms, refer to SEI and its consolidated subsidiaries.

We have a differentiated residential solar dealer model in which we partner with local dealers who originate, design and install our customers' solar energy systems, 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 with financing provided by us (a "loan"); however, we also offer service plans for systems we did not originate. We make it possible in some states for a customer to obtain a new roof and other ancillary products as part of their solar loan. 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 September 30, 2022, we have raised more than $11.2 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 2021 annual audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K filed with the SEC on February 24, 2022. 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

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consolidate a VIE in which we have a majority ownership interest when we are not considered the primary beneficiary. We have considered the provisions within the contractual arrangements that grant us power to manage and make decisions that affect the operation of our VIEs, including determining the solar energy systems contributed to the VIEs, and the installation, operation and maintenance of the solar energy systems. We consider the rights granted to the other investors under the contractual arrangements to be more protective in nature rather than substantive participating rights. As such, we have determined we are the primary beneficiary of our VIEs and evaluate our relationships with our VIEs on an ongoing basis to determine whether we continue to be the primary beneficiary. We have eliminated all intercompany transactions in consolidation.

Reclassifications

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

Coronavirus ("COVID-19") Pandemic

The ongoing COVID-19 pandemic has resulted and may continue to result in widespread adverse impacts on the global economy. We have experienced some resulting disruptions to our business operations due to the COVID-19 virus and its impacts.

Throughout the COVID-19 pandemic, we have continued to service and install solar energy systems and energy storage systems. The industry is currently facing shortages and shipping delays affecting the supply of energy storage systems, modules and component parts for inverters and racking used in solar energy systems available for purchase. These shortages and delays can be attributed in part to the COVID-19 pandemic and resulting government action, as well as to allegations regarding the use of forced labor in the Chinese polysilicon supply chain. While a majority of our dealers have secured sufficient quantities to permit them to continue installing through much of 2022, if these shortages and delays persist, they could impact the timing of when solar energy systems and energy storage systems can be installed and when we can acquire and begin to generate revenue from those systems. In addition, if supply chains become significantly disrupted due to additional outbreaks of the COVID-19 virus or otherwise, or more stringent health and safety guidelines are implemented, our ability to install and service solar energy systems and energy storage systems could become adversely impacted. We cannot predict the full impact the COVID-19 pandemic will have on our business, cash flows, liquidity, financial condition and results of operations at this time due to numerous uncertainties. We will continue to monitor developments affecting our workforce, our customers and our business operations generally, and will take actions we determine are necessary in order to mitigate these impacts.

(2) Significant Accounting Policies

Included below are updates to significant accounting policies disclosed in our 2021 annual audited consolidated financial statements.

Use of Estimates

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

Accounts Receivable

Accounts Receivable—Trade. Accounts receivable—trade primarily represents trade receivables from residential customers 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. As of September 30, 2022, we have not experienced a significant increase in delinquent customer accounts and have not made any significant adjustments to our allowance for credit losses related to accounts receivable—trade as a result of the COVID-19 pandemic. The following

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(in thousands)
Balance at beginning of period	$	1,198	$	858	$	1,044	$	912
Provision for current expected credit losses	802		485		1,891		1,322
Write off of uncollectible accounts	(717)		(424)		(1,769)		(1,410)
Recoveries	83		54		200		148
Other, net	—		—		—		1
Balance at end of period	$	1,366	$	973	$	1,366	$	973

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

Inventory

Inventory is stated at the lower of cost and net realizable value using the first-in, first-out method. Inventory primarily represents (a) raw materials, such as energy storage systems, photovoltaic modules, inverters, meters and modems, (b) homebuilder construction in progress and (c) other associated equipment purchased. These materials are typically procured by us and used by our dealers, sold to our dealers or held for use as original parts on new solar energy systems or replacement parts on existing solar energy systems. We remove these items from inventory and record the transaction in typically one of these manners: (a) expense to operations and maintenance expense when installed as a replacement part for a solar energy system, (b) recognize in accounts receivable—other when procured by us and used by our dealers, (c) expense to cost of revenue—inventory sales if sold directly to a dealer or other party, (d) capitalize to property and equipment when installed on an existing home or (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 September 30, 2022		As of December 31, 2021


	(in thousands)
Modules and inverters	$	41,728	$	60,661
Energy storage systems and components	98,944		43,071
Homebuilder construction in progress	45,055		23,642

Meters and modems	362		581
Other	483		—
Total	$	186,572	$	127,955

Fair Value of Financial Instruments

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

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

•Level 2—Observable inputs other than Level 1 prices, such as quoted market prices for similar assets or liabilities in active markets, quoted market prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

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

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy must be determined based on the lowest level input that is significant to the fair value measurement. An assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability. Our financial instruments include cash, accounts receivable, customer notes receivable, investments in solar receivables, accounts payable, accrued expenses, long-term debt, interest rate swaps 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 interest rates currently offered for debt with similar maturities and terms (Level 3). We determine the fair values of the interest rate derivative transactions based on a discounted cash flow method using contractual terms of the transactions. The floating interest rate is based on observable rates consistent with the frequency of the interest cash flows (Level 2). For contingent consideration, we estimate the fair value of the installation earnout using the Monte Carlo model 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 7, Customer Notes Receivable, Note 8, Long-Term Debt and Note 9, Derivative Instruments.

The following tables present our financial instruments measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021:


	As of September 30, 2022
	Total		Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Investments in solar receivables	$	71,656	$	—	$	—	$	71,656
Derivative assets	117,544		—		117,544		—
Total	$	189,200	$	—	$	117,544	$	71,656

Financial liabilities:
Contingent consideration	$	45,161	$	—	$	—	$	45,161

Total	$	45,161	$	—	$	—	$	45,161


	As of December 31, 2021
	Total		Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Investments in solar receivables	$	82,658	$	—	$	—	$	82,658
Derivative assets	14,351		—		14,351		—
Total	$	97,009	$	—	$	14,351	$	82,658

Financial liabilities:
Contingent consideration	$	67,895	$	—	$	—	$	67,895
Derivative liabilities	5,330		—		5,330		—
Total	$	73,225	$	—	$	5,330	$	67,895

Changes in 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 fair value of our financial assets

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accounted for at fair value on a recurring basis using Level 3 inputs as recorded in other current assets and other assets in the unaudited condensed consolidated balance sheets:


	Nine Months Ended September 30,
	2022		2021
	(in thousands)
Balance at beginning of period	$	82,658	$	—

Settlements	(8,090)		—
Loss recognized in earnings	(2,912)		—

Balance at end of period	$	71,656	$	—

Changes in 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 fair value of our financial liabilities accounted for at fair value on a recurring basis using Level 3 inputs as recorded in other long-term liabilities in the unaudited condensed consolidated balance sheets:


	Nine Months Ended September 30,
	2022		2021
	(in thousands)
Balance at beginning of period	$	67,895	$	—
Additions	—		90,400
Settlements	(16,014)		—
Gain recognized in earnings	(6,720)		(4,726)

Balance at end of period	$	45,161	$	85,674

The following table summarizes the significant unobservable inputs used in the valuation of our liabilities using Level 3 inputs:

Unobservable
Input

Weighted
Average

Liabilities:

Contingent consideration - installation earnout

Volatility

35.00%

Revenue risk premium

15.80%

Risk-free discount rate

4.24%

Contingent consideration - microgrid earnout

Probability of success

25.00%

Risk-free discount rate

4.24%

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Revenue

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(in thousands)
PPA revenue	$	31,891	$	25,359	$	84,235	$	68,443
Lease revenue	25,912		17,845		71,717		51,765
Inventory sales revenue	45,528		—		99,773		—
Solar renewable energy certificate revenue	16,241		12,858		37,172		30,648
Cash sales revenue	18,933		8,680		45,695		15,618
Loan revenue	5,012		2,126		12,582		5,000
Other revenue	5,847		2,033		10,924		5,259
Total	$	149,364	$	68,901	$	362,098	$	176,733

We recognize revenue from contracts with customers as we satisfy our performance obligations at a transaction price reflecting an amount of consideration based upon an estimated rate of return, net of cash incentives. We express this rate of return as the solar rate per kilowatt hour ("kWh") in the customer contract. The amount of revenue we recognize does not equal customer cash payments because we satisfy performance obligations ahead of cash receipt or evenly as we provide continuous access on a stand-ready basis to the solar energy system. We reflect the differences between revenue recognition and cash payments received in accounts receivable, other assets or deferred revenue, as appropriate. Revenue allocated to remaining performance obligations represents contracted revenue we have not yet recognized and includes deferred revenue as well as amounts that will be invoiced and recognized as revenue in future periods. Contracted but not yet recognized revenue was approximately $2.7 billion as of September 30, 2022, 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 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.

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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 15, 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 benefit of one megawatt hour (1,000 kWh) generated by a solar energy system. SRECs can be sold separate from the actual electricity generated by the renewable-based generation source. We account for the SRECs we generate from our solar energy systems as governmental incentives with no costs incurred to obtain them and do not consider those SRECs output of the underlying solar energy systems. We classify these SRECs as inventory held until sold and delivered to third parties. As we did not incur costs to obtain these governmental incentives, the inventory carrying value for the SRECs was $0 as of September 30, 2022 and December 31, 2021. We enter into economic hedges related to expected production of SRECs through forward contracts. While these fixed price forward contracts serve as an economic hedge against spot price fluctuations for the SRECs, the contracts do not qualify for hedge accounting and are not designated as cash flow hedges or fair value hedges. The contracts require us to physically deliver the SRECs upon settlement. We recognize the related revenue under ASC 606 upon satisfaction of the performance obligation to transfer the SRECs to the stated counterparty. Payments are typically received within one month of transferring the SREC to the counterparty. The costs related to the sales of SRECs are generally limited to broker fees (recorded in cost of revenue—other), which are only paid in connection with certain transactions. In certain circumstances we are required to purchase SRECs on the open market to fulfill minimum delivery requirements under our forward contracts.

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

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

Other Revenue. Other revenue includes certain state and utility incentives, revenue from the direct sale of solar energy systems and energy storage systems to customers with financing provided by us and sales of service plans. We recognize revenue from state and utility incentives in the periods in which they are earned. We recognize revenue from the direct sale of energy storage systems in the period in which the storage components are placed in service. Service plans are available to customers whose solar energy system was not originally sold by Sunnova. We recognize revenue from service plan contracts on a straight-line basis over the life of the contract, which is typically 10 years.

Loans

We offer a loan program, under which the customer finances the purchase of a solar energy system or energy storage system through a solar service agreement, typically for a term of 10, 15 or 25 years. We recognize cash payments received from customers on a monthly basis under our loan program (a) as interest income, to the extent attributable to earned interest on the contract that financed the customer's purchase of the solar energy system or energy storage system; (b) as a reduction of a note receivable on the balance sheet, to the extent attributable to a return of principal (whether scheduled or prepaid) on the contract that financed the customer's purchase of the solar energy system or energy storage system; and (c) as revenue, to the extent attributable to payments for operations and maintenance services provided by us. To qualify for the loan program, a customer must pass our credit evaluation process, which requires the customer to have a minimum FICO® score of 600 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

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

The allowance for credit losses is deducted from the customer notes receivable amortized cost to present the net amount expected to be collected. It is measured on a collective (pool) basis when similar risk characteristics (such as financial asset type, customer credit rating, contractual term and vintage) exist. In determining the allowance for credit losses, we identify customers with potential disputes or collection issues and consider our historical level of credit losses and current economic trends that might impact the level of future credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics, such as differences in underwriting standards. Expected credit losses are estimated over the contractual term of the loan agreements based on the best available data at the time and adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless either of the following applies: (a) we have a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual customer or (b) the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancelable by us. As of September 30, 2022, 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 7, Customer Notes Receivable.

Deferred Revenue

Deferred revenue consists of amounts for which the criteria for revenue recognition have not yet been met and includes (a) payments for unfulfilled performance obligations which will be recognized on a straight-line basis over the remaining term of the respective solar service agreements, net of any cash incentives earned by the customers, (b) down payments and partial or full prepayments from customers and (c) differences due to the timing of energy production versus billing for certain types of PPAs. Deferred revenue was $106.8 million as of December 31, 2020. The following table presents the detail of deferred revenue as recorded in other current liabilities and other long-term liabilities in the unaudited condensed consolidated balance sheets:


	As of September 30, 2022		As of December 31, 2021


	(in thousands)
Loans	$	490,510	$	275,681
PPAs and leases	22,345		17,274
Solar receivables	4,668		4,864


Total (1)	$	517,523	$	297,819

(1) Of this amount, $24.5 million and $15.3 million is recorded in other current liabilities as of September 30, 2022 and December 31, 2021, respectively.

During the nine months ended September 30, 2022 and 2021, we recognized revenue of $5.6 million and $6.6 million, 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.

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In March 2022, the FASB issued Accounting Standards Update ("ASU") No. 2022-02, Financial Instruments—Credit Losses: Troubled Debt Restructurings and Vintage Disclosures, to eliminate the accounting guidance for troubled debt restructurings while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. This ASU is effective for annual and interim reporting periods beginning in January 2023. We are currently evaluating the impact of this ASU on our consolidated financial statements and related disclosures.

(3) Property and Equipment

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


	Useful Lives	As of September 30, 2022		As of December 31, 2021


	(in years)	(in thousands)
Solar energy systems	35	$	3,442,340	$	2,917,721
Construction in progress		356,213		188,518
Asset retirement obligations	30	53,168		45,264
Information technology systems	3	52,203		49,673
Computers and equipment	3-5	4,440		3,085
Leasehold improvements	3-6	4,437		3,160
Furniture and fixtures	7	1,132		1,132
Vehicles	4-5	1,638		1,638
Other	5-6	157		157
Property and equipment, gross		3,915,728		3,210,348
Less: accumulated depreciation		(378,551)		(300,735)
Property and equipment, net		$	3,537,177	$	2,909,613

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 $333.9 million and $264.6 million as of September 30, 2022 and December 31, 2021, respectively.

(4) Natural Disaster Losses

We have insurance coverage related to property damage and business interruption. When a solar energy system is damaged by a natural disaster, we impair all or a portion of the net book value to operations and maintenance expense in the period for which the amount is probable and can be reasonably estimated. Insurance proceeds for property damage, up to the amount of impairment expense recorded for property damage, are estimated and recorded as a receivable (recorded in accounts receivable—other in the consolidated balance sheet) and a reduction to operations and maintenance expense when the receipt of the proceeds is deemed probable. Insurance proceeds for property damage that exceed the amount of impairment expense recorded and insurance proceeds related to business interruption are recorded when received, as a reduction to operations and maintenance expense. Costs incurred to repair or replace a solar energy system are capitalized (recorded in property and equipment, net in the consolidated balance sheet) and are classified as an investing cash outflow in the consolidated statement of cash flows. Insurance proceeds received for property damage are classified as an investing cash inflow in the consolidated statement of cash flows. Insurance proceeds received for business interruption are classified as an operating cash inflow in the consolidated statement of cash flows.

Hurricane Fiona in Puerto Rico. In September 2022, Hurricane Fiona made landfall in Puerto Rico causing significant wind and water damage to the island's infrastructure, residences and businesses. A majority of Puerto Rico was left without electrical power. In addition, other basic utility and infrastructure services (such as water, communications, ports and other transportation networks) were severely curtailed. We are currently in the process of assessing the full extent of the damages to our operations, but our preliminary estimates are that we have no material damages to our solar energy systems and energy storage systems.

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Hurricane Ian in Florida. In September 2022, Hurricane Ian made landfall in Florida causing catastrophic wind and water damage to the state's infrastructure, residences and businesses. We are currently in the process of assessing the full extent of the damages to our operations, but our preliminary estimates are that we have no material damages to our solar energy systems and energy storage systems.

During the nine months ended September 30, 2022, we incurred (a) $980,000 related to third-parties helping our customers, primarily restarting batteries and (b) $181,000 related to employees performing similar type work or other work related to the hurricanes. The following table presents the impact of the natural disaster losses as recorded in the unaudited condensed consolidated statements of operations:


	Nine Months Ended September 30,
		2022		2021
		(in thousands)
Operations and maintenance expense:



Other natural disaster-related charges		$	980	$	—
General and administrative expense:
Other natural disaster-related charges		181		—
Total		$	1,161	$	—

(5) Detail of Certain Balance Sheet Captions

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


	As of September 30, 2022		As of December 31, 2021


	(in thousands)
Inventory	$	186,572	$	127,955
Restricted cash	14,584		80,213
Current portion of customer notes receivable	94,061		56,074
Other prepaid assets	20,858		14,920
Current portion of investments in solar receivables	7,156		6,787
Prepaid inventory	1,065		4,835
Deferred receivables	11,070		4,818

Other	681		719
Total	$	336,047	$	296,321

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


	As of September 30, 2022		As of December 31, 2021


	(in thousands)
Construction in progress - customer notes receivable	$	391,435	$	238,791
Exclusivity and other bonus arrangements with dealers, net	106,089		81,756
Investments in solar receivables	64,500		75,871
Restricted cash	112,676		68,583
Straight-line revenue adjustment, net	50,699		43,367
Other	195,235		62,768
Total	$	920,634	$	571,136

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

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balance sheets:


	As of September 30, 2022		As of December 31, 2021


	(in thousands)
Interest payable	$	20,752	$	22,740
Deferred revenue	24,523		15,273
Current portion of performance guarantee obligations	2,519		3,175
Current portion of operating and finance lease liability	3,002		1,850
Other	297		1,312
Total	$	51,093	$	44,350

(6) 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 September 30,
	2022		2021
	(in thousands)
Balance at beginning of period	$	54,396	$	41,788
Additional obligations incurred	7,962		7,010
Accretion expense	2,687		2,094

Other	(79)		(69)
Balance at end of period	$	64,966	$	50,823

(7) 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 for a term of 10, 15 or 25 years. The following table presents the detail of customer notes receivable as recorded in the unaudited condensed consolidated balance sheets and the corresponding fair values:


	As of September 30, 2022		As of December 31, 2021


	(in thousands)
Customer notes receivable	$	2,234,312	$	1,301,285
Allowance for credit losses	(67,988)		(41,138)
Customer notes receivable, net (1)	$	2,166,324	$	1,260,147
Estimated fair value, net	$	2,172,904	$	1,274,099

(1) Of this amount, $94.1 million and $56.1 million is recorded in other current assets as of September 30, 2022 and December 31, 2021, respectively.

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(in thousands)
Balance at beginning of period	$	57,043	$	26,018	$	41,138	$	17,668
Provision for current expected credit losses (1)	10,945		6,518		26,814		14,867

Recoveries	—		—		36		—
Other, net	—		(1)		—		—
Balance at end of period	$	67,988	$	32,535	$	67,988	$	32,535

(1) In addition, we recognized $22,000 and $49,000 during the three months ended September 30, 2022 and 2021, respectively, and $67,000 and $165,000 during the nine months ended September 30, 2022 and 2021, respectively, of provision for current expected credit losses related to our long-term receivables for our customer leases.

As of September 30, 2022 and December 31, 2021, we invested $391.4 million and $238.8 million, respectively, in loan solar energy systems and energy storage systems not yet placed in service. For the three months ended September 30, 2022 and 2021, interest income related to our customer notes receivable was $15.1 million and $8.9 million, respectively. For the nine months ended September 30, 2022 and 2021, interest income related to our customer notes receivable was $39.1 million and $23.9 million, respectively. As of September 30, 2022 and December 31, 2021, accrued interest receivable related to our customer notes receivable was $5.5 million and $3.5 million, respectively. As of September 30, 2022 and December 31, 2021, there was $9.0 million and $0, respectively, of customer notes receivable not accruing interest and there was $196,000 and $0, respectively, of allowance recorded for loans on nonaccrual status. For the three months ended September 30, 2022 and 2021, interest income of $0 was recognized for loans on nonaccrual status and accrued interest receivable of $8,000 and $0, respectively, was written off by reversing interest income. For the nine months ended September 30, 2022 and 2021, interest income of $0 was recognized for loans on nonaccrual status and accrued interest receivable of $505,000 and $0, respectively, was written off by reversing interest income.

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 September 30, 2022		As of December 31, 2021


	(in thousands)
1-90 days past due	$	49,973	$	23,118
91-180 days past due	10,954		5,068
Greater than 180 days past due	11,163		10,277
Total past due	72,090		38,463
Not past due	2,162,222		1,262,822
Total	$	2,234,312	$	1,301,285

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As of September 30, 2022 and December 31, 2021, the amortized cost of our customer notes receivable more than 90 days past due but not on nonaccrual status was $22.1 million and $15.3 million, respectively. The following table presents the amortized cost by origination year of our customer notes receivable based on payment activity.


	Amortized Cost by Origination Year
	2022		2021		2020		2019		2018		Prior		Total
	(in thousands)
Payment performance:
Performing	$	992,684	$	750,087	$	229,865	$	118,039	$	77,315	$	55,159	$	2,223,149
Nonperforming (1)	491		5,970		1,454		1,626		1,161		461		11,163
Total	$	993,175	$	756,057	$	231,319	$	119,665	$	78,476	$	55,620	$	2,234,312

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

(8) Long-Term Debt

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


	Nine Months Ended September 30, 2022 Weighted Average Effective Interest Rates		As of September 30, 2022				Year Ended December 31, 2021 Weighted Average Effective Interest Rates		As of December 31, 2021
			Long-term		Current				Long-term		Current
	(in thousands, except interest rates)
SEI
0.25% convertible senior notes	0.71	%	$	575,000	$	—	0.70	%	$	575,000	$	—
2.625% convertible senior notes	3.38	%	600,000		—				—		—
Debt discount, net			(25,596)		—				(12,810)		—
Deferred financing costs, net			(916)		—				(547)		—
Sunnova Energy Corporation

5.875% senior notes	6.54	%	400,000		—		6.42	%	400,000		—
Debt discount, net			(3,885)		—				(4,629)		—
Deferred financing costs, net			(7,846)		—				(9,341)		—
EZOP
Revolving credit facility	4.40	%	409,000		—		4.12	%	190,000		—
Debt discount, net			(602)		—				(898)		—
HELII
Solar asset-backed notes	5.72	%	204,016		8,632		5.71	%	217,465		8,952
Debt discount, net			(31)		—				(36)		—
Deferred financing costs, net			(3,763)		—				(4,346)		—
RAYSI
Solar asset-backed notes	5.56	%	107,538		9,120		5.55	%	115,792		4,573
Debt discount, net			(1,006)		—				(1,166)		—
Deferred financing costs, net			(3,558)		—				(3,893)		—
HELIII
Solar loan-backed notes	4.43	%	96,700		10,555		4.79	%	105,331		10,916
Debt discount, net			(1,610)		—				(1,838)		—
Deferred financing costs, net			(1,546)		—				(1,765)		—
TEPH

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Revolving credit facility	7.23	%	317,200		—		6.86	%	118,950		—
Debt discount, net			(2,310)		—				(3,678)		—
SOLI
Solar asset-backed notes	3.93	%	353,484		15,998		3.91	%	366,304		15,563
Debt discount, net			(90)		—				(100)		—
Deferred financing costs, net			(7,093)		—				(7,881)		—
HELIV
Solar loan-backed notes	4.17	%	107,550		11,659		4.16	%	116,579		11,937
Debt discount, net			(602)		—				(724)		—
Deferred financing costs, net			(2,772)		—				(3,283)		—
AP8
Revolving credit facility	—	%	—		—		7.17	%	—		—
SOLII
Solar asset-backed notes	3.42	%	234,214		6,379		3.42	%	241,293		6,176
Debt discount, net			(66)		—				(72)		—
Deferred financing costs, net			(4,730)		—				(5,192)		—
HELV
Solar loan-backed notes	2.47	%	145,470		15,590		2.44	%	150,743		21,354
Debt discount, net			(728)		—				(840)		—
Deferred financing costs, net			(2,803)		—				(3,230)		—
SOLIII
Solar asset-backed notes	2.79	%	281,098		16,561		2.73	%	294,069		16,590
Debt discount, net			(121)		—				(132)		—
Deferred financing costs, net			(5,799)		—				(6,319)		—
HELVI
Solar loan-backed notes	2.09	%	168,510		19,289		2.02	%	181,625		21,152
Debt discount, net			(42)		—				(48)		—
Deferred financing costs, net			(3,051)		—				(3,477)		—
HELVII
Solar loan-backed notes	2.50	%	129,349		16,026		2.44	%	141,407		12,580
Debt discount, net			(40)		—				(45)		—
Deferred financing costs, net			(2,294)		—				(2,587)		—
HELVIII
Solar loan-backed notes	3.54	%	253,739		30,221				—		—
Debt discount, net			(5,487)		—				—		—
Deferred financing costs, net			(4,250)		—				—		—
SOLIV
Solar asset-backed notes	5.70	%	341,900		7,932				—		—
Debt discount, net			(11,620)		—				—		—
Deferred financing costs, net			(8,305)		—				—		—
HELIX
Solar loan-backed notes	5.41	%	202,043		23,169				—		—
Debt discount, net			(3,725)		—				—		—
Deferred financing costs, net			(3,417)		—				—		—




Total			$	4,807,107	$	191,131			$	3,135,681	$	129,793

Availability. As of September 30, 2022, we had $348.5 million of available borrowing capacity under our various financing arrangements, consisting of $41.0 million under the EZOP revolving credit facility, $247.5 million under the TEPH revolving credit facility and $60.0 million under the AP8 revolving credit facility. There was no available borrowing capacity under any of our other financing arrangements. As of September 30, 2022, we were in compliance with all debt covenants under our financing arrangements.

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

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

HELVIII Debt. In February 2022, we pooled and transferred eligible solar loans and the related receivables into HELVIII, a special purpose entity, that issued $131.9 million in aggregate principal amount of Series 2022-A Class A solar loan-backed notes, $102.2 million in aggregate principal amount of Series 2022-A Class B solar loan-backed notes and $63.8 million in aggregate principal amount of Series 2022-A Class C solar loan-backed notes (collectively, the "HELVIII Notes") with a maturity date of February 2049. The HELVIII Notes were issued at a discount of 1.55% for Class A, 2.23% for Class B and 2.62% for Class C and bear interest at an annual rate of 2.79%, 3.13% and 3.53%, respectively. The cash flows generated by these solar loans are used to service the monthly principal and interest payments on the HELVIII Notes and satisfy HELVIII's expenses, and any remaining cash can be distributed to Sunnova Helios VIII Depositor, LLC, HELVIII's sole member. In connection with the HELVIII Notes, certain of our affiliates receive a fee for managing and servicing the solar energy systems pursuant to management and service agreements. In addition, Sunnova Energy Corporation has guaranteed, among other things, (a) the obligations of certain of our subsidiaries to manage and service the solar energy systems pursuant to management and servicing agreements and (b) certain of our subsidiaries' obligations to repurchase or substitute certain ineligible solar loans eventually sold to HELVIII pursuant to the related sale and contribution agreement. HELVIII is also required to maintain certain reserve accounts for the benefit of the holders of the HELVIII Notes, each of which must be funded at all times to the levels specified in the HELVIII Notes. The holders of the HELVIII Notes have no recourse to our other assets except as expressly set forth in the HELVIII Notes.

EZOP Debt. In June 2022, we amended the EZOP revolving credit facility to, among other things, (a) extend the scheduled commitment termination date to May 2024, (b) extend the facility maturity date to November 2024, (c) increase the aggregate commitment amount from $200.0 million to $400.0 million, subject to reductions based on the outstanding principal balance of advances over certain time periods, (d) increase the uncommitted maximum facility amount from $350.0 million to $475.0 million, (e) modify the interest rate on borrowings from accruing based on the London Inter-Bank Offered Rate to accruing based on a forward-looking term rate based on the secured overnight financing rate ("Term SOFR"), plus a Term SOFR spread adjustment, (f) add an amortization event related to certain of our subsidiaries ceasing to originate solar loans (subject to certain thresholds, time periods and exceptions set forth therein), (g) add concentration limits for solar loans (1) with obligors with credit scores below certain thresholds and (2) for which the original principal balance exceeds a certain threshold and (h) modify eligibility requirements for solar loans to increase the permitted maximum original principal balance. In July 2022, we amended the EZOP revolving credit facility to, among other things, increase the uncommitted maximum facility amount from $475.0 million to $535.0 million until the earlier to occur of (a) September 29, 2022 and (b) the date upon which a specific sale of borrowing base assets and a related prepayment of outstanding debt thereunder occurs, upon the occurrence of which the uncommitted maximum facility amount will return to $475.0 million. In August 2022, we amended the EZOP revolving credit facility to, among other things, (a) increase the aggregate commitment amount from $400.0 million to $450.0 million, (b) increase the uncommitted maximum facility amount from $535.0 million to $585.0 million, (c) amend certain provisions addressing the allocation of advances and principal payments among the lenders, (d) amend certain provisions addressing lender consent rights and related matters and (e) include certain provisions addressing service incentives and related matters. In August 2022, proceeds from the HELIX Notes (as defined below) were used to repay $151.0 million in aggregate principal amount of outstanding EZOP debt. In September 2022, we amended the EZOP revolving credit facility to, among other things, (a) decrease the uncommitted maximum facility amount from $585.0 million to $575.0 million and (b) amend certain provisions related to the agent's allocation of certain payments made to the lenders.

SOLIV Debt. In June 2022, we pooled and transferred eligible solar energy systems and the related asset receivables into wholly-owned subsidiaries of SOLIV, a special purpose entity, that issued $317.0 million in aggregate principal amount of Series 2022-1 Class A solar asset-backed notes and $38.0 million in aggregate principal amount of Series 2022-1 Class B solar asset-backed notes (collectively, the "SOLIV Notes") with a maturity date of April 2057. The SOLIV Notes were issued at a discount of 3.55% and 2.10%, respectively, and bear interest at an annual rate equal to 4.95% and 6.35%, respectively. The cash flows generated by the solar energy systems of SOLIV's subsidiaries are used to service the quarterly principal and interest payments on the SOLIV Notes and satisfy SOLIV's expenses, and any remaining cash can be distributed to Sunnova Sol IV Depositor, LLC, SOLIV's sole member. In connection with the SOLIV Notes, certain of our affiliates receive a fee for managing and servicing the solar energy systems pursuant to a transaction management agreement and management and servicing agreements. In addition, Sunnova Energy Corporation has guaranteed (a) the obligations of certain of our subsidiaries to manage and service the solar energy systems pursuant to a transaction management agreement and management and servicing agreements, (b) the managing members' obligations, in such capacity, under the related financing fund's limited liability company agreement and (c) certain of our subsidiaries' obligations to repurchase or substitute certain ineligible solar energy systems eventually sold to SOLIV pursuant to the sale and contribution agreement. SOLIV is also required to maintain certain reserve accounts for the benefit of the holders of the SOLIV Notes, each of which must remain funded at all times to the levels specified in the SOLIV Notes. The indenture requires SOLIV to track the debt service coverage ratio (such ratio, the

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

"DSCR") of (a) the amount of certain payments received from customers, certain performance based incentives, certain energy credits and any applicable insurance proceeds as of a specific date to (b) interest and scheduled principal due on the SOLIV Notes as of such date, with the potential to enter into an early amortization period if the DSCR drops below a certain threshold. The holders of the SOLIV Notes have no recourse to our other assets except as expressly set forth in the SOLIV Notes.

TEPH Debt. In June 2022, proceeds from the SOLIV Notes were used to repay $271.0 million in aggregate principal amount of outstanding TEPH debt. In September 2022, we amended the TEPH revolving credit facility to, among other things, (a) increase the aggregate commitment amount from $460.7 million to $564.7 million, (b) increase the uncommitted maximum facility amount from $600.0 million to $639.7 million, (c) extend the facility maturity date to November 2024, (d) amend certain excess concentration limitations, (e) replace the London interbank offered rate with the forward-looking term rate based on the secured overnight financing rate as the interest rate benchmark and include benchmark replacement provisions and (f) include certain provisions addressing grid services revenue and related matters. See Note 16, Subsequent Events.

HELIX Debt. In August 2022, we pooled and transferred eligible solar loans and the related receivables into HELIX, a special purpose entity, that issued $178.0 million in aggregate principal amount of Series 2022-B Class A solar loan-backed notes and $49.7 million in aggregate principal amount of Series 2022-B Class B solar loan-backed notes (collectively, the "HELIX Notes") with a maturity date of August 2049. The HELIX Notes were issued at a discount of 0.69% for Class A and 5.10% for Class B and bear interest at an annual rate of 5.00% and 6.00%, respectively. The cash flows generated by these solar loans are used to service the monthly principal and interest payments on the HELIX Notes and satisfy HELIX's expenses, and any remaining cash can be distributed to Sunnova Helios IX Depositor, LLC, HELIX's sole member. In connection with the HELIX Notes, certain of our affiliates receive a fee for managing and servicing the solar energy systems pursuant to management and service agreements. In addition, Sunnova Energy Corporation has guaranteed, among other things, (a) the obligations of certain of our subsidiaries to manage and service the solar energy systems pursuant to management and servicing agreements and (b) certain of our subsidiaries' obligations to repurchase or substitute certain ineligible solar loans eventually sold to HELIX pursuant to the related sale and contribution agreement. HELIX is also required to maintain certain reserve accounts for the benefit of the holders of the HELIX Notes, each of which must be funded at all times to the levels specified in the HELIX Notes. The holders of the HELIX Notes have no recourse to our other assets except as expressly set forth in the HELIX Notes.

SEI Debt. In August 2022, we issued and sold an aggregate principal amount of $600.0 million of our 2.625% convertible senior notes ("2.625% convertible senior notes") in a private placement at a discount to the initial purchasers of 2.5%, for an aggregate purchase price of $585.0 million. The 2.625% convertible senior notes mature in February 2028 unless earlier redeemed, repurchased or converted. In connection with the pricing of the 2.625% convertible senior notes, we used proceeds of $48.4 million to enter into privately negotiated capped call transactions, which are expected to reduce the potential dilution to common shares and/or offset potential cash payments that could be required to be made in excess of the principal amount upon any exchange of notes. Such reduction and/or offset is subject to a cap initially equal to $34.24 per share, subject to adjustments. The capped call transactions cover, subject to customary adjustments, the number of shares of our common stock initially underlying the 2.625% convertible senior notes. As the capped call transactions meet certain accounting criteria, they are classified as stockholders' equity and therefore, are recorded in additional paid-in capital—common stock in the consolidated balance sheet and are not accounted for as derivatives.

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


	As of September 30, 2022				As of December 31, 2021


	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
	(in thousands)
SEI 0.25% convertible senior notes	$	575,000	$	522,821	$	575,000	$	568,732
SEI 2.625% convertible senior notes	600,000		593,971		—		—

Sunnova Energy Corporation 5.875% senior notes	400,000		365,699		400,000		391,917
EZOP revolving credit facility	409,000		409,000		190,000		190,000
HELII solar asset-backed notes	212,648		208,627		226,417		253,079
RAYSI solar asset-backed notes	116,658		106,933		120,365		129,575
HELIII solar loan-backed notes	107,255		97,083		116,247		120,465
TEPH revolving credit facility	317,200		317,200		118,950		118,950
SOLI solar asset-backed notes	369,482		320,655		381,867		382,511
HELIV solar loan-backed notes	119,209		105,559		128,516		123,189

SOLII solar asset-backed notes	240,593		193,442		247,469		231,894
HELV solar loan-backed notes	161,060		141,723		172,097		165,848
SOLIII solar asset-backed notes	297,659		245,034		310,659		302,994
HELVI solar loan-backed notes	187,799		161,195		202,777		199,159
HELVII solar loan-backed notes	145,375		127,664		153,987		153,518
HELVIII solar loan-backed notes	283,960		257,707		—		—
SOLIV solar asset-backed notes	349,832		342,301		—		—
HELIX solar loan-backed notes	225,212		214,374		—		—


Total (1)	$	5,117,942	$	4,730,988	$	3,344,351	$	3,331,831

(1) Amounts exclude the net deferred financing costs (classified as debt) and net debt discounts of $119.7 million and $78.9 million as of September 30, 2022 and December 31, 2021, respectively.

For the EZOP, TEPH and AP8 debt, the estimated fair values approximate the carrying amounts primarily due to the variable nature of the interest rates of the underlying instruments. For the convertible senior notes, senior notes and the HELII, RAYSI, HELIII, SOLI, HELIV, SOLII, HELV, SOLIII, HELVI, HELVII, HELVIII, SOLIV and HELIX debt, we determined the estimated fair values based on a yield analysis of similar type debt.

(9) Derivative Instruments

Interest Rate Swaps and Caps on EZOP Debt. During the nine months ended September 30, 2022 and 2021, EZOP entered into interest rate swaps and caps for an aggregate notional amount of $506.6 million and $180.2 million, respectively, to economically hedge its exposure to the variable interest rates on a portion of the outstanding EZOP debt. No collateral was posted for the interest rate swaps and caps as they are secured under the EZOP revolving credit facility. In July 2022, the notional amount of the interest rate swaps and caps began decreasing to match EZOP's estimated monthly principal payments on the debt. During the nine months ended September 30, 2022 and 2021, EZOP unwound interest rate swaps and caps with an aggregate notional amount of $360.2 million and $131.7 million, respectively, and recorded a realized gain of $19.6 million and a realized loss of $68,000, respectively.

Interest Rate Swaps and Caps on TEPH Debt. During the nine months ended September 30, 2022 and 2021, TEPH entered into interest rate swaps and caps for an aggregate notional amount of $333.7 million and $236.3 million, respectively, to economically hedge its exposure to the variable interest rates on a portion of the outstanding TEPH debt. No collateral was posted for the interest rate swaps and caps as they are secured under the TEPH revolving credit facility. In October 2023, the notional amount of the interest rate swaps will begin decreasing to match TEPH's estimated quarterly principal payments on the debt. During the nine months ended September 30, 2022 and 2021, TEPH unwound interest rate swaps and caps with an aggregate notional amount of $515.4 million and $121.3 million, respectively, and recorded a realized gain of $27.8 million and a realized loss of $1.6 million, respectively.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

As of September 30, 2022

As of December 31, 2021

Effective
Date

Termination
Date

Fixed
Interest
Rate

Aggregate
Notional
Amount

Effective
Date

Termination
Date

Fixed
Interest
Rate

Aggregate
Notional
Amount

(in thousands, except interest rates)

EZOP

June 2022 -
July 2022

July 2034

0.890%

499,215

March 2021 -
March 2022

July 2033 -
July 2034

1.000%

261,836

TEPH

July 2022

January 2035 -
October 2037

1.750% -

2.650%

333,749

February 2019 -
January 2023

January 2023 -
January 2036

0.121% -

2.534%

270,170

Total

832,964

532,006

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


	As of September 30, 2022		As of December 31, 2021


	(in thousands)
Other assets	$	117,544	$	14,351

Other long-term liabilities	—		(5,330)
Total, net	$	117,544	$	9,021

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(in thousands)
Realized (gain) loss	$	(1,928)	$	586	$	(47,434)	$	1,693
Unrealized gain	(29,059)		(2,642)		(35,685)		(5,574)
Total	$	(30,987)	$	(2,056)	$	(83,119)	$	(3,881)

(10) Income Taxes

Our effective income tax rate is 0% for the three and nine months ended September 30, 2022 and 2021. Total income tax differs from the amounts computed by applying the statutory income tax rate to loss before income tax primarily as a result of our valuation allowance. We assessed whether we had any significant uncertain tax positions taken in a filed tax return, planned to be taken in a future tax return or claim, or otherwise subject to interpretation and determined there were none not more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position, or prospectively approved when such approval may be sought in advance. Accordingly, we recorded no reserve for uncertain tax positions. Should a provision for any interest or penalties relative to unrecognized tax benefits be necessary, it is our policy to accrue for such in our income tax accounts. There were no such accruals as of September 30, 2022 and December 31, 2021 and we do not expect a significant change in gross unrecognized tax benefits in the next twelve months. Our tax years after 2011 remain subject to examination by the Internal Revenue Service and by the taxing authorities in the states and territories in which we operate.

(11) Redeemable Noncontrolling Interests and Noncontrolling Interests

Redeemable Noncontrolling Interests

In May 2022, we admitted a tax equity investor as the Class A member of Sunnova TEP 6-E, LLC ("TEP6E"), a subsidiary of Sunnova TEP 6-E Manager, LLC, which is the Class B member of TEP6E. The Class A member of TEP6E made a total capital commitment of approximately $17.5 million. The carrying values of the redeemable noncontrolling interests were

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

equal to or greater than the redemption values as of September 30, 2022 and December 31, 2021. See Note 16, Subsequent Events.

Noncontrolling Interests

In February 2022, we admitted a tax equity investor as the Class A member of Sunnova TEP 6-B, LLC ("TEP6B"), a subsidiary of Sunnova TEP 6-B Manager, LLC, which is the Class B member of TEP6B. The Class A member of TEP6B made a total capital commitment of approximately $150.0 million. In September 2022, we admitted a tax equity investor as the Class A member of Sunnova TEP 6-D, LLC ("TEP6D"), a subsidiary of Sunnova TEP 6-D Manager, LLC, which is the Class B member of TEP6D. The Class A member of TEP6D made a total capital commitment of approximately $25.0 million. See Note 16, Subsequent Events.

(12) Stockholders' Equity

In April 2022, we issued 694,446 shares of our common stock to Lenx, LLC pursuant to the terms of the earnout agreement entered into in connection with the SunStreet acquisition.

(13) Equity-Based Compensation

In February 2022, the aggregate number of shares of common stock that may be issued pursuant to awards under the 2019 Long-Term Incentive Plan (the "LTIP") was increased by 1,265,071, an amount which, together with the shares remaining available for grant under the LTIP, is equal to 5,667,761, or 5% of the number of shares of common stock outstanding as of December 31, 2021.

Stock Options

The following table summarizes stock option activity:


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




Outstanding, December 31, 2021	2,765,815	$	16.71	4.91			$	31,874
Granted	538,758	$	27.62	9.48	$	14.37
Exercised	(2,884)	$	10.14				$	46
Forfeited	(1,966)	$	40.14		$	18.15
Outstanding, September 30, 2022	3,299,723	$	18.48	5.02			$	18,379
Exercisable, September 30, 2022	2,710,515	$	16.26	4.07			$	18,379
Vested and expected to vest, September 30, 2022	3,299,723	$	18.48	5.02			$	18,379

Non-vested, September 30, 2022	589,208				$	14.71

The number of stock options that vested during the three months ended September 30, 2022 and 2021 was 0. The number of stock options that vested during the nine months ended September 30, 2022 and 2021 was 16,816 and 0, respectively. The grant date fair value of stock options that vested during the three months ended September 30, 2022 and 2021 was $0. The grant date fair value of stock options that vested during the nine months ended September 30, 2022 and 2021 was $309,000 and $0, respectively. As of September 30, 2022, there was $7.0 million of total unrecognized compensation expense related to stock options, which is expected to be recognized over the remaining weighted average period of 2.13 years.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Restricted Stock Units

The following table summarizes restricted stock unit activity:


	Number of Restricted Stock Units	Weighted Average Grant Date Fair Value




Outstanding, December 31, 2021	1,649,789	$	18.48
Granted	1,015,949	$	23.85
Vested	(948,404)	$	19.47
Forfeited	(62,939)	$	25.86
Outstanding, September 30, 2022	1,654,395	$	20.93

The number of restricted stock units that vested during the three months ended September 30, 2022 and 2021 was 245,740 and 240,010, respectively. The number of restricted stock units that vested during the nine months ended September 30, 2022 and 2021 was 948,404 and 913,434, respectively. The grant date fair value of restricted stock units that vested during the three months ended September 30, 2022 and 2021 was $3.4 million and $2.9 million, respectively. The grant date fair value of restricted stock units that vested during the nine months ended September 30, 2022 and 2021 was $18.5 million and $15.3 million, respectively. As of September 30, 2022, there was $27.1 million of total unrecognized compensation expense related to restricted stock units, which is expected to be recognized over the remaining weighted average period of 1.55 years.

Employee Stock Purchase Plan

Effective May 2022, we established an Employee Stock Purchase Plan (the "ESPP"). We are authorized to issue up to an aggregate 750,000 shares of common stock under the ESPP. The ESPP allows eligible employees (as defined in the ESPP) to purchase shares of our common stock at a price per share equal to 95% of the lesser of the closing price of our common stock on the grant date or the purchase date. No shares of common stock were issued under the ESPP as of September 30, 2022.

(14) Basic and Diluted Net Loss Per Share

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(in thousands, except share and per share amounts)





Net loss attributable to common stockholders—basic and diluted	$	(62,047)	$	(27,541)	$	(132,633)	$	(123,920)

Net loss per share attributable to common stockholders—basic and diluted	$	(0.54)	$	(0.25)	$	(1.16)	$	(1.12)
Weighted average common shares outstanding—basic and diluted	114,816,879		112,159,698		114,293,251		110,185,333

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


	Three Months Ended September 30,		Nine Months Ended September 30,
	2022	2021	2022	2021
Equity-based compensation awards	5,033,658	4,574,364	4,906,182	4,727,081

Convertible senior notes	25,294,010	16,628,073	19,548,462	8,875,206

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(15) Commitments and Contingencies

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

Performance Guarantee Obligations. As of September 30, 2022, we recorded $3.9 million related to our guarantee of certain specified minimum solar energy production output under our leases and loans, of which $2.5 million is recorded in other current liabilities and $1.4 million is recorded in other long-term liabilities in the unaudited condensed consolidated balance sheet. As of December 31, 2021, we recorded $5.3 million related to these guarantees, of which $3.2 million is recorded in other current liabilities and $2.1 million is recorded in other long-term liabilities in the unaudited condensed consolidated balance sheet. The changes in our aggregate performance guarantee obligations are as follows:


	As of September 30,
	2022		2021
	(in thousands)
Balance at beginning of period	$	5,293	$	5,718
Accruals	1,811		2,323

Settlements	(3,170)		(3,275)
Balance at end of period	$	3,934	$	4,766

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(in thousands)
Operating lease expense	$	676	$	401	$	2,061	$	1,164
Finance lease expense:
Amortization expense	201		157		562		251
Interest on lease liabilities	15		14		42		24
Short-term lease expense	37		29		97		51
Variable lease expense	190		274		712		831

Total	$	1,119	$	875	$	3,474	$	2,321

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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


	As of September 30, 2022		As of December 31, 2021


	(in thousands)
Right-of-use assets:
Operating leases	$	15,193	$	16,483
Finance leases	2,384		2,187
Total right-of-use assets	$	17,577	$	18,670

Current lease liabilities:
Operating leases	$	2,267	$	1,190
Finance leases	735		660
Long-term leases liabilities:
Operating leases	16,136		17,684
Finance leases	963		1,024
Total lease liabilities	$	20,101	$	20,558

Other information related to leases was as follows:


	Nine Months Ended September 30,
	2022		2021
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases (1)	$	1,242	$	883
Operating cash flows from finance leases	$	42	$	24
Financing cash flows from finance leases	$	601	$	283
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	226	$	452
Finance leases	$	758	$	2,089

(1)Includes reimbursements in 2022 and 2021 of approximately $45,000 and $423,000, respectively, for leasehold improvements.


	As of September 30, 2022		As of December 31, 2021


Weighted average remaining lease term (years):
Operating leases	6.85		7.54
Finance leases	2.93		3.35
Weighted average discount rate:
Operating leases	3.95	%	3.92	%
Finance leases	3.83	%	3.11	%

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Future minimum lease payments under our non-cancelable leases as of September 30, 2022 were as follows:


	Operating Leases		Finance Leases
	(in thousands)
Remaining 2022	$	653	$	205
2023	3,133		750
2024	3,118		542
2025	3,168		248
2026	3,236		44
2027 and thereafter	8,789		—
Total	22,097		1,789
Amount representing interest	(2,821)		(91)
Amount representing leasehold incentives	(873)		—
Present value of future payments	18,403		1,698
Current portion of lease liability	(2,267)		(735)
Long-term portion of lease liability	$	16,136	$	963

Guarantees or Indemnifications. We enter into contracts that include indemnifications and guarantee provisions. In general, we enter into contracts with indemnities for matters such as breaches of representations and warranties and covenants contained in the contract and/or against certain specified liabilities. Examples of these contracts include dealer agreements, debt agreements, asset purchases and sales agreements, service agreements and procurement agreements. We are unable to estimate our maximum potential exposure under these agreements until an event triggering payment occurs. We do not expect to make any material payments under these agreements.

Dealer Commitments. As of September 30, 2022 and December 31, 2021, the net unamortized balance of payments to dealers for exclusivity and other similar arrangements was $106.1 million and $81.8 million, respectively. Under these agreements, we paid $6.7 million and $5.8 million during the three months ended September 30, 2022 and 2021, respectively, and we paid $33.6 million and $25.7 million during the nine months ended September 30, 2022 and 2021, respectively. We could be obligated to make maximum payments, excluding additional amounts payable on a per watt basis if even higher thresholds are met, as follows:


	Dealer Commitments
	(in thousands)
Remaining 2022	$	3,528
2023	35,977
2024	37,755
2025	27,971
2026	6,904
2027 and thereafter	—
Total	$	112,135

Purchase Commitments. In December 2021, we amended an agreement with a supplier in which we agreed to purchase at least 1,420 megawatt hours of solar energy systems, energy storage systems and accessories through December 2023. The amendment does not contain specific dollar amounts or thresholds; however, as of September 30, 2022, we estimate these remaining purchase commitments will range from $480.0 million to $520.0 million. During the three and nine months ended September 30, 2022, we purchased $55.4 million and $141.1 million, respectively, under this agreement.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Information Technology Commitments. We have certain long-term contractual commitments related to information technology software services and licenses. Future commitments as of September 30, 2022 were as follows:


	Information Technology Commitments
	(in thousands)
Remaining 2022	$	16,011
2023	22,918
2024	5,612
2025	18
2026	—
2027 and thereafter	—
Total	$	44,559

(16) Subsequent Events

TEPH Debt. In October 2022, we amended the TEPH revolving credit facility to, among other things, (a) increase the aggregate commitment amount from $564.7 million to $600.0 million and (b) increase the uncommitted maximum facility amount from $639.7 million to $689.7 million.

Redeemable Noncontrolling Interests. In October 2022, we admitted a tax equity investor as the Class A member of Sunnova TEP 6-C, LLC ("TEP6C"), a subsidiary of Sunnova TEP 6-C Manager, LLC, which is the Class B member of TEP6C. The Class A member of TEP6C made a total capital commitment of approximately $30.0 million.

Noncontrolling Interests. In October 2022, the Class A member of TEP6D increased its capital commitment from $25.0 million to $75.0 million.

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

The following discussion and analysis contain forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those discussed under "Special Note Regarding Forward-Looking Statements" above and "Special Note Regarding Forward-Looking Statements", "Risk Factors" and elsewhere in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on February 24, 2022, our Quarterly Reports on Form 10-Q filed with the SEC on April 28, 2022 and July 28, 2022 and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Unless the context otherwise requires, the terms "Sunnova," "the Company," "we," "us" and "our" refer to SEI and its consolidated subsidiaries.

Company Overview

We are a leading residential energy service provider, serving over 246,000 customers in more than 35 United States ("U.S.") states and territories. Our goal is to be the source of clean, affordable and reliable energy with a simple mission: to power energy independence so homeowners have the freedom to live life uninterrupted. We were founded to deliver customers a better energy service at a better price; and, through our energy service offerings, we are disrupting the traditional energy landscape and the way the 21st century customer generates and consumes electricity.

We offer customers products to power their homes with affordable solar energy and related products and services. We are able to offer savings compared to utility-based retail rates with little to no up-front expense to the customer in conjunction with solar and solar plus energy storage, and, in the case of the latter, are able to also provide energy resiliency. Our solar service agreements typically take the form of a lease, power purchase agreement ("PPA") or loan; however, we also offer service plans for systems we did not originate. We make it possible in some states for a customer to obtain a new roof and other ancillary products as part of their solar loan. We also allow customers originated through our homebuilder channel the option of purchasing the system when the customer closes on the purchase of a new home. The initial term of our solar service agreements is typically between 10 and 25 years. Service is an integral part of our agreements and includes operations and maintenance, monitoring, repairs and replacements, equipment upgrades, on-site power optimization for the customer (for both supply and demand), the ability to efficiently switch power sources among the solar panel, grid and energy storage system, as appropriate, and diagnostics. During the life of the contract, we have the opportunity to integrate related and evolving home servicing and monitoring technologies to upgrade the flexibility and reduce the cost of our customers' energy supply.

In the case of leases and PPAs, we also currently receive tax benefits and other incentives from federal, state and local governments, a portion of which we finance through tax equity, non-recourse debt structures and hedging arrangements in order to fund our upfront costs, overhead and growth investments. We have an established track record of attracting capital from diverse sources. From our inception through September 30, 2022, we have raised more than $11.2 billion in total capital commitments from equity, debt and tax equity investors.

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

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

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

We commenced operations in January 2013 and began providing solar energy services under our first solar energy system in April 2013. Since then, our brand, innovation and focused execution have driven significant, rapid growth in our market share and in the number of customers on our platform. We operate one of the largest fleets of residential solar energy systems in the U.S., comprising more than 1,473 megawatts of generation capacity and serving over 246,000 customers.

Recent Developments

Inflation Reduction Act of 2022

In August 2022, the Inflation Reduction Act of 2022 (the "IRA") was signed into law. Among other things, the IRA expanded and extended the tax credits available to solar energy projects in an effort to achieve President Biden's non-binding target of net-zero emissions by 2050. The IRA extends the investment tax credit for eligible solar energy projects through at least 2032 and, depending on the location of a particular project and its ability to satisfy certain labor and domestic content requirements, the percentage can range between 30% and 50%. The IRA also allows qualifying homeowners to deduct up to 30% of the cost of installing residential solar systems from their U.S. federal income taxes, thereby returning a material portion of the purchase price of the residential solar system to homeowners. Under the terms of the current extension, the residential tax credit will remain at 30% through the end of 2032, reduce to 26% for 2033, reduce to 22% for 2034, and further reduce to 0% after the end of 2034 for residential solar systems, unless it is extended before that time.

We believe the IRA will increase demand for our services due to the extensions and expansions of tax credits that are beneficial for financing our business and reducing the costs of our services to our customers. We also expect the IRA will cause substantial investments to be made in domestic manufacturing for renewable energy infrastructure and components, which may reduce the costs of, or improve the availability of, capital goods used in providing our services. However, the impact of the IRA cannot be known with any certainty, and we may not recognize any or all of the expected benefits of the IRA.

Hurricane Fiona in Puerto Rico

In September 2022, Hurricane Fiona made landfall in Puerto Rico causing significant wind and water damage to the island's infrastructure, residences and businesses. A majority of Puerto Rico was left without electrical power. In addition, other basic utility and infrastructure services (such as water, communications, ports and other transportation networks) were severely curtailed. We are currently in the process of assessing the full extent of the damages to our operations, but our preliminary estimates are that we have no material damages to our solar energy systems and energy storage systems. See Note 4, Natural Disaster Losses, to our interim unaudited condensed consolidated financial statements ("interim financial statements") included elsewhere in this Quarterly Report on Form 10-Q.

Hurricane Ian in Florida

In September 2022, Hurricane Ian made landfall in Florida causing catastrophic wind and water damage to the state's infrastructure, residences and businesses. We are currently in the process of assessing the full extent of the damages to our operations, but our preliminary estimates are that we have no material damages to our solar energy systems and energy storage systems. See Note 4, Natural Disaster Losses, to our interim financial statements included elsewhere in this Quarterly Report on Form 10-Q.

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COVID-19 Pandemic

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

Throughout the COVID-19 pandemic, we have continued to service and install solar energy systems and energy storage systems. The industry is currently facing shortages and shipping delays affecting the supply of energy storage systems, modules and component parts for inverters and racking used in solar energy systems. These shortages and delays can be attributed in part to the COVID-19 pandemic and to government action in response to the pandemic, as well as to allegations regarding the use of forced labor in the Chinese polysilicon supply chain. While a majority of our dealers have secured sufficient quantities to permit them to continue installing and conducting repairs through much of 2022, if these shortages and delays persist, they could impact the timing of when solar energy systems and energy storage systems can be installed and repaired and when we can acquire and begin to generate revenue from those systems. In addition, if supply chains become significantly disrupted due to additional outbreaks of the COVID-19 virus or otherwise, or more stringent health and safety guidelines are implemented, our ability to install and service solar energy systems and energy storage systems could become adversely impacted.

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

Financing Transactions

In September 2022, we admitted a tax equity investor with a total capital commitment of approximately $25.0 million. In October 2022, a tax equity investor increased its capital commitment from $25.0 million to $75.0 million. In October 2022, we admitted a tax equity investor with a total capital commitment of approximately $30.0 million. See "—Liquidity and Capital Resources—Financing Arrangements—Tax Equity Fund Commitments" below.

In July 2022, we amended a revolving credit facility to, among other things, increase the uncommitted maximum facility amount from $475.0 million to $535.0 million until the earlier to occur of (a) September 29, 2022 and (b) the date upon which a specific sale of borrowing base assets and a related prepayment of outstanding debt thereunder occurs, upon the occurrence of which the uncommitted maximum facility amount will return to $475.0 million. In August 2022, we further amended this revolving credit facility to, among other things, (a) increase the aggregate commitment amount from $400.0 million to $450.0 million, (b) increase the uncommitted maximum facility amount from $535.0 million to $585.0 million, (c) amend certain provisions addressing the allocation of advances and principal payments among the lenders, (d) amend certain provisions addressing lender consent rights and related matters and (e) include certain provisions addressing service incentives and related matters. In September 2022, we further amended this revolving credit facility to, among other things, (a) decrease the uncommitted maximum facility amount from $585.0 million to $575.0 million and (b) amend certain provisions related to the agent's allocation of certain payments made to the lenders. In August 2022, one of our subsidiaries used proceeds from the HELIX Notes (as defined below) to repay $151.0 million in aggregate principal amount outstanding under its financing arrangement. In September 2022, we amended a revolving credit facility to, among other things, (a) increase the aggregate commitment amount from $460.7 million to $564.7 million, (b) increase the uncommitted maximum facility amount from $600.0 million to $639.7 million, (c) extend the facility maturity date to November 2024, (d) amend certain excess concentration limitations, (e) replace the London interbank offered rate with the forward-looking term rate based on the secured overnight financing rate as the interest rate benchmark and include benchmark replacement provisions and (f) include certain provisions addressing grid services revenue and related matters. In October 2022, we further amended this revolving credit facility to, among other things, (a) increase the aggregate commitment amount from $564.7 million to $600.0 million and (b) increase the uncommitted maximum facility amount from $639.7 million to $689.7 million. See "—Liquidity and Capital Resources—Financing Arrangements—Warehouse and Other Debt Financings" below.

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In August 2022, one of our subsidiaries issued $178.0 million in aggregate principal amount of Series 2022-B Class A solar loan-backed notes and $49.7 million in aggregate principal amount of Series 2022-B Class B solar loan-backed notes (collectively, the "HELIX Notes") with a maturity date of August 2049. The HELIX Notes bear interest at an annual rate of 5.00% and 6.00% for the Class A and Class B notes, respectively. See "—Liquidity and Capital Resources—Financing Arrangements—Securitizations" below.

In August 2022, we issued and sold an aggregate principal amount of $600.0 million of our 2.625% convertible senior notes ("2.625% convertible senior notes") in a private placement at a discount to the initial purchasers of 2.5%, for an aggregate purchase price of $585.0 million. The 2.625% convertible senior notes mature in February 2028 unless earlier redeemed, repurchased or converted. In connection with the pricing of the 2.625% convertible senior notes, we used proceeds of $48.4 million to enter into privately negotiated capped call transactions, which are expected to reduce the potential dilution to common shares and/or offset potential cash payments that could be required to be made in excess of the principal amount upon any exchange of notes. Such reduction and/or offset is subject to a cap initially equal to $34.24 per share, subject to adjustments. See "—Liquidity and Capital Resources—Financing Arrangements—Senior Notes" below.

Microgrid Application

In September 2022, we applied for a certificate to own and operate residential community microgrids in California. This effort, if successful, would allow us to enter into the regulated utility sector of electric service. Our application focuses on microgrids for new home communities where the installation of the microgrid can be performed together with the construction of the new community. If the application is granted, we will pursue the construction of residential behind-the-meter solar energy systems and energy storage systems that are integrated with community-scale front-of-the-meter solar, energy storage systems, backup generation systems and distribution and microgrid controls, which together will be used to serve the electric requirements for the entire residential community. The microgrids are expected to be connected to the larger grid so we can provide supplemental electricity to our customers from the wholesale market and sell excess electricity and related products to the same market.

Securitizations

As a source of long-term financing, we securitize qualifying solar energy systems, energy storage systems and related solar service agreements into special purpose entities who issue solar asset-backed and solar loan-backed notes to institutional investors. We also securitize the cash flows generated by the membership interests in certain of our indirect, wholly-owned subsidiaries that are the managing member of a tax equity fund that owns a pool of solar energy systems, energy storage systems and related solar service agreements that were originated by one of our wholly-owned subsidiaries. The federal government currently provides business investment tax credits under Section 48(a) (the "Section 48(a) ITC") and residential clean energy credits under Section 25D (the "Section 25D Credit") of the U.S. Internal Revenue Code of 1986, as amended (the "Code"). For projects that begin construction after December 31, 2024, the Section 48(a) ITC will be replaced with a new clean energy investment tax credit under Section 48E (the "Section 48E ITC") of the Code. We do not securitize the Section 48(a) ITC incentives, and currently do not plan to securitize any Section 48E ITC incentives, associated with the solar energy systems and energy storage systems as part of these arrangements. We use the cash flows these solar energy systems and energy storage systems generate to service the monthly, quarterly or semi-annual principal and interest payments on the notes and satisfy the expenses and reserve requirements of the special purpose entities, with any remaining cash distributed to their sole members, who are typically our indirect wholly-owned subsidiaries. In connection with these securitizations, certain of our affiliates receive a fee for managing and servicing the solar energy systems and energy storage systems pursuant to management, servicing, facility administration and asset management agreements. The special purpose entities are also typically required to maintain a liquidity reserve account and a reserve account for equipment replacements and, in certain cases, reserve accounts for financing fund purchase option/withdrawal right exercises or storage system replacement for the benefit of the holders under the applicable series of notes, each of which are funded from initial deposits or cash flows to the levels specified therein. The creditors of these special purpose entities have no recourse to our other assets except as expressly set forth in the terms of the notes. From our inception through September 30, 2022, we have issued $3.4 billion in solar asset-backed and solar loan-backed notes.

Tax Equity Funds

Our ability to offer long-term solar service agreements depends in part on our ability to finance the installation of the solar energy systems and energy storage systems by co-investing with tax equity investors, such as large banks who value the resulting customer receivables and Section 48(a) ITCs, accelerated tax depreciation and other incentives related to the solar energy systems and energy storage systems, primarily through structured investments known as "tax equity". Tax equity investments are generally structured as non-recourse project financings known as "tax equity funds". In the context of

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distributed generation solar energy, tax equity investors make contributions upfront or in stages based on milestones in exchange for a share of the tax attributes and cash flows emanating from an underlying portfolio of solar energy systems and energy storage systems. In these tax equity funds, the U.S. federal tax attributes offset taxes that otherwise would have been payable on the investors' other operations. The terms and conditions of each tax equity fund vary significantly by investor and by fund. We continue to negotiate with potential investors to create additional tax equity funds.

In general, our tax equity funds are structured using the "partnership flip" structure. Under partnership flip structures, we and our tax equity investors contribute cash into a partnership. The partnership uses this cash to acquire long-term solar service agreements, solar energy systems and energy storage systems developed by us and sells energy from such solar energy systems and energy storage systems, as applicable, to customers or directly leases the solar energy systems and energy storage systems, as applicable, to customers. We assign these solar service agreements, solar energy systems, energy storage systems and related incentives to our tax equity funds in accordance with the criteria of the specific funds. Upon such assignment and the satisfaction of certain conditions precedent, we are able to draw down on the tax equity fund commitments. The conditions precedent to funding vary across our tax equity funds but generally require that we have entered into a solar service agreement with the customer, the customer meets certain credit criteria, the solar energy system is expected to be eligible for the Section 48(a) ITC, we have a recent appraisal from an independent appraiser establishing the fair market value of the solar energy system and the property is in an approved state or territory. Certain tax equity investors agree to receive a minimum target rate of return, typically on an after-tax basis, which varies by tax equity fund. Prior to receiving a contractual rate of return or a date specified in the contractual arrangements, the tax equity investor receives substantially all of the non-cash value attributable to the solar energy systems and energy storage systems, which includes accelerated depreciation and Section 48(a) ITCs; however, we typically receive a majority of the cash distributions, which are typically paid quarterly. After the tax equity investor receives its contractual rate of return or after a specified date, we receive substantially all of the cash and tax allocations.

We have determined we are the primary beneficiary in these tax equity funds for accounting purposes. Accordingly, we consolidate the assets and liabilities and operating results of these partnerships in our consolidated financial statements. We recognize the tax equity investors' share of the net assets of the tax equity funds as redeemable noncontrolling interests and noncontrolling interests in our consolidated balance sheets. The income or loss allocations reflected in our consolidated statements of operations may create significant volatility in our reported results of operations, including potentially changing net loss attributable to stockholders to net income attributable to stockholders, or vice versa, from quarter to quarter.

We typically have an option to acquire, and our tax equity investors may have an option to withdraw and require us to purchase, all the equity interests our tax equity investor holds in the tax equity funds starting approximately five years after the last solar energy system in the applicable tax equity fund is operational. If we or our tax equity investors exercise this option, we are typically required to pay at least the fair market value of the tax equity investor's equity interest and, in certain cases, a contractual minimum amount. From our inception through September 30, 2022, we have received commitments of approximately $1.4 billion through the use of tax equity funds, of which an aggregate of $1.2 billion has been funded and $53.7 million remains available for use.

Key Financial and Operational Metrics

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

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


	As of September 30, 2022	As of December 31, 2021	Change


Number of customers	246,600	192,600	54,000

Weighted Average Number of Systems. We calculate the weighted average number of systems based on the number of months a customer and any additional service obligation related to a solar energy system is in-service during a given measurement period. The weighted average number of systems reflects the number of systems at the beginning of a period, plus the total number of new systems added in the period adjusted by a factor that accounts for the partial period nature of those new systems. For purposes of this calculation, we assume all new systems added during a month were added in the middle of that month. The number of systems for any end of period will exceed the number of customers, as defined above, for that same end

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of period as we are also including any additional services and/or contracts a customer or third party executed for the additional work for the same residence. We track the weighted average system count in order to accurately reflect the contribution of the appropriate number of systems to key financial metrics over the measurement period.


	Three Months Ended September 30,		Nine Months Ended September 30,
	2022	2021	2022	2021
Weighted average number of systems (excluding loan agreements and cash sales)	171,600	138,500	163,800	117,800
Weighted average number of systems with loan agreements	60,800	29,000	50,900	24,600
Weighted average number of systems with cash sales	4,300	700	3,300	300
Weighted average number of systems	236,700	168,200	218,000	142,700

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

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

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

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(in thousands)
Reconciliation of Net Loss to Adjusted EBITDA:
Net loss	$	(29,852)	$	(25,919)	$	(60,178)	$	(116,255)
Interest expense, net	18,328		26,588		36,275		84,748

Interest income	(16,185)		(9,098)		(40,428)		(24,266)
Income tax expense	—		64		—		64
Depreciation expense	27,594		21,961		78,401		62,286
Amortization expense	7,309		7,204		21,894		14,362
EBITDA	7,194		20,800		35,964		20,939
Non-cash compensation expense	4,463		3,093		20,059		13,937
ARO accretion expense	952		745		2,687		2,094
Financing deal costs	162		480		582		837
Natural disaster losses and related charges, net	1,161		—		1,161		—

Acquisition costs	3,005		1,565		5,622		7,053

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

Unrealized (gain) loss on fair value instruments	10,625		(8,834)		(4,136)		(4,665)

Amortization of payments to dealers for exclusivity and other bonus arrangements	1,185		832		3,110		2,089
Legal settlements	(1,001)		—		(1,001)		—
Provision for current expected credit losses	10,967		6,567		26,881		15,032
Non-cash inventory impairments	864		—		864		982
Indemnification payments to tax equity investors	1,727		—		1,727		—

Adjusted EBITDA	$	41,304	$	25,248	$	93,520	$	68,122

Interest Income and Principal Payments from Customer Notes Receivable. Under our loan agreements, the customer obtains financing for the purchase of a solar energy system from us and we agree to operate and maintain the solar energy system throughout the duration of the agreement. Pursuant to the terms of the loan agreement, the customer makes scheduled principal and interest payments to us and has the option to prepay principal at any time in part or in full. Whereas we typically recognize payments from customers under our leases and PPAs as revenue, we recognize payments received from customers under our loan agreements (a) as interest income, to the extent attributable to earned interest on the contract that financed the customer's purchase of the solar energy system; (b) as a reduction of a note receivable on the balance sheet, to the extent attributable to a return of principal (whether scheduled or prepaid) on the contract that financed the customer's purchase of the solar energy system; and (c) as revenue, to the extent attributable to payments for operations and maintenance services provided by us.

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

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(in thousands)
Interest income from customer notes receivable	$	15,119	$	8,904	$	39,051	$	23,863
Principal proceeds from customer notes receivable, net of related revenue	$	22,284	$	14,333	$	67,478	$	42,408

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

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

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(in thousands, except per system data)
Reconciliation of Total Operating Expense, Net to Adjusted Operating Expense:
Total operating expense, net	$	177,085	$	77,077	$	426,756	$	222,558
Depreciation expense	(27,594)		(21,961)		(78,401)		(62,286)
Amortization expense	(7,309)		(7,204)		(21,894)		(14,362)
Non-cash compensation expense	(4,463)		(3,093)		(20,059)		(13,937)
ARO accretion expense	(952)		(745)		(2,687)		(2,094)
Financing deal costs	(162)		(480)		(582)		(837)
Natural disaster losses and related charges, net	(1,161)		—		(1,161)		—

Acquisition costs	(3,005)		(1,565)		(5,622)		(7,053)

Amortization of payments to dealers for exclusivity and other bonus arrangements	(1,185)		(832)		(3,110)		(2,089)
Legal settlements	1,001		—		1,001		—
Provision for current expected credit losses	(10,967)		(6,567)		(26,881)		(15,032)
Non-cash inventory impairments	(864)		—		(864)		(982)
Direct sales costs	(3,237)		(310)		(4,110)		(358)
Cost of revenue related to cash sales	(10,225)		(4,591)		(23,946)		(8,413)
Cost of revenue related to inventory sales	(40,917)		—		(89,884)		—
Unrealized gain (loss) on fair value instruments	(10,637)		9,023		3,809		4,725
Indemnification payments to tax equity investors	(1,727)		—		(1,727)		—


Adjusted Operating Expense	$	53,681	$	38,752	$	150,638	$	99,840
Adjusted Operating Expense per weighted average system	$	227	$	230	$	691	$	700

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

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

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

Estimated gross contracted customer value is forecasted as of a specific date. It is forward-looking and we use judgment in developing the assumptions used to calculate it. Factors that could impact estimated gross contracted customer value include,

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but are not limited to, customer payment defaults, or declines in utility rates or early termination of a contract in certain circumstances, including prior to installation. The following table presents the calculation of estimated gross contracted customer value as of September 30, 2022 and December 31, 2021, calculated using a 4% discount rate.


	As of September 30, 2022		As of December 31, 2021


	(in millions)
Estimated gross contracted customer value	$	5,706	$	4,337

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


Estimated Gross Contracted Customer Value
	As of September 30, 2022
	Discount rate
Cumulative customer loss rate	2%		4%		6%
	(in millions)
5%	$	6,097	$	5,461	$	4,977
0%	$	6,427	$	5,706	$	5,163

Significant Factors and Trends Affecting Our Business

Our results of operations and our ability to grow our business over time could be impacted by a number of factors and trends that affect our industry generally, as well as new offerings of services and products we may acquire or seek to acquire in the future. Additionally, our business is concentrated in certain markets, putting us at risk of region-specific disruptions such as adverse economic, regulatory, political, weather and other conditions. See "Risk Factors" in our Annual Report on Form 10-K filed with the SEC on February 24, 2022.

Financing Availability. Our future growth depends, in significant part, on our ability to raise capital from third-party investors on competitive terms to help finance the origination of our solar energy systems under our solar service agreements. We have historically used debt, such as convertible senior notes, asset-backed and loan-backed securitizations and warehouse facilities, tax equity, preferred equity and other financing strategies to help fund our operations. From our inception through September 30, 2022, we have raised more than $11.2 billion in total capital commitments from equity, debt and tax equity investors. With respect to tax equity, there are a limited number of potential tax equity investors, and the competition for this investment capital is intense. The principal tax credit on which tax equity investors in our industry rely is the Section 48(a) ITC. The amount for the Section 48(a) ITC was equal to 30% of the basis of eligible solar property that began construction before 2020 if placed in service before 2022. The Section 48(a) ITC percentage decreased to 26% for eligible solar property that began construction during 2020 or 2021 if the property is placed into service before 2022. Under the IRA, which was enacted in August 2022, for eligible solar property that begins construction before 2025, the Section 48(a) ITC percentage will be equal to 30% provided (a) the project has a maximum net output of less than one megawatt (as measured in alternating current) or (b) the project begins construction prior to the 60th day after the U.S. Department of Treasury issues guidance regarding prevailing wage and apprenticeship requirements. If neither criterion is satisfied, the amount of the Section 48(a) ITC will be equal to 6%. In addition, the Section 48(a) ITC will be replaced by the Section 48E ITC for eligible solar property that begins construction after 2024, and the Section 48E ITC percentage will be the same as the percentage for the Section 48(a) ITC and subject to the same requirements in order to receive the full benefit. The Section 48E ITC percentage will begin to phase down after 2032 or, if later, the year in which the U.S. Department of Treasury determines greenhouse gas emissions from the production of electricity in the United States are no more than 25% of 2022 levels. Although the application of the wage and apprenticeship requirements is unclear in the absence of guidance, we believe our solar energy systems will not be subject to such requirements due to the maximum net output of most of our solar energy systems. In addition, the IRA added a new provision that allows taxpayers to transfer certain federal income tax credits that arise after 2022, such as the Section 48(a) ITC, to third parties for

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cash. It is unclear what effect the ability to transfer Section 48(a) ITCs will have on tax equity structures, although we expect the market for tax equity structures to continue for investors who will continue to value benefits that are not transferable, such as accelerated depreciation. We are continuing to evaluate the overall impact and applicability of the IRA to our ability to raise capital from third-party investors.

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

Cost of Solar Energy Systems and Energy Storage Systems. Upward pressure on prices of solar energy systems and energy storage systems may occur due to growth in the solar industry, regulatory policy changes, tariffs and duties, inflationary cost pressures and an increase in demand. As a result of these developments, we may pay higher prices on solar modules, which may make it less economical for us to serve certain markets. Attachment rates for energy storage systems have trended higher while the price to acquire has remained steady and increased slightly for some suppliers due to several market variables, including COVID-19, raw material shortages and freight prices, but this still remains a potential area of growth for us.

Energy Storage Systems. Our energy storage systems increase our customers' independence from the centralized utility and provide on-site backup power when there is a grid outage due to storms, wildfires, other natural disasters and general power failures caused by supply or transmission issues. In addition, at times it can be more economic to consume less energy from the grid or, alternatively, to export solar energy back to the grid. Recent technological advancements for energy storage systems allow the energy storage system to adapt to pricing and utility rate shifts by controlling the inflows and outflows of power, allowing customers to increase the value of their solar energy system plus energy storage system. The energy storage system charges during the day, making the energy it stores available to the home when needed. It also features software that can customize power usage for the individual customer, providing backup power, optimizing solar energy consumption versus grid consumption or preventing export to the grid as appropriate. The software is tailored based on utility regulation, economic indicators and grid conditions. The combination of energy control, increased energy resilience and independence from the grid is strong incentive for customers to adopt solar and energy storage. As energy storage systems and their related software features become more advanced, we expect to see increased adoption of energy storage systems.

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

Government Regulations, Policies and Incentives. Our growth strategy depends in significant part on government policies and incentives that promote and support solar energy and enhance the economic viability of distributed residential solar. These policies and incentives come in various forms, including net metering, eligibility for accelerated depreciation such as the modified accelerated cost recovery system, SRECs, tax abatements, rebates, renewable targets, incentive programs and tax credits, particularly the Section 48(a) ITC and the Section 25D Credit. The recently enacted IRA expanded and extended the tax credits available to solar energy projects in an effort to achieve the Biden administration's non-binding target of net-zero emissions by 2050, which we expect will increase demand for our services. The IRA allows qualifying homeowners to deduct up to 30% of the cost of installing residential solar systems from their U.S. federal income taxes, thereby returning a significant portion of the purchase price of the residential solar system to homeowners that may participate in our solar loan programs. Under the terms of the current extension, the residential tax credit will remain at 30% through the end of 2032, reduce to 26% for 2033, reduce to 22% for 2034, and further reduce to 0% after the end of 2034 for residential solar systems, unless it is extended before that time. As discussed above, the IRA also extended the investment tax credit for solar energy projects through at least 2032 and, depending on the location of a particular project and its ability to satisfy certain labor and domestic content requirements, the percentage can range between 30% and 50%. Policies requiring solar on new homes or new roofs, such as those enacted in California and New York City, also support the growth of distributed solar. The sale of SRECs has constituted a significant portion of our revenue historically. A change in the value of net metering credits or SRECs or changes

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in other policies or a loss or reduction in such incentives could decrease the attractiveness of distributed residential solar to us, our dealers and our customers in applicable markets, which could reduce our customer acquisition opportunities. Such a loss or reduction could also reduce our willingness to pursue certain customer acquisitions due to decreased revenue or income under our solar service agreements. Additionally, such a loss or reduction may also impact the terms of and availability of third-party financing. If any of these government regulations, policies or incentives are adversely amended, delayed, eliminated, reduced, retroactively changed or not extended beyond their current expiration dates or there is a negative impact from the recent federal law changes or proposals, our operating results and the demand for, and the economics of, distributed residential solar energy may decline, which could harm our business.

Components of Results of Operations

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

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

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

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

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

Inventory Sales. Inventory sales revenue represents revenue from the direct sale of inventory to our dealers or other parties. We recognize the related revenue under ASC 606 upon shipment.

SRECs. Each SREC represents the environmental benefit of one megawatt hour (1,000 kWh) generated by a solar energy system. We sell SRECs to utilities and other third parties who use the SRECs to meet renewable portfolio standards and can do so separate from the actual electricity generated by the renewable-based generation source. We account for SRECs generated from solar energy systems owned by us, as opposed to those owned by our customers, as governmental incentives with no costs incurred to obtain them and do not consider those SRECs output of the underlying solar energy systems. We classify SRECs as inventory held until sold and delivered to third parties. We enter into economic hedges with major financial institutions related to expected production of SRECs through forward contracts to partially mitigate the risk of decreases in SREC market rates. While these fixed price forward contracts serve as an economic hedge against spot price fluctuations for the SRECs, the contracts do not qualify for hedge accounting and are not designated as cash flow hedges or fair value hedges. The contracts

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require us to physically deliver the SRECs upon settlement. We recognize the related revenue upon the transfer of the SRECs to the counterparty. The costs related to the sales of SRECs are generally limited to fees for brokered transactions. Accordingly, the sale of SRECs in a period generally has a favorable impact on our operating results for that period. In certain circumstances we are required to purchase SRECs on the open market to fulfill minimum delivery requirements under our forward contracts.

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

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

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

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

Operations and Maintenance Expense. Operations and maintenance expense represents costs from third parties for maintaining and servicing the solar energy systems, property insurance, property taxes and warranties. When services for maintaining and servicing solar energy systems are provided by Sunnova personnel rather than third parties, those amounts are included in payroll costs classified within general and administrative expense. During the nine months ended September 30, 2022 and 2021, we incurred $13.3 million and $10.0 million, respectively, of Sunnova personnel costs related to maintaining and servicing solar energy systems, which are classified in general and administrative expense. In addition, operations and maintenance expense includes write downs and write-offs related to inventory adjustments, gains and losses on disposals and other impairments and impairments due to natural disaster losses net of insurance proceeds recovered under our business interruption and property damage insurance coverage for natural disasters.

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

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

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

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

Loss on Extinguishment of Long-Term Debt, Net. Loss on extinguishment of long-term debt, net resulted from a make-whole payment related to the early repayment of one of our solar asset-backed notes.

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

Income Tax Expense. We account for income taxes under Accounting Standards Codification 740, Income Taxes. As such, we determine deferred tax assets and liabilities based on temporary differences resulting from the different treatment of items for tax and financial reporting purposes. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. Additionally, we must assess the likelihood that deferred tax assets will be recovered as deductions from future taxable income. We have a full valuation allowance on our deferred tax assets because we believe it is more likely than not that our deferred tax assets will not be realized. We evaluate the recoverability of our deferred tax assets on a quarterly basis. The income tax expense includes the effects of taxes paid in U.S. territories where the tax code for the respective territory may have separate tax reporting requirements, as applicable.

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

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Results of Operations—Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

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


	Three Months Ended September 30,
	2022		2021		Change
	(in thousands)
Revenue	$	149,364	$	68,901	$	80,463

Operating expense:
Cost of revenue—depreciation	24,663		19,665		4,998
Cost of revenue—inventory sales	40,917		—		40,917
Cost of revenue—other	15,567		7,342		8,225
Operations and maintenance	9,774		6,035		3,739
General and administrative	75,897		53,372		22,525
Other operating expense (income)	10,267		(9,337)		19,604
Total operating expense, net	177,085		77,077		100,008

Operating loss	(27,721)		(8,176)		(19,545)

Interest expense, net	18,328		26,588		(8,260)

Interest income	(16,185)		(9,098)		(7,087)


Other (income) expense	(12)		189		(201)
Loss before income tax	(29,852)		(25,855)		(3,997)

Income tax expense	—		64		(64)
Net loss	(29,852)		(25,919)		(3,933)
Net income attributable to redeemable noncontrolling interests and noncontrolling interests	32,195		1,622		30,573
Net loss attributable to stockholders	$	(62,047)	$	(27,541)	$	(34,506)

Revenue


	Three Months Ended September 30,
	2022		2021		Change
	(in thousands)
PPA revenue	$	31,891	$	25,359	$	6,532
Lease revenue	25,912		17,845		8,067
Inventory sales revenue	45,528		—		45,528
SREC revenue	16,241		12,858		3,383
Cash sales revenue	18,933		8,680		10,253
Loan revenue	5,012		2,126		2,886
Other revenue	5,847		2,033		3,814
Total	$	149,364	$	68,901	$	80,463

Revenue increased by $80.5 million in the three months ended September 30, 2022 compared to the three months ended September 30, 2021 primarily as a result of inventory sales and an increased number of solar energy systems in service. The

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weighted average number of systems (excluding systems with loan agreements, service-only agreements and cash sales) increased from approximately 102,200 for the three months ended September 30, 2021 to approximately 132,000 for the three months ended September 30, 2022. Excluding SREC revenue, revenue under our loan agreements, inventory sales revenue, cash sales revenue and service revenue, on a weighted average number of systems basis, revenue remained relatively flat at $432 per system for the three months ended September 30, 2021 compared to $450 per system for the same period in 2022 (4% increase). Inventory sales revenue increased by $45.5 million in the three months ended September 30, 2022 compared to the three months ended September 30, 2021 due to the sale of inventory to our dealers or other parties, which began in April 2022. SREC revenue increased by $3.4 million in the three months ended September 30, 2022 compared to the three months ended September 30, 2021 primarily as a result of an increase in SREC prices in New Jersey. The fluctuations in SREC revenue from period to period are also affected by the total number of solar energy systems, weather seasonality and hedge and spot prices associated with the timing of the sale of SRECs. On a weighted average number of systems basis, revenues under our loan agreements increased from $73 per system for the three months ended September 30, 2021 to $82 per system for the same period in 2022 (12% increase) primarily due to higher average system cost in 2022 than in 2021.

Cost of Revenue—Depreciation


	Three Months Ended September 30,
	2022		2021		Change
	(in thousands)
Cost of revenue—depreciation	$	24,663	$	19,665	$	4,998

Cost of revenue—depreciation increased by $5.0 million in the three months ended September 30, 2022 compared to the three months ended September 30, 2021. This increase was primarily due to an increase in the weighted average number of systems (excluding systems with loan agreements, service-only agreements and cash sales) from approximately 102,200 for the three months ended September 30, 2021 to approximately 132,000 for the three months ended September 30, 2022. On a weighted average number of systems basis, cost of revenue—depreciation remained relatively flat at $192 per system for the three months ended September 30, 2021 compared to $187 per system for the same period in 2022 (3% decrease).

Cost of Revenue—Inventory Sales


	Three Months Ended September 30,
	2022		2021		Change
	(in thousands)
Cost of revenue—inventory sales	$	40,917	$	—	$	40,917

Cost of revenue—inventory sales increased by $40.9 million in the three months ended September 30, 2022 compared to the three months ended September 30, 2021. This increase was due to costs from the sale of inventory to our dealers or other parties, which began in April 2022.

Cost of Revenue—Other


	Three Months Ended September 30,
	2022		2021		Change
	(in thousands)
Cost of revenue—other	$	15,567	$	7,342	$	8,225

Cost of revenue—other increased by $8.2 million in the three months ended September 30, 2022 compared to the three months ended September 30, 2021. This increase was primarily due to costs related to cash sales revenue of $5.6 million.

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Operations and Maintenance Expense


	Three Months Ended September 30,
	2022		2021		Change
	(in thousands)
Operations and maintenance	$	9,774	$	6,035	$	3,739

Operations and maintenance expense increased by $3.7 million in the three months ended September 30, 2022 compared to the three months ended September 30, 2021 primarily due to higher truck roll costs and natural disaster losses. Operations and maintenance expense per weighted average system, excluding net natural disaster losses and non-cash inventory impairment, remained relatively flat at $43 per system for the three months ended September 30, 2021 compared to $45 per system for the three months ended September 30, 2022.

General and Administrative Expense


	Three Months Ended September 30,
	2022		2021		Change
	(in thousands)
General and administrative	$	75,897	$	53,372	$	22,525

General and administrative expense increased by $22.5 million in the three months ended September 30, 2022 compared to the three months ended September 30, 2021 primarily due to increases of (a) $9.5 million of payroll and employee related expenses primarily due to the hiring of personnel to support growth, (b) $4.4 million of provision for current expected credit losses due to the growth in loan customers and (c) $1.9 million of consultants, contractors, and professional fees.

Other Operating Expense (Income)


	Three Months Ended September 30,
	2022		2021		Change
	(in thousands)
Other operating expense (income)	$	10,267	$	(9,337)	$	19,604

Other operating expense (income) changed by $19.6 million in the three months ended September 30, 2022 compared to the three months ended September 30, 2021 primarily due to changes in the fair value of certain financial instruments and contingent consideration.

Interest Expense, Net


	Three Months Ended September 30,
	2022		2021		Change
	(in thousands)
Interest expense, net	$	18,328	$	26,588	$	(8,260)

Interest expense, net decreased by $8.3 million in the three months ended September 30, 2022 compared to the three months ended September 30, 2021. This decrease was primarily due to increases in unrealized gains on derivatives of $26.4 million and realized gains on derivatives of $2.5 million. This was partially offset by an increase in interest expense of $19.6 million primarily due to the issuance of additional debt in 2021 and 2022.

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Interest Income


	Three Months Ended September 30,
	2022		2021		Change
	(in thousands)
Interest income	$	16,185	$	9,098	$	7,087

Interest income increased by $7.1 million in the three months ended September 30, 2022 compared to the three months ended September 30, 2021. This increase was primarily due to an increase in the weighted average number of systems with loan agreements from approximately 29,000 for the three months ended September 30, 2021 to approximately 60,800 for the three months ended September 30, 2022. On a weighted average number of systems basis, loan interest income decreased from $307 per system for the three months ended September 30, 2021 to $249 per system for the three months ended September 30, 2022 primarily due to a decrease in the average annual interest rate for customer loans due to market conditions.

Income Tax Expense

Income tax expense decreased by $0.1 million in the three months ended September 30, 2022 compared to the three months ended September 30, 2021 primarily due to a decrease in taxes incurred in jurisdictions with separate tax-reporting requirements.

Net Income Attributable to Redeemable Noncontrolling Interests and Noncontrolling Interests

Net income attributable to redeemable noncontrolling interests and noncontrolling interests increased by $30.6 million in the three months ended September 30, 2022 compared to the three months ended September 30, 2021 primarily due to an increase in income attributable to noncontrolling interests from tax equity funds added in 2020 and 2021.

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Results of Operations—Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

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


	Nine Months Ended September 30,
	2022		2021		Change
	(in thousands)
Revenue	$	362,098	$	176,733	$	185,365

Operating expense:
Cost of revenue—depreciation	69,935		55,621		14,314
Cost of revenue—inventory sales	89,884		—		89,884
Cost of revenue—other	32,974		13,572		19,402
Operations and maintenance	23,787		14,640		9,147
General and administrative	214,362		144,028		70,334
Other operating income	(4,186)		(5,303)		1,117
Total operating expense, net	426,756		222,558		204,198

Operating loss	(64,658)		(45,825)		(18,833)

Interest expense, net	36,275		84,748		(48,473)

Interest income	(40,428)		(24,266)		(16,162)
Loss on extinguishment of long-term debt, net	—		9,824		(9,824)

Other (income) expense	(327)		60		(387)
Loss before income tax	(60,178)		(116,191)		56,013

Income tax expense	—		64		(64)
Net loss	(60,178)		(116,255)		56,077
Net income attributable to redeemable noncontrolling interests and noncontrolling interests	72,455		7,665		64,790
Net loss attributable to stockholders	$	(132,633)	$	(123,920)	$	(8,713)

Revenue


	Nine Months Ended September 30,
	2022		2021		Change
	(in thousands)
PPA revenue	$	84,235	$	68,443	$	15,792
Lease revenue	71,717		51,765		19,952
Inventory sales revenue	99,773		—		99,773
SREC revenue	37,172		30,648		6,524
Cash sales revenue	45,695		15,618		30,077
Loan revenue	12,582		5,000		7,582
Other revenue	10,924		5,259		5,665
Total	$	362,098	$	176,733	$	185,365

Revenue increased by $185.4 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily as a result of inventory sales, an increased number of solar energy systems in service and the

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April 2021 acquisition of SunStreet. The weighted average number of systems (excluding systems with loan agreements, service-only agreements and cash sales) increased from approximately 95,800 for the nine months ended September 30, 2021 to approximately 124,200 for the nine months ended September 30, 2022. Excluding SREC revenue, revenue under our loan agreements, inventory sales revenue, cash sales revenue and service revenue, on a weighted average number of systems basis, revenue remained relatively flat at $1,290 per system for the nine months ended September 30, 2021 compared to $1,287 per system for the same period in 2022. Inventory sales revenue increased by $99.8 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 due to the sale of inventory to our dealers or other parties, which began in April 2022. SREC revenue increased by $6.5 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily as a result of an increase in SREC prices in New Jersey, offset by decrease due to a forward sale that occurred in the fourth quarter of 2021. The amount of SREC revenue recognized in each period is also affected by the total number of solar energy systems, weather seasonality and hedge and spot prices associated with the timing of the sale of SRECs. On a weighted average number of systems basis, revenues under our loan agreements increased from $203 per system for the nine months ended September 30, 2021 to $247 per system for the same period in 2022 (22% increase) primarily due to higher average system cost in 2022 than in 2021.

Cost of Revenue—Depreciation


	Nine Months Ended September 30,
	2022		2021		Change
	(in thousands)
Cost of revenue—depreciation	$	69,935	$	55,621	$	14,314

Cost of revenue—depreciation increased by $14.3 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This increase was primarily due to an increase in the weighted average number of systems (excluding systems with loan agreements, service-only agreements and cash sales) from approximately 95,800 for the nine months ended September 30, 2021 to approximately 124,200 for the nine months ended September 30, 2022. On a weighted average number of systems basis, cost of revenue—depreciation remained relatively flat at $581 per system for the nine months ended September 30, 2021 compared to $563 per system for the same period in 2022 (3% decrease).

Cost of Revenue—Inventory Sales


	Nine Months Ended September 30,
	2022		2021		Change
	(in thousands)
Cost of revenue—inventory sales	$	89,884	$	—	$	89,884

Cost of revenue—inventory sales increased by $89.9 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This increase was due to costs from the sale of inventory to our dealers or other parties, which began in April 2022.

Cost of Revenue—Other


	Nine Months Ended September 30,
	2022		2021		Change
	(in thousands)
Cost of revenue—other	$	32,974	$	13,572	$	19,402

Cost of revenue—other increased by $19.4 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This increase was primarily due to costs related to cash sales revenue of $15.5 million, which began with the April 2021 acquisition of SunStreet.

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Operations and Maintenance Expense


	Nine Months Ended September 30,
	2022		2021		Change
	(in thousands)
Operations and maintenance	$	23,787	$	14,640	$	9,147

Operations and maintenance expense increased by $9.1 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to higher truck roll, property insurance and property tax costs. Operations and maintenance expense per weighted average system, excluding net natural disaster losses and non-cash inventory impairments, increased from $116 per system for the nine months ended September 30, 2021 to $131 per system for the nine months ended September 30, 2022 primarily due to higher property tax and truck roll costs, partially offset by gains on disposals.

General and Administrative Expense


	Nine Months Ended September 30,
	2022		2021		Change
	(in thousands)
General and administrative	$	214,362	$	144,028	$	70,334

General and administrative expense increased by $70.3 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to increases of (a) $29.7 million of payroll and employee related expenses primarily due to equity-based compensation expense, the hiring of personnel to support growth and the additional personnel from SunStreet, (b) $11.8 million of provision for current expected credit losses primarily due to the growth in loan customers, (c) $7.5 million of amortization expense primarily due to the amortization of intangible assets acquired from SunStreet and (d) $6.1 million of consultants, contractors, and professional fees.

Other Operating Income


	Nine Months Ended September 30,
	2022		2021		Change
	(in thousands)
Other operating income	$	(4,186)	$	(5,303)	$	1,117

Other operating income decreased by $1.1 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to changes in the fair value of certain financial instruments and contingent consideration.

Interest Expense, Net


	Nine Months Ended September 30,
	2022		2021		Change
	(in thousands)
Interest expense, net	$	36,275	$	84,748	$	(48,473)

Interest expense, net decreased by $48.5 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This decrease was primarily due to increases in realized gains on derivatives of $49.1 million and unrealized gains on derivatives of $30.1 million. This was partially offset by an increase in interest expense of $34.5 million primarily due to the issuance of additional debt in 2021 and 2022.

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Interest Income


	Nine Months Ended September 30,
	2022		2021		Change
	(in thousands)
Interest income	$	40,428	$	24,266	$	16,162

Interest income increased by $16.2 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This increase was primarily due to an increase in the weighted average number of systems with loan agreements from approximately 24,600 for the nine months ended September 30, 2021 to approximately 50,900 for the nine months ended September 30, 2022. On a weighted average number of systems basis, loan interest income decreased from $970 per system for the nine months ended September 30, 2021 to $767 per system for the nine months ended September 30, 2022 primarily due to a decrease in the average annual interest rate for customer loans due to market conditions.

Loss on Extinguishment of Long-Term Debt, Net

Loss on extinguishment of long-term debt, net decreased by $9.8 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to a make-whole payment related to the early repayment of one of our solar asset-backed notes in June 2021.

Income Tax Expense

Income tax expense decreased by $0.1 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to a decrease in taxes incurred in jurisdictions with separate tax-reporting requirements.

Net Income Attributable to Redeemable Noncontrolling Interests and Noncontrolling Interests

Net income attributable to redeemable noncontrolling interests and noncontrolling interests increased by $64.8 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to an increase in income attributable to noncontrolling interests from tax equity funds added in 2020 and 2021.

Liquidity and Capital Resources

As of September 30, 2022, we had total cash of $539.8 million, of which $412.6 million was unrestricted, and $348.5 million of available borrowing capacity under our various financing arrangements. We seek to maintain diversified and cost-effective funding sources to finance and maintain our operations, fund capital expenditures, including customer acquisitions, and satisfy obligations arising from our indebtedness, which may include reducing debt prior to scheduled maturities through debt repurchases, either in the open market or in privately negotiated transactions, through debt redemptions or tender offers, or through repayments of bank borrowings. For a discussion of cash requirements from contractual and other obligations, see Note 15, Commitments and Contingencies, to our interim financial statements included elsewhere in this Quarterly Report on Form 10-Q. Historically, our primary sources of liquidity have included non-recourse and recourse debt, investor asset-backed and loan-backed securitizations and cash generated from operations. Our business model requires substantial outside financing arrangements to grow the business and facilitate the deployment of additional solar energy systems. We will seek to raise additional required capital, including from new and existing tax equity investors, additional borrowings, securitizations and other potential debt and equity financing sources. We believe our cash and financing arrangements, as further described below, will be sufficient to meet our anticipated cash needs for at least the next twelve months. As of September 30, 2022, we were in compliance with all debt covenants under our financing arrangements.

Financing Arrangements

The following is an update to the description of our various financing arrangements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financing Arrangements" in our Annual Report on Form 10-K filed with the SEC on February 24, 2022 for a full description of our various financing arrangements.

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Tax Equity Fund Commitments

As of September 30, 2022, we had undrawn committed capital of approximately $53.7 million under our tax equity funds, which may only be used to purchase and install solar energy systems. In February 2022, we admitted a tax equity investor with a total capital commitment of approximately $150.0 million. In May 2022, we admitted a tax equity investor with a total capital commitment of approximately $17.5 million. In September 2022, we admitted a tax equity investor with a total capital commitment of approximately $25.0 million. In October 2022, a tax equity investor increased its capital commitment from $25.0 million to $75.0 million. In October 2022, we admitted a tax equity investor with a total capital commitment of approximately $30.0 million.

Warehouse and Other Debt Financings

In June 2022, we amended a revolving credit facility to, among other things, (a) extend the scheduled commitment termination date to May 2024, (b) extend the facility maturity date to November 2024, (c) increase the aggregate commitment amount from $200.0 million to $400.0 million, subject to reductions based on the outstanding principal balance of advances over certain time periods, (d) increase the uncommitted maximum facility amount from $350.0 million to $475.0 million, (e) modify the interest rate on borrowings from accruing based on the London Inter-Bank Offered Rate ("LIBOR") to accruing based on a forward-looking term rate based on the secured overnight financing rate ("Term SOFR"), plus a Term SOFR spread adjustment, (f) add an amortization event related to certain of our subsidiaries ceasing to originate solar loans (subject to certain thresholds, time periods and exceptions set forth therein), (g) add concentration limits for solar loans (1) with obligors with credit scores below certain thresholds and (2) for which the original principal balance exceeds a certain threshold and (h) modify eligibility requirements for solar loans to increase the permitted maximum original principal balance. In July 2022, we further amended this revolving credit facility to, among other things, increase the uncommitted maximum facility amount from $475.0 million to $535.0 million until the earlier to occur of (a) September 29, 2022 and (b) the date upon which a specific sale of borrowing base assets and a related prepayment of outstanding debt thereunder occurs, upon the occurrence of which the uncommitted maximum facility amount will return to $475.0 million. In August 2022, we further amended this revolving credit facility to, among other things, (a) increase the aggregate commitment amount from $400.0 million to $450.0 million, (b) increase the uncommitted maximum facility amount from $535.0 million to $585.0 million, (c) amend certain provisions addressing the allocation of advances and principal payments among the lenders, (d) amend certain provisions addressing lender consent rights and related matters and (e) include certain provisions addressing service incentives and related matters. In September 2022, we further amended this revolving credit facility to, among other things, (a) decrease the uncommitted maximum facility amount from $585.0 million to $575.0 million and (b) amend certain provisions related to the agent's allocation of certain payments made to the lenders. In June 2022, one of our subsidiaries used proceeds from the SOLIV Notes to repay $271.0 million in aggregate principal amount outstanding under its financing arrangement. In August 2022, one of our subsidiaries used proceeds from the HELIX Notes to repay $151.0 million in aggregate principal amount outstanding under its financing arrangement. In September 2022, we amended a revolving credit facility to, among other things, (a) increase the aggregate commitment amount from $460.7 million to $564.7 million, (b) increase the uncommitted maximum facility amount from $600.0 million to $639.7 million, (c) extend the facility maturity date to November 2024, (d) amend certain excess concentration limitations, (e) replace the London interbank offered rate with the forward-looking term rate based on the secured overnight financing rate as the interest rate benchmark and include benchmark replacement provisions and (f) include certain provisions addressing grid services revenue and related matters. In October 2022, we further amended this revolving credit facility to, among other things, (a) increase the aggregate commitment amount from $564.7 million to $600.0 million and (b) increase the uncommitted maximum facility amount from $639.7 million to $689.7 million.

Securitizations

In February 2022, one of our subsidiaries issued $131.9 million in aggregate principal amount of Series 2022-A Class A solar loan-backed notes, $102.2 million in aggregate principal amount of Series 2022-A Class B solar loan-backed notes and $63.8 million in aggregate principal amount of Series 2022-A Class C solar loan-backed notes (collectively, the "HELVIII Notes") with a maturity date of February 2049. The HELVIII Notes bear interest at an annual rate of 2.79%, 3.13% and 3.53% for the Class A, Class B and Class C notes, respectively. In June 2022, one of our subsidiaries issued $317.0 million in aggregate principal amount of Series 2022-1 Class A solar asset-backed notes and $38.0 million in aggregate principal amount of Series 2022-1 Class B solar asset-backed notes (collectively, the "SOLIV Notes") with a maturity date of April 2057. The SOLIV Notes bear interest at an annual rate of 4.95% and 6.35% for the Class A and Class B notes, respectively. In August 2022, one of our subsidiaries issued $178.0 million in aggregate principal amount of Series 2022-B Class A solar loan-backed notes and $49.7 million in aggregate principal amount of Series 2022-B Class B solar loan-backed notes with a maturity date of August 2049. The HELIX Notes bear interest at an annual rate of 5.00% and 6.00% for the Class A and Class B notes, respectively.

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Senior Notes

In August 2022, we issued and sold an aggregate principal amount of $600.0 million of our 2.625% convertible senior notes in a private placement at a discount to the initial purchasers of 2.5%, for an aggregate purchase price of $585.0 million. The 2.625% convertible senior notes mature in February 2028 unless earlier redeemed, repurchased or converted. In connection with the pricing of the 2.625% convertible senior notes, we used proceeds of $48.4 million to enter into privately negotiated capped call transactions, which are expected to reduce the potential dilution to common shares and/or offset potential cash payments that could be required to be made in excess of the principal amount upon any exchange of notes. Such reduction and/or offset is subject to a cap initially equal to $34.24 per share, subject to adjustments.

Historical Cash Flows—Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

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


	Nine Months Ended September 30,
	2022		2021		Change
	(in thousands)
Net cash used in operating activities	$	(265,795)	$	(146,847)	$	(118,948)
Net cash used in investing activities	(1,451,353)		(847,181)		(604,172)
Net cash provided by financing activities	1,865,092		1,136,404		728,688
Net increase in cash, cash equivalents and restricted cash	$	147,944	$	142,376	$	5,568

Operating Activities

Net cash used in operating activities increased by $118.9 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This increase is primarily a result of increases in purchases of inventory and prepaid inventory of $78.2 million and payments to dealers for exclusivity and other bonus arrangements of $7.9 million. This increase is offset by an increase in net inflows of $24.6 million in 2022 compared to net inflows of $9.6 million in 2021 based on: (a) our net loss of $60.2 million in 2022 excluding non-cash operating items of $84.8 million, primarily from depreciation, impairments and losses on disposals, amortization of intangible assets, amortization of deferred financing costs and debt discounts, unrealized net gains on derivatives, unrealized net gains on fair value instruments and equity-based compensation charges, which results in net inflows of $24.6 million and (b) our net loss of $116.3 million in 2021 excluding non-cash operating items of $125.9 million, primarily from depreciation, impairments and losses on disposals, amortization of intangible assets, amortization of deferred financing costs and debt discounts, unrealized net gains on derivatives, unrealized net gains on fair value instruments, losses on extinguishment of long-term debt and equity-based compensation charges, which results in net inflows of $9.6 million. These net differences between the two periods resulted in a net change in operating cash flows of $15.0 million in 2022 compared to 2021.

Investing Activities

Net cash used in investing activities increased by $604.2 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This increase is primarily a result of increases in payments for investments and customer notes receivable of $349.3 million and purchases of property and equipment, primarily solar energy systems, of $293.5 million. This increase is partially offset by increases in proceeds from customer notes receivable of $32.6 million and proceeds from investments in solar receivables of $9.4 million.

Financing Activities

Net cash provided by financing activities increased by $728.7 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. This increase is primarily a result of an increase in net borrowings under our debt facilities of $696.9 million and a decrease in the purchase of capped call transactions of $43.2 million. This increase is partially offset by a decrease in net proceeds from the issuance of common stock of $13.3 million.

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Seasonality

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

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

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

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our interim financial statements, which have been prepared in accordance with GAAP which requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, cash flows and related disclosures. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. In many instances, we could have reasonably used different accounting estimates, and in other instances, changes in the accounting estimates are reasonably likely to occur from period-to-period. Actual results may differ from these estimates. Our future financial statements will be affected to the extent our actual results materially differ from these estimates. For further information on our significant accounting policies, see Note 2, Significant Accounting Policies, in our Annual Report on Form 10-K filed with the SEC on February 24, 2022 and Note 2, Significant Accounting Policies, to our interim financial statements included elsewhere in this Quarterly Report on Form 10-Q.

We identify our most critical accounting policies as those that are the most pervasive and important to the portrayal of our financial position and results of operations, and that require the most difficult, subjective, and/or complex judgments by management regarding estimates about matters that are inherently uncertain. We believe the assumptions and estimates associated with our principles of consolidation, the valuation of assets acquired and liabilities assumed in acquisitions, the estimated useful life of our solar energy systems, the valuation of the removal assumptions, including costs, associated with AROs, the valuation of redeemable noncontrolling interests and noncontrolling interests and our allowance for current expected credit losses have the greatest subjectivity and impact on our interim financial statements. Therefore, we consider these to be our critical accounting policies and estimates. There have been no material changes to our critical accounting policies and estimates as described in our Annual Report on Form 10-K.

Recent Accounting Pronouncements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to various market risks in the ordinary course of our business. Market risk is the potential loss that may result from market changes associated with our business or with an existing or forecasted financial or commodity transaction. Our primary exposure includes changes in interest rates because certain borrowings bear interest at floating rates based on

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LIBOR, SOFR or a similar index plus a specified margin. We sometimes manage our interest rate exposure on floating-rate debt by entering into derivative instruments to hedge all or a portion of our interest rate exposure on certain debt facilities. We do not enter into any derivative instruments for trading or speculative purposes. Changes in economic conditions could result in higher interest rates, thereby increasing our interest expense and operating expenses and reducing funds available to capital investments, operations and other purposes. A hypothetical 10% increase in our interest rates on our variable-rate debt facilities would have increased our interest expense by $1.0 million and $2.2 million for the three and nine months ended September 30, 2022, respectively.

Item 4. Controls and Procedures.

Internal Control Over Financial Reporting

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer ("CEO") and our Chief Financial Officer ("CFO"), of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q, pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act. In connection with that evaluation, our CEO and our CFO concluded our disclosure controls and procedures were effective and designed to provide reasonable assurance the information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms as of September 30, 2022, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures. The term "disclosure controls and procedures", as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure information required to be disclosed by a company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure information required to be disclosed by a company in the reports it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in Internal Control over Financial Reporting

In connection with the acquisition of SunStreet, we are integrating SunStreet's internal controls over financial reporting into our financial reporting framework. Such integration has resulted and may continue to result in changes that materially affect our internal control over financial reporting (as described in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Other than the changes that have and may continue to result from such integration, there was no change in our internal control over financial reporting that occurred during the third quarter of 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

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

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Although we may, from time to time, be involved in litigation, claims and government proceedings arising in the ordinary course of business, we are not a party to any litigation or governmental or other proceeding we believe will have a material adverse impact on our financial position, results of operations or liquidity. In the ordinary course of business, we have disputes with dealers and customers. In general, litigation claims or regulatory proceedings can be expensive and time consuming to

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bring or defend against, may result in the diversion of management attention and resources from our business and business goals and could result in settlement or damages that could significantly affect financial results and the conduct of our business.

Item 1A. Risk Factors.

There have been no material changes in the risks facing us as described in our Annual Report on Form 10-K filed with the SEC on February 24, 2022 except as described below.

Risks Related to Our Business

An increase in interest rates may result in a decrease in origination for our homebuilder channel and a reduction in principal prepayments by our customers.

Origination for our homebuilder channel relies on the construction and sale of new homes by our homebuilder partners. Many customers of our homebuilder partners rely on mortgage loans from banks and other lenders to finance a substantial portion of the purchase price for their home. Increased mortgage interest rates may lead to lower demand for new homes and a reduced number of homes available for solar origination through our homebuilder channel. Additionally, increased interest rates may result in fewer secondary home sales, a reduction in the number of customers refinancing their mortgage and uncertainty about the economy. This could result in a material reduction in the amount of our customers making principal prepayments of their loans.

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

Not applicable.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.


Exhibit No.						Description
2.1						Merger Agreement, dated as of July 29, 2019, by and among Sunnova Energy International Inc., Sunnova Energy Corporation and Sunnova Merger Sub Inc. (incorporated by reference to Exhibit 2.1 to Form 8-K filed on July 29, 2019).
2.2						Merger Agreement, by and among Sunnova Energy International Inc., Moonroad LLC, Sunnova Energy Corporation, SunStreet Energy Group, LLC and LEN X, LLC, dated as of February 17, 2021 (incorporated by reference to Exhibit 2.1 to Form 8-K filed on February 19, 2021).
3.1						Second Amended and Restated Certificate of Incorporation of Sunnova Energy International Inc. (incorporated by reference to Exhibit 3.3 to Form 8-K filed on July 29, 2019).
3.2						Second Amended and Restated Bylaws of Sunnova Energy International Inc. (incorporated by reference to Exhibit 3.5 to Form 8-K filed on July 29, 2019).
4.1∞						Indenture, dated August 17, 2022, by and among Sunnova Helios IX Issuer, LLC and Wilmington Trust, National Association.
4.2						Form of 5.00% Solar Loan Backed Notes, Series 2022-B Class A Notes due 2049 (included in Exhibit 4.1).
4.3						Form of 6.00% Solar Loan Backed Notes, Series 2022-B Class B Notes due 2049 (included in Exhibit 4.1).
4.4						Indenture, dated August 19, 2022, between Sunnova Energy International Inc. and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.1 to Form 8-K filed on August 19, 2022).
4.5						Form of 2.625% Convertible Senior Note due 2028 (included in Exhibit 4.4).

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Exhibit No.						Description
10.1						Amendment No. 9 to the Amended and Restated Credit Agreement, among Sunnova EZ-Own Portfolio, LLC, Sunnova SLA Management, LLC, Sunnova Asset Portfolio 7 Holdings, LLC, the Lenders party thereto, the Funding Agents party thereto and Credit Suisse AG, New York Branch, dated as of July 22, 2022 (incorporated by reference to Exhibit 10.4 to Form 10-Q filed on July 28, 2022).
10.2∞						Amendment No. 10 to the Amended and Restated Credit Agreement and Omnibus Amendment No. 2 (SLA), among Sunnova EZ-Own Portfolio, LLC, Sunnova SLA Management, LLC, Sunnova Asset Portfolio 7 Holdings, LLC, the Lenders party thereto, the Funding Agents party thereto, Wells Fargo Bank, National Association and Credit Suisse AG, New York Branch, dated as of August 5, 2022 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on August 8, 2022).
10.3∞						Note Purchase Agreement, dated August 12, 2022, among Sunnova Helios IX Issuer, LLC, Sunnova Energy Corporation, Sunnova Helios IX Depositor, LLC and Credit Suisse Securities (USA) LLC.
10.4						Purchase Agreement, dated August 16, 2022, by and among Sunnova Energy International Inc. and J.P. Morgan Securities LLC, as representative of the several initial purchasers named therein (incorporated by reference to Exhibit 10.1 to Form 8-K filed on August 19, 2022).
10.5∞						Seventh Amendment to Amended and Restated Credit Agreement, among Sunnova TEP Holdings, LLC, Sunnova TE Management, LLC, Credit Suisse AG, New York Branch, as administrative agent, the lenders and other financial institutions party thereto, dated as of September 6, 2022 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on September 8, 2022).
10.6						Form of Capped Call Confirmation (incorporated by reference to Exhibit 10.2 to Form 8-K filed on August 19, 2022).
10.7∞						Amendment No. 11 to the Amended and Restated Credit Agreement and Omnibus Amendment No. 3 (SLA), among Sunnova EZ-Own Portfolio, LLC, Sunnova SLA Management, LLC, Sunnova Asset Portfolio 7 Holdings, LLC, the Lenders party thereto, the Funding Agents party thereto, Wells Fargo Bank, National Association and Credit Suisse AG, New York Branch, dated as of September 28, 2022 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on September 30, 2022).
10.8∞						Eighth Amendment to Amended and Restated Credit Agreement, among Sunnova TEP Holdings, LLC, Sunnova TE Management, LLC, Credit Suisse AG, New York Branch, as administrative agent, and the lenders and other financial institutions party thereto, dated as of October 7, 2022 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on October 12, 2022).
31.1						Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2						Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1						Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2						Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its tags are embedded within the inline XBRL document.
101.SCH						XBRL Taxonomy Extension Schema Linkbase Document.
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document.
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101.LAB						XBRL Taxonomy Extension Label Linkbase Document.
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__________________

∞ Portions of this exhibit have been omitted in accordance with Items 601(a)(5) and 601(b)(10) of Regulation S-K. We agree to furnish a copy of any omitted schedule or exhibit to the SEC upon request.

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SIGNATURES

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


	SUNNOVA ENERGY INTERNATIONAL INC.

Date: October 27, 2022	By:	/s/ William J. Berger
		William J. Berger
		Chief Executive Officer and Director
		(Principal Executive Officer)


Date: October 27, 2022	By:	/s/ Robert L. Lane
		Robert L. Lane
		Chief Financial Officer
		(Principal Financial Officer)