Sunnova(US:NOVA)2021-02-24 16:00PART I Business Sunnova Energy International Inc. is a leading residential solar and energy storage service provider in the U.S. and its territories, serving over 107,000 customers through a differentiated dealer network model - As of December 31, 2020, Sunnova served over 107,000 customers across more than 20 U.S. states and territories, operating over 790 megawatts of generation capacity2732 - In February 2021, Sunnova agreed to acquire SunStreet, Lennar Corporation's residential solar platform, including a four-year exclusivity agreement for Lennar's new home communities2224 Customer Agreement Mix (as of Dec 31, 2020) | Agreement Type | Percentage of Customers | | :--- | :--- | | Power Purchase Agreements (PPAs) | ~51% | | Lease Agreements | ~31% | | Loan Agreements | ~17% | | Other (Service/Roof) | <1% | - The company operates through a dealer network model, with its top two dealers, Trinity Solar, Inc. and Infinity Energy, Inc., accounting for approximately 28% and 12% of net originations for the year ended December 31, 20204042 - Sunnova's business model is capital-intensive, having raised over $6.7 billion in capital commitments from equity, debt, and tax equity investors since its inception through December 31, 202030137 Risk Factors The company identifies significant risks across its business, operations, regulatory environment, and financial structure, including the COVID-19 pandemic, reliance on its dealer network, and potential changes to government incentives - The COVID-19 pandemic has caused disruptions, including an initial decline in new contract originations, and poses ongoing risks to operations, capital access, and customer payment ability106109110 - The business is highly dependent on its dealer network, with Trinity Solar accounting for 28% of net originations in 2020, creating a concentration risk135 - Changes to net metering policies, which allow customers to receive credits for excess energy sent to the grid, could significantly reduce demand for residential solar systems, with several key markets reviewing or changing their rules263266272 - The business depends on government incentives, especially the federal ITC, which is scheduled to decrease from 26% for projects starting in 2020-2022 to 22% in 2023 and 10% thereafter, potentially impacting financing and growth278281282 - The company has a history of operating and net losses, reporting a net loss of $307.8 million for the year ended December 31, 2020, and may not achieve or sustain profitability in the future111 - Business operations are geographically concentrated, with approximately 22% of systems in New Jersey, 24% in California, and 15% in Puerto Rico as of December 31, 2020, increasing exposure to region-specific risks211 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - Not applicable328 Properties Sunnova's corporate headquarters is leased in Houston, Texas, with additional smaller leased offices in Guam, New York, and Puerto Rico, and no owned real property - The company's principal executive offices are leased in Houston, Texas, under a lease that expires in July 2029329 Legal Proceedings The company is not a party to any litigation or governmental proceeding expected to have a material adverse impact on its financial position or results of operations - Sunnova is involved in ordinary course litigation and claims but does not believe any will have a material adverse impact331 Mine Safety Disclosures This item is not applicable to the company's business - Not applicable332 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Sunnova's common stock trades on the NYSE under "NOVA" since its IPO on July 25, 2019, with no cash dividends declared or expected due to the need to retain funds and credit agreement restrictions - The company's common stock began trading on the NYSE under the symbol "NOVA" on July 25, 2019335 - Sunnova has never paid cash dividends and does not expect to in the foreseeable future, with future earnings intended to be retained for business operations337 Selected Financial Data The company presents selected consolidated financial data for 2017-2020, showing consistent revenue growth from $76.9 million to $160.8 million, but also widening net losses from $90.2 million to $307.8 million, reflecting the capital-intensive nature of the business Selected Consolidated Financial Data (in thousands) | | 2020 | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $160,820 | $131,556 | $104,382 | $76,856 | | Net loss | $(307,818) | $(133,434) | $(68,409) | $(90,182) | | Total assets | $3,587,582 | $2,487,067 | $1,665,085 | $1,328,788 | | Long-term debt, net | $1,924,653 | $1,346,419 | $916,430 | $723,697 | | Total equity | $1,144,557 | $691,111 | $501,118 | $371,183 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results, highlighting customer growth to 107,500, a 22% revenue increase, and a significant widening of net loss to $307.8 million primarily due to a $142.8 million non-cash loss on convertible debt extinguishment, while confirming sufficient liquidity for the next 12 months - The number of customers grew by 28,900, from 78,600 at the end of 2019 to 107,500 at the end of 2020375 Key Performance Metrics (2020 vs 2019) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Revenue | $160.8M | $131.6M | | Net Loss | $(307.8)M | $(133.4)M | | Adjusted EBITDA | $59.6M | $48.3M | - The increase in net loss in 2020 was primarily driven by a $142.8 million loss on the extinguishment of long-term debt related to the conversion of convertible senior notes424435 - As of December 31, 2020, the company had $377.9 million in total cash ($209.9 million unrestricted) and $402.4 million of available borrowing capacity under its financing arrangements440 - Estimated Gross Contracted Customer Value, a forward-looking metric, increased to $2.61 billion at a 6% discount rate as of year-end 2020, up from $1.88 billion at year-end 2019395 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure from variable-rate debt, which it manages using derivative instruments like interest rate swaps, with a hypothetical 10% rate increase resulting in an additional $2.6 million in interest expense for 2020 - The company's main market risk is interest rate risk from variable-rate debt, which it hedges using interest rate swaps493 - A hypothetical 10% increase in interest rates would have increased interest expense by $2.6 million for the year ended December 31, 2020493 Financial Statements and Supplementary Data This section includes the company's audited consolidated financial statements for 2018-2020, with an unqualified opinion from PricewaterhouseCoopers LLP, and identifies a critical audit matter related to the initial accounting assessment of new Tax Equity Partnerships (TEPs) - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2020499 - A Critical Audit Matter was identified related to the initial accounting assessment of new Tax Equity Partnerships (TEPs), involving significant judgment in determining if Sunnova is the primary beneficiary and in applying the hypothetical liquidation at book value (HLBV) method506507 Consolidated Balance Sheet Highlights (as of Dec 31, 2020) | Account | Amount (in thousands) | | :--- | :--- | | Total Assets | $3,587,582 | | Property and equipment, net | $2,323,169 | | Customer notes receivable, net | $513,386 | | Total Liabilities | $2,306,901 | | Long-term debt, net | $1,924,653 | | Total Equity | $1,144,557 | Consolidated Statement of Operations Highlights (Year ended Dec 31, 2020) | Account | Amount (in thousands) | | :--- | :--- | | Revenue | $160,820 | | Total operating expense, net | $196,598 | | Operating loss | $(35,778) | | Net loss | $(307,818) | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None749 Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of December 31, 2020, with no material changes to internal control over financial reporting during the fourth quarter of 2020 - Management concluded that disclosure controls and procedures were effective as of December 31, 2020750 - Management assessed internal control over financial reporting as effective as of December 31, 2020, and this assessment was audited by PricewaterhouseCoopers LLP753 Other Information The company reports no other information for this item - None754 PART III Directors, Executive Officers and Corporate Governance Information regarding the company's directors, executive officers, and corporate governance practices is incorporated by reference from its definitive Proxy Statement - Information is incorporated by reference from the company's Proxy Statement to be filed within 120 days after the fiscal year-end756 Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive Proxy Statement - Information is incorporated by reference from the company's Proxy Statement757 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information concerning security ownership by certain beneficial owners and management, as well as related stockholder matters, is incorporated by reference from the company's definitive Proxy Statement - Information is incorporated by reference from the company's Proxy Statement758 Certain Relationships and Related Transactions, and Director Independence Details regarding certain relationships, related-party transactions, and director independence are incorporated by reference from the company's definitive Proxy Statement - Information is incorporated by reference from the company's Proxy Statement759 Principal Accounting Fees and Services Information about the fees paid to the principal independent registered public accounting firm and the services provided is incorporated by reference from the company's definitive Proxy Statement - Information is incorporated by reference from the company's Proxy Statement760 PART IV Exhibits and Financial Statement Schedules This section lists all documents filed as part of the Annual Report on Form 10-K, including consolidated financial statements, schedules, and a comprehensive list of exhibits such as key corporate documents, material contracts, debt indentures, and certifications - This section contains the index to the consolidated financial statements and a list of all exhibits filed with the report762 - Key exhibits filed include the Merger Agreement for the SunStreet acquisition, various debt indentures and credit agreements, and executive certifications764766771