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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________________

FORM 10-Q
_______________________________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 001-38995
_______________________________________________________________________________
Sunnova Energy International Inc.
(Exact name of registrant as specified in its charter)
_______________________________________________________________________________
Delaware
30-1192746
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
20 East Greenway Plaza, Suite 540
Houston, Texas 77046
(Address, including zip code, of principal executive offices)

(281) 892-1588
(Registrant's telephone number, including area code)
_______________________________________________________________________________

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


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

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

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

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

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

The registrant had 114,658,181 shares of common stock outstanding as of July 25, 2022.


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;
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 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.

2

TABLE OF CONTENTS

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

3

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

SUNNOVA ENERGY INTERNATIONAL INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts and share par values)
As of 
 June 30, 2022
As of 
 December 31, 2021
Assets
Current assets:
Cash$208,114 $243,101 
Accounts receivable—trade, net28,017 18,584 
Accounts receivable—other111,431 57,736 
Other current assets, net of allowance of $2,282 and $1,646 as of June 30, 2022 and December 31, 2021, respectively
323,152 296,321 
Total current assets670,714 615,742 
Property and equipment, net3,288,232 2,909,613 
Customer notes receivable, net of allowance of $54,761 and $39,492 as of June 30, 2022 and December 31, 2021, respectively
1,736,558 1,204,073 
Intangible assets, net176,296 190,520 
Goodwill13,150 13,150 
Other assets802,862 571,136 
Total assets (1)$6,687,812 $5,504,234 
Liabilities, Redeemable Noncontrolling Interests and Equity
Current liabilities:
Accounts payable$82,476 $55,033 
Accrued expenses90,918 81,721 
Current portion of long-term debt165,889 129,793 
Other current liabilities48,459 44,350 
Total current liabilities387,742 310,897 
Long-term debt, net3,985,744 3,135,681 
Other long-term liabilities536,626 436,043 
Total liabilities (1)4,910,112 3,882,621 
Commitments and contingencies (Note 14)
Redeemable noncontrolling interests151,507 145,336 
Stockholders' equity:
Common stock, 114,657,217 and 113,386,600 shares issued as of June 30, 2022 and December 31, 2021, respectively, at $0.0001 par value
11 11 
Additional paid-in capital—common stock1,677,647 1,649,199 
Accumulated deficit(377,217)(459,715)
Total stockholders' equity1,300,441 1,189,495 
Noncontrolling interests325,752 286,782 
Total equity1,626,193 1,476,277 
Total liabilities, redeemable noncontrolling interests and equity$6,687,812 $5,504,234 

(1) The consolidated assets as of June 30, 2022 and December 31, 2021 include $2,617,059 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 $32,179 and $23,538 as of June 30, 2022 and December 31, 2021, respectively; accounts receivable—trade, net of $8,888 and $6,167 as of June 30, 2022 and December 31, 2021, respectively; accounts receivable—other of $871 and $410 as of June 30, 2022 and December 31, 2021, respectively; other current assets of $329,215 and $272,421 as of June 30, 2022 and December 31, 2021, respectively; property and equipment, net of $2,208,663 and $1,817,471 as of June 30, 2022 and December 31, 2021, respectively; and other assets of $37,243 and $28,391 as of June 30, 2022 and December 31, 2021, respectively. The consolidated liabilities as of June 30, 2022 and December 31, 2021 include $55,915 and $47,225, respectively, of liabilities of VIEs whose creditors have no recourse to Sunnova Energy International Inc. These liabilities include accounts payable of $8,028 and $6,014 as of June 30, 2022 and December 31, 2021, respectively; accrued expenses of $177 and $88 as of June 30, 2022 and December 31, 2021, respectively; other current liabilities of $3,342 and $3,845 as of June 30, 2022 and December 31, 2021, respectively; and other long-term liabilities of $44,368 and $37,278 as of June 30, 2022 and December 31, 2021, respectively.

See accompanying notes to unaudited condensed consolidated financial statements.
4

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

Three Months Ended 
 June 30,
Six Months Ended 
 June 30,
2022202120222021
Revenue$147,012 $66,556 $212,734 $107,832 
Operating expense:
Cost of revenue—depreciation23,314 18,548 45,272 35,956 
Cost of revenue—inventory sales48,967  48,967  
Cost of revenue—other9,838 4,996 17,407 6,230 
Operations and maintenance7,252 4,985 14,013 8,605 
General and administrative68,242 48,336 138,465 90,656 
Other operating expense (income)(7,870)4,034 (14,453)4,034 
Total operating expense, net149,743 80,899 249,671 145,481 
Operating loss(2,731)(14,343)(36,937)(37,649)
Interest expense, net20,437 50,109 17,947 58,160 
Interest income(13,311)(7,988)(24,243)(15,168)
Loss on extinguishment of long-term debt, net 9,824  9,824 
Other income(160)(16)(315)(129)
Loss before income tax(9,697)(66,272)(30,326)(90,336)
Income tax    
Net loss(9,697)(66,272)(30,326)(90,336)
Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests27,306 (2,876)40,260 6,043 
Net loss attributable to stockholders$(37,003)$(63,396)$(70,586)$(96,379)
Net loss per share attributable to common stockholders—basic and diluted$(0.32)$(0.57)$(0.62)$(0.88)
Weighted average common shares outstanding—basic and diluted114,548,970 111,973,338 114,027,097 109,181,788 

See accompanying notes to unaudited condensed consolidated financial statements.

5

SUNNOVA ENERGY INTERNATIONAL INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended 
 June 30,
20222021
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss$(30,326)$(90,336)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation50,807 40,325 
Impairment and loss on disposals, net789 1,612 
Amortization of intangible assets14,224 7,065 
Amortization of deferred financing costs5,919 8,833 
Amortization of debt discount3,705 6,047 
Non-cash effect of equity-based compensation plans15,596 10,844 
Unrealized gain on derivatives(6,626)(2,932)
Unrealized (gain) loss on fair value instruments(14,761)4,169 
Loss on extinguishment of long-term debt, net 9,824 
Other non-cash items(25,381)3,742 
Changes in components of operating assets and liabilities:
Accounts receivable(61,246)(9,301)
Other current assets(71,994)(67,854)
Other assets(59,273)(29,066)
Accounts payable7,343 (2,274)
Accrued expenses15,500 5,544 
Other current liabilities(2,931)(4,328)
Other long-term liabilities(3,688)(2,598)
Net cash used in operating activities(162,343)(110,684)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment(380,435)(236,347)
Payments for investments and customer notes receivable(573,248)(305,498)
Proceeds from customer notes receivable52,653 30,881 
Proceeds from investments in solar receivables5,620  
State utility rebates and tax credits174 273 
Other, net1,244 1,502 
Net cash used in investing activities(893,992)(509,189)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt1,239,903 1,282,796 
Payments of long-term debt(348,716)(570,068)
Payments on notes payable (8,022)
Payments of deferred financing costs(16,052)(12,939)
Payments of debt discounts (2,324)
Purchase of capped call transactions (91,655)
Proceeds from issuance of common stock, net(3,178)9,822 
Contributions from redeemable noncontrolling interests and noncontrolling interests177,279 116,610 
Distributions to redeemable noncontrolling interests and noncontrolling interests(12,330)(6,261)
Payments of costs related to redeemable noncontrolling interests and noncontrolling interests(8,172)(6,778)
Other, net(406)(103)
Net cash provided by financing activities1,028,328 711,078 
Net increase (decrease) in cash and restricted cash(28,007)91,205 
Cash and restricted cash at beginning of period391,897 377,893 
Cash and restricted cash at end of period363,890 469,098 
Restricted cash included in other current assets(53,842)(39,470)
Restricted cash included in other assets(101,934)(61,002)
Cash at end of period$208,114 $368,626 
6

Six Months Ended 
 June 30,
20222021
Non-cash investing and financing activities:
Change in accounts payable and accrued expenses related to purchases of property and equipment$11,246 $17,443 
Change in accounts payable and accrued expenses related to payments for investments and customer notes receivable$1,904 $(17,614)
Note payable for financing the purchase of inventory$ $28,994 
Non-cash issuance of common stock relating 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$61,148 $48,279 
Cash paid for income taxes$ $ 

See accompanying notes to unaudited condensed consolidated financial statements.
7

SUNNOVA ENERGY INTERNATIONAL INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
(in thousands, except share amounts)

Redeemable
Noncontrolling
Interests
Common StockAdditional
Paid-in
Capital -
Common
Stock
Accumulated
Deficit
Total
Stockholders'
Equity
Noncontrolling
Interests
Total
Equity
SharesAmount
December 31, 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 parent40 — — — 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, 2021137,122 108,553,802 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 parent2 — — — 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 

8

Redeemable
Noncontrolling
Interests
Common StockAdditional
Paid-in
Capital -
Common
Stock
Accumulated
Deficit
Total
Stockholders'
Equity
Noncontrolling
Interests
Total
Equity
SharesAmount
December 31, 2021$145,336 113,386,600 $11 $1,649,199 $(459,715)$1,189,495 $286,782 $1,476,277 
Net income (loss)(2,432)— — — (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 interests3,757 — — — — — 48,132 48,132 
Distributions to redeemable noncontrolling interests and noncontrolling interests(1,122)— — — — — (4,732)(4,732)
Costs related to redeemable noncontrolling interests and noncontrolling interests(57)— — — — — (2,292)(2,292)
Equity in subsidiaries attributable to parent(173)— — — 69,769 69,769 (69,596)173 
Equity-based compensation expense— — — 10,864 — 10,864 — 10,864 
Other, net(123)— — — — — 174 174 
March 31, 2022145,186 113,911,388 11 1,657,087 (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 interests13,423 — — — — — 111,967 111,967 
Distributions to redeemable noncontrolling interests and noncontrolling interests(1,239)— — — — — (5,237)(5,237)
Costs related to redeemable noncontrolling interests and noncontrolling interests(193)— — — — — (2,417)(2,417)
Equity in subsidiaries attributable to parent(10,168)— — — 83,316 83,316 (73,148)10,168 
Equity-based compensation expense— — — 4,732 — 4,732 — 4,732 
Other, net(65)— — — (1)(1)(2,010)(2,011)
June 30, 2022$151,507 114,657,217 $11 $1,677,647 $(377,217)$1,300,441 $325,752 $1,626,193 

See accompanying notes to unaudited condensed consolidated financial statements.
9

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

We are a leading residential energy service provider, serving over 224,000 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 June 30, 2022, we have raised more than $9.8 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 consolidate a VIE in which we have a majority ownership interest when we are not considered the primary beneficiary. We
10

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.

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 as the COVID-19 virus has continued to circulate through the states and U.S. territories in which we operate.

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 June 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 table
11

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
presents the changes in the allowance for credit losses recorded against accounts receivabletrade, net in the unaudited condensed consolidated balance sheets:

Three Months Ended 
 June 30,
Six Months Ended 
 June 30,
2022202120222021
(in thousands)
Balance at beginning of period$1,065 $848 $1,044 $912 
Provision for current expected credit losses614 441 1,089 837 
Write off of uncollectible accounts(546)(490)(1,052)(986)
Recoveries65 58 117 94 
Other, net 1  1 
Balance at end of period$1,198 $858 $1,198 $858 

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

As of 
 June 30, 2022
As of 
 December 31, 2021
(in thousands)
Modules and inverters$40,990 $60,661 
Energy storage systems and components70,962 43,071 
Homebuilder construction in progress37,803 23,642 
Meters and modems480 581 
Other485  
Total$150,720 $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.
12

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 6, Customer Notes Receivable, Note 7, Long-Term Debt and Note 8, Derivative Instruments.

The following table presents our financial instruments measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021:

As of June 30, 2022
TotalLevel 1Level 2Level 3
(in thousands)
Financial assets:
Investments in solar receivables$74,870 $ $ $74,870 
Derivative assets76,258  76,258  
Total$151,128 $ $76,258 $74,870 
Financial liabilities:
Contingent consideration$34,060 $ $ $34,060 
Total$34,060 $ $