Portfolio Financings

9 Months Ended

Sep. 30, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Overview

We have developed various financing options that enable customers’ use of the Energy Servers through third-party ownership financing arrangements. For additional information on these financing options, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

PPA V Repowering of Energy Servers

PPA V was established in 2015 and we, through a special purpose subsidiary (the “Project Company”), had previously entered into certain agreements for the purpose of developing, financing, owning, operating, maintaining and managing a portfolio of 37.1 megawatts of Energy Servers.

On August 10, 2023, we acquired all of Solar TC Corp’s (“Intel”) interest in PPA V, as set forth in the Purchase and Sale Agreement (the “PPA V Buyout”). The aggregate purchase price of the transaction amounted to $6.9 million. After the acquisition, PPA V became wholly owned by us.

The change in our ownership interest in PPA V was accounted for as an equity transaction in accordance with ASC 810 Consolidation. The carrying amount of the noncontrolling interest was eliminated to reflect the change in our ownership interest in PPA V, and the difference between the fair value of the consideration paid and the carrying amount of the noncontrolling interest immediately prior to the PPA V Buyout of $11.5 million was recognized as additional paid-in capital in our condensed consolidated statements of stockholders’ equity (deficit).

On August 24, 2023, we entered into the Membership Interest Purchase Agreement (the “MIPA”) with Generate C&I Warehouse, LLC (the “Financier”). Following the PPA V Buyout and prior to signing the MIPA, we repaid all of the outstanding debt of the Project Company of $119.0 million, including accrued interest of $0.5 million, and recognized a loss on extinguishment of debt in an amount of $1.4 million, represented in its entirety by the derecognition of the related debt issuance costs. For additional information, please see Part I, Item 1, Note 7 - Outstanding Loans and Security Agreements, Non-recourse Debt Facilities section.

On August 25, 2023, we sold our 100% interest in the Project Company to the Financier through the MIPA. Simultaneously, we entered into an agreement with the Project Company to upgrade the 37.1 megawatts of old Energy Servers by replacing them with the new Energy Servers and to provide related installation services, which was financed by the Financier (the “EPC Agreement”). We also amended and restated our operations and maintenance agreement with the Project Company to cover all new Energy Servers and old Energy Servers prior to their upgrade (“the O&M Agreement”). The operations and maintenance fees under the O&M Agreement are paid on a fixed dollar per kilowatt basis.

Due to our repurchase option on the old Energy Servers, the Company concluded there was no transfer of control of the old Energy Servers upon sale of the membership interest to the Financier. Accordingly, we continued to recognize the old Energy Servers, despite the legal ownership of such assets having been transferred under the MIPA. We assessed the recorded assets for impairment. The carrying amount of the PPA V property. plant and equipment was determined to be not recoverable as the net undiscounted cash flows are less than the carrying amounts for PPA V property. plant and equipment. Therefore, we recognized the asset impairment charge as electricity cost, consistent with our depreciation expense classification for property, plant and equipment under leases.

The PPA V Upgrade was in progress as of September 30, 2023 and resulted in the following summarized impacts on our condensed consolidated balance sheet as of September 30, 2023: (i) cash and cash equivalents decreased by $62.4 million primarily due to a $119.0 million repayment of outstanding debt and related accrued interest, partially offset by $60.3 million from the sale of the new Energy Servers to the Project Company, (ii) property plant and equipment, net decreased by $124.0 million due to the impairment of the old Energy Servers of $123.7 million and accelerated depreciation of $0.3 million of the old Energy Servers (we revised the expected useful life of the old Energy Servers from 7.5 years to approximately 0.3 years which resulted in recognized accelerated depreciation of $0.3 million recorded in electricity cost of revenue), (iii) contract assets increased by $116.5 million and inventories decreased by $70.0 million, (iv) deferred revenue and customer deposits, current and long-term, increased by $12.4 million, (v) restricted cash, current and long-term, decreased by $8.7 million, (vi) accounts receivable, net decreased by $3.3 million, (vii) other long-term assets decreased by $1.6 million, (viii) prepaid expenses and other current assets decreased by $1.9 million, (ix) financing obligations increased by $0.3 million, and (x) accrued expenses and other current liabilities decreased by $0.5 million.

Impacts on our condensed consolidated statements of operations for the three and nine months ended September 30, 2023 are summarized as follows: (i) product and installation revenue increased by $151.6 million and $9.5 million, respectively, as a result of the sale of the new Energy Servers; (ii) electricity revenue increased by $1.1 million related to the old Energy Servers, (iii) cost of electricity revenue increased by $125.5 million, primarily including the impairment of the old Energy Servers of $123.7 million and accelerated depreciation of $0.3 million prior to the completion of installation; (iv) cost of product revenue and cost of installation revenue increased by $62.6 million and $7.4 million, respectively, due to the sale of the new Energy Servers; (v) general and administrative expenses increased by $6.4 million due to the impairment of non-recoverable production insurance; (vi) loss on extinguishment of debt increased by $1.4 million, (vii) interest expense increased by $0.3 million, and (viii) net loss attributable to noncontrolling interest decreased by $1.0 million.

Impacts on our consolidated statements of cash flows for the nine months ended September 30, 2023 are summarized as follows: net cash provided by financing activities decreased by $118.5 million due to the repayment of debt related to PPA V, and acquisition of all of interest in PPA V from Intel for $6.9 million net of distributions to Intel’s noncontrolling interest of $2.3 million.

PPA Entity’s Aggregate Assets and Liabilities

Generally, the assets of an operating company owned by an investment company can be used to settle only the operating company obligations, and the operating company creditors do not have recourse to us. The following were the aggregate carrying values of our VIE’s assets and liabilities in our condensed consolidated balance sheets, after eliminations of intercompany transactions and balances, including the PPA V Entity in the PPA V transaction as of December 31, 2022 (in thousands):



	December 31,
	2022
Assets
Current assets:
Cash and cash equivalents	$	5,008
Restricted cash	550
Accounts receivable	2,072

Prepaid expenses and other current assets	1,927
Total current assets	9,557
Property, plant and equipment, net	133,285

Restricted cash	8,000
Other long-term assets	1,869
Total assets	$	152,711

Liabilities
Current liabilities:

Accrued expenses and other current liabilities	$	1,037
Deferred revenue and customer deposits	662
Non-recourse debt	13,307
Total current liabilities	15,006
Deferred revenue and customer deposits	4,748
Non-recourse debt	112,480

Total liabilities	$	132,234

Before the sale on August 24, 2023, we consolidated the PPA V Entity as a VIE in the PPA V transaction, as we had determined that we were the primary beneficiary of this VIE. The PPA V Entity contained debt that was non-recourse to us and owned Energy Server assets for which we did not have title.