Business Wire | Oct 28, 2020 04:17PM EDT

Sunnova Reports Strong Third Quarter 2020 Results, Reaffirms 2020 Guidance, and Initiates 2021 Guidance

Oct. 28, 2020

HOUSTON--(BUSINESS WIRE)--Oct. 28, 2020--Sunnova Energy International Inc. ("Sunnova") (NYSE: NOVA), one of the leading U.S. residential solar and storage service providers, today announced financial results for the quarter ended September 30, 2020.

"We continue to demonstrate the benefits of our flexible business model and conservative capitalization strategy with our strong third quarter results," said William J. (John) Berger, Chief Executive Officer of Sunnova. "This success is driven by our ability to continue executing and generating high customer growth at attractive customer net margins despite a unique set of macro challenges experienced during 2020.

"We believe we are well-positioned to continue increasing our single customer net margins by further scaling our sales overhead by increasing our nominal per quarter customer growth. Our growth is fueled by the increasing number of dealers and sub-dealers we are partnering with, the growth in the number of services sold to existing customers, and the expansion of services sold to newly acquired customers. All of this growth, plus continued decreases in our cost of capital, will lead to incremental per customer contracted values, which will in turn provide further increases to long term recurring operating cash flows."

Mr. Berger added, "As weather driven instability of regional power grids becomes increasingly intolerable for consumers and the integration of new technologies behind the meter grows, energy service providers like Sunnova will become even more attractive to homeowners. Driven by these rapid changes in technology, and a growing consumer appetite for cleaner, more reliable, and less expensive energy, Sunnova is well positioned to become the leading wireless power provider that consumers choose to power their energy independence."

Third Quarter 2020 Results

Revenue increased to $50.2 million, or by $13.6 million, in the three months ended September 30, 2020 compared to the three months ended September 30, 2019. Revenue increased to $122.8 million, or by $24.9 million, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. These increases were primarily the result of an increase in the number of customers served.

Total operating expense, net increased to $48.5 million, or by $6.0 million, in the three months ended September 30, 2020 compared to the three months ended September 30, 2019. This increase was primarily the result of an increase in the number of customers served and greater depreciation expense.

Total operating expense, net increased to $140.6 million, or by $29.5 million, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. This increase was primarily the result of an increase in the number of customers served, greater depreciation expense, and higher period-over-period general and administrative expenses due to the hiring of personnel to support growth.

Adjusted Operating Expense increased to $24.8 million, or by $4.0 million, in the three months ended September 30, 2020 compared to the three months ended September 30, 2019. This increase was primarily the result of an increase in the number of customers served.

Adjusted Operating Expense increased to $73.2 million, or by $12.8 million, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. This increase was primarily the result of an increase in the number of customers served and higher period-over-period general and administrative expenses due to the hiring of personnel to support growth.

Sunnova incurred a net loss of $73.3 million for the three months ended September 30, 2020 compared to a net loss of $34.4 million for the three months ended September 30, 2019. This larger net loss was primarily the result of a loss on the extinguishment of debt from the select conversion of convertible notes for common stock in the third quarter of 2020.

Sunnova incurred a net loss of $179.0 million for the nine months ended September 30, 2020 compared to a net loss of $119.7 million for the nine months ended September 30, 2019. This larger net loss was primarily the result of a loss on the extinguishment of debt from the select conversion of convertible notes for common stock in the third quarter of 2020 and higher net interest expense.

Adjusted EBITDA was $25.4 million for the three months ended September 30, 2020 compared to $15.9 million for the three months ended September 30, 2019, an increase of $9.5 million. Customer principal (net of amounts recorded in revenue) and interest payments received from solar loans increased to $9.2 million and $5.9 million, respectively, for the three months ended September 30, 2020, or by $4.9 million and $2.8 million, respectively, compared to the three months ended September 30, 2019. Adjusted EBITDA was $49.6 million for the nine months ended September 30, 2020 compared to $37.5 million for the nine months ended September 30, 2019, an increase of $12.1 million. Customer principal (net of amounts recorded in revenue) and interest payments received from solar loans increased to $23.1 million and $16.9 million, respectively, for the nine months ended September 30, 2020, or by $10.1 million and $8.7 million, respectively, compared to the nine months ended September 30, 2019. These overall increases were primarily driven by customer growth increasing at a faster rate than expenses.

Net cash used in operating activities was relatively unchanged at $18.9 million for the three months ended September 30, 2020 compared to $18.8 million for the three months ended September 30, 2019.

Net cash used in operating activities was $101.8 million for the nine months ended September 30, 2020 compared to $74.5 million for the nine months ended September 30, 2019. This increase was primarily the result of an increase in purchases of inventory and prepaid inventory with net outflows of $22.1 million in 2020 compared to $8.2 million in 2019 and an increase in realized loss on interest rate swaps of $26.0 million due to the termination of certain debt facilities in 2020, offset by decreased payments to dealers for exclusivity and other bonus arrangements with net outflows of $24.4 million in 2020 compared to $31.7 million in 2019.

Adjusted Operating Cash Flow was $1.8 million in the three months ended September 30, 2020 compared to $(2.4) million for the three months ended September 30, 2019. Adjusted Operating Cash Flow was $0.5 million in the nine months ended September 30, 2020 compared to $(12.9) million for the nine months ended September 30, 2019. These increases were primarily the result of customer growth increasing at a faster rate than cash expenditures.

Liquidity & Capital Resources

As of September 30, 2020, Sunnova had total cash of $211.7 million, including restricted and unrestricted cash.

2020 Guidance

Management reaffirms existing full-year 2020 guidance.

* Customer additions of 28,000 - 30,000; * Adjusted EBITDA of $58 million - $62 million; * Customer principal payments received from solar loans, net of amounts recorded in revenue of $32 million - $36 million; * Customer interest payments received from solar loans of $17 million - $21 million; * Adjusted Operating Cash Flow of $10 million - $20 million; and * Recurring Operating Cash Flow of $(20) million - $(5) million.

2021 Guidance

Management initiates full-year 2021 guidance.

* Customer additions of 42,000 - 48,000; * Adjusted EBITDA of $77 million - $83 million; * Customer principal payments received from solar loans, net of amounts recorded in revenue of $57 million - $63 million; * Customer interest payments received from solar loans of $28 million - $34 million; * Adjusted Operating Cash Flow of $20 million - $30 million; and * Recurring Operating Cash Flow of $(15) million - $5 million.

Non-GAAP Financial Measures

We present our operating results in accordance with accounting principles generally accepted in the U.S. ("GAAP"). We believe certain financial measures, such as Adjusted EBITDA, Adjusted Operating Expense, Adjusted Operating Cash Flow, and Recurring Operating Cash Flow, which are non-GAAP measures, provide users of our financial statements with supplemental information that may be useful in evaluating our business. We use Adjusted EBITDA and Adjusted Operating Expense as performance measures, and believe investors and securities analysts also use Adjusted EBITDA and Adjusted Operating Expense in evaluating our performance. 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. Therefore, we separately show customer P&I payments. 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. We use Adjusted Operating Cash Flow and Recurring Operating Cash Flow as liquidity measures and believe Adjusted Operating Cash Flow and Recurring Operating Cash Flow are supplemental financial measures useful to management, analysts, investors, lenders and rating agencies as an indicator of our ability to internally fund origination activities, service or incur additional debt and service our contractual obligations. We believe investors and analysts will use Adjusted Operating Cash Flow and Recurring Operating Cash Flow to evaluate our liquidity and ability to service our contractual obligations. Further, we believe that Recurring Operating Cash Flow allows investors to analyze our ability to service the debt and customer obligations associated with our in-service assets. However, Adjusted Operating Cash Flow and Recurring Operating Cash Flow have limitations as analytical tools because they do not account for all future expenditures and financial obligations of the business or reflect unforeseen circumstances that may impact our future cash flows, all of which could have a material effect on our financial condition and results of operations. We believe that such non-GAAP measures, when read in conjunction with our operating results presented under GAAP, can be used both to better assess our business from period to period and to better assess our business against other companies in our industry, without regard to financing methods, historical cost basis or capital structure. Our calculation of these non-GAAP financial measures may differ from similarly-titled non-GAAP measures, if any, reported by other companies. In addition, other companies may not publish these or similar measures. Such non-GAAP measures should be considered as a supplement to, and not as a substitute for, financial measures prepared in accordance with GAAP. Sunnova is unable to reconcile projected Adjusted EBITDA, Adjusted Operating Expense, Adjusted Operating Cash Flow, and Recurring Operating Cash Flow to the most comparable financial measures calculated in accordance with GAAP because of fluctuations in interest rates and their impact on our unrealized and realized interest rate hedge gains or losses. Sunnova provides a range for the forecasts of Adjusted EBITDA, Adjusted Operating Expense, Adjusted Operating Cash Flow, and Recurring Operating Cash Flow to allow for the variability in the timing of cash receipts and disbursements, customer utilization of our assets, and the impact on the related reconciling items, many of which interplay with each other. Therefore, the reconciliation of projected Adjusted EBITDA, Adjusted Operating Expense, Adjusted Operating Cash Flow, and Recurring Operating Cash Flow to projected net income (loss), total operating expense, or net cash provided by (used in) operating activities, as the case may be, is not available without unreasonable effort.

Third Quarter 2020 Financial and Operational Results Conference Call Information

Sunnova is hosting a conference call for analysts and investors to discuss its third quarter 2020 results at 8:30 a.m. Eastern Time, on October 29, 2020. To register for this conference call, please use the link http://www.directeventreg.com/registration/event/9279307.

After registering, a confirmation will be sent through email, including dial-in details and unique conference call codes for entry. To ensure you are connected for the full call we suggest registering at a minimum 10 minutes before the start of the call. A replay will be available two hours after the call and can be accessed by dialing 800-585-8367, or for international callers, 416-621-4642. The conference ID for the live call and the replay is 9279307. The replay will be available until November 11, 2020.

Interested investors and other parties may also listen to a simultaneous webcast of the conference call by logging onto the Investor Relations section of Sunnova's website at www.sunnova.com.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally relate to future events or Sunnova's future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as "may," "will," "should," "expects," "plans," "anticipates," "going to," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these words or other similar terms or expressions that concern Sunnova's expectations, strategy, priorities, plans or intentions. Forward-looking statements in this release include, but are not limited to, statements regarding our liquidity position and its ability to support our growth, our level of growth, our ability to handle macro challenges, our ability to manage costs, the ability to achieve our 2020 and 2021 operational and financial targets, and references to future rate of customer and dealer additions, Adjusted EBITDA, customer P&I payments from solar loans, Recurring Operating Cash Flow and Adjusted Operating Cash Flow. Sunnova's expectations and beliefs regarding these matters may not materialize, and actual results in future periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected, including risks regarding our ability to forecast our business due to our limited operating history, the effects of the coronavirus pandemic on our business and operations, results of operations and financial position, our competition, fluctuations in the solar and home-building markets, availability of capital, our ability to attract and retain dealers and customers and manage our dealer and strategic partner relationships. The forward-looking statements contained in this release are also subject to other risks and uncertainties, including those more fully described in Sunnova's filings with the Securities and Exchange Commission, including Sunnova's annual report on Form 10-K for the year ended December 31, 2019. The forward-looking statements in this release are based on information available to Sunnova as of the date hereof, and Sunnova disclaims any obligation to update any forward-looking statements, except as required by law.

About Sunnova

Sunnova Energy International Inc. (NYSE: NOVA) is a leading residential solar and energy storage service provider with customers across the U.S. and its territories. Sunnova's goal is to be the source of clean, affordable and reliable energy with a simple mission: to power energy independence so that homeowners have the freedom to live life uninterruptedTM.

SUNNOVA ENERGY INTERNATIONAL INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

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

As of As of September 30, December 31, 2020 2019

Assets

Current assets:

Cash $ 84,635 $ 83,485

Accounts receivable-trade, net 11,799 10,672

Accounts receivable-other 13,354 6,147

Other current assets, net of allowance of$591 and $112 as of September 30, 2020 and 199,637 174,016 December 31, 2019, respectively

Total current assets 309,425 274,320



Property and equipment, net 2,172,727 1,745,060

Customer notes receivable, net of allowanceof $14,177 and $979 as of September 30, 2020 428,586 297,975 and December 31, 2019, respectively

Other assets 243,548 169,712

Total assets (1) $ 3,154,286 $ 2,487,067



Liabilities, Redeemable Noncontrolling Interests and Equity

Current liabilities:

Accounts payable $ 29,288 $ 36,190

Accrued expenses 27,944 39,544

Current portion of long-term debt 109,729 97,464

Other current liabilities 18,572 21,804

Total current liabilities 185,533 195,002



Long-term debt, net 1,795,039 1,346,419

Other long-term liabilities 162,395 127,406

Total liabilities (1) 2,142,967 1,668,827



Redeemable noncontrolling interests 135,847 127,129



Stockholders' equity:

Common stock, 91,125,076 and 83,980,885shares issued as of September 30, 2020 and 9 8 December 31, 2019, respectively, at $0.0001par value

Additional paid-in capital-common stock 1,198,680 1,007,751

Accumulated deficit (476,095 ) (361,824 )

Total stockholders' equity 722,594 645,935

Noncontrolling interests 152,878 45,176

Total equity 875,472 691,111

Total liabilities, redeemable noncontrolling $ 3,154,286 $ 2,487,067 interests and equity

(1) The consolidated assets as of September 30, 2020 and December 31, 2019 include $1,254,660 and $790,211, respectively, of assets of variable interest entities ("VIEs") that can only be used to settle obligations of the VIEs. These assets include cash of $12,396 and $7,347 as of September 30, 2020 and December 31, 2019, respectively; accounts receivable-trade, net of $2,719 and $1,460 as of September 30, 2020 and December 31, 2019, respectively; accounts receivable-other of $903 and $4 as of September 30, 2020 and December 31, 2019, respectively; other current assets of $131,242 and $47,606 as of September 30, 2020 and December 31, 2019, respectively; property and equipment, net of $1,094,801 and $726,415 as of September 30, 2020 and December 31, 2019, respectively; and other assets of $12,599 and $7,379 as of September 30, 2020 and December 31, 2019, respectively. The consolidated liabilities as of September 30, 2020 and December 31, 2019 include $20,227 and $13,440, respectively, of liabilities of VIEs whose creditors have no recourse to Sunnova Energy International Inc. These liabilities include accounts payable of $2,133 and $1,926 as of September 30, 2020 and December 31, 2019, respectively; accrued expenses of $603 and $35 as of September 30, 2020 and December 31, 2019, respectively; other current liabilities of $277 and $612 as of September 30, 2020 and December 31, 2019, respectively; and other long-term liabilities of $17,214 and $10,867 as of September 30, 2020 and December 31, 2019, respectively.

(1) The consolidated assets as of September 30, 2020 and December 31, 2019include $1,254,660 and $790,211, respectively, of assets of variable interestentities ("VIEs") that can only be used to settle obligations of the VIEs.These assets include cash of $12,396 and $7,347 as of September 30, 2020 andDecember 31, 2019, respectively; accounts receivable-trade, net of $2,719 and$1,460 as of September 30, 2020 and December 31, 2019, respectively; accountsreceivable-other of $903 and $4 as of September 30, 2020 and December 31, 2019,respectively; other current assets of $131,242 and $47,606 as of September 30,2020 and December 31, 2019, respectively; property and equipment, net of$1,094,801 and $726,415 as of September 30, 2020 and December 31, 2019,respectively; and other assets of $12,599 and $7,379 as of September 30, 2020and December 31, 2019, respectively. The consolidated liabilities as ofSeptember 30, 2020 and December 31, 2019 include $20,227 and $13,440,respectively, of liabilities of VIEs whose creditors have no recourse toSunnova Energy International Inc. These liabilities include accounts payable of$2,133 and $1,926 as of September 30, 2020 and December 31, 2019, respectively;accrued expenses of $603 and $35 as of September 30, 2020 and December 31,2019, respectively; other current liabilities of $277 and $612 as of September30, 2020 and December 31, 2019, respectively; and other long-term liabilitiesof $17,214 and $10,867 as of September 30, 2020 and December 31, 2019,respectively.

SUNNOVA ENERGY INTERNATIONAL INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2020

2019

2020

2019

Revenue

$

50,177

$

36,615

$

122,796

$

97,942

Operating expense:

Cost of revenue-depreciation

15,113

10,942

42,120

30,820

Cost of revenue-other

1,403

1,186

5,315

2,914

Operations and maintenance

3,469

1,925

8,614

6,468

General and administrative

28,549

28,509

84,575

70,984

Other operating income

(6

)

(49

)

(28

)

(129

)

Total operating expense, net

48,528

42,513

140,596

111,057

Operating income (loss)

1,649

(5,898

)

(17,800

)

(13,115

)

Interest expense, net

29,954

30,884

127,804

99,855

Interest expense, net-affiliates

-

701

-

4,098

Interest income

(5,999

)

(3,407

)

(17,299

)

(8,868

)

Loss on extinguishment of long-term debt, net

50,721

-

50,721

-

Loss on extinguishment of long-term debt, net-affiliates

-

-

-

10,645

Other (income) expense

91

293

(175

)

827

Loss before income tax

(73,118

)

(34,369

)

(178,851

)

(119,672

)

Income tax expense

176

-

176

-

Net loss

(73,294

)

(34,369

)

(179,027

)

(119,672

)

Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests

(9,113

)

3,221

(18,513

)

7,170

Net loss attributable to stockholders

(64,181

)

(37,590

)

(160,514

)

(126,842

)

Dividends earned on Series A convertible preferred stock

-

-

-

(19,271

)

Dividends earned on Series C convertible preferred stock

-

-

-

(5,454

)

Net loss attributable to common stockholders-basic and diluted

$

(64,181

)

$

(37,590

)

$

(160,514

)

$

(151,567

)

Net loss per share attributable to common stockholders-basic and diluted

$

(0.73

)

$

(0.62

)

$

(1.88

)

$

(5.77

)

Weighted average common shares outstanding-basic and diluted

87,768,712

60,890,129

85,276,841

26,245,493

SUNNOVA ENERGY INTERNATIONAL INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

Three Months Ended Nine Months Ended September 30, September 30,

2020 2019 2020 2019

Revenue $ 50,177 $ 36,615 $ 122,796 $ 97,942



Operating expense:

Cost of 15,113 10,942 42,120 30,820 revenue-depreciation

Cost of 1,403 1,186 5,315 2,914 revenue-other

Operations and 3,469 1,925 8,614 6,468 maintenance

General and 28,549 28,509 84,575 70,984 administrative

Other operating (6 ) (49 ) (28 ) (129 ) income

Total operating 48,528 42,513 140,596 111,057 expense, net



Operating income 1,649 (5,898 ) (17,800 ) (13,115 ) (loss)



Interest expense, 29,954 30,884 127,804 99,855 net

Interest expense, - 701 - 4,098 net-affiliates

Interest income (5,999 ) (3,407 ) (17,299 ) (8,868 )

Loss onextinguishment of 50,721 - 50,721 - long-term debt, net

Loss onextinguishment of - - - 10,645 long-term debt,net-affiliates

Other (income) 91 293 (175 ) 827 expense

Loss before income (73,118 ) (34,369 ) (178,851 ) (119,672 ) tax



Income tax expense 176 - 176 -

Net loss (73,294 ) (34,369 ) (179,027 ) (119,672 )

Net income (loss)attributable toredeemablenoncontrolling (9,113 ) 3,221 (18,513 ) 7,170 interests andnoncontrollinginterests

Net lossattributable to (64,181 ) (37,590 ) (160,514 ) (126,842 ) stockholders

Dividends earned onSeries A convertible - - - (19,271 ) preferred stock

Dividends earned onSeries C convertible - - - (5,454 ) preferred stock

Net lossattributable tocommon $ (64,181 ) $ (37,590 ) $ (160,514 ) $ (151,567 ) stockholders-basicand diluted



Net loss per shareattributable tocommon $ (0.73 ) $ (0.62 ) $ (1.88 ) $ (5.77 ) stockholders-basicand diluted

Weighted averagecommon shares 87,768,712 60,890,129 85,276,841 26,245,493 outstanding-basicand diluted

SUNNOVA ENERGY INTERNATIONAL INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Nine Months EndedSeptember 30,

2020

2019

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss

$

(179,027

)

$

(119,672

)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation

47,811

34,987

Impairment and loss on disposals, net

1,768

1,236

Amortization of deferred financing costs

6,781

8,795

Amortization of debt discount

12,205

2,027

Non-cash effect of equity-based compensation plans

8,389

6,974

Non-cash payment-in-kind interest on loan

780

-

Non-cash payment-in-kind interest on loan-affiliates

-

2,716

Unrealized loss on derivatives

2,755

30,262

Unrealized (gain) loss on fair value option instruments

(165

)

97

Loss on extinguishment of long-term debt, net

50,721

-

Loss on extinguishment of long-term debt, net-affiliates

-

10,645

Other non-cash items

10,566

4,637

Changes in components of operating assets and liabilities:

Accounts receivable

(2,785

)

(8,006

)

Other current assets

(10,688

)

(11,753

)

Other assets

(32,541

)

(37,787

)

Accounts payable

(3,274

)

5,156

Accrued expenses

(8,566

)

(2,455

)

Other current liabilities

(2,781

)

75

Long-term debt-paid-in-kind-affiliates

-

(719

)

Other long-term liabilities

(3,745

)

(1,753

)

Net cash used in operating activities

(101,796

)

(74,538

)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment

(439,855

)

(299,199

)

Payments for investments and customer notes receivable

(180,725

)

(104,391

)

Proceeds from customer notes receivable

25,028

14,072

State utility rebates and tax credits

327

401

Other, net

950

(584

)

Net cash used in investing activities

(594,275

)

(389,701

)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from long-term debt

1,182,912

588,153

Payments of long-term debt

(667,670

)

(318,855

)

Proceeds of long-term debt from affiliates

-

15,000

Payments of long-term debt to affiliates

-

(56,236

)

Payments on notes payable

(3,017

)

(2,177

)

Payments of deferred financing costs

(18,317

)

(10,435

)

Payments of debt discounts

(3,132

)

(1,084

)

Proceeds from issuance of common stock, net

4,269

164,695

Proceeds from equity component of debt instrument, net

73,657

-

Proceeds from issuance of convertible preferred stock, net

-

(2,510

)

Contributions from redeemable noncontrolling interests and noncontrolling interests

197,360

119,372

Distributions to redeemable noncontrolling interests and noncontrolling interests

(4,484

)

(6,289

)

Payments of costs related to redeemable noncontrolling interests and noncontrolling interests

(4,108

)

(3,155

)

Other, net

(1

)

(15

)

Net cash provided by financing activities

757,469

486,464

Net increase in cash and restricted cash

61,398

22,225

Cash and restricted cash at beginning of period

150,291

87,046

Cash and restricted cash at end of period

211,689

109,271

Restricted cash included in other current assets

(54,096

)

(16,688

)

Restricted cash included in other assets

(72,958

)

(41,557

)

Cash at end of period

$

84,635

$

51,026

SUNNOVA ENERGY INTERNATIONAL INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Nine Months Ended September 30,

2020 2019

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss $ (179,027 ) $ (119,672 )

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation 47,811 34,987

Impairment and loss on disposals, net 1,768 1,236

Amortization of deferred financing costs 6,781 8,795

Amortization of debt discount 12,205 2,027

Non-cash effect of equity-based compensation 8,389 6,974 plans

Non-cash payment-in-kind interest on loan 780 -

Non-cash payment-in-kind interest on - 2,716 loan-affiliates

Unrealized loss on derivatives 2,755 30,262

Unrealized (gain) loss on fair value option (165 ) 97 instruments

Loss on extinguishment of long-term debt, net 50,721 -

Loss on extinguishment of long-term debt, - 10,645 net-affiliates

Other non-cash items 10,566 4,637

Changes in components of operating assets and liabilities:

Accounts receivable (2,785 ) (8,006 )

Other current assets (10,688 ) (11,753 )

Other assets (32,541 ) (37,787 )

Accounts payable (3,274 ) 5,156

Accrued expenses (8,566 ) (2,455 )

Other current liabilities (2,781 ) 75

Long-term debt-paid-in-kind-affiliates - (719 )

Other long-term liabilities (3,745 ) (1,753 )

Net cash used in operating activities (101,796 ) (74,538 )



CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment (439,855 ) (299,199 )

Payments for investments and customer notes (180,725 ) (104,391 ) receivable

Proceeds from customer notes receivable 25,028 14,072

State utility rebates and tax credits 327 401

Other, net 950 (584 )

Net cash used in investing activities (594,275 ) (389,701 )



CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from long-term debt 1,182,912 588,153

Payments of long-term debt (667,670 ) (318,855 )

Proceeds of long-term debt from affiliates - 15,000

Payments of long-term debt to affiliates - (56,236 )

Payments on notes payable (3,017 ) (2,177 )

Payments of deferred financing costs (18,317 ) (10,435 )

Payments of debt discounts (3,132 ) (1,084 )

Proceeds from issuance of common stock, net 4,269 164,695

Proceeds from equity component of debt 73,657 - instrument, net

Proceeds from issuance of convertible preferred - (2,510 ) stock, net

Contributions from redeemable noncontrolling 197,360 119,372 interests and noncontrolling interests

Distributions to redeemable noncontrolling (4,484 ) (6,289 ) interests and noncontrolling interests

Payments of costs related to redeemablenoncontrolling interests and noncontrolling (4,108 ) (3,155 ) interests

Other, net (1 ) (15 )

Net cash provided by financing activities 757,469 486,464

Net increase in cash and restricted cash 61,398 22,225

Cash and restricted cash at beginning of period 150,291 87,046

Cash and restricted cash at end of period 211,689 109,271

Restricted cash included in other current (54,096 ) (16,688 ) assets

Restricted cash included in other assets (72,958 ) (41,557 )

Cash at end of period $ 84,635 $ 51,026

Key Financial and Operational Metrics

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2020

2019

2020

2019

(in thousands)

Reconciliation of Net Loss to Adjusted EBITDA:

Net loss

$

(73,294

)

$

(34,369

)

$

(179,027

)

$

(119,672

)

Interest expense, net

29,954

30,884

127,804

99,855

Interest expense, net-affiliates

-

701

-

4,098

Interest income

(5,999

)

(3,407

)

(17,299

)

(8,868

)

Income tax expense

176

-

176

-

Depreciation expense

16,997

12,348

47,811

34,987

Amortization expense

8

8

24

20

EBITDA

(32,158

)

6,165

(20,511

)

10,420

Non-cash compensation expense (1)

2,345

5,980

8,389

8,251

ARO accretion expense

564

349

1,577

989

Financing deal costs

1,819

60

3,506

1,028

Natural disaster losses and related charges, net

-

54

31

54

IPO costs

-

1,758

-

3,804

Loss on extinguishment of long-term debt, net

50,721

-

50,721

-

Loss on extinguishment of long-term debt, net-affiliates

-

-

-

10,645

Unrealized (gain) loss on fair value option instruments

91

(437

)

(165

)

97

Realized loss on fair value option instruments

-

730

-

730

Amortization of payments to dealers for exclusivity and other bonus arrangements

488

241

1,235

255

Legal settlements

-

967

-

1,260

Provision for current expected credit losses

1,544

-

4,824

-

Adjusted EBITDA

$

25,414

$

15,867

$

49,607

$

37,533

Key Financialand OperationalMetrics

Three Months Ended Nine Months Ended September 30, September 30,

2020 2019 2020 2019

(in thousands)

Reconciliationof Net Loss to AdjustedEBITDA:

Net loss $ (73,294 ) $ (34,369 ) $ (179,027 ) $ (119,672 )

Interest 29,954 30,884 127,804 99,855 expense, net

Interestexpense, - 701 - 4,098 net-affiliates

Interest income (5,999 ) (3,407 ) (17,299 ) (8,868 )

Income tax 176 - 176 - expense

Depreciation 16,997 12,348 47,811 34,987 expense

Amortization 8 8 24 20 expense

EBITDA (32,158 ) 6,165 (20,511 ) 10,420

Non-cashcompensation 2,345 5,980 8,389 8,251 expense (1)

ARO accretion 564 349 1,577 989 expense

Financing deal 1,819 60 3,506 1,028 costs

Naturaldisaster losses - 54 31 54 and relatedcharges, net

IPO costs - 1,758 - 3,804

Loss onextinguishment 50,721 - 50,721 - of long-termdebt, net

Loss onextinguishmentof long-term - - - 10,645 debt,net-affiliates

Unrealized(gain) loss onfair value 91 (437 ) (165 ) 97 optioninstruments

Realized losson fair value - 730 - 730 optioninstruments

Amortization ofpayments todealers for 488 241 1,235 255 exclusivity andother bonusarrangements

Legal - 967 - 1,260 settlements

Provision forcurrent 1,544 - 4,824 - expected creditlosses

Adjusted EBITDA $ 25,414 $ 15,867 $ 49,607 $ 37,533

(1)

Amount includes non-cash effect of equity-based compensation plans of $2.3 million and $6.0 million for the three months ended September 30, 2020 and 2019, respectively, and $8.4 million and $7.0 million for the nine months ended September 30, 2020 and 2019, respectively, and partial forgiveness of a loan to an executive officer used to purchase our capital stock of $1.3 million for the nine months ended September 30, 2019.

Amount includes non-cash effect of equity-based compensation plans of $2.3 million and $6.0 million for the three months ended September 30, 2020 and(1) 2019, respectively, and $8.4 million and $7.0 million for the nine months ended September 30, 2020 and 2019, respectively, and partial forgiveness of a loan to an executive officer used to purchase our capital stock of $1.3 million for the nine months ended September 30, 2019.

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2020

2019

2020

2019

(in thousands)

Interest income from customer notes receivable

$

5,939

$

3,136

$

16,879

$

8,156

Principal proceeds from customer notes receivable, net of related revenue

$

9,185

$

4,333

$

23,104

$

12,986

Three Months Ended Nine Months Ended September 30, September 30,

2020 2019 2020 2019

(in thousands)

Interest income from customer $ 5,939 $ 3,136 $ 16,879 $ 8,156 notes receivable

Principal proceeds fromcustomer notes receivable, net $ 9,185 $ 4,333 $ 23,104 $ 12,986 of related revenue

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2020

2019

2020

2019

(in thousands)

Reconciliation of Net Cash Used in Operating Activities to Adjusted Operating Cash Flow:

Net cash used in operating activities

$

(18,868

)

$

(18,844

)

$

(101,796

)

$

(74,538

)

Principal proceeds from customer notes receivable

9,938

4,736

25,028

14,072

Financed insurance payments

(566

)

(1,929

)

(3,017

)

(2,177

)

Derivative breakage fees from financing structure changes

-

-

36,894

12,080

Distributions to redeemable noncontrolling interests and noncontrolling interests

(1,884

)

(1,146

)

(4,484

)

(6,289

)

Payments to dealers for exclusivity and other bonus arrangements

7,660

9,733

24,391

31,733

Net inventory and prepaid inventory purchases

4,063

1,036

22,065

8,183

Payments of non-capitalized costs related to IPO

-

4,060

-

4,060

Payments of non-capitalized costs related to equity offerings

1,420

-

1,420

-

Adjusted Operating Cash Flow

$

1,763

$

(2,354

)

$

501

$

(12,876

)

Three Months Ended Nine Months Ended September 30, September 30,

2020 2019 2020 2019

(in thousands)

Reconciliationof Net CashUsed inOperating Activities toAdjustedOperating CashFlow:

Net cash usedin operating $ (18,868 ) $ (18,844 ) $ (101,796 ) $ (74,538 ) activities

Principalproceeds from 9,938 4,736 25,028 14,072 customer notesreceivable

Financedinsurance (566 ) (1,929 ) (3,017 ) (2,177 ) payments

Derivativebreakage feesfrom financing - - 36,894 12,080 structurechanges

Distributionsto redeemablenoncontrolling (1,884 ) (1,146 ) (4,484 ) (6,289 ) interests andnoncontrollinginterests

Payments todealers forexclusivity and 7,660 9,733 24,391 31,733 other bonusarrangements

Net inventoryand prepaid 4,063 1,036 22,065 8,183 inventorypurchases

Payments ofnon-capitalized - 4,060 - 4,060 costs relatedto IPO

Payments ofnon-capitalizedcosts related 1,420 - 1,420 - to equityofferings

AdjustedOperating Cash $ 1,763 $ (2,354 ) $ 501 $ (12,876 ) Flow

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2020

2019

2020

2019

(in thousands, except per customer data)

Reconciliation of Total Operating Expense, Net to Adjusted Operating Expense:

Total operating expense, net

$

48,528

$

42,513

$

140,596

$

111,057

Depreciation expense

(16,997

)

(12,348

)

(47,811

)

(34,987

)

Amortization expense

(8

)

(8

)

(24

)

(20

)

Non-cash compensation expense

(2,345

)

(5,980

)

(8,389

)

(8,251

)

ARO accretion expense

(564

)

(349

)

(1,577

)

(989

)

Financing deal costs

(1,819

)

(60

)

(3,506

)

(1,028

)

Natural disaster losses and related charges, net

-

(54

)

(31

)

(54

)

IPO costs

-

(1,758

)

-

(3,804

)

Amortization of payments to dealers for exclusivity and other bonus arrangements

(488

)

(241

)

(1,235

)

(255

)

Legal settlements

-

(967

)

-

(1,260

)

Provision for current expected credit losses

(1,544

)

-

(4,824

)

-

Adjusted Operating Expense

$

24,763

$

20,748

$

73,199

$

60,409

Adjusted Operating Expense per weighted average customer

$

261

$

295

$

827

$

914

Three Months Ended Nine Months Ended September 30, September 30,

2020 2019 2020 2019

(in thousands, except per customer data)

Reconciliation ofTotal OperatingExpense, Net to Adjusted OperatingExpense:

Total operating $ 48,528 $ 42,513 $ 140,596 $ 111,057 expense, net

Depreciation (16,997 ) (12,348 ) (47,811 ) (34,987 ) expense

Amortization (8 ) (8 ) (24 ) (20 ) expense

Non-cashcompensation (2,345 ) (5,980 ) (8,389 ) (8,251 ) expense

ARO accretion (564 ) (349 ) (1,577 ) (989 ) expense

Financing deal (1,819 ) (60 ) (3,506 ) (1,028 ) costs

Natural disasterlosses and related - (54 ) (31 ) (54 ) charges, net

IPO costs - (1,758 ) - (3,804 )

Amortization ofpayments todealers for (488 ) (241 ) (1,235 ) (255 ) exclusivity andother bonusarrangements

Legal settlements - (967 ) - (1,260 )

Provision forcurrent expected (1,544 ) - (4,824 ) - credit losses

Adjusted Operating $ 24,763 $ 20,748 $ 73,199 $ 60,409 Expense

Adjusted OperatingExpense per $ 261 $ 295 $ 827 $ 914 weighted averagecustomer

As ofSeptember 30, 2020

As ofDecember 31, 2019

Number of customers

98,600

78,600

As of As of September 30, 2020 December 31, 2019

Number of customers 98,600 78,600

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2020

2019

2020

2019

Weighted average number of customers (excluding loan agreements)

80,200

61,500

75,200

58,300

Weighted average number of customers with loan agreements

14,800

8,900

13,300

7,800

Weighted average number of customers

95,000

70,400

88,500

66,100

Three Months Ended Nine Months Ended September 30, September 30,

2020 2019 2020 2019

Weighted average number ofcustomers (excluding loan 80,200 61,500 75,200 58,300 agreements)

Weighted average number of 14,800 8,900 13,300 7,800 customers with loan agreements

Weighted average number of 95,000 70,400 88,500 66,100 customers

As ofSeptember 30, 2020

As ofDecember 31, 2019

(in millions, except per customer data)

Estimated gross contracted customer value

$

2,424

$

1,879

Estimated gross contracted customer value per customer

$

24,578

$

23,906

Key Terms for Our Key Metrics and Non-GAAP Financial Measures

Estimated Gross Contracted Customer Value. 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 power purchase agreements ("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 ("SRECs"), either under existing contracts or in future sales, 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 6%.

Number of Customers. We define number of customers to include each customer that is party to an in-service solar service agreement. For our leases, PPAs and loan agreements, in-service means the related solar energy system and, if applicable, energy storage system, must have met all the requirements to begin operation and be interconnected to the electrical grid. For our Sunnova Protect services, in-service means the customer's solar energy system must have met the requirements to have the service activated. We do not include in our number of customers any customer under a lease, PPA or loan agreement that has reached mechanical completion but has not received permission to operate from the local utility or for whom we have terminated the contract and removed the solar energy system. We also do not include in our number of customers any customer of our Sunnova Protect services that has been in default under his or her solar service agreement in excess of six months. We track the total number of customers as an indicator of our historical growth and our rate of growth from period to period.

Weighted Average Number of Customers. We calculate the weighted average number of customers based on the number of months a given customer is in-service during a given measurement period. The weighted average customer count reflects the number of customers at the beginning of a period, plus the total number of new customers added in the period adjusted by a factor that accounts for the partial period nature of those new customers. For purposes of this calculation, we assume all new customers added during a month were added in the middle of that month. We track the weighted average customer count in order to accurately reflect the contribution of the appropriate number of customers to key financial metrics over the measurement period.

Definitions of Non-GAAP Measures

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, 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"), losses on unenforceable contracts, losses on extinguishment of long-term debt, realized and unrealized gains and losses on fair value option instruments and other non-cash items such as non-cash compensation expense, asset retirement obligation ("ARO") accretion expense and provision for current expected credit losses.

Adjusted Operating Cash Flow. We define Adjusted Operating Cash Flow as net cash used in operating activities plus principal proceeds from customer notes receivable, financed insurance payments and distributions to redeemable noncontrolling interests and noncontrolling interests less derivative breakage fees from financing structure changes, payments to dealers for exclusivity and other bonus arrangements, net inventory and prepaid inventory (sales) purchases and payments of non-capitalized costs related to our IPO and equity offerings.

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 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, losses on unenforceable contracts and other non-cash items such as non-cash compensation expense, ARO accretion expense and provisions for current expected credit losses.

Recurring Operating Cash Flow. We define Recurring Operating Cash Flow as Adjusted Operating Cash Flow less principal payments on our securitizations and corporate capital expenditures, plus sales-related and sales-allocated cash operating expenses and interest expense from our credit warehouses and inventory facility.

View source version on businesswire.com: https://www.businesswire.com/news/home/20201028006168/en/

CONTACT: Rodney McMahan - Investors Kelsey Hultberg - Media IR@sunnova.com 877-770-5211