Sunnova Reports Third Quarter 2024 Financial Results
Third Quarter 2024 and Recent Highlights
- Cash generation guidance of $100 million for 2024, $350 million for 2025, and $400 million for 2026 maintained
- Revenue of $235.3 million increased 19% from the third quarter of 2023
- Monthly weighted average investment tax credit rate on origination of 40.7% in September 2024, increased to 42.2% in October 2024
- Total cumulative solar power generation under management increased to 2.9 gigawatts and megawatt hours of energy storage under management increased to 1,556 as of September 30, 2024
HOUSTON–(BUSINESS WIRE)–Sunnova Energy International Inc. (“Sunnova”) (NYSE: NOVA), a leading adaptive energy services company, today announced financial results for the third quarter ended September 30, 2024.
“In the third quarter, the Sunnova team delivered solid results as we continued to focus on the key priorities we outlined at the beginning of fiscal year 2024, mainly aimed at driving cash generation,” said William J. (John) Berger, Sunnova’s founder and CEO. “Although our unrestricted cash balance declined in the third quarter, it was largely due to working capital seasonality. With the tax capital proceeds received in early October and additional asset-level capital proceeds expected later in the year, we remain confident in our ability to deliver on our $100 million cash generation target for 2024.”
Berger continued, “Looking ahead, we expect our working capital needs to ease, additional asset-level capital to close, and an increase in the number of assets placed in service. These factors, coupled with recent increases in our weighted average investment tax credit rate, cost reductions, increasing levered cash flows from our large, long-term contracted cash flow base, and growth of our virtual power plant network, position Sunnova for multi-year cash generation. These company fundamentals are supported by the current macroeconomic environment, where we see growing power demand and utility pricing, declining equipment costs, and an increasingly vulnerable power grid – all providing Sunnova with the opportunity to offer consumers an attractive energy solution, while creating long-term incremental value for our stakeholders.”
Third Quarter 2024 Results – Three Months Ended
Customer agreements and incentives revenue, which is core to our business operations, increased by $49.3 million (+46%) in the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to an increase in the number of solar energy systems in service. The fluctuations in revenue per weighted average system are affected by (a) market factors, (b) weather seasonality, (c) system sizes and (d) whether the systems include storage. PPA and lease revenue are generated from the solar energy systems and energy storage systems we own. The weighted average number of PPA and lease systems increased from 173,500 for the three months ended September 30, 2023 to 238,400 for the three months ended September 30, 2024 (+37%). PPA and lease revenue, on a weighted average number of systems basis, increased from $440 per system for the three months ended September 30, 2023 to $496 per system for the same period in 2024 (+13%) primarily due to slightly larger average system sizes and higher battery attachment rates, which increased from 33% for the three months ended September 30, 2023 to 40% for the three months ended September 30, 2024.
Solar energy system and product sales revenue decreased by $12.5 million (-14%) in the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to decreases in inventory sales revenue, which is non-core to our business operations, and direct sales revenue, partially offset by an increase in cash sales revenue. Inventory sales revenue decreased by $22.6 million (-44%) in the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to our strategic focus to shift away from buying inventory to resell to our dealers or other parties in order to focus on our core business of providing energy services to our customers. Direct sales revenue decreased by $3.2 million (-22%) in the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to a decrease in the number of direct sales battery loans installed and placed in service in 2024 when compared to the same period in 2023. This decrease is primarily due to a change to our in-service methodology in mid-2024 to require additional procedures; thus, these projects now take longer to be placed in service. Cash sales revenue increased by $13.3 million (+55%) in the three months ended September 30, 2024 compared to the three months ended September 30, 2023. On a per customer basis, cash sales revenue increased from $14,285 per customer for the three months ended September 30, 2023 to $25,061 per customer for the same period in 2024 (+75%) primarily due to larger system sizes with more storage included and thus, higher revenue (and higher associated costs).
Cost of revenue—customer agreements and incentives, which is core to our business operations, increased by $15.6 million (+40%) in the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to an increase in depreciation related to solar energy systems and energy storage systems, which increased by $15.3 million (+45%). This increase is aligned with the related revenue discussed above, which increased by 55%, and is primarily due to an increase in the weighted average number of PPA and lease systems from 173,500 for the three months ended September 30, 2023 to 238,400 for the three months ended September 30, 2024 (+37%). On a weighted average number of systems basis, depreciation related to solar energy systems and energy storage systems increased from $194 per system for the three months ended September 30, 2023 to $206 per system for the same period in 2024 (+6%). This overall increase is primarily due to a higher percentage of solar energy systems with storage, higher average costs and slightly larger average system sizes.
Cost of revenue related to service customers, loan agreements and underwriting costs (such as credit checks, title searches and the amortization of UCC filing costs) for new customers and solar energy systems increased by $0.3 million (+5%) in the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to an increase in costs related to SRECs and loan agreements combined of $2.3 million, partially offset by a decrease of $2.0 million in internal labor costs to perform maintenance services in-house for third party contracts due to lower activity.
Cost of revenue—solar energy system and product sales decreased by $9.6 million (-13%) in the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to a decrease in inventory sales costs, which is non-core to our business operations, partially offset by increases in costs related to our core business, which includes direct sales costs and cash sales costs. Inventory sales costs decreased by $23.0 million (-45%) in the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to our strategic focus to shift away from buying inventory to resell to our dealers or other parties in order to focus on our core business of providing energy services to our customers. Cash sales costs increased by $9.5 million (+75%) in the three months ended September 30, 2024 compared to the three months ended September 30, 2023. On a per customer basis, cash sales costs increased from $7,469 per customer for the three months ended September 30, 2023 to $14,825 per customer for the same period in 2024 (+98%) primarily due to larger system sizes with more storage included and thus, higher costs. Direct sales costs increased by $3.7 million (+29%) in the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to an increase in solar energy systems and energy storage systems installed, which have a higher cost basis than the battery loans we principally sold in 2023.
Operations and maintenance expense increased by $17.2 million (+92%) in the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to charges recognized for non-recoverable costs from terminated dealers of $13.2 million. We recognized impairments on costs paid to certain terminated dealers for work-in-progress solar energy systems and energy storage systems that have cancelled or are estimated to cancel and are not expected to be recovered, along with unearned portions of exclusivity and bonus payments tied to such dealers, which we estimate are not recoverable. We may continue to incur charges of this nature. The increase is also due to an increase in property insurance costs of $1.2 million (+42%) due to more assets to insure and an increase in overall premium costs and an increase in inventory-related impairments of $0.5 million. We consider the inventory-related impairments of $6.9 million and $6.4 million in the three months ended September 30, 2024 and 2023, respectively, to be non-core in nature and do not expect these types of impairments in the future to be as significant due to our shift in strategic focus in the latter half of 2023 to pivot away from buying inventory to resell in order to focus on our core business of providing energy services to our customers. In addition, beginning in September 2024, we expect a majority of our future originations to qualify for the domestic content bonus credits and some of our inventory is not compatible with that directive. While we could use the equipment on loans, we do not expect sufficient loan origination volume to utilize all inventory, which resulted in a $6.9 million write-down in the third quarter of 2024. While we are not abandoning the inventory and will look for ways to realize value, at this juncture, we believe a full impairment is appropriate.
General and administrative expense increased by $10.3 million (+10%) in the three months ended September 30, 2024 compared to the three months ended September 30, 2023, which is reflective of our commitment to proactively expand our platform to serve a consistently growing base of customers and other stakeholders. Payroll and employee related expenses increased by $6.8 million (+14%) primarily due to the additional employees we hired to serve our growing customer base. Total head count increased 9% in the three months ended September 30, 2024 compared to the three months ended September 30, 2023 positioning us to scale our costs in future periods when we expect we can reduce the expense on a per-system basis. Payroll and employee-related expenses for employees not related to the operations and maintenance work for our customers increased by $8.9 million (+26%) in the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Legal, insurance, office and business travel costs increased by $1.3 million (+14%) and consultants, contractors and professional fees increased by $0.6 million (+6%) both due to the growth in our customers. Depreciation expense not related to solar energy systems and energy storage systems increased by $4.2 million (+66%) primarily related to our software and business technology projects, for which depreciation on those assets increased by $4.0 million (+70%) primarily due to an additional $52.9 million of capitalized software and business technology projects being placed in service during the prior twelve months.
The provision for current expected credit losses decreased by $13.3 million (-38%) in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to a lower volume of loan originations in 2024 compared to 2023 and the sale of certain accessory loans in 2024.
Other operating income decreased by $6.2 million (-69%) in the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to changes in the fair value of certain financial instruments and contingent consideration of $6.8 million.
Interest expense, net increased by $124.9 million (+217%) in the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This increase was primarily due to increases in unrealized loss on derivatives of $84.9 million and interest expense of $31.2 million. Interest expense increased due to higher levels of average debt outstanding in the three months ended September 30, 2024 by $1.4 billion (+21%) compared to the same period in 2023 and an increase in the weighted average interest rates by 0.49% (+10%).
Interest income increased by $8.0 million (+26%) in the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This increase was primarily due to an increase in interest income from our loan agreements of $6.4 million (+24%). The weighted average number of systems with loan agreements, including accessory loans, decreased from approximately 133,300 for the three months ended September 30, 2023 to approximately 108,000 for the three months ended September 30, 2024. The decrease was primarily due to the sales of certain accessory loans and home improvement loans during the second quarter of 2024, which had smaller principal balances. On a weighted average number of systems basis, loan interest income increased from $201 per system for the three months ended September 30, 2023 to $307 per system for the three months ended September 30, 2024 primarily due to the sale of certain accessory loans during the second and third quarters of 2024, which generate less interest income than non-accessory loans.
Income tax benefit increased by $36.8 million in the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to ITC sales that resulted in an income tax benefit and income tax benefit related to estimated future sales of ITCs for the current year.
Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests changed by $34.4 million in the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to an increase in loss attributable to redeemable noncontrolling interests and noncontrolling interests from tax equity funds added in 2022, 2023 and 2024. In addition to the net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests, accumulated deficit is decreasing and total stockholders’ equity is increasing as a result of the equity in subsidiaries attributable to parent. This is a result of solar energy systems being sold to the tax equity partnerships at fair market value, which exceeds the cost reflected in the solar energy systems on the Unaudited Condensed Consolidated Balance Sheets.
Third Quarter 2024 Results – Nine Months Ended
Customer agreements and incentives, which is core to our business operations, increased by $121.5 million (+43%) in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to an increase in the number of solar energy systems in service. The fluctuations in revenue per weighted average system are affected by (a) market factors, (b) weather seasonality, (c) system sizes and (d) whether the systems include storage. PPA and lease revenue are generated from the solar energy systems and energy storage systems we own. The weighted average number of PPA and lease systems increased from 161,000 for the nine months ended September 30, 2023 to 222,300 for the nine months ended September 30, 2024 (+38%). PPA and lease revenue, on a weighted average number of systems basis, increased from $1,259 per system for the nine months ended September 30, 2023 to $1,405 per system for the same period in 2024 (+12%) primarily due to slightly larger average system sizes and higher battery attachment rates, which increased from 27% for the nine months ended September 30, 2023 to 32% for the nine months ended September 30, 2024.
Solar energy system and product sales revenue decreased by $32.2 million (-13%) in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to decreases in inventory sales revenue, which is non-core to our business operations, and direct sales revenue, partially offset by an increase in cash sales revenue that increased due to an increase in customers. Inventory sales revenue decreased by $55.8 million (-41%) in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to our strategic focus to shift away from buying inventory to resell to our dealers or other parties in order to focus on our core business of providing energy services to our customers. Direct sales revenue decreased by $7.0 million (-16%) in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to a decrease in the number of direct sales battery loans installed and placed in service in 2024 when compared to the same period in 2023. This decrease is primarily due to a change to our in-service methodology in mid-2024 to require additional procedures; thus, these projects now take longer to be placed in service. Cash sales revenue increased by $30.7 million (+49%) in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to an increase in the number of cash sales customers. This increase in customers is primarily due to more cash sales of storage and solar systems in 2024 whereas only solar systems were sold in 2023. The number of cash sales customers increased from 4,100 for the nine months ended September 30, 2023 to 5,000 for the nine months ended September 30, 2024 (+22%). On a per customer basis, cash sales revenue increased from $15,324 per customer for the nine months ended September 30, 2023 to $18,705 per customer for the same period in 2024 (+22%) primarily due to larger system sizes with more storage included and thus, higher revenue (and higher associated costs).
Cost of revenue—customer agreements and incentives, which is core to our business operations, increased by $49.1 million (+46%) in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to an increase in depreciation related to solar energy systems and energy storage systems, which increased by $45.4 million (+49%). This increase is aligned with the related revenue discussed above, which increased by 54%, and is primarily due to an increase in the weighted average number of PPA and lease systems from 161,000 for the nine months ended September 30, 2023 to 222,300 for the nine months ended September 30, 2024 (+38%). On a weighted average number of systems basis, depreciation related to solar energy systems and energy storage systems increased from $573 per system for the nine months ended September 30, 2023 to $619 per system for the same period in 2024 (+8%). This overall increase is primarily due to a higher percentage of solar energy systems with storage and slightly larger average system sizes.
Cost of revenue related to service customers, loan agreements and underwriting costs (such as credit checks, title searches and the amortization of UCC filing costs) for new customers and solar energy systems increased by $3.7 million (+27%) in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to an increase in costs related to SRECs and loan agreements combined of $3.0 million.
Cost of revenue—solar energy system and product sales decreased by $13.8 million (-7%) in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to a decrease in inventory sales costs, which is non-core to our business operations, partially offset by increases in costs related to our core business, which includes cash sales costs that increased due to an increase in customers and direct sales costs. Inventory sales costs decreased by $49.6 million (-38%) in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to our strategic focus to shift away from buying inventory to resell to our dealers or other parties in order to focus on our core business of providing energy services to our customers. Cash sales costs increased by $21.5 million (+63%) in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to an increase in the number of cash sales customers. This increase in customers is primarily due to more cash sales of storage and solar systems in 2024 whereas only solar systems were sold in 2023. The number of cash sales customers increased from 4,100 for the nine months ended September 30, 2023 to 5,000 for the nine months ended September 30, 2024 (+22%). On a per customer basis, cash sales costs increased from $8,293 per customer for the nine months ended September 30, 2023 to $11,091 per customer for the same period in 2024 (+34%) primarily due to larger system sizes with more storage included and thus, higher costs. Direct sales costs increased by $13.8 million (+42%) in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. This increase is primarily due to an increase in solar energy systems and energy storage systems installed, which have a higher cost basis than the battery loans we principally sold in 2023.
Operations and maintenance expense increased by $30.5 million (+51%) in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to charges recognized for non-recoverable costs from terminated dealers of $23.8 million. We recognized impairments on costs paid to certain terminated dealers for work-in-progress solar energy systems and energy storage systems that have cancelled or are estimated to cancel and are not expected to be recovered, along with unearned portions of exclusivity and bonus payments tied to such dealers, which we estimate are not recoverable. We may continue to incur charges of this nature. The increase is also due to (a) charges recognized for non-recoverable prepaid design and engineering costs of $4.0 million, (b) an increase in other impairments of $3.5 million and (c) an increase in property insurance costs of $2.7 million (+34%) due to more assets to insure and an increase in overall premium costs. This increase is partially offset by a decrease in inventory-related impairments of $3.1 million. We consider the inventory-related impairments of $19.0 million and $22.1 million in the nine months ended September 30, 2024 and 2023, respectively, to be non-core in nature and do not expect these types of impairments in the future to be as significant due to our shift in strategic focus in the latter half of 2023 to pivot away from buying inventory to resell in order to focus on our core business of providing energy services to our customers. In addition, beginning in September 2024, we expect a majority of our future originations to qualify for the domestic content bonus credits and some of our inventory is not compatible with that directive.
Contacts
Investor Contact:
Rodney McMahan
IR@sunnova.com
281-971-3323
Media Contact:
Russell Wilkerson
Russell.Wilkerson@sunnova.com
203-581-2114
