Correspondence 0001772695-24-000086 from Sunnova Energy International Inc. (NOVA) (CIK 0001772695) (NOVAQ)
Sunnova Energy International Inc. (NOVA) (CIK 0001772695)
Date: Oct. 15, 2024 · CIK: 0001772695 · Accession: 0001772695-24-000086
AI Filing Summary & Sentiment
File numbers found in text: 001-38995
Referenced dates: September 17, 2024
Letter
United States Securities and Exchange Commission Division of Corporation Finance Attention: Robert Babula and Mark Wojciechowski Re: Sunnova Energy International Inc. Form 10-K for the Fiscal Year ended December 31, 2023 Filed February 22, 2024 SEC File No. 001-38995
Dear Messrs. Babula and Wojciechowski:
Set forth below are the responses of Sunnova Energy International Inc., a Delaware corporation (“Sunnova” or “our”), to comments received from the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”) by letter dated September 17, 2024 (the “Comment Letter”), with respect to the above referenced Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Commission on February 22, 2024 (the “2023 Form 10-K”). We appreciate the opportunity to discuss your comments during our call on October 2, 2024. For the Staff’s convenience, our responses correspond to the captions and numbering included in the Comment Letter and are prefaced by the exact text of the Staff’s comments in bold text.
Form 10-K for the Fiscal Year ended December 31, 2023
Management's Discussion and Analysis of Financial Condition and Results of Operations
Key Financial and Operational Metrics, page 68
1.We understand from your responses to prior comments one and two that you do not intend to include non-GAAP measures in future periodic reports although may continue such disclosure in earnings releases and investor presentations. You indicate that any measures of Adjusted EBITDA and Adjusted Operating Expenses disclosed in the future would be calculated differently than in the past, although are unsure of the exact composition.
Please submit the draft revisions that you propose by way of amendments to your annual and subsequent interim reports to reflect the changes outlined in your prior response letter and to address the additional comments in this letter, to conform your prior disclosures to the requirements in Items 10(e) and 303(a) of Regulation S-K, and Rule 5-03 of Regulation S-X, as indicated. If you believe that you are able to support limiting compliance to future reports because you do not regard non-compliance in these areas as material, submit the analyses that you performed in formulating that view.
RESPONSE:
We acknowledge the Staff's comment and confirm we do not intend to include non-GAAP measures in any future quarterly or annual filings. We discussed during our fourth quarter 2023 and first quarter 2024 earnings calls our plans to refocus on our core residential solar business. Additionally, we recently appointed a new Chief Financial Officer in June 2024. With these two catalysts, we have been re-evaluating the non-GAAP measures we
present in our earnings releases and investor presentations. Beginning with the third quarter of 2024, we will discontinue the presentation of Adjusted EBITDA and Adjusted Operating Expense in future periodic filings, earnings releases and investor presentations. We note we may be required in the compensation discussion and analysis section of our annual proxy statement to disclose Adjusted EBITDA as a compensation target for 2024 and as a non-GAAP financial measure, but in accordance with Instruction 5 to Item 402(b) of Regulation S-K we would only include the required GAAP reconciliation in an annex to the proxy statement as the reconciliation will not be available in our annual report on Form 10-K for the period. Additionally, we expect to discontinue the use of Adjusted EBITDA as a compensation target following this year.
We continuously evaluate our communications with investors, including the information that is useful in communicating our results contextualized within existing market conditions. We acknowledge the Staff's concerns in connection with certain of our adjustments, and to the extent we may in the future decide to present non-GAAP financial measures that reflect those adjustments, we will carefully consider the comments raised by the Staff here and in the applicable rules, regulations and guidance, including order of prominence, appropriate period-over-period comparability and a clear reconciliation to the nearest GAAP measure.
As previously presented, we do not believe these non-GAAP performance measures were misleading. We believe these non-GAAP performance measures were useful in providing an additional measure of our financial performance adjusted to allow for comparisons of results of operations across reporting periods on a consistent basis, and to disclose our performance against compensation targets determined by the compensation committee of our Board of Directors.
We acknowledge the Staff's comment to better conform to the requirements in Item 10(e) of Regulation S-K. In future periodic filings on Form 10-Q and Form 10-K, earnings releases and investor presentations we will exclude references to Adjusted EBITDA and Adjusted Operating Expense. We will reflect the changes for all periods presented.
We acknowledge the Staff's comment to better conform to the requirements in Rule 5-03 of Regulation S-X. In future periodic filings on Form 10-Q and Form 10-K, we will revise the presentation of our Consolidated Statements of Operations. As requested, please see draft revisions discussed in our response to comment #4 below.
We acknowledge the Staff's comment to better conform to the requirements in Item 303(a) of Regulation S-K. As requested, we provide below an illustrative example of the future revisions to Management's Discussion and Analysis of Financial Condition and Results of Operations, which we propose to better reflect our business through the eyes of management with a focus on our core business of providing energy services to our customers versus our non-core operations of buying inventory for the purpose of reselling it to dealers or other parties. Additionally, we will include this format of presentation in future periodic filings on Form 10-Q and Form 10-K using the annual 2023 and 2022 amounts in this example.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations—Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
The following table sets forth our Consolidated Statements of Operations data for the periods indicated.
Year Ended December 31,
2023 2022 Change % Change
(in thousands)
Revenue:
Customer agreements and incentives $ 378,136 $ 280,801 $ 97,335 35 %
Solar energy system and product sales
342,517 276,889 65,628 24 %
Total revenue 720,653 557,690 162,963 29 %
Operating expense:
Cost of revenue—customer agreements and incentives
149,206 103,586 45,620 44 %
Cost of revenue—solar energy system and product sales
278,291 223,491 54,800 25 %
Operations and maintenance 96,997 36,679 60,318 164 %
General and administrative 430,422 302,004 128,418 43 %
Goodwill impairment 13,150 — 13,150 100 %
Other operating income (3,978) (26,566) 22,588 (85) %
Total operating expense, net 964,088 639,194 324,894 51 %
Operating loss (243,435) (81,504) (161,931) 199 %
Interest expense, net 371,937 107,775 264,162 245 %
Interest income (115,872) (59,799) (56,073) 94 %
Other (income) expense 3,949 (3,090) 7,039 (228) %
Loss before income tax (503,449) (126,390) (377,059) 298 %
Income tax (benefit) expense (1,023) 3,886 (4,909) (126) %
Net loss (502,426) (130,276) (372,150) 286 %
Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests (84,465) 31,366 (115,831) (369) %
Net loss attributable to stockholders $ (417,961) $ (161,642) $ (256,319) 159 %
Revenue
Year Ended December 31,
2023 2022 Change % Change
(in thousands)
PPA revenue $ 123,646 $ 104,563 $ 19,083 18 %
Lease revenue 147,788 100,070 47,718 48 %
Solar renewable energy certificate revenue 50,375 48,698 1,677 3 %
Loan revenue 34,716 18,601 16,115 87 %
Service revenue 16,197 4,178 12,019 288 %
Other revenue 5,414 4,691 723 15 %
Customer agreements and incentives 378,136 280,801 97,335 35 %
Inventory sales revenue 185,855 195,980 (10,125) (5) %
Cash sales revenue 96,072 72,425 23,647 33 %
Direct sales revenue 60,590 8,484 52,106 614 %
Solar energy system and product sales
342,517 276,889 65,628 24 %
Total $ 720,653 $ 557,690 $ 162,963 29 %
Year Ended December 31,
2023 2022 Change % Change
(in thousands except weighted average number of systems and per weighted average system amounts)
PPA and lease revenue
$ 271,434 $ 204,633 $ 66,801 33 %
Weighted average number of PPA and lease systems
168,500 128,300 40,200 31 %
Per weighted average system $ 1,611 $ 1,595 $ 16 1 %
Loan revenue
$ 34,716 $ 18,601 $ 16,115 87 %
Weighted average number of systems with loan agreements
85,800 53,900 31,900 59 %
Per weighted average system $ 405 $ 345 $ 60 17 %
Year Ended December 31,
2023 2022 Change % Change
(in thousands except number of
customers and per customer amounts)
Cash sales revenue
$ 96,072 $ 72,425 $ 23,647 33 %
Number of cash sales customers
5,800 4,700 1,100 23 %
Per customer
$ 16,564 $ 15,410 $ 1,155 7 %
Customer Agreements and Incentives. Customer agreements and incentives revenue, which is considered core to our business operations, increased by $97.3 million (+35%) in the year ended December 31, 2023 compared to the year ended December 31, 2022 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 128,300 for the year ended December 31, 2022 to 168,500 (+31%) for the year ended December 31, 2023. Revenue from our PPA and leases, on a weighted average number of systems basis, remained relatively flat at
$1,595 per system for the year ended December 31, 2022 compared to $1,611 per system for the same period in 2023 (+1%). This overall slight increase is primarily due to a higher percentage of solar energy systems with storage and slightly larger average system sizes. The weighted average number of systems with loan agreements increased from 53,900 for the year ended December 31, 2022 to 85,800 (+59%) for the year ended December 31, 2023. Loan revenue, on a weighted average number of systems basis, increased from $345 per system for the year ended December 31, 2022 to $405 per system for the same period in 2023 (+17%) primarily due to an increase in the fees we charged for operations and maintenance services. Service revenue increased by $12.0 million (+288%) in the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an increase in the number of one-time transactions for repair services related to third-party solar energy systems, which we do not believe will be as significant in the future.
Solar Energy System and Product Sales Revenue. Solar energy system and product sales revenue increased by $65.6 million (+24%) in the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to increases in revenue related to our core business, which includes direct sales revenue and cash sales revenue that increased due to an increase in customers. This increase in core business revenue is partially offset by a decrease in inventory sales revenue, which we consider non-core to our business, as further explained below. Direct sales revenue increased by $52.1 million (+614%) in the year ended December 31, 2023 compared to the year ended December 31, 2022 due to a ramp up of personnel supporting direct sales and an increased focus on direct sales of additional services to new and existing customers. Cash sales revenue increased by $23.6 million (+33%) in the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an increase in the number of cash sales customers, primarily derived from our relationship with Lennar Corporation. The number of cash sales customers increased from 4,700 for the year ended December 31, 2022 to 5,800 (+23%) for the year ended December 31, 2023. Cash sales revenue, on a per customer basis, increased from $15,410 per customer for the year ended December 31, 2022 to $16,564 per customer for the same period in 2023 (+7%) primarily due to larger system sizes with more storage included and thus, higher revenue (and higher associated costs). Inventory sales revenue decreased by $10.1 million (-5%) in the year ended December 31, 2023 compared to the year ended December 31, 2022 due to our dealers having sufficient inventory on hand from prior purchases and also based on 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.
Cost of Revenue—Customer Agreements and Incentives
Year Ended December 31,
2023 2022 Change % Change
(in thousands)
Depreciation related to solar energy systems and energy storage systems
$ 130,261 $ 96,280 $ 33,981 35 %
Cost of revenue related to service customers, loan agreements and underwriting costs for new customers and solar energy systems
18,945 7,306 11,639 159 %
Total $ 149,206 $ 103,586 $ 45,620 44 %
Year Ended December 31,
2023 2022 Change % Change
(in thousands except weighted average number of systems and per weighted average system amounts)
Depreciation related to solar energy systems and energy storage systems
$ 130,261 $ 96,280 $ 33,981 35 %
Weighted average number of PPA and lease systems
168,500 128,300 40,200 31 %
Per weighted average system $ 773 $ 750 $ 23 3 %
Cost of revenue—customer agreements and incentives, which is considered core to our business operations, increased by $45.6 million (+44%) in the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an increase in depreciation related to solar energy systems and energy storage systems, which increased by $34.0 million (+35%). This increase is aligned with the related revenue discussed above, which increased 33%, and is primarily due to a 31% increase in the weighted average number of PPA and lease systems from 128,300 for the year ended December 31, 2022 to 168,500 for the year ended December 31, 2023. On a weighted average number of systems basis, depreciation related to solar energy systems and energy storage systems remained relatively flat at $750 per system for the year ended December 31, 2022 compared to $773 per system for the same period in 2023 (+3%). 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 Uniform Commercial Code filing costs) for new customers and solar energy systems increased by $11.6 million (+159%) in the year ended December 31, 2023 compar
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CORRESP 1 filename1.htm Document Sunnova Energy International, Inc. 20 Greenway Plaza, Suite 540 Houston, TX 77046 sunnova.com SUNNOVA ENERGY INTERNATIONAL INC. 20 East Greenway Plaza, Suite 540 Houston, Texas 77046 October 15, 2024 BY EDGAR United States Securities and Exchange Commission 100 F Street, N.E. Washington, DC 20549 Division of Corporation Finance Attention: Robert Babula and Mark Wojciechowski Re: Sunnova Energy International Inc. Form 10-K for the Fiscal Year ended December 31, 2023 Filed February 22, 2024 SEC File No. 001-38995 Dear Messrs. Babula and Wojciechowski: Set forth below are the responses of Sunnova Energy International Inc., a Delaware corporation (“Sunnova” or “our”), to comments received from the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”) by letter dated September 17, 2024 (the “Comment Letter”), with respect to the above referenced Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Commission on February 22, 2024 (the “2023 Form 10-K”). We appreciate the opportunity to discuss your comments during our call on October 2, 2024. For the Staff’s convenience, our responses correspond to the captions and numbering included in the Comment Letter and are prefaced by the exact text of the Staff’s comments in bold text. Form 10-K for the Fiscal Year ended December 31, 2023 Management's Discussion and Analysis of Financial Condition and Results of Operations Key Financial and Operational Metrics, page 68 1.We understand from your responses to prior comments one and two that you do not intend to include non-GAAP measures in future periodic reports although may continue such disclosure in earnings releases and investor presentations. You indicate that any measures of Adjusted EBITDA and Adjusted Operating Expenses disclosed in the future would be calculated differently than in the past, although are unsure of the exact composition. Please submit the draft revisions that you propose by way of amendments to your annual and subsequent interim reports to reflect the changes outlined in your prior response letter and to address the additional comments in this letter, to conform your prior disclosures to the requirements in Items 10(e) and 303(a) of Regulation S-K, and Rule 5-03 of Regulation S-X, as indicated. If you believe that you are able to support limiting compliance to future reports because you do not regard non-compliance in these areas as material, submit the analyses that you performed in formulating that view. RESPONSE: We acknowledge the Staff's comment and confirm we do not intend to include non-GAAP measures in any future quarterly or annual filings. We discussed during our fourth quarter 2023 and first quarter 2024 earnings calls our plans to refocus on our core residential solar business. Additionally, we recently appointed a new Chief Financial Officer in June 2024. With these two catalysts, we have been re-evaluating the non-GAAP measures we present in our earnings releases and investor presentations. Beginning with the third quarter of 2024, we will discontinue the presentation of Adjusted EBITDA and Adjusted Operating Expense in future periodic filings, earnings releases and investor presentations. We note we may be required in the compensation discussion and analysis section of our annual proxy statement to disclose Adjusted EBITDA as a compensation target for 2024 and as a non-GAAP financial measure, but in accordance with Instruction 5 to Item 402(b) of Regulation S-K we would only include the required GAAP reconciliation in an annex to the proxy statement as the reconciliation will not be available in our annual report on Form 10-K for the period. Additionally, we expect to discontinue the use of Adjusted EBITDA as a compensation target following this year. We continuously evaluate our communications with investors, including the information that is useful in communicating our results contextualized within existing market conditions. We acknowledge the Staff's concerns in connection with certain of our adjustments, and to the extent we may in the future decide to present non-GAAP financial measures that reflect those adjustments, we will carefully consider the comments raised by the Staff here and in the applicable rules, regulations and guidance, including order of prominence, appropriate period-over-period comparability and a clear reconciliation to the nearest GAAP measure. As previously presented, we do not believe these non-GAAP performance measures were misleading. We believe these non-GAAP performance measures were useful in providing an additional measure of our financial performance adjusted to allow for comparisons of results of operations across reporting periods on a consistent basis, and to disclose our performance against compensation targets determined by the compensation committee of our Board of Directors. We acknowledge the Staff's comment to better conform to the requirements in Item 10(e) of Regulation S-K. In future periodic filings on Form 10-Q and Form 10-K, earnings releases and investor presentations we will exclude references to Adjusted EBITDA and Adjusted Operating Expense. We will reflect the changes for all periods presented. We acknowledge the Staff's comment to better conform to the requirements in Rule 5-03 of Regulation S-X. In future periodic filings on Form 10-Q and Form 10-K, we will revise the presentation of our Consolidated Statements of Operations. As requested, please see draft revisions discussed in our response to comment #4 below. We acknowledge the Staff's comment to better conform to the requirements in Item 303(a) of Regulation S-K. As requested, we provide below an illustrative example of the future revisions to Management's Discussion and Analysis of Financial Condition and Results of Operations, which we propose to better reflect our business through the eyes of management with a focus on our core business of providing energy services to our customers versus our non-core operations of buying inventory for the purpose of reselling it to dealers or other parties. Additionally, we will include this format of presentation in future periodic filings on Form 10-Q and Form 10-K using the annual 2023 and 2022 amounts in this example. 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations—Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 The following table sets forth our Consolidated Statements of Operations data for the periods indicated. Year Ended December 31, 2023 2022 Change % Change (in thousands) Revenue: Customer agreements and incentives $ 378,136 $ 280,801 $ 97,335 35 % Solar energy system and product sales 342,517 276,889 65,628 24 % Total revenue 720,653 557,690 162,963 29 % Operating expense: Cost of revenue—customer agreements and incentives 149,206 103,586 45,620 44 % Cost of revenue—solar energy system and product sales 278,291 223,491 54,800 25 % Operations and maintenance 96,997 36,679 60,318 164 % General and administrative 430,422 302,004 128,418 43 % Goodwill impairment 13,150 — 13,150 100 % Other operating income (3,978) (26,566) 22,588 (85) % Total operating expense, net 964,088 639,194 324,894 51 % Operating loss (243,435) (81,504) (161,931) 199 % Interest expense, net 371,937 107,775 264,162 245 % Interest income (115,872) (59,799) (56,073) 94 % Other (income) expense 3,949 (3,090) 7,039 (228) % Loss before income tax (503,449) (126,390) (377,059) 298 % Income tax (benefit) expense (1,023) 3,886 (4,909) (126) % Net loss (502,426) (130,276) (372,150) 286 % Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests (84,465) 31,366 (115,831) (369) % Net loss attributable to stockholders $ (417,961) $ (161,642) $ (256,319) 159 % 3 Revenue Year Ended December 31, 2023 2022 Change % Change (in thousands) PPA revenue $ 123,646 $ 104,563 $ 19,083 18 % Lease revenue 147,788 100,070 47,718 48 % Solar renewable energy certificate revenue 50,375 48,698 1,677 3 % Loan revenue 34,716 18,601 16,115 87 % Service revenue 16,197 4,178 12,019 288 % Other revenue 5,414 4,691 723 15 % Customer agreements and incentives 378,136 280,801 97,335 35 % Inventory sales revenue 185,855 195,980 (10,125) (5) % Cash sales revenue 96,072 72,425 23,647 33 % Direct sales revenue 60,590 8,484 52,106 614 % Solar energy system and product sales 342,517 276,889 65,628 24 % Total $ 720,653 $ 557,690 $ 162,963 29 % Year Ended December 31, 2023 2022 Change % Change (in thousands except weighted average number of systems and per weighted average system amounts) PPA and lease revenue $ 271,434 $ 204,633 $ 66,801 33 % Weighted average number of PPA and lease systems 168,500 128,300 40,200 31 % Per weighted average system $ 1,611 $ 1,595 $ 16 1 % Loan revenue $ 34,716 $ 18,601 $ 16,115 87 % Weighted average number of systems with loan agreements 85,800 53,900 31,900 59 % Per weighted average system $ 405 $ 345 $ 60 17 % Year Ended December 31, 2023 2022 Change % Change (in thousands except number of customers and per customer amounts) Cash sales revenue $ 96,072 $ 72,425 $ 23,647 33 % Number of cash sales customers 5,800 4,700 1,100 23 % Per customer $ 16,564 $ 15,410 $ 1,155 7 % Customer Agreements and Incentives. Customer agreements and incentives revenue, which is considered core to our business operations, increased by $97.3 million (+35%) in the year ended December 31, 2023 compared to the year ended December 31, 2022 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 128,300 for the year ended December 31, 2022 to 168,500 (+31%) for the year ended December 31, 2023. Revenue from our PPA and leases, on a weighted average number of systems basis, remained relatively flat at 4 $1,595 per system for the year ended December 31, 2022 compared to $1,611 per system for the same period in 2023 (+1%). This overall slight increase is primarily due to a higher percentage of solar energy systems with storage and slightly larger average system sizes. The weighted average number of systems with loan agreements increased from 53,900 for the year ended December 31, 2022 to 85,800 (+59%) for the year ended December 31, 2023. Loan revenue, on a weighted average number of systems basis, increased from $345 per system for the year ended December 31, 2022 to $405 per system for the same period in 2023 (+17%) primarily due to an increase in the fees we charged for operations and maintenance services. Service revenue increased by $12.0 million (+288%) in the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an increase in the number of one-time transactions for repair services related to third-party solar energy systems, which we do not believe will be as significant in the future. Solar Energy System and Product Sales Revenue. Solar energy system and product sales revenue increased by $65.6 million (+24%) in the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to increases in revenue related to our core business, which includes direct sales revenue and cash sales revenue that increased due to an increase in customers. This increase in core business revenue is partially offset by a decrease in inventory sales revenue, which we consider non-core to our business, as further explained below. Direct sales revenue increased by $52.1 million (+614%) in the year ended December 31, 2023 compared to the year ended December 31, 2022 due to a ramp up of personnel supporting direct sales and an increased focus on direct sales of additional services to new and existing customers. Cash sales revenue increased by $23.6 million (+33%) in the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an increase in the number of cash sales customers, primarily derived from our relationship with Lennar Corporation. The number of cash sales customers increased from 4,700 for the year ended December 31, 2022 to 5,800 (+23%) for the year ended December 31, 2023. Cash sales revenue, on a per customer basis, increased from $15,410 per customer for the year ended December 31, 2022 to $16,564 per customer for the same period in 2023 (+7%) primarily due to larger system sizes with more storage included and thus, higher revenue (and higher associated costs). Inventory sales revenue decreased by $10.1 million (-5%) in the year ended December 31, 2023 compared to the year ended December 31, 2022 due to our dealers having sufficient inventory on hand from prior purchases and also based on 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. Cost of Revenue—Customer Agreements and Incentives Year Ended December 31, 2023 2022 Change % Change (in thousands) Depreciation related to solar energy systems and energy storage systems $ 130,261 $ 96,280 $ 33,981 35 % Cost of revenue related to service customers, loan agreements and underwriting costs for new customers and solar energy systems 18,945 7,306 11,639 159 % Total $ 149,206 $ 103,586 $ 45,620 44 % Year Ended December 31, 2023 2022 Change % Change (in thousands except weighted average number of systems and per weighted average system amounts) Depreciation related to solar energy systems and energy storage systems $ 130,261 $ 96,280 $ 33,981 35 % Weighted average number of PPA and lease systems 168,500 128,300 40,200 31 % Per weighted average system $ 773 $ 750 $ 23 3 % 5 Cost of revenue—customer agreements and incentives, which is considered core to our business operations, increased by $45.6 million (+44%) in the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an increase in depreciation related to solar energy systems and energy storage systems, which increased by $34.0 million (+35%). This increase is aligned with the related revenue discussed above, which increased 33%, and is primarily due to a 31% increase in the weighted average number of PPA and lease systems from 128,300 for the year ended December 31, 2022 to 168,500 for the year ended December 31, 2023. On a weighted average number of systems basis, depreciation related to solar energy systems and energy storage systems remained relatively flat at $750 per system for the year ended December 31, 2022 compared to $773 per system for the same period in 2023 (+3%). 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 Uniform Commercial Code filing costs) for new customers and solar energy systems increased by $11.6 million (+159%) in the year ended December 31, 2023 compar