2019 Annual
Report
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2019 ANNUAL REPORT | LETTER TO SHAREHOLDERS Now, more than ever, Sunrun’s solar
service is essential for providing families
with reliable energy, savings on their
energy bills, often without any upfront
costs, and to support local communities
and the world do their part to combat
the devastating effects of climate change.
April 17, 2020
Dear Shareholders,
2019 was another strong year for Sunrun. With over 1.7 GW of solar
systems, Sunrun is now among the top 10 owners of solar assets globally.1
In 2019, we added 52,000 customers, growing our total customer base
by 22%. We added as many customers as the next two largest residential
providers combined. We now have more than 285,000 customers.
COVID-19 Situation Accelerates the Transition to a Digital Sales
and Streamlined Operating Model to Provide Essential Service while
Reducing Soft Costs
The world is facing unprecedented challenges, and our hearts go out to
everyone who is affected by COVID-19. During this period of uncertainty,
our top priority has been the health and safety of our employees, their
families, and the customers we serve. Now, more than ever, Sunrun’s
solar service is essential for providing families with reliable energy,
savings on their energy bills, often without any upfront costs, and to
support local communities and the world do their part to combat the
devastating effects of climate change.
Recent events have accelerated many of our operational initiatives
to deliver best-in-class customer value and to lower soft costs. Sunrun
Sunrun has made
the process of
installing solar
nearly contact-free.
We have invested in
technology to streamline
our installation processes.
These efforts, combined
with the essential nature
of reliable, clean energy
and storage, mean that
Sunrun continues to
install solar systems
in most markets while
has made the process of installing solar nearly contact-free. We have
keeping our employees
invested in technology to streamline our installation processes, including
online permitting and interconnection in many locations, as well as
and customers safe.
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2019 ANNUAL REPORT | LETTER TO SHAREHOLDERS employing extensive use of drone technology to
to save money and receive more reliable power
complete rooftop surveys. We also believe this
without constraining their debt capacity. With our
situation will accelerate adoption of automated,
solar-as-a-service model, customers can adopt
instantaneous permitting by local jurisdictions.
solar with zero upfront cost and realize immediate
These efforts, combined with the essential nature
savings. As more people are working from home and
of reliable, clean energy and storage, mean that
quarantining with their families, they will be using
Sunrun continues to install solar systems in
and relying on more daytime energy than they did
most markets while keeping our employees and
previously. In California, households are using as
customers safe. We will continue to monitor the fluid
much as 20% more electricity in their homes than
situation and follow official regulations.
normal.2 Home solar and batteries can offer more
Within one week of shelter in place orders, we
enabled our entire salesforce to complete sales
consultations in a virtual setting. Early results
of this transition have been encouraging and
customers are engaging. Despite the fact that
we have paused sourcing leads through certain
channels, we have seen more leads through our
digital channels at similar or more attractive
certainty during uncertain times, greater financial
value, and more protection for families when they
need it most. This is particularly critical in markets
like California which will soon enter another wildfire
season with rolling blackouts as part of the utilities’
wildfire prevention efforts. This year, many fire
preparedness and preventative actions may not be
completed, as prescribed burns have been halted.
customer acquisition costs. This transition
We remain committed to our prudent approach to
towards a digital model will position the company
manage our project finance capital raising in light
well to realize sustaining reductions in customer
of the current capital market volatility. Periods like
acquisition costs.
this reaffirm our long-held strategy to raise project
Early indications are that even if the country
enters a protracted economic downturn with poor
consumer confidence, people still want solar,
and may want it even more, since it allows them
finance capital commitments well in advance,
to fund our new system deployments. This long
project finance runway affords us the ability to be
selective in capital market activities.
Home solar and batteries
can offer more certainty
during uncertain times,
greater financial value,
and more protection
for families when they
need it most.
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2019 ANNUAL REPORT | LETTER TO SHAREHOLDERS Powerful Forces Aligning
I am inspired by the energy and efforts across the
With all of this momentum, it’s not surprising that it
country to bring awareness to protect the only
was also a breakout year for batteries, including the
inventors of the lithium-ion battery even winning
a Nobel Prize. Batteries can increase the impact of
solar panels and further reduce our dependence on
fossil fuels. As battery deployments increase, we
expect the price to fall, and in the years ahead we
are poised for even more significant growth.
home we have.
In 2019, over four million people took to the streets
to join the Global Climate Strike led by 16-year-
old Greta Thunberg.3 States expanded their clean
energy goals as Nevada, Washington, and Puerto
Rico joined California, Hawaii, and Washington D.C.
committing to 100% carbon-free electricity. Support
for solar is stronger than ever - and bipartisan. The
Global Strategy Group recently found that 89%
of voters, regardless of party, support additional
incentives to help our industry grow even faster.
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2019 ANNUAL REPORT | LETTER TO SHAREHOLDERS Large Opportunity Ahead
While we are excited about our progress, the
as we saw a 4% year over year decline in the
long-term runway for future growth remains
Sunrun-built install cost despite an increase in the
massive. Of the 75 million U.S. single family homes
number of batteries installed. To further optimize
today, two million have added solar, representing a
our operations, we implemented the use of drones
3% penetration rate. In markets like Hawaii, where
for our site inspections, which helps cut the total
the value proposition was first evident, penetration
time by up to 50%, while reducing errors requiring
has reached 31% and continues to grow. Our
revisits. We are also working with the broader solar
modeling shows that in California, which is only
industry and other key stakeholders to pilot an
13% penetrated, we are just now exiting the ‘early
online portal, called SolarAPP (Solar Automated
adopter’ phase and moving into the ‘early majority’
Permit Processing), to automate the permit process
phase. This ‘early majority’ area of the curve is
in ten locations by this summer. These initiatives,
twice the size of the earlier segments.
along with a continued focus on operational
We think there is also a significant opportunity
ahead to drive down soft costs by improving cycle
times. In 2019, we focused on improving our install
efficiency. The initial results are encouraging,
efficiency, are laying the foundation for substantial
cost reductions in the years to come.
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2019 ANNUAL REPORT | LETTER TO SHAREHOLDERS Outages are The New Normal
After the historic and devastating wildfires in 2018,
lost power for 35 hours. Brightbox powered our
California state lawmakers passed legislation that
customers through the multi-day outages, backing
required investor-owned utilities to lower wildfire
up their critical energy needs through the night
risk. As a result, California utilities shut off power
and recharging when the sun was shining. People
to hundreds of thousands of customers this year,
quickly realized that Brightbox is a superior solution
leaving millions of people without power. In October,
to generators, which are not only expensive, dirty
more than 500,000 people in the Bay Area alone
and noisy, but require constant refueling, which may
were impacted.4 This isn’t just a California problem.
not be possible when fuel stations are down as well.
Utilities across the country are increasingly
struggling to deliver reliable power. Last summer,
more than 100,0005 people in the suburbs of Detroit
lost power due to a heatwave and a recent outage in
Manhattan affected 70,000 people.6
We now offer Brightbox in nine states and Puerto
Rico and have installed more than 9,000 Brightbox
systems. In the Bay Area, 5% of all new customers in
our direct business in the fourth quarter added our
Brightbox battery to their solar system. Attachment
In 2019, our Brightbox battery systems helped
rates were over 35% in California and approached
hundreds of people across the country keep
20% across all geographies. We expect customer
their lights on during outages. In California, the
interest will continue to grow as battery costs
average customer affected by the forced blackouts
decline and people continue to experience outages.
Brightbox powered our
customers through the multi-
day outages, backing up their
critical energy needs through
the night and recharging when
the sun was shining.
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2019 ANNUAL REPORT | LETTER TO SHAREHOLDERS We Need a New Approach
Extreme weather events are expected to
participated alongside centralized power plants in
increasingly disrupt our energy and transportation
a wholesale capacity market.
systems. More than 70% of America’s transmission
lines and large power transformers are at least 35
years old and were not built to withstand today’s
extreme weather. Running high voltage wires to
remote, wildfire-prone communities is like sending
a lightning bolt through dry tinder. This cycle of
shutoffs and wildfires will only continue if we don’t
adopt a new approach.
The East Bay Community Energy board of directors
awarded Sunrun a landmark contract to help
replace the retiring jet-fuel Oakland Power Plant
with home solar and battery systems on low-income
housing. Also, beginning in 2020, Sunrun and Open
Access Technology International, Inc. will form one
of the largest residential “virtual power plants” in
the world and help power Hawaii’s most populated
Home solar and batteries must be a part of the
island with clean, distributed energy. We are also
solution. They can provide an option to turn off
participating in Bring Your Own Battery Programs
these transmission lines while still keeping whole
in Massachusetts, and launched new programs in
neighborhoods powered. Solar-powered home
Vermont and New Jersey. These programs are a
batteries offer customers backup power when the
simple way to empower utilities and customers to
grid is down, and utilities additional electricity
maximize the capabilities of customer-sited energy
capacity when it may be needed most.
resources.
This year we won several new contracts to advance
All of these contracts signal a transformational shift
our grid services business. Early in the year we won
away from the traditional, more polluting centralized
a bid to deliver home solar and batteries as a source
electricity model towards a system powered by local
of energy capacity to ISO New England, the grid
clean energy like home solar and batteries. They
operator for one of the largest electricity markets
also represent an incremental source of revenue
in the U.S. Our participation in New England’s
for Sunrun, which would be upside to our current
capacity market is the first time in the United States
customer value.
that home solar and battery storage has directly
Solar-powered home
batteries offer customers
backup power when the
grid is down, and utilities
additional electricity capacity
when it may be needed most.
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2019 ANNUAL REPORT | LETTER TO SHAREHOLDERS Sunrun’s Year in Review
In 2019, we generated $102 million in cash,
Despite recent challenges presented by COVID-19,
exceeding our target. We maintained strong
we firmly believe that the next decade looks bright.
customer margins, with full-year NPV of $1.05 or
We are excited about the opportunities ahead as
$8,305 per customer. Although growth in MWs
we focus on accelerating the transition to a more
Deployed in the second half of the year was lower
digital and virtual sales process that can set the
than we were expecting due to labor constraints, we
stage to lower soft costs and build an even stronger
have worked through most of our labor bottlenecks.
company. We know our service is both essential to
With a continued focus on operational efficiency
providing families with affordable and reliable power
and a massive runway for growth we remain excited
and is critical to address the climate crisis.
about what the future holds, despite the challenges
posed by recent events.
In 2019 we further demonstrated the advantages
of scale and market leadership. We expanded our
partnership with Home Depot, adding our solar
and Brightbox battery service at stores in 15 states,
including California. We advanced our grid services
business and continued to execute best in class
financing, closing two asset-backed securities
transactions and setting new records for capital
cost and advance rates.
We look forward to bringing more
American households an affordable,
clean, reliable energy system.
Power Forward,
Lynn Jurich
Co-founder | Chief Executive Officer
1 Based on Wood Mackenzie’s Global Solar PV (ex. China) Asset Ownership Report rankings for 2018 and Sunrun’s Cumulative Deployed MWs
under Leases through 2019
2 http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M331/K358/331358410.PDF
3 https://www.usatoday.com/story/news/nation/2019/09/21/global-climate-strike-estimates-crowd-size-millions-worldwide/2401672001/
4 https://www.nytimes.com/2019/10/10/us/pge-outage.html
5 https://abcnews.go.com/US/dangerous-heat-wave-scorches-millions-midwest-east-coast/story?id=64456339
6 https://www.timesunion.com/opinion/article/Commentary-Rooftop-solar-is-a-key-component-of-14462115.php
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2019 ANNUAL REPORT | LETTER TO SHAREHOLDERS UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-37511
Sunrun Inc.
(Exact name of Registrant as specified in its Charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
26-2841711
(I.R.S. Employer
Identification No.)
225 Bush Street, Suite 1400
San Francisco, California 94104
(Address of principal executive offices and Zip Code)
(415) 580-6900
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.0001 par value per share
RUN
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
No
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes
No
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
Registrant was required to submit and post such files). Yes
No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Emerging growth company
Accelerated filer
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common
stock on The Nasdaq Stock Market on, December 31, 2019 was approximately $1.57 billion.
The number of shares of Registrant’s Common Stock outstanding as of February 24, 2020 was 119,385,549.
Portions of the information called for by Part III of this Form 10-K is hereby incorporated by reference from the definitive Proxy Statements for our annual meeting of
stockholders, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2019.
Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Page
3
10
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42
42
42
43
44
46
60
61
109
109
110
111
111
111
111
111
112
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The discussion in this Annual Report on Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) and the Private Securities Litigation Reform Act of 1995,
which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future
events or our 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,” “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 our expectations, strategy, plans or intentions.
Forward-looking statements contained in this Annual Report on Form 10-K include, but are not limited to,
statements about:
•
•
•
•
•
•
•
•
•
•
•
•
•
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the availability of rebates, tax credits and other financial incentives, and decreases to federal solar tax credits;
determinations by the Internal Revenue Service of the fair market value of our solar energy systems;
the retail price of utility-generated electricity or electricity from other energy sources;
regulatory and policy development and changes;
our ability to manage our supply chains and distribution channels and the impact of natural disasters and
other events beyond our control;
our industry’s, and specifically our, continued ability to manage costs (including, but not limited to, equipment
costs) associated with solar service offerings;
our strategic partnerships and expected benefits of such partnerships;
the sufficiency of our cash, investment fund commitments and available borrowings to meet our anticipated
cash needs;
the expected size and time frame of our stock repurchase program;
our need and ability to raise capital, refinance existing debt, and finance our operations and solar energy
systems from new and existing investors;
the potential impact of interest rates on our interest expense;
our business plan and our ability to effectively manage our growth, including our rate of revenue growth;
our ability to further penetrate existing markets, expand into new markets and our expectations regarding
market growth (including, but not limited to, expected cancellation rates);
our expectations concerning relationships with third parties, including the attraction, retention and continued
existence of qualified solar partners;
the impact of seasonality on our business;
our investment in research and development and new product offerings;
our ability to protect our intellectual property and customer data, as well as to maintain our brand;
technical and capacity limitations imposed by power grid operators;
the willingness of and ability of our solar partners to fulfill their respective warranty and other contractual
obligations;
our ability to renew or replace expiring, cancelled or terminated Customer Agreements at favorable rates or
on a long-term basis;
the ability of our solar energy systems to operate or deliver energy for any reason, including if interconnection
or transmission facilities on which we rely become unavailable;
our expectations regarding certain performance objectives and the renewal rates and purchase value of our
solar energy systems after expiration of our Customer Agreements; and
•
the calculation of certain of our key financial and operating metrics and accounting policies.
1
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including
those described in the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Moreover,
we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is
not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or
the extent to which any factor, or combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions,
the forward-looking events and circumstances discussed in this Annual Report on Form 10-K may not occur and
actual results could differ materially and adversely from those anticipated or implied in the forward-looking
statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that
the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future
results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will
be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and
completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking
statements for any reason after the date of this Annual Report on Form 10-K to conform these statements to actual
results or to changes in our expectations, except as required by law.
You should read this Annual Report on Form 10-K and the documents that we reference in this Annual Report
on Form 10-K and have filed with the Securities and Exchange Commission (the “SEC”) as exhibits to this Annual
Report on Form 10-K with the understanding that our actual future results, levels of activity, performance, and
events and circumstances may be materially different from what we expect.
2
Item 1. Business.
Overview
PART I
Sunrun’s (the “Company”) mission is to provide our customers with clean, affordable solar energy and
storage, and a best-in-class customer experience. In 2007, we pioneered the residential solar service model,
creating a low-cost solution for customers seeking to lower their energy bills. By removing the high initial cost and
complexity of cash system sales that used to define the residential solar industry, we have fostered the industry’s
rapid growth and exposed an enormous market opportunity. Our relentless drive to increase the accessibility of
solar energy is fueled by our enduring vision: to create a planet run by the sun.
We provide clean, solar energy typically at savings compared to traditional utility energy. Our primary
customers are residential homeowners. We also offer battery storage along with solar energy systems to our
customers in select markets and sell our services to certain commercial developers through our multi-family and
new homes offerings. After inventing the residential solar service model and recognizing its enormous market
potential, we have built the infrastructure and capabilities necessary to rapidly acquire and serve customers in a
low-cost and scalable manner. Today, our scalable operating platform provides us with a number of unique
advantages. First, we are able to drive distribution by marketing our solar service offerings through multiple
channels, including our diverse partner network and direct-to-consumer operations. This multi-channel model
supports broad sales and installation capabilities, which together allow us to achieve capital-efficient growth.
Second, we are able to provide differentiated solutions to our customers that, combined with a great customer
experience, we believe will drive meaningful margin advantages for us over the long term as we strive to create the
industry’s most valuable and satisfied customer base.
Our core solar service offerings are provided through our lease and power purchase agreements, which we
refer to as our “Customer Agreements” and which provide customers with simple, predictable pricing for solar
energy that is insulated from rising retail electricity prices. While customers have the option to purchase a solar
energy system outright from us, most of our customers choose to buy solar as a service from us through our
Customer Agreements without the significant upfront investment of purchasing a solar energy system. With our
solar service offerings, we install solar energy systems on our customers’ homes and provide them the solar power
produced by those systems for typically a 20-year initial term. In certain markets, we offer a 25-year initial term
service offering. In addition, we monitor, maintain and insure the system during the term of the contract. In
exchange, we receive predictable cash flows from high credit quality customers and qualify for tax and other
benefits. We finance portions of these tax benefits and cash flows through tax equity, non-recourse debt and project
equity structures in order to fund our upfront costs, overhead and growth investments. We develop valuable
customer relationships that can extend beyond this initial contract term and provide us an opportunity to offer
additional services in the future, such as our home battery storage service. Since our founding, we have continued
to invest in a platform of services and tools to enable large scale operations for us and our partner network, and
these partners include solar integrators, sales partners, installation partners and other strategic partners. The
platform includes processes and software, as well as fulfillment and acquisition of marketing leads. We believe our
platform empowers new market entrants and smaller industry participants to profitably serve our large and
underpenetrated market without making the significant investments in technology and infrastructure required to
compete effectively against established industry players. Our platform provides the support for our multi-channel
model, which drives broad customer reach and capital-efficient growth.
Delivering a differentiated customer experience is core to our strategy. We emphasize a customized
solution, including a design specific to each customer’s home and pricing configurations that typically drive both
customer savings and value to us. We believe that our passion for engaging our customers, developing a trusted
brand, and providing a customized solar service offering resonates with our customers who are accustomed to a
traditional residential power market that is often overpriced and lacking in customer choice.
We have experienced substantial growth in our business and operations since our inception in 2007. As of
December 31, 2019, we operated the second largest fleet of residential solar energy systems in the United States.
We have an aggregate of 1,987 Megawatts Deployed as of December 31, 2019, and our Gross Earning Assets as
of December 31, 2019 were approximately $3.7 billion. Please see the section entitled “Management’s Discussion
3
and Analysis of Financial Condition and Results of Operations — Key Operating Metrics” for more details on how
we calculate Megawatts Deployed and Gross Earning Assets.
We also have a long track record of attracting low-cost capital from diverse sources, including tax equity and
debt investors. Since inception we have raised tax equity investment funds to finance the installation of solar energy
systems.
Our Multi-Channel Capabilities
Our unique, multi-channel capabilities offer consumers a compelling solar service through scalable, cost-
effective and consumer-friendly channels. Customers can access our products through three channels: direct-to-
consumer, solar partnerships and strategic partnerships.
Direct-to-Consumer
We sell solar service offerings and install solar energy systems for customers through our direct-to-consumer
channel. These solar energy systems are offered to customers either under a Customer Agreement or for purchase.
This channel consists of an online lead generation function, a telesales and field sales team, a direct-to-home sales
force, a retail sales team and an industry-leading installation organization.
Solar Partnerships
We contract with diverse solar organizations that act as either exclusive or non-exclusive (depending on the
terms of their contract with us) distributors of our solar service offerings and subcontractors for the installation of the
related solar energy systems. Because of our commitment to these solar organizations and our vested interest in
their success, we refer to them as our “solar partners,” although the actual legal relationship is that of an
independent contractor. Our solar partners include:
•
•
•
Solar integrators: trained and trusted partners who originate customers for our solar service offerings
and procure and install the solar energy systems on our customers’ homes on our behalf as our
subcontractors. Partnerships with solar integrators allow us to expand our brand, quickly enter new
markets and drive capital-efficient growth. We compensate our solar integrators on a per solar energy
system basis for generating Customer Agreements and the installation work they perform for us.
Sales partners: sales and lead generation partners who provide us with high-quality leads and
customers at competitive prices. We compensate our sales partners on a per customer basis for the
sales and lead generation services they perform for us. All contracts are between the customer and us,
based on a price set by us.
Installation partners: trusted installation partners who procure and install a subset of our solar energy
systems as our subcontractors and allow us to more efficiently deploy a mix of in-house and outsourced
installation capabilities. We compensate our installation partners on a per solar energy system basis for
the procurement of materials and installation work they perform for us. Installation partners are solely
our subcontractors and do not enter into any agreements with our customers.
Our ability to connect specialized sales and installation firms on a single platform, which we license to our
solar partners at no cost, allows us to enjoy the benefits of vertical integration without the additional fixed cost
structure. This creates margin opportunities, system efficiencies and benefits from network effects in matching
these ecosystem participants.
4
Strategic Partnerships
Our strategic partnerships encompass relationships with new market entrants not previously engaged in
solar, including consumer marketing, retail and specialized energy retail companies. Our strategic partners find the
residential solar market attractive, but recognize that significant barriers to entry make partnerships the preferred
method to reach solar customers. Through these strategic arrangements, we typically market our solar service
offerings to the strategic partner’s customer base and install the solar energy systems directly or through one of our
solar partners. We manage the customer experience and retain the value of the economic relationship through the
term of the customer’s contract and potential renewal period. We have executed strategic partnerships in
competitive processes that give us access to millions of potential customers. As our industry grows, we believe that
our unique platform and deep partnership experience position us to be the partner of choice for new market
entrants. We believe that these broad strategic relationships will help us drive down our customer acquisition costs
and make solar accessible to even more customers.
The combination of direct-to-consumer, solar partnerships and strategic partnerships offers distinct
advantages. The direct-to-consumer channel allows us to scale rapidly, drive incremental unit costs down over the
long term, and refine operational processes to share with our partners. Our solar partnerships and strategic
partnerships enable nimble market entry and exit, while allowing for capital efficient growth. Together, this multi-
channel strategy supported by our open platform allows us to reach more customers with our leading solar service
without compromising our ability to provide exceptional customer service.
Customer Agreements
Since we were founded in 2007, we have been providing solar energy to residential customers at prices
typically below utility rates through a variety of offerings, most commonly through our leases and power purchase
agreements which we refer to as our “Customer Agreements.” Under our Customer Agreements, customers have
the right to use and consume all electricity produced by the solar energy system, on a continuous basis. Most
Customer Agreements entitle the customer to a refund for underproduction below a guaranteed amount, which we
refer to as our "performance guarantee." Either directly or through a solar partner, we construct a solar energy
system on a customer’s home which generates electricity at set prices through Customer Agreements which
typically have an initial term of 20 or 25 years. Rates for both forms of our Customer Agreements can be fixed for
the duration of the contract or escalated at a pre-determined percentage annually. Upon installation, a system is
interconnected to the local utility grid. The home’s energy usage is provided by the solar energy system with any
additional energy needs provided by the local utility. Any excess solar energy, including amounts in excess of
battery storage, that is not immediately used by our customers is exported to the utility grid using a bi-directional
utility net meter, and the customer generally receives a credit for this excess power from their utility to offset future
usage of utility-generated energy.
Although many of our customers choose to pay little-to-nothing upfront and instead receive a monthly bill,
some customers choose to prepay an amount upfront, thereby reducing their monthly bill. The amount of an upfront
payment is customized for each customer. Customers may also choose to fully prepay their 20- or 25-year
contracts. The prepayment amount is based on the estimated amount of the solar energy system’s output over the
typically 20- or 25-year term of the Customer Agreement. If the estimated production of the solar energy system is
less than the actual production for a given year after the first full one to two years of the agreement, prepaid
customers are refunded the difference at the end of each such year. If the solar energy system’s energy production
is in excess of the estimate, we allow customers to keep the excess energy at no charge. After the initial term of the
Customer Agreement, customers have the option to renew their contracts for the remaining life of the solar energy
system, typically at a 10% discount to then-prevailing power prices, to purchase the system from us at its fair
market value, or have us remove the system.
Regardless of the type of Customer Agreement our customers choose, we operate the system and agree to
monitor and maintain it in good condition at no cost to the customer. We offer an industry-leading performance
guarantee to ensure that our customers are receiving the energy they expect at the price they expect. Our
customers also receive up to a ten-year warranty for roof penetrations.
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If a customer sells his or her home, the customer has the right to purchase the system or assign the
Customer Agreement to the new homeowner, provided the new homeowner meets our credit requirements and
agrees to be bound by the terms and conditions of the Customer Agreement. In connection with this service
transfer, the customer may prepay all or a portion of the remaining payments due under the Customer Agreement to
lower or eliminate the monthly rate to be paid by the new homeowner. If the customer fails to purchase the system
or assign the Customer Agreement to a new homeowner, we may negotiate directly with the new homeowner to
transfer the Customer Agreement (at times on modified terms) and/or look to the original customer to pay all
remaining payments due. We have completed thousands of service transfers and, from inception through
December 31, 2019, the aggregate expected net present value of the Customer Agreements once assigned
represented approximately 100% of what it was prior to assignment.
Sales and Marketing
We sell our solar energy offerings through a scalable sales organization using both a direct-to-consumer
approach across online, retail, mass media, digital media, canvassing, field marketing and referral channels as well
as our diverse partner network. We sell to customers over the phone, online, in the field through canvassing and in-
home sales and through our strategic retail sales partnerships. We also partner with sales-only organizations that
focus on direct-to-consumer marketing and sales on our behalf, typically with a Sunrun-branded offering at point of
sale, which further increases our brand and reach. We believe that a customized, customer-focused selling process
is important before, during and after the sale of our solar services.
We train our sales team to customize their consultative presentation to the individual customer based on
guidelines and principles outlined in our training materials. We are able to provide our sales team with real-time
data and pricing tools through our proprietary technology which is designed to generate a tailored product offering
with optimized pricing based on the actual characteristics of a customer's home, including roof characteristics and
shading, as well as actual energy usage. This allows our sales team to differentially price homes in the same
geographic region quickly and effectively.
Supply Chain
We purchase equipment, including solar panels, inverters and batteries from a limited number of
manufacturers and suppliers. If we fail to maintain or expand our relationships with these suppliers and
manufacturers, or if one or more that we rely upon to meet anticipated demand reduces or ceases production, it
may be difficult to quickly identify and qualify alternatives on acceptable terms. In addition, equipment prices may
increase in the coming years, or not decrease at the rates we historically have experienced, due to tariffs or other
factors. As discussed in Item 1A. Risk Factors---"We have historically benefited from declining costs in our industry,
and our business and financial results may be harmed not only as a result of any increases in costs associated with
our solar service offerings but also any failure of these costs to continue to decline as we currently expect. If we do
not reduce our cost structure in the future, our ability to continue to be profitable may be impaired.”--tariffs on both
solar modules and inverters were imposed in 2018 and 2019. While these tariffs did not have a material negative
impact on our business in either year, we believe the tariffs were a contributing factor to smaller decreases to
equipment costs than we would have otherwise experienced in 2019.
Competition
We believe that our primary competitors are the traditional utilities that supply electricity to our potential
customers. We compete with these traditional utilities primarily based on price (cents per kilowatt hour),
predictability of future prices (by providing pre-determined annual price escalations), the backup power capabilities
of our BrightboxTM battery storage solution and the ease by which customers can switch to electricity generated by
our solar energy systems.
We also compete with companies that are not regulated like traditional utilities but that have access to the
traditional utility electricity transmission and distribution infrastructure pursuant to state and local pro-competitive
and consumer choice policies and with solar companies with business models that are similar to ours. We believe
that we compete favorably with these companies based on our unique multi-channel approach and differentiated
customer experience.
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We also face competition from purely finance-driven organizations that acquire customers and then
subcontract out the installation of solar energy systems, from installation businesses that seek financing from
external parties, from large construction companies and utilities and from sophisticated electrical and roofing
companies.
Intellectual Property
As of December 31, 2019, we had 30 issued patents and 10 filed patent applications in the United States
and foreign jurisdictions relating to a variety of aspects of our solar solutions. Our issued U.S. patents will expire 20
years from their respective filing dates, with the earliest expiring in 2029. We intend to file additional patent
applications as we continue to innovate through our research and development efforts.
Government Regulation
Although we are not regulated as a public utility in the United States under applicable national, state or other
local regulatory regimes where we conduct business, we compete primarily with regulated utilities. As a result, we
have developed and are committed to maintaining a policy team to focus on the key regulatory and legislative
issues impacting the entire industry. We believe these efforts help us better navigate local markets through
relationships with key stakeholders and facilitate a deep understanding of the national and regional policy
environment.
To operate our systems, we obtain interconnection permission from the applicable local primary electric
utility. Depending on the size of the solar energy system and local law requirements, interconnection permission is
provided by the local utility directly to us and/or our customers. In almost all cases, interconnection permissions are
issued on the basis of a standard process that has been pre-approved by the local public utility commission or other
regulatory body with jurisdiction over net metering policies. As such, no additional regulatory approvals are required
once interconnection permission is given.
Our operations are subject to stringent and complex federal, state and local laws, including regulations
governing the occupational health and safety of our employees and wage regulations. For example, we are subject
to the requirements of the federal Occupational Safety and Health Act, as amended (“OSHA”), the U.S. Department
of Transportation (“DOT”), and comparable state laws that protect and regulate employee health and safety. We
endeavor to maintain compliance with applicable DOT, OSHA and other comparable government regulations.
However, we have in the past experienced workplace accidents and received citations from regulators resulting in
fines, as discussed in Item 1A. Risk Factors--"Compliance with occupational safety and health requirements and
best practices can be costly, and noncompliance with such requirements may result in potentially significant
penalties, operational delays and adverse publicity.” These incidents have not had a material impact on our
business or our relations with our employees.
Government Incentives
Federal, state and local government bodies provide incentives to owners, distributors, system integrators and
manufacturers of solar energy systems to promote solar energy in the form of rebates, tax credits, payments for
renewable energy credits associated with renewable energy generation and exclusion of solar energy systems from
property tax assessments. These incentives enable us to lower the price we charge customers for energy from, and
to lease, our solar energy systems, helping to catalyze customer acceptance of solar energy as an alternative to
utility-provided power.
As of January 1, 2020, the federal government offers a 26%, which is reduced from 30%, investment tax
credit (“Commercial ITC”) under Section 48(a) of the Internal Revenue Code of 1986, as amended (the “Code”), for
the installation of certain solar power facilities owned for business purposes. The depreciable basis of a solar facility
is also reduced by 50% of the tax credit claimed. Similarly, the federal government currently offers a 26%, which is
also reduced from 30%, personal income tax credit under Section 25D of the Internal Revenue Code (“Residential
Energy Efficiency Tax Credit”), for the installation of certain solar power facilities owned by residential taxpayers,
which is applicable to homeowners who purchase a solar system outright as opposed to entering into a Customer
Agreement. Both the Residential Energy Efficiency Tax Credit and the Commercial ITC will step down to 22% for
solar property commencing construction in 2021. In 2022, the Residential Energy Efficiency Tax Credit will expire
and the Commercial ITC will step down to 10%. The Internal Revenue Service (“IRS”) provided taxpayers a safe
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harbor opportunity to retain access to the pre-2020 30% tax credit amount through specific rules released in Notice
2018-59. We have sought to avail ourselves of the safe harbor in order to retain the 30% Commercial ITC that was
available in 2019 with respect to approximately 500 MW of projects by incurring certain costs and taking title to
equipment in 2019. We also plan to similarly further utilize the safe harbor program for solar equipment purchases
in future years as the Commercial ITC step down continues.
More than half of the states, and many local jurisdictions, have established property tax incentives for
renewable energy systems that include exemptions, exclusions, abatements and credits. Many states also have
adopted procurement requirements for renewable energy, and in 2018 the California Energy Commission and
California Building Standards Commission approved a standard for newly constructed single-family and multifamily
residences up to three stories tall to be solar-powered beginning in 2020. Twenty-nine states and the District of
Columbia have adopted a renewable portfolio standard (and nine other states have some voluntary goal) that
requires regulated utilities to procure a specified percentage of total electricity delivered in the state from eligible
renewable energy sources, such as solar energy systems, by a specified date. To prove compliance with such
mandates, utilities must surrender solar renewable energy credits (“SRECs”) to the applicable authority. Solar
energy system owners such as our investment funds often are able to sell SRECs to utilities directly or in SREC
markets.
While there are numerous federal, state and local government incentives that benefit our business, some
adverse interpretations or determinations of new and existing laws can have a negative impact on our business. For
example, in the state of Texas, the Court of Appeals for the Fifth District of Texas at Dallas recently held that a
personal property tax exemption on solar panels does not apply to solar panels that are leased (as opposed to
owned), and counties in that district have subjected our leased solar panels to personal property taxes. That
decision is currently being challenged; however, an adverse outcome will subject us to an increase in personal
property taxes. If we pass this additional tax on to our customers in the form of higher prices, it could reduce or
eliminate entirely any savings that these solar panels might otherwise provide to our customers in Texas.
Employees
As of December 31, 2019, we had approximately 4,800 employees. We also engage independent
contractors and consultants. None of our employees are covered by collective bargaining agreements. We have not
experienced any work stoppages.
Corporate Information
Our principal executive offices are located at 225 Bush Street, Suite 1400, San Francisco, California 94104,
and our telephone number is (415) 580-6900. Our website address is www.sunrun.com. Information contained on,
or that can be accessed through, our website does not constitute part of this Annual Report on Form 10-K and
inclusions of our website address in this Annual Report on Form 10-K are inactive textual references only. We were
formed in 2007 as a California limited liability company, and converted in 2008 into a Delaware corporation.
The Sunrun design logo, “Sunrun”, "Brightbox" and our other registered or common law trademarks, service
marks or trade names appearing in this Annual Report on Form 10-K are the property of Sunrun Inc. Other
trademarks and trade names referred to in this Annual Report on Form 10-K are the property of their respective
owners.
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Available Information
We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Exchange Act. The SEC
maintains a website at www.sec.gov that contains reports, proxy and information statements and other information
that we file with the SEC electronically. Copies of our reports on Form 10-K, Forms 10-Q, Forms 8-K, and
amendments to those reports may also be obtained, free of charge, electronically on the investor relations page on
our website located at investors.sunrun.com as soon as reasonably practical after we file such material with, or
furnish it to, the SEC.
We also use the investor relations page on our website as a channel of distribution for important company
information. Important information, including press releases, analyst presentations and financial information
regarding us, as well as corporate governance information, is routinely posted and accessible on the investor
relations page on our website. Information on or that can be accessed through our website is not part of this Annual
Report on Form 10-K, and the inclusion of our website address is an inactive textual reference only.
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Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and
uncertainties described below, together with all of the other information in this Annual Report on Form 10-K,
including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and our consolidated financial statements and related notes, before making a decision to invest in
our common stock. The risks and uncertainties described below may not be the only ones we face. If any of the
risks actually occur, our business, financial condition, results of operations, cash flows and prospects could be
materially and adversely affected. In that event, the market price of our common stock could decline, and you
could lose part or all of your investment.
Risks Related to Our Business and Our Industry
We need to raise capital to finance the continued growth of our operations and solar service business. If
capital is not available to us on acceptable terms, as and when needed, our business and prospects
would be materially and adversely impacted. In addition, our business is affected by general economic
conditions and related uncertainties affecting markets in which we operate. Volatility in current economic
conditions could adversely impact our business, including our ability to raise financing.
Our future success depends on our ability to raise capital from third parties to grow our business. To date,
we have funded our business principally through low-cost tax equity investment funds. If we are unable to
establish new investment funds when needed, or upon desirable terms, the growth of our solar service business
would be impaired. Changes in tax law could also affect our ability to establish such tax equity investment funds,
impact the terms of existing or future funds, or reduce the pool of capital available for us to grow our business.
The contract terms in certain of our existing investment fund documents contain various conditions with
respect to our ability to draw on financing commitments from the fund investors, including conditions that restrict
our ability to draw on such commitments if an event occurs that could reasonably be expected to have a material
adverse effect on the fund or, in some instances, us. If we are not able to satisfy such conditions due to events
related to our business, a specific investment fund, developments in our industry, including tax or regulatory
changes, or otherwise, and as a result, we are unable to draw on existing funding commitments, we could
experience a material adverse effect on our business, liquidity, financial condition, results of operations and
prospects. If any of the investors that currently invest in our investment funds decide not to invest in future
investment funds to finance our solar service offerings due to general market conditions, concerns about our
business or prospects or any other reason, or materially change the terms under which they are willing to provide
future financing, we would need to identify new investors to invest in our investment funds and our cost of capital
may increase.
In addition, our business and results of operations are materially affected by conditions in the global capital
markets and the economy. A general slowdown or volatility in current economic conditions, stemming from the
level of U.S. national debt, currency fluctuations, unemployment rates, the availability and cost of credit, the U.S.
housing market, tariffs, trade wars, inflation levels, interest rates, energy costs and concerns over a slowing
economy, could adversely affect our business, including our ability to raise financing.
There can be no assurance that we will be able to continue to successfully access capital in a manner that
supports the growth of our business. Certain sources of capital may not be available in the future, and competition
for any available funding may increase. We cannot be sure that we will be able to maintain necessary levels of
funding without incurring high funding costs, unfavorable changes in the terms of funding instruments or the
liquidation of certain assets. If we are unable to continue to offer a competitive investment profile, we may lose
access to these funds or they may only be available on less favorable terms than those provided to our
competitors or currently provided to us. If we are unable to arrange new or alternative methods of financing on
favorable terms, our business, liquidity, financial condition, results of operations and prospects could be materially
and adversely affected.
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Rising interest rates will adversely impact our business.
Rising interest rates may increase our cost of capital. Our future success depends on our ability to raise
capital from fund investors and obtain secured lending to help finance the deployment of our solar service
offerings. Part of our business strategy is to seek to reduce our cost of capital through these arrangements to
improve our margins, offset reductions in government incentives and maintain the price competitiveness of our
solar service offerings. Rising interest rates may have an adverse impact on our ability to offer attractive pricing
on our solar service offerings to customers, which could negatively impact sales of our solar energy offerings.
The majority of our cash flows to date have been from solar service offerings under Customer Agreements
that have been monetized under various investment fund structures. One of the components of this monetization
is the present value of the payment streams from customers who enter into these Customer Agreements. If the
rate of return required by capital providers, including debt providers, rises as a result of a rise in interest rates, it
will reduce the present value of the customer payment stream and consequently reduce the total value derived
from this monetization. Any measures that we could take to mitigate the impact of rising interest rates on our
ability to secure third-party financing could ultimately have an adverse impact on the value proposition that we
offer customers.
The solar energy industry is an emerging market that is constantly evolving and may not develop to
the size or at the rate we expect.
The solar energy industry is an emerging and constantly evolving market opportunity. We believe the
solar energy industry will still take several years to fully develop and mature, and we cannot be certain that the
market will grow to the size or at the rate we expect. For example, we have experienced increases in
cancellations of our Customer Agreements in certain geographic markets during certain periods in our operating
history. Any future growth of the solar energy market and the success of our solar service offerings depend on
many factors beyond our control, including recognition and acceptance of the solar service market by
consumers, the pricing of alternative sources of energy, a favorable regulatory environment, the continuation of
expected tax benefits and other incentives, and our ability to provide our solar service offerings cost-effectively.
If the markets for solar energy do not develop to the size or at the rate we expect, our business may be
adversely affected.
Solar energy has yet to achieve broad market acceptance and depends in part on continued support in
the form of rebates, tax credits and other incentives from federal, state and local governments. If this support
diminishes materially, our ability to obtain external financing on acceptable terms, or at all, could be materially
adversely affected. These types of funding limitations could lead to inadequate financing support for the
anticipated growth in our business. Furthermore, growth in residential solar energy depends in part on
macroeconomic conditions, retail prices of electricity and customer preferences, each of which can change
quickly. Declining macroeconomic conditions, including in the job markets and residential real estate markets,
could contribute to instability and uncertainty among customers and impact their financial wherewithal, credit
scores or interest in entering into long-term contracts, even if such contracts would generate immediate and
long-term savings.
Furthermore, market prices of retail electricity generated by utilities or other energy sources could
decline for a variety of reasons, as discussed further below. Any such declines in macroeconomic conditions,
changes in retail prices of electricity or changes in customer preferences would adversely impact our business.
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Our ability to provide our solar service offerings to customers on an economically viable basis depends
in part on our ability to finance these systems with fund investors who seek particular tax and other
benefits.
Our solar service offerings have been eligible for federal commercial investment tax credits, U.S. Treasury
grants and other tax benefits. We have relied on, and will continue to rely on, tax equity investment funds, which
are financing structures that monetize a substantial portion of those benefits, in order to finance our solar service
offerings. If, for any reason, we are unable to continue to monetize those benefits through these arrangements,
we may be unable to provide and maintain our solar service offerings for customers on an economically viable
basis.
The availability of this tax-advantaged financing depends upon many factors, including:
•
•
•
•
our ability to compete with other solar energy companies for the limited number of potential
fund investors, each of which has limited funds and limited appetite for the tax benefits
associated with these financings;
the state of financial and credit markets;
changes in the legal or tax risks associated with these financings; and
non-renewal of these incentives or decreases in the associated benefits (including the
anticipated step-down of the Commercial ITC described below).
As of January 1, 2020, the federal government offers a 26% investment tax credit (“Commercial ITC”)
under Section 48(a) of the Internal Revenue Code of 1986, as amended (the “Code”), for the installation of
certain solar power facilities owned for business purposes. The depreciable basis of a solar facility is also
reduced by 50% of the tax credit claimed. Similarly, the federal government currently offers a 26% personal
income tax credit under Section 25D of the Internal Revenue Code (“Residential Energy Efficiency Tax Credit”),
for the installation of certain solar power facilities owned by residential taxpayers, which is applicable to
customers who purchase a solar system outright as opposed to entering into a Customer Agreement. Both the
Residential Energy Efficiency Tax Credit and the Commercial ITC will step down to 22% for solar property
commencing construction in 2021. In 2022, the Residential Energy Efficiency Tax Credit will expire and the
Commercial ITC will step down to 10%.
Further reductions in the Commercial ITC as scheduled may impact the attractiveness of solar energy to
certain tax equity investors and could potentially harm our business. Obtaining tax equity funding (and tax equity
funding on advantageous terms) may become more challenging. Additionally, the benefits of the Commercial ITC
have historically enhanced our ability to provide competitive pricing for customers. Further reductions in,
eliminations of, or expirations of, governmental incentives such as the Residential Energy Efficiency Tax Credit
could reduce the number of customers who choose to purchase our solar energy systems.
The IRS provided taxpayers a safe harbor opportunity to retain access to the pre-2020 30% Commercial
ITC amount through specific rules released in Notice 2018-59. We have sought to avail ourselves of the safe harbor
in order to retain the 30% Commercial ITC that was available in 2019 with respect to approximately 500 MW of
projects by incurring certain costs and taking title to equipment in 2019. We also plan to similarly further utilize the
safe harbor program for solar equipment purchases in future years if the Commercial ITC step down continues.
While we have attempted to ensure that these transactions will comply with guidance issued by the IRS, this
guidance is relatively limited and potentially subject to change. Either the IRS or our financing partners could
challenge whether the purchased equipment is properly qualified for safe harbor tax treatment, which could either
result in lower tax equity advances or trigger indemnification obligations to our tax equity investors. It is also
possible that we will not be able to use all of the equipment purchased through this safe harbor program.
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Additionally, potential investors must remain satisfied that the funding structures that we offer make the tax
benefits associated with solar energy systems available to these investors, which depends on the investors’
assessment of the tax law, the absence of any unfavorable interpretations of that law and the continued
application of existing tax law and interpretations to our funding structures. Changes in existing law or
interpretations of existing law by the Internal Revenue Service (the “IRS”) and the courts could reduce the
willingness of investors to invest in funds associated with these solar energy systems. Moreover, corporate tax
rate reductions could reduce the appetite for tax benefits overall, which could reduce the pool of available funds.
Additionally, certain tax deductions, such as depreciation, will have less value to investors, requiring additional
cash to be paid to investors to meet return demands. Accordingly, we cannot assure you that this type of financing
will continue to be available to us. New investment fund structures or other financing mechanisms may become
available, but if we are unable to take advantage of these fund structures and financing mechanisms, we may be
at a competitive disadvantage. If, for any reason, we are unable to finance our solar service offerings through tax-
advantaged structures or if we are unable to realize or monetize Commercial ITCs or other tax benefits, we may
no longer be able to provide our solar service offerings to new customers on an economically viable basis, which
would have a material adverse effect on our business, financial condition and results of operations.
If the Internal Revenue Service makes determinations that the fair market value of our solar energy
systems is materially lower than what we have claimed, we may have to pay significant amounts to our
fund investors, and our business, financial condition and prospects may be materially and adversely
affected.
We and our fund investors claim the Commercial ITC or the U.S. Treasury grant in amounts based on the
fair market value of our solar energy systems. We have obtained independent appraisals to determine the fair
market values we report for claiming Commercial ITCs and U.S. Treasury grants. The IRS reviews these fair
market values. With respect to U.S. Treasury grants, the U.S. Treasury Department reviews the reported fair
market value in determining the amount initially awarded, and the IRS may also subsequently audit the fair
market value and determine that amounts previously awarded constitute taxable income for U.S. federal income
tax purposes. With respect to Commercial ITCs, the IRS may review the fair market value on audit and determine
that the tax credits previously claimed must be reduced. If the fair market value is determined in these
circumstances to be less than what we reported, we may owe our fund investors an amount equal to this
difference, plus any costs and expenses associated with a challenge to that valuation. We could also be subject
to tax liabilities, including interest and penalties. If the IRS further disagrees now or in the future with the amounts
we reported regarding the fair market value of our solar energy systems, it could have a material adverse effect
on our business, financial condition and prospects. Since we do not know how the IRS will determine system
values in claiming Commercial ITCs, we are unable to reliably estimate the maximum potential tax liabilities
across our fleet as of each balance sheet date. One of our investment funds has been selected for audit by the
IRS. In addition, one of our investors is currently being audited by the IRS. Both our and our investor's audits
involve a review of the fair market value determination of our solar energy systems. If these audits result in an
adverse finding, we may be subject to an indemnity obligation to our investors. We purchased an insurance policy
in 2018 insuring us and related parties for additional taxes owed in respect of lost Commercial ITCs, gross-up
costs and expenses incurred in defending the types of claims described above. However, this policy only covers
certain investment funds and has negotiated exclusions from, and limitations to, coverage and therefore may not
cover us for all such lost Commercial ITCs, taxes, costs and expenses.
We have historically benefited from declining costs in our industry, and our business and financial
results may be harmed not only as a result of any increases in costs associated with our solar service
offerings but also any failure of these costs to continue to decline as we currently expect. If we do not
reduce our cost structure in the future, our ability to continue to be profitable may be impaired.
Declining costs related to raw materials, manufacturing and the sale and installation of our solar service
offerings have been a key driver in the pricing of our solar service offerings and, more broadly, customer adoption
of solar energy. While historically the prices of solar panels and raw materials have declined, the cost of solar
panels and raw materials could increase in the future, and such products’ availability could decrease, due to a
variety of factors, including tariffs and trade barriers, export regulations, regulatory or contractual limitations,
industry market requirements and changes in technology and industry standards.
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For example, we and our solar partners purchased a significant portion of the solar panels used in our
solar service offerings from overseas manufacturers. In January 2018, in response to a petition filed under
Section 201 of the Trade Act of 1974, the President imposed four-year tariffs on imported solar modules and
imported solar cells not assembled into other products (the "Section 201 Module Tariffs") that apply to all imports
above a 2.5 gigawatts (GW) annual threshold. The Section 201 Module Tariffs were 30% in 2018 and stepped
down by 5% annually in the second, third and fourth years. In September 2018, the U.S. Trade Representative
("USTR") granted SunPower Corporation ("SunPower") an exemption, making SunPower a domestic solar panel
manufacturer that is not subject to the Section 201 Module Tariffs. This could give SunPower, which offers home
solar service offerings using its own panels a cost advantage over competitors like us that rely, in part, on
imported solar panels that are currently subject to these tariffs.
The United States and China each imposed additional new tariffs in 2018 on various products imported
from the other country. These include an additional 25% tariff on solar panels and cells that are manufactured in
China and a tariff on inverters, certain batteries and other electrical equipment initially set at 10%. In May 2019,
the 10% tariff was increased to 25%, and the current administration has threatened additional incremental
increases. The United States also has, from time to time, announced potential tariffs on goods imported from
other countries. We cannot predict what actions may ultimately be taken with respect to tariffs or trade relations
between the United States and other countries, what products may be subject to such actions, or what actions
may be taken by the other countries in retaliation. The tariffs described above, the adoption and expansion of
trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs, trade agreements
or related policies have the potential to adversely impact our supply chain and access to equipment, our costs
and ability to economically serve certain markets. Any such cost increases or decreases in availability could slow
our growth and cause our financial results and operational metrics to suffer.
Other factors may also impact costs, such as our choice to make significant investments to drive growth
in the future.
We rely on net metering and related policies to offer competitive pricing to customers in all of our current
markets, and changes to such policies may significantly reduce demand for electricity from our solar
service offerings.
As of December 31, 2019, a substantial majority of states have adopted net metering policies. Net
metering policies are designed to allow homeowners to serve their own energy load using on-site generation.
Electricity that is generated by a solar energy system and consumed on-site avoids a retail energy purchase
from the applicable utility, and excess electricity that is exported back to the electric grid generates a retail credit
within a homeowner’s monthly billing period. At the end of the monthly billing period, if the homeowner has
generated excess electricity within that month, the homeowner typically carries forward a credit for any excess
electricity to be offset against future utility energy purchases. At the end of an annual billing period or calendar
year, utilities either continue to carry forward a credit, or reconcile the homeowner’s final annual or calendar year
bill using different rates (including zero credit) for the exported electricity.
Utilities, their trade associations, and fossil fuel interests in the country are currently challenging net
metering policies, and seeking to eliminate them, cap them, or impose charges on homeowners that have net
metering. For example, in October 2015 the Hawaii Public Utilities Commission (the "Hawaii Commission")
issued an order that eliminates net metering for all new homeowners. All existing net metering customers and
customers who submitted net metering applications before October 12, 2015 are grandfathered indefinitely
under the old rules. Some interim programs created by the Hawaii Commission are grandfathered for customers
who applied in a timely fashion. We continue to build and service these systems. These new interim programs
are more complex, which decreases certainty in the economic value proposition we provide to customers and
potentially slows down market growth.
In addition, in early 2016 we ceased new installations in Nevada in response to the elimination of net
metering by the Public Utilities Commission of Nevada (“PUCN”). However, in September 2016, the PUCN
issued an order grandfathering in customers under the prior net metering rules that had installed a solar energy
system or had submitted a net metering application prior to December 31, 2015. Furthermore, in June 2017,
Nevada enacted legislation, AB 405, that restores net metering at a reduced credit and grandfathers new
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customers for 20 years at the net metering rate in effect at the time they applied for interconnection. As another
example, in December 2016, the Arizona Corporation Commission (“ACC”) issued a decision to eliminate net
metering for new solar customers and replace it with a net-feed in tariff (a fixed export rate). In May 2018,
Connecticut enacted legislation to end the state's net metering program upon the conclusion of the Residential
Solar Investment Program, and replace it with two yet-to-be-determined rate structures. On June 28, 2019,
legislation was signed into law delaying the implementation of these programs and continuing the net metering
program through the end of 2021.
Some states set limits on the total percentage of a utility’s customers that can adopt net metering. For
example, South Carolina had a net metering cap that was eliminated in May 2019 when South Carolina enacted
the Energy Freedom Act. The new law allows for regulatory review of net metering after two years, with such
review set to occur in June 2021. New Jersey currently has no net metering cap; however, it has a threshold that
triggers commission review of its net metering policy. These policies could be subject to change in the future, and
other states we serve now or in the future may adopt net metering caps. If the net metering caps in these
jurisdictions are reached without an extension of net metering policies, homeowners in those jurisdictions will not
have access to the economic value proposition net metering provides. Our ability to sell our solar service offerings
may be adversely impacted by the failure to extend existing limits to net metering or the elimination of currently
existing net metering policies. The failure to adopt a net metering policy where it currently is not in place would
pose a barrier to entry in those states. Additionally, the imposition of charges that only or disproportionately
impact homeowners that have solar energy systems, or the introduction of rate designs mentioned above, would
adversely impact our business.
California's Public Utilities Commission (“CPUC”) has made changes to rate design for solar customers,
such as adopting "time of use" rates with different electricity prices during peak and off peak hours, as well as
modifications to the minimum bill for solar customers. The CPUC is expected to revisit its net metering policy in a
proceeding that is expected to begin in mid-2020.
Electric utility statutes and regulations and changes to such statutes or regulations may present
technical, regulatory and economic barriers to the purchase and use of our solar service offerings
that may significantly reduce demand for such offerings.
Federal, state and local government statutes and regulations concerning electricity heavily influence the
market for our solar service offerings and are constantly evolving. These statutes, regulations, and
administrative rulings relate to electricity pricing, net metering, consumer protection, incentives, taxation,
competition with utilities, and the interconnection of homeowner-owned and third party-owned solar energy
systems to the electrical grid. These statutes and regulations are constantly evolving. Governments, often acting
through state utility or public service commissions, change and adopt different rates for residential customers on
a regular basis and these changes can have a negative impact on our ability to deliver savings to customers.
In addition, many utilities, their trade associations, and fossil fuel interests in the country, each of which
has significantly greater economic and political resources than the residential solar industry, are currently
challenging solar-related policies to reduce the competitiveness of residential solar energy. Any adverse
changes in solar-related policies could have a negative impact on our business and prospects.
We face competition from traditional energy companies as well as solar and other renewable energy
companies.
The solar energy industry is highly competitive and continually evolving as participants strive to
distinguish themselves within their markets and compete with large utilities. We believe that our primary
competitors are the established utilities that supply energy to homeowners by traditional means. We compete
with these utilities primarily based on price, predictability of price, and the ease by which homeowners can
switch to electricity generated by our solar service offerings. If we cannot offer compelling value to customers
based on these factors, then our business and revenue will not grow. Utilities generally have substantially
greater financial, technical, operational and other resources than we do. As a result of their greater size, these
competitors may be able to devote more resources to the research, development, promotion and sale of their
products or respond more quickly to evolving industry standards and changes in market conditions than we
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can. Furthermore, these competitors are able to devote substantially more resources and funding to regulatory
and lobbying efforts.
Utilities could also offer other value-added products or services that could help them compete with us even
if the cost of electricity they offer is higher than ours. In addition, a majority of utilities’ sources of electricity are
non-solar, which may allow utilities to sell electricity more cheaply than we can. Moreover, regulated utilities are
increasingly seeking approval to “rate-base” their own residential solar and storage businesses. Rate-basing
means that utilities would receive guaranteed rates of return for their solar and storage businesses. This is
already commonplace for utility scale solar projects and commercial solar projects. While few utilities to date have
received regulatory permission to rate-base residential solar or storage, our competitiveness would be
significantly harmed should more utilities receive such permission because we do not receive guaranteed profits
for our solar service offerings.
We also face competition from other residential solar service providers. Some of these competitors have a
higher degree of brand name recognition, differing business and pricing strategies, and greater capital resources
than we have, as well as extensive knowledge of our target markets. If we are unable to establish or maintain a
consumer brand that resonates with customers, maintain high customer satisfaction, or compete with the pricing
offered by our competitors, our sales and market share position may be adversely affected, as our growth is
dependent on originating new customers. We also face competitive pressure from companies that may offer
lower-priced consumer offerings than we do.
In addition, we compete with companies that are not regulated like traditional utilities but that have access
to the traditional utility electricity transmission and distribution infrastructure. These energy service companies
are able to offer customers electricity supply-only solutions that are competitive with our solar service offerings on
both price and usage of solar energy technology while avoiding the long-term agreements and physical
installations that our current fund-financed business model requires. This may limit our ability to attract
customers, particularly those who wish to avoid long-term contracts or have an aesthetic or other objection to
putting solar panels on their roofs.
Furthermore, we face competition from purely finance-driven nonintegrated competitors that subcontract
out the installation of solar energy systems, from installation businesses (including solar partners) that seek
financing from external parties, from large construction companies and from electrical and roofing companies. In
addition, local installers that might otherwise be viewed as potential solar partners may gain market share by
being able to be the first providers in new local markets. Some of these competitors may provide energy at lower
costs than we do. Finally, as declining prices for solar panels and related equipment has resulted in an increase in
consumers purchasing instead of leasing solar energy systems, we face competition from companies that offer
consumer loans for these solar panel purchases.
As the solar industry grows and evolves, we will continue to face existing competitors as well as new
competitors who are not currently in the market (including those resulting from the consolidation of existing
competitors) that achieve significant developments in alternative technologies or new products such as storage
solutions, loan products or other programs related to third-party ownership. Our failure to adapt to changing
market conditions, to compete successfully with existing or new competitors and to adopt new or enhanced
technologies could limit our growth and have a material adverse effect on our business and prospects.
Regulations and policies related to rate design could deter potential customers from purchasing our
solar service offerings, reduce the value of the electricity our systems produce, and reduce any
savings that our customers could realize from our solar service offerings.
All states regulate investor-owned utility retail electricity pricing. In addition, there are numerous
publicly owned utilities and electric cooperatives that establish their own retail electricity pricing through some
form of regulation or internal process. These regulations and policies could deter potential customers from
purchasing our solar service offerings. For example, some utilities in states such as Arizona and Utah have
sought and secured rate design changes that reduce credit for residential solar exports to below the retail rate
and impose new charges for rooftop solar customers. Utilities in additional states may follow suit. Such rate
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changes can include changing rates to charge lower volume-based rates--the rates charged for kilowatt hours
of electricity purchased by a residential customer--while raising unavoidable fixed charges that a homeowner is
subject to when they purchase solar energy from third parties, and levying charges on homeowners based on
their point of maximum demand during a month (referred to as “demand charge”). For example, the Arizona
Public Service Company offers residential demand charge rate plans and if our solar customers have
subscribed to those plans, they may not realize typical savings from our offerings. These forms of rate design
could adversely impact our business by reducing the value of the electricity our solar energy systems produce
and reducing any savings customers realize by purchasing our solar service offerings. These proposals could
continue or be replicated in other states. In addition to changes in general rates charged to all residential
customers, utilities are increasingly seeking solar-specific charges (which may be fixed charges, capacity-
based charges, or other rate charges). Any of these changes could materially reduce the demand for our
offerings and could limit the number of markets in which our offerings are competitive with electricity provided
by the utilities.
Our business currently depends on the availability of utility rebates, tax credits, tax exemptions and
other financial incentives in addition to other tax benefits. The expiration, elimination or reduction of
these rebates and incentives could adversely impact our business.
Our business depends on government policies that promote and support solar energy and enhance the
economic viability of owning solar energy systems. U.S. federal, state and local governmental bodies provide
incentives to owners, distributors, installers and manufacturers of solar energy systems to promote solar
energy. These incentives include Commercial ITCs, as discussed above, as well as other tax credits, rebates
and SRECs associated with solar energy generation. Some markets, such as New Jersey and Maryland,
currently utilize SRECs. SRECs can be volatile and could decrease over time as the supply of SREC-
producing solar energy systems installed in a particular market increases. For example, in New Jersey,
because of the substantial supply of solar energy systems installed, the state was on the cusp of reaching the
solar carve-out under the state's Renewable Portfolio Standard. In May 2018, legislation was enacted to
expand New Jersey's solar carve-out to 5.1% of kilowatt hours of electricity sold in the state, and state
regulators project that such threshold will be met in June 2020. In December 2019, the state regulators
adopted a transition program to follow the current SREC program that will be based on a fixed price SREC
model and which is anticipated to be available prior to the closure of the current SREC program. We rely on
these incentives to lower our cost of capital and to attract investors, all of which enable us to lower the price
we charge customers for our solar service offerings. These incentives have had a significant impact on the
development of solar energy but they could change at any time, especially in light of the recent change in
administration, as further described below. These incentives may also expire on a particular date (as
discussed above with respect to the Commercial ITC), end when the allocated funding is exhausted, or be
reduced, terminated or repealed without notice. The financial value of certain incentives may also decrease
over time.
After the Tax Act's enactment in December 2017, the corporate tax rate was reduced to 21% and now
limits interest deductibility and allows full and immediate expensing of capital costs. A reduction in the corporate
tax rate and the expensing of capital costs could diminish the capacity of potential fund investors to benefit from
tax incentives, and could require additional cash to be distributed to such fund investors in lieu of tax benefits.
Furthermore, the current administration has overturned and modified policies of, and regulations enacted by, the
prior administration that placed limitations on coal and gas electric generation, mining and/or exploration. Any
effort to overturn federal and state laws, regulations or policies that are supportive of solar energy generation or
that remove costs or other limitations on other types of energy generation that compete with solar energy
projects could materially and adversely affect our business.
Our business model also relies on multiple tax exemptions offered at the state and local levels. For
example, some states have property tax exemptions that exempt the value of solar energy systems in
determining values for calculation of local and state real and personal property taxes. State and local tax
exemptions can be changed by state legislatures and other regulators, and if solar energy systems were not
exempt from such taxes, the property taxes payable by customers would be higher, which could offset any
potential savings our solar service offerings could offer. Similarly, if state or local legislatures or tax
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administrators impose property taxes on third-party owners of solar energy systems, solar companies like us
would be subject to higher costs. For example, South Carolina counties do not currently assess property tax on
customer-owned residential solar energy systems; however, third-party-owned systems are subject to business
personal property taxes. In Connecticut, a number of municipalities have assessed property tax on third-party-
owned solar energy systems, despite an applicable exemption under state law. In general, we rely on certain
state and local tax exemptions that apply to the sale of equipment, sale of power, or both. These state and local
tax exemptions can be changed by state legislatures, regulators, tax administrators, or court rulings and such
changes could adversely impact our business and the profitability of our offerings in certain markets.
We are not currently regulated as a utility under applicable laws, but we may be subject to regulation as
a utility in the future or become subject to new federal and state regulations for any additional solar service
offerings we may introduce in the future.
Most federal, state, and municipal laws do not currently regulate us as a utility. As a result, we are not
subject to the various regulatory requirements applicable to U.S. utilities. However, any federal, state, local or
other applicable regulations could place significant restrictions on our ability to operate our business and execute
our business plan by prohibiting or otherwise restricting our sale of electricity. These regulatory requirements
could include restricting our sale of electricity, as well as regulating the price of our solar service offerings. For
example, the New York Public Service Commission and the Illinois Power Agency have issued orders regulating
distributed energy providers in certain ways as if they were energy service companies, which increases the
regulatory compliance burden for us in such states. If we become subject to the same regulatory authorities as
utilities in other states or if new regulatory bodies are established to oversee our business, our operating costs
could materially increase.
Our business depends in part on the regulatory treatment of third-party-owned solar energy systems.
Our Customer Agreements are third-party ownership arrangements. Sales of electricity by third parties
face regulatory challenges in some states and jurisdictions. These challenges pertain to issues such as whether
third-party-owned systems qualify for the same rebates, tax exemptions or other non-tax incentives available for
homeowner-owned solar energy systems, whether third-party-owned systems are eligible at all for these
incentives, and whether third-party-owned systems are eligible for net metering and the associated significant
cost savings. Adverse regulatory treatment of third-party ownership arrangements could reduce demand for our
solar service offerings, adversely impact our access to capital and cause us to increase the price we charge
customers for energy.
Interconnection limits or circuit-level caps imposed by regulators may significantly reduce our ability
to sell electricity from our solar service offerings in certain markets or slow interconnections, harming
our growth rate and customer satisfaction scores.
Interconnection rules establish the circumstances in which rooftop solar will be connected to the electricity
grid. Interconnection limits or circuit-level caps imposed by regulators may curb our growth in key markets.
Utilities throughout the country have different rules and regulations regarding interconnection and some utilities
cap or limit the amount of solar energy that can be interconnected to the grid. Our systems do not provide power
to customers until they are interconnected to the grid.
Interconnection regulations are based on claims from utilities regarding the amount of solar energy that
can be connected to the grid without causing grid reliability issues or requiring significant grid upgrades. Although
recent rulings from the Hawaii Utilities Commission have helped resolve some problems, historically,
interconnection limits or circuit-level caps have slowed the pace of our installations in Hawaii. Similar
interconnection limits could slow our future installations in Hawaii or other markets, harming our growth rate and
customer satisfaction scores. Similarly, the California and Hawaii Public Utilities Commissions recently required
the activation of some advanced inverter functionality to head off presumed grid reliability issues, which may
require more expensive equipment and more oversight of the operation of the solar energy systems over time. As
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a result, these regulations may hamper our ability to sell our offerings in certain markets and increase our costs,
adversely affecting our business, operating results, financial condition and prospects.
We may be required to make payments or contribute assets to our investors upon the occurrence of certain
events, including one-time reset or true-up payments or upon the exercise of a redemption option by one
of our investors.
Our fund investors typically advance capital to us based on production capacity estimates. The models we
use to calculate prepayments in connection with certain of our investment funds will be updated for each
investment fund at a fixed date occurring after placement in service of all applicable solar energy systems or an
agreed upon date (typically within the first year of the applicable term) to reflect certain specified conditions as
they exist at such date including the ultimate system size of the equipment that was leased, how much it cost, and
when it went into service. In some cases, these true-up models will also incorporate any changes in law, which
would include any reduction in rates (and thus any reduction in the benefits of depreciation). As a result of this
true-up, applicable payments are resized, and we may be obligated to refund a portion of the investor’s
prepayments or to contribute additional assets to the investment fund. In addition, certain of our fund investors
have the right to require us to purchase their interests in the investment funds after a set period of time, generally
at a price equal to the greater of a set purchase price or fair market value of the interests at the time of the
repurchase. Any significant refunds, capital contributions or purchases that we may be required to make could
adversely affect our liquidity or financial condition.
A material drop in the retail price of utility-generated electricity or electricity from other sources
would harm our business, financial condition and results of operations.
We believe that a customer’s decision to buy solar energy from us is primarily driven by a desire to lower
electricity costs. Decreases in the retail prices of electricity from utilities or other energy sources would harm our
ability to offer competitive pricing and could harm our business. The price of electricity from utilities could
decrease as a result of:
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the construction of a significant number of new power generation plants, including nuclear,
coal, natural gas or renewable energy technologies;
the construction of additional electric transmission and distribution lines;
a reduction in the price of natural gas or other natural resources as a result of new drilling
techniques or other technological developments, a relaxation of associated regulatory
standards, or broader economic or policy developments;
energy conservation technologies and public initiatives to reduce electricity consumption; and
development of new energy technologies that provide less expensive energy.
A reduction in utility electricity prices would make the purchase of our solar service offerings less attractive.
If the retail price of energy available from utilities were to decrease due to any of these or other reasons, we
would be at a competitive disadvantage. As a result, we may be unable to attract new customers and our growth
would be limited.
It is difficult to evaluate our business and prospects due to our limited operating history.
Our limited operating history, particularly as a publicly traded company, combined with the rapidly evolving
and competitive nature of our industry, may not provide an adequate basis for you to evaluate our results of
operations and business prospects. We cannot assure you that we will continue to be successful in generating
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revenue from our current solar service offerings or from any additional solar service offerings we may introduce in
the future. In addition, we only have limited insight into emerging trends, such as alternative energy sources,
commodity prices in the overall energy market, and legal and regulatory changes that impact the solar industry,
any of which could adversely impact our business, prospects and results of operations.
We have incurred losses and may be unable to sustain profitability in the future.
We have incurred net losses in the past and may continue to incur net losses as we increase our spending
to finance the expansion of our operations, expand our installation, engineering, administrative, sales and
marketing staffs, increase spending on our brand awareness and other sales and marketing initiatives, make
significant investments to drive future growth in our business and implement internal systems and infrastructure to
support our growth. We do not know whether our revenue will grow rapidly enough to absorb these costs and our
limited operating history makes it difficult to assess the extent of these expenses or their impact on our results of
operations. Our ability to sustain profitability depends on a number of factors, including but not limited to:
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growing our customer base;
finding investors willing to invest in our investment funds on favorable terms;
maintaining or further lowering our cost of capital;
reducing the cost of components for our solar service offerings;
growing and maintaining our channel partner network;
maintaining high levels of product quality, performance and customer satisfaction;
growing our direct-to-consumer business to scale; and
reducing our operating costs by lowering our customer acquisition costs and optimizing our
design and installation processes and supply chain logistics.
Even if we do sustain profitability, we may be unable to achieve positive cash flows from operations in
the future.
Our results of operations may fluctuate from quarter to quarter, which could make our future
performance difficult to predict and could cause our results of operations for a particular period to fall
below expectations, resulting in a decline in the price of our common stock.
Our quarterly results of operations are difficult to predict and may fluctuate significantly in the future.
We have experienced seasonal and quarterly fluctuations in the past and expect these fluctuations to
continue. However, given that we are operating in a rapidly changing industry, those fluctuations may be
masked by our recent growth rates and thus may not be readily apparent from our historical results of
operations. As such, our past quarterly results of operations may not be good indicators of likely future
performance.
In addition to the other risks described in this “Risk Factors” section, as well as the factors discussed in
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” section, the
following factors could cause our results of operations and key performance indicators to fluctuate:
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the expiration, reduction or initiation of any governmental tax rebates, tax exemptions or
incentives;
significant fluctuations in customer demand for our solar service offerings or fluctuations in the
geographic concentration of installations of solar energy systems;
changes in financial markets, which could restrict our ability to access available and cost-
effective financing sources;
seasonal, environmental or weather conditions that impact sales, energy production and
system installations;
the amount and timing of operating expenses related to the maintenance and expansion of
our business, operations and infrastructure;
announcements by us or our competitors of new products or services, significant
acquisitions, strategic partnerships, joint ventures or capital-raising activities or
commitments;
changes in our pricing policies or terms or those of our competitors, including utilities;
changes in regulatory policy related to solar energy generation;
the loss of one or more key partners or the failure of key partners to perform as anticipated;
actual or anticipated developments in our competitors’ businesses or the competitive
landscape;
actual or anticipated changes in our growth rate;
general economic, industry and market conditions; and
changes to our cancellation rate.
In the past, we have experienced seasonal fluctuations in sales and installations, particularly in the fourth
quarter. This has been the result of decreased sales through the holiday season and weather-related installation
delays. Our incentives revenue is also highly variable due to associated revenue recognition rules, as discussed
in greater detail in the section titled “Management’s Discussion and Analysis of Financial Condition and Results
of Operations.” Seasonal and other factors may also contribute to variability in our sales of solar energy systems
and product sales. For these or other reasons, the results of any prior quarterly or annual periods should not be
relied upon as indications of our future performance. In addition, our actual revenue or key operating metrics in
one or more future quarters may fall short of the expectations of investors and financial analysts. If that occurs,
the trading price of our common stock could decline and you could lose part or all of your investment.
Our actual financial results may differ materially from any guidance we may publish from time to time.
We have in the past and may, from time to time, provide guidance regarding our future performance that
represents our management’s estimates as of the date such guidance is provided. Any such guidance is based
upon a number of assumptions with respect to future business decisions (some of which may change) and
estimates that, while presented with numerical specificity, are inherently subject to significant business,
economic and competitive uncertainties and contingencies (many of which are beyond our control). Guidance is
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necessarily speculative in nature, and it can be expected that some or all of the assumptions that inform such
guidance will not materialize or will vary significantly from actual results. Our ability to meet deployment volume,
cost, net present value or any other forward-looking guidance is impacted by a number of factors including, but
not limited to, the number of our solar energy systems sold versus leased, changes in installation costs, the
availability of additional financing on acceptable terms, changes in the retail prices of traditional utility generated
electricity, the availability of rebates, tax credits and other incentives, changes in policies and regulations
including net metering and interconnection limits or caps, the availability of solar panels and other raw materials,
as well as the other risks to our business that are described in this section. Accordingly, our guidance is only an
estimate of what management believes is realizable as of the date such guidance is provided. Actual results may
vary from such guidance and the variations may be material. Investors should also recognize that the reliability
of any forecasted financial data diminishes the farther in the future that the data is forecast. In light of the
foregoing, investors should not place undue reliance on our financial guidance, and should carefully consider
any guidance we may publish in context.
If we fail to manage our recent and future growth effectively, we may be unable to execute our
business plan, maintain high levels of customer service or adequately address competitive
challenges.
We have experienced significant growth in recent periods, and we intend to continue to expand our
business within existing markets and in a number of new locations in the future. This growth has placed, and any
future growth may place, a significant strain on our management, operational and financial infrastructure. In
particular, we will be required to expand, train and manage our growing employee base and solar partners. Our
management will also be required to maintain and expand our relationships with customers, suppliers and other
third parties and attract new customers and suppliers, as well as to manage multiple geographic locations.
In addition, our current and planned operations, personnel, systems and procedures might be inadequate
to support our future growth and may require us to make additional unanticipated investment in our infrastructure,
including additional costs for the expansion of our employee base and our solar partners as well as marketing
and branding costs. Our success and ability to further scale our business will depend, in part, on our ability to
manage these changes in a cost-effective and efficient manner. If we cannot manage our growth, we may be
unable to take advantage of market opportunities, execute our business strategies or respond to competitive
pressures. This could also result in declines in quality or customer satisfaction, increased costs, difficulties in
introducing new solar service offerings or other operational difficulties. Any failure to effectively manage growth
could adversely impact our business and reputation.
Servicing our debt requires a significant amount of cash to comply with certain covenants and satisfy
payment obligations, and we may not have sufficient cash flow from our business to pay our substantial
debt and may be forced to take other actions to satisfy our obligations under our indebtedness, which
may not be successful.
We have substantial amounts of debt, including the working capital facility and the non-recourse debt
facilities entered into by our subsidiaries, as discussed in more detail in the section titled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial
statements. Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our
indebtedness depends on our future performance, which is subject to economic, financial, competitive and other
factors beyond our control. Our business may not continue to generate cash flow from operations in the future
sufficient to service our debt and make necessary capital expenditures to operate our business. If we are unable
to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets,
restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability
to timely repay or otherwise refinance our indebtedness will depend on the capital markets and our financial
condition at such time. We may not be able to engage in any of these activities or engage in these activities on
desirable terms, which could result in a default on our debt obligations and negatively impact our financial
condition and prospects.
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We expect to incur substantially more debt in the future, which could intensify the risks to our business.
We and our subsidiaries expect to incur additional debt in the future, subject to the restrictions contained
in our debt instruments. Our existing debt arrangements restrict our ability to incur additional indebtedness,
including secured indebtedness, and we may be subject to similar restrictions under the terms of future debt
arrangements. These restrictions could inhibit our ability to pursue our business strategies. Increases in our
existing debt obligations would further heighten the debt related risk discussed above.
Furthermore, there is no assurance that we will be able to enter into new debt instruments on acceptable
terms or at all. If we were unable to satisfy financial covenants and other terms under existing or new
instruments, or obtain waivers or forbearance from our lenders, or if we were unable to obtain refinancing or
new financings for our working capital, equipment and other needs on acceptable terms if and when needed,
our business would be adversely affected.
The production and installation of solar energy systems depends heavily on suitable meteorological and
environmental conditions. If meteorological or environmental conditions are unexpectedly unfavorable,
the electricity production from our solar service offerings may be below our expectations, and our ability
to timely deploy new systems may be adversely impacted.
The energy produced and revenue and cash flows generated by a solar energy system depend on suitable
solar and weather conditions, both of which are beyond our control. Furthermore, components of our systems,
such as panels and inverters, could be damaged by severe weather or natural catastrophes, such as hailstorms,
tornadoes, fires or earthquakes. In these circumstances, we generally would be obligated to bear the expense of
repairing the damaged solar energy systems that we own. Sustained unfavorable weather or environmental
conditions also could unexpectedly delay the installation of our solar energy systems, leading to increased
expenses and decreased revenue and cash flows in the relevant periods. Extreme weather conditions, as well as
the natural catastrophes that could result from such conditions, can severely impact our operations by delaying
the installation of our systems, lowering sales, and causing a decrease in the output from our systems due to
smoke or haze. Weather patterns could change, making it harder to predict the average annual amount of
sunlight striking each location where our solar energy systems are installed. This could make our solar service
offerings less economical overall or make individual systems less economical. Any of these events or conditions
could harm our business, financial condition and results of operations.
Our business is concentrated in certain markets, putting us at risk of region specific disruptions.
As of December 31, 2019, more than 40% of our customers were in California. Accordingly, our business
and results of operations are particularly susceptible to adverse economic, regulatory, political, weather and other
conditions in this market and in other markets that may become similarly concentrated, in particular the east
coast, where we have seen significant growth recently. In addition, our corporate and sales headquarters are
located in San Francisco, California, an area that has a heightened risk of earthquakes and nearby wildfires. We
may not have adequate insurance, including business interruption insurance, to compensate us for losses that
may occur from any such significant events, including damage to our solar energy systems. A significant natural
disaster, such as an earthquake or wildfire, could have a material adverse impact on our business, results of
operations and financial condition. In addition, acts of terrorism or malicious computer viruses could cause
disruptions in our or our solar partners’ businesses or the economy as a whole. To the extent that these
disruptions result in delays or cancellations of installations or the deployment of our solar service offerings, our
business, results of operations and financial condition would be adversely affected.
Loan financing developments could adversely impact our business.
The third-party ownership structure, which we bring to market through our solar service offerings,
continues to be the predominant form of system ownership in the residential solar market in many states.
However, with the development of new loan financing products, we have seen a modest shift from leasing to
outright purchases of the solar energy system by the customer (i.e., a customer purchases the solar energy
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system outright instead of leasing the system from us). Continued increases in third-party loan financing products
and outright purchases could result in the demand for long-term Customer Agreements to decline, which would
require us to shift our product focus to respond to the market trend and could have an adverse effect on our
business. In 2019, 2018 and 2017, the majority of our customers chose our solar service offerings as opposed to
buying a solar energy system outright. Our financial model is impacted by the volume of customers who choose
our solar service offerings, and an increase in the number of customers who choose to purchase solar energy
systems (whether for cash or through third-party financing) may harm our business and financial results.
Additionally, as discussed above, further reductions in the Commercial ITC as scheduled may impact the
attractiveness of solar energy to certain customers and could potentially harm our business. Further reductions
in, eliminations of, or expirations of, governmental incentives such as the Residential Energy Efficiency Tax Credit
could reduce the number of customers who choose to purchase our solar energy systems.
Our growth depends in part on the success of our relationships with third parties, including our
solar partners.
A key component of our growth strategy is to develop or expand our relationships with third parties. For
example, we are investing resources in establishing strategic relationships with market players across a variety
of industries, including large retailers, to generate new customers. These programs may not roll out as quickly
as planned or produce the results we anticipated. A significant portion of our business depends on attracting
and retaining new and existing solar partners. Negotiating relationships with our solar partners, investing in due
diligence efforts with potential solar partners, training such third parties and contractors, and monitoring them
for compliance with our standards require significant time and resources and may present greater risks and
challenges than expanding a direct sales or installation team. If we are unsuccessful in establishing or
maintaining our relationships with these third parties, our ability to grow our business and address our market
opportunity could be impaired. Even if we are able to establish and maintain these relationships, we may not be
able to execute on our goal of leveraging these relationships to meaningfully expand our business, brand
recognition and customer base. This would limit our growth potential and our opportunities to generate
significant additional revenue or cash flows.
We and our solar partners depend on a limited number of suppliers of solar panels and other system
components to adequately meet anticipated demand for our solar service offerings. Any shortage, delay
or component price change from these suppliers, or the acquisition of any of these suppliers by a
competitor, could result in sales and installation delays, cancellations and loss of market share.
We and our solar partners purchase solar panels, inverters and other system components and batteries
from a limited number of suppliers, making us susceptible to quality issues, shortages and price changes. If we or
our solar partners fail to develop, maintain and expand our relationships with these or other suppliers, we may be
unable to adequately meet anticipated demand for our solar service offerings, or we may only be able to offer our
systems at higher costs or after delays. If one or more of the suppliers that we or our solar partners rely upon to
meet anticipated demand ceases or reduces production, we may be unable to quickly identify alternate suppliers
or to qualify alternative products on commercially reasonable terms, and we may be unable to satisfy this
demand.
The acquisition of a supplier by one of our competitors could also limit our access to such components
and require significant redesigns of our solar energy systems or installation procedures and have a material
adverse effect on our business.
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In particular, there is a limited number of suppliers of inverters, which are components that convert
electricity generated by solar panels into electricity that can be used to power the home. For example, once we
design a system for use with a particular inverter, if that type of inverter is not readily available at an anticipated
price, we may incur delays and additional expenses to redesign the system. Further, the inverters on our solar
energy systems generally carry only ten year warranties. If there is an inverter equipment shortage in a year when
a substantial number of inverters on our systems need to be replaced, we may not be able to replace the inverters
to maintain proper system functioning or may be forced to do so at higher than anticipated prices, either of which
would adversely impact our business.
There have also been periods of industry-wide shortage of key components, including solar panels, in
times of rapid industry growth or regulatory change. For example, guidance from the IRS on the steps required
for construction to be deemed to have commenced in time to qualify for federal investment tax credits has
recently resulted in significant module shortages in the market as utilities and large commercial customers started
purchasing supplies in advance of the December 2019 deadline to qualify for a 30% Commercial ITC. Further,
new or unexpected changes in rooftop fire codes or building codes may require new or different system
components to satisfy compliance with such newly effective codes or regulations, which may not be readily
available for distribution to us or our suppliers. The manufacturing infrastructure for some of these components
has a long lead time, requires significant capital investment and relies on the continued availability of key
commodity materials, potentially resulting in an inability to meet demand for these components and, as a result,
could negatively impact our ability to install systems in a timely manner. Additionally, any decline in the exchange
rate of the U.S. dollar compared to the functional currency of our component suppliers could increase our
component prices. Any of these shortages, delays or price changes could limit our growth, cause cancellations or
adversely affect our operating margins, and result in loss of market share and damage to our brand.
In addition, our supply chain and operations (or those of our partners) could be subject to natural disasters
and other events beyond our control, such as earthquakes, wildfires, flooding, hurricanes, tsunamis, typhoons,
volcanic eruptions, droughts, tornadoes, the effects of climate change and related extreme weather, public health
issues and pandemics, war, terrorism, and geo-political unrest and uncertainties. For example, in December
2019, a strain of coronavirus surfaced in Wuhan, China, and at this point, the extent to which the coronavirus may
impact our supply chain and operations is uncertain. The extent of the impact of the coronavirus on our business
and operations will depend on several factors, such as the duration, severity, and geographic spread of the
outbreak and the extent of travel restrictions and business closures imposed in China, the United States, and
other countries. In the event of a public health emergency in the United States, such as a significant outbreak of
the coronavirus, our business and operations could be adversely impacted.
As the primary entity that contracts with customers, we are subject to risks associated with construction,
cost overruns, delays, customer cancellations, regulatory compliance and other contingencies, any of
which could have a material adverse effect on our business and results of operations.
We are a licensed contractor in certain communities that we service, and we are ultimately responsible as
the contracting party for every solar energy system installation. We may be liable, either directly or through our
solar partners, to customers for any damage we cause to them, their home, belongings or property during the
installation of our systems. For example, we, either directly or through our solar partners, frequently penetrate
customers’ roofs during the installation process and may incur liability for the failure to adequately weatherproof
such penetrations following the completion of construction. In addition, because the solar energy systems we or
our solar partners deploy are high voltage energy systems, we may incur liability for any failure to comply with
electrical standards and manufacturer recommendations.
Completing the sale and installation of a solar energy system requires many different steps including a
site audit, completion of designs, permitting, installation, electrical sign-off and interconnection. Customers may
cancel their Customer Agreement, subject to certain conditions, during this process until commencement of
installation, and we have experienced increased customer cancellations in certain geographic markets during
certain periods in our operating history. We or our solar partners may face customer cancellations, delays or cost
overruns which may adversely affect our or our solar partners’ ability to ramp up the volume of sales or
installations in accordance with our plans. These cancellations, delays or overruns may be the result of a variety
of factors, such as labor shortages or other labor issues, defects in materials and workmanship, adverse weather
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conditions, transportation constraints, construction change orders, site changes or roof conditions, geographic
factors and other unforeseen difficulties, any of which could lead to increased cancellation rates, reputational
harm and other adverse effects. For example, some customer orders are cancelled after a site visit if we
determine that a customer needs to make repairs to or install a new roof, or that there is excessive shading on
their property. If we continue to experience increased customer cancellations, our financial results may be
materially and adversely affected.
In addition, the installation of solar energy systems and other energy-related products requiring building
modifications are subject to oversight and regulation in accordance with national, state and local laws and
ordinances relating to building, fire and electrical codes, safety, environmental protection, utility interconnection
and metering, and related matters. We also rely on certain of our and our partners' employees to maintain
professional licenses in many of the jurisdictions in which we operate, and our failure to employ properly licensed
personnel could adversely affect our licensing status in those jurisdictions. It is difficult and costly to track the
requirements of every individual authority having jurisdiction over our installations and to design solar energy
systems to comply with these varying standards. Any new government regulations or utility policies pertaining to
our systems may result in significant additional expenses to us and our customers and, as a result, could cause a
significant reduction in demand for our solar service offerings.
While we have a variety of stringent quality standards that we apply in the selection of our solar partners,
we do not control our suppliers and solar partners or their business practices. Accordingly, we cannot guarantee
that they will follow our standards or ethical business practices, such as fair wage practices and compliance with
environmental, safety and other local laws. A lack of demonstrated compliance could lead us to seek alternative
suppliers or contractors, which could increase our costs and result in delayed delivery or installation of our
products, product shortages or other disruptions of our operations. Violation of labor or other laws by our suppliers
and solar partners or the divergence of a supplier’s or solar partner's labor or other practices from those generally
accepted as ethical in the United States or other markets in which we do business could also attract negative
publicity for us and harm our business, brand and reputation in the market.
We typically bear the risk of loss and the cost of maintenance, repair and removal on solar energy
systems that are owned or leased by our investment funds.
We typically bear the risk of loss and are generally obligated to cover the cost of maintenance, repair and
removal for any solar energy system that we sell or lease to our investment funds. At the time we sell or lease a
solar energy system to an investment fund, we enter into a maintenance services agreement where we agree to
operate and maintain the system for a fixed fee that is calculated to cover our future expected maintenance costs.
If our solar energy systems require an above-average amount of repairs or if the cost of repairing systems were
higher than our estimate, we would need to perform such repairs without additional compensation. If our solar
energy systems, of which more than 40% of which are located in California, are damaged as the result of a
natural disaster beyond our control, losses could exceed or be excluded from, our insurance policy limits, and we
could incur unforeseen costs that could harm our business and financial condition. We may also incur significant
costs for taking other actions in preparation for, or in reaction to, such events. We purchase property insurance
with industry standard coverage and limits approved by an investor’s third-party insurance advisors to hedge
against such risk, but such coverage may not cover our losses.
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Disruptions to our solar production metering solution could negatively impact our revenue and
increase our expenses.
Our ability to monitor solar energy production for various purposes depends on the operation of our
metering solution. We could incur significant expense and disruption to our operations in connection with failures
of our metering solution, including meter hardware failures and failure or obsolescence of the cellular technology
that we use to communicate with those meters. For example, many of our meters operate on either the 3G or 4G
cellular data networks, which are expected to sunset before the term of our Customer Agreements, and newer
technologies we use today may become obsolete before the end of the term of Customer Agreements entered
into now. Upgrading our metering solution may cause us to incur significant expense. Additionally, our meters
communicate data through proprietary software, which we license from our metering partners. Should we be
unable to continue to license, on agreeable terms, the software necessary to communicate with our meters, it
could cause a significant disruption in our business and operations.
Problems with product quality or performance may cause us to incur warranty expenses and
performance guarantee expenses, may lower the residual value of our solar energy systems and may
damage our market reputation and cause our financial results to decline.
Customers who enter into Customer Agreements with us are covered by production guarantees and roof
penetration warranties. As the owners of the solar energy systems, we or our investment funds receive a warranty
from the inverter and solar panel manufacturers, and, for those solar energy systems that we do not install
directly, we receive workmanship and material warranties as well as roof penetration warranties from our solar
partners. For example, in 2015 and 2014, we had to replace a significant number of defective inverters, the cost
of which was borne by the manufacturer. However, our customers were without solar service for a period of time
while the work was done, which impacted customer satisfaction. Furthermore, one or more of our third-party
manufacturers or solar partners could cease operations and no longer honor these warranties, leaving us to fulfill
these potential obligations to customers, or such warranties may be limited in scope and amount, and may be
inadequate to protect us. We also provide a performance guarantee with certain solar service offerings pursuant
to which we compensate customers on an annual basis if their system does not meet the electricity production
guarantees set forth in their agreement with us. Customers who enter into Customer Agreements with us are
covered by production guarantees equal to the length of the term of these agreements, typically 20 or 25 years.
We may suffer financial losses associated if significant performance guarantee payments are triggered.
Because of our limited operating history and the length of the term of our Customer Agreements, we have
been required to make assumptions and apply judgments regarding a number of factors, including our anticipated
rate of warranty claims and the durability, performance and reliability of our solar energy systems. Our
assumptions could prove to be materially different from the actual performance of our systems, causing us to
incur substantial expense to repair or replace defective solar energy systems in the future or to compensate
customers for systems that do not meet their production guarantees. Product failures or operational deficiencies
also would reduce our revenue from power purchase or lease agreements because they are dependent on
system production. Any widespread product failures or operating deficiencies may damage our market reputation
and adversely impact our financial results.
Product liability claims against us could result in adverse publicity and potentially significant
monetary damages.
If our solar service offerings, including our racking systems or other products, injured someone, we would
be exposed to product liability claims. Because solar energy systems and many of our other current and
anticipated products are electricity-producing devices, it is possible that customers or their property could be
injured or damaged by our products, whether by product malfunctions, defects, improper installation or other
causes. We rely on third-party manufacturing warranties, warranties provided by our solar partners and our
general liability insurance to cover product liability claims and have not obtained separate product liability
insurance. Any product liability claim we face could be expensive to defend and divert management’s attention.
The successful assertion of product liability claims against us could result in potentially significant monetary
damages that could require us to make significant payments, as well as subject us to adverse publicity, damage
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our reputation and competitive position and adversely affect sales of our systems and other products. In addition,
product liability claims, injuries, defects or other problems experienced by other companies in the residential solar
industry could lead to unfavorable market conditions to the industry as a whole, and may have an adverse effect
on our ability to attract customers, thus affecting our growth and financial performance.
The value of our solar energy systems at the end of the associated term of the lease or power
purchase agreement may be lower than projected, which may adversely affect our financial
performance and valuation.
We depreciate the costs of our solar energy systems over their estimated useful life of 35 years. At the
end of the initial typically 20- or 25-year term of the Customer Agreement, customers may choose to purchase
their solar energy systems, ask to remove the system at our cost or renew their Customer Agreements.
Customers may choose to not renew or purchase for any reason, including pricing, decreased energy
consumption, relocation of residence or switching to a competitor product.
Furthermore, it is difficult to predict how future environmental regulations may affect the costs associated
with the removal, disposal or recycling of our solar energy systems. If the value in trade or renewal revenue is
less than we expect, we may be required to recognize all or some of the remaining unamortized costs. This could
materially impair our future results of operations.
Damage to our brand and reputation or failure to expand our brand would harm our business and results
of operations.
We depend significantly on our brand and reputation for high-quality solar service offerings, engineering
and customer service to attract customers and grow our business. If we fail to continue to deliver our solar
service offerings within the planned timelines, if our solar service offerings do not perform as anticipated or if we
damage any customers’ properties or cancel projects, our brand and reputation could be significantly impaired.
We also depend greatly on referrals from customers for our growth. Therefore, our inability to meet or exceed
customers’ expectations would harm our reputation and growth through referrals. We have at times focused
particular attention on expeditiously growing our direct sales force and our solar partners, leading us in some
instances to hire personnel or partner with third parties who we may later determine do not fit our company
culture and standards. Given the sheer volume of interactions our direct sales force and our solar partners have
with customers and potential customers, it is also unavoidable that some interactions will be perceived by
customers and potential customers as less than satisfactory and result in complaints. If we cannot manage our
hiring and training processes to limit potential issues and maintain appropriate customer service levels, our
brand and reputation may be harmed and our ability to grow our business would suffer. In addition, if we were
unable to achieve a similar level of brand recognition as our competitors, some of which may have a broader
brand footprint as a result of a larger direct sales force, more resources and longer operational history, we could
lose recognition in the marketplace among prospective customers, suppliers and partners, which could affect our
growth and financial performance. Our growth strategy involves marketing and branding initiatives that will
involve incurring significant expenses in advance of corresponding revenue. We cannot assure you that such
marketing and branding expenses will result in the successful expansion of our brand recognition or increase our
revenue. We are also subject to marketing and advertising regulations in various jurisdictions, and overly
restrictive conditions on our marketing and advertising activities may inhibit the sales of the affected products.
A failure to hire and retain a sufficient number of employees and service providers in key functions
would constrain our growth and our ability to timely complete customers’ projects and successfully
manage customer accounts.
To support our growth, we need to hire, train, deploy, manage and retain a substantial number of skilled
employees, engineers, installers, electricians, sales and project finance specialists. Competition for qualified
personnel in our industry is increasing, particularly for skilled personnel involved in the installation of solar energy
systems. We have in the past been, and may in the future be, unable to attract or retain qualified and skilled
installation personnel or installation companies to be our solar partners, which would have an adverse effect on
our business. We and our solar partners also compete with the homebuilding and construction industries for
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skilled labor. As these industries grow and seek to hire additional workers, our cost of labor may increase. The
unionization of the industry’s labor force could also increase our labor costs. Shortages of skilled labor could
significantly delay a project or otherwise increase our costs. Because our profit on a particular installation is based
in part on assumptions as to the cost of such project, cost overruns, delays or other execution issues may cause
us to not achieve our expected margins or cover our costs for that project. In addition, because we are
headquartered in the San Francisco Bay Area, we compete for a limited pool of technical and engineering
resources that requires us to pay wages that are competitive with relatively high regional standards for employees
in these fields. Further, we need to continue to expand upon the training of our customer service team to provide
high-end account management and service to customers before, during and following the point of installation of
our solar energy systems. Identifying and recruiting qualified personnel and training them requires significant time,
expense and attention. It can take several months before a new customer service team member is fully trained
and productive at the standards that we have established. If we are unable to hire, develop and retain talented
technical and customer service personnel, we may not be able to realize the expected benefits of this investment
or grow our business.
In addition, to support the growth and success of our direct-to-consumer channel, we need to recruit,
retain and motivate a large number of sales personnel on a continuing basis. We compete with many other
companies for qualified sales personnel, and it could take many months before a new salesperson is fully trained
on our solar service offerings. If we are unable to hire, develop and retain qualified sales personnel or if they are
unable to achieve desired productivity levels, we may not be able to compete effectively.
If we or our solar partners cannot meet our hiring, retention and efficiency goals, we may be unable to
complete customers’ projects on time or manage customer accounts in an acceptable manner or at all. Any
significant failures in this regard would materially impair our growth, reputation, business and financial results.
If we are required to pay higher compensation than we anticipate, these greater expenses may also adversely
impact our financial results and the growth of our business.
The loss of one or more members of our senior management or key employees may adversely affect
our ability to implement our strategy.
We depend on our experienced management team, and the loss of one or more key executives could have
a negative impact on our business. In particular, we are dependent on the services of our chief executive officer
and co-founder, Lynn Jurich, and our Chairman and co-founder, Edward Fenster. We also depend on our ability to
retain and motivate key employees and attract qualified new employees. Neither our founders nor our key
employees are bound by employment agreements for any specific term, and we may be unable to replace key
members of our management team and key employees in the event we lose their services. Integrating new
employees into our management team could prove disruptive to our operations, require substantial resources and
management attention and ultimately prove unsuccessful. An inability to attract and retain sufficient managerial
personnel who have critical industry experience and relationships could limit or delay our strategic efforts, which
could have a material adverse effect on our business, financial condition and results of operations.
We may not realize the anticipated benefits of past or future investments, strategic transactions, or
acquisitions, and integration of these acquisitions may disrupt our business and management.
We have in the past and may in the future acquire companies, Project pipelines, Projects, SRECs,
products or technologies or enter into joint ventures or other strategic transactions. We may not realize the
anticipated benefits of past or future investments, strategic transactions, or acquisitions, and these transactions
involve numerous risks that are not within our control. These risks include the following, among others:
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difficulty in assimilating the operations and personnel of the acquired company, especially
given our unique culture;
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difficulty in effectively integrating the acquired technologies or products with our current
products and technologies;
difficulty in maintaining controls, procedures and policies during the transition and
integration;
disruption of our ongoing business and distraction of our management and employees from
other opportunities and challenges due to integration issues;
difficulty integrating the acquired company’s accounting, management information and other
administrative systems;
inability to retain key technical and managerial personnel of the acquired business;
inability to retain key customers, vendors and other business partners of the acquired
business;
inability to achieve the financial and strategic goals for the acquired and combined
businesses;
incurring acquisition-related costs or amortization costs for acquired intangible assets that
could impact our results of operations;
significant post-acquisition investments which may lower the actual benefits realized
through the acquisition;
potential failure of the due diligence processes to identify significant issues with product
quality, legal and financial liabilities, among other things;
potential inability to assert that internal controls over financial reporting are effective; and
potential inability to obtain, or obtain in a timely manner, approvals from governmental
authorities, which could delay or prevent such acquisitions.
Our failure to address these risks, or other problems encountered in connection with our past or future
investments, strategic transactions, or acquisitions, could cause us to fail to realize the anticipated benefits of
these acquisitions or investments, cause us to incur unanticipated liabilities, and harm our business generally.
Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt,
contingent liabilities, amortization expenses, incremental expenses or the write-off of goodwill, any of which could
harm our financial condition or results of operations.
Mergers and acquisitions are inherently risky, may not produce the anticipated benefits and could
adversely affect our business, financial condition or results of operations.
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If we are unsuccessful in developing and maintaining our proprietary technology, including our
BrightPath software, our ability to attract and retain solar partners could be impaired, our competitive
position could be harmed and our revenue could be reduced.
Our future growth depends on our ability to continue to develop and maintain our proprietary technology
that supports our solar service offerings, including our design and proposal software, BrightPath. In addition, we
rely, and expect to continue to rely, on licensing agreements with certain third parties for aerial images that allow
us to efficiently and effectively analyze a customer’s rooftop for solar energy system specifications. In the event
that our current or future products require features that we have not developed or licensed, or we lose the benefit
of an existing license, we will be required to develop or obtain such technology through purchase, license or
other arrangements. If the required technology is not available on commercially reasonable terms, or at all, we
may incur additional expenses in an effort to internally develop the required technology. In addition, our
BrightPath software was developed, in part, with U.S. federal government funding. When new technologies are
developed with U.S. government funding, the government obtains certain rights in any resulting patents,
including a nonexclusive license authorizing the government to use the invention for non-commercial purposes.
These rights may permit the government to disclose certain confidential information related to BrightPath to third
parties and to exercise “march-in” rights to use or allow third parties to use our patented technology. We are also
subject to certain reporting and other obligations to the U.S. government in connection with funding for
BrightPath. If we were unable to maintain our existing proprietary technology, our ability to attract and retain solar
partners could be impaired, our competitive position could be harmed and our revenue could be reduced.
Our business may be harmed if we fail to properly protect our intellectual property, and we may also be
required to defend against claims or indemnify others against claims that our intellectual property
infringes on the intellectual property rights of third parties.
We believe that the success of our business depends in part on our proprietary technology, including our
software, information, processes and know-how. We rely on copyright, trade secret and patent protections to
secure our intellectual property rights. Although we may incur substantial costs in protecting our technology, we
cannot be certain that we have adequately protected or will be able to adequately protect it, that our competitors
will not be able to utilize our existing technology or develop similar technology independently, that the claims
allowed with respect to any patents held by us will be broad enough to protect our technology or that foreign
intellectual property laws will adequately protect our intellectual property rights. Moreover, we cannot be certain
that our patents provide us with a competitive advantage. Despite our precautions, it may be possible for third
parties to obtain and use our intellectual property without our consent. Unauthorized use of our intellectual
property by third parties, and the expenses incurred in protecting our intellectual property rights, may adversely
affect our business. In the future, some of our products could be alleged to infringe existing patents or other
intellectual property of third parties, and we cannot be certain that we will prevail in any intellectual property
dispute. In addition, any future litigation required to enforce our patents, to protect our trade secrets or know-how
or to defend us or indemnify others against claimed infringement of the rights of third parties could harm our
business, financial condition and results of operations.
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We are subject to legal proceedings, regulatory inquiries and litigation, and we have previously been, and
may in the future be, named in additional legal proceedings, become involved in regulatory inquiries or
be subject to litigation in the future, all of which are costly, distracting to our core business and could
result in an unfavorable outcome, or a material adverse effect on our business, financial condition,
results of operations, or the trading price for our securities.
We are involved in legal proceedings and receive inquiries from government and regulatory agencies from
time to time. In the event that we are involved in significant disputes or are the subject of a formal action by a
regulatory agency, we could be exposed to costly and time-consuming legal proceedings that could result in any
number of outcomes. Although outcomes of such actions vary, any current or future claims or regulatory actions
initiated by or against us, whether successful or not, could result in significant costs, costly damage awards or
settlement amounts, injunctive relief, increased costs of business, fines or orders to change certain business
practices, significant dedication of management time, diversion of significant operational resources, or otherwise
harm our business.
If we are not successful in our legal proceedings and litigation, we may be required to pay significant
monetary damages, which could hurt our results of operations. Lawsuits are time-consuming and expensive
to resolve and divert management’s time and attention. Although we carry general liability insurance, our
insurance may not cover potential claims or may not be adequate to indemnify us for all liability that may be
imposed. We cannot predict how the courts will rule in any potential lawsuit against us. Decisions in favor of
parties that bring lawsuits against us could subject us to significant liability for damages, adversely affect our
results of operations and harm our reputation.
A failure to comply with laws and regulations relating to our interactions with current or prospective
residential customers could result in negative publicity, claims, investigations, and litigation, and
adversely affect our financial performance.
Our business involves transactions with customers. We and our solar partners must comply with numerous
federal, state and local laws and regulations that govern matters relating to our interactions with customers,
including those pertaining to privacy and data security, consumer financial and credit transactions, home
improvement contracts, warranties and direct-to-home solicitation. These laws and regulations are dynamic and
subject to potentially differing interpretations, and various federal, state and local legislative and regulatory bodies
may expand current laws or regulations, or enact new laws and regulations, regarding these matters. Changes in
these laws or regulations or their interpretation could dramatically affect how we do business, acquire customers,
and manage and use information we collect from and about current and prospective customers and the costs
associated therewith. We strive to comply with all applicable laws and regulations relating to our interactions with
residential customers. It is possible, however, that these requirements may be interpreted and applied in a
manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices.
Noncompliance with any such laws or regulations, or the perception that we or our solar partners have violated
such laws or regulations or engaged in deceptive practices that could result in a violation, could also expose us to
claims, proceedings, litigation and investigations by private parties and regulatory authorities, as well as
substantial fines and negative publicity, each of which may materially and adversely affect our business. We have
incurred, and will continue to incur, significant expenses to comply with such laws and regulations, and increased
regulation of matters relating to our interactions with residential customers could require us to modify our
operations and incur significant additional expenses, which could have an adverse effect on our business,
financial condition and results of operations.
Compliance with occupational safety and health requirements and best practices can be costly, and
noncompliance with such requirements may result in potentially significant penalties, operational
delays and adverse publicity.
The installation of solar energy systems requires our employees and employees of our solar partners to
work with complicated and potentially dangerous electrical and utility systems. The evaluation and installation of
our energy-related products also require these employees to work in locations that may contain potentially
dangerous levels of asbestos, lead or mold or other substances. We also maintain large fleets of vehicles that
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these employees use in the course of their work. There is substantial risk of serious injury or death if proper safety
procedures are not followed. Our operations are subject to regulation under the U.S. Occupational Safety and
Health Act ("OSHA") and equivalent state laws. Changes to OSHA requirements, or stricter interpretation or
enforcement of existing laws or regulations, could result in increased costs. If we fail to comply with applicable
OSHA regulations, even if no work-related serious injury or death occurs, we may be subject to civil or criminal
enforcement and be required to pay substantial penalties, incur significant capital expenditures, or suspend or
limit operations. Any accidents, citations, violations, injuries or failure to comply with industry best practices may
subject us to adverse publicity, damage our reputation and competitive position and adversely affect our business.
We are exposed to the credit risk of customers and payment delinquencies on our accounts receivables.
Our Customer Agreements are typically for 20 or 25 years and require the customer to make monthly
payments to us. Accordingly, we are subject to the credit risk of customers. As of December 31, 2019, the
average FICO score of our customers under a Customer Agreement with a monthly payment schedule remained
at or above 740, which is generally categorized as a "Very Good" credit profile by the Fair Isaac Corporation.
However, this may decline to the extent FICO score requirements under future investment funds are relaxed.
While customer defaults have been immaterial to date, we expect that the risk of customer defaults may increase
as we grow our business. Due to the immaterial amount of customer defaults to date, our reserve for this
exposure is minimal, and our future exposure may exceed the amount of such reserves. If we experience
increased customer credit defaults, our revenue and our ability to raise new investment funds could be adversely
affected. If economic conditions worsen, certain of our customers may face liquidity concerns and may be unable
to satisfy their payment obligations to us on a timely basis or at all, which could have a material adverse effect on
our financial condition and results of operations.
Obtaining a sales contract with a potential customer does not guarantee that a potential customer will
not decide to cancel or that we will need to cancel due to a failed inspection, which could cause us to
generate no revenue from a product and adversely affect our results of operations.
Even after we secure a sales contract with a potential customer, we (either directly or through our solar
partners) must perform an inspection to ensure the home, including the rooftop, meets our standards and
specifications. If the inspection finds repairs to the rooftop are required in order to satisfy our standards and
specifications to install the solar energy system, and a potential customer does not want to make such
required repairs, we would lose that anticipated sale. In addition, per the terms of our Customer Agreements,
a customer maintains the ability to cancel before commencement of installation, subject to certain conditions.
Any delay or cancellation of an anticipated sale could materially and adversely affect our financial results, as
we may have incurred sales-related, design-related and other expenses and generated no revenue.
We use “open source” software in our solutions, which may require that we release the source code
of certain software subject to open source licenses or subject us to possible litigation or other actions
that could adversely affect our business.
We utilize software that is licensed under so-called “open source,” “free” or other similar licenses. Open
source software is made available to the general public on an “as-is” basis under the terms of a non-negotiable
license. We currently combine our proprietary software with open source software but not in a manner that we
believe requires the release of the source code of our proprietary software to the public. However, our use of
open source software may entail greater risks than use of third-party commercial software. Open source
licensors generally do not provide warranties or other contractual protections regarding infringement claims or the
quality of the code. In addition, if we combine our proprietary software with open source software in a certain
manner, we could, under certain open source licenses, be required to release the source code of our proprietary
software to the public. This would allow our competitors to create similar offerings with lower development effort
and time.
We may also face claims alleging noncompliance with open source license terms or infringement or
misappropriation of proprietary software. These claims could result in litigation, require us to purchase a costly
license or require us to devote additional research and development resources to change our software, any of
33
which would have a negative effect on our business and results of operations. In addition, if the license terms for
open source software that we use change, we may be forced to re-engineer our solutions, incur additional costs
or discontinue the use of these solutions if re-engineering cannot be accomplished on a timely basis. Although
we monitor our use of open source software to avoid subjecting our offerings to unintended conditions, few
courts have interpreted open source licenses, and there is a risk that these licenses could be construed in a way
that could impose unanticipated conditions or restrictions on our ability to use our proprietary software. We
cannot guarantee that we have incorporated or will incorporate open source software in our software in a
manner that will not subject us to liability or in a manner that is consistent with our current policies and
procedures.
Any security breach or unauthorized disclosure or theft of personal information we gather, store and
use, or other hacking and phishing attacks on our systems, could harm our reputation, subject us to
claims or litigation, and have an adverse impact on our business.
We receive, store and use personal information of customers, including names, addresses, e-mail
addresses, credit information and other housing and energy use information, as well as the personal information
of our employees. Unauthorized disclosure of such personal information, whether through breach of our systems
by an unauthorized party, employee theft or misuse, or otherwise, could harm our business. In addition,
computer malware, viruses, social engineering (predominantly spear phishing attacks), and general hacking
have become more prevalent, have occurred on our systems in the past, and could occur on our systems in the
future. Inadvertent disclosure of such personal information, or if a third party were to gain unauthorized access
to the personal information in our possession, has resulted in, and could result in future claims or litigation
arising from damages suffered by such individuals. In addition, we could incur significant costs in complying with
the multitude of federal, state and local laws regarding the unauthorized disclosure of personal information. Our
efforts to protect such personal information may be unsuccessful due to software bugs or other technical
malfunctions; employees, contractor, or vendor error or malfeasance; or other threats that evolve. In addition,
third parties may attempt to fraudulently induce employees or users to disclose sensitive information. Although
we have developed systems and processes that are designed to protect the personal information we receive,
store and use and to prevent or detect security breaches, we cannot assure you that such measures will provide
absolute security. Finally, any perceived or actual unauthorized disclosure of such information could harm our
reputation, substantially impair our ability to attract and retain customers and have an adverse impact on our
business.
Our business is subject to complex and evolving laws and regulations regarding privacy and data
protection (“data protection laws”). Many of these laws and regulations are subject to change and
uncertain interpretation, and could result in claims, increased cost of operations or otherwise harm our
business.
The regulatory environment surrounding data privacy and protection is constantly evolving and can be
subject to significant change. New data protection laws, including recent California legislation and regulation
which affords California consumers an array of new rights, including the right to be informed about what kinds of
personal data companies have collected and why it was collected, pose increasingly complex compliance
challenges and potentially elevate our costs. Complying with varying jurisdictional requirements could increase
the costs and complexity of compliance, and violations of applicable data protection laws could result in
significant penalties. Any failure, or perceived failure, by us to comply with applicable data protection laws could
result in proceedings or actions brought against us by governmental entities or others, subject us to significant
fines, penalties, judgments and negative publicity, require us to change our business practices, increase the
costs and complexity of compliance, and adversely affect our business.
34
If our products do not work as well as planned or if we are unsuccessful in developing and selling new
products or in penetrating new markets, our business, financial condition and results of operations
could be adversely affected.
Our success and ability to compete are dependent on the products that we have developed or may develop
in the future. There is a risk that the products that we have developed or may develop may not work as intended,
or that the marketing of the products may not be as successful as anticipated. The development of new products
generally requires substantial investment and can require long development and testing periods before they are
commercially viable. We intend to continue to make substantial investments in developing new products and it is
possible that that we may not develop or acquire new products or product enhancements that compete effectively
within our target markets or differentiate our products based on functionality, performance or cost and thus our
new technologies and products may not result in meaningful revenue. In addition, any delays in developing and
releasing new or enhanced products could cause us to lose revenue opportunities and potential customers. Any
technical flaws in product releases could diminish the innovative impact of our products and have a negative
effect on customer adoption and our reputation. If we fail to introduce new products that meet the demands of our
customers or target markets or do not achieve market acceptance, or if we fail to penetrate new markets, our
business, financial conditions and results of operations could be adversely affected.
The requirements of being a public company may strain our resources, divert management’s attention
and affect our ability to attract and retain qualified board members and officers.
We are subject to the reporting requirements of the Exchange Act, the listing requirements of the Nasdaq
Stock Market and other applicable securities rules and regulations. Compliance with these rules and regulations
has increased our legal and financial compliance costs, made some activities more difficult, time-consuming or
costly and increased demand on our systems and resources. The Exchange Act requires, among other things,
that we file annual, quarterly and current reports with respect to our business and results of operations and
maintain effective disclosure controls and procedures and internal controls over financial reporting. Maintaining
our disclosure controls and procedures and internal controls over financial reporting in accordance with this
standard requires significant resources and management oversight. As a result, management’s attention may be
diverted from other business concerns, which could harm our business and results of operations. Although we
have already hired additional employees to comply with these requirements, we may need to hire more
employees in the future, which will increase our costs and expenses.
If we are unable to maintain effective disclosure controls and internal controls over financial reporting,
investors may lose confidence in the accuracy and completeness of our financial reports and, as a
result, the value of our common stock may be materially and adversely affected.
We are required, pursuant to the Exchange Act, to furnish a report by management on, among other
things, the effectiveness of our internal controls over financial reporting. This assessment includes disclosure of
any material weaknesses, if any, identified by our management in our internal controls over financial reporting.
We are continuing to develop and refine our disclosure controls and improve our internal controls over financial
reporting. We have expended, and anticipate that we will continue to expend, significant resources in order to
maintain and continuously look for ways to enhance existing effective disclosure controls and procedures and
internal controls over financial reporting. Our current controls and any new controls that we develop may become
inadequate because of changes in conditions in our business. In addition, we or our independent accounting firm
may identify weaknesses and deficiencies that we may not otherwise identify in a timely manner in the future. If
we are not able to complete the work required under Section 404 of the Sarbanes-Oxley Act on a timely basis for
future fiscal years, our annual report on Form 10-K may be delayed or deficient. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements
due to error or fraud will not occur or that all control issues and instances of fraud will be detected.
We cannot guarantee that our internal controls over financial reporting will prevent or detect all errors and
fraud. The risk of errors is increased in light of the complexity of our business and investment funds. For
example, we must deal with significant complexity in accounting for our fund structures and the resulting
allocation of net income (loss) between our stockholders and noncontrolling interests under the hypothetical
35
liquidation at book value (“HLBV”) method as well as the income tax consequences of these fund structures. As
we enter into additional investment funds, which may have contractual provisions different from those of our
existing funds, the analysis as to whether we consolidate these funds, the calculation under the HLBV method,
and the analysis of the tax impact could become increasingly complicated. This additional complexity could
require us to hire additional resources and increase the chance that we experience errors in the future.
If we are unable to assert that our internal controls over financial reporting is effective, we could lose
investor confidence in the accuracy and completeness of our financial reports, which would cause the price of
our common stock to decline. In addition, we could become subject to investigations by Nasdaq, the Securities
and Exchange Commission ("SEC") or other regulatory authorities, which could require additional management
attention and which could adversely affect our business.
Our reported financial results may be affected, and comparability of our financial results with other
companies in our industry may be impacted, by changes in the accounting principles generally accepted
in the United States.
Generally accepted accounting principles in the United States are subject to change and interpretation by
the Financial Accounting Standards Board (“FASB"), the SEC, and various bodies formed to promulgate and
interpret appropriate accounting principles. A change in these principles or interpretations could have a significant
effect on our reported financial results and on the financial results of other companies in our industry, and may
even affect the reporting of transactions completed before the announcement or effectiveness of a change. For
example, in June 2016 the FASB issued Accounting Standards Update No. 2016-13, Measurement of Credit
Losses on Financial Instruments ("ASU No. 2016-13"), which replaces the current incurred loss impairment
methodology with a current expected credit losses model. Other companies in our industry may be affected
differently by the adoption of ASU No. 2016-13 or other new accounting standards, including timing of the
adoption of new accounting standards, adversely affecting the comparability of financial statements.
We may be adversely affected by changes in U.S. tax laws.
On December 22, 2017, Congress and the current administration passed significant tax legislation
including a change to the corporate tax rate (the “Tax Act”). As part of the Tax Act, the current corporate income
tax rate was reduced, and there were other changes including limiting or eliminating various other deductions,
credits and tax preferences. This reduction in the corporate income tax rate reduced the value of certain benefits,
such as depreciation, and reduced capacity for other benefits, such as tax credits. Limitations on, or elimination
of, such tax benefits could significantly impact our ability to raise tax equity investment funds or impact the terms
thereof, including the amount of cash distributable to third parties. At this time, we are evaluating the potential
impact on our tax equity investment funds, business, prospects and results of operations as a result of
enactment, since the impact is dependent upon certain tax treatment elections and the specific timing of taxable
income/losses in future years. Based on the proposed regulations issued to date by the IRS, we have determined
the changes under the Tax Act will not have a significant impact on our Consolidated Statement of Operations.
We will continue to monitor and review proposed and final regulations and the impact to our business.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2019, we had U.S. federal and state net operating loss carryforwards of $0.7 billion
and $1.3 billion, respectively, which begin expiring in varying amounts in 2028 and 2024, respectively, if
unused. Under Sections 382 and 383 of the Code, if a corporation undergoes an “ownership change,” the
corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes,
such as research tax credits, to offset its post- change income and taxes may be limited. In general, an
“ownership change” occurs if there is a cumulative change in our ownership by “5% shareholders” that exceeds
50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. Any such
limitations on our ability to use our net operating loss carryforwards and other tax assets could adversely
impact our business, financial condition and results of operations. We have performed an analysis to determine
whether an ownership change under Section 382 of the Code had occurred and determined that no ownership
changes were identified as of December 31, 2019.
36
We may be required to record an impairment expense on our goodwill or intangible assets.
We are required under generally accepted accounting principles to test goodwill for impairment at least
annually or when events or changes in circumstances indicate that the carrying amount may be impaired, and to
review our intangible assets for impairment when events or changes in circumstances indicate the carrying value
may not be recoverable. Factors that can lead to impairment of goodwill and intangible assets include significant
adverse changes in the business climate and actual or projected operating results, declines in the financial
condition of our business and sustained decrease in our stock price. Since our annual impairment test of
goodwill for the fiscal year ended December 31, 2019, we have not identified any qualitative factors that would
require a quantitative goodwill impairment analysis. However, if we identify any factors that could indicate an
impairment, including a sustained decrease in our stock price, we may be required to record charges to earnings
if our goodwill becomes impaired.
Risks Related to Ownership of Our Common Stock
Our executive officers, directors and principal stockholders continue to have substantial control over
us, which will limit your ability to influence the outcome of important matters, including a change in
control.
Each of our executive officers, directors and each of our stockholders who beneficially own 5% or more of
our outstanding common stock and their affiliates, in the aggregate, beneficially own approximately 52.9% of the
outstanding shares of our common stock, based on the number of shares outstanding as of December 31, 2019.
As a result, these stockholders, if acting together, will be able to influence or control matters requiring approval by
our stockholders, including the election of directors and the approval of mergers, acquisitions or other
extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which
you disagree and which may be adverse to your interests. This concentrated control may have the effect of
delaying or preventing a change in control of our company, could deprive our stockholders of an opportunity to
receive a premium for their capital stock and might ultimately affect the market price of our common stock.
The market price of our common stock has been and may continue to be volatile, and you could lose all
or part of your investment.
The trading price of our common stock has been volatile since our initial public offering, and is likely to
continue to be volatile. Factors that could cause fluctuations in the market price of our common stock include
the following:
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price and volume fluctuations in the overall stock market from time to time;
volatility in the market prices and trading volumes of companies in our industry or companies
that investors consider comparable;
changes in operating performance and stock market valuations of other companies
generally, or those in our industry in particular;
sales of shares of our common stock by us or our stockholders;
failure of securities analysts to maintain coverage of us, changes in financial estimates by
securities analysts who follow us, or our failure to meet these estimates or the expectations
of investors;
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•
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the financial projections we may provide to the public, any changes in those projections or
our failure to meet those projections;
announcements by us or our competitors of new products or services;
the public’s reaction to our press releases, other public announcements and filings with the
SEC;
rumors and market speculation involving us or other companies in our industry;
actual or anticipated changes in our results of operations;
changes in tax and other incentives that we rely upon in order to raise tax equity investment
funds;
changes in the regulatory environment and utility policies and pricing, including those that
could reduce any savings we are able to offer to customers;
actual or anticipated developments in our business, our competitors’ businesses or the
competitive landscape generally;
litigation involving us, our industry or both, or investigations by regulators into our operations
or those of our competitors;
announced or completed acquisitions of businesses or technologies by us or our
competitors;
new laws or regulations or new interpretations of existing laws or regulations applicable to
our business;
changes in accounting standards, policies, guidelines, interpretations or principles;
any significant change in our management; and
general economic conditions and slow or negative growth of our markets.
Further, the stock markets have experienced price and volume fluctuations that have affected and continue
to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or
disproportionate to the operating performance of those companies. In addition, the stock prices of many renewable
energy companies have experienced fluctuations that have often been unrelated to the operating performance of
those companies. These broad market and industry fluctuations, as well as general economic, political and market
conditions such as recessions, government shutdowns, interest rate changes, or international currency fluctuations,
may cause the market price of our common stock to decline. In the past, following periods of volatility in the overall
market and the market price of a particular company’s securities, securities class action litigation has often been
instituted against these companies. We are party to litigation that could result in substantial costs and a diversion of
our management’s attention and resources.
38
Sales of a substantial number of shares of our common stock in the public market, including by
our existing stockholders, could cause our stock price to fall.
Sales of a substantial number of shares of our common stock in the public market, or the perception that
these sales might occur, could depress the market price of our common stock and could impair our ability to
raise capital through the sale of additional equity securities. We are unable to predict the effect that these sales
and others may have on the prevailing market price of our common stock.
In addition, certain of our stockholders have registration rights that would require us to register shares of
our capital stock owned by them for public sale in the United States. We have also filed a registration statement
to register shares of our common stock reserved for future issuance under our equity compensation plans.
Subject to the satisfaction of applicable exercise periods and applicable volume and restrictions that apply to
affiliates, the shares of our common stock issued upon exercise of outstanding options will become available for
immediate resale in the public market upon issuance.
Future sales of our common stock may make it more difficult for us to sell equity securities in the future at
a time and at a price that we deem appropriate. These sales also could cause the market price of our common
stock to decline and make it more difficult for you to sell shares of our common stock.
Anti-takeover provisions contained in our amended and restated certificate of incorporation and
amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law
contain provisions that could have the effect of rendering more difficult, delaying, or preventing an acquisition
deemed undesirable by our board of directors and therefore depress the trading price of our common stock.
Among other things, our amended and restated certificate of incorporation and amended and restated bylaws
include provisions:
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•
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creating a classified board of directors whose members serve staggered three-year terms;
authorizing “blank check” preferred stock, which could be issued by our board of directors
without stockholder approval and may contain voting, liquidation, dividend and other rights
superior to our common stock;
limiting the liability of, and providing indemnification to, our directors and officers;
limiting the ability of our stockholders to call and bring business before special meetings;
requiring advance notice of stockholder proposals for business to be conducted at meetings
of our stockholders and for nominations of candidates for election to our board of directors;
and
controlling the procedures for the conduct and scheduling of board of directors and
stockholder meetings.
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control
or changes in our management.
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203
of the Delaware General Corporation law, which prevents certain stockholders holding more than 15% of our
outstanding capital stock from engaging in certain business combinations without approval of the holders of
at least two-thirds of our outstanding capital stock not held by such stockholder. Any provision of our
amended and restated certificate of incorporation, amended and restated bylaws or Delaware law that has
39
the effect of delaying or preventing a change in control could limit the opportunity for our stockholders to
receive a premium for their shares of our capital stock and could also affect the price that some investors are
willing to pay for our common stock.
Provisions contained in our amended and restated certificate of incorporation and amended and
restated bylaws limit the ability of our stockholders to call special meetings and prohibit stockholder
action by written consent.
Our amended and restated certificate of incorporation provides that our stockholders may not take action
by written consent. Instead, any such actions must be taken at an annual or special meeting of our stockholders.
As a result, our stockholders are not able to take any action without first holding a meeting of our stockholders
called in accordance with the provisions of our amended and restated bylaws, including advance notice
procedures set forth in our amended and restated bylaws. Our amended and restated bylaws further provide that
special meetings of our stockholders may be called only by a majority of our board of directors, the chairman of
our board of directors, our Chief Executive Officer or our President. As a result, our stockholders are not allowed
to call a special meeting. These provisions may delay the ability of our stockholders to force consideration of a
stockholder proposal, including a proposal to remove directors.
Provisions contained in our amended and restated certificate of incorporation and amended and
restated bylaws could preclude our stockholders from bringing matters before meetings of
stockholders and delay changes in our board of directors.
Our amended and restated bylaws provide advance notice procedures for stockholders seeking to bring
business before, or nominate candidates for election as directors at, our annual or special meetings of
stockholders. In addition, our amended and restated certificate of incorporation provides that stockholders may
remove directors only for cause. Any amendment of these provisions in our amended and restated bylaws or
amended and restated certificate of incorporation would require approval by holders of at least 66 2/3% of our
then outstanding capital stock. These provisions could preclude our stockholders from bringing matters before
annual or special meetings of stockholders and delay changes in our board of directors.
Our amended and restated bylaws provide that a state or federal court located within the State of
Delaware will be the sole and exclusive forum for substantially all disputes between us and our
stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes
with us or our directors, officers or employees.
Our amended and restated bylaws provide that, unless we consent to the selection of an alternative forum,
the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action
asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees to us or to
our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General
Corporation Law or (iv) any action asserting a claim governed by the internal affairs doctrine shall be a state or
federal court located within the state of Delaware, in all cases subject to the court’s having personal jurisdiction
over the indispensable parties names as defendants. The choice of forum provision may limit a stockholder’s
ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or
other employees, which may discourage such lawsuits against us and our directors, officers and other
employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and
restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with
resolving such action in other jurisdictions, which could harm our business, results of operations and financial
condition.
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If securities or industry analysts cease publishing research or reports about us, our business, our
market or our competitors, or if they adversely change their recommendations regarding our common
stock, the market price of our common stock and trading volume could decline.
The market for our common stock is influenced by the research and reports that securities or industry
analysts publish about us, our business, our market or our competitors. If any of the analysts who cover us
adversely change their recommendations regarding our common stock, or provide more favorable
recommendations about our competitors, the market price of our common stock would likely decline. If any of
the analysts who cover us cease coverage of our company or fail to regularly publish reports on us, we could
lose visibility in the financial markets, which in turn could cause the market price of our common stock and
trading volume to decline.
We do not expect to declare any dividends in the foreseeable future.
We do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable
future. Consequently, investors may need to rely on sales of our common stock after price appreciation, which
may never occur or only occur at certain times, as the only way to realize any future gains on their investment.
Investors seeking cash dividends should not purchase shares of our common stock.
Additional stock issuances could result in dilution to our stockholders.
We may issue additional equity securities to raise capital, make acquisitions or for a variety of other
purposes. Additional issuances of our stock may be made pursuant to the exercise or conversion of new or
existing convertible debt securities, warrants, stock options or other equity incentive awards to new and existing
service providers. Any such issuances will result in dilution to existing holders of our stock. We rely on equity-
based compensation as an important tool in recruiting and retaining employees. The amount of dilution due to
equity-based compensation of our employees and other additional issuances could be substantial.
Item 1B. Unresolved Staff Comments.
Not applicable.
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Item 2. Properties.
Our corporate headquarters and executive offices are located in San Francisco, California, where we occupy
approximately 44,000 square feet of office space. We also maintain 52 other locations, consisting primarily of
branch offices, warehouses, sales offices and design centers in 17 states.
We lease all of our facilities and we do not own any real property. We believe that our current facilities are
adequate to meet our ongoing needs. If we require additional space, we believe that we will be able to obtain
additional facilities on commercially reasonable terms.
Item 3. Legal Proceedings.
See Note 20, Commitments and Contingencies, to our consolidated financial statements included elsewhere
in this Annual Report on Form 10-K.
Item 4. Mine Safety Disclosures.
Not applicable.
42
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Market Information
Our common stock began trading on the Nasdaq Global Select Market under the symbol “RUN” on August 5,
2015.
Holders of Record
As of February 24, 2020, there were approximately 141 holders of record of common stock. Certain shares
are held in “street” name and, accordingly, the number of beneficial owners of such shares is not known or included
in the foregoing number.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all
available funds and any future earnings for use in the operation of our business and do not expect to pay any
dividends on our capital stock in the foreseeable future. Any future determination to declare dividends will be made
at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors,
including our financial condition, results of operations, capital requirements, contractual restrictions, general
business conditions and other factors that our board of directors may deem relevant. In addition, our credit
agreements contain restrictions on payments of cash dividends.
Stock Repurchase Program
In November 2019, our board of directors approved a stock repurchase program authorizing us to
repurchase up to $50.0 million of our common stock from time to time over the next three years. Stock repurchases
under this program may be made through open market transactions, negotiated purchases or otherwise, at times
and in such amounts as we consider appropriate and in accordance with applicable regulations of the Securities
and Exchange Commission. The timing of repurchases and the number of shares repurchased will depend on a
variety of factors including price, regulatory requirements, and other market conditions. We may limit, amend,
suspend, or terminate the stock repurchase program at any time without prior notice. Any shares repurchased
under the program will be returned to the status of authorized, but unissued shares of common stock.
Share repurchase activity during the year ended December 31, 2019 was as follows (in thousands, except
per share amounts):
Periods
November 27 -
November 29, 2019
December 2 to
December 10, 2019
Total
Total Shares
Purchased
Average Price Paid
Per Share (1)
Total Shares Purchased
As Part Of Publicly
Announced Programs
Remaining
Authorized
Repurchases (2)
86 $
283 $
369
13.97
13.40
86
283
$
45,000
(1) Average price paid per share excludes commission costs.
(2) Amounts represent the approximate dollar value of the maximum remaining number of shares that may yet be
purchased under the stock repurchase program, and excludes commission costs.
Stock Price Performance Graph
The following stock performance graph compares our total stock return with the total return for (i) the Nasdaq
Composite Index and the (ii) the Invesco Solar ETF, which represents a peer group of solar companies, for the
period from August 5, 2015 (the date our common stock commenced trading on the Nasdaq Global Select Market)
through December 31, 2019. The figures represented below assume an investment of $100 in our common stock at
the closing price of $10.77 on August 5, 2015 and in the Nasdaq Composite Index and the Invesco Solar ETF on
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August 5, 2015 including the reinvestment of dividends into shares of common stock. The comparisons in the table
are required by the SEC, and are not intended to forecast or be indicative of possible future performance of our
common stock. This graph shall not be deemed “soliciting material” or be deemed “filed” for purposes of Section 18
of the Exchange Act, or otherwise subject to the liabilities under that section, and shall not be deemed to be
incorporated by reference into any of our filings under the Securities Act, whether made before or after the date
hereof and irrespective of any general incorporation language in any such filing.
Sunrun Inc.
Nasdaq Composite Index
Invesco Solar ETF
Ticker
RUN
^IXIC
TAN
August 5, 2015 December 31, 2018 December 31, 2019
128.23
$
174.57
$
100.66
$
100.00 $
100.00 $
100.00 $
101.11 $
129.09 $
58.55 $
Item 6. Selected Consolidated Financial Data.
You should read the following selected consolidated financial data below in conjunction with "Management’s
Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial
statements, related notes and other financial information included elsewhere in this Annual Report on Form 10-K.
The selected consolidated financial data in this section is not intended to replace the consolidated financial
statements and are qualified in their entirety by the consolidated financial statements and related notes included
elsewhere in this Annual Report on Form 10-K.
The selected consolidated statements of operations data for the years ended December 31, 2019, 2018 and
2017, and the selected consolidated balance sheet data as of December 31, 2019 and 2018 are derived from our
audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The selected
consolidated statements of operations data for the years ended December 31, 2016 and 2015, and the selected
consolidated balance sheet data as of December 31, 2017, 2016 and 2015 are derived from audited consolidated
financial statements which are not included in this Annual Report on Form 10-K. Our historical results are not
necessarily indicative of the results that may be expected in the future.
44
2018
2019
Year Ended December 31,
2017
(in thousands, except per share amounts)
$ 858,578 $ 759,981 $ 532,542 $ 477,107 $ 304,606
(248,906)
(260,186)
(320,839)
(391,022)
(287,615)
2016
2015
$
26,335 $
26,657 $ 125,489 $
75,129 $ (53,136)
$
$
0.23 $
0.21 $
0.24 $
0.23 $
1.19 $
1.16 $
0.73 $
0.72 $
(0.96)
(0.96)
Total revenue
Net loss
Net income (loss) available to common
stockholders
Net income (loss) per share available to
common stockholders
Basic
Diluted
Weighted average shares used to compute net
income (loss)
per share available to common stockholders
Basic
Diluted
116,397
123,876
110,089
117,112
105,432
108,206
102,367
104,964
55,091
55,091
2019
2018
As of December 31,
2017
(in thousands)
2016
2015
Consolidated Balance Sheet Data:
Cash and restricted cash
Solar energy systems, net
Total assets
Non-recourse debt, current portion
Recourse debt
Non-recourse debt, net of current portion
Total equity
$ 363,229 $ 304,399 $ 241,790 $ 224,363 $ 221,161
1,992,021
3,161,570
4,492,615
2,734,592
3,963,136
5,806,341
35,348
4,722
21,529
197,000
247,000
239,485
333,042
1,026,416
1,980,107
659,560
1,240,516
1,331,432
3,820,017
4,749,787
35,484
247,000
1,466,438
1,282,782
2,498,644
3,595,803
14,153
244,000
639,870
995,728
45
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Annual
Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those discussed below. Factors that could cause or contribute to such
differences include those identified below and those discussed in the section titled “Risk Factors” included
elsewhere in this Annual Report on Form 10-K.
We provide clean, solar energy to customers at a significant savings compared to traditional utility energy.
We have been selling solar energy to residential customers through a variety of offerings since we were founded in
2007. We, either directly or through one of our solar partners, install a solar energy system on a customer’s home
and either sell the system to the customer or, as is more often the case, sell the energy generated by the system to
the customer pursuant to a lease or power purchase agreement (“PPA”) with no or low upfront costs. We refer to
these leases and PPAs as “Customer Agreements.” Following installation, a system is interconnected to the local
utility grid. The home’s energy usage is provided by the solar energy system, with any additional energy needs
provided by the local utility. Any excess solar energy, including amounts in excess of battery storage, that is not
immediately used by the customers is exported to the utility grid using a bi-directional utility net meter, and the
customer generally receives a credit for the excess energy from their utility to offset future usage of utility-generated
energy.
We offer our solar service offerings both directly to the customer and through our solar partners, which
include sales and installation partners, and strategic partners, which include retail partners. In addition, we sell solar
energy systems directly to customers for cash. We also sell solar energy panels and other products (such as
racking) to resellers. As of December 31, 2019, we provided our solar services to customers and sold solar energy
panels and other products to resellers throughout the United States. More than 40% of our cumulative systems
deployed are in California.
We compete mainly with traditional utilities. In the markets we serve, our strategy is to price the energy we
sell below prevailing local retail electricity rates. As a result, the price our customers pay under our solar service
offerings varies depending on the state where the customer lives, the local traditional utility that otherwise provides
electricity to the customer, as well as the prices other solar energy companies charge in that region. Even within the
same neighborhood, site-specific characteristics drive meaningful variability in the revenue and cost profiles of each
home. Using our proprietary technology, we target homes with advantageous revenue and cost characteristics,
which means we are often able to offer pricing that allows customers to save more on their energy bill while
maintaining our ability to meet our targeted returns. For example, with the insights provided by our technology, we
can offer competitive pricing to customers with homes that have favorable characteristics, such as roofs that allow
for easy installation, high electricity consumption, or low shading, effectively passing through the cost savings we
are able to achieve on these installations to the customer.
Our ability to offer Customer Agreements depends in part on our ability to finance the purchase and
installation of the solar energy systems by monetizing the resulting customer cash flows and related commercial
investment tax credits (“Commercial ITCs”), accelerated tax depreciation and other incentives from governments
and local utilities. We monetize these incentives under tax equity investment funds, which are generally structured
as non-recourse project financings. From inception to February 24, 2020, we have established 43 investment funds,
which represent financing for an estimated $9.7 billion in value of solar energy systems on a cumulative basis. From
time to time, we may repurchase investors' interests in our tax equity investment funds after the recapture period of
the relevant tax incentives. We intend to establish additional investment funds and may also use debt, equity and
other financing strategies to fund our growth.
In addition, completing the sale and installation of a solar energy system requires many different steps
including a site audit, completion of designs, permitting, installation, electrical sign-off and interconnection.
Customers may cancel their Customer Agreements with us, subject to certain conditions, during this process until
commencement of installation. Customer cancellation rates can change over time and vary between markets.
Investment Funds
Our Customer Agreements provide for recurring customer payments, typically over 20 or 25 years, and the
related solar energy systems are generally eligible for Commercial ITCs, accelerated tax depreciation and other
46
government or utility incentives. Our financing strategy is to monetize these benefits at a low weighted average cost
of capital. This low cost of capital enables us to offer attractive pricing to our customers for the energy generated by
the solar energy system on their homes. Historically, we have monetized a portion of the value created by our
Customer Agreements and the related solar energy systems through investment funds. These assets are attractive
to fund investors due to the long-term, recurring nature of the cash flows generated by our Customer Agreements,
the high credit scores of our customers, the fact that energy is a non-discretionary good and our low loss rates. In
addition, fund investors can receive attractive after-tax returns from our investment funds due to their ability to
utilize Commercial ITCs, accelerated depreciation and certain government or utility incentives associated with the
funds’ ownership of solar energy systems.
As of December 31, 2019, we had 36 active investment funds, which are described below. We have
established different types of investment funds to implement our asset monetization strategy. Depending on the
nature of the investment fund, cash may be contributed to the investment fund by the investor upfront or in stages
based on milestones associated with the design, construction or interconnection status of the solar energy systems.
The cash contributed by the fund investor is used by the investment fund to purchase solar energy systems. The
investment funds either own or enter into a master lease with a Sunrun subsidiary for the solar energy systems,
Customer Agreements and associated incentives. We receive on-going cash distributions from the investment funds
representing a portion of the monthly customer payments received. We use the upfront cash, as well as on-going
distributions to cover our costs associated with designing, purchasing and installing the solar energy systems. In
addition, we also use debt, equity and other financing strategies to fund our operations. The allocation of the
economic benefits between us and the fund investor and the corresponding accounting treatment varies depending
on the structure of the investment fund.
We currently utilize three legal structures in our investment funds, which we refer to as: (i) pass-through
financing obligations, (ii) partnership flips and (iii) joint venture (“JV”) inverted leases. We reflect pass-through
financing obligations on our consolidated balance sheet as a pass-through financing obligation. We record the
investor’s interest in partnership flips or JV inverted leases (which we define collectively as “consolidated joint
ventures”) as noncontrolling interests or redeemable noncontrolling interests. These consolidated joint ventures are
usually redeemable at our option and, in certain cases, at the investor’s option. If redemption is at our option or the
consolidated joint ventures are not redeemable, we record the investor’s interest as a noncontrolling interest and
account for the interest using the hypothetical liquidation at book value (“HLBV”) method. If the investor has the
option to put their interest to us, we record the investor’s interest as redeemable noncontrolling interest at the
greater of the HLBV and the redemption value.
The table below provides an overview of our current investment funds (dollars in millions):
Consolidation
Balance sheet classification
Revenue from Commercial ITCs
Method of calculating investor interest
Pass-Through
Financing
Obligations
Owner entity
consolidated,
tenant entity not
consolidated
Pass-through
financing
obligation
Recognized on
the PTO date
Effective interest
rate method
Consolidated Joint Ventures
Partnership Flip
Single entity,
consolidated
JV Inverted Lease
Owner and tenant
entities consolidated
Redeemable
noncontrolling
interests and
noncontrolling
interests
Redeemable
noncontrolling
interests and
noncontrolling
interests
None
None
Greater of HLBV
or redemption
value
Greater of HLBV or
redemption value; or
pro rata
Liability balance as of December 31, 2019
$
Noncontrolling interest balance (redeemable or
otherwise) as of December 31, 2019
339.0
N/A $
N/A
638.2 $
N/A
35.0
47
For further information regarding our investment funds, including the associated risks, see Item 1A. Risk
Factors—"Our ability to provide our solar service offerings to customers on an economically viable basis depends in
part on our ability to finance these systems with fund investors who seek particular tax and other benefits.", Note 11,
Project Equity Financing, Note 14, Pass-Through Financing Obligations, Note 15, VIE Arrangements and Note 16,
Redeemable Noncontrolling Interests to our consolidated financial statements appearing elsewhere in this Annual
Report on Form 10-K.
Pass-through Financing Obligations
Pass-Through Financing Obligations. In this investment fund structure, we and the fund investor each utilize
separate entities to facilitate the pass-through of the Commercial ITC or U.S. Treasury grants to the fund investors.
We contribute solar energy systems to an “owner” entity in exchange for interests in the owner entity, and the fund
investors contribute cash to a “tenant” entity in exchange for interests in the tenant entity.
Under our pass-through financing obligation structure, in accordance with the provisions of FASB,
Accounting Standards Codification Topic 810 (“ASC 810”) Consolidation, we have determined that we are the
primary beneficiary of the owner entity, and accordingly, we consolidate that entity. We have also determined that
we are not the primary beneficiary of the tenant entity, and accordingly, we do not consolidate that entity.
In this investment fund structure, the investors make a series of large up-front payments as well as, in some
instances, subsequent smaller quarterly lease payments through their respective tenant entity to the corresponding
owner entity in exchange for the assignment of cash flows from Customer Agreements and certain other benefits
associated with the Customer Agreements and related solar energy systems. We account for the payments from
investors as borrowings by recording the proceeds received as financing obligations. The financing obligation is
reduced over a period of approximately 22 years by customer payments under the Customer Agreements, U.S.
Treasury grants (where applicable); and proceeds from the contracted resale of SRECs as they are received by the
investor. In addition, funds paid for the Commercial ITC value upfront are initially recorded as a refund liability and
recognized as revenue as the associated solar system reaches permission to operate ("PTO").
We account for these investment funds in our consolidated financial statements as if we have not assigned
the Customer Agreement to the investor, and we record on our consolidated financial statements activities arising
from the Customer Agreements and any related U.S. Treasury grants, Commercial ITCs monetized as part of the
upfront payments received from the investor and SREC sales. The interest charge on our pass-through financing
obligations is imputed at the inception of the fund based on the effective interest rate in the arrangement giving rise
to the obligation and is updated prospectively as appropriate.
In certain arrangements, we agree to defer a portion of the up-front payments by arranging a loan between
one of our indirectly wholly owned subsidiaries to a subsidiary of the investor’s tenant entity.
Consolidated Joint Ventures
Partnership Flips. Under partnership flip structures, we and our fund investors contribute cash into a
partnership entity. The partnership uses the cash to acquire solar energy systems developed by us with signed
Customer Agreements. Each fund investor receives a rate of return, typically on an after-tax basis, which varies by
investment fund. Prior to the fund investor receiving its contractual rate of return or for a time period specified in the
contractual arrangements, the fund investor receives a significant portion of the value attributable to customer
payments, a majority of the accelerated tax depreciation and substantially all of the Commercial ITCs. After the fund
investor receives its contractual rate of return or after the specified time period, we receive substantially all of the
value attributable to the remaining customer payments and SREC sales.
Included within the Partnership Flips is the project equity financing we entered into in December 2016. We
pooled and transferred our interests in certain financing funds into a special purpose entity (“SPE”) with a new
investor. We did not recognize a gain or loss on the transfer of its interests in the financing funds and continue to
consolidate the financing funds. The SPE’s assets and cash flows are not available to our other creditors, and the
investor has no recourse to our other assets.
48
Under our partnership flip structures, we have determined that we control the partnership entity which is a
variable interest entity (“VIE”), and accordingly we consolidate the entity and record the investor’s interest as either
noncontrolling interests or redeemable noncontrolling interests in our consolidated balance sheets.
Inverted Leases. Under our inverted lease structure, we and the fund investor set up a multi-tiered
investment vehicle that is comprised of two partnership entities which facilitate the pass through of the tax benefits
to the fund investors. In this structure we contribute solar energy systems to an “owner” partnership entity in
exchange for interests in the owner partnership and the fund investors contribute cash to a “tenant” partnership in
exchange for interests in the tenant partnership, which in turn makes an investment in the owner partnership entity
in exchange for interests in the owner partnership. The owner partnership uses the cash contributions received from
the tenant partnership to purchase systems from us and/or fund installation of such systems. Under our existing JV
inverted lease structure, a substantial portion of the value generated by the solar energy systems is provided to the
fund investor for a specified period of time, which is generally based upon the period of time corresponding to the
expiry of the recapture period associated with the Commercial ITCs. After that point in time, we receive substantially
all of the value attributable to the long-term recurring customer payments and the other incentives. Generally, under
the terms of each agreement, the investors’ contributions include the value of Commercial ITCs earned or grants to
be received by the fund investor. Any other proceeds are allocated on a pro rata basis to the fund investor and us in
accordance with their ownership percentages. Since Sunrun has the power to control both the owner and tenant
entities, both entities are included in our consolidated financial statements.
We also have one JV inverted lease fund whereby we have a pro rata interest in the entity and we account
for the noncontrolling interest’s share of income on a pro rata basis. Accordingly, the noncontrolling interest of this
fund is carried on our balance sheet at the cumulative amount of capital contributions, reduced by cumulative
distributions paid to the investor, as well as the pro rata share of their income. Under our JV inverted lease
structure, we have determined that we control each VIE, and accordingly we consolidate the entity and record
investor’s interest as a noncontrolling interest or redeemable noncontrolling interest.
For all of our partnership flips and JV inverted leases, the redeemable noncontrolling interest is carried on
our balance sheet at the greater of the redemption value or the amount calculated under the HLBV method. The
HLBV method estimates the amount that, if the fund’s assets were hypothetically sold at their book value, the
investor would be entitled to receive according to the liquidation waterfall in the partnership agreement.
Key Operating Metrics
We regularly review a number of metrics, including the following key operating metrics, to evaluate our
business, measure our performance, identify trends affecting our business, formulate financial projections and make
strategic decisions. Some of our key operating metrics are estimates that are based on our management’s beliefs
and assumptions and on information currently available to management. Although we believe that we have a
reasonable basis for each of these estimates, we caution you that these estimates are based on a combination of
assumptions that may prove to be inaccurate over time. Any inaccuracies could be material to our actual results
when compared to our calculations. Please see the section titled “Risk Factors” in this Annual Report on Form 10-K
for more information. Furthermore, other companies may calculate these metrics differently than we do now or in
the future, which would reduce their usefulness as a comparative measure.
•
•
Megawatts Deployed represents the aggregate megawatt production capacity of our solar energy
systems, whether sold directly to customers or subject to executed Customer Agreements (i) for
which we have confirmation that the systems are installed on the roof, subject to final inspection; (ii)
in the case of certain system installations by our partners, for which we have accrued at least 80% of
the expected project cost, or (iii) for multi-family and any other systems that have reached NTP,
measured on the percentage of the project that has been completed based on expected project cost.
Gross Earning Assets represents the net cash flows (discounted at 6%) we expect to receive during
the initial term of our Customer Agreements (typically 20 or 25 years) for systems that have been
deployed as of the measurement date, plus a discounted estimate of the value of the Customer
Agreement renewal term or solar energy system purchase at the end of the initial term. Consistent
with industry standards, we use a discount rate of 6%. We consider a discount rate of 6% to be
appropriate and consistent with recent market transactions that demonstrate that a portfolio of
49
residential solar customer contracts is an asset class that can be securitized successfully on a long-
term basis, with a coupon of less than 5%. We calculate the Gross Earning Assets value of the
purchase or renewal amount at the expiration of the initial contract term assuming either a system
purchase or a five year renewal (for our 25-year Customer Agreements) or a 10-year renewal (for
our 20-year Customer Agreements), in each case forecasting only a 30-year customer relationship
(although the customer may renew for additional years, or thereafter purchase the system), at a
contract rate equal to 90% of the customer’s contractual rate in effect at the end of the initial contract
term. After the initial (generally 20- or 25-year) contract term, our Customer Agreements typically
automatically renew on an annual basis and the rate is initially set at up to a 10% discount to then-
prevailing power prices.
Gross Earning Assets is calculated net of estimated cash distributions to investors in consolidated
joint ventures and estimated operating, maintenance and administrative expenses for systems
deployed as of the measurement date. In calculating Gross Earning Assets, we deduct estimated
cash distributions to our project equity financing providers. In calculating Gross Earning Assets, we
do not deduct customer payments we are obligated to pass through to investors in pass-through
financing obligations as these amounts are reflected on our balance sheet as long-term and short-
term pass-through financing obligations, similar to the way that debt obligations are presented. In
determining our finance strategy, we use pass-through financing obligations and long-term debt in
an equivalent fashion as the schedule of payments of distributions to pass-through financing
obligation investors is more similar to the payment of interest to lenders than the internal rates of
return (IRRs) paid to investors in other tax equity structures.
Gross Earning Assets Under Energy Contract represents the net cash flows during the
initial term of our Customer Agreements (less substantially all value from SRECs prior
to July 1, 2015), for systems deployed as of the measurement date.
Gross Earning Assets Value of Purchase or Renewal is the forecasted net present
value we would receive upon or following the expiration of the initial Customer
Agreement term (either in the form of cash payments during any applicable renewal
period or a system purchase at the end of the initial term), for systems deployed as of
the measurement date.
Gross Earning Assets is forecasted as of a specific date. It is forward-looking, and we use judgment
in developing the assumptions used to calculate it. Factors that could impact Gross Earning Assets
include, but are not limited to, customer payment defaults, or declines in utility rates or early
termination of a contract in certain circumstances, including prior to installation.
Cumulative Megawatts Deployed (end of period)
Gross Earning Assets Under Energy Contract
Gross Earning Assets Value of Purchase or Renewal
Gross Earning Assets
As of December 31,
2018
1,575
2019
1,987
As of December 31,
2018
2019
(in thousands)
$
$
2,536,612 $
1,147,450
3,684,062 $
2,099,532
962,948
3,062,480
50
The tables below provide a range of Gross Earning Asset amounts if different default, discount and purchase
and renewal assumptions were used.
Gross Earning Assets Under Energy Contract:
Default rate
5%
0%
As of December 31, 2019
Discount rate
6%
(in thousands)
$ 2,898,185 $ 2,671,315 $ 2,471,500 $ 2,294,895 $ 2,138,269
5%
4%
7%
8%
$ 2,978,733 $ 2,743,480 $ 2,536,612 $ 2,353,424 $ 2,191,244
Gross Earning Assets Value of Purchase or Renewal:
Purchase or Renewal rate
80%
90%
100%
Total Gross Earning Assets:
Purchase or Renewal rate
80%
90%
100%
As of December 31, 2019
Discount rate
6%
(in thousands)
$ 1,501,655 $ 1,223,473 $ 1,000,418 $ 820,941 $ 676,032
7%
4%
5%
8%
$ 1,722,461 $ 1,403,285 $ 1,147,450 $ 941,415 $ 775,140
$ 1,943,267 $ 1,583,096 $ 1,294,286 $ 1,061,890 $ 874,248
As of December 31, 2019
Discount rate
6%
(in thousands)
$ 4,480,388 $ 3,966,954 $ 3,537,030 $ 3,174,365 $ 2,867,276
7%
4%
5%
8%
$ 4,701,194 $ 4,146,765 $ 3,684,062 $ 3,294,839 $ 2,966,384
$ 4,922,000 $ 4,326,576 $ 3,830,898 $ 3,415,314 $ 3,065,492
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our financial
statements, which have been prepared in accordance with generally accepted accounting principles in the United
States ("GAAP"). GAAP requires us to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, expenses and related disclosures. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the circumstances. In many instances, we could
have reasonably used different accounting estimates, and in other instances, changes in the accounting estimates
are reasonably likely to occur from period-to-period. Actual results could differ significantly from our estimates. Our
future financial statements will be affected to the extent that our actual results materially differ from these estimates.
For further information on all of our significant accounting policies, see Note 2, Summary of Significant Accounting
Policies, to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
We believe that policies associated with our principles of consolidation, revenue recognition, impairment of
long-lived assets, provision for income taxes and calculation of noncontrolling interests and redeemable
noncontrolling interests have the greatest impact on our consolidated financial statements. Therefore, we consider
these to be our critical accounting policies.
51
Principles of Consolidation
Our consolidated financial statements include our accounts and those of our subsidiaries in which we have a
controlling financial interest. The typical condition for a controlling financial interest is holding a majority of the voting
interests of an entity. However, a controlling financial interest may also exist in entities, such as VIEs, through
arrangements that do not involve controlling financial interests. We consolidate any VIE of which we are the primary
beneficiary, which is defined as the party that has (1) the power to direct the activities of a VIE that most
significantly impact the VIE’s economic performance and (2) the obligation to absorb losses or receive benefits of
the VIE that could potentially be significant to the VIE. We evaluate our relationships with our VIEs on an ongoing
basis to determine whether we continue to be the primary beneficiary. Our financial statements reflect the assets
and liabilities of VIEs that we consolidate. All intercompany transactions and balances have been eliminated in
consolidation. For further information regarding consolidation of our investment funds, see “—Investment Funds”
above.
Revenue Recognition
We recognize revenue when control of goods or services is transferred to customers, in an amount that
reflects the consideration we expect to be entitled to in exchange for those goods or services.
Customer Agreements and Incentives Revenue. Customer agreements and incentives revenue is primarily
comprised of revenue from our Customer Agreements and sales of Commercial ITCs and SRECs to third parties.
We recognize revenue from a Customer Agreement when PTO for the applicable solar energy system is
given by the local utility company or on the date daily operation commences if utility approval is not required. We
recognize revenue evenly over the time that we satisfy our performance obligations over the initial term of the
Customer Agreements. Customer Agreements typically have an initial term of 20 or 25 years. After the initial
contract term, our Customer Agreements typically automatically renew on an annual basis and the rate is initially set
at up to a 10% discount to then-prevailing power prices.
We also apply for and receive SRECs associated with the energy generated by our solar energy systems
and sell them to third parties in certain jurisdictions. SREC revenue is estimated net of any variable consideration
related to possible liquidated damages if we were to deliver fewer SRECs than contractually committed, and is
generally recognized upon delivery of the SRECs to the counterparty.
Certain upfront payments related to Customer Agreements and SRECs are deemed to have a financing
component, and therefore increase both revenue and interest expense by the same amount over the term of the
related agreement. The additional revenue is included in the total transaction price to be recorded over the term of
the agreement and is recognized based on the timing of the delivery. The interest expense is recognized based
upon an amortization schedule which typically decreases throughout the term of the related agreement.
For pass-through financing obligation Funds, the value attributable to the Commercial ITCs is recognized in
the period a solar system is granted PTO, at which point we have met our obligation to the investor. The
Commercial ITCs are subject to recapture under the Internal Revenue Code (“Code”) if the underlying solar energy
system either ceases to be a qualifying property or undergoes a change in ownership within five years of its placed-
in-service date. The recapture amount decreases on the anniversary of the PTO date. We have not historically
incurred a material recapture of Commercial ITCs, and do not expect to experience a material recapture of
Commercial ITCs in the future.
Consideration from customers is considered variable due to the performance guarantee under Customer
Agreements and liquidated damage provisions under SREC contracts in the event minimum deliveries are not
achieved. Performance guarantees provide a credit to the customer if the system's cumulative production, as
measured on various PTO anniversary dates, is below our guarantee of a specified minimum. Revenue is
recognized to the extent it is probable that a significant reversal of such revenue will not occur.
Solar Energy Systems and Product Sales. Solar energy systems sales are comprised of revenue from the
sale of solar energy systems directly to customers. We recognize revenue from solar energy systems sold to
customers when the solar energy system passes inspection by the authority having jurisdiction, which inspection
generally occurs after installation but prior to PTO, at which time we have met the performance obligation in the
contract.
52
Product sales revenue consists of revenue from the sale of solar panels, inverters, racking systems and
other solar energy products sold to resellers, as well as the sale of customer leads to third parties, including our
partners and other solar providers. Product sales revenue is recognized when control is transferred, generally upon
shipment. Customer lead revenue is recognized at the time the lead is delivered.
Impairment of Long-Lived Assets
The carrying amounts of our long-lived assets, including solar energy systems and definite-lived intangible
assets, are periodically reviewed for impairment whenever events or changes in circumstances indicate that the
carrying value of these assets may not be recoverable or that the useful life is shorter than originally estimated.
Factors that we consider in deciding when to perform an impairment review would include significant negative
industry or economic trends, and significant changes or planned changes in our use of the assets. Recoverability of
these assets is measured by comparison of the carrying amount of each asset group to the future undiscounted
cash flows the asset is expected to generate over its remaining life. If the asset is considered to be impaired, the
amount of any impairment is measured as the difference between the carrying value and the fair value of the
impaired asset. If the useful life is shorter than originally estimated, we amortize the remaining carrying value over
the new shorter useful life.
Provision for Income Taxes
We account for income taxes under an asset and liability approach. Deferred income taxes reflect the impact
of temporary differences between assets and liabilities recognized for financial reporting purposes and the amounts
recognized for income tax reporting purposes, net operating loss carryforwards and other tax credits measured by
applying currently enacted tax laws. A valuation allowance is provided when necessary to reduce deferred tax
assets to an amount that is more likely than not to be realized. We consider all available evidence, both positive and
negative, including historical levels of income, estimates of future taxable income, reversing taxable temporary
differences, and ongoing tax planning strategies in assessing the need for a valuation allowance. As of
December 31, 2019, we have recorded a valuation allowance of $12.1 million for certain federal tax credits, state
tax credits and state deferred tax assets that we believe is more likely than not that the deferred tax assets will not
be realized.
We sell solar energy systems to the investment funds. As the investment funds are consolidated by us, the
gain on the sale of the solar energy systems is not recognized in the consolidated financial statements. However,
this gain is recognized for tax reporting purposes. Since these transactions are intercompany sales for book
purposes, before January 1, 2017, any tax expense incurred related to these intercompany sales was deferred and
recorded as a prepaid tax asset and there was no recognition of a deferred tax asset related to our increased tax
basis in the partnership as a result of such sales. The prepaid tax asset was amortized over the estimated useful
life of the underlying solar energy systems which has been estimated to be 35 years. With the adoption of ASU
2016-16 on January 1, 2017 we reversed net prepaid tax assets of $378.5 million and recorded the gross deferred
tax assets associated with the historical intercompany sales of solar energy systems, which in turn reduced the
deferred tax liabilities on investment in partnerships by $378.2 million with the remaining $0.3 million being recorded
as a cumulative effect of adoption in our Consolidated Statements of Redeemable Noncontrolling Interest and
Stockholders’ Equity. The adoption did not have an impact on our Consolidated Statement of Operations.
We determine whether a tax position is more likely than not to be sustained upon examination, including
resolution of any related appeals or litigation processes, based on the technical merits of the position. We use a
two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax
position for recognition by determining if the weight of available evidence indicates that it is more likely than not that
the position will be sustained upon tax authority examination, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely
of being realized upon ultimate settlement.
Our policy is to include interest and penalties related to unrecognized tax benefits, if any, within the provision
for taxes in the consolidated statements of operations.
53
Noncontrolling Interests and Redeemable Noncontrolling Interests
Our noncontrolling interests and redeemable noncontrolling interests represent fund investors’ interests in
the net assets of certain investment funds, which we consolidate, that we have entered into in order to finance the
costs of solar energy facilities under Customer Agreements. We have determined that the provisions in the
contractual arrangements of the investment funds represent substantive profit-sharing arrangements, which gives
rise to the noncontrolling interests and redeemable noncontrolling interests. We have further determined that for all
but one of these arrangements, the appropriate methodology for attributing income and loss to the noncontrolling
interests and redeemable noncontrolling interests each period is a balance sheet approach using the HLBV
method.
Attributing income and loss to the noncontrolling interests and redeemable noncontrolling interests under the
HLBV method requires the use of significant assumptions to calculate the amounts that fund investors would
receive upon a hypothetical liquidation. Changes in these assumptions, including change in tax rates, can have a
significant impact on the amount that fund investors would receive upon a hypothetical liquidation.
We classify certain noncontrolling interests with redemption features that are not solely within our control
outside of permanent equity on our consolidated balance sheets. Redeemable noncontrolling interests are reported
using the greater of their carrying value at each reporting date as determined by the HLBV method or their
estimated redemption value in each reporting period. Estimating the redemption value of the redeemable
noncontrolling interests requires the use of significant assumptions and estimates such as projected future cash
flows at the time the redemption feature can be exercised.
We determine the net income (loss) attributable to common stockholders by deducting from net loss, the net
loss attributable to noncontrolling interests and redeemable noncontrolling interests in these funds. The net loss
attributable to noncontrolling interests and redeemable noncontrolling interests represents the fund investors’
allocable share in the results of operations of these investment funds. For these funds, we have determined that the
provisions in the contractual arrangements represent substantive profit sharing arrangements, where the allocations
to the partners sometimes differ from the stated ownership percentages. We have further determined that, for these
arrangements, the appropriate methodology for attributing income and loss to the noncontrolling interests and
redeemable noncontrolling interests each period is a balance sheet approach using the HLBV method. Under the
HLBV method, the amounts of income and loss attributed to the noncontrolling interests and redeemable
noncontrolling interests in the consolidated statements of operations reflect changes in the amounts the fund
investors would hypothetically receive at each balance sheet date under the liquidation provisions of the contractual
provisions of these funds, assuming the net assets of the respective investment funds were liquidated at the
carrying value determined in accordance with GAAP. The fund investors’ interest in the results of operations of
these investment funds is initially determined by calculating the difference in the noncontrolling interests and
redeemable noncontrolling interests’ claim under the HLBV method at the start and end of each reporting period,
after taking into account any contributions and distributions between the fund and the fund investors and subject to
the redemption provisions in certain funds.
Results of Operations
The results of operations presented below should be reviewed in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this Annual Report on Form 10-K. Our Annual Report on Form
10-K for the year ended December 31, 2018 includes a discussion and analysis of our financial condition and
results of operations for the year ended December 31, 2017 in Item 7 of Part II, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
54
Revenue:
Customer agreements and incentives
Solar energy systems and product sales
Total revenue
Operating expenses:
Cost of customer agreements and incentives
Cost of solar energy systems and product sales
Sales and marketing
Research and development
General and administrative
Amortization of intangible assets
Total operating expenses
Loss from operations
Interest expense, net
Other expenses (income), net
Loss before income taxes
Income tax (benefit) expense
Net loss
Net loss attributable to noncontrolling interests and redeemable
noncontrolling interests
Net income attributable to common stockholders
Net income per share attributable to common stockholders
Basic
Diluted
Weighted average shares used to compute net income per share
attributable to common stockholders
$
$
$
Basic
Diluted
Comparison of the Years Ended December 31, 2019 and 2018
Revenue
Year Ended December 31,
2019
2018
(in thousands, except per share amounts)
$
387,835 $
470,743
858,578
280,344
365,485
275,148
23,563
125,023
4,755
1,074,318
(215,740)
174,246
9,254
(399,240)
(8,218)
(391,022)
(417,357)
26,335 $
0.23 $
0.21 $
116,397
123,876
404,466
355,515
759,981
240,857
294,066
207,232
18,844
116,659
4,204
881,862
(121,881)
131,771
(2,788)
(250,864)
9,322
(260,186)
(286,843)
26,657
0.24
0.23
110,089
117,112
Customer agreements
Incentives
Customer agreements and incentives
Solar energy systems
Products
Solar energy systems and product sales
Total revenue
Year Ended
December 31,
2019
2018
(in thousands)
$ 345,486 $ 272,672 $
42,349
387,835
283,429
187,314
470,743
131,794
404,466
186,512
169,003
355,515
$ 858,578 $ 759,981 $
Change
$
%
72,814
(89,445)
(16,631)
96,917
18,311
115,228
98,597
27 %
(68)%
(4)%
52 %
11 %
32 %
13 %
Customer Agreements and Incentives. The $72.8 million increase in revenue from Customer Agreements
was due to both an increase in solar energy systems under Customer Agreements being placed in service in 2019
55
and a full year of revenue recognized in 2019 for systems placed in service in 2018 versus only a partial amount of
such revenue related to the period in which the assets were in service in 2018. The $89.4 million decrease in
revenue from incentives was primarily due to the sale of Commercial ITCs under a financing obligation fund opened
in 2018, with PTO activity in that fund primarily concluding in the second quarter of 2019. There was no such
comparable fund opened in 2019.
Solar Energy Systems and Product Sales. Revenue from solar energy systems sales increased by $96.9
million compared to the prior year due to increased demand through retail partners. Product sales increased by
$18.3 million compared to the prior year primarily due to an increase in the volume of wholesale products sold.
Operating Expenses
Year Ended
December 31,
2019
2018
(in thousands)
Change
$
%
Cost of customer agreements and incentives
Cost of solar energy systems and product sales
Sales and marketing
Research and development
General and administrative expense
Amortization of intangible assets
Total operating expenses
$ 280,344 $ 240,857 $
39,487
71,419
67,916
4,719
8,364
551
$1,074,318 $ 881,862 $ 192,456
294,066
207,232
18,844
116,659
4,204
365,485
275,148
23,563
125,023
4,755
16%
24%
33%
25%
7%
13%
22%
Cost of Customer Agreements and Incentives. The $39.5 million increase in Cost of customer agreements
and incentives was due to the increase in solar energy systems placed in service in 2019, plus a full year of costs
recognized in 2019 for systems placed in service in 2018 versus only a partial amount of such expenses related to
the period in which the assets were in service in 2018.
The Cost of customer agreements and incentives increased to 72% of customer agreements and incentives
revenue during 2019, from 60% during 2018 due to the $89.4 million decrease in revenue from incentives, as
discussed above. The cost of sales related to incentives was minimal.
Cost of Solar Energy Systems and Product Sales. The $71.4 million increase in Cost of solar energy
systems and product sales was due to the corresponding net increase in solar energy systems and product sales
discussed above.
Sales and Marketing Expense. The $67.9 million increase in Sales and marketing expense was primarily
attributable to an increase in headcount driving higher employee compensation, as well as an increase in costs to
acquire customers through our retail channels and sales lead generating partners. Included in sales and marketing
expense is $11.8 million and $8.6 million of amortization of costs to obtain Customer Agreements for 2019 and
2018, respectively.
Research and Development Expense. The $4.7 million increase in Research and development was primarily
attributable to hiring of personnel to support the recent and future growth of our business.
General and Administrative Expense. The $8.4 million increase in General and administrative expenses is
primarily attributable to increased employee compensation, as well as a temporary duplication of rent expense of
$2.1 million during the transition of corporate office spaces in San Francisco and Denver in 2019.
56
Non-Operating Expenses
Interest expense, net
Other expenses (income), net
Total interest and other expenses, net
Year Ended
December 31,
2019
2018
(in thousands)
Change
$
%
$ 174,246 $ 131,771 $
9,254
(2,788)
$ 183,500 $ 128,983 $
42,475
12,042
54,517
32 %
(432)%
42 %
Interest expense, net. The increase in Interest expense, net of $42.5 million was related to additional non-
recourse and pass-through financing obligation debt entered into in 2019. Included in net interest expense is $28.6
million and $22.9 million of non-cash interest imputed under prepaid Customer Agreements for 2019 and 2018,
respectively.
Other expenses (income), net. The increase in Other expenses (income), net of $12.0 million relates
primarily to losses on extinguishment of debt related to an early repayment of a pass-through financing obligation
and certain non-recourse debt in 2019.
Income Tax (Benefit) Expense
Year Ended
December 31,
2019
2018
(in thousands)
Change
$
%
Income tax (benefit) expense
$
(8,218) $
9,322 $ (17,540)
(188)%
The decrease in Income tax (benefit) expense of $17.5 million was related to a decrease in state income
taxes, an increase in benefits from share based compensation, and less of an increase in valuation allowance
compared to the prior year.
Given our net operating loss carryforwards as of December 31, 2019, we do not expect to pay income tax,
including in connection with our 2019 income tax provision, until our net operating losses are fully utilized. As of
December 31, 2019, the Company had net operating loss carryforwards for federal and state income tax purposes
of approximately $718.1 million and $1.3 billion, respectively, which will begin to expire in 2028 for federal purposes
and in 2024 for state purposes. In addition, federal and certain state net operating loss carryforwards generated in
tax years beginning after December 31, 2017 total $535.1 million and $102.4 million, respectively, and have
indefinite carryover periods and do not expire.
Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests
Year Ended
December 31,
2019
2018
(in thousands)
Change
$
%
Net loss attributable to noncontrolling interests and
redeemable noncontrolling interests
$ (417,357) $ (286,843) $ (130,514)
46%
The increase in Net loss attributable to noncontrolling interests and redeemable noncontrolling interests was
primarily a result of entering into more new partnership funds in 2019 compared with 2018. Generally, new
partnership funds generate larger losses attributable to noncontrolling interests and redeemable noncontrolling
interests under the HLBV method in the first years after formation. In 2019, all new funds used the HLBV method.
57
Liquidity and Capital Resources
As of December 31, 2019, we had cash of $269.6 million, which consisted of cash held in checking and
savings accounts with financial institutions. We finance our operations mainly through a variety of financing fund
arrangements that we have formed with fund investors, borrowings, cash generated from our sources of revenue
and proceeds from secured credit facilities arrangements with a syndicate of banks for up to $265.3 million and
from secured, long-term non-recourse loan arrangements for up to $199.0 million. Our principal uses of cash are
funding our business, including the costs of acquisition and installation of solar energy systems, satisfaction of our
obligations under our debt instruments and other working capital requirements. As of December 31, 2019, we had
outstanding borrowings of $239.5 million on our $250.0 million corporate bank line of credit maturing in April 2022.
Our business model requires substantial outside financing arrangements to grow the business and facilitate the
deployment of additional solar energy systems. The solar energy systems that are operational are expected to
generate a positive return rate over the term of the Customer Agreement, typically 20 or 25 years. However, in order
to grow, we will continue to be dependent on financing from outside parties. If financing is not available to us on
acceptable terms if and when needed, we may be required to reduce planned spending, which could have a
material adverse effect on our operations. While there can be no assurances, we anticipate raising additional
required capital from new and existing investors. We believe our cash, investment fund commitments and available
borrowings as further described below will be sufficient to meet our anticipated cash needs for at least the next 12
months. The following table summarizes our cash flows for the periods indicated:
Consolidated cash flow data:
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net increase in cash
Operating Activities
Year Ended December 31,
2018
2019
(in thousands)
$
$
(204,487) $
(843,255)
1,106,572
58,830 $
(62,461)
(811,316)
936,386
62,609
During 2019, we used $204.5 million in net cash in operating activities. The driver of our operating cash
inflow consists of payments received from customers as well as incentives. The driver of our operating cash
outflows primarily relate to the costs of our revenue, as well as sales, marketing and general and administrative
costs. During 2019, our operating cash outflows were $174.7 million from our net loss excluding non-cash and non-
operating items. Changes in working capital resulted in a net cash outflow of $29.7 million.
During 2018, we used $62.5 million in net cash in operating activities. The driver of our operating cash inflow
consists of payments received from customers as well as incentives. The driver of our operating cash outflows
primarily relate to the costs of our revenue, as well as sales, marketing and general and administrative costs.
During 2018, our operating cash outflows were $47.3 million from our net loss excluding non-cash and non-
operating items. Changes in working capital resulted in a net cash outflow of $15.2 million.
Investing Activities
During 2019, we used $843.3 million in cash in investing activities. The majority was used to design, acquire
and install solar energy systems and components under our long-term Customer Agreements.
During 2018, we used $811.3 million in cash in investing activities. Of this amount, we used $806.4 million to
design, acquire and install solar energy systems and components under our long-term Customer Agreements, and
$4.9 million for capitalized software projects and the acquisition of office equipment.
58
Financing Activities
During 2019, we generated $1.1 billion from financing activities. This was primarily driven by $632.2 million in
net proceeds from fund investors, $474.8 million in net proceeds from debt, offset by $13.9 million in repayments
under finance lease obligations.
During 2018, we generated $936.4 million from financing activities. This was primarily driven by $483.8
million in net proceeds from fund investors, $438.1 million in proceeds from debt, net of debt issuance costs and
repayments, offset by $9.0 million in repayments under finance lease obligations.
Debt, Equity, and Financing Fund Commitments
Debt Instruments
For a discussion of the terms and conditions of debt instruments and changes thereof in the period, refer to
Note 11, Project Equity Financing and Note 12, Indebtedness, to our consolidated financial statements included
elsewhere in this Annual Report on Form 10-K.
Equity Instruments
Warrant. In August 2017, we entered into an agreement with an affiliate ("Contractor") of Comcast
Corporation ("Comcast") whereby Contractor will receive lead or sales fees for new customers it brings to us over a
40-month term. We also issued Comcast a warrant to purchase up to 11,793,355 shares of our common stock, at
an exercise price of $0.01 per warrant share. The warrant would initially vest 50.05% when both (i) Contractor had
earned a lead or sales fee with respect to 30,000 of installed solar energy systems, and (ii) Contractor or its
affiliates had spent at least $10.0 million in marketing and sales in connection with the agreement. Thereafter, the
warrant would vest in five additional increments for each additional 6,000 installed solar energy systems. On
November 7, 2018 the warrant vesting schedule was modified so that it would initially vest either (i) as to 10.0% if
Contractor had earned a lead or sales fee with respect to 6,000 of installed solar energy systems by September 30,
2019 or (ii) as to 13.3% if Contractor had earned a lead or sales fee with respect to 8,000 of installed solar energy
systems by December 31, 2019, provided that, in either case, Contractor or its affiliates had spent at least $25.0
million in marketing and sales in connection with the agreement. Thereafter, the warrant would vest in additional
8.3% increments for each additional 5,000 installed solar energy systems. The initial vesting conditions were not
met by December 31, 2019, and as a result, the warrant expired unvested.
Investment Fund Commitments
As of December 31, 2019, we had undrawn committed capital of approximately $581.3 million which may
only be used to purchase and install solar energy systems. We intend to establish new investment funds in the
future, and we may also use debt, equity or other financing strategies to finance our business.
For a discussion of our project equity financing, refer to Note 11, Project Equity Financing, to our
consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
59
Contractual Obligations and Other Commitments
The following table summarizes our contractual obligations as of December 31, 2019:
Payments Due by Period
Less Than
1 Year
1 to 3
Years
3 to 5
Years
More Than
5 Years
Total
(in thousands)
Contractual Obligations:
Debt obligations (including future interest)
Purchase commitments
Distributions payable to noncontrolling interests
and redeemable noncontrolling interests (1)
Financing lease obligations (including accrued
interest)
Operating lease obligations, net of sublease
income
$ 164,274 $646,203 $931,591 $ 1,361,203 $3,103,271
52,370
26,100
16,062
—
—
—
10,741
12,316
1,160
—
—
4
78,470
16,062
24,221
11,247
20,168
13,042
7,999
52,456
Total contractual obligations
$ 254,694 $704,787 $945,793 $ 1,369,206 $3,274,480
(1)
The foregoing table does not include the amounts we could be required to expend under our redemption
obligations discussed above.
Off Balance Sheet Arrangements
We include in our consolidated financial statements all assets and liabilities and results of operations of
investment fund arrangements that we have entered into. We do not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, to our consolidated financial statement included
elsewhere in this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to certain market risks in the ordinary course of our business. Our primary exposure
includes changes in interest rates because certain borrowings bear interest at floating rates based on LIBOR plus a
specified margin. We sometimes manage our interest rate exposure on floating-rate debt by entering into derivative
instruments to hedge all or a portion of our interest rate exposure in certain debt facilities. We do not enter into any
derivative instruments for trading or speculative purposes. Changes in economic conditions could result in higher
interest rates, thereby increasing our interest expense and operating expenses and reducing funds available for
capital investments, operations and other purposes. A hypothetical 10% increase in our interest rates on our
variable rate debt facilities would have increased our interest expense by $3.9 million and $2.9 million for the year
ended December 31, 2019 and 2018, respectively.
60
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive (Loss) Income
Consolidated Statements of Redeemable Noncontrolling Interests and Stockholders'
Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
62
66
68
69
70
71
72
61
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Sunrun Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Sunrun Inc. (the Company) as of December 31,
2019 and 2018, the related consolidated statements of operations, comprehensive (loss) income, redeemable
noncontrolling interests and stockholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework), and our report dated February 27, 2020 expressed
an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit
matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which
they relate.
62
Description of matter
How We Addressed the Matter
in Our Audit
Noncontrolling interests and redeemable noncontrolling interests
At December 31, 2019, noncontrolling interests were $366.7 million and
redeemable noncontrolling interests were $306.6 million. As explained in Note 1
to the consolidated financial statements, noncontrolling interests and redeemable
noncontrolling interests represent investors’ interests in the net assets of the tax-
equity Funds that the Company has created to finance the cost of its solar energy
systems subject to the Company’s Customer Agreements. The Company has
determined that the contractual provisions in the funding arrangements represent
substantive profit sharing arrangements. The Company has further determined
that the appropriate methodology for attributing income and loss to the
noncontrolling interests and redeemable noncontrolling interests each period is a
balance sheet approach referred to as the hypothetical liquidation at book value
(“HLBV”) method.
Auditing the noncontrolling interests and redeemable noncontrolling interests is
complex due to the volume of tax equity funds and the allocation of the net
income or loss to the equity holders. Each HLBV calculation is based upon the
liquidation provisions of each fund’s contractual agreement used to calculate the
amount of income or loss to be attributed to the noncontrolling member.
We obtained an understanding, evaluated the design and tested the operating
effectiveness of internal controls that address the risks of material misstatement
relating to the noncontrolling interests and redeemable noncontrolling interests.
This included evaluating controls over establishing each HLBV model and
management’s review of each significant input into the HLBV models for
compliance with the contractual provisions of funding arrangements, the
completeness and accuracy of underlying data, the calculation of tax capital
accounts, and the mathematical accuracy of the HLBV models.
To test the noncontrolling interests and redeemable noncontrolling interests, our
audit procedures included, among others, examining the HLBV models for
compliance with contractual provisions in the funding arrangements. We tested
the completeness and accuracy of the underlying data used in each HLBV model.
We involved tax professionals to assist in evaluating the calculation of the tax
capital accounts in accordance with the tax code, as well as compliance with
contractual provisions in the funding arrangements. We also tested the
mathematical accuracy of management’s HLBV models.
63
Description of matter
Realizability of Deferred Tax Assets
As described in Note 19 to the consolidated financial statements, at December 31,
2019, the total and gross deferred tax assets were $450.3 million and $438.2 million,
respectively. Valuation allowances are provided against deferred tax assets to the
extent that it is more likely than not that the deferred tax assets will not be realized.
The Company considers all available positive and negative evidence including its
history of operating income or losses, future reversals of existing taxable temporary
differences, taxable income in carryback years and tax-planning strategies.
Auditing management’s assessment of recoverability of deferred tax assets involved
complex auditor judgment in determining whether the reversal of temporary
differences and the execution of a prudent and feasible tax planning strategy are
sufficient to support the realization of the existing deferred tax assets before
expiration.
How We Addressed the Matter in
Our Audit
We obtained an understanding, evaluated the design and tested the operating
effectiveness of internal controls that address the risks of material misstatement
relating to the realizability of deferred tax assets. This included controls over
management’s scheduling of the future reversal of existing taxable temporary
differences and evaluation of a prudent and feasible tax planning strategy.
Among other audit procedures performed, we tested the Company’s scheduling of the
reversal of existing temporary taxable differences. We tested the completeness and
accuracy of the underlying data and appropriateness of significant inputs and
assumptions including the estimated reversal periods for taxable temporary
differences. We also evaluated the prudence and feasibility of the Company’s tax
planning strategy, including involvement of our tax professionals.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2010.
San Francisco, California
February 27, 2020
64
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Sunrun Inc.
Opinion on Internal Control over Financial Reporting
We have audited Sunrun Inc.’s internal control over financial reporting as of December 31, 2019, based on criteria
established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Sunrun Inc. (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,
based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the 2019 consolidated financial statements of the Company and our report dated
February 27, 2020 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2010.
San Francisco, California
February 27, 2020
65
$
$
$
Sunrun Inc.
Consolidated Balance Sheets
(In Thousands, Except Share Par Values)
Assets
Current assets:
Cash
Restricted cash
Accounts receivable (net of allowances for doubtful accounts of $3,151 and $2,228
as of December 31, 2019 and 2018, respectively)
State tax credits receivable
Inventories
Prepaid expenses and other current assets
Total current assets
Restricted cash
Solar energy systems, net
Property and equipment, net
Intangible assets, net
Goodwill
Other assets
Total assets (1)
Liabilities and total equity
Current liabilities:
Accounts payable
Distributions payable to noncontrolling interests and redeemable noncontrolling interests
Accrued expenses and other liabilities
Deferred revenue, current portion
Deferred grants, current portion
Finance lease obligations, current portion
Non-recourse debt, current portion
Pass-through financing obligation, current portion
Total current liabilities
Deferred revenue, net of current portion
Deferred grants, net of current portion
Finance lease obligations, net of current portion
Recourse debt
Non-recourse debt, net of current portion
Pass-through financing obligation, net of current portion
Other liabilities
Deferred tax liabilities
Total liabilities (1)
Commitments and contingencies (Note 20)
Redeemable noncontrolling interests
Stockholders’ equity:
Preferred stock, $0.0001 par value—authorized, 200,000 shares as of
December 31, 2019 and 2018; no shares issued and outstanding
as of December 31, 2019 and 2018
Common stock, $0.0001 par value—authorized, 2,000,000 shares as of
December 31, 2019 and 2018; issued and outstanding, 118,451 and
113,149 shares as of December 31, 2019 and 2018, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total stockholders’ equity
Noncontrolling interests
Total equity
Total liabilities, redeemable noncontrolling interests and total equity
$
As of December 31,
2019
2018
269,577
93,504
$
$
$
77,728
6,466
260,571
25,984
733,830
148
4,492,615
56,708
19,543
95,094
408,403
5,806,341
223,356
16,062
148,497
77,643
8,093
10,064
35,348
11,031
530,094
651,856
218,568
12,895
239,485
1,980,107
327,974
141,401
65,964
4,168,344
226,625
77,626
66,435
2,697
79,467
8,563
461,413
148
3,820,017
34,893
10,088
87,543
335,685
4,749,787
131,278
15,847
98,636
47,407
7,885
9,193
35,484
26,461
372,191
544,218
221,739
9,992
247,000
1,466,438
337,282
48,210
93,633
3,340,703
306,565
126,302
—
12
766,006
(52,753)
251,466
964,731
366,701
1,331,432
5,806,341
$
—
11
722,429
(3,124)
229,391
948,707
334,075
1,282,782
4,749,787
66
(1)
The Company’s consolidated assets as of December 31, 2019 and 2018 include $3,521,202 and $2,905,295, respectively, in assets of
variable interest entities, or “VIEs”, that can only be used to settle obligations of the VIEs. Solar energy systems, net, as of
December 31, 2019 and 2018 were $3,259,712 and $2,712,377, respectively; cash as of December 31, 2019 and 2018 were $133,362
and $105,494, respectively; restricted cash as of December 31, 2019 and 2018 were $2,746 and $2,071, respectively; accounts
receivable, net as of December 31, 2019 and 2018 were $21,956 and $18,539, respectively; inventories as of December 31,
2019 and December 31, 2018 of $15,721 and $0; prepaid expenses and other current assets as of December 31, 2019 and 2018 were
$554 and $387, respectively and other assets as of December 31, 2019 and 2018 were $87,151 and $66,427, respectively. The
Company’s consolidated liabilities as of December 31, 2019 and 2018 include $774,564 and $660,758, respectively, in liabilities of VIEs
whose creditors have no recourse to the Company. These liabilities include accounts payable as of December 31, 2019 and 2018 of
$11,531 and $12,136, respectively; distributions payable to noncontrolling interests and redeemable noncontrolling interests as of
December 31, 2019 and 2018 of $16,012 and $15,797, respectively; accrued expenses and other liabilities as of December 31, 2019
and 2018 of $10,740 and $7,122, respectively; deferred revenue as of December 31, 2019 and 2018 of $482,138 and $396,920,
respectively; deferred grants as of December 31, 2019 and 2018 of $28,034 and $29,229, respectively; non-recourse debt as of
December 31, 2019 and 2018 of $206,476 and $190,711, respectively; and other liabilities as of December 31, 2019 and December 31,
2018 of $19,633 and $8,843, respectively.
The accompanying notes are an integral part of these consolidated financial statements.
67
Sunrun Inc.
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
Year Ended December 31,
2018
2017
2019
Revenue:
Customer agreements and incentives
Solar energy systems and product sales
Total revenue
Operating expenses:
Cost of customer agreements and incentives
Cost of solar energy systems and product sales
Sales and marketing
Research and development
General and administrative
Amortization of intangible assets
Total operating expenses
Loss from operations
Interest expense, net
Other expenses (income), net
Loss before income taxes
Income tax (benefit) expense
Net loss
Net loss attributable to noncontrolling interests and
redeemable noncontrolling interests
Net income attributable to common stockholders
Net income per share attributable to common stockholders
Basic
Diluted
Weighted average shares used to compute net income
per share attributable to common stockholders
Basic
Diluted
$
387,835 $
470,743
858,578
404,466 $
355,515
759,981
234,276
298,266
532,542
280,344
365,485
275,148
23,563
125,023
4,755
1,074,318
(215,740)
174,246
9,254
(399,240)
(8,218)
(391,022)
240,857
294,066
207,232
18,844
116,659
4,204
881,862
(121,881)
131,771
(2,788)
(250,864)
9,322
(260,186)
(417,357)
(286,843)
26,335 $
26,657 $
186,435
254,131
146,426
15,079
107,400
4,204
713,675
(181,133)
92,255
1,874
(275,262)
12,353
(287,615)
(413,104)
125,489
0.23 $
0.21 $
0.24 $
0.23 $
1.19
1.16
$
$
$
116,397
123,876
110,089
117,112
105,432
108,206
The accompanying notes are an integral part of these consolidated financial statements.
68
Sunrun Inc.
Consolidated Statements of Comprehensive (Loss) Income
(In Thousands)
Year Ended December 31,
2019
2018
2017
Net income attributable to common stockholders
$
26,335 $
26,657 $
125,489
Unrealized (loss) gain on derivatives, net of income taxes
(48,295)
6,187
(5,694)
Interest (expense) income on derivatives recognized into
earnings, net of income taxes
Other comprehensive (loss) income
Comprehensive (loss) income
(594)
(48,889)
(5,198)
989
1,144
(4,550)
$
(22,554) $
27,646 $
120,939
The accompanying notes are an integral part of these consolidated financial statements.
69
Consolidated Statements of Redeemable Noncontrolling Interests and Stockholders' Equity
(In Thousands)
Sunrun Inc.
Redeemable
Noncontrolling
Interests
Preferred Stock
Common Stock
Shares
Amount
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
(Accumulated
Deficit)
Total
Stockholders'
Equity
Noncontrolling
Interests
Total
Equity
Balance - December 31, 2016
$
140,996
— $
— 104,321
$
10
$ 668,076
$
437
$
74,248
$
742,771
$
252,957
$ 995,728
Cumulative effect of adoption of new
ASU's (No. 2016-09 and No.
2016-16)
Exercise of stock options
Issuance of restricted stock units, net
of tax withholdings
Shares issued in connection with the
Employee Stock Purchase Plan
Stock-based compensation
Acquisition of noncontrolling
interests
Contributions from redeemable
noncontrolling interests and
noncontrolling interests
Distributions to redeemable
noncontrolling interests and
noncontrolling interests
Issuance of shares due to business
acquisition in 2015
Net (loss) income
Other comprehensive loss, net of
taxes
Balance - December 31, 2017
Cumulative effect of adoption of new
ASU (No. 2017-12)
Exercise of stock options
Issuance of restricted stock units, net
of tax withholdings
Shares issued in connection with the
Employee Stock Purchase Plan
Stock-based compensation
Contributions from redeemable
noncontrolling interests and
noncontrolling interests
Distributions to redeemable
noncontrolling interests and
noncontrolling interests
Net (loss) income
Other comprehensive loss, net of
taxes
Balance - December 31, 2018
Cumulative effect of adoption of new
ASU (No. 2018-02)
Exercise of stock options
Issuance of restricted stock units, net
of tax withholdings
Shares issued in connection with the
Employee Stock Purchase Plan
Stock-based compensation
Contributions from redeemable
noncontrolling interests and
noncontrolling interests
Distributions to redeemable
noncontrolling interests and
noncontrolling interests
Net (loss) income
Acquisition of noncontrolling interest
Repurchase of common stock
Other comprehensive loss, net of
taxes
—
—
—
—
—
(37,919)
128,052
(14,769)
—
(92,559)
—
123,801
—
—
—
—
—
111,125
(11,057)
(97,567)
—
126,302
—
—
—
—
—
429,786
(15,137)
(234,386)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
686
1,115
628
—
—
—
—
600
—
—
— 107,350
—
—
—
—
—
—
—
—
—
—
3,271
1,614
914
—
—
—
—
—
— 113,149
—
—
—
—
—
—
—
—
—
—
—
—
3,624
1,105
942
—
—
—
—
—
(369)
—
—
—
—
1
—
—
—
—
—
—
—
11
—
—
—
—
—
—
—
—
—
11
—
—
1
—
—
—
—
—
—
—
—
—
1,984
(3,569)
2,619
22,088
(8,248)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,996
2,996
—
—
—
—
—
—
—
—
1,984
$
(3,569)
2,620
22,088
(8,248)
—
—
—
—
—
—
—
—
2,996
1,984
(3,569)
2,620
22,088
(405)
(8,653)
469,617
469,617
(42,690)
(42,690)
—
—
125,490
125,490
(320,545)
(195,055)
(4,550)
—
(4,550)
—
(4,550)
682,950
(4,113)
202,734
881,582
358,934
1,240,516
—
17,178
(10,102)
4,546
27,857
—
—
—
—
722,429
—
19,840
(10,585)
6,939
26,306
—
—
—
1,077
—
—
1,992
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,992
17,178
(10,102)
4,546
27,857
—
—
—
—
—
—
—
1,992
17,178
(10,102)
4,546
27,857
234,022
234,022
(69,605)
(69,605)
26,657
26,657
(189,276)
(162,619)
(1,003)
(3,124)
—
229,391
(740)
740
(1,003)
948,707
—
19,840
(10,584)
6,939
26,306
—
—
—
(1,003)
334,075
1,282,782
—
—
—
—
—
—
19,840
(10,584)
6,939
26,306
282,127
282,127
(61,732)
(61,732)
—
—
—
—
—
—
26,335
26,335
(182,971)
(156,636)
—
1,077
(4,798)
(3,721)
(5,000)
(5,000)
(48,889)
—
(48,889)
—
—
(5,000)
(48,889)
—
—
—
—
—
—
—
—
—
Balance - December 31, 2019
$
306,565
— $
— 118,451
$
12
$ 766,006
$
(52,753)
$
251,466
$
964,731
$
366,701
$1,331,432
The accompanying notes are an integral part of these consolidated financial statements
70
Sunrun Inc.
Consolidated Statements of Cash Flows
(In Thousands)
Year Ended December 31,
2019
2018
2017
$
(391,022) $
(260,186) $
(287,615)
Operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization, net of amortization of deferred grants
Deferred income taxes
Stock-based compensation expense
Interest on pass-through financing obligations
Reduction in pass-through financing obligations
Other noncash items
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid and other assets
Accounts payable
Accrued expenses and other liabilities
Deferred revenue
Net cash used in operating activities
Investing activities:
Payments for the costs of solar energy systems
Purchases of property and equipment
Business acquisition
Net cash used in investing activities
Financing activities:
Proceeds from state tax credits, net of recapture
Proceeds from issuance of recourse debt
Repayment of recourse debt
Proceeds from issuance of non-recourse debt
Repayment of non-recourse debt
Payment of debt fees
Proceeds from pass-through financing and other obligations
Extinguishment of pass-through financing and other obligations
Payment of finance lease obligations
Contributions received from noncontrolling interests and redeemable noncontrolling interests
Distributions paid to noncontrolling interests and redeemable noncontrolling interests
Acquisition of noncontrolling interests
Net proceeds related to stock-based award activities
Repurchase of common stock
Net cash provided by financing activities
Net change in cash and restricted cash
Cash and restricted cash, beginning of period
Cash and restricted cash, end of period
Supplemental disclosures of cash flow information
Cash paid for interest
Cash paid for taxes
Supplemental disclosures of noncash investing and financing activities
Purchases of solar energy systems and property and equipment included in accounts payable
and accrued expenses
Purchases of solar energy systems included in non-recourse debt
Right-of-use assets obtained in exchange for finance lease liabilities
$
$
$
$
$
$
187,163
(8,218)
26,306
24,326
(39,083)
25,780
(14,864)
(181,104)
(81,630)
67,356
42,081
138,422
(204,487)
(815,188)
(25,345)
(2,722)
(843,255)
2,253
185,450
(192,965)
1,181,549
(670,508)
(28,687)
9,140
(7,597)
(13,919)
711,914
(76,654)
(4,600)
16,196
(5,000)
1,106,572
58,830
304,399
363,229
99,472
$
$
156,007
9,322
27,856
19,205
(25,005)
25,484
(5,707)
14,960
(75,924)
8,848
15,286
27,393
(62,461)
(806,365)
(4,951)
—
128,687
12,353
22,042
12,629
(18,295)
24,471
(9,409)
(27,101)
(51,633)
47,837
9,219
40,712
(96,103)
(769,363)
(7,956)
—
(811,316)
(777,319)
10,887
17,000
(17,000)
980,544
(517,594)
(24,849)
217,082
—
(9,025)
345,147
(78,398)
—
12,592
—
936,386
62,609
241,790
304,399
76,313
$
$
13,773
170,400
(167,400)
748,806
(362,763)
(14,392)
6,221
—
(9,836)
594,921
(54,530)
(35,386)
1,035
—
890,849
17,427
224,363
241,790
42,194
—
19,625
12,873
650
— $
— $
51,719
$
27,169
$
— $
— $
17,914
$
14,302
$
The accompanying notes are an integral part of these consolidated financial statements.
71
Sunrun Inc.
Notes to Consolidated Financial Statements
Note 1. Organization
Sunrun Inc. (“Sunrun” or the “Company”) was originally formed in 2007 as a California limited liability
company, and was converted into a Delaware corporation in 2008. The Company is engaged in the design,
development, installation, sale, ownership and maintenance of residential solar energy systems (“Projects”) in the
United States.
Sunrun acquires customers directly and through relationships with various solar and strategic partners
(“Partners”). The Projects are constructed either by Sunrun or by Sunrun’s Partners and are owned by the
Company. Sunrun’s customers enter into an agreement to utilize the solar system (“Customer Agreement”) which
typically has an initial term of 20 or 25 years. Sunrun monitors, maintains and insures the Projects. The Company
also sells solar energy systems and products, such as panels and racking and solar leads generated to customers.
The Company has formed various subsidiaries (“Funds”) to finance the development of Projects. These
Funds, structured as limited liability companies, obtain financing from outside investors and purchase or lease
Projects from Sunrun under master purchase or master lease agreements. The Company currently utilizes three
legal structures in its investment Funds, which are referred to as: (i) pass-through financing obligations,
(ii) partnership-flips and (iii) joint venture (“JV”) inverted leases.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally
accepted accounting principles (“GAAP”) and reflect the accounts and operations of the Company and those of its
subsidiaries, including Funds, in which the Company has a controlling financial interest. The typical condition for a
controlling financial interest ownership is holding a majority of the voting interests of an entity. However, a controlling
financial interest may also exist in entities, such as variable interest entities (“VIEs”), through arrangements that do
not involve controlling voting interests. In accordance with the provisions of Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification Topic 810 (“ASC 810”) Consolidation, the Company consolidates any
VIE of which it is the primary beneficiary. The primary beneficiary, as defined in ASC 810, is the party that has (1)
the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (2) the
obligation to absorb the losses of the VIE or the right to receive benefits from the VIE that could potentially be
significant to the VIE. The Company evaluates its relationships with its VIEs on an ongoing basis to determine
whether it continues to be the primary beneficiary. The consolidated financial statements reflect the assets and
liabilities of VIEs that are consolidated. All intercompany transactions and balances have been eliminated in
consolidation.
Reclassifications
Certain prior period amounts have been reclassified to conform to current period presentation.
Use of Estimates
The preparation of the consolidated financial statements requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
The Company regularly makes estimates and assumptions, including, but not limited to, revenue recognition
constraints that result in variable consideration, the discount rate used to adjust the promised amount of
consideration for the effects of a significant financing component, the estimates that affect the collectability of
accounts receivable, the valuation of inventories, the useful lives of solar energy systems, the useful lives of
property and equipment, the valuation and useful lives of intangible assets, the effective interest rate used to
amortize pass-through financing obligations, the discount rate uses for operating and financing leases, the fair value
of contingent consideration, the valuation of stock-based compensation, the determination of valuation allowances
associated with deferred tax assets, the fair value of debt instruments disclosed and the redemption value of
redeemable noncontrolling interests. The Company bases its estimates on historical experience and on various
other assumptions believed to be reasonable. Actual results may differ from such estimates.
72
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
Segment Information
The Company has one operating segment with one business activity, providing solar energy services and
products to customers. The Company’s chief operating decision maker (“CODM”) is its Chief Executive Officer, who
manages operations on a consolidated basis for purposes of allocating resources. When evaluating performance
and allocating resources, the CODM reviews financial information presented on a consolidated basis.
Revenue from external customers (including, but not limited to homeowners) for each group of similar
products and services is as follows (in thousands):
Customer agreements
Incentives
Customer agreements and incentives
Solar energy systems
Products
Solar energy systems and product sales
Total revenue
$
$
2019
345,486 $
Year Ended December 31,
2018
272,672 $
131,794
404,466
42,349
387,835
2017
210,753
23,523
234,276
283,429
187,314
470,743
858,578 $
186,512
169,003
355,515
759,981 $
113,953
184,313
298,266
532,542
Revenue from Customer Agreements includes payments by customers for the use of the system as well as
utility and other rebates assigned by the customer to the Company in the Customer Agreement. Revenue from
incentives includes revenue from the sale of commercial investment tax credits ("Commercial ITCs") and renewable
energy credits (“SRECs”).
Cash and Restricted Cash
Cash consists of bank deposits held in checking and savings accounts. The Company considers all highly
liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company
has exposure to credit risk to the extent cash balances exceed amounts covered by federal deposit insurance. The
Company believes that its credit risk is not significant.
Restricted cash represents amounts related to obligations under certain financing transactions and future
replacement of solar energy system components.
The following table provides a reconciliation of cash, and restricted cash reported within the consolidated
balance sheets that sum to the total of the same such amounts shown in the consolidated statement of cash flows.
Cash and restricted cash consists of the following (in thousands):
Cash
Restricted cash, current and long-term
Total
Accounts Receivable
December 31,
2019
2018
2017
$
$
269,577 $
226,625 $
93,652
77,774
363,229 $
304,399 $
202,525
39,265
241,790
Accounts receivable consist of amounts due from customers as well as state and utility rebates due from
government agencies and utility companies. Under Customer Agreements, the customers typically assign incentive
rebates to the Company.
Accounts receivable are recorded at net realizable value. The Company maintains allowances for the
applicable portion of receivables when collection becomes doubtful. The Company estimates anticipated losses
from doubtful accounts based upon the expected collectability of all accounts receivables, which takes into account
the number of days past due, collection history, identification of specific customer exposure, and current economic
73
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
trends. Once a receivable is deemed to be uncollectible, it is written off. In 2019, 2018 and 2017, the Company
recorded provisions for bad debt expense of $3.4 million, $3.4 million and $2.1 million, respectively, and wrote-off
uncollectible receivables of $2.0 million, $2.8 million and $1.6 million, respectively.
Accounts receivable, net consists of the following (in thousands):
Customer receivables
Other receivables
Rebates receivable
Allowance for doubtful accounts
Total
State Tax Credits Receivable
December 31,
2019
2018
$
$
79,899 $
23
957
(3,151)
77,728 $
64,180
1,466
3,017
(2,228)
66,435
State tax credits receivable are recognized upon submission of the state income tax return.
Inventories
Inventories are stated at the lower of cost or net realizable value on a first-in, first-out basis. Inventories
consist of raw materials such as photovoltaic panels, inverters and mounting hardware as well as miscellaneous
electrical components that are sold as-is by the distribution operations and used in installations and work-in-
process. Work-in-process primarily relates to solar energy systems that will be sold to customers, which are partially
installed and have yet to pass inspection by the responsible city or utility department. For solar energy systems
where the Company performs the installation, the Company commences transferring component parts from
inventories to construction-in-progress, a component of solar energy systems, once a lease contract with a lease
customer has been executed and the component parts have been assigned to a specific project. Additional costs
incurred including labor and overhead are recorded within construction in progress.
The Company periodically reviews inventories for unusable and obsolete items based on assumptions about
future demand and market conditions. Based on this evaluation, provisions are made to write inventories down to
their market value.
Solar Energy Systems, net
The Company records solar energy systems subject to signed Customer Agreements and solar energy
systems that are under installation as solar energy systems, net on its consolidated balance sheet. Solar energy
systems, net is comprised of system equipment costs related to solar energy systems, less accumulated
depreciation and amortization. Depreciation on solar energy systems is calculated on a straight-line basis over the
estimated useful lives of the systems of 35 years. The Company periodically reviews its estimated useful life and
recognizes changes in estimates by prospectively adjusting depreciation expense. Inverters and batteries are
depreciated over their estimated useful life of 10 years.
Solar energy systems under construction will be depreciated as solar energy systems subject to signed
Customer Agreements when the respective systems are completed and interconnected.
Property and Equipment, net
Property and equipment, net consists of leasehold improvements, furniture, computer hardware and
software, machinery and equipment and automobiles. All property and equipment are stated at historical cost net of
accumulated depreciation. Repairs and maintenance are expensed as incurred.
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Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
Property and equipment is depreciated on a straight-line basis over the following periods:
Leasehold improvements
Lesser of 6 years or lease term
Furniture
Computer hardware and software
5 years
3 years
Machinery and equipment
5 years or lease term
Automobiles
Lease term
Capitalization of Software Costs
For costs incurred in the development of internal use software, the Company capitalizes costs incurred
during the application development stage. Costs related to preliminary project activities and post implementation
activities are expensed as incurred. Internal use software is amortized on a straight-line basis over its estimated
useful life. Additional costs of $2.6 million, $2.5 million and $6.1 million were capitalized in 2019, 2018 and 2017,
respectively.
Intangible Assets, net
Finite-lived intangible assets are initially recorded at fair value and are subsequently presented net of
accumulated amortization. Intangible assets are amortized on a straight-line basis over their estimated useful lives
as follows:
Customer relationships
Developed technology
Trade names
5-10 years
5 years
5-8 years
Impairment of Long-Lived Assets
The carrying amounts of the Company’s long-lived assets, including solar energy systems and intangible
assets subject to depreciation and amortization, are periodically reviewed for impairment whenever events or
changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful
life is shorter than originally estimated. Factors that are considered in deciding when to perform an impairment
review would include significant negative industry or economic trends and significant changes or planned changes
in the use of the assets. Recoverability of these assets is measured by comparison of the carrying amount of each
asset group to the future undiscounted cash flows the asset group is expected to generate over its remaining life. If
the asset group is considered to be impaired, the amount of any impairment is measured as the difference between
the carrying value and the fair value of the impaired asset group. If the useful life is shorter than originally estimated,
the Company amortizes the remaining carrying value over the new shorter useful life. The Company has recognized
no material impairments of its long-lived assets in any of the periods presented.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities
assumed. Goodwill is reviewed for impairment at least annually or whenever events or changes in circumstances
indicate that the carrying amount may be impaired. The Company has determined that it operates as one reporting
unit and the Company’s goodwill is recorded at the enterprise level. The Company performs its annual impairment
test of goodwill on October 1 of each fiscal year or whenever events or circumstances change or occur that would
indicate that goodwill might be impaired. When assessing goodwill for impairment, the Company uses qualitative
and if necessary, quantitative methods in accordance with FASB ASC Topic 350, Goodwill. The Company also
considers its enterprise value and if necessary, discounted cash flow model, which involves assumptions and
estimates, including the Company’s future financial performance, weighted average cost of capital and interpretation
of currently enacted tax laws.
Circumstances that could indicate impairment and require the Company to perform a quantitative impairment
test include a significant decline in the Company’s financial results, a significant decline in the Company’s enterprise
value relative to its net book value, an unanticipated change in competition or the Company’s market share and a
75
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
significant change in the Company’s strategic plans. As of October 1, 2019, the Company concluded that the fair
value of the Company exceeded its carrying value.
Deferred Revenue
When the Company receives consideration, or when such consideration is unconditionally due, from a
customer prior to delivering goods or services to the customer under the terms of a Customer Agreement, the
Company records deferred revenue. Such deferred revenue consists of amounts for which the criteria for revenue
recognition have not yet been met and includes amounts that are collected or assigned from customers, including
upfront deposits and prepayments, and rebates. Deferred revenue relating to financing components represents the
cumulative excess of interest expense recorded on financing component elements over the related revenue
recognized to date and will eventually net to zero by the end of the initial term. Amounts received related to the
sales of SRECs which have not yet been delivered to the counterparty are recorded as deferred revenue.
The opening balance of deferred revenue was $564.9 million as of December 31, 2017. Deferred revenue
consists of the following (in thousands):
Under Customer Agreements:
Payments received
Financing component balance
Under SREC contracts:
Payments received
Financing component balance
December 31,
2019
2018
$
558,630 $
44,874
603,504
122,680
3,315
125,995
538,926
37,801
576,727
12,977
1,921
14,898
Total
$
729,499 $
591,625
In the years ended December 31, 2019, 2018 and 2017, the Company recognized revenue of $69.4 million,
$52.9 million and $47.7 million, respectively, from amounts included in deferred revenue at the beginning of the
respective periods. Revenue allocated to remaining performance obligations represents contracted revenue that
has not yet been recognized and includes deferred revenue as well as amounts that will be invoiced and recognized
as revenue in future periods. Contracted but not yet recognized revenue was approximately $6.5 billion as of
December 31, 2019, of which the Company expects to recognize approximately 6% over the next 12 months. The
annual recognition is not expected to vary significantly over the next 10 years as the vast majority of existing
Customer Agreements have at least 10 years remaining, given that the average age of the Company's fleet of
residential solar energy systems under Customer Agreements is less than three years due to the Company being
formed in 2007 and having experienced significant growth in the last few years. The annual recognition on these
existing contracts will gradually decline over the midpoint of the Customer Agreements over the following 10 years
as the typical 20- or 25-year initial term expires on individual Customer Agreements. In March 2019, deferred
revenue increased by $95.5 million arising from the Company's sale of the right to SRECs to be generated over the
next 10 to 15 years by a group of solar energy systems. In connection with the sale, the Company repaid debt
previously drawn against the rights to these SRECs.
Deferred Grants
Deferred grants consist of U.S. Treasury grants and state tax credits. The Company applied for a renewable
energy technologies income tax credit offered by one of the states in the form of a cash payment and deferred the
tax credit as a grant on the consolidated balance sheets. The Company records the grants as deferred grants and
recognizes the benefit on a straight-line basis over the estimated depreciable life of the associated assets as a
reduction in Cost of customer agreements and incentives.
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Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
Warranty Accrual
The Company accrues warranty costs when revenue is recognized for solar energy systems sales, based on
the estimated future costs of meeting its warranty obligations. Warranty costs primarily consist of replacement costs
for supplies and labor costs for service personnel since warranties for equipment and materials are covered by the
original manufacturer’s warranty (other than a small deductible in certain cases). As such, the warranty reserve is
immaterial in all periods presented. The Company makes and revises these estimates based on the number of solar
energy systems under warranty, the Company’s historical experience with warranty claims, assumptions on
warranty claims to occur over a systems’ warranty period and the Company’s estimated replacement costs.
Solar Energy Performance Guarantees
The Company guarantees to customers certain specified minimum solar energy production output for solar
facilities over the initial term of the Customer Agreements. The Company monitors the solar energy systems to
determine whether these specified minimum outputs are being achieved. Annually or every two years, depending on
the terms of the Customer Agreement, the Company will refund a portion of electricity payments to a customer if his
or her solar energy production output was less than the performance guarantee. The Company considers this a
variable component that offsets the transaction price.
Derivative Financial Instruments
The Company recognizes all derivative instruments on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other comprehensive loss if a derivative is
designated as part of a hedge transaction. The ineffective portion of the hedge, if any, is immediately recognized in
earnings and are included in other expenses (income), net in the consolidated statements of operations.
The Company uses derivative financial instruments, primarily interest rate swaps, to manage its exposure to
interest rate risks on its syndicated term loans, which are recognized on the balance sheet at their fair values. On
the date that the Company enters into a derivative contract, the Company formally documents all relationships
between the hedging instruments and the hedged items, as well as its risk management objective and strategy for
undertaking each hedge transaction. Derivative instruments designated in a hedge relationship to mitigate exposure
to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow
hedges. Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the balance
sheet as either a freestanding asset or liability. Changes in the fair value of a derivative that is designated and
qualifies as an effective cash flow hedge are recorded in accumulated other comprehensive loss, net of tax, until
earnings are affected by the variability of cash flows of the hedged item. Any derivative gains and losses that are not
effective in hedging the variability of expected cash flows of the hedged item or that do not qualify for hedge
accounting treatment are recognized directly into income. At the hedge’s inception and at least quarterly thereafter,
a formal assessment is performed to determine whether changes in cash flows of the derivative instrument have
been highly effective in offsetting changes in the cash flows of the hedged items and whether they are expected to
be highly effective in the future. The Company discontinues hedge accounting prospectively when (i) it determines
that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item; (ii) the derivative
expires or is sold, terminated, or exercised; or (iii) management determines that designating the derivative as a
hedging instrument is no longer appropriate. In all situations in which hedge accounting is discontinued and the
derivative remains outstanding, the derivative instrument is carried at its fair market value on the balance sheet with
the changes in fair value recognized in current period earnings. The remaining balance in accumulated other
comprehensive loss associated with the derivative that has been discontinued is not recognized in the income
statement unless it is probable that the forecasted transaction will not occur. Such amounts are recognized in
earnings when earnings are affected by the hedged transaction.
Fair Value of Financial Instruments
The Company defines fair value as the exchange price that would be received for an asset or an exit price
that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. The Company uses valuation
approaches to measure fair value that maximize the use of observable inputs and minimize the use of unobservable
inputs. The FASB establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:
77
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
•
•
•
Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the
measurement date;
Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or
liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not
active, or other inputs that are observable or can be corroborated by observable market data for
substantially the full term of the related assets or liabilities; and
Level 3—Inputs that are unobservable, significant to the measurement of the fair value of the assets or
liabilities and are supported by little or no market data.
The Company’s financial instruments include cash, receivables, accounts payable, accrued expenses,
distributions payable to noncontrolling interests, derivatives, contingent consideration, and recourse and non-
recourse debt.
Revenue Recognition
The Company recognizes revenue when control of goods or services is transferred to its customers, in an
amount that reflects the consideration it expected to be entitled to in exchange for those goods or services.
Customer agreements and incentives
Customer agreements and incentives revenue is primarily comprised of revenue from Customer
Agreements in which the Company provides continuous access to a functioning solar system and revenue from the
sales of SRECs generated by the Company’s solar energy systems to third parties.
The Company begins to recognize revenue on Customer Agreements when permission to operate ("PTO")
is given by the local utility company or on the date daily operation commences if utility approval is not required.
Revenue recognition does not necessarily follow the receipt of cash. The Company recognizes revenue evenly over
the time that it satisfies its performance obligations over the initial term of the Customer Agreements. Customer
Agreements typically have an initial term of 20 or 25 years. After the initial contract term, our Customer Agreements
typically automatically renew on an annual basis and the rate is initially set at up to a 10% discount to then
prevailing power prices.
SREC revenue arises from the sale of environmental credits generated by solar energy systems and is
generally recognized upon delivery of the SRECs to the counterparty. For pass-through financing obligation Funds,
the value attributable to the monetization of Commercial ITCs are recognized in the period a solar system is granted
PTO - see Note 14, Pass-through Financing Obligations.
In determining the transaction price, the Company adjusts the promised amount of consideration for the
effects of the time value of money when the timing of payments provides it with a significant benefit of financing the
transfer of goods or services to the customer. In those circumstances, the contract contains a significant financing
component. When adjusting the promised amount of consideration for a significant financing component, the
Company uses the discount rate that would be reflected in a separate financing transaction between the entity and
its customer at contract inception and recognizes the revenue amount on a straight-line basis over the term of the
Customer Agreement, and interest expense using the effective interest rate method.
Consideration from customers is considered variable due to the performance guarantee under Customer
Agreements and liquidating damage provisions under SREC contracts in the event minimum deliveries are not
achieved. Performance guarantees provide a credit to the customer if the system's cumulative production, as
measured on various PTO anniversary dates, is below the Company's guarantee of a specified minimum. Revenue
is recognized to the extent it is probable that a significant reversal of such revenue will not occur.
The Company capitalizes incremental costs incurred to obtain a contract in Other Assets in the consolidated
balance sheets. These amounts are amortized on a straight-line basis over the term of the Customer Agreements,
and are included in Sales and marketing in the consolidated statements of operations.
78
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
Solar energy systems and product sales
For solar energy systems sold to customers, the Company recognizes revenue when the solar energy
system passes inspection by the authority having jurisdiction. The Company’s installation projects are typically
completed in less than twelve months.
Product sales consist of solar panels, racking systems, inverters, other solar energy products sold to
resellers and customer leads. Product sales revenue is recognized at the time when control is transferred, upon
shipment. Customer lead revenue, included in product sales, is recognized at the time the lead is delivered.
Taxes assessed by government authorities that are directly imposed on revenue producing transactions are
excluded from solar energy systems and product sales.
Cost of Revenue
Customer agreements and incentives
Cost of revenue for customer agreements and incentives is primarily comprised of (1) the depreciation of the
cost of the solar energy systems, as reduced by amortization of deferred grants, (2) solar energy system
operations, monitoring and maintenance costs including associated personnel costs, and (3) allocated corporate
overhead costs.
Solar energy systems and product sales
Cost of revenue for solar energy systems and non-lead generation product sales consist of direct and indirect
material and labor costs for solar energy systems installations and product sales. Also included are engineering and
design costs, estimated warranty costs, freight costs, allocated corporate overhead costs, vehicle depreciation costs
and personnel costs associated with supply chain, logistics, operations management, safety and quality control.
Cost of revenue for lead generations consists of costs related to direct-response advertising activities associated
with generating customer leads.
Research and development Expense
Research and development expenses include personnel costs, allocated overhead costs, and other costs
related to the development of our proprietary technology.
Stock-Based Compensation
The Company grants stock options and restricted stock units (“RSUs”) for its equity incentive plan and
employee stock purchase plan. Stock-based compensation to employees is measured based on the grant date fair
value of the awards and recognized over the period during which the employee is required to perform services in
exchange for the award (generally the vesting period of the award). The Company estimates the fair value of stock
options and employee stock purchase plans awards granted using the Black-Scholes option-valuation model.
Compensation cost is recognized over the vesting period of the applicable award using the straight-line method for
those options expected to vest.
The Company also grants RSUs to non-employees that vest upon the satisfaction of both performance and
service conditions. For RSUs granted to non-employees that vest upon the satisfaction of a performance condition,
the Company starts recognizing expense on the RSUs when the performance condition is met.
Noncontrolling Interests and Redeemable Noncontrolling Interests
Noncontrolling interests represent investors’ interests in the net assets of the Funds that the Company has
created to finance the cost of its solar energy systems subject to the Company’s Customer Agreements. The
Company has determined that the contractual provisions in the funding arrangements represent substantive profit
sharing arrangements. The Company has further determined that the appropriate methodology for attributing
income and loss to the noncontrolling interests and redeemable noncontrolling interests each period is a balance
sheet approach referred to as the hypothetical liquidation at book value (“HLBV”) method.
79
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
Under the HLBV method, the amounts of income and loss attributed to the noncontrolling interests and
redeemable noncontrolling interests in the consolidated statements of operations reflect changes in the amounts the
investors would hypothetically receive at each balance sheet date under the liquidation provisions of the contractual
agreements of these arrangements, which are based on the investors' tax capital accounts, assuming the net
assets of these funding structures were liquidated at recorded amounts. The Company’s initial calculation of the
investor’s noncontrolling interest in the results of operations of these funding arrangements is determined as the
difference in the noncontrolling interests’ claim under the HLBV method at the start and end of each reporting
period, after taking into account any capital transactions, such as contributions or distributions, between the Fund
and the investors.
The Company classifies certain noncontrolling interests with redemption features that are not solely within
the control of the Company outside of permanent equity on its consolidated balance sheets. Redeemable
noncontrolling interests are reported using the greater of their carrying value as determined by the HLBV method or
their estimated redemption value at each reporting date.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in the consolidated financial statements and tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference between the financial statement and tax
basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to
reverse. Valuation allowances are provided against deferred tax assets to the extent that it is more likely than not
that the deferred tax asset will not be realized. The Company is subject to the provisions of ASC 740, Income
Taxes, which establishes consistent thresholds as it relates to accounting for income taxes. It defines the threshold
for recognizing the benefits of tax return positions in the financial statements as “more likely than not” to be
sustained by the taxing authority and requires measurement of a tax position meeting the more-likely-than-not
criterion, based on the largest benefit that is more than 50% likely to be realized. Management has analyzed the
Company’s inventory of tax positions with respect to all applicable income tax issues for all open tax years (in each
respective jurisdiction).
The Company sells solar energy systems to the Funds. As the Funds are consolidated by the Company, the
gain on the sale of the solar energy systems is not recognized in the consolidated financial statements. However,
this gain is recognized for tax reporting purposes. Since these transactions are intercompany sales, prior to January
1, 2017, any tax expense incurred related to these intercompany sales is deferred and recorded as a prepaid tax
asset and amortized over the depreciable life of the underlying solar energy systems which has been estimated to
be 35 years in accordance with ASC Topic 810. With the adoption of ASU 2016-16 on January 1, 2017 the
Company reversed net prepaid tax assets of $378.5 million and recorded the gross deferred tax assets associated
with the historical intercompany sales of solar energy systems, which in turn reduced the deferred tax liabilities on
investment in partnerships by $378.2 million with the remaining $0.3 million being recorded as a cumulative effect of
adoption in the Company’s Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’
Equity. The adoption did not have an impact on the Company’s Consolidated Statement of Operations.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the
normal course of business, the Company is subject to examination by federal, state and local jurisdictions, where
applicable. The statute of limitations for the tax returns varies by jurisdiction.
80
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
Concentrations of Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily
of cash and accounts receivable, which includes rebates receivable. The associated risk of concentration for cash is
mitigated by banking with institutions with high credit ratings. At certain times, amounts on deposit exceed Federal
Deposit Insurance Corporation insurance limits. The Company does not require collateral or other security to
support accounts receivable. To reduce credit risk, management performs periodic credit evaluations and ongoing
evaluations of its customers’ financial condition. Rebates receivable are due from various states and local
governments as well as various utility companies. The Company considers the collectability risk of such amounts to
be low. The Company is not dependent on any single customer. The Company’s customers under Customer
Agreements are primarily located in California, Arizona, New Jersey, Hawaii, New York and Massachusetts. The
loss of a customer would not adversely impact the Company’s operating results or financial position. The Company
depends on a limited number of suppliers of solar panels and other system components. During the years ended
December 31, 2019 and 2018, the solar materials purchases from the top five suppliers were approximately $180.1
million and $221.5 million, respectively.
Recently Issued and Adopted Accounting Standards
Accounting standards adopted January 1, 2017:
In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory,
which requires entities to recognize income tax consequences of an intra-entity transfer of an asset other than
inventory when the transfer occurs. As a result, a reporting entity will recognize the tax expense from the sale of
assets in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of the transaction are
eliminated in the consolidated financial statements. Any deferred tax asset that arises in the buyer’s jurisdiction will
also be recognized at the time of the transfer. The Company adopted the standard effective January 1, 2017. As the
Company sells solar energy systems to Funds, the Company records the current tax effects of the gain on such
sales as well as a deferred tax asset related to the Company’s increased tax basis in the partnership as a result of
such sales. As a result of the adoption, the Company reversed net prepaid tax assets of $378.5 million, recognized
gross deferred tax assets of $378.2 million and recorded a cumulative-effect adjustment decreasing retained
earnings by $0.3 million as of January 1, 2017.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation. The new
guidance requires all income tax effects of awards to be recognized in the income statement when the awards vest
or are settled. It also requires the Company to make an accounting policy election to either estimate the number of
awards that are expected to vest or account for forfeitures as they occur. The Company adopted the new ASU
effective January 1, 2017. The Company elected to continue to estimate the number of awards that are expected to
vest. Upon the adoption, deferred tax liabilities decreased by $3.3 million, and the Company recorded a cumulative-
effect adjustment increasing retained earnings by $3.3 million as of January 1, 2017.
Accounting standards adopted January 1, 2018:
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging, Targeted Improvements to
Accounting for Hedging Activities, which expands an entity's ability to hedge nonfinancial and financial risk
components, eliminates the requirement to separately measure and report hedge ineffectiveness, and aligned the
recognition and presentation of the effects of hedging instruments in the financial statements. The Company
adopted ASU 2017-12 effective October 1, 2018, with the retrospective adjustment applicable to prior periods of
$2.0 million included as a cumulative-effect adjustment recorded to accumulated other comprehensive loss and
retained earnings as of January 1, 2018.
Accounting standards adopted January 1, 2019:
In February 2018, the FASB issued Accounting Standards Update ("ASU") No. 2018-02, Income Statement
-- Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income, which allows companies to reclassify stranded tax effects resulting from the Tax Cuts and
Jobs Act from accumulated other comprehensive income to retained earnings. The Company adopted ASU No.
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Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
2018-02 effective January 1, 2019, which resulted in an adjustment of $0.7 million for the reclassification, as
reflected in its consolidated statement of redeemable noncontrolling interests and equity. The Company uses the
aggregate portfolio approach when reclassifying stranded tax effects from accumulated other comprehensive
income.
In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718),
Improvements to Nonemployee Share-Based Payment Accounting, which is intended to align the accounting for
share-based payment awards issued to employees and nonemployees, however, this amendment does not apply to
instruments issued in a financing transaction nor to equity instruments granted to a customer under a contract in the
scope of Topic 606. Currently, performance conditions are recognized once the performance conditions are met.
Under this new amendment, equity-classified nonemployee share-based payments will be measured at the grant-
date fair value and will be recognized based on the probable outcome of the performance conditions. This ASU is
effective for fiscal periods beginning after December 15, 2018. The Company adopted ASU No. 2018-07 effective
January 1, 2019, and there was no material impact to its consolidated financial statements.
In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements. This amendment makes
changes to a variety of topics to clarify, correct errors in, or make minor improvements to the Accounting Standards
Codification. The majority of the amendments in ASU 2018-09 are effective for periods beginning after December
15, 2018. The Company adopted ASU No. 2018-09 effective January 1, 2019, and there was no material impact to
its consolidated financial statements.
Accounting standards to be adopted:
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments,
which replaces the current incurred loss impairment methodology with a current expected credit losses model. The
amendment applies to entities that hold financial assets and net investment in leases that are not accounted for at
fair value through net income as well as loans, debt securities, trade receivables, net investments in leases, off-
balance sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the
scope that have the contractual right to receive cash. This ASU is effective for fiscal years beginning after
December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. Adoption of this ASU
is applied using a modified retrospective approach, with certain aspects requiring a prospective approach. The
Company is currently evaluating this guidance and the impact it may have on the Company’s consolidated financial
statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure
Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure
requirements on fair value measurements as part of its disclosure framework project. Under this amendment,
entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2
of the fair value hierarchy. However, for Level 3 fair value measurements, disclosures around the range and
weighted average used to develop significant unobservable inputs will be required. This ASU is effective for fiscal
periods beginning after December 15, 2019. The Company is currently evaluating this guidance and the impact it
may have on the Company's consolidated financial statements and disclosures.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software
(Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement
That Is a Service Contract, which requires a customer in a cloud computing arrangement that is a service contract
to follow the internal-use software guidance in Topic 350, Intangibles- Goodwill and Other, to determine which
implementation costs to capitalize as assets or expense as incurred. This ASU is effective for annual reporting
periods, and interim periods within those years, beginning after December 15, 2019, and can be applied either
prospectively to implementation costs incurred after the date of adoption or retrospectively to all arrangements. The
Company is currently evaluating this guidance and the impact it may have on the Company's consolidated financial
statements.
In October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810), Targeted Improvements to
Related Party Guidance for Variable Interest Entities, which aligns the evaluation of decision-making fees under the
variable interest entity guidance. Under this new guidance, in order to determine whether decision-making fees
represent a variable interest, an entity considers indirect interests held through related parties under common
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Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
control on a proportionate basis. This ASU is effective for annual reporting periods, and interim periods within those
years, beginning after December 15, 2019, and must be applied retrospectively with a cumulative-effect adjustment
to retained earnings at the beginning of the earliest period presented. The Company is currently evaluating this
guidance and the impact it may have on the Company's consolidated financial statements.
In November 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), which simplifies the
accounting for income taxes, primarily by eliminating certain exceptions to the guidance in ASC 740. This ASU is
effective for fiscal periods beginning after December 15, 2020. The Company is currently evaluating this guidance
and the impact it may have on the Company’s consolidated financial statements.
Note 3. Acquisition
Clean Energy Experts, LLC
In 2015, the Company acquired Clean Energy Experts, LLC, a consumer demand and solar lead generation
company, for $25.0 million in cash and 1.9 million shares of common stock valued at $19.1 million, net of settlement
of a preexisting payable to CEE. An additional $8.8 million in cash and 599,999 shares of common stock were
issued in 2017 due to the achievement of certain sales targets as well as continued employment of certain key
employees acquired in the transaction, which was recorded as compensation expense. The acquisition was made in
order to enhance the Company’s efficient and consistent access to high-quality leads in existing and new markets.
Omni Energy, LLC
In July 2019, the Company acquired a specified customer pipeline and assembled workforce from Omni
Energy, LLC (“Omni”), an existing solar integrator with multi-family solar project origination and development
capabilities.
The purchase consideration for the assets acquired was approximately $23.5 million, consisting of $2.7
million in cash upfront and $20.8 million representing the fair value of contingent consideration based upon new
solar system installations through 2022. The Company estimated the fair value of the contingent consideration at
the acquisition date using a probability-weighted discounted cash flow methodology. The estimated range of
outcomes (undiscounted) was from $17.7 million to $28.9 million. The total fair value of the assets acquired of $23.5
million is comprised of an intangible asset related to customer relationships of $14.2 million with estimated useful
life of five years, and goodwill of $9.3 million. Customer relationships were valued with level 3 inputs. The fair value
of the contingent consideration as of December 31, 2019 was $11.8 million.
The fair value of the assets acquired and liabilities assumed are preliminary and may be adjusted as the
Company obtains additional information, primarily related to adjustments for the customer relationships. If there are
adjustments made for these items the fair value of intangible assets and goodwill could be impacted. Thus these
provisional measurements of fair value are subject to change. The Company expects to finalize the valuation of the
intangible assets as soon as practicable, but not later than one-year from the acquisition date.
Goodwill represents the excess of the purchase price over the fair value of the asset acquired. Goodwill
recorded is primarily attributable to the acquired assembled workforce and synergies achieved through the
elimination of redundant costs.
There was no revenue contributed from the acquired business to the Company, as measured from the date
of the acquisition through December 31, 2019. The portion of the total expenses and net income associated with the
acquired business was not separately identifiable due to the integration with the Company’s operations. Due to the
nature of the acquisition, the operations acquired and the related unaudited pro forma information are immaterial.
Note 4. Fair Value Measurement
At December 31, 2019 and 2018, the carrying value of receivables, accounts payable, accrued expenses
and distributions payable to noncontrolling interests approximates fair value due to their short-term nature and falls
under the Level 2 hierarchy. The carrying values and fair values of debt instruments are as follows (in thousands):
83
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
December 31, 2019
December 31, 2018
Carrying Value
$
239,485 $
625,519
513,938
875,998
2,254,940 $
Fair Value
Carrying Value
Fair Value
239,485 $
626,023
524,581
931,320
2,321,409 $
247,000 $
828,517
273,337
400,068
1,748,922 $
247,000
828,309
272,937
394,756
1,743,002
$
Bank line of credit
Senior debt
Subordinated debt
Securitization debt
Total
At December 31, 2019 and 2018, the fair value of the Company’s lines of credit, and certain senior,
subordinated, and SREC loans approximate their carrying values because their interest rates are variable rates that
approximate rates currently available to the Company. At December 31, 2019 and 2018, the fair value of the
Company’s other debt instruments are based on rates currently offered for debt with similar maturities and terms.
The Company’s fair value of the debt instruments fell under the Level 2 hierarchy. These valuation approaches
involve some level of management estimation and judgment, the degree of which is dependent on the price
transparency for the instruments or market.
At December 31, 2019 and 2018, financial instruments measured at fair value on a recurring basis, based
upon the fair value hierarchy are as follows (in thousands):
Derivative assets:
Interest rate swaps
Total
Derivative liabilities:
Interest rate swaps
Total
Contingent consideration:
Contingent consideration:
Total
Derivative assets:
Interest rate swaps
Total
Derivative liabilities:
Interest rate swaps
Total
December 31, 2019
Level 1
Level 2
Level 3
Total
— $
— $
683 $
683 $
— $
— $
683
683
— $
— $
64,361 $
64,361 $
— $
— $
64,361
64,361
— $
— $
— $
— $
11,809 $
11,809
11,809 $
11,809
$
$
$
$
$
$
Level 1
December 31, 2018
Level 3
Level 2
Total
— $
— $
6,958 $
6,958 $
— $
— $
6,958
6,958
— $
— $
11,910 $
11,910 $
— $
— $
11,910
11,910
$
$
$
$
The Company determines the fair value of its interest rate swaps using a discounted cash flow model that
incorporates an assessment of the risk of non-performance by the interest rate swap counterparty and an
evaluation of the Company’s credit risk in valuing derivative instruments. The valuation model uses various inputs
including contractual terms, interest rate curves, credit spreads and measures of volatility.
The Company recorded contingent consideration in connection with a business combination, which is
dependent on the achievement of specified deployment milestones associated with the number of solar systems
installed through 2022. The Company determined the fair value of the contingent consideration using a probability-
84
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
weighted expected return methodology that considers the timing and probabilities of achieving these milestones and
uses discount rates that reflect the appropriate cost of capital. Contingent consideration was valued with level 3
inputs. The Company reassesses the valuation assumptions each reporting period, with any changes in the fair
value accounted for in the consolidated statements of operations.
The following table summarizes the activity of Level 3 contingent consideration balance in the year ended
December 31, 2019 (in thousands):
Balance recorded in connection with business acquisition
Gains recognized in earnings within sales and marketing expense
Payable for solar systems that have met deployment milestones
Balance at December 31, 2019
$
$
20,800
(2,271)
(6,720)
11,809
Note 5. Inventories
Inventories consist of the following (in thousands):
Raw materials
Work-in-process
Total
December 31,
2019
2018
$
$
239,449 $
21,122
260,571 $
64,256
15,211
79,467
The Internal Revenue Service (“IRS”) provided taxpayers a safe harbor opportunity to retain access to the
pre-2020 30% tax credit amount through specific rules released in Notice 2018-59. The Company has sought to
avail itself of the safe harbor in order to retain the 30% Commercial ITC that was available in 2019 with respect to
approximately 500 MW of projects by incurring certain costs and taking title to equipment in 2019. As of December
31, 2019, there was approximately $132.6 million related to the safe harbor program within raw materials.
Note 6. Solar Energy Systems, net
Solar energy systems, net consists of the following (in thousands):
Solar energy system equipment costs
Inverters
Total solar energy systems
Less: accumulated depreciation and amortization
Add: construction-in-progress
Total solar energy systems, net
December 31,
2019
4,510,677 $
471,471
4,982,148
(692,218)
202,685
4,492,615 $
2018
3,823,853
396,054
4,219,907
(535,891)
136,001
3,820,017
$
$
All solar energy systems, including construction-in-progress, have been leased to or are subject to signed
Customer Agreements with customers. The Company recorded depreciation expense related to solar energy
systems of $167.9 million, $139.2 million and $112.8 million for the years ended December 31, 2019, 2018 and
2017, respectively. The depreciation expense was reduced by the amortization of deferred grants of $8.1 million,
$7.8 million and $7.6 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Note 7. Property and Equipment, net
Property and equipment, net consists of the following (in thousands):
85
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
Machinery and equipment
Leasehold improvements, furniture, and computer hardware
Vehicles
Computer software
Total property and equipment
Less: Accumulated depreciation and amortization
Total property and equipment, net
December 31,
2019
2018
$
$
7,907 $
34,951
65,663
35,329
143,850
(87,142)
56,708 $
6,888
14,755
55,093
32,768
109,504
(74,611)
34,893
Depreciation and amortization expense was $22.6 million, $20.4 million and $19.5 million for the years ended
December 31, 2019, 2018 and 2017, respectively.
Note 8. Goodwill and Intangible Assets, net
The goodwill and intangible assets were acquired as part of the acquisition of Mainstream Energy
Corporation, which included AEE Solar and its racking business SnapNrack, Clean Energy Experts, LLC, and Omni
Energy, LLC.
The change in the carrying value of goodwill is as follows (in thousands):
Balance—January 1, 2017 and 2018
Acquisition of Omni (Note 3)
Balance—December 31, 2019
$
$
87,543
7,551
95,094
The Company performs its annual impairment test of goodwill on October 1 of each fiscal year or whenever
events or circumstances change or occur that would indicate that goodwill might be impaired. The Company has
determined that it has one reporting unit.
There was no impairment of goodwill during the years ended December 31, 2019, 2018 and 2017,
respectively.
Intangible assets, net as of December 31, 2019 consist of the following (in thousands, except weighted
average remaining life):
Customer relationships
Developed technology
Trade names
Total
Cost
Accumulated
amortization
Carrying
value
$
$
28,870 $
(10,837) $
6,820
6,990
(6,525)
(5,775)
42,680 $
(23,137) $
18,033
295
1,215
19,543
Weighted
average
remaining life
(in years)
4.3
0.3
3.3
Intangible assets, net as of December 31, 2018 consist of the following (in thousands, except weighted
average remaining life):
86
Customer relationships
Developed technology
Trade names
Total
Cost
Accumulated
amortization
Carrying
value
$
$
14,660 $
6,820
6,990
28,470 $
(7,716) $
(5,328)
(5,338)
(18,382) $
6,944
1,492
1,652
10,088
Weighted
average
remaining life
(in years)
4.6
1.2
4.1
The Company recorded amortization of intangible assets expense of $4.8 million, $4.2 million and $4.2
million for the years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, expected
amortization of intangible assets for each of the five succeeding fiscal years and thereafter is as follows (in
thousands):
2020
2021
2022
2023
2024
Thereafter
Total
Note 9. Other Assets
Other assets consist of the following (in thousands):
Costs to obtain contracts
Costs to obtain contracts- incentives
Accumulated amortization of costs to obtain contracts
Unbilled receivables
Operating lease right-of-use assets
Other assets
Total
$
$
4,985
4,592
4,585
3,893
1,488
—
19,543
December 31,
2019
2018
$
$
268,964 $
2,481
(36,925)
104,346
34,678
34,859
408,403 $
219,307
—
(24,992)
81,703
20,257
39,410
335,685
The Company recorded amortization of costs to obtain contracts of $11.8 million and $8.6 million for the
years ended December 31, 2019 and 2018, respectively, in the sales and marketing expense.
The majority of unbilled receivables arise from fixed price escalators included in our long-term Customer
Agreements. The escalator is included in calculating the total estimated transaction value for an individual
Customer Agreement. The total estimated transaction value is then recognized over the term of the Customer
Agreement. The amount of unbilled receivables increases while cumulative billings for an individual Customer
Agreement are less than the cumulative revenue recognized for that Customer Agreement. Conversely, the amount
of unbilled receivables decreases when the actual cumulative billings becomes higher than the cumulative revenue
recognized. At the end of the initial term of a Customer Agreement, the cumulative amounts recognized as revenue
and billed to date are the same, therefore the unbilled receivable balance for an individual Customer Agreement will
be zero.
87
Note 10. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following (in thousands):
Accrued employee compensation
Operating lease obligations
Accrued interest
Accrued professional fees
Other accrued expenses
Total
Note 11. Project Equity Financing
December 31,
2019
2018
$
38,750 $
9,790
13,048
4,732
82,177
$
148,497 $
39,738
7,857
8,436
9,199
33,406
98,636
In December 2016, the Company pooled and transferred its interests in certain financing funds into a special
purpose entity (“SPE”) with a new investor. The Company has determined that the SPE is a variable interest entity
and that the Company is the primary beneficiary of the SPE by reference to the power and benefits criterion under
ASC 810, Consolidation. Accordingly, the Company consolidates the SPE in its consolidated financial statements
and accounts for the investor’s equity interest in the SPE as a noncontrolling interest (see Note 15, VIE
Arrangements). The Company did not recognize a gain or loss on the transfer of its interests in the financing funds
and continues to consolidate the financing funds. The SPE’s assets and cash flows are not available to the other
creditors of the Company, and the investor has no recourse to the Company’s other assets.
Note 12. Indebtedness
As of December 31, 2019, debt consisted of the following (in thousands, except percentages):
Carrying Values, net of
debt discount
Current
Long Term
Total
Unused
Borrowing
Capacity
Interest
Rate (1)
Maturity
Date
Recourse debt:
Bank line of credit
$
— $ 239,485
$ 239,485
$
Total recourse debt
—
239,485
239,485
—
—
5.09% - 5.38%
April 2022
Non-recourse debt:
Senior
Subordinated
Securitization Class A
Securitization Class B
Total non-recourse
debt
Total debt
8,020
—
26,838
490
617,499
513,938
839,981
8,689
625,519
513,938
866,819
9,179
14,639
3.94% - 5.61%
April 2022 - July 2027
—
—
—
6.93% - 10.80%
3.61% - 5.31%
5.38%
March 2023 - July 2030
July 2024 - February 2055
July 2024
35,348
1,980,107
2,015,455
14,639
$
35,348
$ 2,219,592
$ 2,254,940
$
14,639
(1)
Reflects contractual, unhedged rates. See Note 13, Derivatives for hedge rates.
88
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
As of December 31, 2018, debt consisted of the following (in thousands, except percentages):
Carrying Values, net of
debt discount
Current
Long Term
Total
Unused
Borrowing
Capacity
Interest
Rate (1)
Maturity
Date
Recourse debt:
Bank line of credit
$
— $
247,000
$ 247,000
$
Total recourse debt
—
247,000
247,000
Non-recourse debt:
Senior
Subordinated
Securitization Class A
Securitization Class B
SREC Loans
Total non-recourse
debt
19,070
5,824
10,125
465
—
809,447
267,513
380,299
9,179
—
828,517
273,337
390,424
9,644
—
35,484
1,466,438
1,501,922
406
406
—
—
—
—
—
—
Total debt
$
35,484
$ 1,713,438
$1,748,922
$
406
5.45% - 5.77%
April 2020
4.50% - 5.54%
September 2020 - October 2024
7.03% - 10.00%
September 2020 - January 2030
4.40% - 5.31%
July 2024 - April 2049
5.38%
July 2024
(1)
Reflects contractual, unhedged rates. See Note 13, Derivatives for hedge rates.
Bank Line of Credit
The Company has outstanding borrowings under a syndicated working capital facility with banks for a total
commitment of up to $250.0 million. The working capital facility is secured by substantially all of the unencumbered
assets of the Company, as well as ownership interests in certain subsidiaries of the Company. Loans under the
facility bear interest at LIBOR +3.25% per annum or the Base Rate +2.25% per annum. The Base Rate is the
highest of the Federal Funds Rate +0.50%, the Prime Rate, or LIBOR +1.00%.
Under the terms of the working capital facility, the Company is required to meet various restrictive
covenants, such as the completion and presentation of audited consolidated financial statements, maintaining a
minimum unencumbered liquidity of at least $25.0 million at the end of each calendar month, maintaining quarter
end liquidity to be at least $35.0 million, and maintaining a minimum interest coverage ratio of 3.50 or greater,
measured quarterly as of the last day of each quarter. The Company was in compliance with all debt covenants as
of December 31, 2019. As of December 31, 2019, the balance under this facility was $239.5 million with a maturity
date in April 2022.
Senior and Subordinated Debt Facilities
Each of the Company's senior and subordinated debt facilities contain customary covenants including the
requirement to maintain certain financial measurements and provide lender reporting. Each of the senior and
subordinated debt facilities also contain certain provisions in the event of default that entitle lenders to take certain
actions including acceleration of amounts due under the facilities and acquisition of membership interests and
assets that are pledged to the lenders under the terms of the senior and subordinated debt facilities. The facilities
are non-recourse to the Company and are secured by net cash flows from Customer Agreements or inventories less
certain operating, maintenance and other expenses that are available to the borrower after distributions to tax equity
investors, where applicable. Under the terms of these facilities, the Company's subsidiaries pay interest and
principal from the net cash flows available to the subsidiaries. The Company was in compliance with all debt
covenants as of December 31, 2019.
As of December 31, 2019, certain subsidiaries of the Company had an outstanding balance of $351.9
million on secured credit facilities that were syndicated with various lenders due in October 2024 and August 2029.
The credit facilities totaled $375.8 million and consisted of $363.3 million in term loans, and a $12.5 million revolving
debt service reserve letter of credit facility. Term Loan A ("TLA") is a senior delayed draw term loan that bears
interest at LIBOR +2.125% per annum for LIBOR loans or the Base Rate +1.125% per annum on Base Rate loans.
Term Loan B ("TLB") is subordinated debt that bears interest at 9.25% per annum.
89
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
As of December 31, 2019, certain subsidiaries of the Company had an outstanding balance of $180.7
million on senior secured credit facilities that were syndicated with various lenders due in April 2024. These facilities
are subject to the National Grid project equity transaction. The credit facilities totaled $202.0 million and consisted of
a $195.0 million senior delayed draw term loan facility and a $7.0 million revolving debt service reserve letter of
credit facility. Loans under the facility bear interest at LIBOR +2.25% per annum for the initial four-year period for
LIBOR loans or the Base Rate +1.25% per annum for Base Rate Loans. The Base Rate is the highest of the
Federal Funds Rate +0.50%, the Prime Rate, or LIBOR +1.00%. The facilities are non-recourse to the Company
and are secured by net cash flows from Customer Agreements and SRECs, less certain operating, maintenance
and other expenses which are available to the borrower after distributions to tax equity investors. Prepayments are
permitted under the delayed draw term loan facility.
As of December 31, 2019, certain subsidiaries of the Company had an outstanding balance of $236.2
million on secured credit facilities agreements, as amended, with a syndicate of banks due in March 2023. The
facilities totaled $595.0 million and consisted of a revolving aggregation facility (“Aggregation Facility”), a term loan
("Term Loan") and a revolving debt service reserve letter of credit facility. Senior loans under the Aggregation
Facility bear interest at LIBOR +2.50% per annum for the initial three-year revolving availability period, stepping up
to LIBOR +2.75% per annum in the following two-year period. The subordinated Term Loan bears interest at LIBOR
+5.00% per annum for the first three-year period, stepping up to LIBOR +6.50% per annum thereafter. Term Loan
prepayment penalties range from 0% - 1% depending on the timing of prepayments.
As of December 31, 2019, a subsidiary of the Company had an outstanding balance of $16.8 million on a
term loan due in April 2022. The loan is secured by the assets and related net cash flow of this subsidiary and is
non-recourse to the Company’s other assets. Loans under this facility bear interest at 4.50% per annum.
As of December 31, 2019, a subsidiary of the Company had an outstanding balance of $13.8 million on a
secured, non-recourse loan agreement due in September 2022. The loan will be repaid through cash flows from a
pass-through financing obligation arrangement previously entered into by the Company. The loan agreement contains
customary covenants including the requirement to maintain certain financial measurements and provide lender
reporting. The loan also contains certain provisions in the event of default which entitles the lender to take certain
actions including acceleration of amounts due under the loan. Loans under this facility bear interest at LIBOR +2.25%
per annum.
As of December 31, 2019, a subsidiary of the Company had an outstanding balance of $124.0 million on a
term loan due in January 2030. The loan is secured by the assets and related net cash flow of this subsidiary and is
non-recourse to the Company’s other assets. Loans under this facility bear interest at 10.50% per annum.
As of December 31, 2019, a subsidiary of the Company had an outstanding balance of $63.3 million on a term
loan due in July 2030. The loan is secured by the assets and related net cash flow of this subsidiary and is non-recourse
to the Company’s other assets. Loans under this facility bear interest between 2.00% - 3.25% plus 6.75% per annum.
As of December 31, 2019, a subsidiary of the Company had an outstanding balance of $9.5 million on a
term loan due in July 2027. The loan is secured by the assets and related net cash flow of this subsidiary and is
non-recourse to the Company’s other assets. Loans under this facility bear interest at 5.61% per annum.
As of December 31, 2019, a subsidiary of the Company had an outstanding balance of $129.6 million on a
term loan due in November 2025. The loan is secured by the assets and related net cash flow of this subsidiary and
is non-recourse to the Company’s other assets. Loans under this facility bear interest at LIBOR (at a 2.00% floor) +
6.75% per annum.
As of December 31, 2019, certain subsidiaries of the Company had an outstanding balance of $13.6 million
on secured credit facilities agreements with banks due in March 2024. The facilities totaled $134.0 million and
consisted of two revolving aggregation facilities (“Aggregation Facilities”) and a revolving debt service reserve letter
of credit facility. The senior loan under the Aggregation Facilities bear interest at LIBOR +3.00%. The subordinated
loan under the Aggregation Facilities bears interest at LIBOR +9.00% per annum. These debt facilities are related to
the Company's participation in the IRS's safe harbor program to retain access to the 30% Commercial ITC that was
available in 2019.
90
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
Securitization Loans
Each of the Company's securitized loans contains customary covenants including the requirement to provide
reporting to the indenture trustee and ratings agencies. Each of the securitized loans also contain certain provisions
in the event of default which entitle the indenture trustee to take certain actions including acceleration of amounts
due under the facilities and acquisition of membership interests and assets that are pledged to the lenders under
the terms of the securitized loans. The facilities are non-recourse to the Company and are secured by net cash
flows from Customer Agreements less certain operating, maintenance and other expenses which are available to
the borrower after distributions to tax equity investors, where applicable. Under the terms of these loans, the
Company's subsidiaries pay interest and principal from the net cash flows available to the subsidiaries. The
Company was in compliance with all debt covenants as of December 31, 2019.
As of December 31, 2019, a subsidiary of the Company had an outstanding balance of $84.4 million on solar
asset-backed notes ("Notes") secured by associated customer contracts (“Solar Assets”) held by a special purpose
entity (“Issuer”). As of December 31, 2019 and December 31, 2018, these Solar Assets had a carrying value
of $157.6 million and $164.7 million, respectively, and are included under solar energy systems, net, in the
consolidated balance sheets. The Notes were issued at a discount of 0.08%.
As of December 31, 2019, a subsidiary of the Company had an outstanding balance of $300.0 million on
solar asset-backed notes secured by net cash flows from Customer Agreements less certain operating,
maintenance and other expenses that are available to the issuer after distributions to tax equity investors. The
Notes were issued at a discount of 1.47%. The assets and cash flows generated by the Solar Assets are not
available to the other creditors of the Company, and the creditors of the Issuer, including the Note holders, have no
recourse to the Company's other assets.
As of December 31, 2019, a subsidiary of the Company had an outstanding balance of $187.2 million on
solar asset-backed notes secured by net cash flows from Customer Agreements less certain operating,
maintenance and other expenses that are available to the issuer. The Notes were issued at a discount of 0.01%.
As of December 31, 2019, a subsidiary of the Company had an outstanding balance of $304.3 million on
solar asset-backed notes secured by net cash flows from Customer Agreements less certain operating,
maintenance and other expenses that are available to the issuer. The Notes were issued at a discount of 0.05%.
Maturities of Indebtedness
The scheduled maturities of debt, excluding debt discount, as of December 31, 2019 are as follows (in
thousands):
2020
2021
2022
2023
2024
Thereafter
Subtotal
Less: Debt discount
Total
Note 13. Derivatives
Interest Rate Swaps
$
$
38,739
99,307
316,716
218,334
534,077
1,096,136
2,303,309
(48,369)
2,254,940
The Company uses interest rate swaps to hedge variable interest payments due on certain of its term loans
and aggregation facility. These swaps allow the Company to incur fixed interest rates on these loans and receive
payments based on variable interest rates with the swap counterparty based on the one or three month LIBOR on
the notional amounts over the life of the swaps.
The interest rate swaps have been designated as cash flow hedges. The credit risk adjustment associated
with these swaps is the risk of non-performance by the counterparties to the contracts. In the year ended
91
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
December 31, 2019, the hedge relationships on the Company’s interest rate swaps have been assessed as highly
effective as the critical terms of the interest rate swaps match the critical terms of the underlying forecasted hedged
transactions. Accordingly, changes in the fair value of these derivatives are recorded as a component of
accumulated other comprehensive income, net of income taxes. Changes in the fair value of these derivatives are
subsequently reclassified into earnings, and are included in interest expense, net in the Company’s statements of
operations, in the period that the hedged forecasted transactions affects earnings.
All amounts in Accumulated other comprehensive income (loss) ("AOCI") in the consolidated statements of
redeemable noncontrolling interests and equity relate to derivatives, refer to the consolidated statements of
comprehensive (loss) income. The net (loss) gain on derivatives includes the tax effect of $17.7 million and $0.4
million for the twelve months ended December 31, 2019 and 2018, respectively.
During the next 12 months, the Company expects to reclassify $5.5 million of net losses on derivative
instruments from accumulated other comprehensive income to earnings. There were no undesignated derivative
instruments recorded by the Company as of December 31, 2019.
The Company’s master netting and other similar arrangements allow net settlements under certain
conditions. When those conditions are met, the Company presents derivatives at net fair value. As of December 31,
2019, the information related to these offsetting arrangements were as follows (in thousands):
Instrument Description
Gross Amounts of
Recognized
Assets / Liabilities
Gross Amounts Offset
in the Consolidated
Balance Sheet
Net Amounts of Assets /
Liabilities Included in the
Consolidated Balance Sheet
Assets:
Derivatives
Liabilities:
Derivatives
Total
$
$
683 $
(615) $
68
(64,361)
(63,678) $
615
— $
(63,746)
(63,678)
At December 31, 2018, the Company had designated derivative instruments classified as hedges of variable
interest payments as derivative assets that are reported in other assets of $5.4 million and derivative liabilities as
reported in other liabilities of $10.3 million in the Company’s balance sheet.
At December 31, 2019 the Company had the following derivative instruments (dollars in thousands):
92
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
Type
Interest rate swap
Quantity
1
Effective Dates
Maturity Dates
Hedge
Interest
Rates
Notional
Amount
Fair
Market
Value
4/29/2016
8/31/2022
1.27%- 1.29% $
11,605
$
68
Interest rate swaps
Interest rate swaps
Interest rate swaps
Interest rate swaps
Interest rate swaps
Interest rate swaps
Interest rate swap
Interest rate swaps
Interest rate swaps
Total
8
3
2
2
4
8
1
3
3
7/31/2017 -
1/31/2018
4/30/2021
4/30/2024 -
10/20/2024
10/30/2026 -
10/31/2026
2.16%- 2.39%
280,049
(6,963)
2.89% - 3.08%
102,720
(6,559)
10/31/2019
4/30/2027
1.89% - 1.90%
19,680
(136)
10/31/2019
10/31/2031
1.44% - 1.50%
23,344
615
1/31/2018 -
1/31/2020
7/31/2017 -
10/18/2024
10/18/2024
1/31/2019 -
4/30/2021
10/30/2026 -
10/31/2026
4/30/2034 -
10/31/2034
4/30/2035 -
10/31/2035
2.62% - 2.78%
243,803
(19,311)
2.56% - 2.95%
275,705
(12,634)
1/31/2036
2.95%
14,656
(674)
4/30/2037
3.28% - 3.30%
100,000
(11,959)
1/31/2038
3.01% - 3.16%
101,135
(6,125)
$ 1,172,697
$(63,678)
Note 14. Pass-Through Financing Obligations
The Company's pass-through financing obligations ("financing obligations") arise when the Company leases
solar energy systems to Fund investors who are considered commercial customers under a master lease
agreement, and these investors in turn are assigned the Customer Agreements with customers. The Company
receives all of the value attributable to the accelerated tax depreciation and some or all of the value attributable to
the other incentives. Given the assignment of operating cash flows, these arrangements are accounted for as
financing obligations. The Company also sells the rights and related value attributable to the Commercial ITC to
these investors.
Under these financing obligation arrangements, wholly owned subsidiaries of the Company finance the cost
of solar energy systems with investors for an initial term of typically 20 or 25 years. The solar energy systems are
subject to Customer Agreements with an initial term of typically 20 or 25 years that automatically renew on an
annual basis. These solar energy systems are reported under the line item solar energy systems, net in the
consolidated balance sheets. As of December 31, 2019 and 2018, the cost of the solar energy systems placed in
service under the financing obligation arrangements was $657.9 million and $664.1 million, respectively. The
accumulated depreciation related to these assets as of December 31, 2019 and 2018 was $95.9 million and $82.1
million, respectively.
The investors make a series of large up-front payments and in certain cases subsequent smaller quarterly
payments (lease payments) to the subsidiaries of the Company. The Company accounts for the payments received
from the investors under the financing obligation arrangements as borrowings by recording the proceeds received
as financing obligations on its consolidated balance sheets, and cash provided by financing activities in its
consolidated statement of cash flows. These financing obligations are reduced over a period of approximately 22
years by customer payments under the Customer Agreements, U.S. Treasury grants (where applicable), incentive
rebates (where applicable) and proceeds from the contracted resale of SRECs as they are received by the investor.
In addition, funds paid for the Commercial ITC value upfront are initially recorded as a refund liability and
recognized as revenue as the associated solar system reaches PTO. The Commercial ITC value is reflected in cash
provided by operations on the consolidated statement of cash flows. The Company accounts for the Customer
93
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
Agreements and any related U.S. Treasury grants or incentive rebates as well as the resale of SRECs consistent
with the Company’s revenue recognition accounting policies as described in Note 2, Summary of Significant
Accounting Policies.
Interest is calculated on the financing obligations using the effective interest rate method. The effective
interest rate, which is adjusted on a prospective basis, is the interest rate that equates the present value of the
estimated cash amounts to be received by the investor over the lease term with the present value of the cash
amounts paid by the investor to the Company, adjusted for amounts received by the investor. The financing
obligations are nonrecourse once the associated assets have been placed in service and all the contractual
arrangements have been assigned to the investor.
Under the majority of the financing obligations, the investor has a right to extend its right to receive cash
flows from the customers beyond the initial term in certain circumstances. Depending on the arrangement, the
Company has the option to settle the outstanding financing obligation on the ninth or eleventh anniversary of the
Fund inception at a price equal to the higher of (a) the fair value of future remaining cash flows or (b) the amount
that would result in the investor earning their targeted return. In several of these financing obligations, the investor
has an option to require repayment of the entire outstanding balance on the tenth anniversary of the Fund inception
at a price equal to the fair value of the future remaining cash flows.
Under all financing obligations, the Company is responsible for services such as warranty support,
accounting, lease servicing and performance reporting to customers. As part of the warranty and performance
guarantee with the customers, the Company guarantees certain specified minimum annual solar energy production
output for the solar energy systems leased to the customers, which the Company accounts for as disclosed in Note
2, Summary of Significant Accounting Policies.
94
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
Note 15. VIE Arrangements
The Company consolidated various VIEs at December 31, 2019 and 2018. The carrying amounts and
classification of the VIEs’ assets and liabilities included in the consolidated balance sheets are as follows (in
thousands):
Assets
Current assets
Cash
Restricted cash
Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Total current assets
Solar energy systems, net
Other assets
Total assets
Liabilities
Current liabilities
Accounts payable
Distributions payable to noncontrolling interests
and redeemable noncontrolling interests
Accrued expenses and other liabilities
Deferred revenue, current portion
Deferred grants, current portion
Non-recourse debt, current portion
Total current liabilities
Deferred revenue, net of current portion
Deferred grants, net of current portion
Non-recourse debt, net of current portion
Other liabilities
Total liabilities
December 31,
2019
2018
$
$
$
133,362 $
2,746
21,956
15,721
554
174,339
3,259,712
87,151
3,521,202 $
105,494
2,071
18,539
—
387
126,491
2,712,377
66,427
2,905,295
11,531 $
12,136
16,012
10,740
38,265
1,011
4,901
82,460
443,873
27,023
201,575
19,633
$
774,564 $
15,797
7,122
29,102
982
4,217
69,356
367,818
28,247
186,494
8,843
660,758
The Company holds a variable interest in an entity that provides the noncontrolling interest with a right to
terminate the leasehold interests in all of the leased projects on the tenth anniversary of the effective date of the
master lease. In this circumstance, the Company would be required to pay the noncontrolling interest an amount
equal to the fair market value, as defined in the governing agreement of all leased projects as of that date.
The Company holds certain variable interests in nonconsolidated VIEs established as a result of six pass-
through Fund arrangements as further explained in Note 14, Pass-Through Financing Obligations. The Company
does not have material exposure to losses as a result of its involvement with the VIEs in excess of the amount of
the pass-through financing obligation recorded in the Company’s consolidated financial statements. The Company
is not considered the primary beneficiary of these VIEs.
Note 16. Redeemable Noncontrolling Interests
During certain specified periods of time (the “Early Exit Periods”), noncontrolling interests in certain funding
arrangements have the right to put all of their membership interests to the Company (the “Put Provisions”). During a
specific period of time (the “Call Periods”), the Company has the right to call all membership units of the related
redeemable noncontrolling interests.
95
The carrying value of redeemable noncontrolling interests was greater than the redemption value except for
nine and six Funds at December 31, 2019 and 2018, respectively, where the carrying value has been adjusted to
the redemption value.
Note 17. Stockholders’ Equity
Convertible Preferred Stock
The Company did not have any convertible preferred stock issued and outstanding as of December 31, 2019
and 2018.
The Company did not declare or pay any dividends in 2019, 2018 or 2017.
Common Stock
The Company has reserved sufficient shares of common stock for issuance upon the exercise of stock
options and the exercise of warrants. Common stockholders are entitled to dividends if and when declared by the
board of directors, subject to the prior rights of the preferred stockholders. As of December 31, 2019, no common
stock dividends had been declared by the board of directors.
The Company has reserved shares of common stock for issuance as follows (in thousands):
Stock plans
Shares available for grant
2015 Equity Incentive Plan
2015 Employee Stock Purchase Plan
Options outstanding
Restricted stock units outstanding
Total
Stock Repurchase Program
December 31,
2019
2018
14,828
6,522
10,784
3,943
36,077
11,986
5,202
13,590
4,182
34,960
In November 2019, the Company's board of directors approved a stock repurchase program authorizing the
Company to repurchase up to $50.0 million of its common stock from time to time over the next three years. Stock
repurchases under this program may be made through open market transactions, negotiated purchases or
otherwise, at times and in such amounts as the Company considers appropriate and in accordance with applicable
regulations of the Securities and Exchange Commission. The timing of repurchases and the number of shares
repurchased will depend on a variety of factors including price, regulatory requirements, and other market
conditions. The Company may limit, amend, suspend, or terminate the stock repurchase program at any time
without prior notice. Any shares repurchased under the program will be returned to the status of authorized, but
unissued shares of common stock. As of December 31, 2019, the Company had repurchased 368,996 shares for
approximately $5.0 million.
Note 18. Stock-Based Compensation
2013 Equity Incentive Plan
In July 2013, the Board of Directors approved the 2013 Plan. In March 2015, the Board of Directors
authorized an additional 3,000,000 shares reserved for issuance under the 2013 Plan. An aggregate of 4,500,000
shares of common stock are reserved for issuance under the 2013 Plan plus (i) any shares that were reserved but
not issued under the plan that was previously in place, and (ii) any shares subject to stock options or similar awards
granted under the plan that was previously in place that expire or otherwise terminate without having been
exercised in full and shares issued that are forfeited to or repurchased by the Company, with the maximum number
96
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
of shares to be added to the 2013 Plan pursuant to clauses (i) and (ii) equal to 8,044,829 shares. Stock options
granted to employees generally have a maximum term of ten-years and vest over a four-year period from the date
of grant; 25% vest at the end of one year, and 75% vest monthly over the remaining three years. The options may
include provisions permitting exercise of the option prior to full vesting. Any unvested shares shall be subject to
repurchase by the Company at the original exercise price of the option in the event of a termination of an optionee’s
employment prior to vesting. All the remaining shares that were available for future grants under the 2013 Plan were
transferred to the 2015 Equity Incentive Plan (“2015 Plan”) at the inception of the 2015 Plan. As of December 31,
2019, the Company had not granted restricted stock or other equity awards (other than options) under the 2013
Plan.
2014 Equity Incentive Plan
In August 2014, the Board approved the 2014 Equity Incentive Plan (“2014 Plan”). An aggregate of 947,342
shares of common stock are reserved for issuance under the 2014 Plan. The 2014 Plan was adopted to
accommodate a broader transaction with a sales entity and to allow for similar transactions in the future. In July
2015, the Board approved an increase in the number of shares of common stock reserved to 1,197,342. As of July
2015, the Company granted all 1,197,342 restricted stock units (“RSUs”) available under the 2014 Plan.
2015 Equity Incentive Plan
In July 2015, the Board approved the 2015 Plan. An aggregate of 11,400,000 shares of common stock are
reserved for issuance under the 2015 Plan plus (i) any shares that were reserved but not issued under the 2013
Plan at the inception of the 2015 Plan, and (ii) any shares subject to stock options or similar awards granted under
the 2008 Plan, 2013 Plan and 2014 Plan that expire or otherwise terminate without having been exercised in full
and shares issued that are forfeited to or repurchased by the Company, with the maximum number of shares to be
added to the 2015 Plan pursuant to clauses (i) and (ii) equal to 15,439,334 shares. The 2015 Plan provides for
annual automatic increases on January 1 to the shares reserved for issuance. The automatic increase of the
number of shares available for issuance under the 2015 Plan is equal to the least of 10 million shares, 4% of the
outstanding shares of common stock as of the last day of our immediately preceding fiscal year or such other
amount as the Board of Directors may determine. In 2019 and 2018, the Board of Directors authorized an
additional 4,525,946 and 4,294,010 shares reserved for issuance under the 2015 Plan, respectively. Stock options
granted to employees generally have a maximum term of ten-years and vest over a four-year period from the date
of grant; 25% vest at the end of one year, and 75% vest monthly over the remaining three years. The options may
include provisions permitting exercise of the option prior to full vesting. Any unvested shares shall be subject to
repurchase by the Company at the original exercise price of the option in the event of a termination of an optionee’s
employment prior to vesting. RSUs granted to employees generally vest over a four-year period from the date of
grant; 25% vest at the end of one year, and 75% vest quarterly over the remaining three years.
97
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
Stock Options
The following table summarizes the activity for all stock options under all of the Company’s equity incentive
plans for the years ended December 31, 2019 and 2018 (shares and aggregate intrinsic value in thousands):
Outstanding at December 31, 2017
Granted
Exercised
Cancelled
Outstanding at December 31, 2018
Granted
Exercised
Cancelled
Outstanding at December 31, 2019
Options vested and exercisable at
December 31, 2019
Options vested and expected to vest at
December 31, 2019
Number of
Options
Weighted
Average
Exercise Price
5.70
8.63
5.23
6.63
6.07
15.44
5.48
7.62
7.38
16,268 $
1,529
(3,271)
(936)
13,590
1,362
(3,625)
(543)
10,784 $
7,245 $
10,784 $
6.18
7.38
Weighted
Average
Remaining
Contractual Life
Aggregate
Intrinsic
Value
7.41 $
14,832
6.63
66,462
6.52 $
71,745
5.72 $
55,426
6.52 $
71,745
There were 276,660 unvested exercisable shares as of the year ended December 31, 2018, which are
subject to a repurchase option held by the Company at the original exercise price. These exercisable but unvested
shares had a weighted average remaining vesting period of less than a year. There was no exercise of unvested
options in the years ended December 31, 2019 and 2018. These options became fully vested during the year
ended December 31, 2019.
The weighted-average grant-date fair value of stock options granted during the year ended December 31,
2019, 2018 and 2017 were $8.27, $4.21 and $2.57 per share, respectively. The total intrinsic value of the options
exercised during the year ended December 31, 2019, 2018 and 2017 was $37.8 million, $21.4 million and $2.3
million, respectively. The aggregate intrinsic value is the difference of the current fair value of the stock and the
exercise price for in-the-money stock options. The total fair value of options vested during the year ended
December 31, 2019, 2018 and 2017 was $9.5 million, $8.8 million and $7.5 million, respectively.
The Company estimates the fair value of stock-based awards on their grant date using the Black-Scholes
option-pricing model. The Company estimates the fair value using a single-option approach and amortizes the fair
value on a straight-line basis for options expected to vest. All options are amortized over the requisite service
periods of the awards, which are generally the vesting periods.
The Company estimated the fair value of stock options with the following assumptions:
Risk-free interest rate
Volatility
Expected term (in years)
Expected dividend yield
2019
Year Ended December 31,
2018
1.70% - 2.59%
52.9% - 55.07%
6.10 - 6.12
0.00%
2.72% - 2.92%
44.87% - 54.61%
6.09 - 6.11
0.00%
2017
1.88% - 2.22%
45.95% - 50.52%
5.94 - 6.08
0.00%
The expected term assumptions were determined based on the average vesting terms and contractual lives
of the options. The risk-free interest rate is based on the rate for a U.S. Treasury zero-coupon issue with a term that
approximates the expected life of the option grant. For stock options granted in the year ended December 31, 2019,
2018 and 2017, the Company considered the volatility data of a group of publicly traded peer companies in its
industry. The Company accounts for forfeitures as they occur and, as such, reverses compensation cost previously
98
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
recognized in the period the award is forfeited, for an award that is forfeited before completion of the requisite
service period.
Restricted Stock Units
In 2014, the Company granted a total of 947,342 RSUs subject to certain performance targets to a third party
partner. As of December 31, 2017, 350,000 outstanding RSUs had a performance feature that is required to be
satisfied before the option is vested. In March 2018, the Company amended the terms of all of these RSUs, such
that the RSUs are deemed earned subject to a clawback provision that requires the holder of the RSUs to either
forfeit all the RSUs or pay the Company repayment value for all RSUs that are not forfeited if the third party
breaches the exclusivity provision of the parties’ commercial agreement. The exclusivity clawback provision for all of
the RSUs expired in September 2019.
The performance-based provision is considered substantive. As a result, the Company recognizes expense
once the performance targets are met. The first performance target was met in 2015. The Company recognized
$3.5 million and $0.8 million compensation expense in the years ended December 31, 2018 and 2017 upon certain
performance targets being met.
The following table summarizes the activity for all RSUs under all of the Company’s equity incentive plans for
the years ended December 31, 2019 and 2018 (shares in thousands):
Unvested balance at December 31, 2017
Granted
Issued
Cancelled / forfeited
Unvested balance at December 31, 2018
Granted
Issued
Cancelled / forfeited
Unvested balance at December 31, 2019
Employee Stock Purchase Plan
Weighted
Average Grant
Date Fair
Value
Shares
5,330 $
2,019
(1,720)
(1,447)
4,182
2,258
(1,104)
(1,393)
3,943 $
5.82
8.75
6.36
5.75
7.05
15.25
6.83
8.14
11.42
Under the Company's 2015 Employee Stock Purchase Plan (“ESPP”) (as amended in May 2017), eligible
employees are offered shares bi-annually through a 24 month offering period which encompasses four six-month
purchase periods. Each purchase period begins on the first trading day on or after May 15 and November 15 of
each year. Employees may purchase a limited number of shares of the Company’s common stock via regular
payroll deductions at a discount of 15% of the lower of the fair market value of the Company’s common stock on the
first trading date of each offering period or on the exercise date. Employees may deduct up to 15% of payroll, with a
cap of $25,000 of fair market value of shares in any calendar year and 10,000 shares per employee per purchase
period. Under the ESPP, 1,000,000 shares of the Company’s common stock have been reserved for issuance to
eligible employees. The ESPP provides for an automatic increase of the number of shares available for issuance
under the ESPP on the first day of each fiscal year beginning on January 1, 2016, equal to the least of 5 million
shares, 2% of the outstanding shares of our common stock on the last day of the immediately preceding fiscal year,
or such other amount as may be determined by the Board of Directors. In 2019 and 2018, the Board of Directors
authorized an additional 2,262,973 and 2,147,005 shares, respectively, reserved for issuance under the ESPP.
99
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
Stock-Based Compensation Expense
The Company recognized stock-based compensation expense, including ESPP expenses, in the
consolidated statements of operations as follows (in thousands):
Year Ended December 31,
2018
2017
2019
Cost of customer agreements and incentives
Cost of solar energy systems and product sales
Sales and marketing
Research and development
General and administration
Total
$
$
2,434 $
844
5,162
1,439
16,427
26,306 $
2,568 $
718
7,191
1,253
16,126
27,856 $
2,299
609
5,196
836
13,102
22,042
As of December 31, 2019 and 2018, total unrecognized compensation cost related to outstanding stock
options and RSUs was $30.0 million and $40.0 million, respectively, which are expected to be recognized over a
weighted-average period of 2.3 years.
In August 2017, the Company entered into an agreement with an affiliate ("Contractor") of Comcast
Corporation ("Comcast") whereby Contractor will receive lead or sales fees for new customers it brings to the
Company over a 40-month term. Comcast may also earn a warrant to purchase up to 11,793,355 shares of the
Company's outstanding common stock, at an exercise price of $0.01 per warrant share. The warrant initially
vests 50.05% when both (i) Contractor has earned a lead or sales fee with respect to 30,000 of installed solar
energy systems, and (ii) Contractor or its affiliates have spent at least $10.0 million in marketing and sales in
connection with the agreement. Thereafter, the warrant will vest in five additional increments for each
additional 6,000 installed solar energy systems. On November 7, 2018 the warrant vesting schedule was modified
so that it will initially vest either (i) as to 10.0% if Contractor has earned a lead or sales fee with respect to 6,000 of
installed solar energy systems by September 30, 2019 or (ii) as to 13.3% if Contractor has earned a lead or sales
fee with respect to 8,000 of installed solar energy systems by December 31, 2019, provided that, in either case,
Contractor or its affiliates have spent at least $25.0 million in marketing and sales in connection with the agreement.
Thereafter, the warrant will vest in additional 8.3% increments for each additional 5,000 installed solar energy
systems. The initial vesting conditions were not met by December 31, 2019, as a result, the warrant expired
unvested.
401(k) Plan
The Company's 401(k) Plan is a deferred salary arrangement under Section 401(k) of the Internal Revenue
Code. Under the 401(k) Plan, participating U.S. employees may defer a portion of their pre-tax earnings, up to the
IRS annual contribution limit ($19,000 for calendar year 2019). Effective January 1, 2018, the Company matches
100% of the first 1% and 50% of the next 5% of each employee's contributions. The Company recognized expense
of $8.5 million and $7.0 million in the years ended December 31, 2019 and 2018, respectively.
Note 19. Income Taxes
The following table presents the (income) loss before income taxes for the periods presented (in thousands):
Income attributable to common stockholders
Loss attributable to noncontrolling interest and redeemable
noncontrolling interests
Loss before income taxes
For the Year Ended December 31,
2018
2019
2017
(35,979) $ (137,842)
(18,117) $
417,357
399,240 $
286,843
250,864 $
413,104
275,262
$
$
100
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
The income tax provision (benefit) consists of the following (in thousands):
Current
Federal
State
Foreign
Total current expense (benefit)
Deferred
Federal
State
Foreign
Total deferred (benefit) provision
Total
For the Year Ended December 31,
2017
2018
2019
$
$
(454) $
(593)
1,435
388
(7,634)
(972)
—
(8,606)
(8,218) $
(1,100) $
292
—
(808)
1,995
8,135
—
10,130
9,322 $
—
—
—
—
4,784
7,569
—
12,353
12,353
The following table represents a reconciliation of the statutory federal rate and the Company’s effective tax
rate for the periods presented:
Tax provision (benefit) at federal statutory rate
State income taxes, net of federal benefit
Effect of noncontrolling and redeemable noncontrolling interests
Stock-based compensation
ASC 740-10 Reserve
Tax credits
Effect of rate change
Effect of valuation allowance
Other
Total
For the Year Ended December 31,
2017
2018
2019
(34.00)%
(21.00)%
(21.00)%
1.94
0.32
(0.97)
51.03
24.01
21.95
0.70
(1.77)
(1.96)
—
—
(0.11)
(1.25)
(1.35)
(0.99)
(15.93)
—
—
0.81
3.04
0.40
1.20
0.47
0.62
4.50 %
3.72 %
(2.06)%
101
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following
table represents the components of the Company’s deferred tax assets and liabilities for the periods presented (in
thousands):
Deferred tax assets
Accruals and prepaids
Deferred revenue
Net operating loss carryforwards
Stock-based compensation
Investment tax and other credits
Interest Expense
Interest rate derivatives
Total deferred tax assets
Less: Valuation allowance
Gross deferred tax assets
Deferred tax liabilities
Deferred revenue
Capitalized costs to obtain a contract
Fixed asset depreciation
Deferred tax on investment in partnerships
Gross deferred tax liabilities
Net deferred tax liabilities
December 31,
2019
2018
$
$
19,704 $
11,229
347,997
7,104
32,878
12,394
18,988
450,294
(12,120)
438,174
—
66,247
263,917
173,974
504,138
(65,964) $
18,871
—
288,039
5,681
28,551
9,614
1,282
352,038
(10,506)
341,532
17,526
54,823
218,701
144,115
435,165
(93,633)
As of December 31, 2019, the Company has an investment tax credit carryforward of approximately $18.8
million which begins to expire in the year 2028, if not utilized and $1.0 million of California enterprise zone credits
which begin to expire in the year 2023. As of December 31, 2018, the Company has an investment tax credit
carryforward of approximately $14.9 million and California enterprise zone credits of approximately $1.0 million.
Generally, utilization of the net operating loss carryforwards and credits may be subject to a substantial
annual limitation due to the ownership change limitations provided by the Internal Revenue Code (IRC) of 1986, as
amended and similar state provisions. The Company performed an analysis to determine whether an ownership
change under Section 382 of the Code had occurred and determined that no ownership changes were identified as
of December 31, 2019.
Valuation allowances are provided against deferred tax assets to the extent that it is more likely than not that
the deferred tax asset will not be realized. The Company’s management considers all available positive and
negative evidence including its history of operating income or losses, future reversals of existing taxable temporary
difference, taxable income in carryback years and tax-planning strategies. The Company has concluded that it is
more likely than not that the benefit from certain federal tax credits, state net operating loss carryforwards, and state
tax credits will not be realized. In recognition of this risk, the Company has provided a valuation allowance of $12.1
million on the deferred tax assets relating to these federal tax credits, state net operating loss carryforwards, and
state tax credits which is an increase of $1.6 million in 2019.
The Company sells solar energy systems to investment Funds. As the investment Funds are consolidated by
the Company, the gain on the sale of the assets has been eliminated in the consolidated financial statements.
These transactions are treated as intercompany sales and any tax expense incurred related to these sales prior to
fiscal year 2017 was deferred. As described in Note 2, Summary of Significant Accounting Policies - Recently
Issued Accounting Standards, ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, requires entities
to recognize income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer
occurs. As a result, a reporting entity would recognize the tax expense from the sale of assets in the seller’s tax
jurisdiction when the transfer occurs, even though the pre-tax effects of the transaction are eliminated in the
102
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
consolidated financial statements. Any deferred tax asset that arises in the buyer’s jurisdiction would also be
recognized at the time of the transfer. As the Company sells solar energy systems to Funds, the Company records
the current tax effect of the gain on the sale as well as a deferred tax asset related to the Company’s increased tax
basis in the partnership as a result of the sale. With the adoption of ASU 2016-16 on January 1, 2017 the Company
reversed net prepaid tax assets of $378.5 million and recorded the gross deferred tax assets associated with the
historical intercompany sales of solar energy systems, which in turn reduced the deferred tax liabilities on
investment in partnerships by $378.2 million with the remaining $0.3 million being recorded as a cumulative effect of
adoption in the Company’s Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’
Equity. The adoption did not have an impact on the Company’s Consolidated Statement of Operations.
The Company adopted ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting, on January 1, 2017. As a result of the adoption, the Company has
increased its federal and state deferred tax assets by $3.3 million for the cumulative unrecognized federal and state
gross windfall net operating loss carryover at December 31, 2016 of $8.6 million and $6.8 million, respectively, with
an offsetting adjustment to retained earnings of $3.3 million.
Tax Cuts and Jobs Act
On December 22, 2017, the US government enacted comprehensive tax legislation commonly referred to as
the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the US tax code
including but not limited to, (1) reducing the US federal corporate tax rate from 35% to 21%; (2) immediate
expensing of certain tangible personal property (3) creating a new limitation on deductible interest expense; (4)
enacting special rules for taxable year of inclusion for certain revenue and (5) changing rules related to the uses
and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provided
guidance on accounting for the tax effects of the Tax Act. SAB 118 provided a measurement period that should not
extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC
740, Income taxes. In accordance with SAB 118 a company must reflect the income tax effects of those aspects of
the Tax Act for which the accounting under ASC 740 is complete.
The Company recognized the provisional tax impacts related to the revaluation of deferred tax assets and
liabilities and included these amounts in its consolidated financial statements for the year ended December 31,
2017. In its final assessment of the Tax Act, no adjustment has been made to current or deferred income tax
expense in 2017 or 2018. As of December 31, 2018, the Company completed its accounting for all of the
enactment-date income tax effects of the Act. While the Company has fully accounted for the impact of the Tax Act,
the U.S. Treasury released proposed regulations under IRC Sec. 451(c) related to the recognition of advanced
payments for goods and services on September 5, 2019. The Company completed its analysis of the proposed
regulations and plans to early adopt the regulations on its 2019 income tax returns. The early adoption of the
proposed regulations does not have a material impact to income tax expense.
Uncertain Tax Positions
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the
normal course of business, the Company is subject to examination by federal, state and local jurisdictions, where
applicable. The statute of limitations for the tax returns varies by jurisdictions.
We determine whether a tax position is more likely than not to be sustained upon examination, including
resolution of any related appeals or litigation processes, based on the technical merits of the position. We use a
two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence indicates that it is more likely than not that the position
will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if
any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being
realized upon ultimate settlement. We have analyzed the Company’s inventory of tax positions with respect to all
applicable income tax issues for all open tax years (in each respective jurisdiction).
103
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
Our policy is to include interest and penalties related to unrecognized tax benefits, if any, within the provision
for taxes in the consolidated statements of operations.
As of December 31, 2019 and 2018, the Company had $0.0 million and $0.6 million, respectively, of
unrecognized tax benefits related to an acquisition in 2015. In addition, there was $0.0 million and $0.2 million of
interest and penalties for uncertain tax positions as of December 31, 2019 and 2018, respectively. During the 12
months ended December 31, 2019, the Company recorded an income tax benefit of $0.8 million, including penalties
and interest, due to the expiration of federal and California statute of limitations. This benefit was fully offset by an
indemnification asset that was written down to zero through operating expenses during 2018. Due to the expiration
of federal and California statute of limitations, as of December 31, 2019, the Company has no other uncertain tax
positions.
The change in unrecognized tax benefits during 2019, 2018 and 2017, excluding penalties and interest, is as
follows:
Unrecognized tax benefits at beginning of the year
Reversal of prior year unrecognized tax benefits due to the expiration
of the statute of limitations
Unrecognized tax benefits at end of the year
$
$
For the Year Ended December 31,
2019
2018
2017
647 $
1,525 $
1,525
(647)
(878)
—
— $
647 $
1,525
One of our investment funds is currently under audit by the Internal Revenue Service (the “IRS”). In addition,
one of our investors is currently being audited by the IRS, and this investor audit involves a review of the fair market
value determination of our solar energy systems. If these investor audits result in an adverse finding, we would be
subject to an indemnity obligation to these investors. The Company is subject to taxation and files income tax
returns in the U.S., its territories, and various state and local jurisdictions. Due to the Company’s net losses,
substantially all of its federal, state and local income tax returns since inception are still subject to audit.
The following table summarizes the tax years that remain open and subject to examination by the tax
authorities in the most significant jurisdictions in which the Company operates:
U.S. Federal
State
Net Operating Loss Carryforwards
Tax Years
2016 - 2019
2015 - 2019
As a result of the Company’s net operating loss carryforwards as of December 31, 2019, the Company does
not expect to pay income tax, including in connection with its income tax provision for the year ended December 31,
2019 until the Company’s net operating losses are fully utilized. As of December 31, 2019, the Company had net
operating loss carryforwards for federal and state income tax purposes of approximately $718.1 million and $1.3
billion, respectively, which will begin to expire in 2028 for federal purposes and in 2024 for state purposes. In
addition, federal and certain state net operating loss carryforwards generated in tax years beginning after December
31, 2017 total $535.1 million and $102.4 million, respectively, and have indefinite carryover periods and do not
expire.
Note 20. Commitments and Contingencies
Letters of Credit
As of December 31, 2019 and 2018, the Company had $20.1 million and $9.7 million, respectively, of unused
letters of credit outstanding, which carry fees of 1.25 - 3.25% per annum and 2.50 - 3.25% per annum, respectively.
Operating and Finance Leases
104
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
The Company leases real estate under non-cancellable operating leases and equipment under finance
leases.
The components of lease expense were as follows (in thousands):
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Operating lease cost
Short-term lease cost
Variable lease cost
Sublease income
Total lease cost
Other information related to leases was as follows (in thousands):
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
Finance leases
Weighted average remaining lease term (years):
Operating leases
Finance leases
Weighted average discount rate:
Operating leases
Finance leases
For the Year Ended December 31,
2019
2018
2017
$
13,999 $
11,884 $
11,029
1,915
13,159
1,349
3,565
(669)
676
10,467
732
3,112
(572)
640
10,177
493
2,502
(24)
$
33,318 $
26,299 $
24,817
For the Year Ended December 31,
2019
2018
2017
$ 11,516
$ 10,765
$ 10,027
991
13,919
19,503
17,914
482
9,220
3,411
15,370
591
10,032
7,276
862
5.39
2.91
5.5%
4.2%
3.43
3.37
4.3%
4.3%
3.99
2.06
4.1%
3.1%
105
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
Future minimum lease commitments under non-cancellable leases as of December 31, 2019 were as follows
(in thousands):
2020
2021
2022
2023
2024
Thereafter
Total future lease payments
Less: Amount representing interest
Present value of future payments
Less: Amount for tenant incentives
Revised Present value of future payments
Less: Current portion
Long term portion
Purchase Commitment
Operating
Leases
Sublease
Income
Net Operating
Leases
Finance
leases
$
$
12,034 $
11,338
9,469
8,611
4,431
7,999
53,882
(7,246)
46,636
(733)
45,903
(9,790)
36,113 $
787 $
639
—
—
—
—
1,426
—
1,426
—
1,426
—
1,426 $
11,247 $
10,699
9,469
8,611
4,431
7,999
52,456
(7,246)
45,210
(733)
44,477
(9,790)
34,687 $
10,741
7,659
4,657
1,119
41
4
24,221
(1,262)
22,959
—
22,959
(10,064)
12,895
The Company entered into purchase commitments, which have the ability to be canceled without significant
penalties, with multiple suppliers to purchase $78.5 million of photovoltaic modules and inverters by the end of
2019.
Warranty Accrual
The Company accrues warranty costs when revenue is recognized for solar energy systems sales, based on
the estimated future costs of meeting its warranty obligations. Warranty costs primarily consist of replacement costs
for supplies and labor costs for service personnel since warranties for equipment and materials are covered by the
original manufacturer’s warranty (other than a small deductible in certain cases). As such, the warranty reserve is
immaterial in all periods presented. The Company makes and revises these estimates based on the number of solar
energy systems under warranty, the Company’s historical experience with warranty claims, assumptions on
warranty claims to occur over a systems’ warranty period and the Company’s estimated replacement costs.
Commercial ITC and Cash Grant Indemnification
The Company is contractually committed to compensate certain investors for any losses that they may
suffer in certain limited circumstances resulting from reductions in Commercial ITCs or U.S. Treasury grants.
Generally, such obligations would arise as a result of reductions to the value of the underlying solar energy systems
as assessed by the Internal Revenue Service (the “IRS”). At each balance sheet date, the Company assesses and
recognizes, when applicable, the potential exposure from this obligation based on all the information available at
that time, including any audits undertaken by the IRS. The Company believes that this obligation is not probable
based on the facts known as of the filing date of this Annual Report on Form 10-K. The maximum potential future
payments that the Company could have to make under this obligation would depend largely on the difference
between the prices at which the solar energy systems were sold or transferred to the Funds (or, in certain
structures, the fair market value claimed in respect of such systems (referred to as "claimed values")) and the
eligible basis determined by the IRS. The Company set the purchase prices and claimed values based on fair
market values determined with the assistance of an independent third-party appraisal with respect to the systems
that generate Commercial ITCs that are passed-through to and claimed by the Fund investors. Since the Company
cannot determine how the IRS may evaluate system values used in claiming Commercial ITCs, the Company is
unable to reliably estimate the maximum potential future payments that it could have to make under this obligation
as of each balance sheet date, though any potential future payments are mitigated by the insurance policy
described below. In April 2018, the Company purchased an insurance policy providing for certain payments by the
insurers in the event there is any final determination (including a judicial determination) that reduced the
106
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
Commercial ITCs claimed in respect of solar energy systems sold or transferred to most Funds through April 2018,
or later, in the case of Funds added to the policy after such date. In general, the policy indemnifies the Company
and related parties for additional taxes (including penalties and interest) owed in respect of lost Commercial ITCs,
gross-up costs and expenses incurred in defending such claim, subject to negotiated exclusions from, and
limitations to, coverage.
Litigation
The Company is subject to certain legal proceedings, claims, investigations and administrative proceedings
in the ordinary course of its business. The Company records a provision for a liability when it is both probable that
the liability has been incurred and the amount of the liability can be reasonably estimated. These provisions, if any,
are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of
legal counsel and other information and events pertaining to a particular case. Depending on the nature and timing
of any such proceedings that may arise, an unfavorable resolution of a matter could materially affect the Company’s
future consolidated results of operations, cash flows or financial position in a particular period.
On June 29, 2017, a shareholder derivative complaint captioned Barbara Sue Sklar Living Trust v. Sunrun
Inc. et al., was filed in the United States District Court, Northern District of California, against the Company and
certain of the Company’s directors and officers. The complaint generally alleges that the defendants violated
Section 14(a) of the Exchange Act by making false or misleading statements in connection with public filings,
including proxy statements, made between September 10, 2015 and May 3, 2017 regarding the number of
customers who cancelled contracts after signing up for the Company’s home solar energy system. The Plaintiff
seeks, among other things, damages in favor of the Company, certain corporate actions to purportedly improve the
Company’s corporate governance, and an award of costs and expenses to the putative plaintiff stockholder,
including attorneys’ fees.
On April 5, 2018, a stockholder derivative complaint captioned Leonard Olsen v. Sunrun Inc. et al., was filed
in the United States District Court, District of Delaware, against the Company and certain of the Company’s
directors and officers. The Olsen complaint is substantially similar to the Sklar complaint, alleges that
the defendants breached their fiduciary duties and violated Section 14(a) of the Exchange Act in connection with
public statements made between September 16, 2015 and May 21, 2017, and seeks similar relief.
On January 28, 2019, the Company reached an agreement in principle to settle all claims asserted in
the Sklar and Olsen derivative actions against all defendants, and on November 29 2019, the Court granted final
approval of the settlement. Under the terms of the settlement, the Company agreed to adopt certain corporate
governance measures in the future. The Company and all defendants have denied, and continue to deny, the claims
alleged in the derivative actions and the settlement does not reflect any admission of fault, wrongdoing or liability as
to any defendant.
On April 8, 2019, a putative class action captioned Loftus et al. v. Sunrun Inc., Case No. 3:19-cv-01608, was
filed in the United States District Court, Northern District of California. The complaint generally alleged violations of
the Telephone Consumer Protection Act (the “TCPA”) on behalf of an individual and putative classes of persons
alleged to be similarly situated. Plaintiffs filed a First Amended Complaint on June 26, 2019, adding defendant
MediaMix 365, LLC, also asserting individual and putative class claims under the TCPA, along with claims under the
California Invasion of Privacy Act. In the amended version of their Complaint, plaintiffs seek statutory damages,
equitable and injunctive relief, and attorneys’ fees and costs on behalf of themselves and the absent purported
classes. On January 23, 2020, the Court held a status conference and set discovery deadlines. Most, if not all, of
the claims asserted in the lawsuit relate to activities allegedly engaged in by third-party vendors, for which the
Company denies any responsibility. The vendors are contractually obligated to indemnify the Company for losses
related to the conduct alleged. The Company believes that the claims are without merit and intends to defend itself
vigorously.
Note 21. Net Income Per Share
Basic net income per share is computed by dividing net income attributable to common stockholders by the
weighted-average number of common shares outstanding during the period. Diluted net income per share is
107
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
computed by dividing net income attributable to common stockholders by the weighted-average number of common
shares outstanding during the period adjusted to include the effect of potentially dilutive securities. Potentially
dilutive securities are excluded from the computation of dilutive EPS in periods in which the effect would be
antidilutive.
The computation of the Company’s basic and diluted net income per share is as follows (in thousands,
except per share amounts):
Years Ended December 31,
2018
2019
2017
Numerator:
Net income attributable to common stockholders
Denominator:
Weighted average shares used to compute net income per share
attributable to common stockholders, basic
Weighted average effect of potentially dilutive shares to purchase
common stock
Weighted average shares used to compute net income per
share attributable to common stockholders, diluted
Net income per share attributable to common stockholders
Basic
Diluted
$
26,335 $
26,657 $
125,489
116,397
110,089
105,432
7,479
7,023
2,774
123,876
117,112
108,206
$
$
0.23 $
0.21 $
0.24 $
0.23 $
1.19
1.16
The following shares were excluded from the computation of diluted net income per share as the impact of
including those shares would be anti-dilutive (in thousands):
Year Ended December 31,
2018
2017
2019
Warrants
Outstanding stock options
Unvested restricted stock units
Total
Note 22. Related Party Transactions
—
1,486
673
2,159
625
3,271
649
4,545
1,251
13,803
1,451
16,505
An individual who previously served as one of the Company’s directors until March 2017 has direct and
indirect ownership interests in Enphase Energy, Inc. (“Enphase”). For the year ended December 31, 2017, the
Company recorded $9.1 million in purchases from Enphase and had outstanding payables to Enphase of $2.0
million.
Note 23. Quarterly Results of Operations (Unaudited)
The following table presents selected quarterly results of operations data for the years ended December 31,
2019 and 2018 (in thousands, except per share amounts):
108
Notes to Consolidated Financial Statements — Continued
Sunrun Inc.
December 31
September 30
June 30
March 31
Three Months Ended
243,937
$
215,542
$
204,595
$
194,504
72,898
109,307
$
$
(86,997) $
67,359
92,031
$
$
(112,534) $
70,594
86,348
$
$
(104,585) $
69,493
77,799
(86,906)
12,500
$
28,990
$
(1,293) $
(13,862)
0.11
$
0.25
$
(0.01) $
0.10
$
0.23
$
(0.01) $
240,120
65,317
89,040
$
$
$
(49,515) $
204,960
63,195
76,179
$
$
$
(47,524) $
170,538
57,769
64,268
$
$
$
(71,727) $
(0.12)
(0.12)
144,363
54,576
64,579
(91,420)
(5,888) $
(2,896) $
7,409
$
28,032
(0.05) $
(0.03) $
0.07
$
(0.05) $
(0.02) $
0.06
$
0.26
0.25
2019
Total Revenue
Cost of customer agreements
and incentives
Cost of solar energy systems
and product sales
Net loss
Net (loss) income attributable
to common stockholders
Net (loss) income per share
attributable to common
stockholders, basic
Net (loss) income per share
attributable to common
stockholders, diluted
2018
Total Revenue
Cost of customer agreements
and incentives
Cost of solar energy systems
and product sales
Net loss
Net income attributable to
common stockholders
Net income per share
attributable to common
stockholders, basic
Net income per share
attributable to common
stockholders, diluted
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including
our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our “disclosure controls and
procedures” as of the end of the period covered by this Annual Report on Form 10-K, pursuant to Rules 13a-15(e)
and 15d-15(e) under the Exchange Act.
In connection with that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that
our disclosure controls and procedures were effective and designed to provide reasonable assurance that the
information required to be disclosed is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission rules and forms as of December 31, 2019. The term
“disclosure controls and procedures,” as defined in Rules 13a-15I and 15d-15I under the Securities Exchange Act of
1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to
ensure that information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s
rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed
to ensure that information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the company’s management, including its principal executive
and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure. Management recognizes that any controls and procedures, no matter how well
109
designed and operated, can provide only reasonable assurance of achieving their objectives and management
necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the
evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered
by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our management used the Committee of
Sponsoring Organizations of the Treadway Commission Internal Control - Integrated Framework (2013), or the
COSO framework, to evaluate the effectiveness of internal control over financial reporting. Management believes
that the COSO framework is a suitable framework for its evaluation of financial reporting because it is free from
bias, permits reasonably consistent qualitative and quantitative measurements of our internal control over financial
reporting, is sufficiently complete so that those relevant factors that would alter a conclusion about the effectiveness
of our internal control over financial reporting are not omitted and is relevant to an evaluation of internal control over
financial reporting.
Management has assessed the effectiveness of our internal control over financial reporting as of
December 31, 2019 and has concluded that such internal control over financial reporting is effective.
The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited
by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report which is included in
Item 8 of this Annual Report on Form 10-K.
Item 9B. Other Information.
None.
110
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item 10 of Form 10-K will be set forth in our proxy statement to be filed with
the SEC in connection with the solicitation of proxies for our 2020 Annual Meeting of Stockholders (“Proxy
Statement”) and is incorporated herein by reference. The Proxy Statement will be filed with the SEC within 120
days after the year-end of the fiscal year which this report relates.
Item 11. Executive Compensation.
The information required by this Item 11 will be set forth in the Proxy Statement and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The information required by this Item 12 will be set forth in the Proxy Statement and is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item 13 will be set forth in the Proxy Statement and is incorporated herein by
reference.
Item 14. Principal Accounting Fees and Services.
The information required by this Item 14 will be set forth in the Proxy Statement and is incorporated herein by
reference.
111
PART IV
Item 15. Exhibits, Financial Statement Schedules.
Documents filed as part of this report are as follows:
(1) Consolidated Financial Statements
Our Consolidated Financial Statements are listed in the “Index to Consolidated Financial Statements”
under Item 8 of Part II of this Annual Report.
(2) Financial Statement Schedules
The required information is included elsewhere in this Annual Report, not applicable, or not material.
(3) Exhibits
The exhibits listed in the accompanying “Exhibit Index” are filed or incorporated by reference as part of
this Annual Report.
112
EXHIBIT INDEX
Exhibit
Number
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
10.1+
10.2+
10.3+
10.4+
10.5+
10.6+
10.7+
10.8+
10.9+
10.10+
10.11+
10.12+
10.13+
10.14+
10.15+
Exhibit Description
Amended and Restated Certificate of
Incorporation of the Registrant
Amended and Restated Bylaws of the
Registrant
Form of common stock certificate of the
Registrant
Form of Stock Issuance Agreement
Form of Indenture, between the Registrant
and one or more trustees to be named
Form of Common Stock Warrant Agreement
and Warrant Certificate
Form of Preferred Stock Warrant Agreement
and Warrant Certificate
Form of Debt Securities Warrant Agreement
and Warrant Certificate
Description of Capital Stock
Form of Indemnification Agreement between
the Registrant and each of its directors and
executive officers
Sunrun Inc. 2015 Equity Incentive Plan and
related form agreements
Sunrun Inc. Amended and Restated
Employee Stock Purchase Plan and related
form agreements
Sunrun Inc. 2014 Equity Incentive Plan
Sunrun Inc. 2013 Equity Incentive Plan and
related form agreements
Sunrun Inc. 2008 Equity Incentive Plan and
related form agreements
Mainstream Energy Corporation 2009 Stock
Plan
Sunrun Inc. Amended and Restated
Executive Incentive Compensation Plan
Key Employee Change in Control and
Severance Plan and Summary Plan
Description
Employment Letter between the Registrant
and Lynn Jurich, dated as of May 8, 2015
Employment Letter between the Registrant
and Edward Fenster, dated as of May 8,
2015
Employment Letter between the Registrant
and Bob Komin, dated as of May 8, 2015
Employment Letter between the Registrant
and Christopher Dawson, dated as of
November 13, 2017
Employment Letter between the Registrant
and Jeanna Steele, dated as of May 15,
2018
Board Services Agreement between the
Registrant and Gerald Risk, dated as of
February 1, 2014
113
Incorporated by Reference
Form
10-Q
File No.
001-37511
Exhibit
3.1
Filing Date
9/15/2015
Filed
Herewith
10-Q
001-37511
3.2
9/15/2015
S-1
333-205217
4.1
6/25/2015
S-1/A
333-205217
S-3
333-222099
4.4
4.5
7/22/2015
12/15/2017
S-3
333-222099
4.8
12/15/2017
S-3
333-222099
4.9
12/15/2017
S-3
333-222099
4.10
12/15/2017
S-1
333-205217
10.1
6/25/2015
S-1/A
333-205217
10.2
7/22/2015
10-Q
001-37511
10.1
8/9/2018
S-1
S-1
333-205217
333-205217
10.4
10.5
6/25/2015
6/25/2015
S-1
333-205217
10.6
6/25/2015
S-1
333-205217
10.7
6/25/2015
8-K
333-205217
10.1
2/4/2020
10-Q
001-37511
10.1
11/7/2018
S-1
333-205217
10.10
6/25/2015
S-1
333-205217
10.11
6/25/2015
S-1
333-205217
10.12
6/25/2015
8-K
333-205217
10.1
12/6/2017
S-1
333-205217
10.15
6/25/2015
X
X
Exhibit
Number
10.16¥
10.17¥
10.18¥
10.19¥
10.20¥
10.21¥
10.22¥
10.23¥
Exhibit Description
Credit Agreement among the Registrant,
Credit Suisse Securities (USA) LLC and the
other parties thereto, dated as of April 1,
2015
Amended and Restated Credit Agreement
among Sunrun Hera Portfolio 2015-A, LLC,
Investec Bank PLC (as Administrative
Agent), Investec Bank PLC (as Issuing
Bank) and the Lenders from time to time as
party thereto, dated January 15, 2016 and
amended and restated as of June 23, 2017
Amendment No. 2 to Credit Agreement
among the Company, AEE Solar, Inc.,
Sunrun South LLC, Sunrun Installation
Services Inc., Clean Energy Experts, LLC,
each of the lenders identified on the
signature pages thereto, Credit Suisse AG
and Silicon Valley Bank, dated as of June
15, 2016
Incremental Facility Agreement among the
Company, AEE Solar, Inc., Sunrun South
LLC, Sunrun Installation Services Inc., Clean
Energy Experts, LLC, Credit Suisse AG and
Comerica Bank, dated as of July 21, 2016
First Amendment to Credit Agreement and
Collateral Agency Agreement among Sunrun
Hera Portfolio 2015-A, LLC, Investec Bank
PLC (as administrative agent, issuing bank
and as lender), each of the additional
lenders identified on the signature pages
thereto and Deutsche Bank Trust Company
Americas, dated as of May 12, 2016
Consent and Second Amendment to Credit
Agreement among Sunrun Hera Portfolio
2015-A, LLC, Investec Bank PLC (as
administrative agent, issuing bank and as
lender) and each of the additional lenders
identified on the signature pages thereto,
dated of as June 29, 2016
Amendment No. 3 to Credit Agreement
among the Company, AEE Solar, Inc.,
Sunrun South LLC, Sunrun Installation
Services Inc., Clean Energy Experts, LLC,
each of the lenders identified on the
signature pages thereto, Credit Suisse AG
and Silicon Valley Bank, dated as of
December 2, 2016
Consent and Third Amendment to Credit
Agreement and First Amendment to Cash
Diversion and Commitment Fee Guaranty
among the Company, Sunrun Hera Portfolio
2015-A, LLC, Investec Bank Plc (as
administrative agent, issuing bank and as
lender) and each of the additional lenders
identified on the signature pages thereto,
dated as of November 30, 2016
Incorporated by Reference
Form
S-1
File No.
333-205217
Exhibit
10.17
Filing Date
6/25/2015
Filed
Herewith
10-Q/A
001-37511
10.2
12/29/2017
10-Q
001-37511
10.1
8/11/2016
10-Q
001-37511
10.2
8/11/2016
10-Q
001-37511
10.3
8/11/2016
10-Q
001-37511
10.4
8/11/2016
10-K
001-37511
10.25
3/8/2017
10-K
001-37511
10.26
3/8/2017
114
Exhibit
Number
10.24¥
10.25¥
10.26¥
10.27¥
10.28¥
10.29¥
10.30
Exhibit Description
Consent and Fourth Amendment to Credit
Agreement and First Amendment to
Guaranty and Security Agreement among
Sunrun Hera Portfolio 2015-A, LLC, Sunrun
[*] Manager [*], LLC, Sunrun [*] Manager [*],
LLC, Sunrun [*] Manager [*], LLC, Sunrun [*]
Manager [*], LLC, Sunrun [*] Manager [*],
LLC, Sunrun [*] Manager [*], LLC, Sunrun [*]
Manager [*], LLC, Investec Bank Plc (as
administrative agent, issuing bank and as
lender), Deutsche Bank Trust Company
Americas, and each of the additional lenders
identified on the signature pages thereto,
dated as of January 31, 2017
Credit Agreement among Sunrun Neptune
Portfolio 2016-A, LLC, as Borrower, Suntrust
Bank as Administrative Agent, ING Capital
LLC as LC Issuer, and The Lenders from
Time to Time Party Hereto dated as of May
9, 2017 and Exhibits
Consent and First Amendment to Amended
and Restated Credit Agreement and First
Amendment to Amended and Restated Cash
Diversion and Commitment Fee Guaranty,
dated as of December 28, 2017
Credit Agreement among Sunrun Scorpio
Portfolio 2017-A, LLC, as Borrower, Keybank
National Association, as Administrative
Agent, Keybank National Association, as LC
Issuer, and The Lenders from Time to Time
Party Hereto dated as of October 20, 2017
and Exhibits
Amendment No. 5 to Credit Agreement
among the Company, AEE Solar, Inc.,
Sunrun South LLC, Sunrun Installation
Services Inc., Clean Energy Experts, LLC,
each of the lenders identified on the
signature pages thereto, Credit Suisse AG,
Cayman Islands Branch and Silicon Valley
Bank, dated as of February 23, 2018
Second Amended and Restated Credit
Agreement among Sunrun Hera Portfolio
2015-A, LLC, Investec Bank PLC (as
administrative agent, issuing bank and as
lender), and each of the additional lenders
identified on the signature pages thereto,
dated January 15, 2016, amended and
restated as of June 23, 2017 and further
amended and restated as of March 27, 2018
First Amendment to Credit Agreement
among the Company, Sunrun Neptune
Portfolio 2016-A, LLC, SunTrust Bank (as
administrative agent and as lender), ING
Capital LLC (as issuer and as lender), and
each of the additional Lenders from time to
time party thereto, dated as of March 26,
2018
Incorporated by Reference
Form
10-K
File No.
001-37511
Exhibit
10.27
Filing Date
3/8/2017
Filed
Herewith
10-Q/A
001-37511
10.3
12/29/2017
10-K
001-37511
10.29
3/6/2018
10-K
001-37511
10.30
3/6/2018
10-Q
001-37511
10.1
5/9/2018
10-Q
001-37511
10.2
5/9/2018
10-Q
001-37511
10.3
5/9/2018
115
Incorporated by Reference
Form
10-Q
File No.
001-37511
Exhibit
10.2
Filing Date
11/7/2018
Filed
Herewith
10-Q
001-37511
10.3
11/7/2018
10-Q
001-37511
10.4
11/7/2018
10-K
001-37511
10.36
2/28/2019
10-K
001-37511
10.37
2/28/2019
10-K
001-37511
10.38
2/28/2019
10-Q
001-37511
10.1
5/8/2019
Exhibit
Number
10.31¥
10.32¥
10.33
10.34¥
10.35¥
10.36¥
10.37^
Exhibit Description
Consent and First Amendment to Second
Amended and Restated Credit Agreement
and Third Amendment to Amended and
Restated Cash Diversion and Commitment
Fee Guaranty dated as of July 18, 2018,
among Sunrun Hera Portfolio 2015-A,
Sunrun Inc., Investec Bank Plc (as
administrative agent, issuing bank and as
lender), and each of the additional lenders
identified on the signature pages thereto
Consent and Second Amendment to Second
Amended and Restated Credit Agreement
and Fourth Amendment to Amended and
Restated Cash Diversion and Commitment
Fee Guaranty dated as of August 22, 2018,
among Sunrun Hera Portfolio 2015-A, LLC,
Sunrun Inc., Investec Bank Plc (as
administrative agent, issuing bank and as
lender) and each of the additional lenders
identified on the signature pages thereto
Consent and Third Amendment to Second
Amended and Restated Credit Agreement
and Sixth Amendment to Amended and
Restated Cash Diversion and Commitment
Fee Guaranty dated as of September 25,
2018 among Sunrun Hera Portfolio 2015-A,
LLC, Sunrun Inc,, Investec Bank Plc (as
administrative agent, issuing bank and as
lender) and each of the additional lenders
identified on the signature pages thereto
Indenture between Sunrun Athena Issuer
2018-1, LLC and Wells Fargo Bank, National
Association, dated as of December 20, 2018
Fourth Amendment to Second Amended and
Restated Credit Agreement among Sunrun
Hera Portfolio 2015-A, LLC, Investec Bank
Plc (as administrative agent and issuing
bank), and each of the additional Lenders
identified on the signature pages thereto,
dated as of November 30, 2018
Amendment No. 6 to Credit Agreement
among the Company, AEE Solar, Inc.,
Sunrun South LLC, Sunrun Installation
Services Inc., Clean Energy Experts, LLC,
each of the lenders identified on the
signature pages thereto, Credit Suisse AG,
Cayman Islands Branch, dated as of
November 14, 2018
Consent, Waiver and Fifth Amendment to
Second Amended and Restated Credit
Agreement and Sixth Amendment to
Amended and Restated Cash Diversion and
Commitment Fee Guaranty dated as of
February 28, 2019, among Sunrun Hera
Portfolio 2015-A, LLC, Sunrun Inc., Investec
Bank PLC and each of the additional lenders
identified on the signature pages thereto.
116
Exhibit
Number
10.38^
10.39^
10.40^
10.41^
10.42^
10.43^
10.44^
21.1
23.1
Exhibit Description
Sixth Amendment to Second Amended and
Restated Credit Agreement and Seventh
Amendment to Amended and Restated Cash
Division and Commitment Fee Guaranty
dated as of February 28, 2019, among
Sunrun Hera Portfolio 2015-A, LLC, Sunrun
Inc., Investec Bank PLC and each of the
additional lenders identified on the signature
pages thereto.
Indenture between Sunrun Xanadu Issuer
2019-1, LLC and Wells Fargo Bank, National
Association, dated as of June 6, 2019
First Amendment to Credit Agreement and
First Amendment to Cash Diversion
Guaranty dated as of June 28, 2019 among
Sunrun Scorpio Portfolio 2017-A, LLC, as
Borrower, Keybank National Association, as
Administrative Agent, Keybank National
Association, as LC Issuer, and each of the
additional lenders identified on the signature
page thereto
Indenture between Sunrun Atlas Issuer
2019-2, LLC and Wells Fargo Bank, National
Association, dated as of October 28, 2019
Amendment No. 7 to the Credit Agreement
among the Company, AEE Solar, Inc.,
Sunrun South LLC, Sunrun Installation
Services Inc., Clean Energy Experts, LLC,
KeyBank National Association (as
administrative agent and as lender), Silicon
Valley Bank (as collateral agent and as
lender), and each of the additional lenders
identified on the signature pages thereto,
dated as of November 12, 2019
Consent and Seventh Amendment to
Second Amended and Restated Credit
Agreement and Eighth Amendment to
Amended and Restated Cash Diversion and
Commitment Fee Guaranty dated as of
September 27, 2019, among Sunrun Hera
Portfolio 2015-A, Sunrun Inc., Investec Bank
Plc (as administrative agent, issuing bank
and as lender), and each of the additional
lenders identified on the signature pages
thereto
Consent and Eighth Amendment to Second
Amended and Restated Credit Agreement
and Ninth Amendment to Amended and
Restated Cash Diversion and Commitment
Fee Guaranty dated as of December 30,
2019, among Sunrun Hera Portfolio 2015-A,
the Company, Investec Bank Plc (as
administrative agent, issuing bank and as
lender), and each of the additional lenders
identified on the signature pages thereto
List of subsidiaries of the Registrant
Consent of Independent Registered Public
Accounting Firm
117
Incorporated by Reference
Form
10-Q
File No.
001-37511
Exhibit
10.2
Filing Date
5/8/2019
Filed
Herewith
10-Q
001-37511
10.1
8/7/2019
10-Q
001-37511
10.2
8/7/2019
X
X
X
X
10-Q
001-37511
10.1
11/12/2019
S-1
333-205217
21.1
6/25/2015
Exhibit
Number
31.1
31.2
32.1†
Exhibit Description
Form
File No.
Exhibit
Filing Date
Incorporated by Reference
Certification of Chief Executive Officer
pursuant to Exchange Act Rules 13a-14(a)
and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of
2002
Certification of Chief Financial Officer
pursuant to Exchange Act Rules 13a-14(a)
and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of
2002
Certifications of Chief Executive Officer and
Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002
Filed
Herewith
X
X
X
101.INS XBRL Instance Document - the instance
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embedded within the In-line XBRL document
101.SCH XBRL Taxonomy Schema Linkbase
Document
101.CAL XBRL Taxonomy Definition Linkbase
Document
101.DEF XBRL Taxonomy Calculation Linkbase
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101.LAB XBRL Taxonomy Labels Linkbase Document
101.PRE XBRL Taxonomy Presentation Linkbase
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104
Cover Page Interactive Data File - the cover
page interactive data file does not appear in
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tags are embedded within the In-line XBRL
document.
†
+
¥
^
The certifications attached as Exhibit 32.1 that accompany this Annual Report on Form 10-K, are
deemed furnished and not filed with the Securities and Exchange Commission and are not to be
incorporated by reference into any filing of Sunrun Inc. under the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this
Annual Report on Form 10-K, irrespective of any general incorporation language contained in such
filing.
Indicates management contract or compensatory plan.
Confidential treatment has been requested as to certain portions of this exhibit, which portions have
been omitted and submitted separately to the Securities and Exchange Commission.
Portions of this exhibit have been omitted from the exhibit because they are both not material and
would be competitively harmful if publicly disclosed.
118
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 27, 2020
Sunrun Inc.
By:
/s/ Lynn Jurich
Lynn Jurich
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been
signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Name
/s/ Lynn Jurich
Lynn Jurich
/s/ Robert Komin
Robert Komin
Title
Chief Executive Officer and Director (Principal Executive Officer)
Chief Financial Officer (Principal Financial Officer)
/s/ Michelle Philpot
Chief Accounting Officer (Principal Accounting Officer)
Michelle Philpot
/s/ Edward Fenster
Edward Fenster
Chairman and Director
/s/ Katherine August-deWilde Director
Katherine August-deWilde
/s/ Leslie Dach
Leslie Dach
/s/ Alan Ferber
Alan Ferber
/s/ Mary Powell
Mary Powell
/s/ Gerald Risk
Gerald Risk
Director
Director
Director
Director
119
Date
February 27,
2020
February 27,
2020
February 27,
2020
February 27,
2020
February 27,
2020
February 27,
2020
February 27,
2020
February 27,
2020
February 27,
2020
225 Bush St., Suite 1400
San Francisco, CA 94104