What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-17 compared with 2021-02-25 · 101 added, 100 removed, 382 unchanged (34% of the section changed)

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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.

On July 6, 2020, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Vivint Solar and Viking Merger Sub, Inc., a Delaware corporation and our direct wholly owned subsidiary.

The acquisition of Vivint Solar was completed on October 8, 2020 pursuant to the terms of the Merger Agreement.

As part of this merger, we welcomed approximately 3,800 employees from Vivint Solar to Sunrun, bringing the total employees to approximately 8,500 as of December 31, 2020.

We also added approximately 210,000 customers and 1,441 megawatts to our existing fleet.

The merger is expected to support continued growth through stronger differentiated sales channels, expanding customers’ access to the best offerings including battery storage solutions, improving cost efficiency from greater scale and improved access to project finance and other capital at lower costs and better terms.

On October 8, 2020, we completed the acquisition of Vivint Solar, Inc.

("Vivint Solar") a leading full-service residential solar provider in the United States, at an estimated purchase price of $5.0 billion, pursuant to an Agreement and Plan of Merger, dated as of July 6, 2020, by and among Sunrun, Vivint Solar and Viking Merger Sub, Inc., a Delaware corporation and direct wholly owned subsidiary of the Company (“Merger Sub”).

Further information about the acquisition of Vivint Solar can be found in Note 3, Acquisitions, to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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.

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Customer cancellation rates can change over time and vary between markets.

Recent Developments

Convertible Senior Notes Offering

On January 25, 2021, we entered into a purchase agreement (the “Purchase Agreement”) with Credit Suisse Securities (USA) LLC and Morgan Stanley & Co.

LLC, as representatives of the several initial purchasers (the “Purchasers”), to issue and sell $350 million aggregate principal amount of 0% Convertible Senior Notes due 2026 (the “Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act.

The Notes were sold to the Purchasers pursuant to an exemption from the registration requirements of the Securities Act afforded by Section 4(a)(2) of the Securities Act.

In addition, we granted the Purchasers an option to purchase, during a 13-day period beginning on, and including, the date on which the Notes were first issued, up to an additional $50 million aggregate principal amount of Notes on the same terms and conditions.

The Purchasers exercised their option in full on January 26, 2021.

The net proceeds from the sale of the Notes issued on January 28, 2021 (after deducting the Purchasers’ discount and estimated offering expenses) was approximately $389.0 million.

On January 28, 2021, we entered into an Indenture (the “Indenture”) with Wells Fargo Bank, National Association, as trustee (the “Trustee”), pursuant to which we issued $400 million aggregate principal amount of Notes.

The Notes will not bear regular interest, and the principal amount of the notes will not accrete.

The Notes may bear special interest under specified circumstances relating to our failure to comply with our reporting obligations under the Indenture or if the Notes are not freely tradeable as required by the Indenture.

The Notes will mature on February 1, 2026, unless earlier repurchased by us, redeemed by us or converted pursuant to their terms.

In connection with the offering of the Notes, on January 25.

2021 and January 26, 2021, we entered into privately negotiated capped call transactions with Credit Suisse Capital LLC, represented by Credit Suisse Securities (USA) LLC, Morgan Stanley & Co.

LLC, Barclays Bank PLC, through its agent Barclays Capital Inc., and Royal Bank of Canada, represented by RBC Capital Markets, LLC (the “Capped Calls”).

The Capped Calls each have an initial strike price of approximately $117.91 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes.

The Capped Calls have initial cap prices of $157.22 per share.

The Capped Calls cover, subject to anti-dilution adjustments, approximately 3.4 million shares of Common Stock.

The Capped Calls are expected generally to reduce the potential dilution to the Common Stock upon any conversion of Notes and/or offset any cash payments we are required to make in excess of the principal amount of the Notes, as the case may be, in the event the market price per share of Common Stock, as measured under the Capped Calls, is greater than the strike price of the Capped Call, with such offset subject to a cap.

If, however, the market price per share of the Common Stock, as measured under the Capped Calls, exceeds the cap price of the Capped Calls, there would be dilution and/or there would not be an offset of such potential cash payments, in each case, to the extent that the then-market price per share of the Common Stock exceeds the cap price.

We used approximately $28.0 million from the net proceeds from the issuance and sale of the Notes to purchase the Capped Calls.

The final components of the Capped Calls are scheduled to expire on January 29, 2026.

Vivint Acquisition

On October 8, 2020, we completed the acquisition of Vivint Solar pursuant to the terms of the Merger Agreement.

Each share of Vivint Solar common stock issued and outstanding immediately prior to the effective time of the merger was converted automatically into the right to receive 0.55 shares of our common stock.

The Opportunity of Home Electrification and a Clean, Resilient Grid

The United States is on the precipice of a once-in-a-generation transformation of our energy system.

The decarbonization of the American economy will require powering our energy supply, including our homes, appliances and automobiles, with clean energy.

Sunrun’s next goal and chapter of growth is to be the go-to company for clean and reliable home electrification, providing our customers with affordable renewable energy throughout their homes and our communities with a cleaner, more resilient grid.

We intend to pursue these opportunities on a variety of fronts.

For instance, in May 2020, we announced a partnership with Ford Motor Company to be the preferred installer for Ford’s Charge Station Pro and Intelligent Backup Power System, debuting with the all-electric F-150 Lightning.

Under the partnership, we are co-developing Ford's Home Integration System, including the bi-directional inverter, which enables the F-150 Lightning to serve as a reliable home backup energy source by powering the home during an outage event.

Through this partnership, customers in participating markets will also be provided with the opportunity to install a solar and battery system on their home, enabling them to power their household with clean, affordable energy and charge their truck with the power of the sun.

We also continue to pursue the development of our grid services business, creating virtual power plants that lead to a cleaner, more resilient grid.

In collaboration with grid managers, we can deploy our battery systems where they will add the most value for utilities, the grid, and customers.

We are actively delivering demand response and capacity services to meet operational needs in multiple geographies, and partnering with grid managers to build a more resilient electricity system that integrates the new energy technologies customers want.

We believe the electrification of U.S.

households with renewable energy, and the accompanying development of an inter-connected, smart grid will provide a number of market opportunities beyond our traditional solar and battery storage offerings, including EV chargers, battery retrofits, re-powered or expanding systems, home energy management services, and other home electrification products.

Additionally, we believe our omni-channel model and geographic reach provides us with the capabilities to execute on these opportunities in a variety of markets.

To further expand such future upsell and retrofit opportunities, from time to time, we may pursue acquisitions of previously installed solar systems.

While we do not expect such acquisitions to represent a material portion of our growth on an annual basis, we plan to pursue such transactions opportunistically.

For instance, in the third quarter, we completed a strategic transaction that added approximately 2,000 Customers and 13 MW of Networked Solar Energy Capacity.

In sum, we believe the electrification of the U.S.

economy with renewable energy presents an unprecedented economic opportunity, as well as our country’s best path to achieving net zero emissions by 2050.

Through these electrification opportunities and our grid services business, we aim to be the consumer brand synonymous with repowering our customers’ homes with renewable energy and providing a pathway to a cleaner, healthier future.

Impacts of COVID-19 on Our Business

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economy have accelerated many of our operational initiatives to deliver best-in-class customer value and to reduce costs.

We have invested in technology to streamline our installation processes, including online permitting and interconnection in many locations, as well as employing extensive use of drone technology to complete rooftop surveys.

While we continue to install solar systems in most markets, we are monitoring this fluid situation and will follow official regulations to protect our employees and customers.

Following the first shelter-in-place orders in California, we enabled our entire salesforce to complete sales consultations in a virtual setting.

Despite the fact that we have at times paused sourcing leads through certain channels, we have seen more leads through our digital channels at similar or more attractive customer acquisition costs.

We have invested in technology to streamline our installation processes, including online permitting and interconnection in many locations, enabled our entire salesforce to complete sales consultations in a virtual setting, and employed extensive use of drone technology to complete rooftop surveys.

We also implemented a company-wide COVID-19 vaccine rewards campaign to encourage vaccination among team members.

We believe this transition towards a digital model for many sales channels will position us well to realize sustaining reductions in customer acquisition costs.

We are gradually returning to retail sales, and our direct-to-home sales professionals, after adapting to remote sales practices, have subsequently been able to resume direct-to-home sales activities in most markets.

The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change, and we do not yet know the full extent of potential delays or impacts on our business, operations or the global economy as a whole.

The COVID-19 pandemic has had an unprecedented impact on the U.S.

economy, resulting in governments and organizations implementing public health measures in an effort to contain the virus, including physical distancing, work from home, supply chain logistical changes and closure of non-essential businesses.

With vaccine administration and adoption rising, governments and organizations have responded by adjusting such restrictions

and guidelines accordingly.

We are monitoring this fluid situation and will continue to follow official regulations to protect our employees and customers.

The ultimate impact of the COVID-19 pandemic (and virus variants, such as Delta and Omicron) is still highly uncertain and subject to change, and we do not yet know the full extent of potential delays or impacts on our business, operations or the global economy as a whole.

We will continue to monitor developments affecting our workforce, our customers, and our business operations generally and will take actions that we determine are necessary in order to mitigate these impacts.

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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 13, Pass-Through Financing Obligations , Note 14, VIE Arrangements and Note 15, Redeemable Noncontrolling Interests to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

", Note 13, Pass-Through Financing Obligations , Note 14, VIE Arrangements and Note 15, Redeemable Noncontrolling Interests to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

Pass-through Financing Obligations

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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, or over seven years in the case of one fund, by customer payments under the Customer Agreements, U.S.

The financing obligation is reduced over a period of approximately 22 years, or over 7 years in the case of one fund, by customer payments under the Customer Agreements, U.S.

Treasury grants (where applicable);

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• Networked Solar Energy Capacity 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.

Systems that have met this criteria are considered to be deployed.

(ii) in the case of certain system installations by our partners, for which we have accrued at least 80% of the expected project cost (inclusive of acquisitions of installed systems), 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.

Systems that have met these criteria are considered to be deployed.

• Gross Earning Assets is calculated as Gross Earning Assets Contracted Period plus Gross Earning Assets Renewal Period.

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The definitions of Gross Earning Assets, Gross Earning Assets Contracted Period, and Gross Earning Assets Renewal Period use a discount rate of 5%;

whereas the definitions used previously in our periodic reports used a discount rate of 6%.

whereas the definitions used previously in our periodic reports prior to December 31, 2020 used a discount rate of 6%.

As of December 31,

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Gross Earning Assets $ 9,671,988 $ 7,773,475

As a result of the acquisition of Vivint Solar on October 8, 2020, we added $2.9 billion of Gross Earning Assets, of which $2.0 billion related to Gross Earning Assets Contracted Period and $0.9 billion related to Gross Earning Assets Renewal Period.

The tables below provide a range of Gross Earning Asset amounts if different default, discount and purchase and renewal assumptions were used.

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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 begin to 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.

For Customer Agreements that include a fixed fee per month which entitles the customer to any and all electricity generated by the system, we recognize revenue evenly over the time that we satisfy our performance obligations over the initial term of Customer Agreements.

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For solar energy system sales that include delivery obligations up until interconnection to the local power grid with permission to operate, we recognize revenue at PTO.

Product sales revenue consists of revenue from the sale of solar panels, inverters, racking systems,

roofing services, fees for extended services on solar energy systems sold to customers 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.

Certain solar energy systems sold to customers include fees for extended warranty and maintenance services.

These fees are recognized over the life of the service agreement.

Product sales revenue consists of revenue from the sale of solar panels, inverters, racking systems, roof repair, 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, or as services are delivered.

Customer lead revenue is recognized at the time the lead is delivered.

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We also consider our enterprise value and if necessary, a discounted cash flow model, which involves assumptions and estimates, including our future financial performance, weighted average cost of capital and interpretation of currently enacted tax laws.

Circumstances that could indicate impairment and require us to perform a quantitative impairment test include a significant decline in our financial results, a significant decline in our enterprise value relative to our net book value, an unanticipated change in competition or our market share and a significant change in our strategic plans.

Circumstances that could indicate impairment and require us to perform a quantitative impairment test include a significant decline in our financial results, a significant decline in our enterprise value relative to our net book value, a sustained decline in our stock price, or an unanticipated change in competition or our market share and a significant change in our strategic plans.

Impairment of Long-Lived Assets

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of Part II, “Management's Discussion and Analysis of Financial Condition and Results of Operations.”

We completed the acquisition of Vivint Solar on October 8, 2020, which plays a significant role in the year over year changes discussed below, as commencing from the acquisition date our consolidated financial statements include the assets, liabilities, operating results and cashflows of Vivint Solar.

Further information about the acquisition of Vivint Solar can be found in Note 3, Acquisitions to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Year Ended December 31,

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Interest expense, net (327,700) (230,601)

Other income (expenses), net 8,188 (9,254)

Other income, net 22,628 8,188

Loss before income taxes (971,259) (687,521)

Income tax benefit (60,573) (8,218)

Income tax expense (benefit) 9,271 (60,573)

Net loss (980,530) (626,948)

Net loss attributable to noncontrolling interests and redeemable noncontrolling interests (901,107) (453,554)

Net (loss) income attributable to common stockholders $ (173,394) $ 26,335

Net (loss) income per share attributable to common stockholders

Net loss attributable to common stockholders $ (79,423) $ (173,394)

Net loss per share attributable to common stockholders

Basic $ (0.39) $ (1.24)

Diluted $ (0.39) $ (1.24)

Weighted average shares used to compute net (loss) income per share attributable to common stockholders

Weighted average shares used to compute net loss per share attributable to common stockholders

Basic 205,132 139,606

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Customer Agreements and Incentives .

Revenue from Customer Agreements increased by $87.0 million.

Revenue from Vivint Solar Customer Agreements from the acquisition date through December 31, 2020, accounted for $32.5 million of the increase.

The remaining $54.5 million increase was due to both an increase in solar energy systems under Customer Agreements being placed in service in 2020 and a full year of revenue recognized in 2020 for systems placed in service in 2019 versus only a partial amount of such revenue related to the period in which the assets were in service in 2019.

Revenue from incentives, which consists of sales of Commercial ITCs and SRECs, increased by $9.3 million when compared to the prior year.

Approximately $18.9 million of this increase relates to activity for Vivint Solar incentives from the acquisition date through December 31, 2020.

Offsetting this increase was a decrease due to the sale of Commercial ITCs under a financing obligation fund opened in 2018, with PTO activity in that fund primarily concluding during the second quarter of 2019.

There has been no such comparable fund opened in 2019 or 2020.

The $292.7 million increase in Revenue from Customer Agreements was primarily due to both an increase in solar energy systems under Customer Agreements being added to our fleet upon the acquisition of Vivint Solar in October 2020, as well as new systems placed in service in 2021 and a full year of revenue recognized in 2021 for systems placed in service in 2020 versus only a partial amount of such revenue related to the period in which the assets were in service in 2020.

Revenue from incentives, which primarily consists of the sale of SRECs, increased by $49.7 million when compared to the prior year due to the timing of sales and market prices.

Solar Energy Systems and Product Sales .

Revenue from solar energy systems sales decreased by $13.6 million compared to the prior year due to decreased demand through retail partners.

This decrease was offset by revenue of $27.2 million from solar energy systems sales by Vivint Solar from the acquisition date through December 31, 2020.

Product sales decreased by $19.1 million compared to the prior year primarily due to a decrease in the volume of wholesale products sold, which has been impacted by COVID-19 and customers' reduced purchases in 2020 after purchasing safe harbor materials in 2019 for use in 2020.

Partially offsetting this decline was approximately $2.7 million of product sales by Vivint Solar from the acquisition date through December 31, 2020.

Revenue from solar energy systems sales increased by $201.4 million compared to the prior year primarily due to solar energy systems sales from an expanded sales force following the acquisition of Vivint Solar, as well as increased demand through retail partners.

Product sales increased by $143.9 million compared to the prior year primarily due to lower volume of wholesale products sold in 2020, which was impacted by COVID-19, and customers' reduced purchases in 2020 after purchasing safe harbor materials in 2019 for use in 2020.

Operating Expenses

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Cost of Customer Agreements and Incentives .

The $105.3 million increase in Cost of customer agreements and incentives was due to the increase in solar energy systems placed in service in 2020, plus a full year of costs recognized in 2019 for systems placed in service in 2019 versus only a partial amount of such expenses related to the period in which the assets were in service in 2019.

Additionally, there was an increase of $60.1 million related to Vivint Solar’s costs from the acquisition date through December 31, 2020, which included $29.7 million of depreciation expense on solar fixed assets recorded in the initial purchase accounting for the acquisition.

The depreciable basis of Vivint Solar’s solar fixed assets increased by $1.1 billion based on the excess of fair value over book value as of the acquisition date.

The $313.5 million increase in Cost of customer agreements and incentives was primarily due to the increase in solar energy systems added to our fleet upon the acquisition of Vivint Solar in October 2020, as well as new systems placed in service in 2021, plus a full year of costs recognized in 2021 for systems placed in service in 2020 versus only a partial amount of such expenses related to the period in which the assets were in service in 2020.

The Cost of customer agreements and incentives increased to 85% of customer agreements and incentives revenue during 2021, from 80% during 2020.

The increase was impacted by the acquisition of Vivint Solar, which had negative gross margins due to seasonality, as well as the increase in depreciable basis discussed above.

The increase was impacted by the acquisition of Vivint Solar, which resulted in an increase in depreciation expense of approximately $107.6 million related to the step up in solar systems fair value upon the acquisition of Vivint Solar.

Cost of Solar Energy Systems and Product Sales .

There was a $7.6 million decrease in Cost of solar energy systems and product sales which was the result of a $34.3 million decrease related to the decreases in the solar energy systems and product sales discussed above, offset by the addition of $26.7 million of the Vivint Solar costs from the acquisition date through December 31, 2020.

Vivint Solar’s cost of solar energy systems sales were impacted by a $7.7 million increase in inventory based on the excess of fair value over book value as of the acquisition date.

There was a $308.5 million increase in Cost of solar energy systems and product sales which was primarily due to the corresponding net increase in the solar energy systems and product sales discussed above.

Sales and Marketing Expense.

The $77.2 million increase in Sales and marketing expense was primarily attributable to $67.9 million related to the inclusion of Vivint Solar from the acquisition date through December 31, 2020, which included $43.7 million of stock-based compensation expense based on the fair value at the time of the

The remaining increase in Sales and marketing expense is primarily attributable to $9.6 million in non-recurring and restructuring costs incurred during the twelve months ended December 31, 2020, as well as increases in costs to acquire customers through our retail and sales lead generating partners and in advertising costs, partially offset by a decrease in headcount driving lower compensation, as well as a fair value adjustment on contingent consideration.

The $270.7 million increase in Sales and marketing expense was primarily attributable to increases in headcount, which were primarily driven by the acquisition of Vivint Solar in October 2020, resulting in higher employee compensation.

Additionally, we spent more in costs to acquire customers through our sales lead generating partners in 2021 compared to the prior year.

Partially offsetting these increases in Sales and marketing expense is an $8.9 million decrease in non-recurring and restructuring costs incurred compared to the prior year which had $9.6 million in such costs following the acquisition of Vivint Solar.

Included in sales and marketing expense were $23.3 million and $14.4 million of amortization of costs to obtain Customer Agreements for 2021 and 2020, respectively.

Research and Development Expense .

The $4.0 million decrease in Research and development expense was primarily attributable to a decrease in consulting fees, as well as a decrease in headcount resulting in lower employee compensation.

Partially offsetting these decreases was approximately $0.4 million related to Vivint Solar from the acquisition date through December 31, 2020.

The $3.6 million increase in Research and development expense was primarily attributable to the acquisition of Vivint Solar, resulting in an increase in headcount driving higher employee compensation costs.

General and Administrative Expense .

The $141.7 million increase in General and administrative expenses was primarily attributable to $89.8 million related to the inclusion of Vivint Solar from the acquisition date through December 31, 2020, which included $73.3 million of stock-based compensation expense based on the fair value at the time of the acquisition.

The remaining increases related to a $6.7 million legal settlement accrual, $35.6 million in nonrecurring (primarily acquisition-related) costs incurred during 2020, as well as an increase in stock-based compensation.

The $7.6 million decrease in General and administrative expenses was primarily attributable to a decrease of $16.3 million in nonrecurring (primarily acquisition-related) costs incurred during 2021, partially offset by the acquisition of Vivint Solar, which resulted in an increase in headcount driving higher employee compensation and consulting costs.

Non-Operating Expenses

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Interest expense, net $ (327,700) $ (230,601) $ (97,099) 42 %

Other income (expenses), net 8,188 (9,254) 17,442 (188) %

Total interest and other expenses, net $ (222,413) $ (183,500) $ (38,913) 21 %

Other income, net 22,628 8,188 14,440 176 %

Total interest and other income, net $ (305,072) $ (222,413) $ (82,659) 37 %

Interest expense, net.

The increase in Interest expense, net of $56.4 million included $25.2 million of interest expense associated with the debt acquired with Vivint Solar.

The remaining increase is primarily related to additional non-recourse and pass-through financing obligation debt entered into in 2020.

Included in net interest expense is $24.8 million and $28.6 million of non-cash interest imputed under prepaid Customer Agreements for 2020 and 2019, respectively.

Other income (expenses), net.

The decrease in other expenses of $17.4 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, with no such comparable activity in 2020.

Additionally, there was a $6.5 million gain on extinguishment of debt recognized in 2020.

Income Tax Benefit

The increase in Interest expense, net of $97.1 million included $73.0 million for a full year of interest expense associated with the debt acquired with Vivint Solar.

The remaining increase is primarily related to additional non-recourse debt entered into in 2021.

Included in net interest expense is $26.3 million and $24.8 million of non-cash interest recognized under Customer Agreements that have a significant financing component for 2021 and 2020, respectively.

Other income, net.

The increase in other income, net of $14.4 million relates primarily to gains on derivatives recognized in 2021, with no such comparable activity in 2020.

Income Tax Expense (Benefit)

December 31, Change

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(in thousands)

Income tax benefit $ (60,573) $ (8,218) $ (52,355) 637 %

The increase in Income tax benefit of $52.4 million primarily relates to an increase in tax benefit related to a higher pre-tax loss and an increase in stock compensation deductions that was offset by an increase in noncontrolling interest and redeemable noncontrolling interests and valuation allowance.

Income tax expense (benefit) $ 9,271 $ (60,573) $ 69,844 (115) %

The decrease in Income tax benefit of $69.8 million primarily relates to an increase in noncontrolling interest and redeemable noncontrolling interests, an increase in valuation allowance on certain federal and state tax credits and net operating losses, and decrease in stock based compensation that was offset by an increase in tax benefit related to a higher pre-tax loss.

Given our net operating loss carryforwards as of December 31, 2021, we do not expect to pay income tax, including in connection with our 2021 income tax provision, until our net operating losses are fully utilized.

As of December 31, 2020, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $720.7 million and $2.1 billion, respectively, which will begin to expire in 2028 for federal purposes

and in 2024 for state purposes.

As of December 31, 2021, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $720.7 million and $2.3 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 $1.4 billion and $198.7 million, respectively, and have indefinite carryover periods and do not expire.

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Net loss attributable to noncontrolling interests and redeemable noncontrolling interests $ (901,107) $ (453,554) $ (447,553) 99 %

The increase in Net loss attributable to noncontrolling interests and redeemable noncontrolling interests was primarily the result of an additional $25.3 million net loss related Vivint Solar's noncontrolling interests and redeemable noncontrolling interests from the acquisition date through December 31, 2020.

Net loss attributable to noncontrolling interests and redeemable noncontrolling interests was primarily the result of an addition of six new investment funds since December 31, 2020, for which the HLBV method was used in determining the amount of net loss attributable to noncontrolling interests, as well as $66.4 million of net loss related Vivint Solar's noncontrolling interests and redeemable noncontrolling interests.

Redeemable noncontrolling interests generally allocates more loss to the noncontrolling interest in the first several years after fund formation.

Liquidity and Capital Resources

As of December 31, 2021, we had cash of $617.6 million, which consisted of cash held in checking and savings accounts with financial institutions.

This balance included $433.2 million of cash assumed as a result of the acquisition of Vivint Solar.

We finance our operations mainly through a variety of financing fund arrangements that we have formed with fund investors, cash generated from our sources of revenue and borrowings from secured credit facilities arrangements with syndicates of banks and from secured, long-term non-recourse loan arrangements.

In 2020, we received $595.0 million of new commitments on secured credit facilities arrangements with syndicates of banks and $1.3 billion of commitments from secured, long-term non-recourse loan arrangements.

In 2021, we received $1.8 billion of new commitments on secured credit facilities arrangements with syndicates of banks and $888.7 million of commitments from secured, long-term non-recourse loan arrangements.

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, 2020, we had outstanding borrowings of $230.7 million on our $250.0 million corporate bank line of credit maturing in April 2022, as well as outstanding borrowings of $60.0 million on our $200.0 million corporate asset financing facility maturing in June 2023.

As of December 31, 2021, we had outstanding borrowings of $211.1 million on our $250.0 million corporate bank line of credit maturing in April 2022, however, in January 2022, we retired this corporate bank line of credit, repaid the outstanding balance, and replaced it with a $425.0 million credit facility maturing in January 2025.

Additionally, we have purchase commitments, which have the ability to be canceled without significant penalties, with multiple suppliers to purchase $558.0 million of photovoltaic modules, inverters and batteries by the end of 2022.

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Investing Activities

During 2020, we used $497.8 million in cash in investing activities.

During 2021, we used $1.7 billion 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 2020, we contributed $65.4 million as an investment in a home electrification venture.

Offsetting these outflows was $537.2 million of cash and restricted cash provided by the acquisition of Vivint Solar on October 8, 2020.

During 2020, we used $497.8 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 2020, we contributed $65.4 million as an investment in a home electrification venture.

Offsetting these outflows was $537.2 of cash and restricted cash provided by the acquisition of Vivint Solar on October 8, 2020.

Financing Activities

During 2021, we generated $2.6 billion from financing activities.

This was primarily driven by $712.8 million in net proceeds from fund investors, $329.1 million in net proceeds from debt, offset by $10.6 million in repayments under finance lease obligations.

Additionally, during 2020, we received $75.0 million from the sale and issuance of shares pursuant to a subscription agreement with SK E&S Co., Ltd.

This was primarily driven by $1.0 billion in net proceeds from fund investors, $1.6 billion in net proceeds from debt, $36.1 million in net proceeds from stock-based awards activity, offset by $42.0 million in acquisition of noncontrollling interests.

During 2020, we generated $1.2 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.

This was primarily driven by $705.0 million in net proceeds from fund investors, $329.1 million in net proceeds from debt and $48.7 million in net proceeds from stock-based awards activity, offset by $2.7 million in acquisition of noncontrolling interests.

Additionally, during 2020, we received $75.0 million from the sale and issuance of shares pursuant to a subscription agreement with SK E&S Co., Ltd.

Debt, Equity, and Financing Fund Commitments

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For a discussion of the terms and conditions of debt instruments and changes thereof in the period, refer to Note 11, Indebtedness, to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Convertible Senior Notes Offering

On January 25, 2021, we entered into a purchase agreement (the “Purchase Agreement”) with Credit Suisse Securities (USA) LLC and Morgan Stanley & Co.

LLC, as representatives of the several initial purchasers (the “Purchasers”), to issue and sell $350.0 million aggregate principal amount of 0% Convertible Senior Notes due 2026 (the “Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act.

The Notes were sold to the Purchasers pursuant to an exemption from the registration requirements of the Securities Act afforded by Section 4(a)(2) of the Securities Act.

In addition, we granted the Purchasers an option to purchase, during a 13-day period beginning on, and including, the date on which the Notes were first issued, up to an additional $50.0 million aggregate principal amount of Notes on the same terms and conditions.

The Purchasers exercised their option in full on January 26, 2021.

The net proceeds from the sale of the Notes issued on January 28, 2021 (after deducting the Purchasers’ discount and estimated offering expenses) was approximately $389.0 million.

On January 28, 2021, we entered into an Indenture (the “Indenture”) with Wells Fargo Bank, National Association, as trustee (the “Trustee”), pursuant to which we issued $400.0 million aggregate principal amount of Notes.

The Notes will not bear regular interest, and the principal amount of the notes will not accrete.

The Notes will mature on February 1, 2026, unless earlier repurchased by us, redeemed by us or converted pursuant to their terms.

In connection with the offering of the Notes, on January 25, 2021 and January 26, 2021, we entered into privately negotiated capped call transactions with Credit Suisse Capital LLC, represented by Credit Suisse Securities (USA) LLC, Morgan Stanley & Co.

LLC, Barclays Bank PLC, through its agent Barclays Capital Inc., and Royal Bank of Canada, represented by RBC Capital Markets, LLC (the “Capped Calls”).

The Capped Calls each have an initial strike price of approximately $117.91 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes.

The Capped Calls have initial cap prices of $157.22 per share.

The Capped Calls cover, subject to anti-dilution adjustments, approximately 3.4 million shares of common stock.

The Capped Calls are expected generally to reduce the potential dilution to the common stock upon any conversion of Notes

and/or offset any cash payments we are required to make in excess of the principal amount of the Notes, as the case may be, in the event the market price per share of common stock, as measured under the Capped Calls, is greater than the strike price of the Capped Call, with such offset subject to a cap.

If, however, the market price per share of the common stock, as measured under the Capped Calls, exceeds the cap price of the Capped Calls, there would be dilution and/or there would not be an offset of such potential cash payments, in each case, to the extent that the then-market price per share of the common stock exceeds the cap price.

We used approximately $28.0 million from the net proceeds from the issuance and sale of the Notes to purchase the Capped Calls.

The final components of the Capped Calls are scheduled to expire on January 29, 2026.

Investment Fund Commitments

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis