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Item 8. Financial Statements and Supplementary Data

2022-02-17 compared with 2021-02-25 · 307 added, 279 removed, 1274 unchanged (32% of the section changed)

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firm

Reports of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets

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Notes to Consolidated Financial Statements

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Sunrun Inc.

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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.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Noncontrolling Interests and Redeemable Noncontrolling Interests

Description of matter At December 31, 2020, noncontrolling interests were $651.0 million and redeemable noncontrolling interests were $560.5 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.

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 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 such 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 .

Realizability of Deferred Tax Assets

Description of matter As described in Note 19 to the consolidated financial statements, at December 31, 2020, the total and gross deferred tax assets were $779.1 million and $687.7 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.

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 including its mathematical accuracy.

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.

Business Combination

Description of matter As described in Note 3 to the consolidated financial statements, the Company completed the acquisition of Vivint Solar, Inc.

during 2020 for total consideration of $5.0 billion.

The acquisition was accounted for as a business combination.

The recognition, measurement and disclosure of the Company’s business combination in the 2020 consolidated financial statements was considered especially challenging and required significant auditor judgment due to the complex determination by management of the appropriate assumptions, such as the discount rate used in the discounted cash flow model related to the valuation of solar energy systems.

This included controls over the recognition and measurement of consideration transferred and acquired assets and liabilities, including the valuation models and underlying assumptions used to develop such estimates.

To test the valuation of acquired assets, we performed audit procedures that included, among others, evaluating management’s identification of assets acquired and assessing the fair value measurements prepared by management and their third-party valuation specialists, including the discount rate as used in valuing the solar energy systems.

We involved our valuation specialists to assist with the valuation of methodologies used by the Company and significant assumptions included in the fair value estimates.

For example, to evaluate the discount rate, we evaluated the current industry and market trends in which the Company operates, the Company’s historical application of discount rates for solar energy systems, and performed a sensitivity analysis.

We also evaluated the adequacy of the Company’s disclosures included in Note 3 related to this acquisition.

Description of matter At December 31, 2021, noncontrolling interests were $722.9 million and

redeemable noncontrolling interests were $595.0 million.

As explained in Note 2

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.

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 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 such 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.

the completeness and accuracy of the underlying data used in the HLBV models.

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.

/s/ Ernst & Young LLP

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February 17, 2022

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Sunrun Inc.

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(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Vivint Solar, Inc., which is included in the 2020 consolidated financial statements of the Company and constituted $7.9 billion of total assets as of December 31, 2020 and $81.3 million of total revenues for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Vivint Solar, Inc.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2020 consolidated financial statements of the Company and our report dated February 25, 2021 expressed an unqualified opinion on those consolidated financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2021 consolidated financial statements of the Company and our report dated February 17, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

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Finance lease obligations, net of current portion 11,314 12,929

Recourse debt 230,660 239,485

Line of credit 211,066 230,660

Non-recourse debt, net of current portion 5,711,020 4,370,449

Convertible senior notes 390,618 —

Pass-through financing obligation, net of current portion 314,231 323,496

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Interest expense, net ( 327,700 ) ( 230,601 ) ( 174,246 )

Other income (expenses), net 8,188 ( 9,254 ) 2,788

Other income (expense), net 22,628 8,188 ( 9,254 )

Loss before income taxes ( 971,259 ) ( 687,521 ) ( 399,240 )

Income tax (benefit) expense ( 60,573 ) ( 8,218 ) 9,322

Income tax expense (benefit) 9,271 ( 60,573 ) ( 8,218 )

Net loss ( 980,530 ) ( 626,948 ) ( 391,022 )

Net loss attributable to noncontrolling interests and

redeemable noncontrolling interests

Net loss attributable to noncontrolling interests and redeemable noncontrolling interests

( 901,107 ) ( 453,554 ) ( 417,357 )

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Diluted $ ( 0.39 ) $ ( 1.24 ) $ 0.21

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 205,132 139,606 116,397

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The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Comprehensive (Loss) Income

Consolidated Statements of Comprehensive Loss

(In Thousands)

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Net (loss) income attributable to common stockholders $ ( 79,423 ) $ ( 173,394 ) $ 26,335

Unrealized (loss) gain on derivatives, net of income taxes ( 63,445 ) ( 48,295 ) 6,187

Unrealized gain (loss) on derivatives, net of income taxes 18,496 ( 63,445 ) ( 48,295 )

Adjustment for net loss (gain) on derivatives recognized into earnings, net of income taxes 15,209 9,443 ( 594 )

Other comprehensive (loss) income ( 54,002 ) ( 48,889 ) 989

Comprehensive (loss) income $ ( 227,396 ) $ ( 22,554 ) $ 27,646

Other comprehensive income (loss) 33,705 ( 54,002 ) ( 48,889 )

Comprehensive loss $ ( 45,718 ) $ ( 227,396 ) $ ( 22,554 )

The accompanying notes are an integral part of these consolidated financial statements.

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Net (loss) income ( 234,386 ) — — — — 26,335 26,335 ( 182,971 ) ( 156,636 )

Acquisition of noncontrolling interest — — — 1,077 — — 1,077 ( 4,798 ) ( 3,721 )

Repurchase of common stock — ( 369 ) — — — ( 5,000 ) ( 5,000 ) — ( 5,000 )

Other comprehensive loss, net of taxes — — — — ( 48,889 ) — ( 48,889 ) — ( 48,889 )

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Distributions to redeemable noncontrolling interests and noncontrolling interests ( 37,453 ) — — — — — — ( 69,060 ) ( 69,060 )

Net (loss) income ( 234,386 ) — — — — 26,335 26,335 ( 182,971 ) ( 156,636 )

Net loss ( 243,542 ) — — — — ( 173,394 ) ( 173,394 ) ( 210,012 ) ( 383,406 )

Shares issued in connection with a subscription agreement — 2,075 — 75,000 — — 75,000 — 75,000

Acquisition of Vivint Solar 58,300 69,472 7 5,037,516 — — 5,037,523 229,400 5,266,923

Acquisition of noncontrolling interest ( 7,500 ) — — 3,542 — — 3,542 — 3,542

Repurchase of common stock — ( 369 ) — — — ( 5,000 ) ( 5,000 ) — ( 5,000 )

Other comprehensive loss, net of taxes — — — — ( 54,002 ) — ( 54,002 ) — ( 54,002 )

Balance - December 31, 2020 560,461 201,406 20 6,107,802 ( 106,755 ) 76,844 6,077,911 650,999 6,728,910

Cumulative effect of adoption of new ASU (No.

2016-13) — — — — — ( 1,228 ) ( 1,228 ) — ( 1,228 )

Exercise of stock options — 2,046 — 19,326 — — 19,326 — 19,326

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( 63,280 ) — — — — — — ( 136,141 ) ( 136,141 )

Net (loss) income ( 243,542 ) — — — — ( 173,394 ) ( 173,394 ) ( 210,012 ) ( 383,406 )

Shares issued in connection with a subscription agreement — 2,075 — 75,000 — — 75,000 — 75,000

Acquisition of Vivint Solar 58,300 69,472 7 5,037,516 — — 5,037,523 229,400 5,266,923

Net loss ( 35,908 ) — — — — ( 79,423 ) ( 79,423 ) ( 865,199 ) ( 944,622 )

Capped call transaction — — — ( 28,000 ) — — ( 28,000 ) — ( 28,000 )

Acquisition of noncontrolling interests ( 23,427 ) — — ( 7,453 ) — — ( 7,453 ) ( 8,386 ) ( 15,839 )

Other comprehensive loss, net of taxes — — — — ( 54,002 ) — ( 54,002 ) — ( 54,002 )

Other comprehensive income, net of taxes — — — — 33,705 — 33,705 — 33,705

Balance - December 31, 2021 $ 594,973 208,176 $ 21 $ 6,330,344 $ ( 73,050 ) $ ( 2,579 ) $ 6,254,736 $ 722,878 $ 6,977,614

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Proceeds from state tax credits, net of recapture — 5,683 2,253

Proceeds from issuance of recourse debt 182,700 185,450 17,000

Repayment of recourse debt ( 191,525 ) ( 192,965 ) ( 17,000 )

Proceeds from line of credit 738,046 182,700 185,450

Repayment of line of credit ( 757,640 ) ( 191,525 ) ( 192,965 )

Proceeds from issuance of convertible senior notes, net of capped call transaction 372,000 — —

Proceeds from issuance of non-recourse debt 2,186,990 751,493 1,181,549

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Purchases of solar energy systems and property and equipment included in accounts payable and accrued expenses $ 50,386 $ 66,433 $ 51,719

Right-of-use assets obtained in exchange for finance lease liabilities

$ 4,265 $ 17,914 $ 14,302

Right-of-use assets obtained in exchange for new finance lease liabilities $ 11,055 $ 4,265 $ 17,914

Portion of solar energy systems financed with seller financing, included within non-recourse debt $ 37,000 $ — $ —

The accompanying notes are an integral part of these consolidated financial statements.

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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’s customers enter into an agreement to utilize the solar energy system (“Customer Agreement”) which typically has an initial term of 20 or 25 years.

Sunrun monitors, maintains and insures the Projects.

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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.

Beginning October 8, 2020, our consolidated subsidiaries include Vivint Solar, Inc.

Beginning October 8, 2020, the Company’s consolidated subsidiaries also included Vivint Solar, Inc.

("Vivint Solar").

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All intercompany transactions and balances have been eliminated in consolidation.

Beginning in the quarter ended March 31, 2020, a strain of coronavirus (COVID-19) has spread throughout the world, and at this point, the extent to which the coronavirus may impact operations of the Company is uncertain.

The extent of the impact of the coronavirus on the Company's business and operations will depend on several factors, such as the duration, severity, and geographic spread of the outbreak.

The Company is monitoring the evolving situation closely and evaluating its potential exposure.

Reclassifications

Certain prior period amounts have been reclassified to conform to current period presentation.

Use of Estimates

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The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable.

In light of the uncertain impact COVID-19 could have on the Company's business, the Company's estimates may change in the future.

Actual results may differ from such estimates.

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Customer receivables $ 147,371 $ 97,723

Other receivables 710 23

Rebates receivable 1,569 957

Rebates and other receivables 9,701 2,279

Allowance for credit losses ( 11,035 ) ( 4,861 )

Total $ 146,037 $ 95,141

State Tax Credits Receivable

State tax credits receivable are recognized upon submission of the state income tax return.

Inventories are stated at the lower of cost or net realizable value on a first-in, first-out basis.

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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.

Inverters and batteries are depreciated over their estimated useful life of 10 to 13 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.

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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 $ 2.0 million, $ 2.6 million and $ 2.5 million were capitalized in 2020, 2019 and 2018, respectively.

Internal use software is amortized on a straight-line basis over its estimated useful life of 3 years.

Costs of $ 6.2 million, $ 2.0 million and $ 2.6 million were capitalized in 2021, 2020 and 2019, respectively.

Intangible Assets, net

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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 significant change in the Company’s strategic plans.

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, a sustained decline in our stock price, or an unanticipated change in competition or the Company’s market share and a significant change in the Company’s strategic plans.

As of October 1, 2021, the Company concluded that the fair value of the Company exceeded its carrying value.

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Total $ 873,611 $ 799,276

In the years ended December 31, 2020, 2019 and 2018, the Company recognized revenue of $ 80.3 million, $ 69.4 million and $ 52.9 million, respectively, from amounts included in deferred revenue at the beginning of the respective periods.

During the years ended December 31, 2021, 2020 and 2019, the Company recognized revenue of $ 86.3 million, $ 80.3 million and $ 69.4 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 $ 15.5 billion as of December 31, 2021, of which the Company expects to recognize approximately 5 % 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 4 years due to the Company being formed in 2007 and having experienced significant growth in the last few years.

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 five 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.

Notes to Consolidated Financial Statements — Continued

Deferred Grants

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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.

Notes to Consolidated Financial Statements — Continued

Warranty Accrual

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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

Notes to Consolidated Financial Statements — Continued

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.

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.

Notes to Consolidated Financial Statements — Continued

Fair Value of Financial Instruments

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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.

Customer agreements and incentives revenue is primarily comprised of revenue from Customer Agreements in which the Company provides continuous access to a functioning solar energy 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.

For Customer Agreements that include a fixed fee per month which entitles the customer to any and all electricity generated by the system, and for which the Company’s obligation is to provide continuous access to a functioning solar energy system, the Company recognizes revenue evenly over the time that it satisfies its performance obligations, which is over the initial term of Customer Agreements.

For Customer Agreements that charge a fixed price per kilowatt hour, and for which the Company’s obligation is the provision of electricity from a solar energy system, revenue is recognized based on the actual amount of power generated at rates specified under the contracts.

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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 or upon reporting of the electricity generation.

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 .

For pass-through financing obligation Funds, the value attributable to the monetization of Commercial ITCs are recognized in the period a solar energy system is granted PTO - see Note 13, 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

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.

Notes to Consolidated Financial Statements — Continued

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.

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Solar energy systems and product sales

For 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 the Company has met the performance obligation in the contract.

For solar energy systems sold to customers, revenue is recognized 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 the Company has met the performance obligation in the contract.

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

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.

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

Product sales revenue is recognized at the time when control is transferred, upon shipment.

Product sales consist of solar panels, racking systems, inverters, other solar energy products sold to resellers, roofing repair, and customer leads.

Product sales revenue is recognized at the time when control is transferred, upon shipment, or as services are delivered.

Customer lead revenue, included in product sales, is recognized at the time the lead is delivered.

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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).

When determining the grant date fair value of stock-based compensation, the Company utilizes the observable closing share price of its stock on the grant date.

The Company considers whether any adjustments are needed to the share price to reflect fair value, including in instances where the observable market price does not reflect certain material non-public information known to the Company, but unavailable to marketplace participants at the time the market price is observed.

No such adjustments were made during the years ended December 31, 2021, 2020, and 2019.

The Company estimates the fair value of stock options and employee stock purchase plans awards granted using the Black-Scholes option-valuation model.

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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).

Management has analyzed the

Notes to Consolidated Financial Statements — Continued

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.

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Accounting standards adopted January 1, 2019:

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.

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The Company uses the aggregate portfolio approach when reclassifying stranded tax effects from accumulated other comprehensive income.

Notes to Consolidated Financial Statements — Continued

In June 2018, the FASB issued ASU No.

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2018-09 effective January 1, 2019, and there was no material impact to its consolidated financial statements.

Notes to Consolidated Financial Statements — Continued

Accounting standards adopted January 1, 2020:

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2018-17 effective January 1, 2020, and there was no impact to its consolidated financial statements.

Notes to Consolidated Financial Statements — Continued

Accounting standards to be adopted:

Accounting standards adopted January 1, 2021:

In January 2021, the FASB issued ASU No.

2021-01, Reference Rate Reform (Topic 848):

Scope , which permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by reference rate reform.

This ASU is effective upon issuance and can generally be applied through December 31, 2022.

The Company adopted ASU 2019-12 effective January 1, 2021, and there was no impact to its 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.

The Company adopted ASU 2019-12 effective January 1, 2021, and there was no impact to its consolidated financial statements.

In August 2020, the FASB issued ASU No.

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40) , simplifies the accounting for convertible instruments and the application of the derivatives scope exception for contracts in an entity’s own equity.

This ASU is effective for fiscal periods beginning after December 15, 2021.

The Company is currently evaluating this guidance and the impact it may have on the Company’s consolidated financial statements.

The Company adopted ASU 2020-06 effective January 1, 2021, and applied this guidance to the convertible senior notes issued in January 2021, see Note 8 Indebtedness , which allowed the Company to account for the notes and their underlying

Notes to Consolidated Financial Statements — Continued

conversion feature as a liability.

There was no other impact to the Company’s consolidated financial statements as a result of this adoption.

In March 2020, the FASB issued ASU No.

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For the Company’s cash flow hedges in which the designated hedged risk is LIBOR or another rate that is expected to be discontinued, the Company has adopted the portion of the guidance that allows it to assert that it remains probable that the hedged forecasted transaction will occur.

The Company is currently evaluating the remainder of this guidance and the impact it may have on the Company's consolidated financial statements.

In August 2020, the FASB issued ASU No.

The Company adopted the remainder of this guidance effective January 1, 2021, and there was no impact to its consolidated financial statements.

Accounting standards to be adopted:

In October 2021, the FASB issued ASU No.

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured in accordance with ASC Topic 606, Revenue from Contracts with Customers .

This ASU is effective for interim and annual periods beginning after December 15, 2022 on a prospective basis, with early adoption permitted.

Effective January 1, 2022, the Company early adopted ASU 2021-08 on a prospective basis.

There was no impact to its consolidated financial statements.

In May 2021, the FASB issued ASU No.

2021-04, Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40) , which requires issuers to account for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after the modification or exchange based on the economic substance of the modification or exchange.

This ASU is effective for fiscal periods beginning after December 15, 2021.

The Company is currently evaluating this guidance and the impact it may have on the Company’s consolidated financial statements.

In January 2021, the FASB issued ASU No.

2021-01, Reference Rate Reform (Topic 848):

Scope , which permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by reference rate reform.

This ASU is effective upon issuance and can generally be applied through December 31, 2022.

The Company is currently evaluating this guidance and the impact it may have on the Company’s consolidated financial statements.

Omni Energy, LLC

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Customer relationships were valued with level 3 inputs.

The Company reassesses the valuation assumptions each reporting period, with any changes in the fair value accounted for in sales and marketing expense within the consolidated statements of operations.

The fair value of the contingent consideration as of December 31, 2020 and 2019 was $ 4.7 million and $ 11.8 million, respectively.

The Company reassessed the valuation assumptions each reporting period, with any changes in the fair value accounted for in sales and marketing expense within the consolidated statements of operations.

During the years ended December 31, 2021, 2020 and 2019, the Company recognized $ 4.7 million, $ 6.0 million and $ 2.3 million, respectively, of sales and marketing expense related to the changes in fair value.

The fair value of the contingent consideration as of December 31, 2021 and 2020 was nil and $ 4.7 million, respectively.

The fair value of the assets acquired and liabilities assumed was finalized during 2020 and resulted in no additional adjustments.

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Vivint Solar, Inc.

On October 8, 2020, the Company completed the acquisition of 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 the Company, Vivint Solar and Viking Merger Sub, Inc., a Delaware corporation and direct wholly owned subsidiary of the Company (“Merger Sub”), pursuant to which Merger Sub merged with and into Vivint Solar, with Vivint Solar continuing as the surviving corporation (the “Merger”).

On October 8, 2020, the Company acquired 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 the Company, Vivint Solar and Viking Merger Sub, Inc., a Delaware corporation and direct wholly owned subsidiary of the Company (“Merger Sub”), pursuant to which Merger Sub merged with and into Vivint Solar, with Vivint Solar continuing as the surviving corporation (the “Merger”).

As a result of the Merger, Vivint Solar became a direct wholly owned subsidiary of the Company.

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The fair value of the assumed debt instruments was based on rates offered for debt with similar maturities and terms on October 8, 2020 and its fair value fell under the Level 2 hierarchy.

As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period (a period not to exceed 12 months) in 2021.

The Company is in the process of finalizing its third-party valuations of solar energy systems;

thus, the provisional measurements of solar energy systems, goodwill and deferred income tax assets are subject to change as additional information is received and certain tax returns are finalized.

Notes to Consolidated Financial Statements — Continued

The fair value of the assets acquired and liabilities assumed was finalized during 2021 and resulted in no additional adjustments.

The following table sets forth the purchase accounting for Vivint Solar’s identifiable tangible and intangible assets acquired and liabilities assumed, with the excess recorded as goodwill (in thousands):

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Total other 287,700

Total preliminary estimated purchase price 5,037,516

Total purchase price 5,037,516

Goodwill $ 4,185,075

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$ 6,502,890 $ 6,433,741 $ 4,796,145 $ 4,935,590

At December 31, 2020 and 2019, 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, 2021 and 2020, the fair value of certain recourse debt and certain senior, subordinated and securitization loans approximate their carrying values because their interest rates are variable rates that approximate rates currently available to the Company.

At December 31, 2021 and 2020, the fair value of the Company’s other debt instruments are based on rates currently offered for debt with similar maturities and terms.

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$ — $ 83,873 $ — $ 83,873

Contingent consideration:

$ — $ — $ 4,653 $ 4,653

Total $ — $ — $ 4,653 $ 4,653

Notes to Consolidated Financial Statements — Continued

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Total $ — $ — $ 4,653 $ 4,653

The above balances are recorded in other assets and other liabilities, respectively, in the consolidated balance sheets, except for $ 0.1 million as of December 31, 2020, which is recorded in prepaid and other assets and $ 23.9 million as of December 31, 2020, which is recorded in accrued expenses and other liabilities.

The above balances are recorded in other assets and other liabilities, respectively, in the consolidated balance sheets, except for nil and $ 0.1 million as of December 31, 2021 and 2020, respectively, which is recorded in prepaid and other assets and $ 23.0 million and $ 23.9 million as of December 31, 2021 and 2020, respectively, which is recorded in accrued expenses and other liabilities.

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 the Omni business combination, which is dependent on the achievement of specified deployment milestones associated with the number of solar systems installed through 2022.

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 energy systems installed through 2022.

The Company determined the fair value of the contingent consideration using a probability-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.

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Change in fair value recognized in earnings within sales and marketing expense ( 4,653 )

Payable for solar systems that have met deployment milestones ( 1,126 )

Balance at December 31, 2021

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$ 506,819 $ 283,045

The Internal Revenue Service (“IRS”) provided taxpayers a safe harbor opportunity to retain access to the pre-step down tax credit amounts through specific rules released in Notice 2018-59.

The Company has sought to avail itself of the safe harbor by incurring certain costs and taking title in in the year the Company took delivery, for tax purposes, of the underlying inventory and/or by performing physical work on components that will be installed in solar facilities.

There was approximately $ 73.0 million and $ 132.6 million for the years ended December 31, 2020 and 2019, respectively, related to the safe harbor program within raw materials.

As of January 1, 2020, the federal government offers a Commercial ITC of 26%, which is reduced from 30%, under Section 48(a) of the Internal Revenue Code of 1986, as amended, for the installation of certain solar power facilities owned for business purposes.

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 sought to avail itself of this safe harbor by incurring certain costs and taking title in the year the Company took delivery, for tax purposes, of the underlying inventory and/or by performing physical work on components that will be installed in solar facilities.

There was approximately $ 11.0 million and $ 37.5 million at December 31, 2021 and 2020, respectively, of inventory that would qualify for a 30% tax credit.

Solar Energy Systems, net

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$ 9,018,788 $ 7,789,009

883,785 471,471

Inverters and batteries 1,127,014 934,203

Total solar energy systems

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Acquisition of Vivint Solar (Note 3) 4,185,075

Balance—December 31, 2020 $ 4,280,169

Balance—December 31, 2020 and 2021 $ 4,280,169

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.

As of October 1, 2021, the Company conducted its annual goodwill impairment test, based on a qualitative assessment.

The test concluded that no impairment had occurred.

Since December 31, 2021, the price of the Company’s common stock has declined.

A sustained decrease in the price of the Company’s common stock is one of the qualitative factors to be considered as part of an impairment test when evaluating whether events or changes in circumstances may indicate that it is more likely than not that a potential goodwill impairment exists.

The Company will continue monitoring the analysis of the qualitative and quantitative factors used as a basis for the goodwill impairment test during fiscal year 2022.

The Company has determined that it has one reporting unit.

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$ 211,066 $ 230,660 $ — 3.40 % 3.53 % LIBOR + 3.25 %

0 % Convertible Senior Notes (5)

$ 400,000 $ — $ — — % N/A — % February 2026

Total recourse debt 611,066 230,660 —

Unamortized debt discount ( 9,382 ) — —

Total recourses debt, net 601,684 230,660 —

Non-recourse debt (6)

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April 2022 - November 2040

Subordinated delayed draw loans 282,722 — 56,963 8.43 % N/A 8.00 % - 10.00 %

May 2023 - October 2032

Subordinated revolving and delayed draw loans 221,464 282,722 — 9.06 % 8.43 % 8.50 % - 9.80 %;

LIBOR + 9.00 %

March 2024 - October 2032

Subordinated loans (9)

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LIBOR + 6.75 % -

March 2023 - January 2042

May 2023 - January 2042

Securitized loans 2,466,389 1,885,981 — 3.59 % 4.18 % 2.27 % - 5.31 %

LIBOR + 2.50 %

August 2023 - February 2055

Total nonrecourse debt 4,512,331 2,063,825 156,392

Total recourse and nonrecourse debt 4,742,991 2,303,310 156,392

Debt premium 108,779 — —

Debt discount ( 55,625 ) ( 48,370 ) —

August 2023 - January 2057

Total non-recourse debt 5,870,343 4,512,331 43,102

Unamortized debt premium, net 30,863 53,154 —

Total non-recourse debt, net 5,901,206 4,565,485 43,102

Total debt, net $ 6,502,890 $ 4,796,145 $ 43,102

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Loans under this facility bear interest at LIBOR + 3.25 % per annum or 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 %.

Subject to 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 Base Rate is the highest of the Federal Funds Rate + 0.50 %, the Prime Rate, or

LIBOR + 1.00 %.

Subject to 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, 2021.

Please refer to Note 22 Subsequent Events regarding the new credit facility entered into in January 2022.

(5) These convertible senior notes ("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 the Company’s failure to comply with its 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 the Company, redeemed by the Company or converted pursuant to their terms.

The initial conversion rate of the Notes is 8.4807 shares of the Company’s common stock, par value $ 0.0001 per share, per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $ 117.91 per share.

The conversion rate will be subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid special interest.

In addition, upon the occurrence of a make-whole fundamental change or an issuance of a notice of redemption, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Notes in connection with such make-whole fundamental change or notice of redemption.

The debt discount recorded on the Notes is being amortized to interest expense at an effective interest rate of 0.57 %.

As of December 31, 2021, $ 2.1 million of the debt discount was amortized to interest expense.

In connection with the offering of the Notes, the Company entered into privately negotiated capped call transactions (“Capped Calls”) with certain of the initial purchasers and/or their respective affiliates at a cost of approximately $ 28.0 million.

The Capped Calls are classified as equity and were recorded to additional paid-in-capital within stockholders’ equity as of December 31, 2021.

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 the Company is 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.

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

(6) Certain loans under this category are part of project equity transactions.

(6) A loan within this category, with an outstanding balance of $ 60.0 million as of December 31, 2020 is recourse to Vivint Solar Inc., a wholly owned subsidiary of the Company, and is non-recourse to the Company.

Under this loan, the Company may incur up to an aggregate principal amount of $ 200.0 million in revolver borrowings.

(7) Under a loan within this category, the Company may incur up to an aggregate principal amount of $ 100.0 million in revolver borrowings.

Borrowings under this revolving loan may be designated as base rate loans or LIBOR loans, subject to certain terms and conditions.

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In addition to customary covenants for these type of facilities, the Company is subject to financial covenants and is required to have unencumbered cash and cash equivalents at the end of each fiscal quarter of at least the greater of (i) $ 30.0 million and (ii) the amount of unencumbered liquidity to be maintained by Vivint Solar, Inc.

in accordance with any loan documents governing recourse debt facilities of Vivint Solar Inc.

As of December 31, 2020, Vivint Solar, Inc.

did not have any recourse debt facilities other than the facility described in this paragraph.

a wholly owned subsidiary of the Company, in accordance with any loan documents governing recourse debt facilities of Vivint Solar Inc.

As of September 30, 2021, this facility was terminated.

(8) Pursuant to the terms of the aggregation facilities within this category the Company may draw up to an aggregate principal amount of $ 1.9 billion in revolver borrowings depending on the available borrowing base at the time.

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2022 $ 189,562

2025 1,174,043

Thereafter 3,235,668

1 unchanged sentence

Debt premium 21,481

Debt discount ( 55,625 )

Total $ 6,502,890

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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.

Certain interest rate swaps have been designated as cash flow hedges.

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 December 31, 2020, the majority of hedge relationships on the Company’s interest rate swaps have been assessed as highly effective as the quarterly assessment performed determined changes in cash flows of the derivative instruments have been highly effective in offsetting the changes in the cash flows of the hedged items and are expected to be highly effective in the future.

In the year ended December 31, 2021, the hedge relationships on the Company’s interest rate swaps have been assessed as highly effective as the quarterly assessment performed determined changes in cash flows of the derivative instruments have been highly effective in offsetting the changes in the cash flows of the hedged items, are expected to be highly effective in the future and 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.

To the extent that the hedge relationships are not effective, changes in the fair value of these derivatives are recorded in other expenses, net in the Company's statements of operations on a prospective basis.

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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 Notional Amount (1)

$ 5,218 $ ( 19 ) $ 5,199 $ 357,875

( 175,444 ) 19 ( 175,425 ) 1,987,126

Total $ ( 170,226 ) $ — $ ( 170,226 ) $ 2,345,001

Derivatives designated as hedging instruments $ 17,475 $ ( 1,815 ) $ 15,660 $ 421,281

Derivatives not designated as hedging instruments 9,198 — 9,198 345,258

Total derivative assets 26,673 ( 1,815 ) 24,858 766,539

Derivatives designated as hedging instruments ( 54,017 ) 1,815 ( 52,202 ) 1,110,729

Derivatives not designated as hedging instruments ( 29,856 ) — ( 29,856 ) 621,884

Total derivative liabilities ( 83,873 ) 1,815 ( 82,058 ) 1,732,613

Total derivative assets & liabilities $ ( 57,200 ) $ — $ ( 57,200 ) $ 2,499,152

(1) Comprised of 61 interest rate swaps which effectively fix the LIBOR portion of interest rates on outstanding balances of certain loans under the senior and securitized sections of the debt footnote table (see Note 11, Indebtedness ) at 0.57 % to 3.18 % per annum.

These swaps mature from April 30, 2021 to January 31, 2043.

These swaps mature from August 31, 2022 to January 31, 2043.

As of December 31, 2020, the information related to these offsetting arrangements were as follows (in thousands):

$ 683 $ ( 615 ) $ 68 $ 11,605

( 64,361 ) 615 ( 63,746 ) 1,161,092

Total $ ( 63,678 ) $ — $ ( 63,678 ) $ 1,172,697

Derivatives designated as hedging instruments $ 4,293 $ ( 6 ) $ 4,287 $ 191,737

Derivatives not designated as hedging instruments 925 ( 13 ) 912 166,138

Total derivative assets 5,218 ( 19 ) 5,199 357,875

Derivatives designated as hedging instruments ( 165,996 ) 6 ( 165,990 ) 1,796,596

Derivatives not designated as hedging instruments ( 9,448 ) 13 ( 9,435 ) 190,530

Total derivative liabilities ( 175,444 ) 19 ( 175,425 ) 1,987,126

Total derivative assets & liabilities $ ( 170,226 ) $ — $ ( 170,226 ) $ 2,345,001

The losses (gains) on derivatives designated as cash flow hedges recognized into OCI, before tax effect, consisted of the following (in thousands):

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Total losses (gains) $ 21,517 $ ( 21,387 ) $ 12,971 $ ( 2,911 ) $ ( 785 ) $ —

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 $ 19.4 million, $ 17.7 million and $ 0.4 million for the twelve months ended December 31, 2020, 2019 and 2018, respectively.

The net (losses) gains on derivatives includes the tax effect of $ 12.9 million, $ 19.4 million and $ 17.7 million for the twelve months ended December 31, 2021, 2020 and 2019, respectively.

During the next 12 months, the Company expects to reclassify $ 18.6 million of net losses on derivative instruments from accumulated other comprehensive income to earnings.

There were six undesignated derivative instruments recorded by the Company as of December 31, 2020.

There were twelve undesignated derivative instruments recorded by the Company as of December 31, 2021.

Pass-Through Financing Obligations

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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 22 years, and one fund with an initial term of 7 years.

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 22 years, and one fund with an initial term of 7 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.

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The accumulated depreciation related to these assets as of December 31, 2021 and 2020 was $ 143.2 million and $ 120.2 million, respectively.

During the year ended December 31, 2021, the Company retired one of its financing obligations and terminated the associated lease for $ 18.1 million, which resulted in a debt extinguishment expense of $ 6.3 million.

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

These financing obligations are 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),) 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.

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 energy 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 Agreements and any related U.S.

The Company accounts for the

Customer Agreements and any related U.S.

Treasury grants 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.

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Restricted cash

70,346 34,559

Accounts receivable, net

30 unchanged sentences

$ 2,152,492 $ 1,857,967

As a result of the acquisition of Vivint Solar on October 8, 2020, the Company added 35 VIE funds.

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 seven pass-through Fund arrangements as further explained in Note 14, Pass-Through Financing Obligations .

The Company holds certain variable interests in nonconsolidated VIEs established as a result of six pass-through Fund arrangements as further explained in Note 13, 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.

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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.

The carrying value of redeemable noncontrolling interests was greater than the redemption value except for fifteen and nine Funds at December 31, 2020 and 2019, respectively, where the carrying value has been adjusted to the redemption value.

There was a $ 70.3 million difference between the fair value of the noncontrolling interests and redeemable noncontrolling interests acquired at the date of the merger with Vivint Solar and the noncontrolling interests and redeemable noncontrolling interests balances as calculated using the HLBV method of accounting, which will remain in NCI until a realization event occurs.

The carrying value of redeemable noncontrolling interests was greater than the redemption value except for ten and fifteen Funds at December 31, 2021 and 2020, respectively, where the carrying value has been adjusted to the redemption value.

Notes to Consolidated Financial Statements — Continued

Stockholders’ Equity

Convertible Preferred Stock

The Company did no t have any convertible preferred stock issued and outstanding as of December 31, 2020 and 2019.

The Company did no t declare or pay any dividends in 2020, 2019 or 2018.

The Company did not have any convertible preferred stock issued and outstanding as of December 31, 2021 and 2020.

The Company did not declare or pay any dividends in 2021, 2020 or 2019.

The Company has reserved sufficient shares of common stock for issuance upon the exercise of stock options and the exercise of warrants.

3 unchanged sentences

Shares available for grant

Vivint's 2014 Equity Incentive Plan 8,940 —

Sunrun-VSI 2014 Equity Incentive Plan 11,084 8,940

2015 Equity Incentive Plan

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During 2019, the Company repurchased 368,996 shares for approximately $ 5.0 million.

There were no such repurchases in 2020.

There were no such repurchases in 2021 and 2020.

Notes to Consolidated Financial Statements — Continued

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In August 2014, the Board approved Sunrun's 2014 Equity Incentive Plan (“Sunrun 2014 Plan”).

An aggregate of 947,342 shares of common stock are reserved for issuance under the Sunrun 2014 Plan.

An aggregate of 947,342 shares of common stock is reserved for issuance under the Sunrun 2014 Plan.

The Sunrun 2014 Plan was adopted to accommodate a broader transaction with a sales entity and to allow for similar transactions in the future.

1 unchanged sentence

As of July 2015, the Company granted all 1,197,342 restricted stock units (“RSUs”) available under the Sunrun 2014 Plan.

Vivint Solar 2014 Equity Incentive Plan

Upon completion of the Merger, the Company may grant equity awards through the Vivint Solar 2014 Equity Incentive Plan (“Vivint Solar 2014 Plan”).

Under the Vivint Solar 2014 Plan, the Company may grant stock options, restricted stock, restricted stock units (“RSUs”), stock appreciation rights, performance stock units, performance shares and performance awards to its employees, directors and consultants, and its parent and subsidiary corporations’ employees and consultants.

As of December 31, 2020, a total of 8.9 million shares of common stock were available for grant under the Vivint Solar 2014 Plan, subject to adjustment in the case of certain events.

In addition, any shares that otherwise would be returned to the Omnibus Plan (as defined below) as the result of the expiration or termination of stock options may be added to the Vivint Solar 2014 Plan.

The number of shares available to grant under the Vivint Solar 2014 Plan is subject to an annual increase on the first day of each year.

Sunrun-VSI 2014 Equity Incentive Plan

Upon completion of the Merger, the Company may grant equity awards through the Sunrun-VSI 2014 Equity Incentive Plan (“Sunrun-VSI 2014 Plan”), which was previously called the Vivint Solar 2014 Equity Incentive Plan.

Under the Sunrun-VSI 2014 Plan, the Company may grant stock options, restricted stock, restricted stock units (“RSUs”), stock appreciation rights, performance stock units, performance shares and performance awards to its employees, directors and consultants, and its parent and subsidiary corporations’ employees and consultants.

As of December 31, 2021, a total of 11.1 million shares of common stock were available for grant under the Sunrun-VSI 2014 Plan, subject to adjustment in the case of certain events.

In addition, any shares that otherwise would be returned to the Omnibus Plan (as defined below) as the result of the expiration or termination of stock options may be added to the Sunrun-VSI 2014 Plan.

The number of shares available to grant under the Sunrun-VSI 2014 Plan is subject to an annual increase on the first day of each year.

2013 Omnibus Incentive Plan

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These RSUs vest in three equal installments, subject to the grantee’s continued provision of services to the Company.

One-third vested 30 days after the Closing Date, one-third will vest nine months after the Closing Date, and one-third will vest 18 months after the Closing Date.

One-third vested 30 days after the Closing Date, one-third vested nine months after the Closing Date, and one-third will vest 18 months after the Closing Date.

As of December 31, 2021, there are no remaining shares available for grant under the LTIP.

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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 the Company’s immediately preceding fiscal year or such other amount as the Board of Directors may determine.

In 2020 and 2019, the Board of Directors authorized an additional 4,738,048 and 4,525,946 shares reserved for issuance under the 2015 Plan, respectively.

In 2021 and 2020, an additional 8,056,251 and 4,738,048 shares, respectively, were reserved for issuance under the 2015 Plan pursuant to the automatic increase provision.

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;

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Outstanding at December 31, 2019 10,784 $ 7.38 6.52 $ 71,745

Assumed through acquisition 2,565 10.23

( 6,608 ) 7.40

1 unchanged sentence

Outstanding at December 31, 2020 8,019 10.35 6.87 473,371

Assumed through acquisition 2,565 10.23

( 1,977 ) 8.88

31 unchanged sentences

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 in compensation expense in the year ended December 31, 2018 upon certain performance targets being met.

Notes to Consolidated Financial Statements — Continued

The following table summarizes the activity for all RSUs under all of the Company’s equity incentive plans for the years ended December 31, 2021 and 2020 (shares in thousands):

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Unvested balance at December 31, 2019 3,943 $ 11.42

Assumed through acquisition 3,033 70.54

( 4,222 ) 30.10

2 unchanged sentences

Unvested balance at December 31, 2020 7,103 40.17

Assumed through acquisition 3,033 70.54

( 3,755 ) 42.70

2 unchanged sentences

Unvested balance at December 31, 2021 4,485 $ 42.73

Warrants for Strategic Partners

The Company has issued warrants for up to 846,943 shares of its common stock to certain strategic partners (calculated using the respective quarter of grant's closing stock price).

The exercise price of each warrant is $ 0.01 per share, and 69,309 warrants were exercised during the year ended December 31, 2021.

During the year ended

Notes to Consolidated Financial Statements — Continued

December 31, 2021, the Company recognized stock-based compensation expense of $ 10.7 million under time-based warrants.

Employee Stock Purchase Plan

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$ 211,000 $ 170,587 $ 26,306

Notes to Consolidated Financial Statements — Continued

During the year ended December 31, 2020, stock-based compensation expense capitalized to the Company’s consolidated balance sheet was $ 6.5 million.

During the years ended December 31, 2021 and 2020, stock-based compensation expense capitalized to the Company’s consolidated balance sheet was $ 10.9 million and $ 6.5 million, respectively.

As of December 31, 2021 and 2020, total unrecognized compensation cost related to outstanding stock options and RSUs was $ 175.8 million and $ 280.1 million, respectively, which are expected to be recognized over a weighted-average period of 2.3 years.

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In the year ended December 31, 2021, the Company recognized compensation cost of $ 35.7 million for modifications due to accelerated vesting of unvested outstanding shares for 53 grantees.

Notes to Consolidated Financial Statements — Continued

The Sunrun 401(k) Plan and the Vivint Solar 401(k) Plan are deferred salary arrangements under Section 401(k) of the Internal Revenue Code.

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Under the Vivint Solar 401(k) Plan, the Company matches 33 % of each employee's contributions up to a maximum of 6 % of the employee’s eligible earnings.

The Company recognized expense of $ 9.6 million and $ 8.5 million in the years ended December 31, 2020 and 2019, respectively.

The Company recognized expense of $ 14.7 million, $ 9.6 million and $ 8.5 million in the years ended December 31, 2021, 2020 and 2019, respectively.

The following table presents the loss (income) before income taxes for the periods presented (in thousands):

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$ — $ — $ ( 454 )

— ( 593 ) 292

Foreign — ( 1,422 ) 1,435

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$ 9,271 $ ( 60,573 ) $ ( 8,218 )

Notes to Consolidated Financial Statements — Continued

The following table represents a reconciliation of the statutory federal rate and the Company’s effective tax rate for the periods presented:

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( 0.82 ) ( 0.77 ) ( 0.99 )

Effect of rate change — — —

Effect of valuation allowance 4.67 3.45 0.40

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0.95 % ( 8.81 ) % ( 2.06 ) %

Notes to Consolidated Financial Statements — Continued

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.

8 unchanged sentences

Stock-based compensation

15,345 22,224

Investment tax and other credits

1 unchanged sentence

Interest expense 5,644 16,627

UNICAP costs 61,671 2,141

Interest rate derivatives 39,784 53,057

Total deferred tax assets 929,272 779,058

779,058 450,294

Valuation allowance ( 136,682 ) ( 91,322 )

( 91,322 ) ( 12,120 )

Gross deferred tax assets 792,590 687,736

687,736 438,174

Deferred tax liabilities

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Deferred tax on investment in partnerships 287,631 342,230

342,230 173,974

Gross deferred tax liabilities 894,343 769,641

769,641 504,138

Net deferred tax liabilities $ ( 101,753 ) $ ( 81,905 )

$ ( 81,905 ) $ ( 65,964 )

The Company accounts for investment tax credits as a reduction of income tax expense in the year in which the credits arise.

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As of December 31, 2020, the Company has an investment tax credit carryforward of approximately $ 66.0 million and California enterprise zone credits of approximately $ 1.0 million.

Notes to Consolidated Financial Statements — Continued

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 only Vivint Solar, Inc.

underwent an ownership change as of October 8, 2020.

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, 2021.

Vivint Solar, Inc.

underwent an ownership change as of October 8, 2020 which is not expected to impact the utilization of its net operating loss carryforwards or tax credits.

As of December 31, 2021, the Company has approximately $ 7.2 million of federal and $ 8.9 million of state capital loss carryforwards.

The Company believes its capital loss carryforwards are not likely to be realized.

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 $ 91.3 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 $ 79.2 million in 2020.

The Company has concluded that it is more likely than not that the benefit from certain federal and state tax credits and net operating loss carryforwards will not be realized.

In recognition of this risk, the Company has provided a valuation allowance of $ 136.7 million on the deferred tax assets relating to these federal and state tax credits and net operating loss carryforwards which is an increase of $ 45.4 million in 2021.

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.

Notes to Consolidated Financial Statements — Continued

However, this gain is recognized for tax reporting purposes.

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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 Company determines 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.

The Company uses 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).

The Company has analyzed its inventory of tax positions with respect to all applicable income tax issues for all open tax years (in each respective jurisdiction).

The Company’s 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 a result of the acquisition of Vivint Solar, the Company established an unrecognized tax benefit of $ 1.0 million as of December 31, 2020 that, if recognized, would impact the Company’s effective tax rate.

As a result of the expiration of statute of limitations, the Company had no uncertain tax positions as of December 31, 2019.

As a result of the acquisition of Vivint Solar, the Company established an unrecognized tax benefit of $ 1.0 million as of December 31, 2021 and 2020 that, if recognized, would impact the Company’s effective tax rate.

The change in unrecognized tax benefits during 2021, 2020 and 2019, excluding penalties and interest, is as follows:

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Reversal of prior year unrecognized tax benefits due to the expiration of the statute of limitations

— ( 647 ) ( 878 )

Increases/(decreases) in unrecognized tax benefits as a result of tax positions taken during the prior period 961 — —

Increases in unrecognized tax benefits as a result of tax positions taken during the prior period — 961 —

Unrecognized tax benefits at end of the year $ 961 $ 961 $ —

Notes to Consolidated Financial Statements — Continued

One of the Company’s investment funds covered by the Company’s 2018 insurance policy is currently being audited by the Internal Revenue Service (the “IRS”) in an audit involving a review of the fair market value determination of solar energy systems.

If this audit results in an adverse finding, the Company may be subject to an indemnity obligation to its investor, which may result in certain out-of-pocket costs and increased insurance premiums in the future.

The IRS audit is still ongoing, and the Company is unable to determine the potential tax liabilities, if any, at this time.

The Internal Revenue Service (“IRS”) audited one of the Company’s investment funds covered by the Company’s 2018 insurance policy in an audit involving a review of the fair market value determination of solar energy systems.

The Company is unable to determine if this audit will result in an adverse final determination at this time.

The Company is subject to taxation and files income tax returns in the U.S., its territories, and various state and local jurisdictions.

3 unchanged sentences

State 2017 - 2021

Notes to Consolidated Financial Statements — Continued

Net Operating Loss Carryforwards

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Letters of Credit

As of December 31, 2020 and 2019, the Company had $ 37.0 million and $ 20.1 million, respectively, of unused letters of credit outstanding, which carry fees of 2.13 % - 3.25 % per annum and 1.25 % - 3.25 % per annum, respectively.

As of December 31, 2021 and 2020, the Company had $ 23.2 million and $ 37.0 million, respectively, of unused letters of credit outstanding, which each carry fees of 1.25 % - 3.25 % per annum and 2.13 % - 3.25 % per annum, respectively.

Certain tax equity funds and debt facilities require the Company to maintain an aggregate amount of $ 35.0 million of unencumbered cash and cash equivalents at the end of each month.

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The components of lease expense were as follows (in thousands):

Notes to Consolidated Financial Statements — Continued

For the Year Ended December 31,

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Total lease cost $ 52,207 $ 30,675 $ 33,318

Notes to Consolidated Financial Statements — Continued

Other information related to leases was as follows (in thousands):

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Long term portion $ 97,764 $ 6,222 $ 91,542 $ 11,314

Notes to Consolidated Financial Statements — Continued

Purchase Commitment

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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.

A warranty is provided for solar systems sold and leased.

Notes to Consolidated Financial Statements — Continued

warranty is provided for solar energy systems sold and leased.

However, for the solar energy systems under Customer Agreements, the Company does not accrue a warranty liability because those systems are owned by consolidated subsidiaries of the Company.

3 unchanged sentences

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.

One of the Company's investors is being audited by the IRS.

Since this audit is ongoing, the Company is unable to determine the potential tax liabilities 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.

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 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 April 2018, the Company purchased an insurance policy providing for certain payments by the insurers in the event there is a final determination (including a judicial determination) that reduced the 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.

One of the Company's investors was being audited by the IRS in an audit involving a review of the fair market value determination of the Company's solar energy systems in the investment fund, which is covered by the Company's 2018 insurance policy.

The Company is unable to determine if this audit will result in an adverse final determination at this time.

The Company is subject to certain legal proceedings, claims, investigations and administrative proceedings in the ordinary course of its business.

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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 April 8, 2019, a putative class action captioned Loftus et al.

Sunrun Inc., Case No.

3:19-cv-01608, was filed in the United States District Court, Northern District of California.

The complaint generally alleges 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.

Most, if not all, of the claims asserted in the lawsuit relate to activities allegedly engaged in by third-party

Notes to Consolidated Financial Statements — Continued

vendors, for which the Company denies any responsibility.

While the Company believes that the claims against it are without merit, in view of the cost and risk of continuing to defend the action, it has reached an agreement with plaintiffs to settle the lawsuit on a class-wide basis for $ 5.5 million, which was accrued as of June 30, 2020, in exchange for a release of all claims that were or could have been asserted in the litigation.

The settlement is subject to court approval.

Preliminary approval was granted on September 25, 2020 and the court has scheduled the final approval hearing for May 6, 2021.

In October 2019, two shareholders filed separate putative class actions in the U.S.

1 unchanged sentence

Vivint Solar, Inc.

Vivint Solar, Inc.) purportedly on behalf of themselves and all others similarly situated.

Vivint Solar, Inc.

) purportedly on behalf of themselves and all others similarly situated.

The lawsuits purport to allege violations of Federal Securities Laws.

In March 2020, the court consolidated the two actions and appointed lead plaintiffs and lead counsel to represent the alleged putative class.

Subsequently, in December 2020, the Eastern District of New York transferred the case to the District of Utah, where it is now pending.

Subsequently, in December 2020, the Eastern District of New York transferred the actions to the District of Utah, where they are now pending.

Vivint Solar disputes the allegations in the complaint.

The Company is unable to estimate a range of loss, if any, at this time.

While Vivint Solar believes that the claims against it are without merit, in view of the cost and risk of continuing to defend the action, Vivint Solar mediated the action with plaintiffs on May 19, 2021, and reached an agreement to resolve the action on a class-wide basis for $ 1.25 million.

A portion of the $ 1.25 million will be covered by insurance proceeds, and the Company accrued approximately $ 750,000 as of June 30, 2021.

As of December 31, 2021, the accrual was adjusted to $ 550,000 , because of the portion of the $ 1.25 million settlement that will be covered by insurance proceeds.

On November 30, 2021, the court granted preliminary approval of the class action settlement.

The Company deposited its portion of the settlement proceeds into an escrow account managed by the class action claims administrator on January 27, 2022.

The court has scheduled the final approval hearing for May 5, 2022.

In December 2019, ten customers who signed residential power purchase agreements named Vivint Solar in a putative class action lawsuit captioned Dekker v.

2 unchanged sentences

The Company disputes the allegations in the complaint.

On January 17, 2020, Vivint Solar moved to compel arbitration with respect to nine of the ten plaintiffs whose contracts included arbitration provisions.

On January 17, 2020, the Company moved to compel arbitration with respect to nine of the ten plaintiffs whose contracts included arbitration provisions.

The court issued an order compelling eight plaintiffs to pursue their claims in arbitration but subsequently rescinded the order as to certain plaintiffs.

At this time, certain plaintiffs’ claims remain pending before the court and other plaintiffs’ claims are in arbitration.

The Court of Appeals for the Ninth Circuit has since reversed the court’s order rescinding its order compelling certain plaintiffs to arbitrate.

At this time, one plaintiff's claims remain pending before the court as a putative class action, and other plaintiffs’ claims are in arbitration or have otherwise been resolved on an individual basis.

In the putative class action that remains pending before the

Notes to Consolidated Financial Statements — Continued

court, the plaintiff filed a motion for class certification, and Vivint Solar is opposing that motion and a hearing is scheduled to be held on February 25, 2022.

The Company is unable to estimate a range of loss, if any, at this time.

4 unchanged sentences

The defendants dispute the allegations in the complaint.

The Company is unable to estimate a range of loss, if any, at this time.

During the fourth quarter of 2021, the shareholder agreed to dismiss the action without the need for any payment or other undertakings by the defendants or Vivint Solar, Inc.

On December 7, 2021, the court granted the parties’ stipulated request for dismissal and dismissed the action.

On December 2, 2020, the California Contractors State License Board (the “CSLB”) filed an administrative proceeding against the Company and certain of its officers related to an accident that occurred during an installation by one of the Company’s channel partners, Horizon Solar Power, which holds its own license with the CSLB.

If this proceeding is not resolved in the Company’s favor, it could potentially result in fines, a public reprimand, probation or the suspension or revocation of the Company’s California Contractor’s License.

The Company strongly denies any wrongdoing in the matter and intends to work cooperatively with the CSLB while vigorously defending itself in this action.

Any potential effect of the CSLB proceeding on the Company’s consolidated financial statements is unknown.

On November 8, 2021, the parties entered into a stipulated settlement imposing citations and withdrawing the administrative proceeding with additional conditions.

The Company has consistently denied wrongdoing concerning the allegations in the administrative proceeding and made no admissions of wrongdoing incident to the settlement.

In addition to the matters discussed above, in the normal course of business, the Company has from time to time been named as a party to various legal claims, actions and complaints.

2 unchanged sentences

The Company evaluates the adequacy of its legal reserves based on its assessment of many factors, including interpretations of the law and assumptions about the future outcome of each case based on available information.

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 computed by dividing net income attributable to common stockholders by the weighted-average number of common

Notes to Consolidated Financial Statements — Continued

shares outstanding during the period adjusted to include the effect of potentially dilutive securities.

Net (Loss) Income Per Share

Basic net (loss) income per share is computed by dividing net (loss) income attributable to common stockholders by the weighted-average number of common shares outstanding during the period.

Diluted 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 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):

Notes to Consolidated Financial Statements — Continued

The computation of the Company’s basic and diluted net (loss) income per share is as follows (in thousands, except per share amounts):

Years Ended December 31,

2021 2020 2019

Net income attributable to common stockholders $ ( 173,394 ) $ 26,335 $ 26,657

Weighted average shares used to compute net income per share attributable to common stockholders, basic

139,606 116,397 110,089

Net (loss) income attributable to common stockholders $ ( 79,423 ) $ ( 173,394 ) $ 26,335

Weighted average shares used to compute net (loss) income per share attributable to common stockholders, basic 205,132 139,606 116,397

Weighted average effect of potentially dilutive shares to purchase common stock

— 7,479 7,023

Weighted average shares used to compute net income per share attributable to common stockholders, diluted

139,606 123,876 117,112

Net income per share attributable to common stockholders

Weighted average shares used to compute net (loss) income per share attributable to common stockholders, diluted 205,132 139,606 123,876

Net (loss) income per share attributable to common stockholders

$ ( 0.39 ) $ ( 1.24 ) $ 0.23

7 unchanged sentences

1,448 1,493 673

Capped Calls for Senior Convertible Notes 3,128 — —

5,375 2,779 2,159

2 unchanged sentences

Advances Receivable—Related Party

Net amounts due from direct-sales professionals were $ 6.7 million as of December 31, 2020.

The Company provided a reserve of $ 0.6 million as of December 31, 2020 related to advances to direct-sales professionals who have terminated their employment agreement with the Company.

Net amounts due from direct-sales professionals were $ 11.2 million and $ 6.7 million as of December 31, 2021 and 2020, respectively.

The Company provided a reserve of $ 1.4 million and $ 0.6 million as of December 31, 2021 and 2020, respectively, related to advances to direct-sales professionals who have terminated their employment agreement with the Company.

Subsequent Events

Convertible Senior Notes

On January 28, 2021, the Company issued $ 400.0 million in aggregate principal of amount of 0 % Convertible Senior Notes due 2026 (the “Notes”) for net proceeds of approximately $ 389.0 million.

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 the Company, redeemed by the Company or converted pursuant to their terms.

The conversion rate will be subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid special interest.

On January 25, 2022, the Company and certain of its subsidiaries entered into a credit agreement (the “Credit Agreement”), effective as of January 24, 2022, with certain financial institutions for which KeyBank National Association is acting as administrative agent (the “Administrative Agent”) and Silicon Valley Bank is acting as collateral agent, under which the Company may incur revolving loans and obtain letter of credit extensions in an aggregate amount of up to $ 425.0 million, including a letter of credit sublimit of up to $ 100.0 million (collectively, the “Facility”), which may be used for general corporate purposes.

The maximum amount of advances under the Facility is capped by an available borrowing base that values certain assets of the Company on a formulaic basis.

The Facility contains an uncommitted accordion feature pursuant to which the Facility may be upsized to an amount not exceeding $ 600.0 million.

The Facility matures on January 27, 2025.

As further described below, the Facility refinances the Company’s existing corporate bank line of credit.

Borrowings under the Facility may be designated as Base Rate Loans or Term SOFR Loans, subject to certain terms and conditions under the Credit Agreement.

Base Rate Loans accrue interest at a rate per year equal to 2.25 % plus the highest of (a) the federal funds rate plus 0.50 %, (b) the interest rate determined from time to time by the Administrative Agent as its prime rate and notified to the Company, (c) the Adjusted Term SOFR Rate (defined below) for a one-month interest period in effect on such day (or if such day is not a business day, the immediately preceding business day) plus 1.00 % and (d) 0.00 %.

Term SOFR Loans accrue interest at a rate per annum equal to (a) 3.25 % plus (b) the greater of (i) 0.00 % and (ii) the sum of (x) the forward-looking term rate for a period comparable to the applicable available tenor based on SOFR that is published by CME Group Benchmark Administration Ltd or a successor for the applicable interest period and (y) (1) if the applicable interest period is one month, 0.11448 %, (2) if the applicable interest period is three months, 0.26161 % or (c) if the applicable interest period is six months, 0.42826 % (the rate pursuant to clause (b), the “Adjusted Term SOFR Rate”).

The Company’s obligations under the Credit Agreement are guaranteed by certain subsidiaries of the Company.

The Credit Agreement includes customary events of default as defined in agreement.

In addition, the Company is required to maintain a minimum modified interest coverage ratio, a minimum modified current ratio, a maximum modified leverage ratio, and a minimum unencumbered cash balance, in each case, tested quarterly.

Concurrently with the execution of the Credit Agreement, the Company’s existing corporate bank line of credit was terminated.

The existing corporate bank line of credit permitted the Company to incur revolving loans and obtain letter of credit extensions in an aggregate amount of up to $ 250.0 million.

Loans under the existing corporate bank line of credit were permitted to be drawn from time to time, and letters of credit were permitted to be issued, in each case, for general corporate purposes.

Proceeds from the Facility were used to pay off the outstanding principal, interest and fees under the existing corporate bank line of credit, in an aggregate amount of approximately $ 211.1 million.

As a result, the corporate bank line of credit was reclassified as a noncurrent liability as of December 31, 2021.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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 8. Financial Statements and Supplementary Data