What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-02-21 compared with 2023-02-22 · 214 added, 267 removed, 1164 unchanged (29% of the section changed)

12 unchanged sentences

We have audited the accompanying consolidated balance sheets of Sunrun Inc.

(the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), redeemable noncontrolling interests and stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

(the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive (loss) income, redeemable noncontrolling interests and stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S.

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We believe that our audits provide a reasonable basis for our opinion.

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.

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.

Noncontrolling Interests and Redeemable Noncontrolling Interests

Description of matter At December 31, 2022, noncontrolling interests were $861.2 million and

redeemable noncontrolling interests were $609.7 million.

Description of matter At December 31, 2023, noncontrolling interests were $1.0 billion and

redeemable noncontrolling interests were $0.7 billion.

As explained in Note 2

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mathematical accuracy of management’s HLBV models.

Description of matter As reflected in the Company’s Consolidated Financial Statements, at December 31, 2023, the Company’s goodwill was $3.1 billion.

As disclosed in Note 2 to the Consolidated Financial Statements, goodwill is evaluated for impairment annually on October 1 or when indicators of impairment exist which suggest that the carrying value may not be recoverable.

In 2023, the Company determined there was an indicator of impairment for sustained decline in stock price and performed an interim quantitative assessment.

Based on this quantitative assessment, the Company concluded that goodwill for its one reporting unit was partially impaired and recognized a goodwill impairment charge of $1.2 billion in the third quarter of 2023.

Auditing management’s third quarter quantitative goodwill impairment test was subjective and required the involvement of a specialist due to the measurement uncertainty in determining fair value of the reporting unit.

In particular, the fair value estimate was sensitive to significant assumptions in discount rates applied to estimated future cashflows which may be affected by future market conditions.

How We Addressed the Matter in

Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment assessment process.

Our procedures included testing controls over management’s review of the significant assumptions in estimating the fair value of the reporting unit and the related evaluation of management’s specialist.

We also tested controls over management review of the reconciliation of the estimated fair value of the reporting unit to the total invested capital (including market capitalization) of the Company.

To test the estimated fair value of the reporting unit, specifically using the income approach, we performed audit procedures that included, among others, assessing the valuation methodology used to determine the fair value, testing the significant assumptions discussed above and testing the completeness and accuracy of the underlying data used by the Company.

For example, we evaluated management’s forecasted cash flows used in the fair value estimate by comparing those assumptions to the historical results of the Company and current industry trends.

Additionally, we performed sensitivity analyses of the significant assumptions to evaluate the effect on the fair value estimate of the reporting unit.

We also audited the reconciliation of that fair value estimate to the total invested capital (including market capitalization) of its reporting unit in consideration of a control premium based on observable comparable company transactions.

We also involved a valuation specialist to assist in evaluating the significant assumptions in the fair value estimate.

/s/ Ernst & Young LLP

43 unchanged sentences

Property and equipment, net 149,139 67,439

Intangible assets, net 7,527 12,891

Goodwill 3,122,168 4,280,169

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General and administrative 221,067 194,611 264,543

Amortization of intangible assets 5,364 5,370 5,180

Goodwill impairment

1,158,000 — —

Total operating expenses 4,238,456 2,983,614 2,276,141

1 unchanged sentence

Interest expense, net ( 652,989 ) ( 445,819 ) ( 327,700 )

Other income (expense), net 260,657 22,628 8,188

Other (expense) income, net ( 63,900 ) 260,657 22,628

Loss before income taxes ( 2,695,532 ) ( 847,354 ) ( 971,259 )

Income tax expense (benefit) 2,291 9,271 ( 60,573 )

Income tax (benefit) expense ( 12,691 ) 2,291 9,271

Net loss ( 2,682,841 ) ( 849,645 ) ( 980,530 )

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( 1,078,344 ) ( 1,023,022 ) ( 901,107 )

Net income (loss) attributable to common stockholders $ 173,377 $ ( 79,423 ) $ ( 173,394 )

Net income (loss) per share attributable to common stockholders

Net (loss) income attributable to common stockholders $ ( 1,604,497 ) $ 173,377 $ ( 79,423 )

Net (loss) income per share attributable to common stockholders

Basic $ ( 7.41 ) $ 0.82 $ ( 0.39 )

Diluted $ ( 7.41 ) $ 0.80 $ ( 0.39 )

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

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

Basic 216,642 211,347 205,132

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

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Comprehensive (Loss) Income

(In Thousands)

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2023 2022 2021

Net income (loss) attributable to common stockholders $ 173,377 $ ( 79,423 ) $ ( 173,394 )

Unrealized gain (loss) on derivatives, net of income taxes 140,805 18,496 ( 63,445 )

Net (loss) income attributable to common stockholders $ ( 1,604,497 ) $ 173,377 $ ( 79,423 )

Unrealized gain on derivatives, net of income taxes 14,482 140,805 18,496

Adjustment for net (gain) loss on derivatives recognized into earnings, net of income taxes ( 26,915 ) ( 646 ) 15,209

Other comprehensive income (loss) 140,159 33,705 ( 54,002 )

Comprehensive income (loss) $ 313,536 $ ( 45,718 ) $ ( 227,396 )

Other comprehensive (loss) income ( 12,433 ) 140,159 33,705

Comprehensive (loss) income $ ( 1,616,930 ) $ 313,536 $ ( 45,718 )

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

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Common Stock Additional

Comprehensive

Income (Loss)

Comprehensive(Loss) Income Retained

Earnings (Accumulated Deficit)

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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.

2018-02) — — — — — ( 1,228 ) ( 1,228 ) — ( 1,228 )

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

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

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

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

Acquisition of noncontrolling interest ( 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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Distributions to redeemable noncontrolling interests and noncontrolling interests ( 67,732 ) — — — — — — ( 150,369 ) ( 150,369 )

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

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

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

Net (loss) income ( 5,558 ) — — — — 173,377 173,377 ( 1,017,464 ) ( 844,087 )

Acquisition of noncontrolling interests ( 1,069 ) — — ( 16,063 ) — — ( 16,063 ) ( 19,557 ) ( 35,620 )

Other comprehensive income, net of taxes — — — — 140,159 — 140,159 — 140,159

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( 68,310 ) — — — — — — ( 159,876 ) ( 159,876 )

Net (loss) income ( 5,558 ) — — — — 173,377 173,377 ( 1,017,464 ) ( 844,087 )

Net loss ( 30,601 ) — — — — ( 1,604,497 ) ( 1,604,497 ) ( 1,047,743 ) ( 2,652,240 )

Acquisition of noncontrolling interests ( 20,011 ) — — 5,146 — — 5,146 ( 32,968 ) ( 27,822 )

Other comprehensive income, net of taxes — — — — 140,159 — 140,159 — 140,159

Other comprehensive loss, net of taxes — — — — ( 12,433 ) — ( 12,433 ) — ( 12,433 )

Balance - December 31, 2023 $ 676,177 219,392 $ 22 $ 6,609,229 $ 54,676 $ ( 1,433,699 ) $ 5,230,228 $ 1,007,608 $ 6,237,836

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Depreciation and amortization, net of amortization of deferred grants 531,669 451,046 388,096

Goodwill impairment 1,158,000 — —

Deferred income taxes ( 12,716 ) 2,291 9,607

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Inventories 324,158 ( 277,085 ) ( 223,774 )

Prepaid and other assets ( 378,807 ) ( 377,505 ) ( 117,033 )

Prepaid expenses and other current assets ( 476,628 ) ( 378,807 ) ( 377,505 )

Accounts payable ( 108,785 ) 40,458 66,932

4 unchanged sentences

Payments for the costs of solar energy systems ( 2,587,183 ) ( 1,992,863 ) ( 1,677,609 )

Business combination, net of cash acquired — — 537,242

Purchase of equity investment ( 5,000 ) ( 75,000 ) —

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

Repurchase of convertible senior notes ( 1,545 ) — —

Proceeds from issuance of non-recourse debt 3,745,580 3,428,830 2,186,990

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Net proceeds related to stock-based award activities 22,611 32,863 36,141

Proceeds from shares issued in connection with a subscription agreement — — 75,000

Net cash provided by financing activities 3,468,698 3,037,451 2,645,594

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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, the Company’s consolidated subsidiaries also included Vivint Solar, Inc.

("Vivint Solar").

The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity.

However, a controlling financial interest may also exist in entities, such as variable interest entities (“VIEs”), through arrangements that do not involve controlling voting interests.

In accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 810 (“ASC 810”) Consolidation , the Company consolidates any VIE of which it is the primary beneficiary.

The primary beneficiary, as defined in ASC 810, is the party that has (1) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb the losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

In accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation , the Company consolidates any VIE of which it is the primary beneficiary.

The primary beneficiary, as defined in FASB ASC Topic 810, Consolidation , is the party that has (1) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb the losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The Company evaluates its relationships with its VIEs on an ongoing basis to determine whether it continues to be the primary beneficiary.

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The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

The Company regularly makes estimates and assumptions, including, but not limited to, revenue recognition constraints that result in variable consideration, the discount rate used to adjust the promised amount of consideration for the effects of a significant financing component, the estimates that affect the collectability of accounts receivable, the valuation of inventories, the useful lives of solar energy systems, the useful lives of property and equipment, the valuation and useful lives of intangible assets, the effective interest rate used to amortize pass-through financing obligations, the discount rate uses for operating and financing leases, the valuation of stock-based compensation, the determination of valuation allowances associated with deferred tax assets, the fair value of debt instruments disclosed and the redemption value of redeemable noncontrolling interests.

The Company regularly makes estimates and assumptions, including, but not limited to, revenue recognition constraints that result in variable consideration, the discount rate used to adjust the promised amount of consideration for the effects of a significant financing component, the estimates that affect the collectability of accounts receivable, the valuation of inventories, the useful lives of solar energy systems, the useful lives of property and equipment, the discount rates used in the goodwill impairment calculation, the effective interest rate used to amortize pass-through financing obligations, the discount rate used for operating and financing leases, the valuation of stock-based compensation, the determination of valuation allowances associated with deferred tax assets, the fair value of debt instruments disclosed and the redemption value of redeemable noncontrolling interests.

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

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Restricted cash represents amounts related to obligations under certain financing transactions and future replacement of solar energy system components.

The following table provides a reconciliation of cash and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statement of cash flows.

Cash and restricted cash consists of the following (in thousands):

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Costs of $ 21.3 million, $ 10.0 million and $ 6.2 million were capitalized in 2023, 2022 and 2021, respectively.

Intangible Assets, net

Finite-lived intangible assets are initially recorded at fair value and are subsequently presented net of accumulated amortization.

Intangible assets are amortized on a straight-line basis over their estimated useful lives as follows:

Customer relationships 5 - 10 years

Trade names 5 - 8 years

Impairment of Long-Lived Assets

The carrying amounts of the Company’s long-lived assets, including solar energy systems and intangible assets subject to depreciation and amortization, are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful life is shorter than originally estimated.

The carrying values of the Company’s long-lived assets, including solar energy systems, are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful life is shorter than originally estimated.

Factors that are considered in deciding when to perform an impairment review would include significant negative industry or economic trends and significant changes or planned changes in the use of the assets.

Recoverability of these assets is measured by comparison of the carrying amount of each asset group to the future undiscounted cash flows the asset group is expected to generate over its remaining life.

Recoverability of these assets is measured by comparison of the carrying value of each asset group to the future undiscounted cash flows the asset group is expected to generate over its remaining life.

If the asset group is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset group.

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Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed.

Goodwill is reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount may be impaired.

Goodwill is reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may be impaired.

The Company has determined that it operates as one reporting unit and the Company’s goodwill is recorded at the enterprise level.

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The Company also considers its enterprise value and if necessary, discounted cash flow model, which involves assumptions and estimates, including the Company’s future financial performance, weighted average cost of capital and interpretation of currently enacted tax laws.

Notes to Consolidated Financial Statements — Continued

Circumstances that could indicate impairment and require the Company to perform a quantitative impairment test include significant declines in the Company’s financial results or enterprise value relative to its net book value or a sustained decline in the Company's stock price below its book value, coupled with declines in valuations for comparable public companies or acquisition premiums.

As of October 1, 2022, the Company concluded that the fair value of the Company exceeded its carrying value.

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

The Company tests goodwill for impairment for its one reporting unit using an estimated fair value approach.

The Company’s stock price has continued to decline during 2023, consistent with other industry peers, experiencing a significant decline during the third quarter.

A sustained decrease in the Company’s stock price 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 2023.

Notes to Consolidated Financial Statements — Continued

Due to the continued sustained decline in the Company’s market capitalization after consideration of a control premium below the book value of equity, the Company performed a quantitative assessment as of September 30, 2023 related to the recoverability of its goodwill for its one reporting unit.

The Company estimated the fair value of its reporting unit primarily based on consideration of an income approach analysis.

Under the income approach, future cash flows of the Company were estimated and present valued based on a discount rate reflecting a market participant risk-adjusted rate of return.

As of September 30, 2023, the Company concluded that the fair value of the Company’s one reporting unit did not exceed its carrying value with consideration of a control premium and recorded a non-cash goodwill impairment charge of $ 1.2 billion in its consolidated statements of operations.

This impairment charge did not result in a change to previously recorded deferred taxes, as goodwill was not deductible for tax purposes, nor did it impact the Company’s liquidity position, its debt covenants or cash flows.

The assumptions and estimates used in the assessment include, among others, estimated future net annual contracted cash flows under its existing long term customer agreements, as well as future growth estimates which rely on management judgements.

The Company selected estimates used in the discounted cash flow projections using historical data as well as current and anticipated market conditions, and estimated growth rates with consideration of published industry trends.

The Company also compared the total invested capital (including market capitalization) to the fair value of its reporting unit to assess the reasonableness of fair value after consideration of a control premium based on observable comparable company transactions.

After the impairment charge, the fair value of the Company’s one reporting unit approximated its estimated carrying value as of September 30, 2023.

As of October 1, 2023, the Company conducted its annual goodwill impairment test.

The test concluded that no additional impairment had occurred during the fourth quarter of 2023.

Deferred Revenue

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Contracted but not yet recognized revenue was approximately $ 25.1 billion as of December 31, 2023, 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 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.

The annual recognition is not expected to vary significantly over the next 10 years as the vast majority of existing

Notes to Consolidated Financial Statements — Continued

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.

Deferred Grants

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The Company monitors the solar energy systems to determine whether these specified minimum outputs are being achieved.

Annually or every two years , depending on the terms of the Customer Agreement, the Company will refund a portion of electricity payments to a customer if his or her solar energy production output was less than the performance guarantee.

Annually or every two years , depending on the terms of the Customer Agreement, the Company will refund a portion of electricity payments to a customer if the solar energy production output was less than the performance guarantee.

The Company considers this a variable component that offsets the transaction price.

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Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income if a derivative is designated as part of a hedge transaction.

The ineffective portion of the hedge, if any, is immediately recognized in earnings and are included in other income (expenses), net in the consolidated statements of operations.

The ineffective portion of the hedge, if any, is immediately recognized in earnings and is included in other income (expenses), net in the consolidated statements of operations.

The Company uses derivative financial instruments, primarily interest rate swaps, to manage its exposure to interest rate risks on its syndicated term loans, which are recognized on the balance sheet at their fair values.

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Any derivative gains and losses that are not effective in hedging the variability of expected cash flows of the hedged item or that do not qualify for hedge accounting treatment are recognized directly into income.

At the hedge’s inception and at least quarterly thereafter, a formal assessment is performed to determine whether changes in cash flows of the derivative instrument have been highly effective in offsetting changes in the cash flows of the hedged items and whether they are expected to be highly effective in the future.

Notes to Consolidated Financial Statements — Continued

be highly effective in the future.

The Company discontinues hedge accounting prospectively when (i) it determines that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item;

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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 income 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 income 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.

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The Company’s financial instruments include cash, receivables, accounts payable, accrued expenses, distributions payable to noncontrolling interests, derivatives, contingent consideration, and recourse and non-recourse debt.

Certain assets are measured at fair value on a non-recurring basis.

These assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments only in certain circumstances.

These assets can include goodwill that is written down to fair value when it is impaired, which uses level 3 inputs.

Assets that are written down to fair value when impaired are not subsequently adjusted to fair value unless further impairment occurs.

Revenue Recognition

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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.

Customer Agreements typically have an initial term of 20 or 25 years.

Customer Agreements typically have an

Notes to Consolidated Financial Statements — Continued

initial term of 20 or 25 years.

After the initial contract term, Customer Agreements typically automatically renew annually or for five years .

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In those circumstances, the contract contains a significant financing component.

When adjusting the promised amount of consideration for a significant financing component, the

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.

When adjusting the promised amount of consideration for a significant financing component, the Company uses the discount rate that would be reflected in a separate financing transaction between the entity and its customer at contract inception and recognizes the revenue amount on a straight-line basis over the term of the Customer Agreement, and interest expense using the effective interest rate method.

Consideration from customers is considered variable due to the performance guarantee under Customer Agreements and liquidating damage provisions under SREC contracts in the event minimum deliveries are not achieved.

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Also included are engineering and design costs, estimated warranty costs, freight costs, allocated corporate overhead costs, vehicle depreciation costs and personnel costs associated with supply chain, logistics, operations management, safety and quality control.

Notes to Consolidated Financial Statements — Continued

Cost of revenue for lead generations consists of costs related to direct-response advertising activities associated with generating customer leads.

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Research and development expenses include personnel costs, allocated overhead costs, and other costs related to the development of the Company’s proprietary technology.

Notes to Consolidated Financial Statements — Continued

Stock-Based Compensation

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

Upon completion of the acquisition of Vivint Solar, all outstanding equity awards under Vivint Solar's equity incentive plans were automatically converted to Sunrun equity awards with the number of shares underlying such awards (and, in the case of stock options, the applicable exercise price) adjusted based on the exchange ratio of 0.55 shares of Sunrun common stock per share of Vivint Solar common stock and the fair value was also updated in accordance with ASC 718, Stock Compensation.

Compensation cost is recognized over the vesting period of the applicable award using the straight-line method for those options expected to vest.

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For RSUs granted to non-employees that vest upon the satisfaction of a performance condition, the Company starts recognizing expense on the RSUs when the performance condition is met.

Net Income (Loss) Per Share

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

Diluted net income (loss) per share is computed by dividing net income (loss) 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.

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 (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 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.

5 unchanged sentences

The Company’s initial calculation of the investor’s noncontrolling interest in the results of operations of these funding arrangements is determined as the difference in the noncontrolling interests’ claim under the HLBV method at the start and end of each reporting period, after taking into account any capital transactions, such as contributions or distributions, between the Fund and the investors.

Notes to Consolidated Financial Statements — Continued

The Company classifies certain noncontrolling interests with redemption features that are not solely within the control of the Company outside of permanent equity on its consolidated balance sheets.

Redeemable noncontrolling interests are reported using the greater of their carrying value as determined by the HLBV method or their estimated redemption value at each reporting date.

Notes to Consolidated Financial Statements — Continued

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements and tax returns.

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Valuation allowances are provided against deferred tax assets to the extent that it is more likely than not that the deferred tax asset will not be realized.

The Company is subject to the provisions of ASC 740, Income Taxes , which establishes consistent thresholds as it relates to accounting for income taxes.

The Company is subject to the provisions of FASB ASC Topic 740, Income Taxes , which establishes consistent thresholds as it relates to accounting for income taxes.

It defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more likely than not” to be sustained by the taxing authority and requires measurement of a tax position meeting the more-likely-than-not criterion, based on the largest benefit that is more than 50% likely to be realized.

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The Company accounts for the income tax consequences of these intra-entity transfers, both current and deferred, as a component of income tax expense and deferred tax liability, net during the period in which the transfers occur.

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

the flow-through method).

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates.

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The Company is not dependent on any single customer.

The Company’s customers under Customer Agreements are primarily located in California, Arizona, New Jersey, New York, Maryland and Massachusetts.

The Company’s customers under Customer Agreements are primarily located in California, Arizona, New Jersey, New York, Maryland, Illinois and Massachusetts.

The loss of a customer would not adversely impact the Company’s operating results or financial position.

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Accounting standards adopted January 1, 2021:

In June 2016, the FASB issued ASU No.

2016-13, Measurement of Credit Losses on Financial Instruments , which replaces the current incurred loss impairment methodology with a current expected credit losses model.

The amendment applies to entities that hold financial assets and net investment in leases that are not accounted for at fair value through net income as well as loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash.

The Company adopted ASU No.

2016-13 effective January 1, 2020, using a modified retrospective transition method, which resulted in a cumulative-effect adjustment of $ 1.2 million for the establishment of a credit loss allowance for unbilled receivables related to Customer Agreements, as reflected in its consolidated statement of redeemable noncontrolling interests and stockholders' equity.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement , which modifies the disclosure

Notes to Consolidated Financial Statements — Continued

requirements on fair value measurements as part of its disclosure framework project.

Under this amendment, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy.

However, for Level 3 fair value measurements, disclosures around the range and weighted average used to develop significant unobservable inputs will be required.

The Company adopted ASU No.

2018-13 effective January 1, 2020, and there was no impact to its consolidated financial statements.

In August 2018, the FASB issued ASU No.

2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract , which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Topic 350, Intangibles—Goodwill and Other, to determine which implementation costs to capitalize as assets or expense as incurred.

This ASU is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019, and can be applied either prospectively to implementation costs incurred after the date of adoption or retrospectively to all arrangements.

The Company prospectively adopted ASU No.

2018-15 effective January 1, 2020, and there was no adoption date impact to its consolidated financial statements.

In October 2018, the FASB issued ASU No.

2018-17, Consolidation (Topic 810), Targeted Improvements to Related Party Guidance for Variable Interest Entities , which aligns the evaluation of decision-making fees under the variable interest entity guidance.

Under this new guidance, in order to determine whether decision-making fees represent a variable interest, an entity considers indirect interests held through related parties under common control on a proportionate basis.

This ASU is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019, and must be applied retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented.

The Company adopted ASU No.

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

Accounting standards adopted January 1, 2021:

In January 2021, the FASB issued ASU No.

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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.

This ASU is effective upon issuance and can

Notes to Consolidated Financial Statements — Continued

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.

2019-12, Income Taxes (Topic 740) , which simplifies the accounting for income taxes, primarily by eliminating certain exceptions to the guidance in FASB ASC Topic 740, Income Taxes .

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

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Deferral of the Sunset Date of Topic 848 , which defers the sunset date from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

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

Notes to Consolidated Financial Statements — Continued

Company adopted upon issuance of ASU 2020-04 the portion of the guidance that allows it to assert that it remains probable that the hedged forecasted transaction will occur.

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 adopted upon issuance of ASU 2020-04 the portion of the guidance that allows it to assert that it remains probable that the hedged forecasted transaction will occur.

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

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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 .

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 FASB 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.

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The Company adopted ASU 2021-04 effective January 1, 2022, and there was no impact to its consolidated financial statements.

Accounting standards to be adopted:

Accounting standards adopted January 1, 2023:

In October 2022, the FASB issued ASU No.

2022-04, Liabilities — Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations , which requires entities to disclose the key terms of supplier finance programs they use in connection with the purchase of goods and services along with information about their obligations under these programs, including a rollforward of those obligations.

Disclosure of Supplier Finance Program Obligations , which requires entities to disclose the key terms of

supplier finance programs they use in connection with the purchase of goods and services along with information about their obligations under these programs, including a rollforward of those obligations.

This ASU is effective for fiscal periods beginning after December 15, 2022, with early adoption permitted.

The Company is currently evaluating this guidance and the impact it may have on its financial statement disclosures.

Vivint Solar, Inc.

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.

The calculation of the purchase price is as follows (in thousands, except for share, per share and ratio amounts):

Vivint Solar outstanding common stock at October 8, 2020 126,313,816

Exchange ratio 0.55

Number of Sunrun shares issued 69,472,599

Per share price of Sunrun common stock at October 8, 2020 $ 70.54

Fair value of Sunrun common stock issued 4,900,597

Fair value of replacement Sunrun stock options and restricted stock units 136,919

Purchase price $ 5,037,516

Transaction costs of $ 25.5 million were expensed as incurred in general and administrative expense in the Company's consolidated statements of operations.

Notes to Consolidated Financial Statements — Continued

The results of Vivint Solar have been included in the Company's consolidated financial statements since the acquisition date.

For the year ended December 31, 2020, the revenue and net loss from Vivint Solar recognized in the Company's consolidated statement of operations were $ 81.3 million and $ 167.7 million, respectively.

Fair values assigned to assets acquired and liabilities assumed are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions.

The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives and the expected future cash flows and related discount rates, can materially impact the Company's results of operations.

Specifically, the Company used discounted cash flow models to value the solar energy systems and the noncontrolling interests in subsidiaries.

Inputs used for the models were Level 3 inputs and included the amount of cash flows, the expected period of the cash flows and the discount rates.

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.

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):

Assets acquired:

Cash and cash equivalents $ 433,217

Accounts receivable 29,207

Inventories 70,028

Solar energy systems 2,979,304

Property and equipment 19,308

Intangible assets 3,900

Restricted cash, current and non-current 104,025

Prepaid expenses and other assets, current and non-current 110,402

Total assets acquired 3,749,391

Liabilities assumed:

Accrued liabilities, accounts payable and distributions payable 177,092

Finance lease obligations, current and non-current 8,408

Deferred revenue, current and long-term 32,604

Debt, current and long-term 2,191,831

Pass-through financing obligation, current and non-current 4,759

Long-term deferred tax liability 92,792

Other long-term liabilities 101,764

Total liabilities assumed 2,609,250

Net assets acquired, excluding goodwill 1,140,141

Redeemable non-controlling interests in subsidiaries 58,300

Non-controlling interests in subsidiaries 229,400

Total other 287,700

Total purchase price 5,037,516

Goodwill $ 4,185,075

Goodwill represents a significant portion of the purchase price for Vivint Solar and is primarily attributable to the acquired assembled workforce and expected synergies from combining operations.

Goodwill is not expected to be deductible for tax purposes.

The following table shows selected unaudited pro forma condensed combined total revenue and earnings of the Company after giving effect to the Merger.

The selected unaudited pro forma condensed combined total revenue and earnings for the twelve months ended December 31, 2020 and 2019 give effect to the Merger if it occurred on January 1, 2019, the first day of the Company’s 2019 fiscal year (in thousands).

Year Ended December 31,

Total revenues $ 1,234,352 $ 1,198,759

Net loss $ ( 971,554 ) $ 886,774

The Company adopted ASU 2022-04 effective January 1, 2023 and there was no impact to its financial statement disclosures.

Accounting standards to be adopted:

Notes to Consolidated Financial Statements — Continued

The unaudited pro forma financial information includes adjustments to give effect to pro forma events that are directly attributable to the acquisition.

The pro forma financial information includes adjustments to amortization and depreciation for solar energy systems, share based compensation, the effect of acquisition on deferred costs and revenues and noncontrolling interests, and transaction costs related to the acquisition.

The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations of future periods.

The unaudited pro forma financial information does not give effect to the potential impact of current financial conditions, regulatory matters, or any anticipated synergies, operating efficiencies, or cost savings that may be associated with the acquisition.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , which expands disclosures about a public entity’s reportable segments and requires more enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources.

This ASU is effective for fiscal periods beginning after December 15, 2023, with early adoption permitted.

The Company is currently evaluating this guidance and the impact it may have on its financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , which expands disclosures in an entity’s income tax rate reconciliation table and regarding cash taxes paid both in the U.S.

and foreign jurisdictions.

This ASU is effective for fiscal periods beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating this guidance and the impact it may have on its financial statement disclosures.

Fair Value Measurement

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$ — $ 60,401 $ — $ 60,401

Notes to Consolidated Financial Statements — Continued

December 31, 2022

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Total $ — $ 8,247 $ — $ 8,247

Notes to Consolidated Financial Statements — Continued

The above balances are recorded in other assets and other liabilities, respectively, in the consolidated balance sheets, except for $ 55.0 million and nil as of December 31, 2022 and 2021, respectively, which is recorded in prepaid and other current assets and nil and $ 23.0 million as of December 31, 2022 and 2021, respectively, 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 $ 55.5 million and $ 55.0 million as of December 31, 2023 and 2022, respectively, which is recorded in prepaid expenses and other current assets.

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.

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Depreciation and amortization expense was $ 31.9 million, $ 27.2 million and $ 23.0 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Goodwill and Intangible Assets, net

The goodwill and intangible assets were acquired as part of the acquisition of Mainstream Energy Corporation, which included AEE Solar and its racking business SnapNrack;

Goodwill, net

The goodwill was acquired as part of the acquisition of Mainstream Energy Corporation, which included AEE Solar and its racking business SnapNrack;

Clean Energy Experts, LLC;

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The Company has determined that it has one reporting unit and 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, 2022, the Company conducted its annual goodwill impairment test, based on a qualitative assessment.

The test concluded that no impairment had occurred.

There was no impairment of goodwill during the years ended December 31, 2022, 2021 and 2020.

Intangible assets, net as of December 31, 2022 consist of the following (in thousands, except weighted average remaining life):

remaining life

Customer relationships $ 32,770 $ ( 25,336 ) $ 7,434 1.8

Trade names 6,990 ( 6,897 ) 93 0.3

$ 39,760 $ ( 32,233 ) $ 7,527

Intangible assets, net as of December 31, 2021 consist of the following (in thousands, except weighted average remaining life):

remaining life

Customer relationships

$ 32,770 $ ( 20,346 ) $ 12,424 2.7

6,990 ( 6,523 ) 467 1.3

$ 39,760 $ ( 26,869 ) $ 12,891

The Company recorded amortization of intangible assets expense of $ 5.4 million, $ 5.4 million and $ 5.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.

As of December 31, 2022, expected amortization of intangible assets for each of the five succeeding fiscal years and thereafter is as follows (in thousands):

During the third quarter of 2023, due to the continued material sustained decline in the Company’s market capitalization after consideration of a control premium below the book value of equity, the Company performed an interim quantitative assessment as of September 30, 2023 related to the recoverability of its goodwill for its one reporting unit.

There were no such impairments during the years ended December 31, 2022 and 2021.

As of October 1, 2023, the Company conducted its annual goodwill impairment test.

The test concluded that no additional impairment had occurred during the fourth quarter of 2023.

To corroborate this conclusion, the Company compared the carrying value of its one reporting unit to its enterprise market capitalization after consideration of a reasonable control premium and concluded that there was no goodwill impairment during the fourth quarter of 2023.

The change in the carrying value of goodwill is as follows (in millions):

Balance—January 1, 2023, 2022 and 2021

Impairment—September 30, 2023

Balance—December 31, 2023 $ 3,122

Other assets consist of the following (in thousands):

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Total $ 2,267,652 $ 1,835,045

The Company recorded amortization of costs to obtain contracts of $ 38.7 million and $ 23.3 million for the years ended December 31, 2022 and 2021, respectively, in the sales and marketing expense.

The Company recorded amortization of costs to obtain contracts of $ 56.3 million and $ 38.7 million for the years ended December 31, 2023 and 2022, respectively, in sales and marketing expense in the consolidated statements of operations.

The majority of unbilled receivables arise from fixed price escalators included in the Company's long-term Customer Agreements.

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Recourse debt

Bank line of credit (4)

Line of credit (4)

$ 539,502 $ 505,158 $ — 8.89 % 6.01 % SOFR + 3.25 %

January 2025 (4)

0 % Convertible Senior Notes (5)

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Senior revolving and delayed draw loans (7)

1,560,002 1,301,600 85,000 6.49 % 2.23 % LIBOR + 2.00 % - 3.00 %;

1,886,300 1,560,002 26,800 7.59 % 6.49 % SOFR + 2.15 % - 3.10 %

April 2025 - December 2029

April 2025 - March 2027 (7)

Senior non-revolving loans (10)

LIBOR + 1.75 % - 2.50 %;

2,226,343 1,680,444 — 7.07 % 6.00 % 4.66 % - 6.93 %;

SOFR + 1.85 % - 2.65 %

April 2024 - November 2040

April 2024 - July 2053

Subordinated revolving and delayed draw loans (7)(11)

333,800 221,464 22,200 9.58 % 9.06 % 8.75 %;

LIBOR + 9.00 % SOFR + 3.50 % - 9.10 %

April 2024 - December 2030

146,000 333,800 50,000 12.01 % 9.58 % SOFR + 3.76 % - 9.10 %

April 2024 - March 2027

Subordinated loans (8)(9)

LIBOR + 6.75 %

November 2025 - January 2042

2,110,693 1,442,336 — 9.18 % 8.76 % 7.00 % - 10.50 %;

SOFR + 6.00 % - 6.90 %

June 2026 - January 2042

Securitized loans (12)

July 2024 - July 2057

3,450,794 2,531,465 — 4.61 % 3.87 % 2.27 % - 6.60 %

July 2045 - January 2059

Total non-recourse debt 9,820,130 7,548,047 76,800

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See Note 11, Derivatives, for hedge rates.

(3) Ranges shown reflect fixed interest rate and rates using LIBOR or SOFR, as applicable.

(3) Ranges shown reflect fixed interest rate and rates using SOFR, as applicable.

(4) The former working capital facility was terminated in January 2022 and was replaced by this syndicated working capital facility with banks has a total commitment up to $ 600.0 million and is secured by substantially all of the unencumbered assets of the Company, as well as ownership interests in certain subsidiaries of the Company.

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.

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 %.

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The Company was in compliance with all debt covenants as of December 31, 2023.

In February 2024, the Company extended its working capital

facility with a new maturity date of November 1, 2025 and a total commitment up to $ 447.5 million, and repaid approximately $ 152.3 million in outstanding borrowings.

The maturity date can be further extended to March 2027, if the Company meets certain liquidity tests as of September 30, 2024.

(5) These convertible senior notes ("Notes") will not bear regular interest, and the principal amount of the notes will not accrete.

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(7) Pursuant to the terms of the aggregation facilities within this category the Company may draw up to an aggregate principal amount of $ 2.2 billion in revolver borrowings depending on the available borrowing base at the time.

In February 2024, the Company increased the size of the facilities within this category to $ 2.35 billion and extended the maturity date to April 2028.

(8) A loan under this category with an outstanding balance of $ 140.0 million as of December 31, 2023 contains a put option that can be exercised beginning in 2036 that would require the Company to pay off the entire loan on November 30, 2037.

(9) Loans under this category with a floating rate had a total outstanding balance of $ 462.1 million as of December 31, 2023.

(10) As of December 31, 2023, a loan under this category has a balance of $ 160.6 million with a maturity date of April 2024 and is reflected in Non-recourse debt, current portion within the Consolidated Balance Sheet.

Although there is no assurance that the Company will be able to do so, the Company plans to extend or otherwise refinance the facility prior to maturity.

(11) As of December 31, 2023, a loan under this category has a balance of $ 100.0 million with a maturity date of April 2024 and is reflected in Non-recourse debt, current portion within the Consolidated Balance Sheet.

Although there is no assurance that the Company will be able to do so, the Company plans to extend or otherwise refinance the facility prior to maturity.

(12) As of December 31, 2023, a loan under this category had a balance of $ 54.2 million with a final rated maturity date of July 2045.

Although there is no assurance that the Company will be able to do so, the Company plans to extend or otherwise refinance the facility prior to anticipated repayment date.

Senior and Subordinated Debt Facilities

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The Company was in compliance with all debt covenants as of December 31, 2023.

Securitization Loans

Each of the Company's securitized loans contains customary covenants including the requirement to provide reporting to the indenture trustee and ratings agencies.

Each of the securitized loans also contain certain provisions in the event of default which entitle the indenture trustee to take certain actions including acceleration of amounts due under the facilities and acquisition of membership interests and assets that are pledged to the lenders under the terms of the securitized loans.

The facilities are non-recourse to the Company and are secured by net cash flows from Customer Agreements less certain operating, maintenance and other expenses which are available to the borrower after distributions to tax equity investors, where applicable.

Under the terms of these loans, the Company's subsidiaries pay interest and principal from the net cash flows available to the subsidiaries.

Non-Recourse Financings

In connection with each of the Company's non-recourse debt (including securitized loans), assets (consisting of membership interests in project companies that own photovoltaic systems and related customer agreements) were contributed by the Company to special purpose subsidiaries of the Company (each a “Non-Recourse Borrower”).

Each of such financings contains customary covenants including the requirement to provide reporting to the indenture trustee or collateral agent and, if applicable, ratings agencies.

Each of the financings also contains certain provisions which entitle the indenture trustee or collateral agent to take certain actions upon the occurrence of an event of default, including acceleration of amounts due under the facilities and the foreclosure on the assets of the Non-Recourse Borrower that are pledged to the lenders under the terms thereof.

The facilities are non-recourse to the Company and are secured by first priority security interests by each Non-Recourse Borrower in favor of the indenture trustee or collateral agent in all of the Non-Recourse Borrower’s assets including the cash flows from Customer Agreements which are available to each Non-Recourse Borrower after giving effect to certain operating, maintenance and other expenses and, where applicable, distributions to tax equity investors.

As a result of such security interests, the assets of each Non-Recourse Borrower are not available to the creditors of the Company unless and until distributions from such entities are made to the Company as permitted under the applicable facility documentation.

Under the terms of these financings, each Non-Recourse Borrower pays interest and principal from such net cash flows.

The Company was in compliance with all debt covenants as of December 31, 2023.

4 unchanged sentences

2026 1,261,096

2027 1,156,718

Thereafter 5,322,663

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The Company uses interest rate swaps to hedge variable interest payments due on certain of its term loans and aggregation facility.

These swaps allow the Company to incur fixed interest rates on these loans and receive payments based on variable interest rates with the swap counterparty based on the three month LIBOR or SOFR (daily, one month, three month) on the notional amounts over the life of the swaps.

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 SOFR (daily, one month, three month) on the notional amounts over the life of the swaps.

In the second quarter of 2023, the Company entered into bilateral agreements with its swap counterparties to transition the remaining portion of its swaps to SOFR.

The Company made various elections under FASB ASC Topic 848, Reference Rate Reform , related to changes in critical terms of the hedging relationships due to reference rate reform to not result in a de-designation of these hedging relationships.

As of September 30, 2023, all of the Company's interest rate swap agreements were indexed to SOFR.

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

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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 affect 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.

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

The Company’s master netting and other similar arrangements allow net settlements under certain conditions.

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Total derivative assets & liabilities $ 72,333 $ — $ 72,333 $ 4,246,008

(1) Comprised of 72 interest rate swaps which effectively fix the LIBOR or SOFR 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 4.11 % per annum.

(1) Comprised of 79 interest rate swaps which effectively fix the SOFR portion of interest rates on outstanding balances of certain loans under the senior and securitized sections of the debt footnote table (see Note 10, Indebtedness ) at 0.31 % to 4.53 % per annum.

These swaps mature from April 30, 2024 to January 31, 2043.

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2023 2022 2021

Interest expense, net Other expense, net Interest expense, net Other expense, net Interest expense, net Other expense, net

Interest expense, net Other expense, net Interest expense, net Other income, net

Interest expense, net Other income, net

Derivatives designated as cash flow hedges:

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Total (gains) losses $ ( 36,755 ) $ 661 $ ( 2,407 ) $ ( 189,710 ) $ 21,517 $ ( 21,387 )

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.

All amounts in Accumulated other comprehensive (loss) income ("AOCI") in the consolidated statements of redeemable noncontrolling interests and equity relate to derivatives, refer to the consolidated statements of comprehensive loss.

The net gains (losses) on derivatives includes the tax effect of $ 0.5 million, $ 34.9 million and $ 12.9 million for the twelve months ended December 31, 2023, 2022 and 2021, respectively.

During the next 12 months, the Company expects to reclassify $ 28.1 million of net gains on derivative instruments from accumulated other comprehensive income to earnings.

There were seventeen undesignated derivative instruments recorded by the Company as of December 31, 2022.

There were forty-four undesignated derivative instruments recorded by the Company as of December 31, 2023.

Pass-Through Financing Obligations

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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 7 years in the case of one fund, by customer payments under the Customer Agreements, and proceeds from the contracted resale of SRECs as they are received by the investor.

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The Commercial ITC value is reflected in cash provided by

operations on the consolidated statement of cash flows.

operations on the consolidated statements of cash flows.

The Company accounts for the Customer Agreements, 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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Prepaid expenses and other current assets

161,414 12,698

Total current assets

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54,103 49,037

Deferred grants, current portion

Non-recourse debt, current portion 270,460 39,894

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654,310 572,420

Deferred grants, net of current portion

Non-recourse debt, net of current portion 1,189,161 1,449,513

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Convertible Preferred Stock

Notes to Consolidated Financial Statements — Continued

The Company did not have any convertible preferred stock issued and outstanding as of December 31, 2023 and 2022.

Notes to Consolidated Financial Statements — Continued

The Company did not declare or pay any dividends in 2023, 2022 or 2021.

8 unchanged sentences

2015 Employee Stock Purchase Plan

10,071 11,270

Options outstanding

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All the remaining shares that were available for future grants under the 2013 Plan were transferred to the 2015 Equity Incentive Plan (“2015 Plan”) at the inception of the 2015 Plan.

As of December 31, 2022, the Company had not granted restricted stock or other equity awards (other than options) under the 2013 Plan.

Sunrun-VSI 2014 Equity Incentive Plan

2 unchanged sentences

As of December 31, 2023, a total of 5.7 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

Notes to Consolidated Financial Statements — Continued

options may be added to the Sunrun-VSI 2014 Plan.

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.

Long-term Incentive Plan

Notes to Consolidated Financial Statements — Continued

In July 2013, Vivint Solar’s board of directors approved shares of common stock for six Long-term Incentive Plan Pools (“LTIP Pools”) that comprise the 2013 Long-term Incentive Plan (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 2022 and 2021, an additional nil and 8,056,251 shares, respectively, were reserved for issuance under the 2015 Plan pursuant to the automatic increase provision.

In 2023 and 2022, there were no additional shares reserved for issuance under the 2015 Plan pursuant to the automatic 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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25 % vest at the end of one year , and 75 % vest quarterly over the remaining three years .

Notes to Consolidated Financial Statements — Continued

Stock Options

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Outstanding at December 31, 2022 5,217 16.08 5.68 58,784

( 1,401 ) 8.04

Canceled ( 199 ) 29.58

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Options vested and expected to vest at December 31, 2023 4,243 $ 17.19 4.85 $ 31,762

Notes to Consolidated Financial Statements — Continued

The weighted-average grant-date fair value of stock options granted during the year ended December 31, 2023, 2022 and 2021 were $ 0.00 , $ 17.21 and $ 27.72 per share, respectively.

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63.00 % - 67.80 %

54.40 % - 59.70 %

Expected term (in years)

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Treasury zero-coupon issue with a term that approximates the expected life of the option grant.

For stock options granted in the year ended December 31, 2022, the expected volatility was calculated based on the Company’s average historical volatilities and for the stock options granted in the year ended December 31, 2021 and 2020, the Company considered the volatility data of a group of publicly traded peer companies in its industry.

No stock options were granted in the year ended December 31, 2023.

For stock options granted in the year ended December 31, 2022, the expected volatility was calculated based on the Company’s average historical volatilities and for the stock options granted in the year ended December 31, 2021, the Company considered the volatility data of a group of publicly traded peer companies in its industry.

The Company accounts for forfeitures as they occur and, as such, reverses compensation cost previously recognized in the period the award is forfeited, for an award that is forfeited before completion of the requisite service period .

Restricted Stock Units

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, 2023 and 2022 (shares in thousands):

10 unchanged sentences

The exercise price of each warrant is $ 0.01 per share, and 63,742 , 346,269 and 69,309 warrants were exercised during the years ended December 31, 2023, 2022 and 2021, respectively.

During the years ended December 31, 2022 and 2021, the Company recognized stock-based compensation expense of $ 4.3 million and $ 10.7 million, respectively, under time-based warrants.

During the years ended December 31, 2023, 2022 and 2021, the Company

Notes to Consolidated Financial Statements — Continued

recognized stock-based compensation expense of $ 4.3 million, $ 4.3 million and $ 10.7 million, respectively, under time-based warrants.

Employee Stock Purchase Plan

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The ESPP provides for an automatic increase of the number of shares available for issuance under the ESPP on the first day of each fiscal year beginning on January 1, 2016, equal to the least of 5 million shares, 2 % of the outstanding shares of the Company’s common stock on the last day of the immediately preceding fiscal year, or such other amount as may be determined by the Board of Directors.

In 2022 and 2021, the Board of Directors authorized an additional nil and 4,028,125 shares, respectively, reserved for issuance under the ESPP.

In 2023 and 2022, the Board of Directors did not authorize any additional shares reserved for issuance under the ESPP.

Stock-Based Compensation Expense

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$ 111,781 $ 110,633 $ 211,000

Notes to Consolidated Financial Statements — Continued

During the years ended December 31, 2023 and 2022, stock-based compensation expense capitalized to the Company’s consolidated balance sheet was $ 11.3 million and $ 12.4 million, respectively.

1 unchanged sentence

Total unrecognized compensation cost includes the assumed unvested Vivint Solar awards to be recognized as stock-based compensation expense over the remaining requisite service period.

Per ASC 805, the replacement of stock options or other share-based payment awards in conjunction with a business combination represents a modification of share-based payment awards that must be accounted for in accordance with ASC 718, Stock Compensation.

Per FASB ASC Topic 805, Business Combinations , the replacement of stock options or other share-based payment awards in conjunction with a business combination represents a modification of share-based payment awards that must be accounted for in accordance with FASB ASC Topic 718, Stock Compensation .

As a result of the Company’s issuance of replacement awards, a portion of the fair-value-based measure of the replacement awards is included in the purchase consideration.

1 unchanged sentence

The fair value of the replacement awards, whether vested or unvested, was included in the purchase consideration to the extent that pre-acquisition services were rendered.

In the year ended December 31, 2022, the Company recognized compensation cost of $ 4.6 million for modifications due to accelerated vesting of unvested outstanding shares for 30 grantees.

In the year ended December 31, 2023, the Company recognized compensation cost of $ 1.6 million for modifications due to the reduction in services of two 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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Loss before income taxes $ 2,695,532 $ 847,354 $ 971,259

The income tax provision (benefit) consists of the following (in thousands):

The income tax (benefit) provision consists of the following (in thousands):

For the Year Ended December 31,

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$ ( 12,691 ) $ 2,291 $ 9,271

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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Effect of valuation allowance 4.06 ( 7.47 ) 4.67

Goodwill impairment

0.33 0.36 0.63

( 0.47 ) % 0.27 % 0.95 %

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.

13 unchanged sentences

UNICAP costs 110,656 149,873

Interest rate derivatives — 39,784

Total deferred tax assets 1,288,735 1,021,273

8 unchanged sentences

Net deferred tax liabilities $ ( 122,870 ) $ ( 133,047 )

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

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

the flow-through method).

As of December 31, 2023, the Company has an investment tax credit carryforward of approximately $ 102.0 million which begins to expire in the year 2033, if not utilized, $ 0.8 million of California enterprise zone credits which begin to expire in the year 2024, and $ 1.1 million of other state tax credits which begin to expire in the year 2024.

As of December 31, 2022, the Company has an investment tax credit carryforward of approximately $ 87.5 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 IRC section 382 had occurred and determined that no ownership changes were identified as of December 31, 2023.

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, 2022, the Company has approximately $ 7.2 million of federal and $ 8.9 million of state capital loss carryforwards.

As of December 31, 2023, the Company had approximately $ 7.1 million of federal and $ 7.1 million of state capital loss carryforwards.

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

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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 $ 61.7 million on the deferred tax assets relating to these federal and state tax credits and net operating loss carryforwards which is a decrease of $ 75.0 million in 2022.

In recognition of this risk, the Company has provided a valuation allowance of $ 174.3 million on certain deferred tax assets, including those relating to federal and state tax credits and state net operating loss carryforwards, which is an increase of $ 112.6 million in 2023.

The Company sells solar energy systems to investment Funds.

1 unchanged sentence

However, this gain is recognized for tax reporting purposes.

The Company accounts for the income tax

Notes to Consolidated Financial Statements — Continued

consequences of these intra-entity transfers, both current and deferred, as a component of income tax expense and deferred tax liability, net during the period in which the transfers occur.

Uncertain Tax Positions

8 unchanged sentences

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, 2022, 2021 and 2020 that, if recognized, would impact the Company’s effective tax rate.

There have been no changes in unrecognized tax benefits during the year ended December 31, 2022.

The IRS is auditing one of the Company’s tax equity investors, relating to an investment fund covered by the Company’s 2018 insurance policy in an audit involving a review of the fair market value determination of solar energy systems.

2 unchanged sentences

Due to the Company’s net losses, substantially all of its federal, state and local income tax returns since inception are still subject to audit.

Notes to Consolidated Financial Statements — Continued

The following table summarizes the tax years that remain open and subject to examination by the tax authorities in the most significant jurisdictions in which the Company operates:

8 unchanged sentences

As of December 31, 2023 and 2022, the Company had $ 37.0 million and $ 44.4 million, respectively, of unused letters of credit outstanding, which each carry fees of 0.50 % - 3.25 % per annum and 0.50 % - 3.25 % per annum, respectively.

Notes to Consolidated Financial Statements — Continued

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.

12 unchanged sentences

Total lease cost $ 65,929 $ 57,034 $ 52,207

Notes to Consolidated Financial Statements — Continued

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

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Future minimum lease commitments under non-cancellable leases as of December 31, 2023 were as follows (in thousands):

Notes to Consolidated Financial Statements — Continued

Operating Leases Sublease Income Net Operating Leases Finance leases

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Purchase Commitment

The Company entered into purchase commitments, which have the ability to be canceled without significant penalties, with multiple suppliers to purchase $ 360.1 million of photovoltaic modules, inverters and batteries by the end of 2023.

Notes to Consolidated Financial Statements — Continued

The Company entered into purchase commitments, which have the ability to be canceled without significant penalties, with multiple suppliers to purchase $ 366.4 million of photovoltaic modules, inverters and batteries by the end of the first quarter of 2025.

Warranty Accrual

12 unchanged sentences

In general, the policy indemnifies the Company and related parties for additional taxes (including penalties and interest) owed in respect of lost Commercial ITCs, depreciation, gross-up costs and expenses incurred in defending such claim, subject to negotiated exclusions from, and limitations to, coverage.

The Company purchased similar additional insurance policies in January 2021 and in October 2022.

The Company purchased similar additional insurance policies in January 2021, October 2022 and May 2023.

Notes to Consolidated Financial Statements — Continued

At each balance sheet date, the Company assesses and recognizes, when applicable, the potential exposure from this obligation based on all the information available at that time, including any audits undertaken by the IRS.

The IRS is auditing one of our investors in an audit involving a review of the fair market value determination of our solar energy systems in the investment fund, which is covered by the Company’s 2018 insurance policy.

If this audit results in an adverse final determination, we may be subject to an indemnity obligation to our investor, which may result in certain limited out-of-pocket costs and potential increased insurance premiums in the future.

The IRS is auditing one of the Company's investors 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.

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

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

6 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.

Notes to Consolidated Financial Statements — Continued

Net Income (Loss) Per Share

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

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.

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 (loss) 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,

2023 2022 2021

Net income (loss) attributable to common stockholders $ 173,377 $ ( 79,423 ) $ ( 173,394 )

Net (loss) income attributable to common stockholders $ ( 1,604,497 ) $ 173,377 $ ( 79,423 )

Debt discount amortization — 2,258 —

Net Income (loss) available to common stockholders

$ 175,635 $ ( 79,423 ) $ ( 173,394 )

Weighted average shares used to compute net income (loss) per share attributable to common stockholders, basic 211,347 205,132 139,606

Net (loss) income available to common stockholders $ ( 1,604,497 ) $ 175,635 $ ( 79,423 )

Weighted average shares used to compute net (loss) income per share attributable to common stockholders, basic 216,642 211,347 205,132

Weighted average effect of potentially dilutive shares to purchase common stock

Weighted average shares used to compute net income (loss) per share attributable to common stockholders, diluted 219,157 205,132 139,606

Net income (loss) per share attributable to common stockholders

Weighted average shares used to compute net (loss) income per share attributable to common stockholders, diluted 216,642 219,157 205,132

Net (loss) income per share attributable to common stockholders

$ ( 7.41 ) $ 0.82 $ ( 0.39 )

$ ( 7.41 ) $ 0.80 $ ( 0.39 )

The following shares were excluded from the computation of diluted net income (loss) per share as the impact of including those shares would be anti-dilutive (in thousands):

The following shares were excluded from the computation of diluted net (loss) income per share as the impact of including those shares would be anti-dilutive (in thousands):

Year Ended December 31,

13 unchanged sentences

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