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•	the availability of rebates, tax credits and other financial incentives, and decreases to federal solar tax credits;

•	determinations by the Internal Revenue Service of the fair market value of our solar energy systems;

•	the retail price of utility-generated electricity or electricity from other energy sources;

•	regulatory and policy development and changes;

•	our ability to manage our supply chains and distribution channels and the impact of natural disasters and other events beyond our control;

•	our industry’s, and specifically our, continued ability to manage costs (including, but not limited to, equipment costs) associated with solar service offerings;

•	our strategic partnerships and expected benefits of such partnerships;

•	the sufficiency of our cash, investment fund commitments and available borrowings to meet our anticipated cash needs;

•	the expected size and time frame of our stock repurchase program;

•	our need and ability to raise capital, refinance existing debt, and finance our operations and solar energy systems from new and existing investors;

•	the potential impact of interest rates on our interest expense;

•	our business plan and our ability to effectively manage our growth, including our rate of revenue growth;

•	our ability to further penetrate existing markets, expand into new markets and our expectations regarding market growth (including, but not limited to, expected cancellation rates);

•	our expectations concerning relationships with third parties, including the attraction, retention and continued existence of qualified solar partners;

•	the impact of seasonality on our business;

•	our investment in research and development and new product offerings;

•	our ability to protect our intellectual property and customer data, as well as to maintain our brand;

•	technical and capacity limitations imposed by power grid operators;

•	the willingness of and ability of our solar partners to fulfill their respective warranty and other contractual obligations;

•	our ability to renew or replace expiring, cancelled or terminated Customer Agreements at favorable rates or on a long-term basis;

•	the ability of our solar energy systems to operate or deliver energy for any reason, including if interconnection or transmission facilities on which we rely become unavailable;

•	our expectations regarding certain performance objectives and the renewal rates and purchase value of our solar energy systems after expiration of our Customer Agreements; and

•	the calculation of certain of our key financial and operating metrics and accounting policies.

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Solar integrators: trained and trusted partners who originate customers for our solar service offerings and procure and install the solar energy systems on our customers’ homes on our behalf as our subcontractors. Partnerships with solar integrators allow us to expand our brand, quickly enter new markets and drive capital-efficient growth. We compensate our solar integrators on a per solar energy system basis for generating Customer Agreements and the installation work they perform for us.

•	Sales partners: sales and lead generation partners who provide us with high-quality leads and customers at competitive prices. We compensate our sales partners on a per customer basis for the sales and lead generation services they perform for us. All contracts are between the customer and us, based on a price set by us.

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Installation partners: trusted installation partners who procure and install a subset of our solar energy systems as our subcontractors and allow us to more efficiently deploy a mix of in-house and outsourced installation capabilities. We compensate our installation partners on a per solar energy system basis for the procurement of materials and installation work they perform for us. Installation partners are solely our subcontractors and do not enter into any agreements with our customers.

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•	our ability to compete with other solar energy companies for the limited number of potential fund investors, each of which has limited funds and limited appetite for the tax benefits associated with these financings;

•	the state of financial and credit markets;

•	changes in the legal or tax risks associated with these financings; and

•	non-renewal of these incentives or decreases in the associated benefits (including the anticipated step-down of the Commercial ITC described below).

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•	the construction of a significant number of new power generation plants, including nuclear, coal, natural gas or renewable energy technologies;

•	the construction of additional electric transmission and distribution lines;

•	a reduction in the price of natural gas or other natural resources as a result of new drilling techniques or other technological developments, a relaxation of associated regulatory standards, or broader economic or policy developments;

•	energy conservation technologies and public initiatives to reduce electricity consumption; and

•	development of new energy technologies that provide less expensive energy.

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•	growing our customer base;

•	finding investors willing to invest in our investment funds on favorable terms;

•	maintaining or further lowering our cost of capital;

•	reducing the cost of components for our solar service offerings;

•	growing and maintaining our channel partner network;

•	maintaining high levels of product quality, performance and customer satisfaction;

•	growing our direct-to-consumer business to scale; and

•	reducing our operating costs by lowering our customer acquisition costs and optimizing our design and installation processes and supply chain logistics.

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•	the expiration, reduction or initiation of any governmental tax rebates, tax exemptions or incentives;

•	significant fluctuations in customer demand for our solar service offerings or fluctuations in the geographic concentration of installations of solar energy systems;

•	changes in financial markets, which could restrict our ability to access available and cost-effective financing sources;

•	seasonal, environmental or weather conditions that impact sales, energy production and system installations;

•	the amount and timing of operating expenses related to the maintenance and expansion of our business, operations and infrastructure;

•	announcements by us or our competitors of new products or services, significant acquisitions, strategic partnerships, joint ventures or capital-raising activities or commitments;

•	changes in our pricing policies or terms or those of our competitors, including utilities;

•	changes in regulatory policy related to solar energy generation;

•	the loss of one or more key partners or the failure of key partners to perform as anticipated;

•	actual or anticipated developments in our competitors’ businesses or the competitive landscape;

•	actual or anticipated changes in our growth rate;

•	general economic, industry and market conditions; and

•	changes to our cancellation rate.

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•	difficulty in assimilating the operations and personnel of the acquired company, especially given our unique culture;

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•	difficulty in effectively integrating the acquired technologies or products with our current products and technologies;

•	difficulty in maintaining controls, procedures and policies during the transition and integration;

•	disruption of our ongoing business and distraction of our management and employees from other opportunities and challenges due to integration issues;

•	difficulty integrating the acquired company’s accounting, management information and other administrative systems;

•	inability to retain key technical and managerial personnel of the acquired business;

•	inability to retain key customers, vendors and other business partners of the acquired business;

•	inability to achieve the financial and strategic goals for the acquired and combined businesses;

•	incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our results of operations;

•	significant post-acquisition investments which may lower the actual benefits realized through the acquisition;

•	potential failure of the due diligence processes to identify significant issues with product quality, legal and financial liabilities, among other things;

•	potential inability to assert that internal controls over financial reporting are effective; and

•	potential inability to obtain, or obtain in a timely manner, approvals from governmental authorities, which could delay or prevent such acquisitions.

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•	price and volume fluctuations in the overall stock market from time to time;

•	volatility in the market prices and trading volumes of companies in our industry or companies that investors consider comparable;

•	changes in operating performance and stock market valuations of other companies generally, or those in our industry in particular;

•	sales of shares of our common stock by us or our stockholders;

•	failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow us, or our failure to meet these estimates or the expectations of investors;

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•	the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections;

•	announcements by us or our competitors of new products or services;

•	the public’s reaction to our press releases, other public announcements and filings with the SEC;

•	rumors and market speculation involving us or other companies in our industry;

•	actual or anticipated changes in our results of operations;

•	changes in tax and other incentives that we rely upon in order to raise tax equity investment funds;

•	changes in the regulatory environment and utility policies and pricing, including those that could reduce any savings we are able to offer to customers;

•	actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally;

•	litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;

•	announced or completed acquisitions of businesses or technologies by us or our competitors;

•	new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

•	changes in accounting standards, policies, guidelines, interpretations or principles;

•	any significant change in our management; and

•	general economic conditions and slow or negative growth of our markets.

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•	creating a classified board of directors whose members serve staggered three-year terms;

•	authorizing “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock;

•	limiting the liability of, and providing indemnification to, our directors and officers;

•	limiting the ability of our stockholders to call and bring business before special meetings;

•	requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors; and

•	controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings.

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Megawatts Deployed represents the aggregate megawatt production capacity of our solar energy systems, whether sold directly to customers or subject to executed Customer Agreements (i) for which we have confirmation that the systems are installed on the roof, subject to final inspection; (ii) in the case of certain system installations by our partners, for which we have accrued at least 80% of the expected project cost, or (iii) for multi-family and any other systems that have reached NTP, measured on the percentage of the project that has been completed based on expected project cost.

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Gross Earning Assets represents the net cash flows (discounted at 6%) we expect to receive during the initial term of our Customer Agreements (typically 20 or 25 years) for systems that have been deployed as of the measurement date, plus a discounted estimate of the value of the Customer Agreement renewal term or solar energy system purchase at the end of the initial term. Consistent with industry standards, we use a discount rate of 6%. We consider a discount rate of 6% to be appropriate and consistent with recent market transactions that demonstrate that a portfolio of

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◦	Gross Earning Assets Under Energy Contract represents the net cash flows during the initial term of our Customer Agreements (less substantially all value from SRECs prior to July 1, 2015), for systems deployed as of the measurement date.

◦	Gross Earning Assets Value of Purchase or Renewal is the forecasted net present value we would receive upon or following the expiration of the initial Customer Agreement term (either in the form of cash payments during any applicable renewal period or a system purchase at the end of the initial term), for systems deployed as of the measurement date.

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(1)	The foregoing table does not include the amounts we could be required to expend under our redemption obligations discussed above.

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(1)

The Company’s consolidated assets as of December 31, 2019 and 2018 include $3,521,202 and $2,905,295, respectively, in assets of variable interest entities, or “VIEs”, that can only be used to settle obligations of the VIEs. Solar energy systems, net, as of December 31, 2019 and 2018 were $3,259,712 and $2,712,377, respectively; cash as of December 31, 2019 and 2018 were $133,362 and $105,494, respectively; restricted cash as of December 31, 2019 and 2018 were $2,746 and $2,071, respectively; accounts receivable, net as of December 31, 2019 and 2018 were $21,956 and $18,539, respectively; inventories as of December 31, 2019 and December 31, 2018 of $15,721 and $0; prepaid expenses and other current assets as of December 31, 2019 and 2018 were $554 and $387, respectively and other assets as of December 31, 2019 and 2018 were $87,151 and $66,427, respectively. The Company’s consolidated liabilities as of December 31, 2019 and 2018 include $774,564 and $660,758, respectively, in liabilities of VIEs whose creditors have no recourse to the Company. These liabilities include accounts payable as of December 31, 2019 and 2018 of $11,531 and $12,136, respectively; distributions payable to noncontrolling interests and redeemable noncontrolling interests as of December 31, 2019 and 2018 of $16,012 and $15,797, respectively; accrued expenses and other liabilities as of December 31, 2019 and 2018 of $10,740 and $7,122, respectively; deferred revenue as of December 31, 2019 and 2018 of $482,138 and $396,920, respectively; deferred grants as of December 31, 2019 and 2018 of $28,034 and $29,229, respectively; non-recourse debt as of December 31, 2019 and 2018 of $206,476 and $190,711, respectively; and other liabilities as of December 31, 2019 and December 31, 2018 of $19,633 and $8,843, respectively.

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Sunrun Inc. (“Sunrun” or the “Company”) was originally formed in 2007 as a California limited liability company, and was converted into a Delaware corporation in 2008. The Company is engaged in the design, development, installation, sale, ownership and maintenance of residential solar energy systems (“Projects”) in the United States.

Sunrun acquires customers directly and through relationships with various solar and strategic partners (“Partners”). The Projects are constructed either by Sunrun or by Sunrun’s Partners and are owned by the Company. Sunrun’s customers enter into an agreement to utilize the solar system (“Customer Agreement”) which typically has an initial term of 20 or 25 years. Sunrun monitors, maintains and insures the Projects. The Company also sells solar energy systems and products, such as panels and racking and solar leads generated to customers.

The Company has formed various subsidiaries (“Funds”) to finance the development of Projects. These Funds, structured as limited liability companies, obtain financing from outside investors and purchase or lease Projects from Sunrun under master purchase or master lease agreements. The Company currently utilizes three legal structures in its investment Funds, which are referred to as: (i) pass-through financing obligations, (ii) partnership-flips and (iii) joint venture (“JV”) inverted leases.

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and reflect the accounts and operations of the Company and those of its subsidiaries, including Funds, in which the Company has a controlling financial interest. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity. However, a controlling financial interest may also exist in entities, such as variable interest entities (“VIEs”), through arrangements that do not involve controlling voting interests. In accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 810 (“ASC 810”) Consolidation, the Company consolidates any VIE of which it is the primary beneficiary. The primary beneficiary, as defined in ASC 810, is the party that has (1) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb the losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company evaluates its relationships with its VIEs on an ongoing basis to determine whether it continues to be the primary beneficiary. The consolidated financial statements reflect the assets and liabilities of VIEs that are consolidated. All intercompany transactions and balances have been eliminated in consolidation.

Reclassifications

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

Use of Estimates

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company regularly makes estimates and assumptions, including, but not limited to, revenue recognition constraints that result in variable consideration, the discount rate used to adjust the promised amount of consideration for the effects of a significant financing component, the estimates that affect the collectability of accounts receivable, the valuation of inventories, the useful lives of solar energy systems, the useful lives of property and equipment, the valuation and useful lives of intangible assets, the effective interest rate used to amortize pass-through financing obligations, the discount rate uses for operating and financing leases, the fair value of contingent consideration, the valuation of stock-based compensation, the determination of valuation allowances associated with deferred tax assets, the fair value of debt instruments disclosed and the redemption value of redeemable noncontrolling interests. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable. Actual results may differ from such estimates.

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Segment Information

The Company has one operating segment with one business activity, providing solar energy services and products to customers. The Company’s chief operating decision maker (“CODM”) is its Chief Executive Officer, who manages operations on a consolidated basis for purposes of allocating resources. When evaluating performance and allocating resources, the CODM reviews financial information presented on a consolidated basis.

Revenue from external customers (including, but not limited to homeowners) for each group of similar products and services is as follows (in thousands): 

		Year Ended December 31,
		2019				2018				2017
Customer agreements		$	345,486			$	272,672			$	210,753
Incentives		42,349				131,794				23,523
Customer agreements and incentives		387,835				404,466				234,276
Solar energy systems		283,429				186,512				113,953
Products		187,314				169,003				184,313
Solar energy systems and product sales		470,743				355,515				298,266
Total revenue		$	858,578			$	759,981			$	532,542

Revenue from Customer Agreements includes payments by customers for the use of the system as well as utility and other rebates assigned by the customer to the Company in the Customer Agreement. Revenue from incentives includes revenue from the sale of commercial investment tax credits ("Commercial ITCs") and renewable energy credits (“SRECs”).

Cash and Restricted Cash

Cash consists of bank deposits held in checking and savings accounts. The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company has exposure to credit risk to the extent cash balances exceed amounts covered by federal deposit insurance. The Company believes that its credit risk is not significant.

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

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

		December 31,
		2019				2018				2017
Cash		$	269,577			$	226,625			$	202,525
Restricted cash, current and long-term		93,652				77,774				39,265
Total		$	363,229			$	304,399			$	241,790

Accounts Receivable

Accounts receivable consist of amounts due from customers as well as state and utility rebates due from government agencies and utility companies. Under Customer Agreements, the customers typically assign incentive rebates to the Company.

Accounts receivable are recorded at net realizable value. The Company maintains allowances for the applicable portion of receivables when collection becomes doubtful. The Company estimates anticipated losses from doubtful accounts based upon the expected collectability of all accounts receivables, which takes into account the number of days past due, collection history, identification of specific customer exposure, and current economic

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trends. Once a receivable is deemed to be uncollectible, it is written off. In 2019, 2018 and 2017, the Company recorded provisions for bad debt expense of $3.4 million, $3.4 million and $2.1 million, respectively, and wrote-off uncollectible receivables of $2.0 million, $2.8 million and $1.6 million, respectively.

Accounts receivable, net consists of the following (in thousands):

		December 31,
		2019				2018
Customer receivables		$	79,899			$	64,180
Other receivables		23				1,466
Rebates receivable		957				3,017
Allowance for doubtful accounts		(3,151		)		(2,228		)
Total		$	77,728			$	66,435

State Tax Credits Receivable

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

Inventories

Inventories are stated at the lower of cost or net realizable value on a first-in, first-out basis. Inventories consist of raw materials such as photovoltaic panels, inverters and mounting hardware as well as miscellaneous electrical components that are sold as-is by the distribution operations and used in installations and work-in-process. Work-in-process primarily relates to solar energy systems that will be sold to customers, which are partially installed and have yet to pass inspection by the responsible city or utility department. For solar energy systems where the Company performs the installation, the Company commences transferring component parts from inventories to construction-in-progress, a component of solar energy systems, once a lease contract with a lease customer has been executed and the component parts have been assigned to a specific project. Additional costs incurred including labor and overhead are recorded within construction in progress.

The Company periodically reviews inventories for unusable and obsolete items based on assumptions about future demand and market conditions. Based on this evaluation, provisions are made to write inventories down to their market value.

Solar Energy Systems, net

The Company records solar energy systems subject to signed Customer Agreements and solar energy systems that are under installation as solar energy systems, net on its consolidated balance sheet. Solar energy systems, net is comprised of system equipment costs related to solar energy systems, less accumulated depreciation and amortization. Depreciation on solar energy systems is calculated on a straight-line basis over the estimated useful lives of the systems of 35 years. The Company periodically reviews its estimated useful life and recognizes changes in estimates by prospectively adjusting depreciation expense. Inverters and batteries are depreciated over their estimated useful life of 10 years.

Solar energy systems under construction will be depreciated as solar energy systems subject to signed Customer Agreements when the respective systems are completed and interconnected.

Property and Equipment, net

Property and equipment, net consists of leasehold improvements, furniture, computer hardware and software, machinery and equipment and automobiles. All property and equipment are stated at historical cost net of accumulated depreciation. Repairs and maintenance are expensed as incurred.

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Property and equipment is depreciated on a straight-line basis over the following periods:

Leasehold improvements		Lesser of 6 years or lease term
Furniture		5 years
Computer hardware and software		3 years
Machinery and equipment		5 years or lease term
Automobiles		Lease term

Capitalization of Software Costs

For costs incurred in the development of internal use software, the Company capitalizes costs incurred during the application development stage. Costs related to preliminary project activities and post implementation activities are expensed as incurred. Internal use software is amortized on a straight-line basis over its estimated useful life. Additional costs of $2.6 million, $2.5 million and $6.1 million were capitalized in 2019, 2018 and 2017, respectively.

Intangible Assets, net

Finite-lived intangible assets are initially recorded at fair value and are subsequently presented net of accumulated amortization. Intangible assets are amortized on a straight-line basis over their estimated useful lives as follows:

Customer relationships		5-10 years
Developed technology		5 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. Factors that are considered in deciding when to perform an impairment review would include significant negative industry or economic trends and significant changes or planned changes in the use of the assets. Recoverability of these assets is measured by comparison of the carrying amount of each asset group to the future undiscounted cash flows the asset group is expected to generate over its remaining life. If the asset group is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset group. If the useful life is shorter than originally estimated, the Company amortizes the remaining carrying value over the new shorter useful life. The Company has recognized no material impairments of its long-lived assets in any of the periods presented.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed. Goodwill is reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount may be impaired. The Company has determined that it operates as one reporting unit and the Company’s goodwill is recorded at the enterprise level. The Company performs its annual impairment test of goodwill on October 1 of each fiscal year or whenever events or circumstances change or occur that would indicate that goodwill might be impaired. When assessing goodwill for impairment, the Company uses qualitative and if necessary, quantitative methods in accordance with FASB ASC Topic 350, Goodwill. The Company also considers its enterprise value and if necessary, discounted cash flow model, which involves assumptions and estimates, including the Company’s future financial performance, weighted average cost of capital and interpretation of currently enacted tax laws.

Circumstances that could indicate impairment and require the Company to perform a quantitative impairment test include a significant decline in the Company’s financial results, a significant decline in the Company’s enterprise value relative to its net book value, an unanticipated change in competition or the Company’s market share and a

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significant change in the Company’s strategic plans. As of October 1, 2019, the Company concluded that the fair value of the Company exceeded its carrying value.

Deferred Revenue

When the Company receives consideration, or when such consideration is unconditionally due, from a customer prior to delivering goods or services to the customer under the terms of a Customer Agreement, the Company records deferred revenue. Such deferred revenue consists of amounts for which the criteria for revenue recognition have not yet been met and includes amounts that are collected or assigned from customers, including upfront deposits and prepayments, and rebates. Deferred revenue relating to financing components represents the cumulative excess of interest expense recorded on financing component elements over the related revenue recognized to date and will eventually net to zero by the end of the initial term. Amounts received related to the sales of SRECs which have not yet been delivered to the counterparty are recorded as deferred revenue.

The opening balance of deferred revenue was $564.9 million as of December 31, 2017. Deferred revenue consists of the following (in thousands):

		December 31,
		2019				2018
Under Customer Agreements:
Payments received		$	558,630			$	538,926
Financing component balance		44,874				37,801
		603,504				576,727
Under SREC contracts:
Payments received		122,680				12,977
Financing component balance		3,315				1,921
		125,995				14,898
Total		$	729,499			$	591,625

In the years ended December 31, 2019, 2018 and 2017, the Company recognized revenue of $69.4 million, $52.9 million and $47.7 million, respectively, from amounts included in deferred revenue at the beginning of the respective periods. Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized and includes deferred revenue as well as amounts that will be invoiced and recognized as revenue in future periods. Contracted but not yet recognized revenue was approximately $6.5 billion as of December 31, 2019, of which the Company expects to recognize approximately 6% over the next 12 months. The annual recognition is not expected to vary significantly over the next 10 years as the vast majority of existing Customer Agreements have at least 10 years remaining, given that the average age of the Company's fleet of residential solar energy systems under Customer Agreements is less than three years due to the Company being formed in 2007 and having experienced significant growth in the last few years. The annual recognition on these existing contracts will gradually decline over the midpoint of the Customer Agreements over the following 10 years as the typical 20- or 25-year initial term expires on individual Customer Agreements. In March 2019, deferred revenue increased by $95.5 million arising from the Company's sale of the right to SRECs to be generated over the next 10 to 15 years by a group of solar energy systems. In connection with the sale, the Company repaid debt previously drawn against the rights to these SRECs.

Deferred Grants

Deferred grants consist of U.S. Treasury grants and state tax credits. The Company applied for a renewable energy technologies income tax credit offered by one of the states in the form of a cash payment and deferred the tax credit as a grant on the consolidated balance sheets. The Company records the grants as deferred grants and recognizes the benefit on a straight-line basis over the estimated depreciable life of the associated assets as a reduction in Cost of customer agreements and incentives.

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Warranty Accrual

The Company accrues warranty costs when revenue is recognized for solar energy systems sales, based on the estimated future costs of meeting its warranty obligations. Warranty costs primarily consist of replacement costs for supplies and labor costs for service personnel since warranties for equipment and materials are covered by the original manufacturer’s warranty (other than a small deductible in certain cases). As such, the warranty reserve is immaterial in all periods presented. The Company makes and revises these estimates based on the number of solar energy systems under warranty, the Company’s historical experience with warranty claims, assumptions on warranty claims to occur over a systems’ warranty period and the Company’s estimated replacement costs.

Solar Energy Performance Guarantees

The Company guarantees to customers certain specified minimum solar energy production output for solar facilities over the initial term of the Customer Agreements. The Company monitors the solar energy systems to determine whether these specified minimum outputs are being achieved. Annually or every two years, depending on the terms of the Customer Agreement, the Company will refund a portion of electricity payments to a customer if his or her solar energy production output was less than the performance guarantee. The Company considers this a variable component that offsets the transaction price.

Derivative Financial Instruments

The Company recognizes all derivative instruments on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive loss if a derivative is designated as part of a hedge transaction. The ineffective portion of the hedge, if any, is immediately recognized in earnings and are included in other expenses (income), net in the consolidated statements of operations.

The Company uses derivative financial instruments, primarily interest rate swaps, to manage its exposure to interest rate risks on its syndicated term loans, which are recognized on the balance sheet at their fair values. On the date that the Company enters into a derivative contract, the Company formally documents all relationships between the hedging instruments and the hedged items, as well as its risk management objective and strategy for undertaking each hedge transaction. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the balance sheet as either a freestanding asset or liability. Changes in the fair value of a derivative that is designated and qualifies as an effective cash flow hedge are recorded in accumulated other comprehensive loss, net of tax, until earnings are affected by the variability of cash flows of the hedged item. Any derivative gains and losses that are not effective in hedging the variability of expected cash flows of the hedged item or that do not qualify for hedge accounting treatment are recognized directly into income. At the hedge’s inception and at least quarterly thereafter, a formal assessment is performed to determine whether changes in cash flows of the derivative instrument have been highly effective in offsetting changes in the cash flows of the hedged items and whether they are expected to be highly effective in the future. The Company discontinues hedge accounting prospectively when (i) it determines that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item; (ii) the derivative expires or is sold, terminated, or exercised; or (iii) management determines that designating the derivative as a hedging instrument is no longer appropriate. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the derivative instrument is carried at its fair market value on the balance sheet with the changes in fair value recognized in current period earnings. The remaining balance in accumulated other comprehensive loss associated with the derivative that has been discontinued is not recognized in the income statement unless it is probable that the forecasted transaction will not occur. Such amounts are recognized in earnings when earnings are affected by the hedged transaction.

Fair Value of Financial Instruments

The Company defines fair value as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses valuation approaches to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. The FASB establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

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•	Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

•	Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

•	Level 3—Inputs that are unobservable, significant to the measurement of the fair value of the assets or liabilities and are supported by little or no market data.

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

Revenue Recognition

The Company recognizes revenue when control of goods or services is transferred to its customers, in an amount that reflects the consideration it expected to be entitled to in exchange for those goods or services.

Customer agreements and incentives

Customer agreements and incentives revenue is primarily comprised of revenue from Customer Agreements in which the Company provides continuous access to a functioning solar system and revenue from the sales of SRECs generated by the Company’s solar energy systems to third parties.

The Company begins to recognize revenue on Customer Agreements when permission to operate ("PTO") is given by the local utility company or on the date daily operation commences if utility approval is not required. Revenue recognition does not necessarily follow the receipt of cash. The Company recognizes revenue evenly over the time that it satisfies its performance obligations over the initial term of the Customer Agreements. Customer Agreements typically have an initial term of 20 or 25 years. After the initial contract term, our Customer Agreements typically automatically renew on an annual basis and the rate is initially set at up to a 10% discount to then prevailing power prices.

SREC revenue arises from the sale of environmental credits generated by solar energy systems and is generally recognized upon delivery of the SRECs to the counterparty. For pass-through financing obligation Funds, the value attributable to the monetization of Commercial ITCs are recognized in the period a solar system is granted PTO - see Note 14, Pass-through Financing Obligations.

In determining the transaction price, the Company adjusts the promised amount of consideration for the effects of the time value of money when the timing of payments provides it with a significant benefit of financing the transfer of goods or services to the customer. In those circumstances, the contract contains a significant financing component. When adjusting the promised amount of consideration for a significant financing component, the Company uses the discount rate that would be reflected in a separate financing transaction between the entity and its customer at contract inception and recognizes the revenue amount on a straight-line basis over the term of the Customer Agreement, and interest expense using the effective interest rate method.

Consideration from customers is considered variable due to the performance guarantee under Customer Agreements and liquidating damage provisions under SREC contracts in the event minimum deliveries are not achieved. Performance guarantees provide a credit to the customer if the system's cumulative production, as measured on various PTO anniversary dates, is below the Company's guarantee of a specified minimum. Revenue is recognized to the extent it is probable that a significant reversal of such revenue will not occur.

The Company capitalizes incremental costs incurred to obtain a contract in Other Assets in the consolidated balance sheets. These amounts are amortized on a straight-line basis over the term of the Customer Agreements, and are included in Sales and marketing in the consolidated statements of operations.

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Solar energy systems and product sales

For solar energy systems sold to customers, the Company recognizes revenue when the solar energy system passes inspection by the authority having jurisdiction. The Company’s installation projects are typically completed in less than twelve months.

Product sales consist of solar panels, racking systems, inverters, other solar energy products sold to resellers and customer leads. Product sales revenue is recognized at the time when control is transferred, upon shipment. Customer lead revenue, included in product sales, is recognized at the time the lead is delivered.

Taxes assessed by government authorities that are directly imposed on revenue producing transactions are excluded from solar energy systems and product sales.

Cost of Revenue

Customer agreements and incentives

Cost of revenue for customer agreements and incentives is primarily comprised of (1) the depreciation of the cost of the solar energy systems, as reduced by amortization of deferred grants, (2) solar energy system operations, monitoring and maintenance costs including associated personnel costs, and (3) allocated corporate overhead costs.

Solar energy systems and product sales

Cost of revenue for solar energy systems and non-lead generation product sales consist of direct and indirect material and labor costs for solar energy systems installations and product sales. Also included are engineering and design costs, estimated warranty costs, freight costs, allocated corporate overhead costs, vehicle depreciation costs and personnel costs associated with supply chain, logistics, operations management, safety and quality control. Cost of revenue for lead generations consists of costs related to direct-response advertising activities associated with generating customer leads.

Research and development Expense

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

Stock-Based Compensation

The Company grants stock options and restricted stock units (“RSUs”) for its equity incentive plan and employee stock purchase plan. Stock-based compensation to employees is measured based on the grant date fair value of the awards and recognized over the period during which the employee is required to perform services in exchange for the award (generally the vesting period of the award). The Company estimates the fair value of stock options and employee stock purchase plans awards granted using the Black-Scholes option-valuation model. Compensation cost is recognized over the vesting period of the applicable award using the straight-line method for those options expected to vest.

The Company also grants RSUs to non-employees that vest upon the satisfaction of both performance and service conditions. For RSUs granted to non-employees that vest upon the satisfaction of a performance condition, the Company starts recognizing expense on the RSUs when the performance condition is met.

Noncontrolling Interests and Redeemable Noncontrolling Interests

Noncontrolling interests represent investors’ interests in the net assets of the Funds that the Company has created to finance the cost of its solar energy systems subject to the Company’s Customer Agreements. The Company has determined that the contractual provisions in the funding arrangements represent substantive profit sharing arrangements. The Company has further determined that the appropriate methodology for attributing income and loss to the noncontrolling interests and redeemable noncontrolling interests each period is a balance sheet approach referred to as the hypothetical liquidation at book value (“HLBV”) method.

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Under the HLBV method, the amounts of income and loss attributed to the noncontrolling interests and redeemable noncontrolling interests in the consolidated statements of operations reflect changes in the amounts the investors would hypothetically receive at each balance sheet date under the liquidation provisions of the contractual agreements of these arrangements, which are based on the investors' tax capital accounts, assuming the net assets of these funding structures were liquidated at recorded amounts. The Company’s initial calculation of the investor’s noncontrolling interest in the results of operations of these funding arrangements is determined as the difference in the noncontrolling interests’ claim under the HLBV method at the start and end of each reporting period, after taking into account any capital transactions, such as contributions or distributions, between the Fund and the investors.

The Company classifies certain noncontrolling interests with redemption features that are not solely within the control of the Company outside of permanent equity on its consolidated balance sheets. Redeemable noncontrolling interests are reported using the greater of their carrying value as determined by the HLBV method or their estimated redemption value at each reporting date.

Income Taxes

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements and tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided against deferred tax assets to the extent that it is more likely than not that the deferred tax asset will not be realized. The Company is subject to the provisions of ASC 740, Income Taxes, which establishes consistent thresholds as it relates to accounting for income taxes. It defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more likely than not” to be sustained by the taxing authority and requires measurement of a tax position meeting the more-likely-than-not criterion, based on the largest benefit that is more than 50% likely to be realized. Management has analyzed the Company’s inventory of tax positions with respect to all applicable income tax issues for all open tax years (in each respective jurisdiction).

The Company sells solar energy systems to the Funds. As the Funds are consolidated by the Company, the gain on the sale of the solar energy systems is not recognized in the consolidated financial statements. However, this gain is recognized for tax reporting purposes. Since these transactions are intercompany sales, prior to January 1, 2017, any tax expense incurred related to these intercompany sales is deferred and recorded as a prepaid tax asset and amortized over the depreciable life of the underlying solar energy systems which has been estimated to be 35 years in accordance with ASC Topic 810. With the adoption of ASU 2016-16 on January 1, 2017 the Company reversed net prepaid tax assets of $378.5 million and recorded the gross deferred tax assets associated with the historical intercompany sales of solar energy systems, which in turn reduced the deferred tax liabilities on investment in partnerships by $378.2 million with the remaining $0.3 million being recorded as a cumulative effect of adoption in the Company’s Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity. The adoption did not have an impact on the Company’s Consolidated Statement of Operations.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state and local jurisdictions, where applicable. The statute of limitations for the tax returns varies by jurisdiction.

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Concentrations of Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable, which includes rebates receivable. The associated risk of concentration for cash is mitigated by banking with institutions with high credit ratings. At certain times, amounts on deposit exceed Federal Deposit Insurance Corporation insurance limits. The Company does not require collateral or other security to support accounts receivable. To reduce credit risk, management performs periodic credit evaluations and ongoing evaluations of its customers’ financial condition. Rebates receivable are due from various states and local governments as well as various utility companies. The Company considers the collectability risk of such amounts to be low. The Company is not dependent on any single customer. The Company’s customers under Customer Agreements are primarily located in California, Arizona, New Jersey, Hawaii, New York and Massachusetts. The loss of a customer would not adversely impact the Company’s operating results or financial position. The Company depends on a limited number of suppliers of solar panels and other system components. During the years ended December 31, 2019 and 2018, the solar materials purchases from the top five suppliers were approximately $180.1 million and $221.5 million, respectively.

Recently Issued and Adopted Accounting Standards

Accounting standards adopted January 1, 2017:

In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, which requires entities to recognize income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. As a result, a reporting entity will recognize the tax expense from the sale of assets in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of the transaction are eliminated in the consolidated financial statements. Any deferred tax asset that arises in the buyer’s jurisdiction will also be recognized at the time of the transfer. The Company adopted the standard effective January 1, 2017. As the Company sells solar energy systems to Funds, the Company records the current tax effects of the gain on such sales as well as a deferred tax asset related to the Company’s increased tax basis in the partnership as a result of such sales. As a result of the adoption, the Company reversed net prepaid tax assets of $378.5 million, recognized gross deferred tax assets of $378.2 million and recorded a cumulative-effect adjustment decreasing retained earnings by $0.3 million as of January 1, 2017.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation. The new guidance requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also requires the Company to make an accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur. The Company adopted the new ASU effective January 1, 2017. The Company elected to continue to estimate the number of awards that are expected to vest. Upon the adoption, deferred tax liabilities decreased by $3.3 million, and the Company recorded a cumulative-effect adjustment increasing retained earnings by $3.3 million as of January 1, 2017.

Accounting standards adopted January 1, 2018:

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging, Targeted Improvements to Accounting for Hedging Activities, which expands an entity's ability to hedge nonfinancial and financial risk components, eliminates the requirement to separately measure and report hedge ineffectiveness, and aligned the recognition and presentation of the effects of hedging instruments in the financial statements. The Company adopted ASU 2017-12 effective October 1, 2018, with the retrospective adjustment applicable to prior periods of $2.0 million included as a cumulative-effect adjustment recorded to accumulated other comprehensive loss and retained earnings as of January 1, 2018.

Accounting standards adopted January 1, 2019:

In February 2018, the FASB issued Accounting Standards Update ("ASU") No. 2018-02, Income Statement -- Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows companies to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. The Company adopted ASU No.

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2018-02 effective January 1, 2019, which resulted in an adjustment of $0.7 million for the reclassification, as reflected in its consolidated statement of redeemable noncontrolling interests and equity. The Company uses the aggregate portfolio approach when reclassifying stranded tax effects from accumulated other comprehensive income.

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting, which is intended to align the accounting for share-based payment awards issued to employees and nonemployees, however, this amendment does not apply to instruments issued in a financing transaction nor to equity instruments granted to a customer under a contract in the scope of Topic 606. Currently, performance conditions are recognized once the performance conditions are met. Under this new amendment, equity-classified nonemployee share-based payments will be measured at the grant-date fair value and will be recognized based on the probable outcome of the performance conditions. This ASU is effective for fiscal periods beginning after December 15, 2018. The Company adopted ASU No. 2018-07 effective January 1, 2019, and there was no material impact to its consolidated financial statements.

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements. This amendment makes changes to a variety of topics to clarify, correct errors in, or make minor improvements to the Accounting Standards Codification. The majority of the amendments in ASU 2018-09 are effective for periods beginning after December 15, 2018. The Company adopted ASU No. 2018-09 effective January 1, 2019, and there was no material impact to its consolidated financial statements.

Accounting standards to be adopted:

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which replaces the current incurred loss impairment methodology with a current expected credit losses model. The amendment applies to entities that hold financial assets and net investment in leases that are not accounted for at fair value through net income as well as loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash. This ASU is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. Adoption of this ASU is applied using a modified retrospective approach, with certain aspects requiring a prospective approach. The Company is currently evaluating this guidance and the impact it may have on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements as part of its disclosure framework project. Under this amendment, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. However, for Level 3 fair value measurements, disclosures around the range and weighted average used to develop significant unobservable inputs will be required. This ASU is effective for fiscal periods beginning after December 15, 2019. The Company is currently evaluating this guidance and the impact it may have on the Company's consolidated financial statements and disclosures.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Topic 350, Intangibles- Goodwill and Other, to determine which implementation costs to capitalize as assets or expense as incurred. This ASU is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019, and can be applied either prospectively to implementation costs incurred after the date of adoption or retrospectively to all arrangements. The Company is currently evaluating this guidance and the impact it may have on the Company's consolidated financial statements.

In October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810), Targeted Improvements to Related Party Guidance for Variable Interest Entities, which aligns the evaluation of decision-making fees under the variable interest entity guidance. Under this new guidance, in order to determine whether decision-making fees represent a variable interest, an entity considers indirect interests held through related parties under common

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control on a proportionate basis. This ASU is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019, and must be applied retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. The Company is currently evaluating this guidance and the impact it may have on the Company's consolidated financial statements.

In November 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), which simplifies the accounting for income taxes, primarily by eliminating certain exceptions to the guidance in ASC 740.  This ASU is effective for fiscal periods beginning after December 15, 2020.  The Company is currently evaluating this guidance and the impact it may have on the Company’s consolidated financial statements.

Clean Energy Experts, LLC

In 2015, the Company acquired Clean Energy Experts, LLC, a consumer demand and solar lead generation company, for $25.0 million in cash and 1.9 million shares of common stock valued at $19.1 million, net of settlement of a preexisting payable to CEE. An additional $8.8 million in cash and 599,999 shares of common stock were issued in 2017 due to the achievement of certain sales targets as well as continued employment of certain key employees acquired in the transaction, which was recorded as compensation expense. The acquisition was made in order to enhance the Company’s efficient and consistent access to high-quality leads in existing and new markets.

Omni Energy, LLC

In July 2019, the Company acquired a specified customer pipeline and assembled workforce from Omni Energy, LLC (“Omni”), an existing solar integrator with multi-family solar project origination and development capabilities.

     The purchase consideration for the assets acquired was approximately $23.5 million, consisting of $2.7 million in cash upfront and $20.8 million representing the fair value of contingent consideration based upon new solar system installations through 2022. The Company estimated the fair value of the contingent consideration at the acquisition date using a probability-weighted discounted cash flow methodology. The estimated range of outcomes (undiscounted) was from $17.7 million to $28.9 million. The total fair value of the assets acquired of $23.5 million is comprised of an intangible asset related to customer relationships of $14.2 million with estimated useful life of five years, and goodwill of $9.3 million. Customer relationships were valued with level 3 inputs. The fair value of the contingent consideration as of December 31, 2019 was $11.8 million.

The fair value of the assets acquired and liabilities assumed are preliminary and may be adjusted as the Company obtains additional information, primarily related to adjustments for the customer relationships. If there are adjustments made for these items the fair value of intangible assets and goodwill could be impacted. Thus these provisional measurements of fair value are subject to change. The Company expects to finalize the valuation of the intangible assets as soon as practicable, but not later than one-year from the acquisition date.

     Goodwill represents the excess of the purchase price over the fair value of the asset acquired. Goodwill recorded is primarily attributable to the acquired assembled workforce and synergies achieved through the elimination of redundant costs.

     There was no revenue contributed from the acquired business to the Company, as measured from the date of the acquisition through December 31, 2019. The portion of the total expenses and net income associated with the acquired business was not separately identifiable due to the integration with the Company’s operations. Due to the nature of the acquisition, the operations acquired and the related unaudited pro forma information are immaterial.

At December 31, 2019 and 2018, the carrying value of receivables, accounts payable, accrued expenses and distributions payable to noncontrolling interests approximates fair value due to their short-term nature and falls under the Level 2 hierarchy. The carrying values and fair values of debt instruments are as follows (in thousands):

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		December 31, 2019								December 31, 2018
		Carrying Value				Fair Value				Carrying Value				Fair Value
Bank line of credit		$	239,485			$	239,485			$	247,000			$	247,000
Senior debt		625,519				626,023				828,517				828,309
Subordinated debt		513,938				524,581				273,337				272,937
Securitization debt		875,998				931,320				400,068				394,756
Total		$	2,254,940			$	2,321,409			$	1,748,922			$	1,743,002

At December 31, 2019 and 2018, the fair value of the Company’s lines of credit, and certain senior, subordinated, and SREC loans approximate their carrying values because their interest rates are variable rates that approximate rates currently available to the Company. At December 31, 2019 and 2018, the fair value of the Company’s other debt instruments are based on rates currently offered for debt with similar maturities and terms. The Company’s fair value of the debt instruments fell under the Level 2 hierarchy. These valuation approaches involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market.

At December 31, 2019 and 2018, financial instruments measured at fair value on a recurring basis, based upon the fair value hierarchy are as follows (in thousands):

		December 31, 2019
		Level 1				Level 2				Level 3				Total
Derivative assets:
Interest rate swaps		$	—			$	683			$	—			$	683
Total		$	—			$	683			$	—			$	683
Derivative liabilities:
Interest rate swaps		$	—			$	64,361			$	—			$	64,361
Total		$	—			$	64,361			$	—			$	64,361
Contingent consideration:
Contingent consideration:		$	—			$	—			$	11,809			$	11,809
Total		$	—			$	—			$	11,809			$	11,809

		December 31, 2018
		Level 1				Level 2				Level 3				Total
Derivative assets:
Interest rate swaps		$	—			$	6,958			$	—			$	6,958
Total		$	—			$	6,958			$	—			$	6,958
Derivative liabilities:
Interest rate swaps		$	—			$	11,910			$	—			$	11,910
Total		$	—			$	11,910			$	—			$	11,910

The Company determines the fair value of its interest rate swaps using a discounted cash flow model that incorporates an assessment of the risk of non-performance by the interest rate swap counterparty and an evaluation of the Company’s credit risk in valuing derivative instruments. The valuation model uses various inputs including contractual terms, interest rate curves, credit spreads and measures of volatility.

The Company recorded contingent consideration in connection with a business combination, which is dependent on the achievement of specified deployment milestones associated with the number of solar systems installed through 2022. The Company determined the fair value of the contingent consideration using a probability-

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weighted expected return methodology that considers the timing and probabilities of achieving these milestones and uses discount rates that reflect the appropriate cost of capital. Contingent consideration was valued with level 3 inputs. The Company reassesses the valuation assumptions each reporting period, with any changes in the fair value accounted for in the consolidated statements of operations.

The following table summarizes the activity of Level 3 contingent consideration balance in the year ended December 31, 2019 (in thousands):

Balance recorded in connection with business acquisition		$	20,800
Gains recognized in earnings within sales and marketing expense		(2,271		)
Payable for solar systems that have met deployment milestones		(6,720		)
Balance at December 31, 2019		$	11,809

Inventories consist of the following (in thousands):

		December 31,
		2019				2018
Raw materials		$	239,449			$	64,256
Work-in-process		21,122				15,211
Total		$	260,571			$	79,467

The Internal Revenue Service (“IRS”) provided taxpayers a safe harbor opportunity to retain access to the pre-2020 30% tax credit amount through specific rules released in Notice 2018-59. The Company has sought to avail itself of the safe harbor in order to retain the 30% Commercial ITC that was available in 2019 with respect to approximately 500 MW of projects by incurring certain costs and taking title to equipment in 2019. As of December 31, 2019, there was approximately $132.6 million related to the safe harbor program within raw materials.

Solar energy systems, net consists of the following (in thousands):

		December 31,
		2019				2018
Solar energy system equipment costs		$	4,510,677			$	3,823,853
Inverters		471,471				396,054
Total solar energy systems		4,982,148				4,219,907
Less: accumulated depreciation and amortization		(692,218		)		(535,891		)
Add: construction-in-progress		202,685				136,001
Total solar energy systems, net		$	4,492,615			$	3,820,017

All solar energy systems, including construction-in-progress, have been leased to or are subject to signed Customer Agreements with customers. The Company recorded depreciation expense related to solar energy systems of $167.9 million, $139.2 million and $112.8 million for the years ended December 31, 2019, 2018 and 2017, respectively. The depreciation expense was reduced by the amortization of deferred grants of $8.1 million, $7.8 million and $7.6 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Property and equipment, net consists of the following (in thousands):

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		December 31,
		2019				2018
Machinery and equipment		$	7,907			$	6,888
Leasehold improvements, furniture, and computer hardware		34,951				14,755
Vehicles		65,663				55,093
Computer software		35,329				32,768
Total property and equipment		143,850				109,504
Less: Accumulated depreciation and amortization		(87,142		)		(74,611		)
Total property and equipment, net		$	56,708			$	34,893

Depreciation and amortization expense was $22.6 million, $20.4 million and $19.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.

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

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

Balance—January 1, 2017 and 2018		$	87,543
Acquisition of Omni (Note 3)		7,551
Balance—December 31, 2019		$	95,094

The Company performs its annual impairment test of goodwill on October 1 of each fiscal year or whenever events or circumstances change or occur that would indicate that goodwill might be impaired. The Company has determined that it has one reporting unit.

There was no impairment of goodwill during the years ended December 31, 2019, 2018 and 2017, respectively.

Intangible assets, net as of December 31, 2019 consist of the following (in thousands, except weighted average remaining life):

		Cost				Accumulated amortization				Carrying value				Weighted average remaining life (in years)
Customer relationships		$	28,870			$	(10,837	)		$	18,033			4.3
Developed technology		6,820				(6,525		)		295				0.3
Trade names		6,990				(5,775		)		1,215				3.3
Total		$	42,680			$	(23,137	)		$	19,543

Intangible assets, net as of December 31, 2018 consist of the following (in thousands, except weighted average remaining life):

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		Cost				Accumulated amortization				Carrying value				Weighted average remaining life (in years)
Customer relationships		$	14,660			$	(7,716	)		$	6,944			4.6
Developed technology		6,820				(5,328		)		1,492				1.2
Trade names		6,990				(5,338		)		1,652				4.1
Total		$	28,470			$	(18,382	)		$	10,088

The Company recorded amortization of intangible assets expense of $4.8 million, $4.2 million and $4.2 million for the years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, expected amortization of intangible assets for each of the five succeeding fiscal years and thereafter is as follows (in thousands):

2020	$	4,985
2021	4,592
2022	4,585
2023	3,893
2024	1,488
Thereafter	—
Total	$	19,543

Other assets consist of the following (in thousands): 

		December 31,
		2019				2018
Costs to obtain contracts		$	268,964			$	219,307
Costs to obtain contracts- incentives		2,481				—
Accumulated amortization of costs to obtain contracts		(36,925		)		(24,992		)
Unbilled receivables		104,346				81,703
Operating lease right-of-use assets		34,678				20,257
Other assets		34,859				39,410
Total		$	408,403			$	335,685

The Company recorded amortization of costs to obtain contracts of $11.8 million and $8.6 million for the years ended December 31, 2019 and 2018, respectively, in the sales and marketing expense.

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Accrued expenses and other liabilities consist of the following (in thousands): 

		December 31,
		2019				2018
Accrued employee compensation		$	38,750			$	39,738
Operating lease obligations		9,790				7,857
Accrued interest		13,048				8,436
Accrued professional fees		4,732				9,199
Other accrued expenses		82,177				33,406
Total		$	148,497			$	98,636

As of December 31, 2019, debt consisted of the following (in thousands, except percentages):

		Carrying Values, net of debt discount												Unused Borrowing Capacity				Interest Rate (1)			Maturity Date
		Current				Long Term				Total
Recourse debt:
Bank line of credit		$	—			$	239,485			$	239,485			$	—			5.09% - 5.38%			April 2022
Total recourse debt		—				239,485				239,485				—
Non-recourse debt:
Senior		8,020				617,499				625,519				14,639				3.94% - 5.61%			April 2022 - July 2027
Subordinated		—				513,938				513,938				—				6.93% - 10.80%			March 2023 - July 2030
Securitization Class A		26,838				839,981				866,819				—				3.61% - 5.31%			July 2024 - February 2055
Securitization Class B		490				8,689				9,179				—				5.38	%		July 2024
Total non-recourse debt		35,348				1,980,107				2,015,455				14,639
Total debt		$	35,348			$	2,219,592			$	2,254,940			$	14,639

(1)	Reflects contractual, unhedged rates. See Note 13, Derivatives for hedge rates.

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As of December 31, 2018, debt consisted of the following (in thousands, except percentages):

		Carrying Values, net of debt discount												Unused Borrowing Capacity				Interest Rate (1)			Maturity Date
		Current				Long Term				Total
Recourse debt:
Bank line of credit		$	—			$	247,000			$	247,000			$	406			5.45% - 5.77%			April 2020
Total recourse debt		—				247,000				247,000				406
Non-recourse debt:
Senior		19,070				809,447				828,517				—				4.50% - 5.54%			September 2020 - October 2024
Subordinated		5,824				267,513				273,337				—				7.03% - 10.00%			September 2020 - January 2030
Securitization Class A		10,125				380,299				390,424				—				4.40% - 5.31%			July 2024 - April 2049
Securitization Class B		465				9,179				9,644				—				5.38	%		July 2024
SREC Loans		—				—				—				—
Total non-recourse debt		35,484				1,466,438				1,501,922				—
Total debt		$	35,484			$	1,713,438			$	1,748,922			$	406

(1)	Reflects contractual, unhedged rates. See Note 13, Derivatives for hedge rates.

Bank Line of Credit

The Company has outstanding borrowings under a syndicated working capital facility with banks for a total commitment of up to $250.0 million. The working capital facility is secured by substantially all of the unencumbered assets of the Company, as well as ownership interests in certain subsidiaries of the Company. Loans under the facility bear interest at LIBOR +3.25% per annum or the Base Rate +2.25% per annum. The Base Rate is the highest of the Federal Funds Rate +0.50%, the Prime Rate, or LIBOR +1.00%.

Under the terms of the working capital facility, the Company is required to meet various restrictive covenants, such as the completion and presentation of audited consolidated financial statements, maintaining a minimum unencumbered liquidity of at least $25.0 million at the end of each calendar month, maintaining quarter end liquidity to be at least $35.0 million, and maintaining a minimum interest coverage ratio of 3.50 or greater, measured quarterly as of the last day of each quarter. The Company was in compliance with all debt covenants as of December 31, 2019. As of December 31, 2019, the balance under this facility was $239.5 million with a maturity date in April 2022.

Senior and Subordinated Debt Facilities

Each of the Company's senior and subordinated debt facilities contain customary covenants including the requirement to maintain certain financial measurements and provide lender reporting. Each of the senior and subordinated debt facilities also contain certain provisions in the event of default that entitle lenders to take certain actions including acceleration of amounts due under the facilities and acquisition of membership interests and assets that are pledged to the lenders under the terms of the senior and subordinated debt facilities. The facilities are non-recourse to the Company and are secured by net cash flows from Customer Agreements or inventories less certain operating, maintenance and other expenses that are available to the borrower after distributions to tax equity investors, where applicable. Under the terms of these facilities, the Company's subsidiaries pay interest and principal from the net cash flows available to the subsidiaries. The Company was in compliance with all debt covenants as of December 31, 2019.

As of December 31, 2019, certain subsidiaries of the Company had an outstanding balance of $351.9 million on secured credit facilities that were syndicated with various lenders due in October 2024 and August 2029. The credit facilities totaled $375.8 million and consisted of $363.3 million in term loans, and a $12.5 million revolving debt service reserve letter of credit facility. Term Loan A ("TLA") is a senior delayed draw term loan that bears interest at LIBOR +2.125% per annum for LIBOR loans or the Base Rate +1.125% per annum on Base Rate loans. Term Loan B ("TLB") is subordinated debt that bears interest at 9.25% per annum.

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As of December 31, 2019, certain subsidiaries of the Company had an outstanding balance of $180.7 million on senior secured credit facilities that were syndicated with various lenders due in April 2024. These facilities are subject to the National Grid project equity transaction. The credit facilities totaled $202.0 million and consisted of a $195.0 million senior delayed draw term loan facility and a $7.0 million revolving debt service reserve letter of credit facility. Loans under the facility bear interest at LIBOR +2.25% per annum for the initial four-year period for LIBOR loans or the Base Rate +1.25% per annum for Base Rate Loans. The Base Rate is the highest of the Federal Funds Rate +0.50%, the Prime Rate, or LIBOR +1.00%. The facilities are non-recourse to the Company and are secured by net cash flows from Customer Agreements and SRECs, less certain operating, maintenance and other expenses which are available to the borrower after distributions to tax equity investors. Prepayments are permitted under the delayed draw term loan facility.

As of December 31, 2019, certain subsidiaries of the Company had an outstanding balance of $236.2 million on secured credit facilities agreements, as amended, with a syndicate of banks due in March 2023. The facilities totaled $595.0 million and consisted of a revolving aggregation facility (“Aggregation Facility”), a term loan ("Term Loan") and a revolving debt service reserve letter of credit facility. Senior loans under the Aggregation Facility bear interest at LIBOR +2.50% per annum for the initial three-year revolving availability period, stepping up to LIBOR +2.75% per annum in the following two-year period. The subordinated Term Loan bears interest at LIBOR +5.00% per annum for the first three-year period, stepping up to LIBOR +6.50% per annum thereafter. Term Loan prepayment penalties range from 0% - 1% depending on the timing of prepayments.

As of December 31, 2019, a subsidiary of the Company had an outstanding balance of $16.8 million on a term loan due in April 2022. The loan is secured by the assets and related net cash flow of this subsidiary and is non-recourse to the Company’s other assets. Loans under this facility bear interest at 4.50% per annum.

As of December 31, 2019, a subsidiary of the Company had an outstanding balance of $13.8 million on a secured, non-recourse loan agreement due in September 2022. The loan will be repaid through cash flows from a pass-through financing obligation arrangement previously entered into by the Company. The loan agreement contains customary covenants including the requirement to maintain certain financial measurements and provide lender reporting. The loan also contains certain provisions in the event of default which entitles the lender to take certain actions including acceleration of amounts due under the loan. Loans under this facility bear interest at LIBOR +2.25% per annum.

As of December 31, 2019, a subsidiary of the Company had an outstanding balance of $124.0 million on a term loan due in January 2030. The loan is secured by the assets and related net cash flow of this subsidiary and is non-recourse to the Company’s other assets. Loans under this facility bear interest at 10.50% per annum.

As of December 31, 2019, a subsidiary of the Company had an outstanding balance of $63.3 million on a term loan due in July 2030. The loan is secured by the assets and related net cash flow of this subsidiary and is non-recourse to the Company’s other assets. Loans under this facility bear interest between 2.00% - 3.25% plus 6.75% per annum.

As of December 31, 2019, a subsidiary of the Company had an outstanding balance of $9.5 million on a term loan due in July 2027. The loan is secured by the assets and related net cash flow of this subsidiary and is non-recourse to the Company’s other assets. Loans under this facility bear interest at 5.61% per annum.

As of December 31, 2019, a subsidiary of the Company had an outstanding balance of $129.6 million on a term loan due in November 2025. The loan is secured by the assets and related net cash flow of this subsidiary and is non-recourse to the Company’s other assets. Loans under this facility bear interest at LIBOR (at a 2.00% floor) + 6.75% per annum.

As of December 31, 2019, certain subsidiaries of the Company had an outstanding balance of $13.6 million on secured credit facilities agreements with banks due in March 2024. The facilities totaled $134.0 million and consisted of two revolving aggregation facilities (“Aggregation Facilities”) and a revolving debt service reserve letter of credit facility. The senior loan under the Aggregation Facilities bear interest at LIBOR +3.00%. The subordinated loan under the Aggregation Facilities bears interest at LIBOR +9.00% per annum. These debt facilities are related to the Company's participation in the IRS's safe harbor program to retain access to the 30% Commercial ITC that was available in 2019.

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Securitization Loans

Each of the Company's securitized loans contains customary covenants including the requirement to provide reporting to the indenture trustee and ratings agencies. Each of the securitized loans also contain certain provisions in the event of default which entitle the indenture trustee to take certain actions including acceleration of amounts due under the facilities and acquisition of membership interests and assets that are pledged to the lenders under the terms of the securitized loans. The facilities are non-recourse to the Company and are secured by net cash flows from Customer Agreements less certain operating, maintenance and other expenses which are available to the borrower after distributions to tax equity investors, where applicable. Under the terms of these loans, the Company's subsidiaries pay interest and principal from the net cash flows available to the subsidiaries. The Company was in compliance with all debt covenants as of December 31, 2019.

As of December 31, 2019, a subsidiary of the Company had an outstanding balance of $84.4 million on solar asset-backed notes ("Notes") secured by associated customer contracts (“Solar Assets”) held by a special purpose entity (“Issuer”). As of December 31, 2019 and December 31, 2018, these Solar Assets had a carrying value of $157.6 million and $164.7 million, respectively, and are included under solar energy systems, net, in the consolidated balance sheets. The Notes were issued at a discount of 0.08%.

As of December 31, 2019, a subsidiary of the Company had an outstanding balance of $300.0 million on solar asset-backed notes secured by net cash flows from Customer Agreements less certain operating, maintenance and other expenses that are available to the issuer after distributions to tax equity investors. The Notes were issued at a discount of 1.47%. The assets and cash flows generated by the Solar Assets are not available to the other creditors of the Company, and the creditors of the Issuer, including the Note holders, have no recourse to the Company's other assets.

As of December 31, 2019, a subsidiary of the Company had an outstanding balance of $187.2 million on solar asset-backed notes secured by net cash flows from Customer Agreements less certain operating, maintenance and other expenses that are available to the issuer. The Notes were issued at a discount of 0.01%.

As of December 31, 2019, a subsidiary of the Company had an outstanding balance of $304.3 million on solar asset-backed notes secured by net cash flows from Customer Agreements less certain operating, maintenance and other expenses that are available to the issuer. The Notes were issued at a discount of 0.05%.

Maturities of Indebtedness

The scheduled maturities of debt, excluding debt discount, as of December 31, 2019 are as follows (in thousands):

2020	$	38,739
2021	99,307
2022	316,716
2023	218,334
2024	534,077
Thereafter	1,096,136
Subtotal	2,303,309
Less: Debt discount	(48,369		)
Total	$	2,254,940

Interest Rate Swaps

The Company uses interest rate swaps to hedge variable interest payments due on certain of its term loans and aggregation facility. These swaps allow the Company to incur fixed interest rates on these loans and receive payments based on variable interest rates with the swap counterparty based on the one or three month LIBOR on the notional amounts over the life of the swaps.

The interest rate swaps have been designated as cash flow hedges. The credit risk adjustment associated with these swaps is the risk of non-performance by the counterparties to the contracts. In the year ended

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December 31, 2019, the hedge relationships on the Company’s interest rate swaps have been assessed as highly effective as the critical terms of the interest rate swaps match the critical terms of the underlying forecasted hedged transactions. Accordingly, changes in the fair value of these derivatives are recorded as a component of accumulated other comprehensive income, net of income taxes. Changes in the fair value of these derivatives are subsequently reclassified into earnings, and are included in interest expense, net in the Company’s statements of operations, in the period that the hedged forecasted transactions affects earnings.

All amounts in Accumulated other comprehensive income (loss) ("AOCI") in the consolidated statements of redeemable noncontrolling interests and equity relate to derivatives, refer to the consolidated statements of comprehensive (loss) income. The net (loss) gain on derivatives includes the tax effect of $17.7 million and $0.4 million for the twelve months ended December 31, 2019 and 2018, respectively.

During the next 12 months, the Company expects to reclassify $5.5 million of net losses on derivative instruments from accumulated other comprehensive income to earnings. There were no undesignated derivative instruments recorded by the Company as of December 31, 2019.

The Company’s master netting and other similar arrangements allow net settlements under certain conditions. When those conditions are met, the Company presents derivatives at net fair value. As of December 31, 2019, the information related to these offsetting arrangements were as follows (in thousands):

Instrument Description		Gross Amounts of Recognized Assets / Liabilities				Gross Amounts Offset in the Consolidated Balance Sheet				Net Amounts of Assets / Liabilities Included in the Consolidated Balance Sheet
Assets:
Derivatives		$	683			$	(615	)		$	68
Liabilities:
Derivatives		(64,361		)		615				(63,746		)
Total		$	(63,678	)		$	—			$	(63,678	)

At December 31, 2018, the Company had designated derivative instruments classified as hedges of variable interest payments as derivative assets that are reported in other assets of $5.4 million and derivative liabilities as reported in other liabilities of $10.3 million in the Company’s balance sheet.

At December 31, 2019 the Company had the following derivative instruments (dollars in thousands):

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Type		Quantity			Effective Dates		Maturity Dates		Hedge Interest Rates		Notional Amount				Fair Market Value
Interest rate swap		1			4/29/2016		8/31/2022		1.27%- 1.29%		$	11,605			$	68
Interest rate swaps		8			7/31/2017 - 1/31/2018		4/30/2024 - 10/20/2024		2.16%- 2.39%		280,049				(6,963		)
Interest rate swaps		3			4/30/2021		10/30/2026 - 10/31/2026		2.89% - 3.08%		102,720				(6,559		)
Interest rate swaps		2			10/31/2019		4/30/2027		1.89% - 1.90%		19,680				(136		)
Interest rate swaps		2			10/31/2019		10/31/2031		1.44% - 1.50%		23,344				615
Interest rate swaps		4			1/31/2018 - 1/31/2020		4/30/2034 - 10/31/2034		2.62% - 2.78%		243,803				(19,311		)
Interest rate swaps		8			7/31/2017 - 10/18/2024		4/30/2035 - 10/31/2035		2.56% - 2.95%		275,705				(12,634		)
Interest rate swap		1			10/18/2024		1/31/2036		2.95%		14,656				(674		)
Interest rate swaps		3			1/31/2019 - 4/30/2021		4/30/2037		3.28% - 3.30%		100,000				(11,959		)
Interest rate swaps		3			10/30/2026 - 10/31/2026		1/31/2038		3.01% - 3.16%		101,135				(6,125		)
Total											$	1,172,697			$	(63,678	)

The Company's pass-through financing obligations ("financing obligations") arise when the Company leases solar energy systems to Fund investors who are considered commercial customers under a master lease agreement, and these investors in turn are assigned the Customer Agreements with customers. The Company receives all of the value attributable to the accelerated tax depreciation and some or all of the value attributable to the other incentives. Given the assignment of operating cash flows, these arrangements are accounted for as financing obligations. The Company also sells the rights and related value attributable to the Commercial ITC to these investors.

Under these financing obligation arrangements, wholly owned subsidiaries of the Company finance the cost of solar energy systems with investors for an initial term of typically 20 or 25 years. The solar energy systems are subject to Customer Agreements with an initial term of typically 20 or 25 years that automatically renew on an annual basis. These solar energy systems are reported under the line item solar energy systems, net in the consolidated balance sheets. As of December 31, 2019 and 2018, the cost of the solar energy systems placed in service under the financing obligation arrangements was $657.9 million and $664.1 million, respectively. The accumulated depreciation related to these assets as of December 31, 2019 and 2018 was $95.9 million and $82.1 million, respectively.

The investors make a series of large up-front payments and in certain cases subsequent smaller quarterly payments (lease payments) to the subsidiaries of the Company. The Company accounts for the payments received from the investors under the financing obligation arrangements as borrowings by recording the proceeds received as financing obligations on its consolidated balance sheets, and cash provided by financing activities in its consolidated statement of cash flows. These financing obligations are reduced over a period of approximately 22 years by customer payments under the Customer Agreements, U.S. Treasury grants (where applicable), incentive rebates (where applicable) and proceeds from the contracted resale of SRECs as they are received by the investor. In addition, funds paid for the Commercial ITC value upfront are initially recorded as a refund liability and recognized as revenue as the associated solar system reaches PTO. The Commercial ITC value is reflected in cash provided by operations on the consolidated statement of cash flows. The Company accounts for the Customer

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Agreements and any related U.S. Treasury grants or incentive rebates as well as the resale of SRECs consistent with the Company’s revenue recognition accounting policies as described in Note 2, Summary of Significant Accounting Policies.

Interest is calculated on the financing obligations using the effective interest rate method. The effective interest rate, which is adjusted on a prospective basis, is the interest rate that equates the present value of the estimated cash amounts to be received by the investor over the lease term with the present value of the cash amounts paid by the investor to the Company, adjusted for amounts received by the investor. The financing obligations are nonrecourse once the associated assets have been placed in service and all the contractual arrangements have been assigned to the investor.

Under the majority of the financing obligations, the investor has a right to extend its right to receive cash flows from the customers beyond the initial term in certain circumstances. Depending on the arrangement, the Company has the option to settle the outstanding financing obligation on the ninth or eleventh anniversary of the Fund inception at a price equal to the higher of (a) the fair value of future remaining cash flows or (b) the amount that would result in the investor earning their targeted return. In several of these financing obligations, the investor has an option to require repayment of the entire outstanding balance on the tenth anniversary of the Fund inception at a price equal to the fair value of the future remaining cash flows.

Under all financing obligations, the Company is responsible for services such as warranty support, accounting, lease servicing and performance reporting to customers. As part of the warranty and performance guarantee with the customers, the Company guarantees certain specified minimum annual solar energy production output for the solar energy systems leased to the customers, which the Company accounts for as disclosed in Note 2, Summary of Significant Accounting Policies.

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The Company consolidated various VIEs at December 31, 2019 and 2018. The carrying amounts and classification of the VIEs’ assets and liabilities included in the consolidated balance sheets are as follows (in thousands):

		December 31,
		2019				2018
Assets
Current assets
Cash		$	133,362			$	105,494
Restricted cash		2,746				2,071
Accounts receivable, net		21,956				18,539
Inventories		15,721				—
Prepaid expenses and other current assets		554				387
Total current assets		174,339				126,491
Solar energy systems, net		3,259,712				2,712,377
Other assets		87,151				66,427
Total assets		$	3,521,202			$	2,905,295
Liabilities
Current liabilities
Accounts payable		$	11,531			$	12,136
Distributions payable to noncontrolling interests    and redeemable noncontrolling interests		16,012				15,797
Accrued expenses and other liabilities		10,740				7,122
Deferred revenue, current portion		38,265				29,102
Deferred grants, current portion		1,011				982
Non-recourse debt, current portion		4,901				4,217
Total current liabilities		82,460				69,356
Deferred revenue, net of current portion		443,873				367,818
Deferred grants, net of current portion		27,023				28,247
Non-recourse debt, net of current portion		201,575				186,494
Other liabilities		19,633				8,843
Total liabilities		$	774,564			$	660,758

The Company holds a variable interest in an entity that provides the noncontrolling interest with a right to terminate the leasehold interests in all of the leased projects on the tenth anniversary of the effective date of the master lease. In this circumstance, the Company would be required to pay the noncontrolling interest an amount equal to the fair market value, as defined in the governing agreement of all leased projects as of that date.

The Company holds certain variable interests in nonconsolidated VIEs established as a result of six pass-through Fund arrangements as further explained in Note 14, Pass-Through Financing Obligations. The Company does not have material exposure to losses as a result of its involvement with the VIEs in excess of the amount of the pass-through financing obligation recorded in the Company’s consolidated financial statements. The Company is not considered the primary beneficiary of these VIEs.

During certain specified periods of time (the “Early Exit Periods”), noncontrolling interests in certain funding arrangements have the right to put all of their membership interests to the Company (the “Put Provisions”). During a specific period of time (the “Call Periods”), the Company has the right to call all membership units of the related redeemable noncontrolling interests.

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The carrying value of redeemable noncontrolling interests was greater than the redemption value except for nine and six Funds at December 31, 2019 and 2018, respectively, where the carrying value has been adjusted to the redemption value.

Convertible Preferred Stock

The Company did not have any convertible preferred stock issued and outstanding as of December 31, 2019 and 2018.

The Company did not declare or pay any dividends in 2019, 2018 or 2017.

Common Stock

The Company has reserved sufficient shares of common stock for issuance upon the exercise of stock options and the exercise of warrants. Common stockholders are entitled to dividends if and when declared by the board of directors, subject to the prior rights of the preferred stockholders. As of December 31, 2019, no common stock dividends had been declared by the board of directors.

The Company has reserved shares of common stock for issuance as follows (in thousands):

		December 31,
		2019			2018
Stock plans
Shares available for grant
2015 Equity Incentive Plan		14,828			11,986
2015 Employee Stock Purchase Plan		6,522			5,202
Options outstanding		10,784			13,590
Restricted stock units outstanding		3,943			4,182
Total		36,077			34,960

Stock Repurchase Program

In November 2019, the Company's board of directors approved a stock repurchase program authorizing the Company to repurchase up to $50.0 million of its common stock from time to time over the next three years. Stock repurchases under this program may be made through open market transactions, negotiated purchases or otherwise, at times and in such amounts as the Company considers appropriate and in accordance with applicable regulations of the Securities and Exchange Commission. The timing of repurchases and the number of shares repurchased will depend on a variety of factors including price, regulatory requirements, and other market conditions. The Company may limit, amend, suspend, or terminate the stock repurchase program at any time without prior notice. Any shares repurchased under the program will be returned to the status of authorized, but unissued shares of common stock. As of December 31, 2019, the Company had repurchased 368,996 shares for approximately $5.0 million.

2013 Equity Incentive Plan

In July 2013, the Board of Directors approved the 2013 Plan. In March 2015, the Board of Directors authorized an additional 3,000,000 shares reserved for issuance under the 2013 Plan. An aggregate of 4,500,000 shares of common stock are reserved for issuance under the 2013 Plan plus (i) any shares that were reserved but not issued under the plan that was previously in place, and (ii) any shares subject to stock options or similar awards granted under the plan that was previously in place that expire or otherwise terminate without having been exercised in full and shares issued that are forfeited to or repurchased by the Company, with the maximum number

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of shares to be added to the 2013 Plan pursuant to clauses (i) and (ii) equal to 8,044,829 shares. Stock options granted to employees generally have a maximum term of ten-years and vest over a four-year period from the date of grant; 25% vest at the end of one year, and 75% vest monthly over the remaining three years. The options may include provisions permitting exercise of the option prior to full vesting. Any unvested shares shall be subject to repurchase by the Company at the original exercise price of the option in the event of a termination of an optionee’s employment prior to vesting. All the remaining shares that were available for future grants under the 2013 Plan were transferred to the 2015 Equity Incentive Plan (“2015 Plan”) at the inception of the 2015 Plan. As of December 31, 2019, the Company had not granted restricted stock or other equity awards (other than options) under the 2013 Plan.

2014 Equity Incentive Plan

In August 2014, the Board approved the 2014 Equity Incentive Plan (“2014 Plan”). An aggregate of 947,342 shares of common stock are reserved for issuance under the 2014 Plan. The 2014 Plan was adopted to accommodate a broader transaction with a sales entity and to allow for similar transactions in the future. In July 2015, the Board approved an increase in the number of shares of common stock reserved to 1,197,342. As of July 2015, the Company granted all 1,197,342 restricted stock units (“RSUs”) available under the 2014 Plan.

2015 Equity Incentive Plan

In July 2015, the Board approved the 2015 Plan. An aggregate of 11,400,000 shares of common stock are reserved for issuance under the 2015 Plan plus (i) any shares that were reserved but not issued under the 2013 Plan at the inception of the 2015 Plan, and (ii) any shares subject to stock options or similar awards granted under the 2008 Plan, 2013 Plan and 2014 Plan that expire or otherwise terminate without having been exercised in full and shares issued that are forfeited to or repurchased by the Company, with the maximum number of shares to be added to the 2015 Plan pursuant to clauses (i) and (ii) equal to 15,439,334 shares. The 2015 Plan provides for annual automatic increases on January 1 to the shares reserved for issuance. The automatic increase of the number of shares available for issuance under the 2015 Plan is equal to the least of 10 million shares, 4% of the outstanding shares of common stock as of the last day of our immediately preceding fiscal year or such other amount as the Board of Directors may determine. In 2019 and 2018, the Board of Directors authorized an additional 4,525,946 and 4,294,010 shares reserved for issuance under the 2015 Plan, respectively. Stock options granted to employees generally have a maximum term of ten-years and vest over a four-year period from the date of grant; 25% vest at the end of one year, and 75% vest monthly over the remaining three years. The options may include provisions permitting exercise of the option prior to full vesting. Any unvested shares shall be subject to repurchase by the Company at the original exercise price of the option in the event of a termination of an optionee’s employment prior to vesting. RSUs granted to employees generally vest over a four-year period from the date of grant; 25% vest at the end of one year, and 75% vest quarterly over the remaining three years.

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Stock Options

The following table summarizes the activity for all stock options under all of the Company’s equity incentive plans for the years ended December 31, 2019 and 2018 (shares and aggregate intrinsic value in thousands):

		Number of Options			Weighted Average Exercise Price				Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding at December 31, 2017		16,268			$	5.70			7.41		$	14,832
Granted		1,529			8.63
Exercised		(3,271	)		5.23
Cancelled		(936	)		6.63
Outstanding at December 31, 2018		13,590			6.07				6.63		66,462
Granted		1,362			15.44
Exercised		(3,625	)		5.48
Cancelled		(543	)		7.62
Outstanding at December 31, 2019		10,784			$	7.38			6.52		$	71,745
Options vested and exercisable at December 31, 2019		7,245			$	6.18			5.72		$	55,426
Options vested and expected to vest at December 31, 2019		10,784			$	7.38			6.52		$	71,745

There were 276,660 unvested exercisable shares as of the year ended December 31, 2018, which are subject to a repurchase option held by the Company at the original exercise price. These exercisable but unvested shares had a weighted average remaining vesting period of less than a year. There was no exercise of unvested options in the years ended December 31, 2019 and 2018. These options became fully vested during the year ended December 31, 2019.

The weighted-average grant-date fair value of stock options granted during the year ended December 31, 2019, 2018 and 2017 were $8.27, $4.21 and $2.57 per share, respectively. The total intrinsic value of the options exercised during the year ended December 31, 2019, 2018 and 2017 was $37.8 million, $21.4 million and $2.3 million, respectively. The aggregate intrinsic value is the difference of the current fair value of the stock and the exercise price for in-the-money stock options. The total fair value of options vested during the year ended December 31, 2019, 2018 and 2017 was $9.5 million, $8.8 million and $7.5 million, respectively. 

The Company estimates the fair value of stock-based awards on their grant date using the Black-Scholes option-pricing model. The Company estimates the fair value using a single-option approach and amortizes the fair value on a straight-line basis for options expected to vest. All options are amortized over the requisite service periods of the awards, which are generally the vesting periods.

The Company estimated the fair value of stock options with the following assumptions:

		Year Ended December 31,
		2019			2018			2017
Risk-free interest rate		1.70% - 2.59%			2.72% - 2.92%			1.88% - 2.22%
Volatility		52.9% - 55.07%			44.87% - 54.61%			45.95% - 50.52%
Expected term (in years)		6.10 - 6.12			6.09 - 6.11			5.94 - 6.08
Expected dividend yield		0.00	%		0.00	%		0.00	%

The expected term assumptions were determined based on the average vesting terms and contractual lives of the options. The risk-free interest rate is based on the rate for a U.S. Treasury zero-coupon issue with a term that approximates the expected life of the option grant. For stock options granted in the year ended December 31, 2019, 2018 and 2017, the Company considered the volatility data of a group of publicly traded peer companies in its industry. The Company accounts for forfeitures as they occur and, as such, reverses compensation cost previously

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recognized in the period the award is forfeited, for an award that is forfeited before completion of the requisite service period.

Restricted Stock Units

In 2014, the Company granted a total of 947,342 RSUs subject to certain performance targets to a third party partner. As of December 31, 2017, 350,000 outstanding RSUs had a performance feature that is required to be satisfied before the option is vested. In March 2018, the Company amended the terms of all of these RSUs, such that the RSUs are deemed earned subject to a clawback provision that requires the holder of the RSUs to either forfeit all the RSUs or pay the Company repayment value for all RSUs that are not forfeited if the third party breaches the exclusivity provision of the parties’ commercial agreement. The exclusivity clawback provision for all of the RSUs expired in September 2019.

The performance-based provision is considered substantive. As a result, the Company recognizes expense once the performance targets are met. The first performance target was met in 2015. The Company recognized $3.5 million and $0.8 million compensation expense in the years ended December 31, 2018 and 2017 upon certain performance targets being met.

The following table summarizes the activity for all RSUs under all of the Company’s equity incentive plans for the years ended December 31, 2019 and 2018 (shares in thousands):

		Shares			Weighted Average Grant Date Fair Value
Unvested balance at December 31, 2017		5,330			$	5.82
Granted		2,019			8.75
Issued		(1,720	)		6.36
Cancelled / forfeited		(1,447	)		5.75
Unvested balance at December 31, 2018		4,182			7.05
Granted		2,258			15.25
Issued		(1,104	)		6.83
Cancelled / forfeited		(1,393	)		8.14
Unvested balance at December 31, 2019		3,943			$	11.42

Employee Stock Purchase Plan

Under the Company's 2015 Employee Stock Purchase Plan (“ESPP”) (as amended in May 2017), eligible employees are offered shares bi-annually through a 24 month offering period which encompasses four six-month purchase periods. Each purchase period begins on the first trading day on or after May 15 and November 15 of each year. Employees may purchase a limited number of shares of the Company’s common stock via regular payroll deductions at a discount of 15% of the lower of the fair market value of the Company’s common stock on the first trading date of each offering period or on the exercise date. Employees may deduct up to 15% of payroll, with a cap of $25,000 of fair market value of shares in any calendar year and 10,000 shares per employee per purchase period. Under the ESPP, 1,000,000 shares of the Company’s common stock have been reserved for issuance to eligible employees. The ESPP provides for an automatic increase of the number of shares available for issuance under the ESPP on the first day of each fiscal year beginning on January 1, 2016, equal to the least of 5 million shares, 2% of the outstanding shares of our common stock on the last day of the immediately preceding fiscal year, or such other amount as may be determined by the Board of Directors. In 2019 and 2018, the Board of Directors authorized an additional 2,262,973 and 2,147,005 shares, respectively, reserved for issuance under the ESPP.

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Stock-Based Compensation Expense

The Company recognized stock-based compensation expense, including ESPP expenses, in the consolidated statements of operations as follows (in thousands): 

		Year Ended December 31,
		2019				2018				2017
Cost of customer agreements and incentives		$	2,434			$	2,568			$	2,299
Cost of solar energy systems and product sales		844				718				609
Sales and marketing		5,162				7,191				5,196
Research and development		1,439				1,253				836
General and administration		16,427				16,126				13,102
Total		$	26,306			$	27,856			$	22,042

As of December 31, 2019 and 2018, total unrecognized compensation cost related to outstanding stock options and RSUs was $30.0 million and $40.0 million, respectively, which are expected to be recognized over a weighted-average period of 2.3 years.

In August 2017, the Company entered into an agreement with an affiliate ("Contractor") of Comcast Corporation ("Comcast") whereby Contractor will receive lead or sales fees for new customers it brings to the Company over a 40-month term. Comcast may also earn a warrant to purchase up to 11,793,355 shares of the Company's outstanding common stock, at an exercise price of $0.01 per warrant share. The warrant initially vests 50.05% when both (i) Contractor has earned a lead or sales fee with respect to 30,000 of installed solar energy systems, and (ii) Contractor or its affiliates have spent at least $10.0 million in marketing and sales in connection with the agreement. Thereafter, the warrant will vest in five additional increments for each additional 6,000 installed solar energy systems. On November 7, 2018 the warrant vesting schedule was modified so that it will initially vest either (i) as to 10.0% if Contractor has earned a lead or sales fee with respect to 6,000 of installed solar energy systems by September 30, 2019 or (ii) as to 13.3% if Contractor has earned a lead or sales fee with respect to 8,000 of installed solar energy systems by December 31, 2019, provided that, in either case, Contractor or its affiliates have spent at least $25.0 million in marketing and sales in connection with the agreement.  Thereafter, the warrant will vest in additional 8.3% increments for each additional 5,000 installed solar energy systems.  The initial vesting conditions were not met by December 31, 2019, as a result, the warrant expired unvested.

401(k) Plan

The Company's 401(k) Plan is a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, participating U.S. employees may defer a portion of their pre-tax earnings, up to the IRS annual contribution limit ($19,000 for calendar year 2019). Effective January 1, 2018, the Company matches 100% of the first 1% and 50% of the next 5% of each employee's contributions. The Company recognized expense of $8.5 million and $7.0 million in the years ended December 31, 2019 and 2018, respectively.

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

		For the Year Ended December 31,
		2019				2018				2017
Income attributable to common stockholders		$	(18,117	)		$	(35,979	)		$	(137,842	)
Loss attributable to noncontrolling interest and redeemable noncontrolling interests		417,357				286,843				413,104
Loss before income taxes		$	399,240			$	250,864			$	275,262

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

		For the Year Ended December 31,
		2019				2018				2017
Current
Federal		$	(454	)		$	(1,100	)		$	—
State		(593		)		292				—
Foreign		1,435				—				—
Total current expense (benefit)		388				(808		)		—
Deferred
Federal		(7,634		)		1,995				4,784
State		(972		)		8,135				7,569
Foreign		—				—				—
Total deferred (benefit) provision		(8,606		)		10,130				12,353
Total		$	(8,218	)		$	9,322			$	12,353

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

		For the Year Ended December 31,
		2019			2018			2017
Tax provision (benefit) at federal statutory rate		(21.00	)%		(21.00	)%		(34.00	)%
State income taxes, net of federal benefit		(0.97	)		0.32			1.94
Effect of noncontrolling and redeemable noncontrolling interests		21.95			24.01			51.03
Stock-based compensation		(1.96	)		(1.77	)		0.70
ASC 740-10 Reserve		(0.11	)		—			—
Tax credits		(0.99	)		(1.35	)		(1.25	)
Effect of rate change		—			—			(15.93	)
Effect of valuation allowance		0.40			3.04			0.81
Other		0.62			0.47			1.20
Total		(2.06	)%		3.72	%		4.50	%

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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table represents the components of the Company’s deferred tax assets and liabilities for the periods presented (in thousands):

		December 31,
		2019				2018
Deferred tax assets
Accruals and prepaids		$	19,704			$	18,871
Deferred revenue		11,229				—
Net operating loss carryforwards		347,997				288,039
Stock-based compensation		7,104				5,681
Investment tax and other credits		32,878				28,551
Interest Expense		12,394				9,614
Interest rate derivatives		18,988				1,282
Total deferred tax assets		450,294				352,038
Less: Valuation allowance		(12,120		)		(10,506		)
Gross deferred tax assets		438,174				341,532
Deferred tax liabilities
Deferred revenue		—				17,526
Capitalized costs to obtain a contract		66,247				54,823
Fixed asset depreciation		263,917				218,701
Deferred tax on investment in partnerships		173,974				144,115
Gross deferred tax liabilities		504,138				435,165
Net deferred tax liabilities		$	(65,964	)		$	(93,633	)

As of December 31, 2019, the Company has an investment tax credit carryforward of approximately $18.8 million which begins to expire in the year 2028, if not utilized and $1.0 million of California enterprise zone credits which begin to expire in the year 2023. As of December 31, 2018, the Company has an investment tax credit carryforward of approximately $14.9 million and California enterprise zone credits of approximately $1.0 million.

Generally, utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code (IRC) of 1986, as amended and similar state provisions. The Company performed an analysis to determine whether an ownership change under Section 382 of the Code had occurred and determined that no ownership changes were identified as of December 31, 2019.

Valuation allowances are provided against deferred tax assets to the extent that it is more likely than not that the deferred tax asset will not be realized. The Company’s management considers all available positive and negative evidence including its history of operating income or losses, future reversals of existing taxable temporary difference, taxable income in carryback years and tax-planning strategies. The Company has concluded that it is more likely than not that the benefit from certain federal tax credits, state net operating loss carryforwards, and state tax credits will not be realized. In recognition of this risk, the Company has provided a valuation allowance of $12.1 million on the deferred tax assets relating to these federal tax credits, state net operating loss carryforwards, and state tax credits which is an increase of $1.6 million in 2019.

The Company sells solar energy systems to investment Funds. As the investment Funds are consolidated by the Company, the gain on the sale of the assets has been eliminated in the consolidated financial statements. These transactions are treated as intercompany sales and any tax expense incurred related to these sales prior to fiscal year 2017 was deferred. As described in Note 2, Summary of Significant Accounting Policies - Recently Issued Accounting Standards, ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, requires entities to recognize income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. As a result, a reporting entity would recognize the tax expense from the sale of assets in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of the transaction are eliminated in the

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consolidated financial statements. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer. As the Company sells solar energy systems to Funds, the Company records the current tax effect of the gain on the sale as well as a deferred tax asset related to the Company’s increased tax basis in the partnership as a result of the sale. With the adoption of ASU 2016-16 on January 1, 2017 the Company reversed net prepaid tax assets of $378.5 million and recorded the gross deferred tax assets associated with the historical intercompany sales of solar energy systems, which in turn reduced the deferred tax liabilities on investment in partnerships by $378.2 million with the remaining $0.3 million being recorded as a cumulative effect of adoption in the Company’s Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity. The adoption did not have an impact on the Company’s Consolidated Statement of Operations.

The Company adopted ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, on January 1, 2017. As a result of the adoption, the Company has increased its federal and state deferred tax assets by $3.3 million for the cumulative unrecognized federal and state gross windfall net operating loss carryover at December 31, 2016 of $8.6 million and $6.8 million, respectively, with an offsetting adjustment to retained earnings of $3.3 million.

Tax Cuts and Jobs Act

On December 22, 2017, the US government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the US tax code including but not limited to, (1) reducing the US federal corporate tax rate from 35% to 21%; (2) immediate expensing of certain tangible personal property (3) creating a new limitation on deductible interest expense; (4) enacting special rules for taxable year of inclusion for certain revenue and (5) changing rules related to the uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provided guidance on accounting for the tax effects of the Tax Act. SAB 118 provided a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income taxes. In accordance with SAB 118 a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

The Company recognized the provisional tax impacts related to the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. In its final assessment of the Tax Act, no adjustment has been made to current or deferred income tax expense in 2017 or 2018. As of December 31, 2018, the Company completed its accounting for all of the enactment-date income tax effects of the Act. While the Company has fully accounted for the impact of the Tax Act, the U.S. Treasury released proposed regulations under IRC Sec. 451(c) related to the recognition of advanced payments for goods and services on September 5, 2019. The Company completed its analysis of the proposed regulations and plans to early adopt the regulations on its 2019 income tax returns. The early adoption of the proposed regulations does not have a material impact to income tax expense.

Uncertain Tax Positions

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state and local jurisdictions, where applicable. The statute of limitations for the tax returns varies by jurisdictions.

We determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. We use a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. We have analyzed the Company’s inventory of tax positions with respect to all applicable income tax issues for all open tax years (in each respective jurisdiction).

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Our policy is to include interest and penalties related to unrecognized tax benefits, if any, within the provision for taxes in the consolidated statements of operations.  

As of December 31, 2019 and 2018, the Company had $0.0 million and $0.6 million, respectively, of unrecognized tax benefits related to an acquisition in 2015. In addition, there was $0.0 million and $0.2 million of interest and penalties for uncertain tax positions as of December 31, 2019 and 2018, respectively. During the 12 months ended December 31, 2019, the Company recorded an income tax benefit of $0.8 million, including penalties and interest, due to the expiration of federal and California statute of limitations. This benefit was fully offset by an indemnification asset that was written down to zero through operating expenses during 2018. Due to the expiration of federal and California statute of limitations, as of December 31, 2019, the Company has no other uncertain tax positions.

The change in unrecognized tax benefits during 2019, 2018 and 2017, excluding penalties and interest, is as follows:

		For the Year Ended December 31,
		2019				2018				2017
Unrecognized tax benefits at beginning of the year		$	647			$	1,525			$	1,525
Reversal of prior year unrecognized tax benefits due to the expiration of the statute of limitations		(647		)		(878		)		—
Unrecognized tax benefits at end of the year		$	—			$	647			$	1,525

One of our investment funds is currently under audit by the Internal Revenue Service (the “IRS”). In addition, one of our investors is currently being audited by the IRS, and this investor audit involves a review of the fair market value determination of our solar energy systems. If these investor audits result in an adverse finding, we would be subject to an indemnity obligation to these investors. The Company is subject to taxation and files income tax returns in the U.S., its territories, and various state and local jurisdictions. Due to the Company’s net losses, substantially all of its federal, state and local income tax returns since inception are still subject to audit.

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

	Tax Years
U.S. Federal	2016 - 2019
State	2015 - 2019

Net Operating Loss Carryforwards

As a result of the Company’s net operating loss carryforwards as of December 31, 2019, the Company does not expect to pay income tax, including in connection with its income tax provision for the year ended December 31, 2019 until the Company’s net operating losses are fully utilized. As of December 31, 2019, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $718.1 million and $1.3 billion, respectively, which will begin to expire in 2028 for federal purposes and in 2024 for state purposes. In addition, federal and certain state net operating loss carryforwards generated in tax years beginning after December 31, 2017 total $535.1 million and $102.4 million, respectively, and have indefinite carryover periods and do not expire.

Letters of Credit

As of December 31, 2019 and 2018, the Company had $20.1 million and $9.7 million, respectively, of unused letters of credit outstanding, which carry fees of 1.25 - 3.25% per annum and 2.50 - 3.25% per annum, respectively.

Operating and Finance Leases

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The Company leases real estate under non-cancellable operating leases and equipment under finance leases.

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

		For the Year Ended December 31,
		2019				2018				2017
Finance lease cost:
Amortization of right-of-use assets		$	13,999			$	11,884			$	11,029
Interest on lease liabilities		1,915				676				640
Operating lease cost		13,159				10,467				10,177
Short-term lease cost		1,349				732				493
Variable lease cost		3,565				3,112				2,502
Sublease income		(669		)		(572		)		(24		)
Total lease cost		$	33,318			$	26,299			$	24,817

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

		For the Year Ended December 31,
		2019				2018				2017
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases		$	11,516			$	10,765			$	10,027
Operating cash flows from finance leases		991				482				591
Financing cash flows from finance leases		13,919				9,220				10,032
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		19,503				3,411				7,276
Finance leases		17,914				15,370				862
Weighted average remaining lease term (years):
Operating leases		5.39				3.43				3.99
Finance leases		2.91				3.37				2.06
Weighted average discount rate:
Operating leases		5.5		%		4.3		%		4.1		%
Finance leases		4.2		%		4.3		%		3.1		%

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Future minimum lease commitments under non-cancellable leases as of December 31, 2019 were as follows (in thousands):

		Operating Leases			Sublease Income			Net Operating Leases				Finance leases
2020		$	12,034		$	787		$	11,247			$	10,741
2021		11,338			639			10,699				7,659
2022		9,469			—			9,469				4,657
2023		8,611			—			8,611				1,119
2024		4,431			—			4,431				41
Thereafter		7,999			—			7,999				4
Total future lease payments		53,882			1,426			52,456				24,221
Less: Amount representing interest		(7,246		)	—			(7,246		)		(1,262		)
Present value of future payments		46,636			1,426			45,210				22,959
Less: Amount for tenant incentives		(733		)	—			(733		)		—
Revised Present value of future payments		45,903			1,426			44,477				22,959
Less: Current portion		(9,790		)	—			(9,790		)		(10,064		)
Long term portion		$	36,113		$	1,426		$	34,687			$	12,895

Purchase Commitment

The Company entered into purchase commitments, which have the ability to be canceled without significant penalties, with multiple suppliers to purchase $78.5 million of photovoltaic modules and inverters by the end of 2019.

Warranty Accrual

The Company accrues warranty costs when revenue is recognized for solar energy systems sales, based on the estimated future costs of meeting its warranty obligations. Warranty costs primarily consist of replacement costs for supplies and labor costs for service personnel since warranties for equipment and materials are covered by the original manufacturer’s warranty (other than a small deductible in certain cases). As such, the warranty reserve is immaterial in all periods presented. The Company makes and revises these estimates based on the number of solar energy systems under warranty, the Company’s historical experience with warranty claims, assumptions on warranty claims to occur over a systems’ warranty period and the Company’s estimated replacement costs.

Commercial ITC and Cash Grant Indemnification

The Company is contractually committed to compensate certain investors for any losses that they may suffer in certain limited circumstances resulting from reductions in Commercial ITCs or U.S. Treasury grants. Generally, such obligations would arise as a result of reductions to the value of the underlying solar energy systems as assessed by the Internal Revenue Service (the “IRS”). At each balance sheet date, the Company assesses and recognizes, when applicable, the potential exposure from this obligation based on all the information available at that time, including any audits undertaken by the IRS. The Company believes that this obligation is not probable based on the facts known as of the filing date of this Annual Report on Form 10-K. The maximum potential future payments that the Company could have to make under this obligation would depend largely on the difference between the prices at which the solar energy systems were sold or transferred to the Funds (or, in certain structures, the fair market value claimed in respect of such systems (referred to as "claimed values")) and the eligible basis determined by the IRS. The Company set the purchase prices and claimed values based on fair market values determined with the assistance of an independent third-party appraisal with respect to the systems that generate Commercial ITCs that are passed-through to and claimed by the Fund investors. Since the Company cannot determine how the IRS may evaluate system values used in claiming Commercial ITCs, the Company is unable to reliably estimate the maximum potential future payments that it could have to make under this obligation as of each balance sheet date, though any potential future payments are mitigated by the insurance policy described below. In April 2018, the Company purchased an insurance policy providing for certain payments by the insurers in the event there is any final determination (including a judicial determination) that reduced the

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Commercial ITCs claimed in respect of solar energy systems sold or transferred to most Funds through April 2018, or later, in the case of Funds added to the policy after such date. In general, the policy indemnifies the Company and related parties for additional taxes (including penalties and interest) owed in respect of lost Commercial ITCs, gross-up costs and expenses incurred in defending such claim, subject to negotiated exclusions from, and limitations to, coverage.

Litigation

The Company is subject to certain legal proceedings, claims, investigations and administrative proceedings in the ordinary course of its business. The Company records a provision for a liability when it is both probable that the liability has been incurred and the amount of the liability can be reasonably estimated. These provisions, if any, are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Depending on the nature and timing of any such proceedings that may arise, an unfavorable resolution of a matter could materially affect the Company’s future consolidated results of operations, cash flows or financial position in a particular period.

On June 29, 2017, a shareholder derivative complaint captioned Barbara Sue Sklar Living Trust v. Sunrun Inc. et al., was filed in the United States District Court, Northern District of California, against the Company and certain of the Company’s directors and officers. The complaint generally alleges that the defendants violated Section 14(a) of the Exchange Act by making false or misleading statements in connection with public filings, including proxy statements, made between September 10, 2015 and May 3, 2017 regarding the number of customers who cancelled contracts after signing up for the Company’s home solar energy system. The Plaintiff seeks, among other things, damages in favor of the Company, certain corporate actions to purportedly improve the Company’s corporate governance, and an award of costs and expenses to the putative plaintiff stockholder, including attorneys’ fees.

On April 5, 2018, a stockholder derivative complaint captioned Leonard Olsen v. Sunrun Inc. et al., was filed in the United States District Court, District of Delaware, against the Company and certain of the Company’s directors and officers. The Olsen complaint is substantially similar to the Sklar complaint, alleges that the defendants breached their fiduciary duties and violated Section 14(a) of the Exchange Act in connection with public statements made between September 16, 2015 and May 21, 2017, and seeks similar relief.

On January 28, 2019, the Company reached an agreement in principle to settle all claims asserted in the Sklar and Olsen derivative actions against all defendants, and on November 29 2019, the Court granted final approval of the settlement. Under the terms of the settlement, the Company agreed to adopt certain corporate governance measures in the future. The Company and all defendants have denied, and continue to deny, the claims alleged in the derivative actions and the settlement does not reflect any admission of fault, wrongdoing or liability as to any defendant.

On April 8, 2019, a putative class action captioned Loftus et al. v. Sunrun Inc., Case No. 3:19-cv-01608, was filed in the United States District Court, Northern District of California.  The complaint generally alleged violations of the Telephone Consumer Protection Act (the “TCPA”) on behalf of an individual and putative classes of persons alleged to be similarly situated. Plaintiffs filed a First Amended Complaint on June 26, 2019, adding defendant MediaMix 365, LLC, also asserting individual and putative class claims under the TCPA, along with claims under the California Invasion of Privacy Act. In the amended version of their Complaint, plaintiffs seek statutory damages, equitable and injunctive relief, and attorneys’ fees and costs on behalf of themselves and the absent purported classes. On January 23, 2020, the Court held a status conference and set discovery deadlines. Most, if not all, of the claims asserted in the lawsuit relate to activities allegedly engaged in by third-party vendors, for which the Company denies any responsibility. The vendors are contractually obligated to indemnify the Company for losses related to the conduct alleged. The Company believes that the claims are without merit and intends to defend itself vigorously.

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

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computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period adjusted to include the effect of potentially dilutive securities. Potentially dilutive securities are excluded from the computation of dilutive EPS in periods in which the effect would be antidilutive.

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

		Years Ended December 31,
		2019				2018				2017
Numerator:
Net income attributable to common stockholders		$	26,335			$	26,657			$	125,489
Denominator:
Weighted average shares used to compute net income per share attributable to common stockholders, basic		116,397				110,089				105,432
Weighted average effect of potentially dilutive shares to purchase common stock		7,479				7,023				2,774
Weighted average shares used to compute net income per share attributable to common stockholders, diluted		123,876				117,112				108,206
Net income per share attributable to common stockholders
Basic		$	0.23			$	0.24			$	1.19
Diluted		$	0.21			$	0.23			$	1.16

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

		Year Ended December 31,
		2019			2018			2017
Warrants		—			625			1,251
Outstanding stock options		1,486			3,271			13,803
Unvested restricted stock units		673			649			1,451
Total		2,159			4,545			16,505

An individual who previously served as one of the Company’s directors until March 2017 has direct and indirect ownership interests in Enphase Energy, Inc. (“Enphase”). For the year ended December 31, 2017, the Company recorded $9.1 million in purchases from Enphase and had outstanding payables to Enphase of $2.0 million.

The following table presents selected quarterly results of operations data for the years ended December 31, 2019 and 2018 (in thousands, except per share amounts):

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	Three Months Ended
	December 31				September 30				June 30				March 31
2019
Total Revenue	$	243,937			$	215,542			$	204,595			$	194,504
Cost of customer agreements and incentives	$	72,898			$	67,359			$	70,594			$	69,493
Cost of solar energy systems and product sales	$	109,307			$	92,031			$	86,348			$	77,799
Net loss	$	(86,997	)		$	(112,534	)		$	(104,585	)		$	(86,906	)
Net (loss) income attributable to common stockholders	$	12,500			$	28,990			$	(1,293	)		$	(13,862	)
Net (loss) income per share attributable to common stockholders, basic	$	0.11			$	0.25			$	(0.01	)		$	(0.12	)
Net (loss) income per share attributable to common stockholders, diluted	$	0.10			$	0.23			$	(0.01	)		$	(0.12	)
2018
Total Revenue	$	240,120			$	204,960			$	170,538			$	144,363
Cost of customer agreements and incentives	$	65,317			$	63,195			$	57,769			$	54,576
Cost of solar energy systems and product sales	$	89,040			$	76,179			$	64,268			$	64,579
Net loss	$	(49,515	)		$	(47,524	)		$	(71,727	)		$	(91,420	)
Net income attributable to common stockholders	$	(5,888	)		$	(2,896	)		$	7,409			$	28,032
Net income per share attributable to common stockholders, basic	$	(0.05	)		$	(0.03	)		$	0.07			$	0.26
Net income per share attributable to common stockholders, diluted	$	(0.05	)		$	(0.02	)		$	0.06			$	0.25

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(1)	Consolidated Financial Statements

(2)	Financial Statement Schedules

(3)	Exhibits

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