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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q


(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-37511 
Sunrun Inc.
(Exact name of registrant as specified in its charter)
Delaware26-2841711
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)

225 Bush Street, Suite 1400
San Francisco, California 94104
(Address of principal executive offices and Zip Code)

(415) 580-6900
(Registrant’s telephone number, including area code) 

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par value per shareRUNNasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
     
Non-accelerated filerSmaller reporting company
     
Emerging growth company


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of April 29, 2022, the number of shares of the registrant’s common stock outstanding was 210,112,513.




Table of Contents
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Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 5.
Item 6.

1


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The discussion in this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “goals,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” “likely,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

the potential effects of the COVID-19 pandemic, including its variants, on our business and operations, results of operations and financial position;

the expected benefits and potential value created by the merger with Vivint Solar for our stockholders;

the inherent risks, costs and uncertainties associated with integrating the businesses in the merger with Vivint Solar successfully and risks of not achieving all or any of the anticipated benefits of the merger with Vivint Solar, or the risk that the anticipated benefits of the acquisition may not be fully realized or take longer to realize than expected;

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, such as the COVID-19 pandemic;

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 investments and the expected benefits of such partnerships and investments;

our ability to realize the anticipated benefits of past or future investments, strategic transactions, or acquisitions, and risk that the integration of these acquisitions may disrupt our business and management;

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

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 volatile or rising 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;

2


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;

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, canceled 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;

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

our ability to capitalize on the market opportunities created by the electrification of the U.S. economy with renewable energy.



These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. These risks and uncertainties may be amplified by the ongoing COVID-19 pandemic, which has caused significant economic uncertainty and negative impacts on capital and credit markets. The extent to which the COVID-19 pandemic impacts our business, operations, and financial results, including the duration and magnitude of such effects, will depend on numerous factors, many of which are unpredictable, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the pandemic or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations, except as required by law.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the Securities and Exchange Commission (the “SEC”) as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.


3


SELECTED RISKS AFFECTING OUR BUSINESS

Investing in our common stock involves numerous risks, including the risks described in “Part II, Item 1A. Risk Factors”, of this Quarterly Report on Form 10-Q. Below are some of these risks, any one of which could materially adversely affect our business, financial condition, results of operations and prospects.

Selected Risks Related to the Solar Industry

The solar energy industry is an emerging market which is constantly evolving and may not develop to the size or at the rate we expect.
We have historically benefited from declining costs in our industry, and our business and financial results may be harmed not only as a result of any increases in costs associated with our solar service offerings but also any failure of these costs to continue to decline as we currently expect. If we do not reduce our cost structure in the future, our ability to continue to be profitable may be impaired.
We face competition from traditional energy companies as well as solar and other renewable energy companies.

Selected Risks Related to Our Operating Structure and Financing Activities

We need to raise capital to finance the continued growth of our operations and solar service business. If capital is not available to us on acceptable terms, as and when needed, our business and prospects would be materially and adversely impacted. In addition, our business is affected by general economic conditions and related uncertainties affecting markets in which we operate. Volatility in current economic conditions could adversely impact our business, including our ability to raise financing.
Volatility and increases in interest rates raise our cost of capital and may adversely impact our business.
We expect to incur substantially more debt in the future, which could intensify the risks to our business.

Selected Risks Related to Regulation and Policy

We rely on certain utility rate structures, such as net metering, to offer competitive pricing to customers in all of our current markets, and changes to such policies, such as those currently under consideration by the California Public Utilities Commission, may significantly reduce demand for electricity from our solar service offerings.
Electric utility statutes and regulations and changes to such statutes or regulations may present technical, regulatory and economic barriers to the purchase and use of our solar service offerings that may significantly reduce demand for such offerings.
Regulations and policies related to rate design could deter potential customers from purchasing our solar service offerings, reduce the value of the electricity our systems produce, and reduce any savings that our customers could realize from our solar service offerings.

Selected Risks Related to Our Business Operations

Our growth depends in part on the success of our relationships with third parties, including our solar partners.
We and our solar partners depend on a limited number of suppliers of solar panels, batteries, and other system components to adequately meet anticipated demand for our solar service offerings. Any shortage, bottlenecks, delay, detentions or component price change from these suppliers, or the acquisition of any of these suppliers by a competitor, could result in sales and installation delays, cancellations and loss of market share.
If we fail to manage our recent and future growth effectively, we may be unable to execute our business plan, maintain high levels of customer service, or adequately address competitive challenges.
The COVID-19 pandemic, including its variants, has had and could continue to have an adverse impact on our business, operations and the markets and communities in which we operate. Efforts to mitigate or contain the pandemic and the resulting weakened economic conditions may disrupt and adversely affect our business.
We may not realize the anticipated benefits of past or future investments, strategic transactions, or acquisitions, and integration of these acquisitions may disrupt our business and our management.
4


A failure to hire and retain a sufficient number of employees and service providers in key functions would constrain our growth and our ability to timely complete customers' Projects and successfully manage customer accounts.
Regulators may limit the type of electricians qualified to install and service our solar and battery systems in California, which may result in workforce shortages, operational delays, and increased costs.
Our results of operations may fluctuate from quarter to quarter, which could make our future performance difficult to predict and could cause our results of operations for a particular period to fall below expectations, resulting in a decline in the price of our common stock.
Our actual financial results may differ materially from any guidance we may publish from time to time.

Selected Risks Related to Taxes and Accounting

Our ability to provide our solar service offerings to customers on an economically viable basis depends in part on our ability to finance these systems with fund investors who seek particular tax and other benefits.
If the Internal Revenue Service makes determinations that the fair market value of our solar energy systems is materially lower than what we have claimed, we may have to pay significant amounts to our fund investors, and our business, financial condition and prospects may be materially and adversely affected.
Our business currently depends on the availability of utility rebates, tax credits and other benefits, tax exemptions and exclusions, and other financial incentives. We may be adversely affected by changes in U.S. tax laws, and the expiration, elimination or reduction of these benefits could adversely impact our business.

If we are unable to adequately address these and other risks we face, our business may be harmed.
5



Sunrun Inc.
Consolidated Balance Sheets
(In Thousands, Except Share Par Values)
(Unaudited)
March 31, 2022December 31, 2021
Assets
Current assets:
Cash$629,161 $617,634 
Restricted cash233,306 232,649 
Accounts receivable (net of allowances for credit losses of $11,516 and $11,035 as of March 31, 2022 and December 31, 2021, respectively)
200,549 146,037 
Inventories555,946 506,819 
Prepaid expenses and other current assets90,388 44,580 
Total current assets1,709,350 1,547,719 
Restricted cash148 148 
Solar energy systems, net9,772,062 9,459,696 
Property and equipment, net59,963 56,886 
Intangible assets, net11,550 12,891 
Goodwill4,280,169 4,280,169 
Other assets1,421,880 1,125,743 
Total assets (1)
$17,255,122 $16,483,252 
Liabilities and total equity
Current liabilities:
Accounts payable$385,265 $288,108 
Distributions payable to noncontrolling interests and redeemable noncontrolling interests
30,661 31,582 
Accrued expenses and other liabilities320,318 364,136 
Deferred revenue, current portion113,653 111,739 
Deferred grants, current portion8,294 8,302 
Finance lease obligations, current portion11,135 10,901 
Non-recourse debt, current portion193,131 190,186 
Pass-through financing obligation, current portion7,454 7,166 
Total current liabilities1,069,911 1,012,120 
Deferred revenue, net of current portion780,305 761,872 
Deferred grants, net of current portion204,299 206,615 
Finance lease obligations, net of current portion11,849 11,314 
Convertible senior notes391,175 390,618 
Line of credit470,000 211,066 
Non-recourse debt, net of current portion6,084,854 5,711,020 
Pass-through financing obligation, net of current portion311,679 314,231 
Other liabilities150,806 190,056 
Deferred tax liabilities98,982 101,753 
Total liabilities (1)
9,573,860 8,910,665 
Commitments and contingencies (Note 15)
Redeemable noncontrolling interests630,511 594,973 
Stockholders’ equity:
Preferred stock, $0.0001 par value—authorized, 200,000 shares as of March 31, 2022 and December 31, 2021; no shares issued and outstanding as of March 31, 2022 and December 31, 2021
  
Common stock, $0.0001 par value—authorized, 2,000,000 shares as of March 31, 2022 and December 31, 2021; issued and outstanding, 209,417 and 208,176 shares as of March 31, 2022 and December 31, 2021, respectively
21 21 
Additional paid-in capital6,359,279 6,330,344 
Accumulated other comprehensive loss(4,601)(73,050)
Retained earnings(90,357)(2,579)
Total stockholders’ equity6,264,342 6,254,736 
Noncontrolling interests786,409 722,878 
Total equity7,050,751 6,977,614 
Total liabilities, redeemable noncontrolling interests and total equity$17,255,122 $16,483,252 


6







1)The Company’s consolidated assets as of March 31, 2022 and December 31, 2021 include $8,639,974 and $8,381,220, respectively, in assets of variable interest entities (“VIEs”) that can only be used to settle obligations of the VIEs. These assets include solar energy systems, net, as of March 31, 2022 and December 31, 2021 of $7,888,322 and $7,605,769, respectively; cash as of March 31, 2022 and December 31, 2021 of $306,124 and $377,044, respectively; restricted cash as of March 31, 2022 and December 31, 2021 of $66,918 and $70,346, respectively; accounts receivable, net as of March 31, 2022 and December 31, 2021 of $72,691 and $55,714, respectively; inventories as of March 31, 2022 and December 31, 2021 of $98,023 and 93,604, respectively; prepaid expenses and other current assets as of March 31, 2022 and December 31, 2021 of $1,585 and $1,519, respectively; and other assets as of March 31, 2022 and December 31, 2021 of $206,311 and $177,224, respectively. The Company’s consolidated liabilities as of March 31, 2022 and December 31, 2021 include $2,087,174 and $2,152,492, respectively, in liabilities of VIEs whose creditors have no recourse to the Company. These liabilities include accounts payable as of March 31, 2022 and December 31, 2021 of $27,488 and $26,042, respectively; distributions payable to noncontrolling interests and redeemable noncontrolling interests as of March 31, 2022 and December 31, 2021 of $30,661 and $31,582, respectively; accrued expenses and other current liabilities as of March 31, 2022 and December 31, 2021 of $25,302 and $31,036, respectively; deferred revenue as of March 31, 2022 and December 31, 2021 of $533,632 and $530,385, respectively; deferred grants as of March 31, 2022 and December 31, 2021 of $0 and $25,634, respectively; non-recourse debt as of March 31, 2022 and December 31, 2021 of $1,453,894 and $1,482,608, respectively; and other liabilities as of March 31, 2022 and December 31, 2021 of $16,197 and $25,205, respectively.
The accompanying notes are an integral part of these consolidated financial statements.
7


Sunrun Inc.
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended March 31,
20222021
Revenue:
Customer agreements and incentives$209,692 $174,596 
Solar energy systems and product sales286,092 160,198 
Total revenue495,784 334,794 
Operating expenses:
Cost of customer agreements and incentives201,785 160,277 
Cost of solar energy systems and product sales
249,844 134,082 
Sales and marketing174,926 126,113 
Research and development6,257 5,872 
General and administrative43,081 85,630 
Amortization of intangible assets1,341 1,345 
Total operating expenses677,234 513,319 
Loss from operations(181,450)(178,525)
Interest expense, net(92,254)(74,270)
Other income, net113,958 34,347 
Loss before income taxes(159,746)(218,448)
Income tax benefit(3,277)(14,126)
Net loss(156,469)(204,322)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
(68,691)(180,533)
Net loss attributable to common stockholders$(87,778)$(23,789)
Net loss per share attributable to common stockholders
Basic$(0.42)$(0.12)
Diluted$(0.42)$(0.12)
Weighted average shares used to compute net loss per share attributable to common stockholders
Basic208,676 202,562 
Diluted208,676 202,562 

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

8


Sunrun Inc.
Consolidated Statements of Comprehensive Loss
(In Thousands)
(Unaudited)
Three Months Ended March 31,
20222021
Net loss attributable to common stockholders$(87,778)$(23,789)
Unrealized gain on derivatives, net of income taxes64,446 47,133 
Adjustment for net loss on derivatives recognized into earnings, net of income taxes4,003 2,860 
Other comprehensive income68,449 49,993 
Comprehensive income (loss)$(19,329)$26,204 

9


Sunrun Inc.
Consolidated Statements of Redeemable Noncontrolling Interests and Equity
Three Months Ended March 31, 2022 and 2021
(In Thousands)
(Unaudited)
Three Months Ended March 31, 2022
Redeemable
Noncontrolling
Interests
Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Inome (Loss)
Retained
Earnings
Total
Stockholders'
Equity
Noncontrolling
Interests
Total
Equity
SharesAmount
Balance at December 31, 2021$594,973 208,176 $21 $6,330,344 $(73,050)$(2,579)$6,254,736 $722,878 $6,977,614 
Exercise of stock options
— 239 — 2,539 — — 2,539 — 2,539 
Issuance of restricted stock units
— 1,002 — — — — — —  
Stock-based compensation
— — — 44,159 — — 44,159 — 44,159 
Contributions from noncontrolling interests and redeemable noncontrolling interests
64,320 — — — — — — 166,174 166,174 
Distributions to noncontrolling interests and redeemable noncontrolling interests
(15,290)— — — — — — (35,034)(35,034)
Net loss(13,492)— — — — (87,778)(87,778)(55,199)(142,977)
Acquisition of noncontrolling interests— — — (17,763)— — (17,763)(12,410)(30,173)
Other comprehensive income, net of taxes— — — — 68,449 — 68,449 — 68,449 
Balance at March 31, 2022
$630,511 209,417 $21 $6,359,279 $(4,601)$(90,357)$6,264,342 $786,409 $7,050,751 
Three Months Ended March 31, 2021
Redeemable
Noncontrolling
Interests
Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Total
Stockholders'
Equity
Noncontrolling
Interests
Total
Equity
SharesAmount
Balance at December 31,2020$560,461 201,406 $20 $6,107,802 $(106,755)$76,844 $6,077,911 $650,999 $6,728,910 
Exercise of stock options
— 898 — 8,541 — — 8,541 — 8,541 
Issuance of restricted stock units, net of tax withholdings
— 1,258 — — — — — —  
Stock-based compensation
— — — 80,632 — — 80,632 — 80,632 
Contributions from noncontrolling interests and redeemable noncontrolling interests
(23,691)— — — — — — 271,384 271,384 
Distributions to noncontrolling interests and redeemable noncontrolling interests
(16,069)— — — — — — (30,943)(30,943)
Net income (loss)20,165 — — — — (23,789)(23,789)(200,698)(224,487)
Capped call transaction— — — (28,000)— — (28,000)— (28,000)
Acquisition of noncontrolling interest
(4,572)— — 272 — — 272 — 272 
Other comprehensive income, net of taxes— — — — 49,993 — 49,993 — 49,993 
Balance at March 31, 2021
$536,294 203,562 $20 $6,169,247 $(56,762)$53,055 $6,165,560 $690,742 $6,856,302 

10


Sunrun Inc.
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Three Months Ended March 31,
20222021
Operating activities:
Net loss$(156,469)$(204,322)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization, net of amortization of deferred grants106,110 91,955 
Deferred income taxes(3,277)(14,126)
Stock-based compensation expense39,219 78,029 
Interest on pass-through financing obligations5,010 5,394 
Reduction in pass-through financing obligations(9,826)(10,219)
Unrealized gain on derivatives(66,182)(46,490)
Other noncash items(28,173)18,039 
Changes in operating assets and liabilities:
Accounts receivable(57,232)(32,311)
Inventories(49,127)(6,727)
Prepaid and other assets(136,843)(88,469)
Accounts payable100,425 1,479 
Accrued expenses and other liabilities(27,780)14,113 
Deferred revenue27,736 8,008 
Net cash used in operating activities(256,409)(185,647)
Investing activities:
Payments for the costs of solar energy systems(420,630)(357,012)
Purchase of equity investment(75,000) 
Purchases of property and equipment, net(6,471)(39)
Net cash used in investing activities(502,101)(357,051)
Financing activities:
Proceeds from line of credit490,000 207,694 
Repayment of line of credit(231,066)(258,160)
Proceeds from issuance of convertible senior notes, net of capped call transaction 372,000 
Proceeds from issuance of non-recourse debt453,700 431,633 
Repayment of non-recourse debt(83,585)(293,409)
Payment of debt fees(8,571)(15,360)
Proceeds from pass-through financing and other obligations1,911 2,486 
Payment of finance lease obligations(3,299)(3,087)
Contributions received from noncontrolling interests and redeemable noncontrolling interests230,493 247,693 
Distributions paid to noncontrolling interests and redeemable noncontrolling interests(51,245)(47,913)
Acquisition of noncontrolling interest(30,173)(4,195)
Net proceeds related to stock-based award activities2,529 8,541 
Net cash provided by financing activities770,694 647,923 
Net change in cash and restricted cash12,184 105,225 
Cash and restricted cash, beginning of period850,431 708,208 
Cash and restricted cash, end of period$862,615 $813,433 
Supplemental disclosures of cash flow information
Cash paid for interest$68,892 $55,910 
Cash paid for income taxes$ $ 
Supplemental disclosures of noncash investing and financing activities
Purchases of solar energy systems and property and equipment included in accounts payable and accrued expenses$47,660 $60,770 
Right-of-use assets obtained in exchange for new finance lease liabilities$4,160 $1,090 

The accompanying notes are an integral part of these consolidated financial statements.
11


Sunrun Inc.
Notes to Consolidated Financial Statements
(Unaudited)

Note 1. Organization
Sunrun Inc. (“Sunrun” or the “Company”) was originally formed in 2007 as a California limited liability company and was converted into a Delaware corporation in 2008. The Company is engaged in the design, development, installation, sale, ownership and maintenance of residential solar energy systems (“Projects”) in the United States.
Sunrun acquires customers directly and through relationships with various solar and strategic partners (“Partners”). The Projects are constructed either by Sunrun or by Sunrun’s Partners and are owned by the Company. Sunrun’s customers enter into an agreement to utilize the solar energy system (“Customer Agreement”) which typically has an initial term of 20 or 25 years. Sunrun monitors, maintains and insures the Projects. The Company also sells solar energy systems and products, such as panels and racking and solar leads generated to customers.
The Company has formed various subsidiaries (“Funds”) to finance the development of Projects. These Funds, structured as limited liability companies, obtain financing from outside investors and purchase or lease Projects from Sunrun under master purchase or master lease agreements. The Company currently utilizes three legal structures in its investment Funds, which are referred to as: (i) pass-through financing obligations, (ii) partnership-flips and (iii) joint venture (“JV”) inverted leases.


Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the "SEC") regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2021. The results of the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022 or other future periods.

The consolidated financial statements 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.
12


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 fair value of assets acquired and liabilities assumed in a business combination, 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.
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):
Three Months Ended March 31,
20222021
Customer agreements$190,502 $157,830 
Incentives19,190 16,766 
Customer agreements and incentives209,692 174,596 
Solar energy systems199,999 89,050 
Products86,093 71,148 
Solar energy systems and product sales286,092 160,198 
Total revenue$495,784 $334,794 

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 solar renewable energy credits (“SRECs”).
Cash and Restricted Cash
Restricted cash represents amounts related to obligations under certain financing transactions and future replacement of solar energy system components.
13


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):
Three Months Ended March 31,
  20222021
Beginning of period:
   Cash $617,634 $519,965 
   Restricted cash, current and long-term232,797 188,243 
Total$850,431 $708,208 
End of period:
   Cash $629,161 $649,493 
   Restricted cash, current and long-term233,454 163,940 
Total$862,615 $813,433 
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, net, consists of the following (in thousands):
  March 31, 2022 December 31, 2021
Customer receivables$199,816 $147,371 
Other receivables12,249 9,701 
Allowance for credit losses(11,516)(11,035)
Total$200,549 $146,037 
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, a sustained decline in the Company's stock price, or an unanticipated change in competition or the Company’s market share and a significant change in the Company’s strategic plans. As of October 1, 2021, the Company concluded that the fair value of the Company exceeded its carrying value. Since December 31, 2021, the trading price of the Company’s common stock has declined. A sustained decrease in the trading price of the Company’s common stock is one of the qualitative factors to be considered as part of an impairment test when evaluating whether events or changes in circumstances may indicate that it is more likely than not that a potential goodwill impairment exists. The Company will continue monitoring the analysis of the qualitative and quantitative factors used as a basis for the goodwill impairment test during fiscal year 2022.
14


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 $799.3 million as of December 31, 2020. Deferred revenue consists of the following (in thousands):
 March 31, 2022December 31, 2021
Under Customer Agreements:
Payments received, net$663,750 $645,439 
Financing component balance60,231 58,517 
723,981 703,956 
Under SREC contracts:
Payments received, net160,730 161,575 
Financing component balance9,247 8,080 
169,977 169,655 
Total$893,958 $873,611 

During the three months ended March 31, 2022 and 2021, the Company recognized revenue of $20.4 million and $18.8 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 $16.1 billion as of March 31, 2022, of which the Company expects to recognize approximately 5% over the next 12 months. The annual recognition is not expected to vary significantly over the next 10 years as the vast majority of existing Customer Agreements have at least 10 years remaining, given that the average age of the Company's fleet of residential solar energy systems under Customer Agreements is less than five years due to the Company being formed in 2007 and having experienced significant growth in the last few years. The annual recognition on these existing contracts will gradually decline over the midpoint of the Customer Agreements over the following 10 years as the typical 20- or 25-year initial term expires on individual Customer Agreements.
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:
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.
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The Company's financial instruments include cash, receivables, accounts payable, accrued expenses, distributions payable to noncontrolling interests, derivatives, contingent consideration, and recourse and non-recourse debt.
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 energy system and revenue from the sales of SRECs generated by the Company’s solar energy systems to third parties.
The Company begins to recognize revenue on Customer Agreements when permission to operate ("PTO") is given by the local utility company or on the date daily operation commences if utility approval is not required. Revenue recognition does not necessarily follow the receipt of cash. For Customer Agreements that include a fixed fee per month which entitles the customer to any and all electricity generated by the system, and for which the Company’s obligation is to provide continuous access to a functioning solar energy system, the Company recognizes revenue evenly over the time that it satisfies its performance obligations, which is over the initial term of the Customer Agreements. For Customer Agreements that charge a fixed price per kilowatt hour, and for which the Company’s obligation is the provision of electricity from a solar energy system, revenue is recognized based on the actual amount of power generated at rates specified under the contracts. Customer Agreements typically have an initial term of 20 or 25 years. After the initial contract term, Customer Agreements typically automatically renew on an annual basis.
SREC revenue arises from the sale of environmental credits generated by solar energy systems and is generally recognized upon delivery of the SRECs to the counterparty or upon reporting of the electricity generation. For pass-through financing obligation Funds, the value attributable to the monetization of Commercial ITCs are recognized in the period a solar energy system is granted PTO - see Note 10, 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.
Solar energy systems and product sales
For solar energy systems sold to customers, revenue is recognized when the solar energy system passes inspection by the authority having jurisdiction, which inspection generally occurs after installation but prior to PTO, at which time the Company has met the performance obligation in the contract. For solar energy system sales that include delivery obligations up until interconnection to the local power grid with permission to operate, the Company recognizes revenue at PTO. Certain solar energy systems sold to customers include fees for extended warranty and maintenance services. These fees are recognized over the life of the service agreement. The Company’s installation Projects are typically completed in less than twelve months.
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Product sales consist of solar panels, racking systems, inverters, other solar energy products sold to resellers, roofing repair, and customer leads. Product sales revenue is recognized at the time when control is transferred, upon shipment, or as services are delivered. Customer lead revenue, included in product sales, is recognized at the time the lead is delivered.
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.
Recently Issued and Adopted Accounting Standards
Accounting standards adopted effective January 1, 2022:
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured in accordance with ASC Topic 606, Revenue from Contracts with Customers. This ASU is effective for interim and annual periods beginning after December 15, 2022 on a prospective basis, with early adoption permitted. Effective January 1, 2022, the Company early adopted ASU 2021-08 on a prospective basis. There was no impact to its consolidated financial statements.

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40), which requires issuers to account for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after the modification or exchange based on the economic substance of the modification or exchange. The Company adopted ASU 2021-04 effective January 1, 2022, and there was no impact to its consolidated financial statements.

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Note 3. Fair Value Measurement
At March 31, 2022 and December 31, 2021, 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):
March 31, 2022December 31, 2021
Carrying ValueFair ValueCarrying ValueFair Value
Recourse debt$861,175 $782,175 $601,684 $518,168 
Senior debt2,539,232 2,494,413 2,269,623 2,261,071 
Subordinated debt1,296,885 1,252,911 1,160,115 1,160,432 
Securitization debt2,441,868 2,328,837 2,471,468 2,494,070 
Total$7,139,160 $6,858,336 $6,502,890 $6,433,741 
At March 31, 2022 and December 31, 2021, the fair value of certain recourse debt and certain senior, subordinated and securitization loans approximate their carrying values because their interest rates are variable rates that approximate rates currently available to the Company. At March 31, 2022 and December 31, 2021, the fair value of the Company’s other debt instruments are based on rates currently offered for debt with similar maturities and terms. The Company’s fair value of the debt instruments fell under the Level 2 hierarchy. These valuation approaches involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market.
At March 31, 2022 and December 31, 2021, financial instruments measured at fair value on a recurring basis, based upon the fair value hierarchy, are as follows (in thousands):
March 31, 2022
Level 1Level 2Level 3Total
Derivative assets:
Interest rate swaps$ $110,534 $ $110,534 
Total$ $110,534 $ $110,534 
Derivative liabilities:
Interest rate swaps$ $29,788 $ $29,788 
Total$ $29,788 $ $29,788 
December 31, 2021
Level 1Level 2Level 3Total
Derivative assets:
Interest rate swaps$ $26,673 $ $26,673 
Total$ $26,673 $ $26,673 
Derivative liabilities:
Interest rate swaps$ $83,873 $ $83,873 
Total$ $83,873 $ $83,873 
    
The above balances are recorded in other assets and other liabilities, respectively, in the consolidated balance sheets, except for $2.8 million and nil as of March 31, 2022 and December 31, 2021, respectively, which is recorded in prepaid and other assets and except for $7.1 million and $23.0 million as of March 31, 2022 and December 31, 2021, respectively, which is recorded in accrued expenses and other liabilities.
The Company determines the fair value of its interest rate swaps using a discounted cash flow model that incorporates an assessment of the risk of non-performance by the interest rate swap counterparty and an evaluation of the Company’s credit risk in valuing derivative instruments. The valuation model uses various inputs including contractual terms, interest rate curves, credit spreads and measures of volatility.

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Note 4. Inventories
Inventories consist of the following (in thousands):
March 31, 2022December 31, 2021
Raw materials$446,292 $413,819 
Work-in-process109,654 93,000 
Total$555,946 $506,819 

As of January 1, 2020, the federal government offers a Commercial ITC of 26%, which is reduced from 30%, under Section 48(a) of the Internal Revenue Code of 1986, as amended, for the installation of certain solar power facilities owned for business purposes. The Internal Revenue Service (“IRS”) provided taxpayers a safe harbor opportunity to retain access to the pre-2020 30% tax credit amount through specific rules released in Notice 2018-59. The Company sought to avail itself of this safe harbor by incurring certain costs and taking title in the year the Company took delivery, for tax purposes, of the underlying inventory and/or by performing physical work on components that will be installed in solar facilities. There was approximately $7.4 million and $11.0 million at March 31, 2022 and December 31, 2021, respectively, of inventory that would qualify for a 30% tax credit.


Note 5. Solar Energy Systems, net
Solar energy systems, net consists of the following (in thousands):
March 31, 2022December 31, 2021
Solar energy system equipment costs$9,342,544 $9,018,788 
Inverters and batteries1,183,163 1,127,014 
Total solar energy systems10,525,707 10,145,802 
Less: accumulated depreciation and amortization(1,365,294)(1,267,932)
Add: construction-in-progress611,649 581,826 
Total solar energy systems, net$9,772,062 $9,459,696 
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 $100.5 million and $87.4 million for the three months ended March 31, 2022 and 2021, respectively. The depreciation expense was reduced by the amortization of deferred grants of $2.1 million and $2.1 million for three months ended March 31, 2022 and 2021, respectively.

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Note 6. Other Assets
Other assets consist of the following (in thousands):
March 31, 2022December 31, 2021
Costs to obtain contracts - customer agreements$780,349 $703,080 
Costs to obtain contracts - incentives2,481 2,481 
Accumulated amortization of costs to obtain contracts(82,596)(74,529)
Unbilled receivables233,328 212,727 
Allowance for credit losses on unbilled receivables(2,593)(2,411)
Operating lease right-of-use assets95,851 92,707 
Equity investment186,100 63,826 
Other assets208,960 127,862 
Total$1,421,880 $1,125,743 
The Company recorded amortization of costs to obtain contracts of $8.2 million and $4.2 million for the three months ended March 31, 2022 and 2021, respectively, in Sales and marketing in the consolidated statements of operations.
The majority of unbilled receivables arise from fixed price escalators included in the Company's long-term Customer Agreements.  The escalator is included in calculating the total estimated transaction value for an individual Customer Agreement.  The total estimated transaction value is then recognized over the term of the Customer Agreement.  The amount of unbilled receivables increases while cumulative billings for an individual Customer Agreement are less than the cumulative revenue recognized for that Customer Agreement.  Conversely, the amount of unbilled receivables decreases when the actual cumulative billings becomes higher than the cumulative revenue recognized. At the end of the initial term of a Customer Agreement, the cumulative amounts recognized as revenue and billed to date are the same, therefore the unbilled receivable balance for an individual Customer Agreement will be zero. The Company applies an estimated loss-rate in order to determine the current expected credit loss for unbilled receivables. The estimated loss-rate is determined by analyzing historical credit losses, residential first and second mortgage foreclosures and consumers' utility default rates, as well as current economic conditions. The Company reviews individual customer collection status of electricity billings to determine whether the unbilled receivables for an individual customer should be written off, including the possibility of a service transfer to a potential new homeowner.

Note 7. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following (in thousands):
March 31, 2022December 31, 2021
Accrued employee compensation$99,491 $100,357 
Operating lease obligations25,715 24,780 
Accrued interest40,018 38,665 
Accrued professional fees8,061 11,330 
Other accrued expenses147,033 189,004 
Total$320,318 $364,136 
    
Note 8. Indebtedness
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As of March 31, 2022, debt consisted of the following (in thousands, except percentages):
March 31, 2022December 31, 2021
Unused Borrowing Capacity (1)
Weighted Average Interest Rate at March 31, 2022 (2)
Weighted Average Interest Rate at December 31, 2021 (2)
Contractual Interest Rate (3)
Contractual Maturity Date
Recourse debt
Bank line of credit (4)
$470,000 $211,066 $81,117 3.70%3.40%
LIBOR +3.25%
January 2025
0% Convertible Senior Notes (5)
400,000 400,000  %%%February 2026
Total recourse debt870,000 611,066 81,117 
Unamortized debt discount(8,825)(9,382)— 
Total recourse debt, net861,175 601,684 81,117 
Non-recourse debt (6)
Senior revolving and delayed draw loans (7)
1,050,900 1,301,600 25,900 2.36%2.23%
LIBOR +2.00% - 3.00%
March 2024 - April 2025
Senior non-revolving loans1,441,489 921,038  3.18%3.66%
4.50% - 6.50%; LIBOR +1.75% - 2.75%
April 2022 - November 2040
Subordinated revolving and delayed draw loans184,850 221,464  6.67%9.06%
LIBOR +9.00%; SOFR +3.50%; SOFR +7.875%
March 2024 - April 2024
Subordinated loans (8)
1,132,313 959,852  8.63%8.46%
7.00% - 10.00%; LIBOR +6.75%
May 2023 - January 2042
Securitized loans2,437,267 2,466,389