run-20240630

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 June 30, 2024


☐			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)


Delaware						26-2841711
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

600 California Street, Suite 1800

San Francisco, California 94108

(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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	RUN	Nasdaq 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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller 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 August 1, 2024, the number of shares of the registrant’s common stock outstanding was 223,539,691.

Table of Contents


		Page

	Special Note Regarding Forward-Looking Statements	2
	Selected Risks Affecting our Business	4
Item 1.	Financial Statements (Unaudited)	6
	Consolidated Balance Sheets	6
	Consolidated Statements of Operations	8
	Consolidated Statements of Comprehensive Income (Loss)	9
	Consolidated Statements of Redeemable Noncontrolling Interests and Equity	10
	Consolidated Statements of Cash Flows	12
	Notes to Consolidated Financial Statements	13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53
Item 4.	Controls and Procedures	53

	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	90
Item 5.	Other Information	90
Item 6.	Exhibits	91
	Signatures	93

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,” “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 impact of regulatory and policy development and changes;

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

•the potential impact of volatile or rising interest rates on our interest expense;

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

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

•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;

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

•determinations by the Internal Revenue Service (“IRS”) of the creditable basis of our solar energy systems;

•our ability to manage our supply chains and distribution channels and the impact of natural disasters, supply chain disruptions, inflation, tariffs and trade barriers, export regulations, bank failures, geopolitical conflicts, macroeconomic conditions, and other events beyond our control on our business and operations, results of operations, and financial position;

•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 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;

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

•the willingness 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 evolving economic and regulatory conditions, including increasing or volatile interest rates. The extent to which these risks and uncertainties impact our business, operations, and financial results, including the duration and magnitude of such effects, will depend on numerous factors, including, but not limited to, the duration, rapidity, and intensity of these conditions, how widespread their impact is and will continue to be on our industry, and how quickly and to what extent more predictable and stable economic conditions 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 these forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in these forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these 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.

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 as a result of recent, and any continued increases in, costs associated with our solar service offerings and any failure of these costs to continue declining 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

•The customer value proposition for distributed solar, storage, and home electrification products is influenced by a number of factors, including, but not limited to, the retail price of electricity, the valuation of electricity not consumed on site and exported to the grid, the rate design mechanisms of customers’ utility bills, various policies related to the permitting and interconnection costs of our products to homes and the grid, the availability of incentives for solar, batteries, and other electrification products, and other policies which allow aggregations of our systems to provide the grid value. Significant changes to any of these factors may impact the competitiveness of our service offerings to customers.

•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 and storage 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.

•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 team.

•The 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 impose rules on 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.

•Failure or perceived failure to comply with existing or future laws, regulations, contracts, self-regulatory schemes, standards, and other obligations related to data privacy and security (including security incidents) could harm our business. Compliance or the actual or perceived failure to comply with such obligations could increase the costs of our products/services, limit their use or adoption, and otherwise negatively affect our operating results and business.

Selected Risks Related to Taxes and Accounting

•Our ability to provide our solar and storage 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 IRS makes determinations that the creditable basis 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, on the federal, state, and/or local levels. We may be adversely affected by changes in, and application of, these laws or other incentives to us, 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.

Sunrun Inc.

Consolidated Balance Sheets

(In Thousands, Except Share Par Values)

(Unaudited)


	June 30, 2024		December 31, 2023
Assets
Current assets:
Cash	$	707,587	$	678,821
Restricted cash	334,513		308,869
Accounts receivable (net of allowances for credit losses of $15,934 and $19,042 as of June 30, 2024 and December 31, 2023, respectively)	179,949		172,001

Inventories	353,125		459,746
Prepaid expenses and other current assets	100,978		262,822
Total current assets	1,676,152		1,882,259
Restricted cash	148		148
Solar energy systems, net	13,856,654		13,028,871
Property and equipment, net	143,128		149,139
Goodwill	3,122,168		3,122,168
Other assets	2,645,109		2,267,652
Total assets (1)	$	21,443,359	$	20,450,237
Liabilities and total equity
Current liabilities:
Accounts payable	$	216,557	$	230,723
Distributions payable to noncontrolling interests and redeemable noncontrolling interests	35,067		35,180
Accrued expenses and other liabilities	349,061		499,225
Deferred revenue, current portion	120,006		128,600
Deferred grants, current portion	8,181		8,199
Finance lease obligations, current portion	26,434		22,053
Non-recourse debt, current portion	250,980		547,870
Pass-through financing obligation, current portion	1,458		16,309
Total current liabilities	1,007,744		1,488,159
Deferred revenue, net of current portion	1,141,120		1,067,461
Deferred grants, net of current portion	190,949		195,724
Finance lease obligations, net of current portion	80,233		68,753
Convertible senior notes	652,379		392,867
Line of credit	390,929		539,502
Non-recourse debt, net of current portion	10,668,063		9,191,689
Pass-through financing obligation, net of current portion	—		278,333
Other liabilities	151,876		190,866
Deferred tax liabilities	111,594		122,870
Total liabilities (1)	14,394,887		13,536,224
Commitments and contingencies (Note 15)
Redeemable noncontrolling interests	635,865		676,177
Stockholders’ equity:
Preferred stock, $0.0001 par value—authorized, 200,000 shares as of June 30, 2024 and December 31, 2023; no shares issued and outstanding as of June 30, 2024 and December 31, 2023	—		—
Common stock, $0.0001 par value—authorized, 2,000,000 shares as of June 30, 2024 and December 31, 2023; issued and outstanding, 223,298 and 219,392 shares as of June 30, 2024 and December 31, 2023, respectively	22		22
Additional paid-in capital	6,653,582		6,609,229
Accumulated other comprehensive income	94,584		54,676
Retained earnings	(1,382,443)		(1,433,699)
Total stockholders’ equity	5,365,745		5,230,228
Noncontrolling interests	1,046,862		1,007,608
Total equity	6,412,607		6,237,836
Total liabilities, redeemable noncontrolling interests and total equity	$	21,443,359	$	20,450,237

1)The Company’s consolidated assets as of June 30, 2024 and December 31, 2023 include $12,321,868 and $11,538,540, 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 June 30, 2024 and December 31, 2023 of $11,288,489 and $10,469,093, respectively; cash as of June 30, 2024 and December 31, 2023 of $293,912 and $254,522, respectively; restricted cash as of June 30, 2024 and December 31, 2023 of $56,276 and $48,169, respectively; accounts receivable, net as of June 30, 2024 and December 31, 2023 of $99,065 and $76,249, respectively; inventories as of June 30, 2024 and December 31, 2023 of $98,594 and $150,065, respectively; prepaid expenses and other current assets as of June 30, 2024 and December 31, 2023 of $9,755 and $161,414, respectively; and other assets as of June 30, 2024 and December 31, 2023 of $475,777 and $379,028, respectively. The Company’s consolidated liabilities as of June 30, 2024 and December 31, 2023 include $2,299,340 and $2,417,984, respectively, in liabilities of VIEs whose creditors have no recourse to the Company. These liabilities include accounts payable as of June 30, 2024 and December 31, 2023 of $6,529 and $12,187, respectively; distributions payable to noncontrolling interests and redeemable noncontrolling interests as of June 30, 2024 and December 31, 2023 of $35,068 and $35,181, respectively; accrued expenses and other current liabilities as of June 30, 2024 and December 31, 2023 of $38,796 and $185,766, respectively; deferred revenue as of June 30, 2024 and December 31, 2023 of $741,151 and $708,413, respectively; non-recourse debt as of June 30, 2024 and December 31, 2023 of $1,461,064 and $1,459,621, respectively; and other liabilities as of June 30, 2024 and December 31, 2023 of $16,732 and $16,816, respectively.

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

Sunrun Inc.

Consolidated Statements of Operations

(In Thousands, Except Per Share Amounts)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenue:
Customer agreements and incentives	$	387,825	$	302,149	$	710,792	$	548,623
Solar energy systems and product sales	136,041		288,044		271,262		631,419
Total revenue	523,866		590,193		982,054		1,180,042
Operating expenses:
Cost of customer agreements and incentives	298,665		268,687		568,199		505,592
Cost of solar energy systems and product sales	130,120		270,538		286,279		590,556
Sales and marketing	151,657		194,876		303,921		397,712
Research and development	10,243		4,557		22,330		9,114
General and administrative	61,229		57,476		112,495		110,703

Total operating expenses	651,914		796,134		1,293,224		1,613,677
Loss from operations	(128,048)		(205,941)		(311,170)		(433,635)
Interest expense, net	(207,207)		(157,177)		(399,366)		(299,875)
Other income, net	64,378		41,071		154,308		16,071
Loss before income taxes	(270,877)		(322,047)		(556,228)		(717,439)
Income tax (benefit) expense	(10,949)		18,677		(13,150)		(40,942)
Net loss	(259,928)		(340,724)		(543,078)		(676,497)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests	(399,002)		(396,198)		(594,334)		(491,583)
Net income (loss) attributable to common stockholders	$	139,074	$	55,474	$	51,256	$	(184,914)
Net income (loss) per share attributable to common stockholders
Basic	$	0.63	$	0.26	$	0.23	$	(0.86)
Diluted	$	0.55	$	0.25	$	0.23	$	(0.86)
Weighted average shares used to compute net income (loss) per share attributable to common stockholders
Basic	222,474		216,017		221,178		215,153
Diluted	255,107		221,849		244,755		215,153

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

Sunrun Inc.

Consolidated Statements of Comprehensive Income (Loss)

(In Thousands)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net income (loss) attributable to common stockholders	$	139,074	$	55,474	$	51,256	$	(184,914)
Unrealized gain on derivatives, net of income taxes	13,974		39,825		54,276		9,391
Adjustment for net gain on derivatives recognized into earnings, net of income taxes	(6,922)		(6,612)		(14,368)		(11,766)
Other comprehensive income (loss)	7,052		33,213		39,908		(2,375)
Comprehensive income (loss)	$	146,126	$	88,687	$	91,164	$	(187,289)

Sunrun Inc.

Consolidated Statements of Redeemable Noncontrolling Interests and Equity

Three Months Ended June 30, 2024 and 2023

(In Thousands)

(Unaudited)


	Three Months Ended June 30, 2024
	Redeemable Noncontrolling Interests		Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Income		Retained Earnings		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
				Shares			Amount
Balance at March 31, 2024	$	656,845		220,672	$	22		$	6,614,414	$	87,532	$	(1,521,517)	$	5,180,451	$	921,087	$	6,101,538

Exercise of stock options	—			238	—			1,547		—		—		1,547		—		1,547
Issuance of restricted stock units, net of tax withholdings	—			1,538	—			—		—		—		—		—		—
Shares issued in connection with the Employee Stock Purchase Plan	—			850	—			8,374		—		—		8,374		—		8,374
Stock-based compensation	—			—	—			28,833		—		—		28,833		—		28,833
Contributions from noncontrolling interests and redeemable noncontrolling interests	—			—	—			—		—		—		—		631,580		631,580
Distributions to noncontrolling interests and redeemable noncontrolling interests	(17,163)			—	—			—		—		—		—		(91,431)		(91,431)
Net income (loss)	4,238			—	—			—		—		139,074		139,074		(403,240)		(264,166)

Acquisition of noncontrolling interest	(8,055)			—	—			414		—		—		414		(11,134)		(10,720)
Other comprehensive income, net of taxes	—			—	—			—		7,052		—		7,052		—		7,052
Balance at June 30, 2024	$	635,865		223,298	$	22		$	6,653,582	$	94,584	$	(1,382,443)	$	5,365,745	$	1,046,862	$	6,412,607


	Three Months Ended June 30, 2023
	Redeemable Noncontrolling Interests		Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Income		Retained Earnings		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
				Shares			Amount
Balance at March 31, 2023	$	604,707		215,166	$	21		$	6,505,806	$	31,521	$	(69,590)	$	6,467,758	$	1,095,289	$	7,563,047

Exercise of stock options	—			326	—			1,990		—		—		1,990		—		1,990
Issuance of restricted stock units, net of tax withholdings	—			805	1			—		—		—		1		—		1
Shares issued in connection with the Employee Stock Purchase Plan	—			747	—			10,549		—		—		10,549		—		10,549
Stock-based compensation	—			—	—			28,479		—		—		28,479		—		28,479
Contributions from noncontrolling interests and redeemable noncontrolling interests	19,995			—	—			—		—		—		—		339,794		339,794
Distributions to noncontrolling interests and redeemable noncontrolling interests	(17,378)			—	—			—		—		—		—		(41,546)		(41,546)
Net income (loss)	9,249			—	—			—		—		55,474		55,474		(405,447)		(349,973)

Acquisition of noncontrolling interest	(7,000)			—	—			(10)		—		—		(10)		—		(10)
Other comprehensive income, net of taxes	—			—	—			—		33,213		—		33,213		—		33,213
Balance at June 30, 2023	$	609,573		217,044	$	22		$	6,546,814	$	64,734	$	(14,116)	$	6,597,454	$	988,090	$	7,585,544

Sunrun Inc.

Consolidated Statements of Redeemable Noncontrolling Interests and Equity

Six Months Ended June 30, 2024 and 2023

(In Thousands)

(Unaudited)


	Six Months Ended June 30, 2024
	Redeemable Noncontrolling Interests		Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Income		Retained Earnings		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
				Shares			Amount
Balance at December 31, 2023	$	676,177		219,392	$	22		$	6,609,229	$	54,676	$	(1,433,699)	$	5,230,228	$	1,007,608	$	6,237,836

Exercise of stock options	—			415	—			2,603		—		—		2,603		—		2,603
Issuance of restricted stock units, net of tax withholdings	—			2,641	—			—		—		—		—		—		—
Shares issued in connection with the Employee Stock Purchase Plan	—			850	—			8,374		—		—		8,374		—		8,374
Stock-based compensation	—			—	—			71,327		—		—		71,327		—		71,327
Contributions from noncontrolling interests and redeemable noncontrolling interests	16,435			—	—			—		—		—		—		779,482		779,482
Distributions to noncontrolling interests and redeemable noncontrolling interests	(33,816)			—	—			—		—		—		—		(148,477)		(148,477)
Net (loss) income	(13,717)			—	—			—		—		51,256		51,256		(580,617)		(529,361)
Capped call transaction	—			—	—			(38,365)		—		—		(38,365)		—		(38,365)
Acquisition of noncontrolling interests	(9,214)			—	—			414		—		—		414		(11,134)		(10,720)
Other comprehensive income, net of income taxes	—			—	—			—		39,908		—		39,908		—		39,908
Balance at June 30, 2024	$	635,865		223,298	$	22		$	6,653,582	$	94,584	$	(1,382,443)	$	5,365,745	$	1,046,862	$	6,412,607


	Six Months Ended June 30, 2023
	Redeemable Noncontrolling Interests		Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Income (loss)		Retained Earnings		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
				Shares			Amount
Balance at December 31, 2022	$	609,702		214,184	$	21		$	6,470,194	$	67,109	$	170,798	$	6,708,122	$	861,193	$	7,569,315

Exercise of stock options	—			525	—			3,318		—		—		3,318		—		3,318
Issuance of restricted stock units, net of tax withholdings	—			1,588	1			—		—		—		1		—		1
Shares issued in connection with the Employee Stock Purchase Plan	—			747	—			10,549		—		—		10,549		—		10,549
Stock-based compensation	—			—	—			58,284		—		—		58,284		—		58,284
Contributions from noncontrolling interests and redeemable noncontrolling interests	19,995			—	—			—		—		—		—		737,544		737,544
Distributions to noncontrolling interests and redeemable noncontrolling interests	(34,380)			—	—			—		—		—		—		(87,017)		(87,017)
Net income (loss)	26,497			—	—			—		—		(184,914)		(184,914)		(518,080)		(702,994)

Acquisition of noncontrolling interest	(12,241)			—	—			4,469		—		—		4,469		(5,550)		(1,081)
Other comprehensive loss, net of income taxes	—			—	—			—		(2,375)		—		(2,375)		—		(2,375)
Balance at June 30, 2023	$	609,573		217,044	$	22		$	6,546,814	$	64,734	$	(14,116)	$	6,597,454	$	988,090	$	7,585,544

Sunrun Inc.

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)


	Six Months Ended June 30,
	2024		2023
Operating activities:
Net loss	$	(543,078)	$	(676,497)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization, net of amortization of deferred grants	303,005		249,889

Deferred income taxes	(13,150)		(40,937)
Stock-based compensation expense	56,964		56,503

Interest on pass-through financing obligations	8,837		9,756
Reduction in pass-through financing obligations	(19,188)		(20,047)
Unrealized gain on derivatives	(71,559)		(5,731)
Other noncash items	39,823		78,684
Changes in operating assets and liabilities:
Accounts receivable	(13,602)		(12,702)
Inventories	106,621		(7,836)
Prepaid expenses and other assets	(270,624)		(250,680)
Accounts payable	(8,838)		(19,832)
Accrued expenses and other liabilities	7,699		(48,510)
Deferred revenue	65,452		46,447
Net cash used in operating activities	(351,638)		(641,493)
Investing activities:
Payments for the costs of solar energy systems	(1,143,506)		(1,198,940)

Purchases of property and equipment, net	(743)		(11,632)
Net cash used in investing activities	(1,144,249)		(1,210,572)
Financing activities:
Proceeds from state tax credits, net of recapture	5,203		4,033
Proceeds from line of credit	143,732		356,384
Repayment of line of credit	(292,305)		(279,736)
Proceeds from issuance of convertible senior notes, net of capped call transaction	444,822		—
Repurchase of convertible senior notes	(183,784)		—
Proceeds from issuance of non-recourse debt	2,615,256		1,465,110
Repayment of non-recourse debt	(1,453,725)		(337,990)
Payment of debt fees	(83,024)		(17,121)
Proceeds from pass-through financing and other obligations, net	3,603		4,320
Repayment of pass-through financing obligation	(240,288)		—
Payment of finance lease obligations	(13,751)		(10,760)
Contributions received from noncontrolling interests and redeemable noncontrolling interests	795,917		757,539
Distributions paid to noncontrolling interests and redeemable noncontrolling interests	(182,403)		(121,344)
Acquisition of noncontrolling interest	(19,933)		(14,184)
Proceeds from transfer of investment tax credits	334,220		—
Payments to redeemable noncontrolling interests and noncontrolling interests of investment tax credits	(334,220)		—
Net proceeds related to stock-based award activities	10,977		13,869

Net cash provided by financing activities	1,550,297		1,820,120

Net change in cash and restricted cash	54,410		(31,945)
Cash and restricted cash, beginning of period	987,838		953,023
Cash and restricted cash, end of period	$	1,042,248	$	921,078
Supplemental disclosures of cash flow information
Cash paid for interest	$	281,368	$	198,754
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	$	59,782	$	70,820
Right-of-use assets obtained in exchange for new finance lease liabilities	$	32,726	$	44,852

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

Sunrun Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Organization

Sunrun Inc. (“Sunrun” or the “Company”) was formed in 2007. The Company is engaged in the design, development, installation, sale, ownership and maintenance of residential solar energy and battery storage 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 mostly owned by the Company. Sunrun’s customers enter into an agreement to utilize the solar energy system (the “Customer Agreement”) which typically has an initial term of 20 or 25 years. Sunrun monitors, maintains, and insures the Projects during the term of the Customer Agreement. The Company also sells battery storage along with the solar energy systems and products, such as panels and racking and solar leads generated by 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 two legal structures in its investment Funds, which are referred to as: (i) pass-through financing obligations, and (ii) partnership-flips.

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 (“SEC”) regarding interim financial reporting, and in the opinion of management, include all adjustments of a normal recurring nature necessary for the fair presentation of the Company's interim financial statements. 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, 2023. The results of the six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2024 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 VIEs, through arrangements that do not involve holding a majority of the 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

When necessary, reclassifications have been made to our prior period financial information to conform with current year presentation and are not material to our consolidated financial statements.

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 effective interest rate used to amortize pass-through financing obligations, the discount rate used for operating and financing leases, the valuation of stock-based compensation, the determination of valuation allowances associated with deferred tax assets, the fair value of debt instruments disclosed and the redemption value of redeemable noncontrolling interests. The Company bases its estimates on historical experience and 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 June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Customer agreements	$	358,084	$	274,490	$	662,218	$	499,578
Incentives	29,741		27,659		48,574		49,045
Customer agreements and incentives	387,825		302,149		710,792		548,623

Solar energy systems	55,281		202,483		120,346		431,385
Product sales	80,760		85,561		150,916		200,034
Solar energy systems and product sales	136,041		288,044		271,262		631,419
Total revenue	$	523,866	$	590,193	$	982,054	$	1,180,042

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.

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


	Six Months Ended June 30,
	2024		2023
Beginning of period:
Cash	$	678,821	$	740,508
Restricted cash, current and long-term	309,017		212,515
Total	$	987,838	$	953,023

End of period:
Cash	$	707,587	$	669,094
Restricted cash, current and long-term	334,661		251,984
Total	$	1,042,248	$	921,078

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):


	June 30, 2024		December 31, 2023
Customer receivables	$	189,483	$	186,537
Other receivables	6,400		4,506
Allowance for credit losses	(15,934)		(19,042)
Total	$	179,949	$	172,001

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 value may be impaired. The Company has determined that it operates as one reporting unit and the Company’s goodwill is recorded at the enterprise level. 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 significant declines in the Company’s financial results or enterprise value relative to its net book value or a sustained decline in the Company’s stock price below its book value, coupled with declines in valuations for comparable public companies or acquisition premiums. The Company tests goodwill for impairment for its one reporting unit using an estimated fair value approach. Due to the sustained decline in the Company’s market capitalization after consideration of a control premium below the book value of equity, the Company recorded an impairment charge as of September 30, 2023 related to the recoverability of its goodwill for its one reporting unit. After the impairment charge, the fair value of the Company’s one reporting unit approximated its estimated carrying value. No additional impairment had occurred as of December 31, 2023.

Should, among other events and circumstances, industry conditions deteriorate, the outlook for future operating results and cash flow decline or regulations change, costs of equity or debt capital increase, valuations for comparable public companies or comparable acquisition valuations decrease, or the Company’s market capitalization experience a further sustained decline below its book value, the Company may need to further reassess the recoverability of goodwill in future periods. As of June 30, 2024, there were no indicators of impairment that would require a goodwill impairment analysis.

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 $1.1 billion as of December 31, 2022. Deferred revenue consists of the following (in thousands):


	June 30, 2024		December 31, 2023
Under Customer Agreements:
Payments received, net	$	897,930	$	873,137
Financing component balance	75,955		72,289
	973,885		945,426

Under SREC contracts:
Payments received, net	271,919		237,800
Financing component balance	15,322		12,835
	287,241		250,635

Total	$	1,261,126	$	1,196,061

During the three months ended June 30, 2024 and 2023, the Company recognized revenue of $34.5 and $29.6 million, respectively, and in the six months ended June 30, 2024 and 2023, the Company recognized revenue of $62.2 million and $53.6 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 $28.0 billion as of June 30, 2024, 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 as a result of the Company experiencing significant growth in the last few years. The annual recognition on these existing contracts will gradually decline over the midpoint of the Customer Agreements, which is around 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.

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

Certain assets are measured at fair value on a non-recurring basis. These assets are not also measured at fair value on an ongoing basis, but are subject to fair value adjustments only in certain circumstances. These assets can include goodwill that is written down to fair value when it is impaired, which uses Level 3 inputs. Assets that are written down to fair value when impaired are not subsequently adjusted to fair value unless further impairment occurs.

Revenue Recognition

The Company recognizes revenue when control of goods or services is transferred to its customers, in an amount that reflects the consideration it expects 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 annually or for a five year term.

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.

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 PTO, the Company recognizes revenue at PTO. Certain solar energy systems sold to customers include fees for extended warranty and maintenance services. These fees are recognized over the life of the service agreement. The Company’s installation Projects are typically completed in less than twelve months.

Product sales consist of solar panels, racking systems, inverters, other solar energy products sold to resellers, roofing 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 to be adopted:

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements — Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, to modify the disclosure or presentation requirements of a variety of topics, which will allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the SEC’s requirements, and to align the requirements in the FASB accounting standard codification with the SEC’s regulations. The amendments in this ASU are effective when the related disclosure is effectively removed from Regulations S-X or S-K, with early adoption prohibited. The Company is currently evaluating the provisions of the amendments and the impact on its future consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands disclosures about a public entity’s reportable segments and requires enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s CODM uses reported segment profit or loss information in assessing segment performance and

allocating resources. This ASU became effective for fiscal years beginning after December 15, 2023. The Company is currently evaluating this guidance and the impact it may have on its financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in an entity’s income tax rate reconciliation table and regarding cash taxes paid both in the U.S. and foreign jurisdictions. This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating this guidance and the impact it may have on its financial statement disclosures.

In March 2024, the SEC issued Final Rule 33-11275 and 34-99678 - The Enhancement and Standardization of Climate-Related Disclosures for Investors. This rule requires registrants to provide standardized disclosures related to climate-related risks, governance and risk management strategies, and the financial impact of severe weather events and Scope 1 and 2 greenhouse gas emissions. The rule requires implementation in phases between 2025 and 2033. In April 2024, the SEC announced that it would voluntarily stay its final climate disclosure rules pending judicial review. The Company is currently evaluating the impact of the rule on its future consolidated financial statements.

Note 3. Fair Value Measurement

At June 30, 2024 and December 31, 2023, 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):


	June 30, 2024				December 31, 2023
	Carrying Value		Fair Value		Carrying Value		Fair Value
Recourse debt	$	1,043,308	$	994,211	$	932,369	$	844,727
Senior debt	3,992,668		3,949,473		4,114,134		4,082,994
Subordinated debt	2,552,046		2,428,014		2,219,573		2,131,994
Securitization debt	4,374,329		4,115,450		3,405,852		3,191,542
Total	$	11,962,351	$	11,487,148	$	10,671,928	$	10,251,257

At June 30, 2024 and December 31, 2023, 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 June 30, 2024 and December 31, 2023, 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 June 30, 2024 and December 31, 2023, financial instruments measured at fair value on a recurring basis, based upon the fair value hierarchy, are as follows (in thousands):


	June 30, 2024
	Level 1		Level 2		Level 3		Total
Derivative assets:
Interest rate swaps	$	—	$	145,869	$	—	$	145,869
Total	$	—	$	145,869	$	—	$	145,869
Derivative liabilities:
Interest rate swaps	$	—	$	21,805	$	—	$	21,805
Total	$	—	$	21,805	$	—	$	21,805


	December 31, 2023
	Level 1		Level 2		Level 3		Total
Derivative assets:
Interest rate swaps	$	—	$	132,734	$	—	$	132,734
Total	$	—	$	132,734	$	—	$	132,734
Derivative liabilities:
Interest rate swaps	$	—	$	60,401	$	—	$	60,401
Total	$	—	$	60,401	$	—	$	60,401

The above balances are recorded in other assets and other liabilities, respectively, in the consolidated balance sheets, except for $47.7 million and $55.5 million as of June 30, 2024 and December 31, 2023, respectively, which is recorded in prepaid expenses and other current assets.

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

Note 4. Inventories

Inventories consist of the following (in thousands):


	June 30, 2024		December 31, 2023
Raw materials	$	310,002	$	413,410
Work-in-process	43,123		46,336
Total	$	353,125	$	459,746

Note 5. Solar Energy Systems, net

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


	June 30, 2024		December 31, 2023
Solar energy system equipment costs	$	13,405,177	$	12,558,996
Inverters and batteries	2,164,021		1,845,580
Total solar energy systems	15,569,198		14,404,576
Less: accumulated depreciation and amortization	(2,441,474)		(2,165,171)
Add: construction-in-progress	728,930		789,466
Total solar energy systems, net	$	13,856,654	$	13,028,871

All solar energy systems, including construction-in-progress, have been leased to or are subject to signed Customer Agreements with customers. In accordance with its policy, the Company periodically reviews the estimated useful lives of its fixed assets on an ongoing basis and recognizes any changes in estimated useful lives

by prospectively adjusting depreciation expense. During the three months ended June 30, 2024, the Company completed an assessment of its battery equipment, which included review of an independent engineering report, and determined that the useful life of its batteries was longer than the estimated useful life being used to calculate depreciation. As a result, effective April 1, 2024, the Company changed its estimated useful life to reflect the estimated period these assets will remain in service. The estimated useful lives of batteries previously was 10 years and were increased to 15 years. The impact of this change in estimate reduces depreciation expense and was immaterial for the three and six months ended June 30, 2024. For batteries placed in service as of June 30, 2024, we estimate the impact on depreciation for the year ended December 31, 2024 will be $14.0 million. The Company recorded depreciation expense related to solar energy systems of $143.4 million and $120.8 million for the three months ended June 30, 2024 and 2023, respectively, and $285.1 million and $237.4 million for the six months ended June 30, 2024 and 2023, respectively. The depreciation expense was reduced by the amortization of deferred grants of $2.1 million and $2.0 million for the three months ended June 30, 2024 and 2023, respectively, and $4.1 million for both the six months ended June 30, 2024 and 2023.

Note 6. Other Assets

Other assets consist of the following (in thousands):


	June 30, 2024		December 31, 2023
Costs to obtain contracts - Customer Agreements	$	1,799,993	$	1,565,098
Costs to obtain contracts - incentives	2,481		2,481
Accumulated amortization of costs to obtain contracts	(202,479)		(168,564)
Unbilled receivables	567,202		468,379
Allowance for credit loss on unbilled receivables	(5,765)		(4,774)
Equity investment	132,563		132,563
Operating lease right-of-use assets	89,532		91,635
Other assets	261,582		180,834
Total	$	2,645,109	$	2,267,652

The Company recorded amortization of costs to obtain contracts of $17.3 million and $13.8 million for the three months ended June 30, 2024 and 2023, respectively, and $34.3 million and $26.0 million for the six months ended June 30, 2024 and 2023, 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 billings for an individual Customer Agreement are less than the revenue recognized for that Customer Agreement. Conversely, the amount of unbilled receivables decreases once the billings become higher than the amount of revenue recognized in the period. 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):


	June 30, 2024		December 31, 2023
Accrued employee compensation	$	89,620	$	93,414
Accrued interest	101,352		92,881
Operating lease obligations	28,964		29,572
Other accrued expenses	129,125		283,358
Total	$	349,061	$	499,225

Note 8. Indebtedness

As of June 30, 2024, debt consisted of the following (in thousands, except percentages):


	June 30, 2024		December 31, 2023		Unused Borrowing Capacity (1)		Weighted Average Interest Rate at June 30, 2024 (2)	Weighted Average Interest Rate at December 31, 2023 (2)	Contractual Interest Rate (3)	Contractual Maturity Date
Recourse debt
Line of credit (4)	$	390,929	$	539,502	$	250	9.32%	8.89%	SOFR +3.25% - 3.75%	November 2025
Convertible Senior Notes due 2026 (5)	183,228		397,642		—		—%	—%	—%	February 2026
Convertible Senior Notes due 2030 (6)	483,187		—		—		4.00%	—%	4.00%	March 2030
Total recourse debt	1,057,344		937,144		250
Unamortized debt discount	(14,036)		(4,775)		—
Total recourse debt, net	1,043,308		932,369		250

Non-recourse debt (7)
Senior revolving and delayed draw loans (8)	1,607,400		1,886,300		27,700		8.00%	7.59%	SOFR +2.35%- 3.10%	March 2027 - February 2028
Senior non-revolving loans(9)	2,386,790		2,226,343		—		6.90%	6.26%	4.66% - 6.93%; SOFR +1.85% - 2.25%	September 2026 - January 2054
Subordinated revolving and delayed draw loans (8)	30,000		146,000		—		14.43%	12.01%	SOFR +9.10%	March 2027
Subordinated loans (10)(11)	2,570,495		2,110,693		—		9.49%	9.18%	7.00% - 10.75%; SOFR +6.50% - 6.90%	June 2026 - January 2042
Securitized loans	4,443,450		3,450,794		—		5.03%	4.61%	2.27% - 6.60%	April 2048 - July 2059
Total non-recourse debt	11,038,135		9,820,130		27,700
Unamortized debt (discount) premium, net	(119,092)		(80,571)		—
Total non-recourse debt, net	10,919,043		9,739,559		27,700
Total debt, net	$	11,962,351	$	10,671,928	$	27,950

(1)Represents the additional amount the Company could borrow, if any, based on the state of its existing assets as of June 30, 2024.

(2)Reflects weighted average contractual, unhedged rates. See Note 9, Derivatives for hedge rates.

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

(4)The working capital facility (the “Facility”) was amended in February 2024 and its total commitment of up to $447.5 million is secured by substantially a