Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v3.20.4
Stock-Based Compensation
 12 Months Ended
Dec. 31, 2020
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation Stock-Based Compensation
2013 Equity Incentive Plan
In July 2013, the Board of Directors approved the 2013 Equity Incentive Plan (“2013 Plan”). In March 2015, the Board of Directors authorized an additional 3,000,000 shares reserved for issuance under the 2013 Plan. An aggregate of 4,500,000 shares of common stock are reserved for issuance under the 2013 Plan plus (i) any shares that were reserved but not issued under the plan that was previously in place, and (ii) any shares subject to stock options or similar awards granted under the plan that was previously in place that expire or otherwise terminate without having been exercised in full and shares issued that are forfeited to or repurchased by the Company, with the maximum number of shares to be added to the 2013 Plan pursuant to clauses (i) and (ii) equal to 8,044,829 shares. Stock options granted to employees generally have a maximum term of ten-years and vest over a four-year period from the date of grant; 25% vest at the end of one year, and 75% vest monthly over the remaining three years. The options may include provisions permitting exercise of the option prior to full vesting. Any unvested shares shall be subject to repurchase by the Company at the original exercise price of the option in the event of a termination of an optionee’s employment prior to vesting. All the remaining shares that were available for future grants under the 2013 Plan were transferred to the 2015 Equity Incentive Plan (“2015 Plan”) at the inception of the 2015 Plan. As of December 31, 2020, the Company had not granted restricted stock or other equity awards (other than options) under the 2013 Plan.
2014 Equity Incentive Plan
In August 2014, the Board approved Sunrun's 2014 Equity Incentive Plan (“Sunrun 2014 Plan”). An aggregate of 947,342 shares of common stock are reserved for issuance under the Sunrun 2014 Plan. The Sunrun 2014 Plan was adopted to accommodate a broader transaction with a sales entity and to allow for similar transactions in the future. In July 2015, the Board approved an increase in the number of shares of common stock reserved to 1,197,342. As of July 2015, the Company granted all 1,197,342 restricted stock units (“RSUs”) available under the Sunrun 2014 Plan.
Vivint Solar 2014 Equity Incentive Plan
Upon completion of the Merger, the Company may grant equity awards through the Vivint Solar 2014 Equity Incentive Plan (“Vivint Solar 2014 Plan”). Under the Vivint Solar 2014 Plan, the Company may grant stock options, restricted stock, restricted stock units (“RSUs”), stock appreciation rights, performance stock units, performance shares and performance awards to its employees, directors and consultants, and its parent and subsidiary corporations’ employees and consultants.
As of December 31, 2020, a total of 8.9 million shares of common stock were available for grant under the Vivint Solar 2014 Plan, subject to adjustment in the case of certain events. In addition, any shares that otherwise would be returned to the Omnibus Plan (as defined below) as the result of the expiration or termination of stock options may be added to the Vivint Solar 2014 Plan. The number of shares available to grant under the Vivint Solar 2014 Plan is subject to an annual increase on the first day of each year.
2013 Omnibus Incentive Plan
Vivint Solar’s 2013 Omnibus Incentive Plan (the “Omnibus Plan”) was terminated in connection with the adoption of the Vivint Solar 2014 Plan in September 2014, and accordingly no additional shares are available for issuance under the Omnibus Plan. The Omnibus Plan will continue to govern outstanding awards granted under the plan. The stock options outstanding under the Omnibus Plan have a ten-year contractual period.
Long-term Incentive Plan
In July 2013, Vivint Solar’s board of directors approved shares of common stock for six Long-term Incentive Plan Pools (“LTIP Pools”) that comprise the 2013 Long-term Incentive Plan (the “LTIP”). Participants in the LTIP are allocated a portion of the LTIP Pools relative to the performance of other participants on a measurement date that is determined once performance conditions are met. The Merger Agreement provided that the LTIP awards outstanding immediately prior to the Closing Date were cancelled and terminated and that subsequent to the Closing Date, each holder of a cancelled LTIP award would be granted an RSU award to be settled in shares of
Sunrun common stock, with the number of shares underlying such award calculated as if the LTIP performance hurdles were achieved, with the Closing Date as the determination date. As a result, approximately 1.5 million shares of the Company common stock were awarded as RSUs to LTIP participants with a grant date equal to the Closing Date. These RSUs vest in three equal installments, subject to the grantee’s continued provision of services to the Company. One-third vested 30 days after the Closing Date, one-third will vest nine months after the Closing Date, and one-third will vest 18 months after the Closing Date. As of December 31, 2020, there are no remaining shares available for grant under the LTIP.
2015 Equity Incentive Plan
In July 2015, the Sunrun Board approved the 2015 Plan. An aggregate of 11,400,000 shares of common stock are reserved for issuance under the 2015 Plan plus (i) any shares that were reserved but not issued under the 2013 Plan at the inception of the 2015 Plan, and (ii) any shares subject to stock options or similar awards granted under the 2008 Plan, 2013 Plan and 2014 Plan that expire or otherwise terminate without having been exercised in full and shares issued that are forfeited to or repurchased by the Company, with the maximum number of shares to be added to the 2015 Plan pursuant to clauses (i) and (ii) equal to 15,439,334 shares. The 2015 Plan provides for annual automatic increases on January 1 to the shares reserved for issuance. The automatic increase of the number of shares available for issuance under the 2015 Plan is equal to the least of 10 million shares, 4% of the outstanding shares of common stock as of the last day of the Company’s immediately preceding fiscal year or such other amount as the Board of Directors may determine. In 2020 and 2019, the Board of Directors authorized an additional 4,738,048 and 4,525,946 shares reserved for issuance under the 2015 Plan, respectively. Stock options granted to employees generally have a maximum term of ten-years and vest over a four-year period from the date of grant; 25% vest at the end of one year, and 75% vest monthly over the remaining three years. The options may include provisions permitting exercise of the option prior to full vesting. Any unvested shares shall be subject to repurchase by the Company at the original exercise price of the option in the event of a termination of an optionee’s employment prior to vesting. RSUs granted to employees generally vest over a four-year period from the date of grant; 25% vest at the end of one year, and 75% vest quarterly over the remaining three years.
Stock Options
The following table summarizes the activity for all stock options under all of the Company’s equity incentive plans for the years ended December 31, 2020 and 2019 (shares and aggregate intrinsic value in thousands):
Number of Options
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual Life
Aggregate
Intrinsic
Value
Outstanding at December 31, 2018 13,590  $ 6.07  6.63 $ 66,462 
Granted
 1,362  15.44 
Exercised
 (3,625) 5.48 
Cancelled (543) 7.62 
Outstanding at December 31, 2019 10,784  7.38  6.52 71,745 
Assumed through acquisition 2,565  10.23 
Granted
 1,740  17.48 
Exercised
 (6,608) 7.40 
Cancelled (462) 9.36 
Outstanding at December 31, 2020 8,019  $ 10.35  6.87 $ 473,371 
Options vested and exercisable at December 31, 2020 4,277  $ 6.65  5.35 $ 268,284 
Options vested and expected to vest at December 31, 2020 8,019  $ 10.35  6.87 $ 473,371 
There were no unvested exercisable shares as of the year ended December 31, 2020 and 2019, which are subject to a repurchase option held by the Company at the original exercise price. These options became fully vested during the year ended December 31, 2019.
The weighted-average grant-date fair value of stock options granted during the year ended December 31, 2020, 2019 and 2018 were $9.33, $8.27 and $4.21 per share, respectively. The total intrinsic value of the options exercised during the year ended December 31, 2020, 2019 and 2018 was $251.7 million, $37.8 million and $21.4 million, respectively. The aggregate intrinsic value is the difference of the current fair value of the stock and the exercise price for in-the-money stock options. The total fair value of options vested during the year ended December 31, 2020, 2019 and 2018 was $104.8 million, $9.5 million and $8.8 million, respectively. 
The Company estimates the fair value of stock-based awards on their grant date using the Black-Scholes option-pricing model. The Company estimates the fair value using a single-option approach and amortizes the fair value on a straight-line basis for options expected to vest. All options are amortized over the requisite service periods of the awards, which are generally the vesting periods.
The Company estimated the fair value of stock options with the following assumptions:
Year Ended December 31,
2020 2019 2018
Risk-free interest rate
0.30% - 1.50%
1.70% - 2.59%
 2.72% - 2.92%
Volatility
54.40% - 59.70%
52.90% - 55.07%
44.87% - 54.61%
Expected term (in years)
5.30 - 6.10
6.10 - 6.12
6.09 - 6.11
Expected dividend yield
0.00%
0.00%
0.00%
The expected term assumptions were determined based on the average vesting terms and contractual lives of the options. The risk-free interest rate is based on the rate for a U.S. Treasury zero-coupon issue with a term that approximates the expected life of the option grant. For stock options granted in the year ended December 31, 2020, 2019 and 2018, the Company considered the volatility data of a group of publicly traded peer companies in its industry. The Company accounts for forfeitures as they occur and, as such, reverses compensation cost previously recognized in the period the award is forfeited, for an award that is forfeited before completion of the requisite service period.
Restricted Stock Units
In 2014, the Company granted a total of 947,342 RSUs subject to certain performance targets to a third party partner. As of December 31, 2017, 350,000 outstanding RSUs had a performance feature that is required to be satisfied before the option is vested. In March 2018, the Company amended the terms of all of these RSUs, such that the RSUs are deemed earned subject to a clawback provision that requires the holder of the RSUs to either forfeit all the RSUs or pay the Company repayment value for all RSUs that are not forfeited if the third party breaches the exclusivity provision of the parties’ commercial agreement. The exclusivity clawback provision for all of the RSUs expired in September 2019.
The performance-based provision is considered substantive. As a result, the Company recognizes expense once the performance targets are met. The first performance target was met in 2015. The Company recognized $3.5 million in compensation expense in the year ended December 31, 2018 upon certain performance targets being met.
The following table summarizes the activity for all RSUs under all of the Company’s equity incentive plans for the years ended December 31, 2020 and 2019 (shares in thousands):
Shares
Weighted
Average Grant
Date Fair
Value
Unvested balance at December 31, 2018 4,182  $ 7.05 
Granted
 2,258  15.25 
Issued
 (1,104) 6.83 
Cancelled / forfeited
 (1,393) 8.14 
Unvested balance at December 31, 2019 3,943  11.42 
Assumed through acquisition 3,033  70.54 
Granted
 5,295  34.71 
Issued
 (4,222) 30.10 
Cancelled / forfeited
 (946) 32.08 
Unvested balance at December 31, 2020 7,103  $ 40.17 
Employee Stock Purchase Plan
Under the Company's 2015 Employee Stock Purchase Plan (“ESPP”) (as amended in May 2017), eligible employees are offered shares bi-annually through a 24 month offering period which encompasses four six-month purchase periods. Each purchase period begins on the first trading day on or after May 15 and November 15 of each year. Employees may purchase a limited number of shares of the Company’s common stock via regular payroll deductions at a discount of 15% of the lower of the fair market value of the Company’s common stock on the first trading date of each offering period or on the exercise date. Employees may deduct up to 15% of payroll, with a cap of $25,000 of fair market value of shares in any calendar year and 10,000 shares per employee per purchase period. Under the ESPP, 1,000,000 shares of the Company’s common stock have been reserved for issuance to eligible employees. The ESPP provides for an automatic increase of the number of shares available for issuance under the ESPP on the first day of each fiscal year beginning on January 1, 2016, equal to the least of 5 million shares, 2% of the outstanding shares of the Company’s common stock on the last day of the immediately preceding fiscal year, or such other amount as may be determined by the Board of Directors. In 2020 and 2019, the Board of Directors authorized an additional 2,369,024 and 2,262,973 shares, respectively, reserved for issuance under the ESPP.
Stock-Based Compensation Expense
The Company recognized stock-based compensation expense, including ESPP expenses, in the consolidated statements of operations as follows (in thousands): 
Year Ended December 31,
2020 2019 2018
Cost of customer agreements and incentives $ 4,315  $ 2,434  $ 2,568 
Cost of solar energy systems and product sales
 1,582  844  718 
Sales and marketing
 53,366  5,162  7,191 
Research and development
 2,518  1,439  1,253 
General and administration
 108,806  16,427  16,126 
Total
 $ 170,587  $ 26,306  $ 27,856 
During the year ended December 31, 2020, stock-based compensation expense capitalized to the Company’s consolidated balance sheet was $6.5 million. As of December 31, 2020 and 2019, total unrecognized compensation cost related to outstanding stock options and RSUs was $280.1 million and $30.0 million, respectively, which are expected to be recognized over a weighted-average period of 1.5 years. Total unrecognized compensation cost includes the assumed unvested Vivint Solar awards to be recognized as stock-based compensation expense over the remaining requisite service period. Per ASC 805, the replacement of stock options or other share-based payment awards in conjunction with a business combination represents a modification of share-based payment awards that must be accounted for in accordance with ASC 718, Stock Compensation. As a result of the Company’s issuance of replacement awards, a portion of the fair-value-based measure of the replacement awards is included in the purchase consideration. To determine the portion of the replacement awards that is part of the purchase consideration, the Company measured the fair value of both the replacement awards and the historical awards as of the Acquisition Date. The fair value of the replacement awards, whether vested or unvested, was included in the purchase consideration to the extent that pre-acquisition services were rendered. In the year ended December 31, 2020, the Company recognized compensation cost of $30.8 million for modifications due to accelerated vesting of unvested outstanding shares for 21 grantees.
401(k) Plans
    The Sunrun 401(k) Plan and the Vivint Solar 401(k) Plan are deferred salary arrangements under Section 401(k) of the Internal Revenue Code. Under both the Sunrun and Vivint Solar 401(k) Plans, participating U.S. employees may defer a portion of their pre-tax earnings, up to the IRS annual contribution limit ($19,500 for calendar year 2020). Under the Sunrun 401(k) Plan, the Company matches 100% of the first 1% and 50% of the next 5% of each employee's contributions. Under the Vivint Solar 401(k) Plan, the Company matches 33% of each employee's contributions up to a maximum of 6% of the employee’s eligible earnings. The Company recognized expense of $9.6 million and $8.5 million in the years ended December 31, 2020 and 2019, respectively.