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Electric utility statutes and regulations and changes to 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.prior to December 31, 2016,owned for taxpayers usingbusiness purposes. The depreciable basis of a solar property infacility is also reduced by 50% of the tax credit claimed. Similarly, the federal government currently offers a trade or business.30% investment tax credit (“Residential ITC”) for the installation of certain solar power facilities owned by residential taxpayers. The Residential ITC and the Commercial ITC was set towill step down to 10% at26% for solar property commencing construction in 2020, then down to 22% for solar property commencing construction in 2021, with the end of 2016. In December 2015, Congress passed legislation extendingResidential ITC expiring after 2021 and the Commercial ITC further stepping down to 10% for an additional five years with a ramp down from 30%both (i) solar property commencing construction after 2021 and (ii) solar property that commenced construction during or prior to 26%2021 but is placed in 2020 and 22% in 2021. The Commercial ITC will remain at 10% permanentlyservice after 2021. 2023.both on the investors’ assessment of the tax law, and the absence of any unfavorable interpretations of that law. Adverse changeslaw and the continued application of existing tax law and interpretations to our funding structures. Changes in existing law or interpretations of existing law by the Internal Revenue Service (the “IRS”) and the courts could reduce the willingness of investors to invest in funds associated with these solar energy systems. Moreover, corporate tax rate reductions could reduce the appetite for tax benefits overall, which could reduce the pool of available funds. Additionally, certain tax deductions, such as depreciation, will have less value to investors, requiring additional cash to be paid to investors to meet return demands. Accordingly, we cannot assure you that this type of financing will continue to be available to us. New investment fund structures or other financing mechanisms may also become available, and if we are unable to take advantage of these fund structures and financing mechanisms, we may be at a competitive disadvantage. If, for any reason, we wereare unable to finance our solar service offerings through tax-advantaged structures or if we wereare unable to realize or monetize Commercial ITCs or other tax benefits, we may no longer be able to provide our solar service offerings to new homeowners on an economically viable basis, which would have a material adverse effect on our business, financial condition and results of operations.offerings.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 becomecontinue to be profitable may be impaired.hashave been a key driver in the pricing of our solar service offerings and, more broadly, homeowner adoption of solar energy. While historically the prices of solar panels and raw materials have declined, the cost of solar panels and raw materials could increase in the future, and such products’ availability could decrease, due to a variety of factors, including tariffs and trade barriers, export regulations, regulatory or contractual limitations, industry market requirements and changes in technology and industry standards. Any such increases could slow our growth and cause our financial results and operational metrics to suffer. such panels have containedcontaining components from China. In January 2018, in response to a petition filed under Section 201 of the Trade Act of 1974, the President imposed four-year tariffs on imported solar modules and imported solar cells not assembled into other products (the "Section 201 Module Tariffs") that apply to all imports above a 2.5 gigawatts (GW) annual threshold. The Section 201 Module Tariffs were 30% in 2018, and step down 5% annually in the second, third and fourth years. In September 2018, the U.S. government hasTrade Representative ("USTR") granted SunPower Corporation ("SunPower") an exemption, making SunPower a domestic solar panel manufacturer that is not subject to the Section 201 Module Tariffs. This could give SunPower, which offers home solar service offerings using its own panels a cost advantage over competitors like us that rely, in part, on imported solar panels that are currently subject to these tariffs.antidumping and countervailing dutiesadditional new tariffs in 2018 on various products imported from the other country. These include an additional 25% tariff on solar panels and cells that are manufactured in China. In addition, weChina and a tariff on inverters, certain batteries and other electrical equipment initially set at 10% and expected to increase to 25% in 2019. The United States also has, from time to time, announced potential tariffs on goods imported from other countries. We cannot predict what actions may faceultimately be taken with respect to tariffs or trade relations between the United States and other increasescountries, what products may be subject to such actions, or what actions may be taken by the other countries in our operating expenses, including increases in wagesretaliation. The tariffs described above, the adoption and expansion of trade restrictions, the occurrence of a trade war, or other laborgovernmental action related to tariffs, trade agreements or related policies has the potential to adversely impact our supply chain and access to equipment, our costs and ability to economically serve certain markets. Any such cost increases or decreases in availability could slow our growth and cause our financial results and operational metrics to suffer.well as marketing, sales or branding related costs. In addition, we invested heavily in building our direct-to-consumer capabilities in 2014 after our acquisition of the residential sales and installation business of Mainstream Energy Corporation, as well as its fulfillment business, AEE Solar, and its racking business, SnapNrack, which we refer to collectively as MEC. These investments included significantly increasing our installation capacity through the opening of new branches, increasing our hiring in construction and in associated management personnel, and increasing brand and sales and marketing expenses.We may continuechoice to make significant investments to drive growth in the future. Increasesfuturecostssystems.adversely affect our results of operations and financial condition and harm our business and prospects. If we are unablebe subject to reduce our cost structurechange in the future, and other states we serve now or in the future may adopt net metering caps. If the net metering caps in these jurisdictions are reached without an extension of net metering policies, homeowners in the future will not have access to the economic value proposition net metering provides. Our ability to sell our solar service offerings may be ableadversely impacted by the failure to achieve profitability, which couldextend existing limits to net metering or the elimination of currently existing net metering policies. The failure to adopt a net metering policy where it currently is not in place would pose a barrier to entry in those states. Additionally, the imposition of charges that only or disproportionately impact homeowners that have a material adverse effect onsolar systems, or the introduction of rate designs mentioned above, would adversely impact our business and prospects.business.
we do.
We also face competition from purely finance-driven nonintegrated competitors that subcontract out the installation of solar energy systems, from installation businesses (including solar partners) that seek financing from external parties, from large construction companies and from electrical and roofing companies. In addition, local installers that might otherwise be viewed as potential solar partners may gain market share by being able to be the first providers in new local markets. Some of these competitors may provide energy at lower costs than we do.
Finally, as declining prices for solar panels and related equipment has resulted in an increase in consumers purchasing instead of leasing solar energy systems, we face competition from companies that offer consumer loans for these solar panel purchases.
We rely on net metering and related policies to offer competitive pricing to homeowners in all of our current markets, and changes to net metering policies may significantly reduce demand for electricity from our solar service offerings.
As of December 31, 2015, a substantial majority of states have adopted net metering policies. Net metering policies provide homeowners with a one-for-one full retail credit within a monthly billing period for electricity that the solar energy system exports to the electric grid. At the end of the monthly billing period, if the homeowner has generated excess electricity within that month, the homeowner typically carries forward a credit for any excess electricity to be offset against future utility purchases. At the end of an annual billing period or calendar year, utilities either continue to carry forward a credit, or reconcile the homeowner’s final annual or calendar year bill using different rates (including zero credit) for the exported electricity.
Utilities, their trade associations, and fossil fuel interests in the country are currently challenging net metering policies, and seeking to either eliminate it, cap it, or impose charges on homeowners that have adopted net metering. For example, the Hawaii Public Utilities Commission recently issued an Order that purports to eliminate net metering for all new customers. In its place, the Commission created a tariff that sets a reduced rate for the credit customers receive when they export power. All customers who have submitted net metering applications are grandfathered indefinitely under the old rules and we will continue to build those systems.
Some states, including California, currently set limits on the total percentage of a utility’s customers that can adopt net metering. New Hampshire and New York also have net metering caps and other states we serve now or in the future may adopt net metering caps. If the net metering caps in these jurisdictions are reached without an expansion of net metering policies, homeowners in the future will be unable to recognize the cost savings associated with net metering they currently enjoy. If changes to net metering policies occur without grandfathering to existing homeowners, as occurred recently in Nevada, those existing homeowners could be negatively impacted which could create a default risk from those homeowners. Our ability to sell our solar service offerings may be adversely impacted by the failure to expand existing limits to net metering. The failure to adopt a net metering policy where it currently is not in place would pose a barrier to entry in those states. Additionally, the imposition of charges that only or disproportionately impact homeowners that utilize net metering would adversely impact our business.
Our business currently depends on the availability of utility rebates, tax credits, tax exemptions and other financial incentives in addition to other tax benefits. The expiration, elimination or reduction of these rebates and incentives could adversely impact our business.
Federal,
Our business depends in part on the regulatory treatment of third-party owned solar energy systems.
Similarly, the Hawaii Public Utilities Commission recently required the activation of some advanced inverter functionality that may require more expensive equipment and more oversight of the operation of the solar systems over time, which could adversely affect our business.
A material drop in the retail price of utility-generated electricity or electricity from other sources would harm our business, financial condition and results of operations.
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Until 2014, we focused our efforts primarily on the sales, financing, and monitoring of solar energy systems for residential customers, with installation provided by our solar partners. In February 2014, we acquired MEC. We have limited experience managing the fulfillment and racking lines of the MEC business, and we may not be successful in maintaining or growing the revenue from these businesses. Further, we have limited experience, in comparison to our solar partner model, in our direct-to-consumer business, and as a result, we may fail to grow as quickly or achieve the revenue scale targeted in connection with such model. We may also be unsuccessful in expanding our customer base through installation of our solar service offerings within our current markets or in new markets we may enter. Additionally, we cannot assure you that we will be successful in generating substantial revenue from our current solar service offerings or from any additional solar service offerings we may introduce in the future.
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finding investors willing to invest in our investment funds on favorable terms;
| reducing the cost of components for our solar service offerings; |
| growing and maintaining our channel partner network; |
| growing our direct-to-consumer business to scale; and |
| reducing our operating costs by lowering our customer acquisition costs and optimizing our design and installation processes and supply chain logistics. |
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changes to our cancellation rate.
stock could decline and you could lose part or all of your investment. We expect to incur substantially more debt in the future, which could intensify the risks to our business.In addition, energy production is greater in the second and third quarters of the year, causing variability in operating lease revenues throughout the year. Our incentives revenue is also highly variable due to associated revenue recognition rules, as discussed inanalysts, which could have a material adverse effect onanalysts. If that occurs, the trading price of our common stock. significantly within existing markets and in a number of new locations in the future. This growth has placed, and any future growth may place, a significant strain on our management, operational and financial infrastructure. In particular, we will be required to expand, train and manage our growing employee base and solar partners. Our management will also be required to maintain and expand our relationships with homeowners, suppliers and other third parties and attract new homeowners and suppliers, as well as to manage multiple geographic locations. For example, our headcount has grown to approximately 3,380 as of December 31, 2015. Our success and ability to further scale our business will depend, in part, on our ability to manage these changes in a cost-effective and efficient manner. If we cannot manage our growth, we may be unable to take advantage of market opportunities, execute our business strategies or respond to competitive pressures. This could also result in declines in quality or homeowner satisfaction, increased costs, difficulties in introducing new solar service offerings or other operational difficulties. Any failure to effectively manage growth could adversely impact our business and reputation.
purchases could result in the demand for long-term customer agreementsCustomer Agreements to decline, which would require us to shift our product focus to respond to the market trend and could have an adverse effect on our business. In 20142018, 2017 and 2015,2016, the majority of our customers chose our solar service offerings as opposed to buying a solar energy system outright. Our financial model is impacted by the volume of homeowners who choose our solar service offerings, and an increase in the number of customers who choose to purchase solar energy systems (whether for cash or through third-party financing) may harm our business and financial results.
2021, while the Commercial ITC will step down to 10% for both (i) solar property commencing construction after 2021 and (ii) solar property that commenced construction during or prior to 2021 but is placed in service after 2023. Reductions in, eliminations of, or expirations of, governmental incentives such as the Residential ITC could reduce the number of customers who choose to purchase our solar energy systems.
There have also been periods of industry-wide shortage of key components, including solar panels, in times of rapid industry growth. For example, new or unexpected changes in rooftop fire codes or building codes may require new or different system components to satisfy compliance with such newly effective codes or regulations, which may not be readily available for distribution to us or our suppliers. The manufacturing infrastructure for some of these components has a long lead time, requires significant capital investment and relies on the continued availability of key commodity materials, potentially resulting in an inability to meet demand for these components and, as a result, could negatively impact our ability to install systems in a timely manner. Further, any decline in the exchange rate of the U.S. dollar compared to the functional currency of our component suppliers could increase our component prices. Any of these shortages, delays or price changes could limit our growth, cause cancellations or adversely affect our operating margins, and result in loss of market share and damage to our brand.
Further,
For example, some customer orders are cancelled after a site visit if we determine that a customer needs to make repairs to or install a new roof, or that there is excessive shading on their property. If we continue to experience increased customer cancellations, our financial results will potentially be materially and adversely affected.
We typically bear the risk of loss and the cost of maintenance, repair and removal on solar energy systems that are owned or leased by our investment funds.
Because of our limited operating history, we have been required to make assumptions and apply judgments regarding a number of factors, including our anticipated rate of warranty claims and the durability, performance and reliability of our solar energy systems. Our assumptions could prove to be materially different from the actual performance of our systems, causing us to incur substantial expense to repair or replace defective solar energy systems in the future or to compensate homeowners for systems that do not meet their production guarantees. Product failures or operational deficiencies also would reduce our revenue from power purchase or lease agreements because they are dependent on system production. Any widespread product failures or operating deficiencies may damage our market reputation and adversely impact our financial results.
We have guaranteed a minimum return to be received by an investor in one of our investment funds, which could adversely affect our business and financial condition if we were required to make any payments as a result of this guarantee.
We have guaranteed payments to the investor in one of our investment funds in the case that the investor does not achieve a specified minimum internal rate of return in this fund, which rate is assessed annually. The amounts of potential future payments under this guarantee depend on the amounts and timing of future distributions to the investor from funds and the tax benefits that accrue to the investor from the fund’s activities. Because of uncertainties associated with estimating the timing and amounts of distributions to the investor, we cannot determine the potential maximum future payments that we could have to make under this guarantee. To date, we have not been required to make any payments under this guarantee. We may agree to similar terms with other third-party fund investors in the future. Any significant payments that we may be required to make under such guarantees, now or in the future, could adversely affect our financial condition.
If we or our solar partners cannot meet our hiring, retention and efficiency goals, we may be unable to complete homeowners’ projects on time or manage homeowner accounts in an acceptable manner or at all. Any significant failures in this regard would materially impair our growth, reputation, business and financial results. If we are required to pay higher compensation than we anticipate, these greater expenses may also adversely impact our financial results and the growth of our business. potential inability to obtain, or obtain in a timely manner, approvals from governmental authorities, which could delay or prevent such acquisitions. We are subject to legal proceedings, regulatory inquiries and litigation, and we may be named in additional legal proceedings, become involved in regulatory inquiries or be subject to litigation in the future, all of which are costly, distracting to our core business and could result in an unfavorable outcome, or a material adverse effect on our business, financial condition, results of operations, or the trading price for our securities. Compliance with occupational safety and health requirements and best practices can be costly, and noncompliance with such requirements may result in potentially significant penalties, operational delays and adverse publicity. other expenses and generated no revenue. We have performed an analysis to determine whether an ownership change under Section 382 of the Code had occurred and determined that no ownership changes were identified as of December 31, 2018. Further, in recent years the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. In addition, public market upon issuance. Anti-takeover provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt. Provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws could preclude our stockholders from bringing matters before meetings of stockholders and delay changes in our board of directors. Additional stock issuances could result in Fiscal Year Ended December 31, 2015 High Low Third Quarter (August 5, 2015 through September 30, 2015) $ 13.31 $ 8.23 Fourth Quarter $ 14.95 $ 6.36 Dividend Policy Ticker August 5, 2015 December 31, 2015 Sunrun Inc. RUN $ 100.00 $ 109.29 NASDAQ Composite Index ^IXIC $ 100.00 $ 97.42 Guggenheim Solar ETF TAN $ 100.00 $ 87.61 The selected consolidated statements of operations data for the years ended December 31, 2018, 2017 and 2016, and the selected consolidated balance sheet data as of December 31, 2018 and 2017 are derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The selected consolidated statements of operations data for the years ended December 31, 2015 Year Ended December 31. 2015 2014 2013 Revenue: Operating leases and incentives $ 118,004 $ 84,006 $ 54,740 Solar energy systems and product sales 186,602 114,551 — Total revenue 304,606 198,557 54,740 Operating expenses: Cost of operating leases and incentives 111,784 72,898 43,088 Cost of solar energy systems and product sales 168,751 100,802 — Sales and marketing 145,477 78,723 22,395 Research and development 9,657 8,386 9,984 General and administrative 84,442 68,098 33,242 Amortization of intangible assets 3,695 2,269 — Total operating expenses 523,806 331,176 108,709 Loss from operations (219,200 ) (132,619 ) (53,969 ) Interest expense, net 33,236 27,521 11,752 Loss on early extinguishment of debt 431 4,350 — Other expenses 1,338 3,043 365 Loss before income taxes (254,205 ) (167,533 ) (66,086 ) Income tax benefit (5,299 ) (10,043 ) (591 ) Net loss (248,906 ) (157,490 ) (65,495 ) Net loss attributable to noncontrolling interests and redeemable noncontrolling interests (220,660 ) (86,638 ) (64,294 ) Net loss attributable to common stockholders $ (28,246 ) $ (70,852 ) $ (1,201 ) Deemed dividend to convertible preferred stockholders (1) (24,890 ) — — Net loss available to common stockholders $ (53,136 ) $ (70,852 ) $ (1,201 ) Net loss per share available to common shareholders—basic and diluted $ (0.96 ) $ (3.11 ) $ (0.12 ) Weighted average shares used to compute net loss per share available to common stockholders—basic and diluted 55,091 22,795 9,780 As of December 31, 2015 2014 Consolidated Balance Sheet Data: Cash $ 203,864 $ 152,154 Solar energy systems, net 1,992,021 1,484,251 Total assets 2,738,146 1,932,584 Long-term debt, current portion 2,085 2,602 Solar asset-backed notes, current portion 3,323 — Line of credit 194,975 48,597 Long-term debt, net of current portion 232,378 188,052 Solar asset-backed notes, net of current portion 105,557 — Redeemable noncontrolling interests 147,139 135,948 Total equity 659,560 416,619 We compete mainly with traditional utilities. In the markets we serve, our strategy is to price the energy we sell below prevailing local retail electricity rates. As a result, the price our customers pay In this investment fund structure, the investors make a series of large up-front payments as well as, in some instances, subsequent smaller quarterly lease payments through their respective tenant entity to the corresponding owner entity in exchange for the assignment of cash flows from creditors, and the investor has no recourse to our other assets. the value generated by the solar energy systems is provided to thefund investor for a specified period of time, which is generally based upon the period of time corresponding to the expiry of the recapture period associated with the ITCs. After that point in time, we receive substantially all of the value attributable tothe long-term recurring customer payments and the other incentives. the partnership agreement. For the Year Ended December 31, 2015 2014 MW booked (during the period) 273.8 162.9 (1) MW deployed (during the period) 202.9 129.6 (1) As of December 31, 2015 2014 Cumulative megawatts deployed (end of period) 596.3 393.4 As of December 31, 2015 2014 (in thousands, except per watt values) Estimated nominal contracted payments remaining $ 2,404,428 $ 1,596,615 Estimated retained value under energy contract 1,029,311 642,735 Estimated retained value of purchase or renewal 487,397 357,329 Estimated retained value $ 1,516,708 $ 1,000,064 Estimated retained value per watt $ 2.33 $ 2.40 Critical Accounting Policies and Estimates Report on Form 10-K. then-prevailing power prices. The ITCs are subject to recapture under the Internal Revenue Code (“Code”) if the underlying solar energy such revenue will not occur. providers. Product sales revenue is recognized Year Ended December 31, 2015 2014 2013 Risk-free interest rate 1.55%-1.95% 1.68%-2.01% 0.82%-2.06% Volatility 36.30%-39.63% 37.41%-46.68% 54.36%-55.80% Expected term (in years) 5.50-6.23 5.34-6.08 5.54-6.08 Expected dividend yield 0.00 % 0.00 % 0.00 % Provision for Income Taxes will not be realized. With the adoption of ASU 2016-16 on January 1, 2017 we reversed net prepaid tax assets of $378.5 million and recorded the gross deferred tax assets associated with the historical intercompany sales of solar energy systems, which in turn reduced the deferred tax liabilities on investment in partnerships by $378.2 million with the remaining $0.3 million being recorded as a cumulative effect of adoption in our Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity. The adoption did not have an impact on our Consolidated Statement of Operations. Our policy is to include interest and penalties related to unrecognized tax benefits, if any, within the provision for taxes in the consolidated statements of operations. Year Ended December 31. 2015 2014 2013 Revenue: Operating leases and incentives $ 118,004 $ 84,006 $ 54,740 Solar energy systems and product sales 186,602 114,551 — Total revenue 304,606 198,557 54,740 Operating expenses: Cost of operating leases and incentives 111,784 72,898 43,088 Cost of solar energy systems and product sales 168,751 100,802 — Sales and marketing 145,477 78,723 22,395 Research and development 9,657 8,386 9,984 General and administrative 84,442 68,098 33,242 Amortization of intangible assets 3,695 2,269 — Total operating expenses 523,806 331,176 108,709 Loss from operations (219,200 ) (132,619 ) (53,969 ) Interest expense, net 33,236 27,521 11,752 Loss on early extinguishment of debt 431 4,350 — Other expenses 1,338 3,043 365 Loss before income taxes (254,205 ) (167,533 ) (66,086 ) Income tax benefit (5,299 ) (10,043 ) (591 ) Net loss (248,906 ) (157,490 ) (65,495 ) Net loss attributable to noncontrolling interests and redeemable noncontrolling interests (220,660 ) (86,638 ) (64,294 ) Net loss attributable to common stockholders $ (28,246 ) $ (70,852 ) $ (1,201 ) Deemed dividend to convertible preferred stockholders (1) (24,890 ) — — Net loss available to common stockholders $ (53,136 ) $ (70,852 ) $ (1,201 ) Net loss per share available to common shareholders—basic and diluted $ (0.96 ) $ (3.11 ) $ (0.12 ) Weighted average shares used to compute net loss per share available to common stockholders—basic and diluted 55,091 22,795 9,780 Year Ended December 31, Change 2015 2014 $ % (in thousands) Operating leases $ 86,332 $ 63,962 $ 22,370 35 % Incentives 31,672 20,044 11,628 58 % Operating leases and incentives 118,004 84,006 33,998 40 % Solar energy systems 50,191 23,687 26,504 112 % Products 136,411 90,864 45,547 50 % Solar energy systems and product sales 186,602 114,551 72,051 63 % Total revenue $ 304,606 $ 198,557 $ 106,049 53 % 2018. anticipated Section 201 Module Tariffs. Year Ended December 31, Change 2015 2014 $ % (in thousands) Cost of operating lease and incentives $ 111,784 $ 72,898 $ 38,886 53 % Cost of solar energy systems and product sales 168,751 100,802 67,949 67 % Sales and marketing 145,477 78,723 66,754 85 % Research and development 9,657 8,386 1,271 15 % General and administrative expense 84,442 68,098 16,344 24 % Amortization of intangible assets 3,695 2,269 1,426 63 % Total operating expenses $ 523,806 $ 331,176 $ 192,630 58 % Cost of Solar Energy Systems and Product Sales. The Year Ended December 31, Change 2015 2014 $ % (in thousands) Interest expense, net $ 33,236 $ 27,521 $ 5,715 21 % Loss on early extinguishment of debt 431 4,350 (3,919 ) (90 )% Other expenses 1,338 3,043 (1,705 ) (56 )% Total interest and other expenses, net $ 35,005 $ 34,914 $ 91 0 % Year Ended December 31, Change 2015 2014 $ % (in thousands) Income tax benefit $ (5,299 ) $ (10,043 ) $ 4,744 (47 )% The decrease was offset by the tax impact of the change in the federal income tax rate of 15.93%. Year Ended December 31, Change 2015 2014 $ % (in thousands) Net loss attributable to noncontrolling interests and redeemable noncontrolling interests $ (220,660 ) $ (86,638 ) $ (134,022 ) 155 % Year Ended December 31, Change 2014 2013 $ % (in thousands) Operating leases $ 63,962 $ 44,249 $ 19,713 45 % Incentives 20,044 10,491 9,553 91 % Operating leases and incentives 84,006 54,740 29,266 53 % Solar energy systems 23,687 — 23,687 100 % Products 90,864 — 90,864 100 % Solar energy systems and product sales 114,551 — 114,551 100 % Total revenue $ 198,557 $ 54,740 $ 143,817 263 % Year Ended December 31, Change 2014 2013 $ % (in thousands) Cost of operating lease and incentives $ 72,898 $ 43,088 $ 29,810 69 % Cost of solar energy systems and product sales 100,802 — 100,802 100 % Sales and marketing 78,723 22,395 56,328 252 % Research and development 8,386 9,984 (1,598 ) (16 )% General and administrative expense 68,098 33,242 34,856 105 % Amortization of intangible assets 2,269 — 2,269 100 % Total operating expenses $ 331,176 $ 108,709 $ 222,467 205 % Year Ended December 31, Change 2014 2013 $ % (in thousands) Interest expense, net $ 27,521 $ 11,752 $ 15,769 134 % Loss on early extinguishment of debt 4,350 — 4,350 100 % Other expenses 3,043 365 2,678 734 % Total interest and other expenses, net $ 34,914 $ 12,117 $ 22,797 188 % Year Ended December 31, Change 2014 2013 $ % (in thousands) Income tax benefit $ (10,043 ) $ (591 ) $ (9,452 ) 1599 % Year Ended December 31, Change 2014 2013 $ % (in thousands) Net loss attributable to noncontrolling interests and redeemable noncontrolling interests $ (86,638 ) $ (64,294 ) $ (22,344 ) 35 % Three Months Ended December 31, 2015 September 30, 2015 June 30, 2015 March 31, 2015 December 31, 2014 September 30, 2014 June 30, 2014 March 31, 2014 Revenue: Operating leases and incentives $ 29,588 $ 31,650 $ 34,458 $ 22,308 $ 20,966 $ 21,612 $ 22,987 $ 18,441 Solar energy systems and product sales 70,051 50,950 38,232 27,369 39,173 34,464 28,952 11,962 Total revenue 99,639 82,600 72,690 49,677 60,139 56,076 51,939 30,403 Operating expenses: Cost of operating leases and incentives 34,617 28,723 27,067 21,377 21,531 19,112 17,359 14,896 Cost of solar energy systems and product sales 62,329 46,468 34,624 25,330 34,759 30,235 25,333 10,475 Sales and marketing 41,193 45,382 33,976 24,926 25,516 23,445 17,173 12,589 Research and development 2,638 2,240 2,492 2,287 2,424 2,036 1,999 1,927 General and administrative 22,973 21,486 19,677 20,306 17,711 17,700 20,037 12,650 Amortization of intangible assets 1,051 1,051 1,051 542 576 575 655 463 Total operating expenses 164,801 145,350 118,887 94,768 102,517 93,103 82,556 53,000 Loss from operations (65,162 ) (62,750 ) (46,197 ) (45,091 ) (42,378 ) (37,027 ) (30,617 ) (22,597 ) Interest expense, net 9,198 8,475 8,433 7,130 7,764 7,433 6,662 5,662 Loss on early extinguishment of debt — — 431 — 4,350 — — — Other expenses (67 ) 87 1,019 299 540 657 1,386 460 Loss before income taxes (74,293 ) (71,312 ) (56,080 ) (52,520 ) (55,032 ) (45,117 ) (38,665 ) (28,719 ) Income tax expense (benefit) 13 903 (6,215 ) — — — (5,917 ) (4,126 ) Net loss (74,306 ) (72,215 ) (49,865 ) (52,520 ) (55,032 ) (45,117 ) (32,748 ) (24,593 ) Net loss attributable to noncontrolling interests and redeemable noncontrolling interests (59,283 ) (69,447 ) (57,405 ) (34,525 ) (28,346 ) (29,903 ) (15,517 ) (12,872 ) Net loss attributable to common stockholders $ (15,023 ) $ (2,768 ) $ 7,540 $ (17,995 ) $ (26,686 ) $ (15,214 ) $ (17,231 ) $ (11,721 ) Net income allocated to participating securities — — (7,540 ) — — — — Deemed dividend to convertible preferred stockholders — (24,890 ) — — — — — Net loss available to common stockholders $ (15,023 ) $ (27,658 ) $ — $ (17,995 ) $ (26,686 ) $ (15,214 ) $ (17,231 ) $ (11,721 ) Net loss per share available to common shareholders—basic and diluted $ (0.15 ) $ (0.41 ) $ — $ (0.23 ) $ (1.10 ) $ (0.64 ) $ (0.72 ) $ (0.62 ) Weighted average shares used to compute net loss per share available to common stockholders— basic and diluted 101,034 67,732 26,215 79,268 24,173 23,943 23,827 19,021 Liquidity and Capital Resources under our debt instruments and other working capital requirements. As of December 31, 2018, we have outstanding borrowings of $247.0 million on our $250.0 million corporate bank line of credit maturing in April 2020. Our business model requires substantial outside financing arrangements to grow the business and facilitate the deployment of additional solar energy systems. The solar energy systems that are operational are expected to generate a positive return rate over the term of the Customer Agreement, typically 20 or 25 years. However, in order to grow, we Year Ended December 31, 2015 2014 2013 (in thousands) Consolidated cash flow data: Net cash provided by (used in) operating activities $ (105,266 ) $ (7,928 ) $ 23,374 Net cash used in investing activities (627,489 ) (463,968 ) (325,754 ) Net cash provided by financing activities 784,465 524,351 312,294 $ 51,710 $ 52,455 $ 9,914 During CEE. net proceeds from fund investors, $345.8 million in proceeds from debt, net of debt issuance costs and repayments, offset by $12.8 million in repayments under finance lease obligations. Equity Instruments In Payments Due by Period Less Than 1 Year 1 to 3 Years 3 to 5 Years More Than 5 Years Total (in thousands) Contractual Obligations: Debt obligations (including future interest) $ 29,567 $ 279,359 $ 43,543 $ 292,751 $ 645,220 Distributions payable to noncontrolling interests and redeemable noncontrolling interests 8,144 — — — 8,144 Purchase of photovoltaic modules 86,039 — — — 86,039 Capital lease obligations (including accrued interest) 9,727 12,765 3,018 200 25,710 Operating lease obligations 7,019 12,575 3,400 53 23,047 Total contractual obligations $ 140,496 $ 304,699 $ 49,961 $ 293,004 $ 788,160 We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. As of December 31, 2015 2014 Assets Current assets: Cash $ 203,864 $ 152,154 Restricted cash 9,203 2,534 Accounts receivable (net of allowances for doubtful accounts of $1,641 and $703 as of December 31, 2015 and December 31, 2014, respectively) 60,275 43,189 State tax credits receivable 9,198 5,183 Inventories 71,258 23,914 Prepaid expenses and other current assets 6,696 9,560 Total current assets 360,494 236,534 Restricted cash 8,094 6,012 Solar energy systems, net 1,992,021 1,484,251 Property and equipment, net 44,866 22,195 Intangible assets, net 22,705 13,111 Goodwill 87,543 51,786 Prepaid tax asset 190,146 109,381 Other assets 32,277 9,314 Total assets(1) $ 2,738,146 $ 1,932,584 Liabilities and total equity Current liabilities: Accounts payable $ 104,133 $ 51,166 Distributions payable to noncontrolling interests and redeemable noncontrolling interests 8,144 6,764 Accrued expenses and other liabilities 49,146 25,445 Deferred revenue, current portion 59,726 44,398 Deferred grants, current portion 13,949 13,754 Capital lease obligation, current portion 8,951 1,593 Long-term debt, current portion 2,085 2,602 Solar asset-backed notes, current portion 3,323 — Lease pass-through financing obligation, current portion 3,710 5,161 Total current liabilities 253,167 150,883 Deferred revenue, net of current portion 559,066 467,726 Deferred grants, net of current portion 220,784 226,801 Capital lease obligation, net of current portion 15,042 5,761 Line of credit 194,975 48,597 Long-term debt, net of current portion 232,378 188,052 Solar asset-backed notes, net of current portion 105,557 — Lease pass-through financing obligation, net of current portion 153,188 180,224 Other liabilities 7,144 2,424 Deferred tax liabilities 190,146 109,549 Total liabilities(1) 1,931,447 1,380,017 Commitments and contingencies (Note 21) Redeemable noncontrolling interests 147,139 135,948 Stockholders’ equity: Convertible preferred stock, $0.0001 par value—authorized, 0 and 57,028 shares as of December 31, 2015 and 2014 respectively; issued and outstanding, 0 and 54,841 shares as of December 31, 2015 and 2014, respectively; aggregate liquidation value of $0 and $305,883 as of December 31, 2015 and 2014, respectively — 5 Preferred stock, $0.0001 par value—authorized, 200,000 and 0 shares as of December 31, 2015 and 2014, respectively; issued and outstanding, 0 shares as of December 31, 2015 and 2014 — — Common stock, $0.0001 par value—authorized, 2,000,000 and 119,547 shares as of December 31, 2015 and 2014, respectively; issued and outstanding, 101,282 and 24,249 shares as of December 31, 2015 and 2014, respectively 10 2 Additional paid-in capital 642,229 383,860 Accumulated other comprehensive loss (921 ) — Accumulated deficit (87,249 ) (59,003 ) Total stockholders’ equity 554,069 324,864 Noncontrolling interests 105,491 91,755 Total equity 659,560 416,619 Total liabilities, redeemable noncontrolling interests and total equity $ 2,738,146 $ 1,932,584 Year Ended December 31. 2015 2014 2013 Revenue: Operating leases and incentives $ 118,004 $ 84,006 $ 54,740 Solar energy systems and product sales 186,602 114,551 — Total revenue 304,606 198,557 54,740 Operating expenses: Cost of operating leases and incentives 111,784 72,898 43,088 Cost of solar energy systems and product sales 168,751 100,802 — Sales and marketing 145,477 78,723 22,395 Research and development 9,657 8,386 9,984 General and administrative 84,442 68,098 33,242 Amortization of intangible assets 3,695 2,269 — Total operating expenses 523,806 331,176 108,709 Loss from operations (219,200 ) (132,619 ) (53,969 ) Interest expense, net 33,236 27,521 11,752 Loss on early extinguishment of debt 431 4,350 — Other expenses 1,338 3,043 365 Loss before income taxes (254,205 ) (167,533 ) (66,086 ) Income tax benefit (5,299 ) (10,043 ) (591 ) Net loss (248,906 ) (157,490 ) (65,495 ) Net loss attributable to noncontrolling interests and redeemable noncontrolling interests (220,660 ) (86,638 ) (64,294 ) Net loss attributable to common stockholders $ (28,246 ) $ (70,852 ) $ (1,201 ) Deemed dividend to convertible preferred stockholders (24,890 ) — — Net loss available to common stockholders $ (53,136 ) $ (70,852 ) $ (1,201 ) Net loss per share available to common shareholders— basic and diluted $ (0.96 ) $ (3.11 ) $ (0.12 ) Weighted average shares used to compute net loss per share available to common stockholders— basic and diluted 55,091 22,795 9,780 Income Year Ended December 31, 2015 2014 2013 Net loss attributable to common stockholders $ (28,246 ) $ (70,852 ) $ (1,201 ) Other comprehensive income: Unrealized loss on derivatives, net of tax benefit for the year ended December 31, 2015 (2,442 ) — — Less interest expense on derivatives recognized into earnings (1,521 ) — — Comprehensive loss $ (29,167 ) $ (70,852 ) $ (1,201 ) Redeemable Noncontrolling Preferred Stock Common Stock Additional Paid-In Accumulated Other Comprehensive Accumulated Total Shareholders' Noncontrolling Total Interests Shares Amount Shares Amount Capital Loss Deficit Equity Interests Equity Balance - January 1, 2013 $ 95,941 43,998 $ 4 9,450 $ 1 $ 152,134 $ — $ 13,050 $ 165,189 $ 57,472 $ 222,661 Exercise of stock options — — — 962 — 1,119 — — 1,119 — 1,119 Stock-based compensation — — — — — 2,655 — — 2,655 — 2,655 Acquisition of noncontrolling interests (16,906 ) — — — — (5,118 ) — — (5,118 ) — (5,118 ) Income tax effect of acquisition of noncontrolling interests — — — — — 2,339 — — 2,339 — 2,339 Contributions from noncontrolling interests and redeemable noncontrolling interests 73,189 — — — — — — — — 92,142 92,142 Distributions to noncontrolling interests and redeemable noncontrolling interests (8,973 ) — — — — — — — — (61,178 ) (61,178 ) Net loss (33,586 ) — — — — — — (1,201 ) (1,201 ) (30,708 ) (31,909 ) Balance - December 31, 2013 $ 109,665 43,998 $ 4 10,412 $ 1 $ 153,129 $ — $ 11,849 $ 164,983 $ 57,728 $ 222,711 Conversion of Preferred Stock — (36 ) — 36 — — — — — — — Issuance of Series E convertible preferred stock, net of issuance costs of $7,108 — 10,879 1 — — 143,392 — — 143,393 — 143,393 Issuance of shares for an acquisition — — — 12,763 1 75,280 — — 75,281 — 75,281 Exercise of stock options — — — 1,038 — 2,707 — — 2,707 — 2,707 Stock-based compensation — — — — — 9,352 — — 9,352 — 9,352 Contributions from noncontrolling interests and redeemable noncontrolling interests 88,837 — — — — — — — — 80,653 80,653 Distributions to noncontrolling interests and redeemable noncontrolling interests (11,619 ) — — — — — — — — (10,923 ) (10,923 ) Net loss (50,935 ) — — — — — — (70,852 ) (70,852 ) (35,703 ) (106,555 ) Balance - December 31, 2014 $ 135,948 54,841 $ 5 24,249 $ 2 $ 383,860 $ — $ (59,003 ) $ 324,864 $ 91,755 $ 416,619 Exercise of stock options — — — 1,210 — 3,548 — — 3,548 — 3,548 Issuance of restricted stock units, net of tax withholdings — — — 182 — (103 ) (103 ) (103 ) Stock based compensation — — — — — 16,002 — — 16,002 — 16,002 Contributions from noncontrolling interests and redeemable noncontrolling interests 128,466 — — — — — — — — 147,238 147,238 Distributions to noncontrolling interests and redeemable noncontrolling interests (12,924 ) — — — — — — — — (17,193 ) (17,193 ) Issuance of shares due to business acquisition — — — 1,650 — 19,148 — — 19,148 — 19,148 Inducement shares issued to Series D and E preferred stockholders — — — 1,668 1 23,348 — — 23,349 — 23,349 Deemed dividend to Series D and E convertible preferred stockholders — — — — (24,890 ) — — (24,890 ) — (24,890 ) Conversion of convertible preferred stock to common stock — (54,841 ) (5 ) 54,841 5 — — — — — — Issuance of common stock in connection with underwritten public offering, net of issuance costs — — — 17,482 2 221,316 — — 221,318 — 221,318 Net loss (104,351 ) — — — — — — (28,246 ) (28,246 ) (116,309 ) (144,555 ) Unrealized gain (loss) on derivative — — — — — — (921 ) — (921 ) — (921 ) $ 147,139 — $ — 101,282 $ 10 $ 642,229 $ (921 ) $ (87,249 ) $ 554,069 $ 105,491 $ 659,560 The accompanying notes are an integral part of these consolidated financial statements. Year Ended December 31, 2015 2014 2013 Operating activities: Net loss $ (248,906 ) $ (157,490 ) $ (65,495 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Noncash losses 3,516 4,350 — Depreciation and amortization, net of amortization of deferred grants 71,373 49,541 30,192 Bad debt expense 1,998 546 172 Interest on lease pass-through financing 11,959 10,204 6,437 Noncash tax benefit (5,299 ) (10,043 ) (591 ) Noncash interest expense 6,997 2,384 1,551 Stock-based compensation expense 15,823 9,218 2,655 Reduction in lease pass—through financing obligations (16,780 ) (12,323 ) (9,573 ) Changes in operating assets and liabilities: Accounts receivable (15,517 ) (14,075 ) (954 ) Inventories (47,344 ) (3,788 ) — Prepaid and other assets (884 ) (1,920 ) (2,176 ) Accounts payable 50,946 11,063 1,351 Accrued expenses and other liabilities 19,168 7,010 2,734 Deferred revenue 47,684 97,395 57,071 Net cash provided by (used in) operating activities (105,266 ) (7,928 ) 23,374 Investing activities: Payments for the costs of solar energy systems, leased and to be leased (594,887 ) (412,267 ) (322,034 ) Purchases of property and equipment (13,027 ) (15,317 ) (3,720 ) Acquisitions of businesses, net of cash acquired (19,575 ) (36,384 ) — Net cash used in investing activities (627,489 ) (463,968 ) (325,754 ) Financing activities: Proceeds from grants and state tax credits, net of recapture 4,685 1,579 29,321 Proceeds from issuance of debt 544,385 192,750 148,282 Repayment of debt (357,878 ) (120,054 ) (612 ) Payment of debt fees (14,798 ) (7,939 ) (5,493 ) Proceeds from solar asset-backed notes 111,000 — — Repayment of solar asset-backed notes (2,120 ) — — Proceeds from issuance of convertible preferred stock, net of issuance costs — 143,393 — Proceeds from lease pass-through financing obligations 129,121 174,159 64,888 Repayment of lease pass-through financing obligations (88,918 ) — — Contributions received from noncontrolling interests and redeemable noncontrolling interests 275,704 169,490 165,331 Distributions paid to noncontrolling interests and redeemable noncontrolling interests (28,737 ) (31,967 ) (63,907 ) Acquisition of noncontrolling interests — (21 ) (22,024 ) Proceeds from exercises of stock options 3,548 2,707 1,119 Proceeds from initial public offering, net of offering costs 222,078 — — Payment of capital lease obligation (4,854 ) (1,181 ) — Change in restricted cash (8,751 ) 1,435 (4,611 ) Net cash provided by financing activities 784,465 524,351 312,294 Net increase in cash 51,710 52,455 9,914 Cash, beginning of period 152,154 99,699 89,785 Cash, end of period $ 203,864 $ 152,154 $ 99,699 Supplemental disclosures of cash flow information Cash paid for interest $ 11,954 $ 11,101 $ 3,657 Supplemental disclosures of noncash investing and financing activities Costs of solar energy systems and property and equipment included in accounts payable and accrued expenses $ 15,850 $ 14,074 $ 14,469 Distributions payable to noncontrolling interests and redeemable noncontrolling interests $ 8,144 $ 6,764 $ 16,189 Vehicles acquired under capital leases $ 21,556 $ 5,666 $ — Noncash purchase consideration on acquisition of business $ 18,718 $ 76,964 $ — Deemed dividend on Series D and E preferred shares $ 24,890 $ — $ — Offering costs prepaid in prior year $ 760 $ — $ — Year Ended December 31, 2015 2014 2013 Operating leases $ 86,332 $ 63,962 $ 44,249 Incentives 31,672 20,044 10,491 Operating leases and incentives 118,004 84,006 54,740 Solar energy systems 50,191 23,687 — Products 136,411 90,864 — Solar energy systems and product sales 186,602 114,551 — Total revenue $ 304,606 $ 198,557 $ 54,740 and Restricted Cash the total of the same such amounts shown in the consolidated statement of cash flows. Cash and restricted cash consists of the following (in thousands): December 31, 2015 2014 Customer receivables $ 46,169 $ 24,477 Customer deposits 10,150 11,135 Other receivables 4,376 5,936 Rebates receivable 1,221 2,344 Allowance for doubtful accounts (1,641 ) (703 ) Total $ 60,275 $ 43,189 Lesser of Furniture 5 years Computer hardware and software 3 years Machinery and equipment Automobiles Additional costs of $2.5 million, $6.1 million and $4.9 million were capitalized in 2018, 2017 and 2016, respectively. Developed technology periods presented. The opening balance of deferred revenue was $525.4 million as of December 31, 2016. Deferred revenue consists of the following (in thousands): December 31, 2015 2014 Customer payments $ 370,754 $ 311,193 Rebates and incentives 102,827 101,318 ITCs 126,853 85,767 SRECs 18,358 13,846 Total $ 618,792 $ 512,124 As described in the Solar Energy Systems, net section above, the estimated depreciable life of the associated assets was revised from 20 to 35 years in 2016. estimated replacement costs. transaction price. then prevailing power prices. 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. less than twelve months. sales. Upon adoption of Accounting Standards Update ("ASU") No. 2014-09, our proprietary technology. With the adoption of ASU 2016-16 on January 1, 2017 the Company reversed net prepaid tax assets of $378.5 million and recorded the gross deferred tax assets associated with the historical intercompany sales of solar energy systems, which in turn reduced the deferred tax liabilities on investment in partnerships by $378.2 million with the remaining $0.3 million being recorded as a cumulative effect of adoption in the Company’s Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity. The adoption did not have an impact on the Company’s Consolidated Statement of Operations. In November Cash $ 5,440 Accounts receivable 8,881 Inventory 23,886 Prepaid expenses 2,028 Property and equipment 6,113 Intangible assets 15,380 Other long-term assets 200 Accounts payable and accrued liabilities (24,975 ) Deferred revenue (768 ) Capital lease obligation (2,869 ) Other liabilities (1,509 ) Deferred tax liabilities (4,843 ) Indentifiable assets and liabilities assumed 26,964 Goodwill 51,786 Total $ 78,750 March 31, 2019 Form 10-Q. The For the year ended December 31, 2014 2013 Revenue $ 205,355 $ 143,614 Net loss (164,974 ) (88,326 ) Net loss attributable to common stockholders (78,336 ) (24,032 ) Net loss per share attributable to common stockholders, basic and diluted (3.44 ) (1.07 ) statements. An additional Cash $ 424 Accounts receivable 639 Intangible assets 13,290 Accounts payable and accrued liabilities (1,247 ) Deferred tax liability (5,146 ) Identifiable assets and liabilities assumed 7,960 Goodwill 35,757 Total $ 43,717 Fair Value Estimated Useful Life Developed technology $ 5,910 5 Customer relationships 4,390 8 Trade names 2,990 8 Total $ 13,290 December 31, 2015 December 31, 2014 Carrying Value Fair Value Carrying Value Fair Value Line of credit 194,975 194,975 $ 48,597 $ 48,597 Non-bank term loans — — 3,138 3,853 Syndicated term loans 170,664 170,664 124,571 124,571 Bank term loan 30,740 32,692 33,382 35,653 Note payable 33,059 32,568 29,563 28,900 Solar asset-backed notes 108,880 110,103 — — Total $ 538,318 $ 541,002 $ 239,251 $ 241,574 December 31, 2015 Level 1 Level 2 Level 3 Total Derivative liabilities: Interest rate swaps $ — $ 921 $ — $ 921 Warrants — — 557 557 Total $ — $ 921 $ 557 $ 1,478 December 31, 2015 2014 Raw materials 62,967 $ 21,531 Work-in-process 8,291 2,383 Total $ 71,258 $ 23,914 December 31, 2015 2014 Solar energy system equipment costs $ 1,846,103 $ 1,406,478 Inverters 177,202 123,910 Initial direct costs 68,280 40,307 Total solar energy systems 2,091,585 1,570,695 Less: accumulated depreciation and amortization (212,671 ) (143,028 ) Add: construction-in-progress 113,107 56,584 Total solar energy systems, net $ 1,992,021 $ 1,484,251 December 31, 2015 2014 Machinery and equipment $ 2,808 $ 1,031 Leasehold improvements, furniture, and computer hardware 10,669 6,386 Vehicles 33,048 8,942 Computer software 19,883 16,431 Total property and equipment 66,408 32,790 Less: accumulated depreciation and amortization (21,542 ) (10,595 ) Total solar energy systems, net $ 44,866 $ 22,195 Balance—January 1, 2014 $ — Acquisition of MEC (Note 3) 51,786 Balance—December 31, 2014 $ 51,786 Acquisition of CEE (Note 3) 35,757 Balance—December 31, 2015 $ 87,543 its racking business SnapNrack, and Clean Energy Experts, LLC. Weighted average Accumulated Carrying remaining life Cost amortization value (in years) Backlog $ 200 $ (200 ) $ — — Customer relationships 14,660 (2,618 ) 12,042 7.4 Developed technology 6,820 (1,235 ) 5,585 4.1 Trade names 6,990 (1,912 ) 5,078 5.3 Total $ 28,670 $ (5,965 ) $ 22,705 Weighted average Accumulated Carrying remaining life Cost amortization value (in years) Backlog $ 200 $ (183 ) $ 17 0.1 Customer relationships 10,270 (1,055 ) 9,215 8.4 Developed technology 910 (167 ) 743 4.1 Trade names 4,000 (864 ) 3,136 4.1 Total $ 15,380 $ (2,269 ) $ 13,111 2016 $ 4,205 2017 4,205 2018 4,205 2019 3,335 2020 2,143 Thereafter 4,612 Total $ 22,705 December 31, 2015 2014 Prepaid expenses $ 5,134 $ 4,564 Reimbursement receivable 337 2,808 State tax receivable 427 1,117 Other current assets 798 1,071 Total $ 6,696 $ 9,560 December 31, 2015 2014 Accrued employee compensation $ 21,353 $ 12,588 Other accrued expenses 19,313 9,526 CEE acquisition consideration 5,000 — Accrued professional fees 3,480 3,331 Total $ 49,146 $ 25,445 Unused Annual Carrying Values, net of Borrowing Contractual Interest Maturity debt discount Capacity Interest Rate Rate Date Current Long Term Total Recourse debt: Bank line of credit $ — $ 194,975 $ 194,975 $ 6,571 Varies1 3.67 % April 2018 Total recourse debt $ — $ 194,975 $ 194,975 $ 6,571 Non-recourse debt: Syndicated term loans 926 169,739 170,665 5,600 LIBOR + 2.75% - Term A 3.07 % December 2021 LIBOR + 5.00% - Term B 6.00 % December 2021 Bank term loans 1,159 29,580 30,739 — 6.25% 6.25 % April 2022 Note payable — 33,059 33,059 — 12.00% 12.00 % December 2018 Solar asset-backed notes 3,323 105,557 108,880 — 4.40% - Class A 4.40 % July 2024 5.38% - Class B 5.38 % July 2024 Total non-recourse debt 5,408 337,935 343,343 5,600 Total debt $ 5,408 $ 532,910 $ 538,318 $ 12,171 Unused Annual Carrying Values, net of Borrowing Contractual Interest Maturity debt discount Capacity Interest Rate Rate Date Current Long Term Total Recourse debt: Bank line of credit $ — $ 48,597 $ 48,597 $ — Prime Rate + 1.00% 4.25 % December 2016 Total recourse debt $ — $ 48,597 $ 48,597 $ — Non-recourse debt: Non-bank term loans 207 2,931 3,138 — 9.08% 9.08 % December 2024 Syndicated term loans 958 123,613 124,571 5,000 LIBOR + 2.75% - Term A 3.01 % December 2021 LIBOR + 5.00% - Term B 6.00 % December 2021 Bank term loans 1,437 31,945 33,382 — 6.25% 6.25 % April 2022 Note payable — 29,563 29,563 — 12.00% 12.00 % December 2018 Total non-recourse debt 2,602 188,052 190,654 5,000 Total debt $ 2,602 $ 236,649 $ 239,251 $ 5,000 Loans under the facility bear interest at LIBOR +3.25% per annum or the Base Rate +2.25% per annum. The Base Rate is the highest of the Federal Funds Rate +0.50%, the Prime Rate, or LIBOR +1.00%. 2020. The 2018 2016 $ 6,330 2017 7,392 2018 238,250 2019 9,253 2020 11,414 Thereafter 273,693 Subtotal $ 546,332 Less: Debt Discount (8,014 ) Total $ 538,318 2018. Type Quantity Maturity Dates Hedge Interest Rates Notional Amount Fair Market Value Credit Risk Adjustment Adjusted Fair Market Value Deferred Tax Benefit Loss Recognized in Accumulated Comprehensive Loss Interest Expense Recognized into Earnings Interest rate swaps 4 10/31/2028 2.17%-2.18% $ 109,143 $ 384 $ 537 $ 921 $ — $ 921 $ 1,521 At December 31, thousands): these investors. 2016 $ 524 2017 524 2018 524 2019 524 2020 524 Thereafter 3,516 Total $ 6,136 December 31, 2015 2014 Assets Current assets Cash $ 44,407 $ 29,099 Restricted cash 757 228 Accounts receivable, net 12,965 14,351 Prepaid expenses and other current assets 66 180 Total current assets 58,195 43,858 Restricted cash $ — $ 365 Solar energy systems, net 1,305,420 942,655 Total Assets $ 1,363,615 $ 986,878 Liabilities Current liabilities Accounts payable $ 11,025 $ 9,057 Distribution payable to noncontrolling interests and redeemable noncontrolling interests 8,063 6,426 Accrued expenses and other liabilities 175 340 Deferred revenue, current portion 21,344 16,991 Deferred grants, current portion 7,198 7,225 Long-term debt, current portion 1,159 1,437 Total current liabilities 48,964 41,476 Deferred revenue, net of current portion 353,392 284,801 Deferred grants, net of current portion 108,528 116,126 Long-term debt, net of current portion 29,580 $ 31,945 Total liabilities $ 540,464 $ 474,348 Shares Authorized Shares Issued and Outstanding Aggregate Liquidation Preference Noncumulative Dividend Per Share Per Annum Series A 12,043 12,007 $ 12,007 $ 0.08 Series B 10,758 10,758 18,420 0.14 Series C 13,613 13,613 55,000 0.32 Series D 7,584 7,584 70,000 0.74 Series E 13,030 10,879 150,456 1.11 Total 57,028 54,841 $ 305,883 2018, 2017 or 2016. December 31, 2015 2014 Series A Convertible Preferred Stock — 12,007 Series B Convertible Preferred Stock — 10,758 Series C Convertible Preferred Stock — 13,613 Series D Convertible Preferred Stock — 7,584 Series E Convertible Preferred Stock — 10,879 Stock option plans Shares available for grant 2013 Equity Incentive Plan — 694 2015 Equity Incentive Plan 12,006 — 2015 Employee Stock Purchase Plan 1,000 — Options outstanding 12,795 11,408 Restricted stock units outstanding 1,506 947 Total 27,307 67,890 Weighted Weighted Average Average Options Exercise Price Remaining Outstanding Outstanding Contractual Life Outstanding at December 31, 2014 11,408 $ 4.42 8.20 Granted 3,806 9.50 Exercised (1,210 ) 2.96 Cancelled / forfeited (1,209 ) 6.27 Outstanding at December 31, 2015 12,795 $ 5.89 7.82 Options vested and exercisable at December 31, 2015 6,409 $ 3.88 6.80 Options vested and expected to vest at December 31, 2015 10,460 $ 5.69 7.65 2017. Year Ended December 31, 2015 2014 2013 Risk-free interest rate 1.55%-1.95% 1.68%-2.01% 0.82%-2.06% Volatility 36.30%-39.63% 37.41%-46.68% 54.36%-55.80% Expected term (in years) 5.50-6.23 5.34-6.08 5.54-6.08 Expected dividend yield 0.00 % 0.00 % 0.00 % . 2019. Weighted Average Grant Date Fair Shares Value Unvested balance at December 31, 2014 947 $ 9.40 Granted 808 11.13 Issued (182 ) 9.58 Cancelled / forfeited (67 ) 11.37 Unvested balance at December 31, 2015 1,506 $ 10.44 Year Ended December 31, 2015 2014 2013 Cost of operating leases and incentives $ 1,649 $ 155 $ 116 Cost of solar energy systems and product sales 236 682 — Sales and marketing 5,242 897 474 Research and development 205 270 379 General and administration 8,491 7,214 1,686 Total $ 15,823 $ 9,218 $ 2,655 installed solar For the year ended December 31, 2015 2014 2013 Loss attributable to common stockholders $ 33,545 $ 80,895 $ 1,792 Loss attributable to noncontrolling interest and redeemable noncontrolling interests 220,660 86,638 64,294 Total $ 254,205 $ 167,533 $ 66,086 For the year ended December 31, 2015 2014 2013 Current: Federal $ — $ — $ — State — — 169 Total current expense — — 169 Deferred: Federal (7,516 ) (8,196 ) (1,114 ) State 2,217 (1,847 ) 354 Total deferred provision (5,299 ) (10,043 ) (760 ) Total $ (5,299 ) $ (10,043 ) $ (591 ) For the year ended December 31, 2015 2014 2013 Tax provision (benefit) at federal statutory rate (34.00 )% (34.00 )% (34.00 )% State income taxes, net of federal benefit 0.87 (1.10 ) 0.79 Effect of noncontrolling and redeemable noncontrolling interests 29.53 17.59 34.10 Stock-based compensation 1.06 1.37 0.94 Effect of prepaid tax asset 0.04 9.39 — Tax credits (0.43 ) (0.22 ) (2.16 ) Other 0.85 0.98 (0.56 ) Total (2.08 )% (5.99 )% (0.89 )% December 31, 2015 2014 Deferred tax assets: Accruals and prepaids $ 12,904 $ 4,302 Deferred revenue 34,710 44,359 Net operating loss carryforwards 229,464 176,555 Stock-based Compensation 3,748 1,612 Investment tax and other credits 11,261 7,369 Gross deferred tax assets 292,087 234,197 Deferred tax liabilities: Capitalized initial direct costs 27,539 16,640 Fixed asset depreciation 178,511 142,866 Deferred tax on investment in partnerships 276,183 184,240 Gross deferred tax liabilities 482,233 343,746 Net deferred tax liabilities $ (190,146 ) $ (109,549 ) December 31, 2015 2014 Deferred tax assets $ 292,087 $ 234,197 Deferred tax liabilities (482,233 ) (343,746 ) Net deferred tax liabilities $ (190,146 ) $ (109,549 ) 2018. effects of the Act. Balance at January 1, 2014 and December 31, 2014 $ — Acquired from CEE 1,525 Balance at December 31, 2015 $ 1,525 2016 $ 7,019 2017 6,669 2018 5,906 2019 2,521 2020 879 Thereafter 53 Total $ 23,047 2016 $ 9,727 2017 7,444 2018 5,321 2019 2,799 2020 219 Thereafter 200 Total future lease payments 25,710 Less: amount representing estimated executory costs included in future lease payments 537 Net minimum future lease payments 25,173 Amount representing interest 1,180 Present value of future payments 23,993 Less: current portion 8,951 Long term portion $ 15,042 2019. independent third-party appraisal In general, the policy indemnifies the Company and related parties for additional taxes (including penalties and interest) owed in respect of lost ITCs, gross-up costs and expenses incurred in defending such claim, subject to negotiated exclusions from, and limitations to, coverage. Years Ended December 31, 2015 2014 2013 Numerator: Net loss attributable to common stockholders $ (28,246 ) $ (70,852 ) $ (1,201 ) Deemed dividend to convertible preferred stockholders (24,890 ) — — Net loss available to common stockholders (53,136 ) (70,852 ) (1,201 ) Denominator: Weighted average shares used to compute net loss per share available to common stockholders, basic and diluted 55,091 22,795 9,780 Basic and diluted $ (0.96 ) $ (3.11 ) $ (0.12 ) Year Ended December 31, 2015 2014 2013 Preferred stock — 54,841 43,998 Warrants 1,251 — — Outstanding stock options 12,615 11,408 8,127 Unvested restricted stock units 723 — — ESPP 79 — — Total 14,668 66,249 52,125 2017 (in thousands, except per share amounts): Consolidated Financial Statements Financial Statement Schedules Exhibits Exhibit Incorporated by Reference Number Exhibit Description Form File No. Exhibit Filing Date 3.1 Amended and Restated Certificate of Incorporation of the Registrant 10-Q 001-37511 3.1 9/15/15 3.2 Amended and Restated Bylaws of the Registrant 10-Q 001-37511 3.2 9/15/15 4.1 Form of common stock certificate of the Registrant. S-1 333-205217 4.1 6/25/15 4.2 Form of Warrant 8-K 001-37511 4.1 10/2/15 4.3 Tenth Amended and Restated Investors’ Rights Agreement among the Registrant and certain holders of its capital stock, dated as of March 31, 2015. S-1 333-205217 4.2 6/25/15 4.4 Shareholders Agreement among the Registrant and certain holders of its capital stock, dated as of April 1, 2015. S-1 333-205217 4.4 6/25/15 4.5 Form of Stock Issuance Agreement. S-1/A 333-205217 4.4 7/22/15 10.1+ Form of Indemnification Agreement between the Registrant and each of its directors and executive officers. S-1 333-205217 10.1 6/25/15 10.2+ Sunrun Inc. 2015 Equity Incentive Plan and related form agreements. S-1/A 333-205217 10.2 7/22/15 10.3+ Sunrun Inc. 2015 Employee Stock Purchase Plan and related form agreements. S-1/A 333-205217 10.3 7/22/15 10.4+ Sunrun Inc. 2014 Equity Incentive Plan. S-1 333-205217 10.4 6/25/15 10.5+ Sunrun Inc. 2013 Equity Incentive Plan and related form agreements. S-1 333-205217 10.5 6/25/15 10.6+ Sunrun Inc. 2008 Equity Incentive Plan and related form agreements. S-1 333-205217 10.6 6/25/15 10.7+ Mainstream Energy Corporation 2009 Stock Plan. S-1 333-205217 10.7 6/25/15 10.8+ Sunrun Inc. Executive Incentive Compensation Plan. S-1 333-205217 10.8 6/25/15 10.9+ Key Employee Change in Control and Severance Plan and Summary Plan Description. S-1 333-205217 10.9 6/25/15 10.10+ Employment Letter between the Registrant and Lynn Jurich, dated as of May 8, 2015. S-1 333-205217 10.10 6/25/15 10.11+ Employment Letter between the Registrant and Edward Fenster, dated as of May 8, 2015. S-1 333-205217 10.11 6/25/15 10.12+ Employment Letter between the Registrant and Bob Komin, dated as of May 8, 2015. S-1 333-205217 10.12 6/25/15 10.13+ Employment Letter between the Registrant and Thomas Holland, dated as of May 8, 2015. S-1 333-205217 10.13 6/25/15 10.14+ Employment Letter between the Registrant and Paul Winnowski, dated as of May 8, 2015. S-1 333-205217 10.14 6/25/15 Exhibit Incorporated by Reference Number Exhibit Description Form File No. Exhibit Filing Date Board Services Agreement between the Registrant and Gerald Risk, dated as of February 1, 2014. S-1 333-205217 10.15 6/25/15 10.16 Agreement of Sublease between the Registrant and Visa U.S.A. Inc., dated as of April 1, 2013, as amended on April 29, 2013. S-1 333-205217 10.16 6/25/15 10.17¥ Credit Agreement among the Registrant, Credit Suisse Securities (USA) LLC and the other parties thereto, dated as of April 1, 2015. S-1 333-205217 10.17 6/25/15 10.18¥ Credit Agreement among Sunrun Aurora Portfolio 2014-A, LLC, Investec Bank PLC, Keybank National Association and the Lenders from time to time as party thereto, dated December 31, 2014. S-1 333-205217 10.18 6/25/15 10.19 Transition, Separation and General Release Agreement, dated December 7, 2015 between Tom Holland and Sunrun Inc. 8-K 001-37511 10.1 12/8/15 21.1 List of subsidiaries of the Registrant. S-1 333-205217 21.1 6/25/15 23.1 Consent of Independent Registered Public Accounting Firm. 31.1 Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS XBRL Instance Document. 101.SCH XBRL Taxonomy Schema Linkbase Document. 101.CAL XBRL Taxonomy Definition Linkbase Document. 101.DEF XBRL Taxonomy Calculation Linkbase Document. 101.LAB XBRL Taxonomy Labels Linkbase Document. 101.PRE XBRL Taxonomy Presentation Linkbase Document. +Further, weWe have at times focused particular attention on expeditiously growing our direct sales force and our solar partners, leading us in some instances to hire personnel or partner with third parties who we may later determine do not fit our company culture.culture and standards. Given the sheer volume of interactions our direct sales force and our solar partners have with customers and potential customers, it is also unavoidable that some interactions will be perceived by customers and potential customers as less than satisfactory and result in complaints. If we cannot manage our hiring and training processes to avoidlimit potential issues related to expanding our sales team or solar partners and maintain appropriate customer service levels, our businessbrand and reputation may be harmed and our ability to attract homeownersgrow our business would suffer. In addition, if we were unable to achieve a similar level of brand recognition as our competitors, some of which currently have a broader brand footprint as a result of a larger direct sales force, more resources and longer operational history, we could lose recognition in the marketplace among prospective customers, suppliers and partners, which could affect our growth and financial performance. Our growth strategy involves marketing and branding initiatives that will involve incurring significant expenses in advance of corresponding revenues. We cannot assure you that such marketing and branding expenses will result in the successful expansion of our brand recognition or increase our revenues.personteam member is fully trained and productive at the standards that we have established. If we are unable to hire, develop and retain talented customer service personnel, we may not be able to realize the expected benefits of this investment or grow our business.CEEClean Energy Experts, LLC (“CEE”) in April 2015. We may in the future acquire additional companies, project pipelines, products, or technologies or enter into joint ventures or other strategic initiatives. We may not realize the anticipated benefits of past or future acquisitions, and any acquisition has numerous risks that are not within our control. These risks include the following, among others:·difficulty in assimilating the operations and personnel of the acquired company, especially given our unique culture;
difficulty in assimilating the operations and personnel of the acquired company, especially given our unique culture;·difficulty in effectively integrating the acquired technologies or products with our current products and technologies;
difficulty in effectively integrating the acquired technologies or products with our current products and technologies;·difficulty in maintaining controls, procedures, and policies during the transition and integration;
difficulty in maintaining controls, procedures and policies during the transition and integration;·disruption of our ongoing business and distraction of our management and employees from other opportunities and challenges due to integration issues;
disruption of our ongoing business and distraction of our management and employees from other opportunities and challenges due to integration issues;·difficulty integrating the acquired company’s accounting, management information, and other administrative systems;
difficulty integrating the acquired company’s accounting, management information and other administrative systems;·inability to retain key technical and managerial personnel of the acquired business;·inability to retain key customers, vendors, and other business partnersinability to retain key technical and managerial personnel of the acquired business;
inability to retain key customers, vendors and other business partners of the acquired business;·inability to achieve the financial and strategic goals for the acquired and combined businesses;
inability to achieve the financial and strategic goals for the acquired and combined businesses;·incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our results of operations;
incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our results of operations;·significant post-acquisition investments which may lower the actual benefits realized through the acquisition;
significant post-acquisition investments which may lower the actual benefits realized through the acquisition;·potential failure of the due diligence processes to identify significant issues with product quality, legal and financial liabilities, among other things;
potential failure of the due diligence processes to identify significant issues with product quality, legal and financial liabilities, among other things;·The Office of the Inspector General of the U.S. Department of Treasury has issued subpoenas to a number of significant participants in the rooftop solar energy installation industry, including us. The subpoena we received requires us to deliver certain documents in our possession relating to our participation in the U.S. Treasury grant program. These documents have been delivered to the Office of the Inspector General of the U.S. Department of Treasury, which is investigating the administration and implementation of the U.S. Treasury grant program.In July 2012, we and other companies that are significant participants in both the solar industry and the cash grant program under Section 1603 of the American Recovery and Reinvestment Act of 2009 received subpoenas from the U.S. Department of Treasury’s Office of the Inspector General. Our subpoena requested, among other things, documents that relate to our applications for U.S. Treasury grants and communications with certain other solar service companies or certain firms that appraise solar energy property for U.S. Treasury grant application purposes. The Inspector General is working with the Civil Division of the U.S. Department of Justice to investigate the administration and implementation of the U.S. Treasury grant program, including possible misrepresentations concerning the fair market value of the solar power systems submitted for grant under that program made in grant applications by companies in the solar industry, including us. We produced documents and testimony as requested by the Inspector General, and we intend to continue to cooperate fully with the Inspector General and the Department of Justice. We are not able to predict how long this review will be on-going. If, at the conclusion of the investigation, the Inspector General concludes that misrepresentations were made, the Department of Justice could decide to bring a civil action to recover amounts it believes were improperly paid to us. If it were successful in asserting this action, we could be required to pay damages and penalties for any funds received based on such misrepresentations (which, in turn, could require us to make indemnity payments to certain of our fund investors). Such consequences could have a material adverse effect on our business, liquidity, financial condition and prospects. Additionally, the period of time necessary to resolve the investigation is uncertain, and this matter could require significant management and financial resources that could otherwise be devoted to the operation of our business.If the Internal Revenue Service or the U.S. Treasury Department 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.We and our fund investors claim the Commercial ITC or the U.S. Treasury grant in amounts based on the fair market value of our solar energy systems. We have obtained independent appraisals to determine the fair market values we report for claiming Commercial ITCs and U.S. Treasury grants. The IRS and the U.S. Treasury Department review these fair market values. With respect to U.S. Treasury grants, the U.S. Treasury Department reviews the reported fair market value in determining the amount initially awarded, and the IRS and the U.S. Treasury Department may also subsequently audit the fair market value and determine that amounts previously awarded must be repaid to the U.S. Treasury Department or that excess awards constitute taxable income for U.S. federal income tax purposes. With respect to Commercial ITCs, the IRS may review the fair market value on audit and determine that the tax credits previously claimed must be reduced. If the fair market value is determined in these circumstances to be less than we reported, we may owe our fund investors an amount equal to this difference, plus any costs and expenses associated with a challenge to that valuation. We could also be subject to tax liabilities, including interest and penalties. If the IRS or the U.S. Treasury Department further disagrees now or in the future with the amounts we reported regarding the fair market value of our solar energy systems, or if we receive an adverse outcome with respect to the Department of Treasury Inspector General investigation, it could have a material adverse effect on our business, financial condition and prospects. For example, a hypothetical five percent downward adjustment in the fair market value of the solar energy systems for which we have been awarded approximately $269.0 million in U.S. Department of Treasury grants since the beginning of the U.S. Treasury grant program through December 31, 2014, would obligate us to repay approximately $14 million to our fund investors. Three of our investment funds are currently being audited by the IRS.agencies, including the pending Treasury investigation discussed above.agencies. In the event that we are involved in significant disputes or are the subject of a formal action by a regulatory agency, we could be exposed to costly and time consumingtime-consuming legal proceedings that could result in any number of outcomes. Although outcomes of such actions vary, any current or future claims or regulatory actions initiated by or against us, whether successful or not, could result in expensivesignificant costs, costly damage awards or settlement amounts, injunctive relief, increased costs of business, fines or orders to change certain business practices, significant dedication of management time, diversion of significant operational resources, or otherwise harm our business.lawlaws or regulations, or the perception that we or our solar partners have violated such laws or regulations or engaged in deceptive practices that could result in a violation, could also expose us to claims, proceedings, litigation and investigations by private parties and regulatory authorities, as well as substantial fines and negative publicity, each of which may materially and adversely affect our business. We have incurred, and will continue to incur, significant expenses to comply with such laws and regulations, and increased regulation of matters relating to our interactions with residential customers could require us to modify our operations and incur significant additional expenses, which could have an adverse effect on our business, financial condition and results of operations.the U.S. Occupational Safety and Health Act (“OSHA”)OSHA and equivalent state laws. Changes to OSHA requirements, or stricter interpretation or enforcement of existing laws or regulations, could result in increased costs. If we fail to comply with applicable OSHA regulations, even if no work-related serious injury or death occurs, we may be subject to civil or criminal enforcement and be required to pay substantial penalties, incur significant capital expenditures, or suspend or limit operations. Any accidents, citations, violations, injuries or failure to comply with industry best practices may subject us to adverse publicity, damage our reputation and competitive position and adversely affect our business.Rising interest rates will adversely impact our business.Rising interest rates will increase our cost of capital. Our future success depends on our ability to raise capital from fund investors and obtain secured lending to help finance the deployment of our solar service offerings. Part of our business strategy is to seek to reduce our cost of capital through these arrangements to improve our margins, offset future reductions in government incentives and maintain the price competitiveness of our solar service offerings. Rising interest rates may have an adverse impact on our ability to offer attractive pricing on our solar service offerings to homeowners.The majority of our cash flows to date have been from solar service offerings under customer agreements that have been monetized under various investment fund structures. One of the components of this monetization is the present value of the payment streams from homeowners who enter into these customer agreements. If the rate of return required by capital providers, including debt providers, rises as a result of a rise in interest rates, it will reduce the present value of the homeowner payment stream and consequently reduce the total value derived from this monetization. Any measures that we could take to mitigate the impact of rising interest rates on our ability to secure third-party financing could ultimately have an adverse impact on the value proposition that we offer homeowners.customer agreementsCustomer Agreements are typically for 20 or 25 years and require the homeowner to make monthly payments to us. Accordingly, we are subject to the credit risk of homeowners. As of December 31, 2015,2018, the average FICO score of our customers under a lease or power purchase agreement was approximately 760, butwith a monthly payment schedule remained at or above 740, which is generally categorized as a "Very Good" credit profile by the Fair Isaac Corporation. However, this may decline to the extent FICO score requirements under future investment funds are relaxed. While to date homeowner defaults have been immaterial, we expect that the risk of homeowner defaults may increase as we grow our business. Due to the immaterial amount of homeowner defaults to date, our reserve for this exposure is minimal, and our future exposure may exceed the amount of such reserves. If we experience increased homeowner credit defaults, our revenues and our ability to raise new investment funds could be adversely affected. If economic conditions worsen, certain of our homeowners may face liquidity concerns and may be unable to satisfy their payment obligations to us on a timely basis or at all, which could have a material adverse effect on our financial condition and results of operations.The requirements of beingpublic company may strain our resources, divert management’s attentionsales contract with a potential customer does not guarantee that a potential customer will not decide to cancel or that we will need to cancel due to a failed inspection, which could cause us to generate no revenue from a product and adversely affect our ability to attract and retain qualified board members and officers.We are subject to the reporting requirements of the Exchange Act, the listing requirements of the NASDAQ Stock Market and other applicable securities rules and regulations. Compliance with these rules and regulations has increased our legal and financial compliance costs, made some activities more difficult, time-consuming or costly and increased demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and results of operations and maintain effective disclosure controls and procedures and internal control over financial reporting. To maintain and improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business and results of operations. Althoughhave already hired additional employeessecure a sales contract with a potential customer, we (either directly or through our solar partners) must perform an inspection to comply with these requirements,ensure the home, including the rooftop, meets our standards and specifications. If the inspection finds repairs to the rooftop are required in order to satisfy our standards and specifications to install the solar energy system, and a potential customer does not want to make such required repairs, we would lose that anticipated sale. In addition, per the terms of our Customer Agreements, a customer maintains the ability to cancel before commencement of installation, subject to certain conditions. Any delay or cancellation of an anticipated sale could materially and adversely affect our financial results, as we may need to hire more employees in the future, which will increase our costshave incurred sales-related, design-related and expenses.information.information, as well as the personal information of our employees. Unauthorized disclosure of such personal information, whether through breach of our systems by an unauthorized party, employee theft or misuse, or otherwise, could harm our business. If we were subject to an inadvertentIn addition, computer malware, viruses, social engineering (predominantly spear phishing attacks), and general hacking have become more prevalent, have occurred on our systems in the past, and could occur on our systems in the future. Inadvertent disclosure of such personal information, or if a third party were to gain unauthorized access to homeowners’the personal information we possess, wein our possession, could be subject toresult in claims or litigation arising from damages suffered by homeowners.such individuals. In addition, we could incur significant costs in complying with the multitude of federal, state and local laws regarding the unauthorized disclosure of personal information. Our efforts to protect such personal information may be unsuccessful due to software bugs or other technical malfunctions; employees, contractor, or vendor error or malfeasance; or other threats that evolve. In addition, third parties may attempt to fraudulently induce employees or users to disclose sensitive information. Although we have developed systems and processes that are designed to protect the personal information we receive, store and use and to prevent or detect security breaches, we cannot assure you that such measures will provide absolute security. Finally, any perceived or actual unauthorized
If our products do not work as well as planned or if we are unsuccessful in developing and selling new products or in penetrating new markets, our business, financial condition and results of operations could be adversely affected.management willsuccess and ability to compete are dependent on the products that we have developed or may develop in the future. There is a risk that the products that we have developed or may develop may not work as intended, or that the marketing of the products may not be requiredas successful as anticipated. For example, we introduced our Brightbox energy storage system in Hawaii and California and completed the first installation in Hawaii in May 2016. If Brightbox does not work as intended or if Brightbox is not adopted in the future at the rate we expect, our business, financial condition and results of operations could be adversely affected. The development of new products generally requires substantial investment and can require long development and testing periods before they are commercially viable. We intend to evaluatecontinue to make substantial investments in developing new products and it is possible that that we may not develop or acquire new products or product enhancements that compete effectively within our target markets or differentiate our products based on functionality, performance or cost and thus our new technologies and products may not result in meaningful revenue. In addition, any delays in developing and releasing new or enhanced products could cause us to lose revenue opportunities and potential customers. Any technical flaws in product releases could diminish the effectivenessinnovative impact of our products and have a negative effect on customer adoption and our reputation. If we fail to introduce new products that meet the demands of our customers or target markets or do not achieve market acceptance, or if we fail to penetrate new markets, our business, financial conditions and results of operations could be adversely affected.untilto meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business and results of operations. Although we have already hired additional employees to comply with these requirements, we may need to hire more employees in the end of the fiscal year forfuture, which will increase our second Annual Report is due. costs and expenses.establish and maintain effective disclosure controls and internal controlcontrols over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports.In connection withreports and, as a result, the auditsvalue of our consolidatedcommon stock may be materially and adversely affected.statements for the years ended December 31, 2013 and 2012, wereporting. This assessment includes disclosure of any material weaknesses, if any, identified material weaknessesby our management in our internal controlcontrols over financial reporting. Our independent registered public accounting firm ("independent accounting firm") has performed its initial audit of our internal controls over financial reporting. This initial audit of our internal controls over financial reporting relating to certain aspectsidentified no material weaknesses as of December 31, 2018. However, we or our financial statement close processindependent accounting firm may identify weaknesses and our accounting for income taxes. A material weakness is a deficiency, or a combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements willwe may not be prevented or detected onotherwise identify in a timely basis. These material weaknesses resulted from an aggregation of deficiencies.In the 2013 consolidated financial statements, we incorrectly accounted for our deferred tax liabilities, prepaid tax asset and the related amortization as it related to income taxes incurred on intercompany transactions. The foregoing resultedmanner in the restatement offuture. If our 2012 consolidated financial statements. Subsequentindependent accounting firm is not able to complete the quarter ended March 31, 2015, we also identified and corrected an immaterial error related to the accounting for taxes on intercompany transactions. We continue to remediate our internal controls related to the accounting for income taxes.We arework required to establish and maintain internal control over financial reporting and to report any material weaknesses in such internal controls.under Section 404 of the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness ofon a timely basis for future fiscal years, our internal control over financial reporting. Beginning with our second Annual Report following our initial public offering, we will be required to provide a managementannual report on internal control over financial reporting. When we are no longer an emerging growth company, our management report on internal control over financial reporting will need toForm 10-K may be attested to by our independent registered public accounting firm.delayed or deficient. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected. may fail to establish and maintain effective internal control over financial reporting, in which case we may not detect errors on a timely basis and our financial statements may be materially misstated. In addition, we cannot guarantee that our internal control over financial reporting will prevent or detect all errors and fraud. The risk of errors is increased in light of the complexity of our business and investment funds. For example, we must deal with significant complexity in accounting for our fund structures and the resulting allocation of netfailare unable to establish and maintain effectiveassert that our internal control over financial reporting investors mayis effective, we could lose investor confidence in the accuracy and completeness of our financial reports, which couldwould cause the price of our common stock to decline. In addition, we could become subject to investigations by the NASDAQ Stock Market, the SECSecurities and Exchange Commission ("SEC") or other regulatory authorities, which could require additional management attention and which could adversely affect our business.
Our reported financial results may be affected, and comparability of our financial results with other companies in our industry may be impacted, by changes in the accounting principles generally accepted in the United States.2015,2018, we had U.S. federal net operating loss carryforwards of approximately $595.0 million and state net operating loss carryforwards of approximately $546.6 million,$1.1 billion each, which begin expiring in varying amounts in 2028 and 2020,2024, respectively, if unused. Under Sections 382 and 383 of the Code if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in our ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. Any such limitations on our ability to use our net operating loss carryforwards and other tax assets could adversely impact our business, financial condition and results of operations.43.8%52% of the outstanding shares of our common stock, based on the number of shares outstanding as of December 31, 2015.2018. As a result, these stockholders, if acting together, will be able to influence or control matters requiring approval by our stockholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentrated control may have the effect of delaying or preventing a change in control of our company, could deprive our stockholders of an opportunity to receive a premium for their capital stock and might ultimately affect the market price of our common stock.·price and volume fluctuations in the overall stock market from time to time;
price and volume fluctuations in the overall stock market from time to time;·volatility in the market prices and trading volumes of companies in our industry or companies that investors consider comparable;
volatility in the market prices and trading volumes of companies in our industry or companies that investors consider comparable;·changes in operating performance and stock market valuations of other companies generally, or those in our industry in particular;
changes in operating performance and stock market valuations of other companies generally, or those in our industry in particular;·sales of shares of our common stock by us or our stockholders;
sales of shares of our common stock by us or our stockholders;·failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow us, or our failure to meet these estimates or the expectations of investors;
failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow us, or our failure to meet these estimates or the expectations of investors;·the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections;
the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections;·announcements by us or our competitors of new products or services;
announcements by us or our competitors of new products or services;·the public’s reaction to our press releases, other public announcements and filings with the SEC;·actual or anticipated changes in our results of operations;·changes in tax and other incentives that we rely upon in order to raise tax equity investment funds;·changes in the regulatory environment and utility policies and pricing, including those that could reduce the savings we are able to offer to customers;·actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally;·litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;·announced or completed acquisitions of businesses or technologies by us or our competitors;·new laws or regulations or new interpretations of existing laws or regulations applicable to our business;·changes in accounting standards, policies, guidelines, interpretations or principles;·any significant change in our management; and·general economic conditions and slow or negative growth of our markets.inthe stock prices of many renewable energy companies have experienced fluctuations that have often been unrelated to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, government shutdowns, interest rate changes, or international currency fluctuations, may cause the market price of our common stock to decline. In the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. ThisWe are party to litigation if instituted against us,which could result in substantial costs and a diversion of our management’s attention and resources.The large number of shares of our capital stock eligible for public sale or subject to rights requiring us to register them for public sale could depress the market price of our common stock.The market price of our common stock could decline as a result of saleslargesubstantial number of shares of our common stock in the public market, afterincluding by our initialexisting stockholders, could cause our stock price to fall.offering, andmarket, or the perception that these sales couldmight occur, may alsocould depress the market price of our common stock.Asstock and could impair our ability to raise capital through the sale of December 31, 2015, stockholders owning an aggregate of upadditional equity securities. We are unable to 65,396,429 sharespredict the effect that these sales and others may have on the prevailing market price of our common stock canstock.In addition, weWe have also filed a registration statement to register shares of our capitalcommon stock reserved for future issuance under our equity compensation plans. Subject to the satisfaction of applicable exercise periods and applicable volume and restrictions that apply to affiliates, the shares of our capitalcommon stock issued upon exercise of outstanding options to purchase shares of our common stock becamewill become available for immediate resale in the United States in the open market.·creating a classified board of directors whose members serve staggered three-year terms;
creating a classified board of directors whose members serve staggered three-year terms;·authorizing “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock;
authorizing “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock;·limiting the liability of, and providing indemnification to, our directors and officers;
limiting the liability of, and providing indemnification to, our directors and officers;·limiting the ability of our stockholders to call and bring business before special meetings;
limiting the ability of our stockholders to call and bring business before special meetings;·requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors; and·controlling the procedures for the conductrequiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors; and scheduling of board of directors and stockholder meetings.provideprovides that our stockholders may not take action by written consent. Instead, any such actions must be taken at an annual or special meeting of our stockholders. As a result, our stockholders are not able to take any action without first holding a meeting of our stockholders called in accordance with the provisions of our amended and restated bylaws, including advance notice procedures set forth in our amended and restated bylaws. Our amended and restated bylaws further provide that special meetings of our stockholders may be called only by a majority of our board of directors, the chairman of our board of directors, our Chief Executive Officer or our President. As a result, our stockholders are not allowed to call a special meeting. These provisions may delay the ability of our stockholders to force consideration of a stockholder proposal, including a proposal to remove directors.provideprovides that stockholders may remove directors only for cause. Any amendment of these provisions in our amended and restated bylaws or amended and restated certificate of incorporation would require approval by holders of at least 66 2/3% of our then outstanding capital stock. These provisions could preclude our stockholders from bringing matters before annual or special meetings of stockholders and delay changes in our board of directors.the Court of Chancery ofa state or federal court located within the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees. the Court of Chancery of the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees to us or to our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or (iv) any action asserting a claim governed by the internal affairs doctrine.doctrine shall be a state or federal court located within the state of Delaware, in all cases subject to the court’s having personal jurisdiction over the indispensable parties names as defendants. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations and financial condition.significant dilution to our stockholders.As an emerging growth company within the meaning of the Securities Act, we will utilize certain modified disclosure requirements, and we cannot be certain if these reduced requirements will make our common stock less attractive to investors.We are an emerging growth company, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies.” These exemptions include not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We are utilizing, and we plan in future filings with the SEC to continue to utilize, the modified disclosure requirements available to emerging growth companies. As a result, our stockholders may not have access to certain information they may deem important. We could remain an “emerging growth company” for up to five years following the anniversary of our initial public offering, or until the earliest of (1) the last day of the first fiscal year in which our annual gross revenue reaches or exceeds $1.0 billion, (2) the date that we become a “large accelerated filer” as defined in the Exchange Act, which could occur as early as January 1, 2017 or (3) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the preceding three-year period.applicableapplicable.56,00044,000 square feet of office space. We also maintain 4052 other locations, consisting primarily of branch offices, warehouses, sales offices and design centers in seven17 states.In July 2012, the Department of Treasurythe Department of Justice (together, the “Government”) opened a civil investigation into the participation by residential solar developersContingencies, to our consolidated financial statements included elsewhere in the Section 1603 grant program. The Government served subpoenasthis Annual Report on several developers, including us, along with their investors and valuation firms, with requests for information related to the cash grant applications made by the developers. The focus of the investigation is the claimed fair market value of the solar systems the developers submitted to the Government in their grant applications. We have cooperated fully with the Government and plan to continue to do so. No claims have been brought against us.Form 10-K.In addition, we are a party to litigation and subject to claims in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of litigation and claims will not have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.March 8, 2016,February 25, 2019, there were approximately 211161 holders of record of common stock. Certain shares are held in “street” name and, accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.Price Range of Our Common StockThe following table sets forth the reported high and low sales prices of our common stock since the first day of public trading on August 5, 2015 for the indicated periods, as regularly quoted on the NASDAQ Global Select Market:GuggenheimInvesco Solar ETF, which represents a peer group of solar companies, for the period from August 5, 2015 (the date our common stock commenced trading on the NASDAQ Global Select Market) through December 31, 2015.2018. The figures represented below assume an investment of $100 in our common stock at the closing price of $10.77 on August 5, 2015 and in the NASDAQ Composite Index and the GuggenheimInvesco Solar ETF on August 5, 2015 andincluding the reinvestment of dividends into shares of common stock. The comparisons in the table are required by the Securities and Exchange Commission, or SEC, and are not intended to forecast or be indicative of possible future performance of our common stock. This graph shall not be deemed “soliciting material” or be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities under that section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act, of 1933, as amended, or the Securities Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
Ticker December 31, 2017 December 31, 2018 Sunrun Inc. RUN $ 100.00 $ 54.78 $ 101.11 NASDAQ Composite Index ^IXIC $ 100.00 $ 134.31 $ 129.09 Invesco Solar ETF TAN $ 100.00 $ 79.31 $ 58.55 Recent Sales of Unregistered SecuritiesIn August 2015, immediately prior to the closing of our initial public offering, we issued approximately 1.7 million shares of common stock and executed a letter of intent to issue approximately 1.3 million warrants to purchase common stock subject to contingencies being met to the then holders of Series D and E preferred stock as an inducement to convert their shares of convertible preferred stock into shares of common stock immediately prior to the closing of our initial public offering and waive any potential anti-dilution adjustments resulting from the issuance of shares of common stock in our initial public offering. The warrants were issued on September 30, 2015 and are exercisable for three years from the date of grant with an exercise price of $22.50 per share.No underwriters were involved in the foregoing issuance or sales of securities. The issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act as transactions by an issuer not involving any public offering. The recipients of the securities represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof. All recipients had adequate access, through their relationships with us, to information about us. The sales of these securities were made without any general solicitation or advertising.OperationsOperations" and the consolidated financial statements, related notes and other financial information included elsewhere in this Annual Report on Form 10-K. theThe selected consolidated financial data in this section areis not intended to replace the consolidated financial statements and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.2014 and 2013,2014, and the selected consolidated balance sheet data as of December 31, 2016, 2015 and 2014 are derived from our audited consolidated financial statements which are not included elsewhere in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected in the future and interim results are not necessarily indicative of results to be expected for the full year.(1)We calculate net income (loss) per share (EPS) available to common stockholders using the two-class method. The two-class method allocates net income that otherwise would have been available to common stockholders to holders of participating securities. We recognized a $24.9 million deemed dividend to Series D and E preferred stockholders as a result of an inducement to convert the Series D and E preferred stock into common stock immediately prior to the closing of our initial public offering. This deemed dividend was added to net loss attributable to common stockholders to determine the amount available to the common stockholders. Year Ended December 31, 2018 2015 2014 (in thousands, except per share amounts) Total revenue $ 759,981 $ 532,542 $ 477,107 $ 304,606 $ 198,557 Net loss (260,186 ) (287,615 ) (320,839 ) (248,906 ) (157,490 ) Net income (loss) available to common stockholders $ 26,657 $ 125,489 $ 75,129 $ (53,136 ) $ (70,852 ) Net income (loss) per share available to common stockholders Basic $ 0.24 $ 1.19 $ 0.73 $ (0.96 ) $ (3.11 ) Diluted $ 0.23 $ 1.16 $ 0.72 $ (0.96 ) $ (3.11 ) Basic 110,089 105,432 102,367 55,091 22,795 Diluted 117,112 108,206 104,964 55,091 22,795 As of December 31, 2018 2015 2014 (in thousands) Consolidated Balance Sheet Data: Cash and Restricted Cash $ 304,399 $ 241,790 $ 224,363 $ 221,161 $ 160,700 Solar energy systems, net 3,820,017 3,161,570 2,498,644 1,992,021 1,484,251 Total assets 4,749,787 3,963,136 3,595,803 2,734,592 1,932,584 Non-recourse debt, current portion 35,484 21,529 14,153 4,722 2,602 Recourse debt 247,000 247,000 244,000 197,000 48,597 Non-recourse debt, net of current portion 1,466,438 1,026,416 639,870 333,042 188,052 Total equity 1,282,782 1,240,516 995,728 659,560 416,619 Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations.Through the use of a bi-directional utility meter, anyAny excess solar energy, including amounts in excess of battery storage, that is not immediately used by the homeownerhomeowners is exported to the utility grid using a bi-directional utility net meter, and the homeowner generally receives a credit for the excess energy from their utility to offset future usage of utility-generated energy.Until 2014, we provided our solar service offerings primarily through our solar partner channel and relied on our solar partners to originate customers for our solar service offerings and procure and install the solar energy systems on our customers’ homes. In February 2014, we purchased the residential sales and installation business of Mainstream Energy Corporation, as well as its fulfillment business, AEE Solar, and its racking business, SnapNrack. refer to these businesses collectively as “MEC.” Following the MEC acquisition, we began offeringoffer our solar service offerings both directly to the homeowner and through our solar partners, which include sales and installation partners, and strategic partners, which include retail partners. In addition, following the acquisition, we began to sell solar energy systems directly to customers for cash. We also sell solar energy panels and other products (such as racking) to resellers through AEE Solar and SnapNrack.resellers. As of December 31, 2015,2018, we offeredprovided our solar service offeringsservices to customers in 1522 states, plus the District of Columbia and Puerto Rico, and sold solar energy panels and other products to resellers throughout the United States. The majorityMore than 40% of our cumulative systems deployed are in California. The acquisition of MEC provided us with direct-to-consumer installation capabilities in the areas we previously serviced only through our partner channel. We did not expand our solar service offerings to any new state as a result of the acquisition of MEC.to buy energy from us throughunder our solar service offerings varies depending on the state where the customer lives, and the local traditional utility that otherwise provides electricity to the customer, as well as the prices other solar energy companies charge in that region. Even within the same neighborhood, site-specific characteristics drive meaningful variability in the revenue and cost profiles of each home. Using our proprietary technology, we target homes with advantageous revenue and cost characteristics, which means we are often able to offer pricing that allows customers to save more on their energy bill while maintaining our ability to meet our targeted returns. For example, with the insights provided by our technology, we can offer competitive pricing to customers with homes that have favorable characteristics, such as roofs that allow for easy installation, high electricity consumption, or low shading, effectively passing through the cost savings we are able to achieve on these installations to the homeowner.March 8, 2016,February 25, 2019, we have established 2439 investment funds, which represent financing for an estimated $4.0$7.9 billion in value of solar energy systems on a cumulative basis. From time to time, we may repurchase investors' interests in our tax equity investment funds after the recapture period of the relevant tax incentives. We intend to establish additional investment funds and may also use debt, equity and other financing strategies to fund our growth.Recent DevelopmentsJanuary 2016,addition, completing the sale and installation of a solar energy system requires many different steps including a site audit, completion of designs, permitting, installation, electrical sign-off and interconnection. Homeowners may cancel their Customer Agreements with us, subject to certain conditions, during this process until commencement of our subsidiaries entered into secured credit facilities with a syndicate of banks for up to $250.0 million in committed facilities. The facilities include a $220.0 million aggregate facility (“Aggregate Facility”), $23.0 million term loan (“Term Loan”)installation. Customer cancellation rates can change over time and a $7.0 million letter of credit facility. The Aggregate Facility and letter of credit bear an interest rate of LIBOR + 250 basis points for the initial three-year revolving availability period, stepping up to LIBOR + 275 basis points in the following two-year period. The Term Loan bears an interest rate of LIBOR + 500 basis points (with a LIBOR floor of 100 basis points) in the first three years, stepping up to LIBOR plus 650 basis points in the following two-year period. The principal and accrued interest on any outstanding loans mature on December 31, 2020.The facilities are non-recourse to Sunrun and are secured by net cash flows of certain subsidiaries from power purchase agreements and leases, less certain operating, maintenance and other expenses which are available to the borrowers after distributions to tax equity investors. The facilities contain customary covenants including the requirement to maintain certain financial measurements and provide lender reporting. The credit facilities also contain certain provisions in the event of default which entitle lenders to take certain actions including acceleration of amounts due under the facilities. In March 2016, one of our subsidiaries entered into a $24.5 million secured, non-recourse loan agreement. The loan will be repaid through cashflows from a lease pass-through arrangement we previously entered into. The loan matures in September 2022 and has an interest rate of LIBOR + 2.25%. The loan agreement contains customary covenants including the requirement to maintain certain financial measurements and provide lender reporting. The loan also contains certain provisions in the event of default which entitles the lender to take certain actions including acceleration of amounts due under the loan. At the end of 2015, we began to slow our operations in Nevada as the result of proposed regulatory changes, including elimination of net metering. In early 2016, we ceased our operations in Nevada in response to the issuance of the final rules by the Nevada Public Utilities Commission. weighted-averageweighted average cost of capital. This low cost of capital enables us to offer attractive pricing to our customers for the energy generated by the solar energy system on their homes. Historically, we have monetized a portion of the value created by our customer agreementsCustomer Agreements and the related solar energy systems through investment funds. These assets are attractive to fund investors due to the long-term, recurring nature of the cash flows generated by our Customer Agreements, the high credit scores of our customers, the fact that energy is a non-discretionary good and our low loss rates. In addition, fund investors can receive attractive after-tax returns from our investment funds due to their ability to utilize ITCs, accelerated depreciation and certain government or utility incentives associated with the funds’ ownership of solar energy systems.March 8, 2016,February 25, 2019, we have formed 2439 investment funds. Of these, 24 funds, 1931 are currently active and are described below. We have established different types of investment funds to implement our asset monetization strategy. Depending on the nature of the investment fund, cash may be contributed to the investment fund by the investor upfront or in stages based on milestones associated with the design, construction or interconnection status of the solar energy systems. The cash contributed by the fund investor is used by the investment fund to purchase solar energy systems. The investment funds either own or enter into a master lease with a Sunrun subsidiary for the solar energy systems, Customer Agreements and associated incentives. We receive on-going cash distributions from the investment funds representing a portion of the monthly customer payments received. We use the upfront cash, as well as on-going distributions to cover our costs associated with designing, purchasing and installing the solar energy systems. In addition, we also use debt, equity and other financing strategies to fund our operations. The allocation of the economic benefits between us and the fund investor and the corresponding accounting treatment varies depending on the structure of the investment fund.lease pass-throughs,pass-through financing obligations, (ii) partnership flips and (iii) joint venture (“JV”) inverted leases. We reflect lease pass-through arrangementsfinancing obligations on our consolidated balance sheet as a lease pass-through financing obligation. We record the investor’s interest in partnership flips or JV inverted leases (which we define collectively as “consolidated joint ventures”) as noncontrolling interests or redeemable noncontrolling interests. These consolidated joint ventures are usually redeemable at our option and, in certain cases, at the investor’s option. If redemption is at our option or the consolidated joint ventures are not redeemable, we record the investor’s interest as a noncontrolling interest and account for the interest using the hypothetical liquidation at book value (“HLBV”) method. If the investor has the option to put their interest to us, we record the investor’s interest as redeemable noncontrolling interest at the greater of the HLBV and the redemption value.Lease Consolidated Joint Ventures Pass-Through Financing Obligations Partnership Flip JV Inverted Lease Consolidation Owner entity consolidated, tenant entity not consolidated Single entity, consolidated Owner and tenant entities consolidated Balance sheet classification Pass-through financing obligation Redeemable noncontrolling interests and noncontrolling interests Redeemable noncontrolling interests and noncontrolling interests Revenue from ITCs Recognized on the PTO date None None Method of calculating investor interest Effective interest rate method Greater of HLBV or redemption value Greater of HLBV or redemption value; or pro rata Liability balance as of December 31, 2018 $ 363.7 N/A N/A Noncontrolling interest balance (redeemable or otherwise) as of December 31, 2018 N/A $ 425.7 $ 34.7 Number of funds (as of December 31, 2018) 7 21 4 MW deployed (as of December 31, 2018) 229.5 904.0 114.1 Carrying value of solar energy systems, net (as of December 31, 2018) $ 613.5 $ 2,359.3 $ 353.1 Contributions from third-party fund investors (through December 31, 2018) $ 788.3 $ 1,955.5 $ 274.6 Lease Pass-Through. Financing Obligationsform twoeach utilize separate entities whichto facilitate the pass-through of the ITC or U.S. Treasury grants to the fund investors. In this structure weWe contribute solar energy systems to an “owner” entity in exchange for interests in the owner entity, and the fund investors contribute cash to a “tenant” entity in exchange for interests in the tenant entity.lease pass-through financing obligation structure, in accordance with the provisions of Financial Accounting Standards Board (“FASB”), Accounting Standards Codification Topic 810 (“ASC 810”) Consolidation, we have determined that we are the primary beneficiary of the owner entity, and accordingly, we consolidate that entity. We have also determined that we are not the primary beneficiary of the tenant entity, and accordingly, we do not consolidate that entity.customer agreementsCustomer Agreements and certain other benefits associated with the customer agreementsCustomer Agreements and related solar energy systems. We account for the payments from investors as borrowings by recording the proceeds received as lease pass-through financing obligations. The financing obligation is reduced over a period of approximately 22 years by recurring customer payments received under the customer agreements assigned to the funds and, if applicable, anyCustomer Agreements, U.S. Treasury grants the fair value of the ITCs monetized(where applicable), incentive rebates (where applicable) and proceeds from the contracted resale of assigned solar renewable energy credits (“SRECs”),SRECs as they are received by the investor overinvestor. In addition, funds paid for the term ofITC value upfront are initially recordedassignment agreement, which is approximately 20 years. associated solar system reaches permission to operate ("PTO").arehave not assigned the lessor inCustomer Agreement to the arrangement with the customer,investor, and we record on our consolidated financial statements activities arising from the customer agreementsCustomer Agreements and any related U.S. Treasury grants, ITCs monetized as part of the upfront payments received from the investor, incentive rebates and SREC sales. The interest charge on our lease pass-through financing obligations is imputed at the inception of the fund based on the effective interest rate in the arrangement giving rise to the obligation and is updated prospectively as appropriate.anone of our indirectly wholly owned subsidiary of the Companysubsidiaries to a subsidiary of the investor’s tenant entity. There is a legal right to offset the loan against the financing obligation if an event of default has occurred. Therefore, the lease pass-through related to these types of arrangements is recorded net of the loan.and sells or leases the energy produced under customer agreements.with signed Customer Agreements. Each fund investor receives a rate of return, typically on an after-tax basis, which varies by investment fund. Prior to the fund investor receiving its contractual rate of return or for a time period specified in the contractual arrangements, the fund investor receives the majoritya significant portion of the value attributable to customer payments, anda majority of the accelerated tax depreciation and substantially all of the ITCs. After the fund investor receives its contractual rate of return or after the specified time period, we receive substantially all of the value attributable to the remaining customer payments and SREC sales.incentives.The owner partnership leases the contributed solar energy systems to the tenant partnership under a master lease, and the tenant partnership pays the owner partnership rent for those systems both upfront and on an ongoing basis. The tenant partnership sells energy from the solar energy systems to customers pursuant to the terms of the applicable customer agreements. Customer payments made to the tenant partnership are used to pay expenses (including fees to us), make master lease rent payments and pay preferred return distributions to the fund investor. The owner partnership distributes cash to us and the tenant partnership. As the tenant partnership is an investor in the owner partnership, this allows the fund investors to receive a portion of the accelerated tax depreciation and operating losses associated with the ownership of the assets. In this format, in part owing to the allocation of depreciation benefits to the investor, the investor’s pre-tax return is much lower than the investor’s after-tax return. Under our existing JV inverted lease structure, a substantial portion ofUnder our JV inverted lease structure, we have determined that we control each VIE, and accordingly we consolidate the entity and book the investor’s interest as a noncontrolling interest or redeemable noncontrolling interest. For all of our JV inverted leases, the redeemable noncontrolling interest is carried on our balance sheet at the greater of the redemption value or the amount calculated Generally, under the HLBV method. The HLBV method estimates the amount that, if the fund’s assets were hypothetically sold at their book value, the investor would be entitled to receive according to the liquidation waterfall in the partnership agreement. Generally, the terms of each agreement, allocatethe investors’ contributions include the value of ITCs earned or grants to be received by the fund investor to us.investor. Any remainingother proceeds are allocatedon a pro rata basis to the fund investor and us in accordance with their ownership percentages. Since Sunrun has the power to control both the owner and tenant entities, both entities are included in our consolidated financial statements.further information, seeall of our partnership flips and JV inverted leases, the section entitled “Components of Statements of Operations —Net Loss attributable to Common Stockholders.”For further information regarding our investment funds, including the associated risks, see “Risk Factors—Our ability to provide our solar service offerings to homeowners on an economically viable basis depends in partredeemable noncontrolling interest is carried on our abilitybalance sheet at the greater of the redemption value or the amount calculated under the HLBV method. Thefinance these systems with fund investors who seek particular tax and other benefits” and Note 15, Noncontrolling Interests and Redeemable Noncontrolling Interests,receive according to our consolidated financial statements appearing elsewherethe liquidation waterfall in this Annual Report on Form 10-K.SuchAny inaccuracies could be material to our actual results when compared to our calculations. Please see the section titled “Risk Factors” in this Annual Report on Form 10-K.10-K for more information. Furthermore, other companies may calculate these metrics differently than we do now or in the future, which would reduce their usefulness as a comparative measure.·Megawatts Booked represents the aggregate megawatt production capacity of our solar energy systems sold to customers or subject to an executed customer agreement, net of cancellations.·Megawatts Deployed represents the aggregate megawatt production capacity of our solar energy systems, whether sold directly to customers or subject to customer agreements, for which we have (i) confirmation that the systems are installed on the roof, subject to final inspection or (ii) in the case of certain system installations by our partners, accrued at least 80% of the expected project cost.·Estimated Nominal Contracted Payments Remaining equals the sum of the remaining cash payments that customers are expected to pay over the initial terms of their agreements (not including the value of any renewal or system purchase at the end of the initial agreement term), including estimated uncollected prepayments, for systems contracted as of the measurement date.·◦ Estimated Retained ValueGross Earning Assets Under Energy Contract represents the cash flows (discounted at 6%) we expect to receive pursuant to customer agreements during the initial agreement term, excluding substantially all value from solar renewable energy credits (“SRECs”) prior to July 1, 2015. It also includes a discounted estimate of the value of the purchase or renewal of the agreement at the end of the initial term. Estimated retained value excludes estimated distributions to investors in consolidated joint ventures and estimated operating, maintenance and administrative expenses for systems contracted as of the measurement date. We do not deduct amounts we are obligated to pass through to investors in lease pass-throughs. Estimated retained value under energy contract represents the net cash flows during the initial 20-year term of our customer agreements. Estimated retainedCustomer Agreements (less substantially all value from SRECs prior to July 1, 2015), for systems deployed as of purchasethe measurement date.◦ renewalRenewal is the forecasted net present value we would receive upon or following the expiration of the initial contract term.·Estimated Retained Value Per Watt is calculated by dividingCustomer Agreement term (either in the estimated retained valueform of cash payments during any applicable renewal period or a system purchase at the end of the initial term), for systems deployed as of the measurement date bydate. As of December 31, 2018 2017 Cumulative Megawatts Deployed (end of period) 1,575 1,202 As of December 31, 2018 2017 (in thousands) $ 2,099,532 $ 1,458,983 Gross Earning Assets Value of Purchase or Renewal 962,948 753,673 $ 3,062,480 $ 2,212,656 In the aggregate nameplate capacity of solar energy systems under customer agreements as of such date.(1)Includes 14.7 MWs associated with purchase of asset portfolio in the secondfourth quarter of 2014.ComponentsStatementsGross Earning Asset amounts if different default, discount and purchase and renewal assumptions were used. As of December 31, 2018 Discount rate Default rate 4% 5% 6% 7% 8% (in thousands) 5% $ 2,401,933 $ 2,216,716 $ 2,052,342 $ 1,906,041 $ 1,775,456 0% $ 2,460,233 $ 2,269,115 $ 2,099,532 $ 1,948,751 $ 1,814,187 OperationsRevenueWe generate revenue from (1) operating leases and incentives and (2) solar energy systems and product sales commencing in 2014 as a result of the MEC acquisition. Product sales also include lead generation sales commencing in 2015 as a result of the acquisition of Clean Energy Experts, LLCPurchase or CEE acquisition. As of December 31, 2018 Discount rate Purchase or Renewal rate 4% 5% 6% 7% 8% (in thousands) 80% $ 1,271,197 $ 1,031,394 $ 839,613 $ 685,721 $ 561,824 90% $ 1,457,854 $ 1,182,877 $ 962,948 $ 786,478 $ 644,392 100% $ 1,644,511 $ 1,334,360 $ 1,086,301 $ 887,235 $ 726,959 Operating Leases and IncentivesOperating leases and incentives revenue is primarily comprised of revenue from our customer agreements, solar energy system rebate incentives and sales of SRECs generated by our solar energy systems to third parties, as well as revenue associated with ITCs assigned to investment funds that are classified as lease pass-through arrangements.We classify and account for our customer agreements as operating leases. We recognize revenue from these agreements either on a straight-line basis over the term of the agreements (in the case of leases) or as we generate and sell energy to customers (in the case of PPAs). The term of these agreements is typically 20 years.We consider the proceeds from solar energy system rebate incentives to be minimum lease payments under our customer agreements and recognize such payments as revenue over the contract term on a straight-line basis.We also apply for and receive SRECs and sell them to third parties in certain jurisdictions for energy generated by our solar energy systems. We recognize revenue related to the sale of SRECs to the extent the cumulative value of delivered SRECs per contract exceeds any possible liquidated damages for non-delivery, if any.Finally, under our investment funds that are classified as lease pass-through arrangements, we allocate a portion of the cash consideration received from the investors to the estimated fair value of the ITCs assigned to such investment funds. The ITCs are subject to recapture under the Internal Revenue Code (“Code”) if the underlying solar energy system either ceases to be a qualifying property or undergoes a change in ownership within five years of its placed-in-service date. The recapture amount decreases on the anniversary of the permission to operate (“PTO”) date. We recognize ITC revenue as the recapture provisions lapse, with one-fifth of the estimated fair value of the assigned ITC recognized on each anniversary of the solar energy systems’ PTO date over the following five years.Our quarterly operating leases and incentives revenue has been and will continue to be impacted by seasonality. Energy production is greater in the second and third quarters than in the first and fourth quarters, causing variability in revenue recognized under PPAs. There are also seasonal fluctuations in sales and installations, particularly in the fourth quarter, resulting from decreased sales through the holiday season and weather-related installation delays. In addition, as described above, ITC revenue associated with lease pass-through arrangements is recognized once annually on the anniversary of the PTO date and a high percentage of our existing ITCs have PTO dates that occur in the second quarter.Solar Energy Systems and Product SalesSolar energy systems sales are comprised of revenue from the sale of solar energy systems directly to homeowners. We generally recognize revenue from solar energy systems sold to homeowners when we install the solar energy system and it passes inspection by the authority having jurisdiction, provided all other revenue recognition criteria have been met.Product sales revenue consists of revenue from the sale of solar panels, inverters, racking systems, other solar-related equipment to resellers and customer leads to third parties, including our partners and other solar providers. Product sales revenue is recognized at the time title is transferred, generally upon shipment. Customer lead revenue is recognized at the time the lead is delivered.Our quarterly solar energy systems and product sales revenue has and will continue to fluctuate due to a variety of factors, including timing of installation and seasonal factors described above, as well as other factors that may cause homeowners to opt to purchase solar energy systems rather than leasing them. As of December 31, 2018 Discount rate Purchase or Renewal rate 4% 5% 6% 7% 8% (in thousands) 80% $ 3,731,430 $ 3,300,509 $ 2,939,145 $ 2,634,472 $ 2,376,011 90% $ 3,918,087 $ 3,451,992 $ 3,062,479 $ 2,735,229 $ 2,458,578 100% $ 4,104,745 $ 3,603,475 $ 3,185,832 $ 2,835,986 $ 2,541,145 Operating ExpensesOperating expenses are classified by the related activity and assigned department of our personnel. Personnel costs include salaries, bonuses, benefits and stock-based compensation. Corporate overhead costs include information technology and facilities costs that are allocated based upon the estimated use by personnel in the related classification below.Cost of Operating Leases and IncentivesOperating leases and incentives cost of revenue is primarily comprised of (1) the depreciation of solar energy systems, as reduced by amortization of U.S. Treasury grant income, (2) amortization of initial direct costs (“IDCs”), (3) lease operations, monitoring and maintenance costs including associated personnel costs, and (4) allocated corporate overhead costs.Cost of Solar Energy Systems and Product SalesSolar energy systems cost of revenue and non-lead generation product sales cost of revenue primarily consists of direct and indirect material and personnel costs for solar energy systems installations and product sales. Other costs include 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.Sales and MarketingSales and marketing expenses include personnel costs as well as advertising, promotional and other marketing related expenses. Sales and marketing expenses also include referral fees, allocated corporate overhead costs, travel and professional services.Research and DevelopmentResearch and development expenses include personnel costs, allocated corporate overhead costs, and other costs related to the development of our BrightPath software suite as well as our racking equipment.General and AdministrativeGeneral and administrative expenses include personnel costs related to accounting, finance, structured finance services, legal, executive staff and human resources. General and administrative expenses also include professional services and allocated corporate overhead costs as well as certain fees paid to fund investors.Amortization of Intangible AssetsWe acquired intangible assets in connection with the acquisition of MEC and CEE. Such intangible assets are being amortized over their estimated useful lives, which range from four months to 10 years.Interest Expense, netInterest expense, net primarily consists of the interest charges associated with long term borrowing and lease pass-through financing obligations. Our revolving line of credit and syndicated term loans are subject to variable interest rates. Our notes payable, bank term loans and solar asset-backed notes bear fixed interest rates. The interest charge on our lease pass-through financing obligations is imputed at the inception of the related transaction based on the effective interest rate in the arrangement giving rise to the obligation and updated prospectively as appropriate. Interest expense also includes the amortization of deferred financing costs associated with such borrowings, partially offset by a nominal amount of interest income generated from our cash holdings in interest-bearing accounts. In the future we may incur additional indebtedness to fund our operations, and our interest expense would correspondingly increase.Loss on Early Extinguishment of DebtLoss on early extinguishment of debt consists of loss from early extinguishment of certain non-bank term loans in 2015 and 2014.Other ExpensesOther expenses consist principally of our portion of the net loss in our investment in The Alliance for Solar Choice (“TASC”), which was accounted for under the equity method of accounting.Income Tax ExpenseWe are subject to taxation in the United States, where all of our business is conducted. Our effective tax rates differ from the statutory rate primarily due to noncontrolling and redeemable noncontrolling interest adjustments and prepaid tax expense on intercompany gains.As of December 31, 2015, we had approximately $595.0 million of federal and $546.6 million of state net operating loss carryforwards (“NOLs”), available to offset future taxable income, if any, which expire in varying amounts beginning in 2028 and 2020 for federal and state purposes, respectively, if unused. It is possible that we will not generate taxable income in time to use these NOLs before their expiration.Net Loss Attributable to Common StockholdersAs discussed above under “—Investment Funds,” 14 of our 19 active investment funds are consolidated joint ventures. We determine the net loss attributable to common stockholders by deducting from net loss the net loss attributable to noncontrolling interests and redeemable noncontrolling interests in these funds. The net loss attributable to noncontrolling interests and redeemable noncontrolling interests represents the fund investors’ allocable share in the results of operations of these investment funds. For these funds, we have determined that the provisions in the contractual arrangements represent substantive profit sharing arrangements, where the allocations to the partners sometimes differ from the stated ownership percentages. We have further determined that, for these arrangements, the appropriate methodology for attributing income and loss to the noncontrolling interests and redeemable noncontrolling interests each period is a balance sheet approach using the HLBV method.Under the HLBV method, the amounts of income and loss attributed to the noncontrolling interests and redeemable noncontrolling interests in the consolidated statements of operations reflect changes in the amounts the fund investors would hypothetically receive at each balance sheet date under the liquidation provisions of the contractual provisions of these funds, assuming the net assets of the respective investment funds were liquidated at the carrying value determined in accordance with generally accepted accounting principles in the United States (“GAAP”). The fund investors’ interest in the results of operations of these investment funds is initially determined by calculating the difference in thenoncontrolling interests and redeemable noncontrolling interests’ claim under the HLBV method at the start and end of each reporting period, after taking into account any contributions and distributions between the fund and the fund investors and subject to the redemption provisions in certain funds. The redeemable noncontrolling interests balance is the greater of the carrying value calculated under the HLBV method or the redemption value. Because the investor contributes cash into the fund to purchase solar energy systems at fair market value which exceeds their carrying value, the noncontrolling interest balance is reduced upon application of the HLBV method. As such, the HLBV method generally allocates more loss to the noncontrolling interest in the first several years after fund formation. After the solar systems have been purchased by the fund, the noncontrolling interest’s contributions decrease substantially. As ongoing distributions are received by the noncontrolling interest, their losses under the HLBV method tend to reverse. While the application of HLBV is performed consistently, the results of that application and its impact on the income or loss allocated between us and the noncontrolling interests and redeemable noncontrolling interests depend on the respective funds’ specific contractual liquidation provisions. The HLBV results are generally affected by the tax attributes allocated to the fund investors including tax bonus depreciation and ITCs or U.S. Treasury grants in lieu of the ITCs, the amount of preferred returns that have been paid to the fund investors by the investment funds, and the allocation of tax income or losses in a liquidation scenario.The contractual liquidation provisions of our consolidated joint ventures (which include our partnership flips and JV inverted leases) provide that the allocation percentages between us and the investor change, or “flip,” under certain circumstances, such as upon the achievement of the fund investor’s targeted rate of return, the passage of time, or the expiration of the recapture period associated with ITCs. Prior to the point at which the allocation percentage flips, the investor is entitled to receive a majority of the value generated by the solar energy systems. At the flip point, we become entitled to receive most of the value. The difference between our current partnership flip structures and JV inverted lease structures that drives a significant impact on our results from the application of the HLBV method is how the flip point is determined.For investment funds that have a partnership flip structure, the flip point is tied to the achievement of the fund investor’s targeted rate of return. The receipt of tax benefits by the fund investor count towards the achievement of such target, which reduces the amount distributable to the fund investor in a hypothetical liquidation under these funds’ contractual liquidation provisions. This results in a net loss attributable to the fund investor over the periods in which these tax benefits are received as a result of our application of the HLBV method.For investment funds that have a JV inverted lease structure, the flip point is typically tied to the expiration of the recapture period associated with ITCs. An investor in a fund with a JV inverted lease fund structure will receive tax benefits similar to an investor in a fund that has adopted a partnership structure. However, unlike the partnership flip structure, the receipt of tax benefits by the fund investor does not impact the amount distributable to the fund investor in a hypothetical liquidation under these funds’ contractual liquidation provisions. At the flip point, the fund investor’s claims on the net assets of the investment fund generally decreases. This results in a net loss attributable to the fund investor in the period when the flip occurs as a result of our application of the HLBV method. As discussed above under “—Investment Funds,” we also have one JV inverted lease whereby we have a pro rata interest in the entity, and we account for the noncontrolling interest’s share of income on a pro rata basis.These differences are a result of the specific contractual provisions for each of our existing funds and are not necessarily indicative of terms for our future partnership flip or JV inverted lease structures. Future investment funds may contain different features than those that we currently employ, and as a result, the application of the HLBV method and resulting allocation of net income or loss may be different from our existing funds.GAAP.generally accepted accounting principles in the United States ("GAAP"). GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. In many instances, we could have reasonably used different accounting estimates, and in other instances, changes in the accounting estimates are reasonably likely to occur from period-to-period. Actual results could differ significantly from our estimates. Our future financial statements will be affected to the extent that our actual results materially differ from these estimates. For further information on all of our significant accounting policies, see Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements included elsewhere in this Annual Report.assumptions and estimatespolicies associated with our principles of consolidation, revenue recognition, impairment of long-lived assets, goodwill impairment analysis, stock-based compensation expense and common stock valuation, provision for income taxes and valuationcalculation of noncontrolling interests and redeemable noncontrolling interests have the greatest impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.FundsFunds” above.We sell the energy that our solar energy systems produce through long-term customer agreements. We also derive a portion of our revenue from solar energy system rebate incentives, sales of SRECs generated from our solar energy systems and ITCs assigned to investment funds that are classified as lease pass-through arrangements.Following the acquisition of MEC in February 2014, we began selling solar energy systems to homeowners, as well as related products, such as solar panels, inverters, racking systems and other solar-related equipment, to resellers. Following the acquisition of CEE in April 2015, we began selling customer leads to third parties, including our partners and other solar providers.(i) persuasive evidencecontrol of an arrangement exists, (ii) delivery has occurredgoods or services have been rendered, (iii)is transferred to customers, in an amount that reflects the sales price is fixed and determinable, and (iv) collection of the related receivable is reasonably assured.Operating Leasesconsideration we expect to be entitled to in exchange for those goods or services.Operating leasesCustomer agreements and incentives revenue represent both ongoingis primarily comprised of revenue from our Customer Agreements and advance payments received undersales of ITCs and SRECs to third parties.terms of the customer agreements, which typically have terms of 20 years. Revenue from advance payments including prepayment options is deferred and begins to be recognized when PTOapplicable solar energy system is given by the local utility company or on the date daily operation commences if utility approval is not required, provided all otherrequired. We recognize revenue criteria are met.We have determinedevenly over the time that we satisfy our customer agreements should be accounted for as operating leases after evaluatingperformance obligations over the following lease classification criteria: (i) whether there is a transfer of ownership or bargain purchase option at the endinitial term of the lease, (ii) whetherCustomer Agreements. Customer Agreements typically have an initial term of 20 or 25 years. After the leaseinitial contract term, is greater than 75% of the estimated economic life, or (iii) whether the present value of minimum lease payments exceeds 90% of the fair value at lease inception.In the majority of our customer agreements, we charge a fixed fee per kilowatt hour basedCustomer Agreements typically automatically renew on the amount of electricity the solar energy system actually produces, with an annual fixed percentage price escalationbasis and the rate is initially set at up to address the impact of inflation and utility rate increases over the period of the contract. In these cases, we consider the customer paymentsa 10% discount to be contingent lease payments which are excluded from minimum lease payments used for purposes of assessing the lease classification criteria above. Accordingly, we recognize these electricity payments as earned, provided all other revenue recognition criteria discussed above are met.We also offer customer agreements whereby the customers’ monthly payment is a pre-determined amount calculated based on the expected solar energy generation and includes an annual fixed percentage price escalation (to address the impact of inflation and utility rate increases) over the period of the contracts, which are typically 20 years. We record operating lease revenue from minimum lease payments on a straight-line basis over the life of the lease term, provided all other revenue recognition criteria are met.upfront rebates and incentives offered by certain state and local governments and local utility companies on behalf of our customers for solar facilities installed on certain of our customers’ premises. We consider these rebates to be minimum lease payments which are generally recognized on a straight-line basis overSRECs associated with the life of the lease term. The difference between the payments received and the revenue recognized is recorded as deferred revenue on the consolidated balance sheet.SREC revenue arises from the sale of environmental creditsenergy generated by solar energy systems. If theour solar energy systems do not generate the amountand sell them to third parties in certain jurisdictions. SREC revenue is estimated net of electricity required to earn SRECs sold forward or if for any reason the electricity generated does not produce SRECs for a particular state, we may be required to make up the shortfall of SRECs through purchases on the open market or make payments of liquidated damages. We recognize revenuevariable consideration related to possible liquidated damages if we were to deliver fewer SRECs than contractually committed, and is generally recognized upon delivery of the sale of SRECs to the extentcounterparty.cumulativesame amount over the term of the related agreement. The additional revenue is included in the total transaction price to be recorded over the term of the agreement and is recognized based on the timing of the delivery. The interest expense is recognized based upon an amortization schedule which typically decreases throughout the term of the related agreement.of delivered SRECs per contract exceeds any possible liquidated damages for non-delivery, if any.For lease pass-through structures, we monetizeattributable to the ITCs associated withare recognized in the systems subject to customer agreements by assigning themperiod a solar system is granted PTO, at which point we have met our obligation to the investor together with the future associated customer payments. A portion of the cash consideration received from the investor is allocated to the estimated fair value of the assigned ITCs. The estimated fair value of the ITCs is determined by applying the expected internal rate of return to the investor to the gross amount of the ITCs that may be claimed by the investor.systemssystem either ceases to be a qualifying property or undergoes a change in ownership within five years of its placed in serviceplaced-in-service date. The recapture amount decreases by one-fifth on the anniversary of the placed in service date, which begins upon PTO. As wePTO date. We have an obligation to ensure the solar energy system is in service and operational fornot historically recorded a term of five years to avoid anymaterial recapture of the ITCs, we recognize revenue as theand do not expect to record a material recapture provisions lapse provided the other revenue recognition criteria have been met. The monetizedof ITCs are initially recorded as deferred revenue on the consolidated balance sheet, and subsequently, one-fifth of the monetized ITCs will be recognized as operating leases and incentives revenue in the consolidated statementfuture.operations on each anniversarya specified minimum. Revenue is recognized to the extent it is probable that a significant reversal of the solar energy system’s PTO date over the following five years.ForSolar energy systems sales are comprised of revenue from the sale of solar energy systems directly to homeowners. We recognize revenue from solar energy systems sold to customers, we recognize revenue, net of any applicable governmental sales taxes,homeowners when we install the solar facilities and itenergy system passes inspection by the responsible city department, provided allauthority having jurisdiction, which inspection generally occurs after installation but prior to PTO, at which time we have met the performance obligation in the contract. revenue recognition criteria are met. The installation projects of our solar energy systems are typically completed in a short periodproducts sold to resellers, as well as the sale of time. Priorcustomer leads to third parties, including our acquisition of MEC in February 2014, we did not directly sellpartners and other solar energy systems to homeowners.at the time the goods are shipped or when titlecontrol is transferred. Shipping and handling fees charged to customers are included in net sales. Shipping and handling costs incurred are included in cost of sales. Taxes assessed by government authorities that are directly imposed on revenue producing transactions are excluded from product sales revenue. Prior to our acquisition of MEC in February 2014, we did not sell solar-related products to resellers.transferred, generally upon shipment. Customer lead revenue included in product sales, is recognized at the time the lead is delivered. Prior to the acquisition of CEE in April 2015, we did not sell customer leads to third parties. No impairment of long-lived assets has been recorded for the years ended December 31, 2015, 2014 and 2013.Goodwill Impairment AnalysisGoodwill represents the excess of the purchase price of an acquired business over the fair value of the net tangible and identifiable intangible assets acquired. Our goodwill balance is a result of the acquisition of MEC in February 2014 and CEE in April 2015. We have determined that we operate as one reporting unit, and our goodwill is recorded at the enterprise level. We perform our annual impairment test of goodwill on October 1 of each year or whenever events or circumstances change or occur that would indicate that goodwill might be impaired. When assessing goodwill for impairment, we use qualitative and, if necessary, quantitative methods. We also consider our enterprise value and, if necessary, our discounted cash flow model, which involves assumptions and estimates, including our future financial performance, weighted-average cost of capital and interpretation of currently enacted tax laws. Circumstances that could indicate impairment and require us to perform an impairment test include a significant decline in our financial results, a significant decline in our enterprise value relative to our net book value, an unanticipated change in competition or our market share and a significant change in our strategic plans. We did not note any indicators of impairment in the qualitative assessment that would require a quantitative analysis in 2015. We did not have any goodwill prior to 2014, and no impairment charges have been recorded to date.Stock-Based CompensationWe grant stock options to our employees, including our executive officers and members of our board of directors, and recognize employee stock-based compensation expense based on the fair value of stock options at grant date. We estimate the fair value of stock options using the Black-Scholes option-pricing model. This model requires us to use certain estimates and assumptions such as: (i) the fair value of our common stock, which is estimated using the methodology as discussed below in Common Stock Valuation; (ii) the expected volatility of our common stock, which is based on the volatility data of a group of publicly traded peer companies in our industry; (iii) the expected terms of our stock options, which are based on the historical average vesting terms and contractual lives of our stock options; (iv) the expected dividend yield, which is 0%, as we have not paid and do not anticipate paying dividends on our common stock; and (v) the risk-free interest rates, which are based on the U.S. Treasury yield curves in effect at the grant date with maturities equal to the expected terms of the options granted. Our stock options have a contractual term of 10 years and generally vest over four years, with 25% vesting after one year and the remainder vesting monthly thereafter over 36 months. If any of the assumptions used in the Black-Scholes model changes significantly, stock-based compensation for future awards may differ materially compared with the awards granted previously.The following table summarizes the assumptions relating to our stock options granted in 2015, 2014 and 2013:We record stock-based compensation expense net of estimated forfeitures so that expense is recorded for only those stock-based awards that we expect to vest. We estimate forfeitures based on our historical forfeiture of equity awards adjusted to reflect future changes in facts and circumstances, if any. We will revise our estimated forfeiture rate if actual forfeitures differ from our initial estimates. We record stock-based compensation expense for stock options on a straight-line basis over the vesting term.We also granted restricted stock units (“RSUs”) to certain non-employee service providers. Certain RSUs granted to non-employees vest upon the satisfaction of both a performance-based condition and service condition. We start recognizing non-employee stock-based compensation expense on RSUs subject to performance-based conditions and service conditions when the performance conditions are met.We will continue to use judgment in evaluating the expected term, expected volatility and forfeiture rate related to our stock-based compensation on a prospective basis. As we continue to accumulate additional data related to our common stock, we may have refinements to the estimates of our expected volatility, expected terms and forfeiture rates, which could materially impact our future stock-based compensation expense as it relates to the future grants of our stock-based awards.There is noWe consider all available evidence, both positive and negative, including historical levels of income, estimates of future taxable income and ongoing tax planning strategies in assessing the need for a valuation allowance asallowance. As of December 31, 2015 as2018, we expect to utilizehave recorded a valuation allowance of $10.5 million for certain federal tax credits, state tax credits and state deferred tax assets that we believe is more likely than not that the deferred tax assets over approximately 20 years.iswas deferred and recorded as a prepaid tax asset and there iswas no recognition of a deferred tax asset.asset related to our increased tax basis in the partnership as a result of such sales. The prepaid tax asset iswas amortized over the estimated useful life of the underlying solar energy systems which has been estimated to be 2035 years.operating leases.Customer Agreements. We have determined that the provisions in the contractual arrangements of the investment funds represent substantive profit-sharing arrangements, which gives rise to the noncontrolling interests and redeemable noncontrolling interests. We have further determined that for all but one of these arrangements, the appropriate methodology for attributing income and loss to the noncontrolling interests and redeemable noncontrolling interests each period is a balance sheet approach using the HLBV method. Changesassumptionsfunds. The net loss attributable to noncontrolling interests and estimates canredeemable noncontrolling interests represents the fund investors’ allocable share in the results of operations of these investment funds. For these funds, we have determined that the provisions in the contractual arrangements represent substantive profit sharing arrangements, where the allocations to the partners sometimes differ from the stated ownership percentages. We have further determined that, for these arrangements, the appropriate methodology for attributing income and loss to the noncontrolling interests and redeemable noncontrolling interests each period is a significant impact onbalance sheet approach using the calculationHLBV method. Under the HLBV method, the amounts of income and loss attributed to the noncontrolling interests and redeemable noncontrolling interests in the consolidated statements of operations reflect changes in the amounts the fund investors would hypothetically receive at each balance sheet date under the liquidation provisions of the contractual provisions of these funds, assuming the net assets of the respective investment funds were liquidated at the carrying value determined in accordance with GAAP. The fund investors’ interest in the results of operations of these investment funds is initially determined by calculating the difference in the noncontrolling interests and redeemable noncontrolling interests’ claim under the HLBV method at the start and end of each reporting period, after taking into account any contributions and distributions between the fund and the fund investors and subject to the redemption value.provisions in certain funds.(1)We calculate net income (loss) per share (EPS) available to common stockholders using the two-class method. The two-class method allocates net income that otherwise would have been available to common stockholders to holders of participating securities. We recognized a $24.9 million deemed dividend to Series D and E preferred stockholders as a result of an inducement to convert the Series D and E preferred stock into common stock immediately prior to the closing of our initial public offering. This deemed dividend was added to net loss attributable to common stockholders to determine the amount available to the common stockholders. Year Ended December 31, 2018 2017 2016 (in thousands, except per share amounts) Revenue: Customer agreements and incentives $ 404,466 $ 234,276 $ 191,626 Solar energy systems and product sales 355,515 298,266 285,481 Total revenue 759,981 532,542 477,107 Operating expenses: Cost of customer agreements and incentives 240,857 186,435 154,244 Cost of solar energy systems and product sales 294,066 254,131 239,381 Sales and marketing 207,232 146,426 168,737 Research and development 18,844 15,079 10,199 General and administrative 116,659 107,400 92,416 Amortization of intangible assets 4,204 4,204 4,206 Total operating expenses 881,862 713,675 669,183 Loss from operations (121,881 ) (181,133 ) (192,076 ) Interest expense, net 131,771 92,255 73,340 Other (income) expenses, net (2,788 ) 1,874 (840 ) Loss before income taxes (250,864 ) (275,262 ) (264,576 ) Income tax expense 9,322 12,353 56,263 Net loss (260,186 ) (287,615 ) (320,839 ) Net loss attributable to noncontrolling interests and redeemable noncontrolling interests (286,843 ) (413,104 ) (395,968 ) Net income attributable to common stockholders $ 26,657 $ 125,489 $ 75,129 Net income per share attributable to common stockholders Basic $ 0.24 $ 1.19 $ 0.73 Diluted $ 0.23 $ 1.16 $ 0.72 Weighted average shares used to compute net income per share attributable to common stockholders Basic 110,089 105,432 102,367 Diluted 117,112 108,206 104,964 20152018 and 20142017Operating lease Year Ended
December 31, Change 2018 2017 $ % (in thousands) Customer agreements $ 272,672 $ 210,753 $ 61,919 29 % Incentives 131,794 23,523 108,271 460 % Customer agreements and incentives 404,466 234,276 170,190 73 % Solar energy systems 186,512 113,953 72,559 64 % Products 169,003 184,313 (15,310 ) (8 )% Solar energy systems and product sales 355,515 298,266 57,249 19 % Total revenue $ 759,981 $ 532,542 $ 227,439 43 % increased by $22.4 million relatedfrom Customer Agreements was primarily due to both an increase in solar assetsenergy systems under Customer Agreements being placed in service in the period from December 31, 2014 through December 31, 20152018 and due to a full year of revenue recognized in 20152018 for systems placed in service in 20142017 versus only a portion recognizedpartial2014. Revenuewhich the assets were in service in 2017. The $108.3 million increase in revenue from incentives, increased by $11.6 millionconsisting of ITCs and SRECs, was primarily due to an increasethe sale of ITCs related to a pass-through financing obligation fund opened in ITC revenue, which relates to solar systems in lease pass-through funds being placed in service in the prior year as we recognize revenue from the monetization of these ITCs annually over five years on each anniversary of a solar energy system’s permission-to-operate date.$26.5$72.6 million compared to the prior year period due to higher sales volume from overall growth following our increased investment in sales and marketing.demand through retail partners. Product sales increaseddecreased by $45.5$15.3 million compared to the prior periodyear primarily due to increasedan increase in the volume of solar-relatedwholesale products revenue due to overall growth discussed above and due tosold in 2017 ahead of the CEE acquisition in April 2015. Year Ended
December 31, Change 2018 2017 $ % (in thousands) Cost of customer agreements and incentives $ 240,857 $ 186,435 $ 54,422 29 % Cost of solar energy systems and product sales 294,066 254,131 39,935 16 % Sales and marketing 207,232 146,426 60,806 42 % Research and development 18,844 15,079 3,765 25 % General and administrative expense 116,659 107,400 9,259 9 % Amortization of intangible assets 4,204 4,204 — — % Total operating expenses $ 881,862 $ 713,675 $ 168,187 24 % Operating LeasesCustomer Agreements and Incentives. The $38.9$54.4 million increase in costCost of operating leasescustomer agreements and incentives was primarily due to the increase in solar energy systems placed in service in the period from December 31, 2014 through December 31, 2015,2018, plus a full year of expensescosts recognized in 2018 for systems placed in service in 20142017 versus only a portion recognizedpartial amount of such expenses related to the period in 2014, which resultedthe assets were in anservice in 2017.depreciation and amortizationITC incentives revenue under a pass-through financing obligation fund opened in 2018, which have no corresponding cost of solar energy system equipment costs and initial direct costs, as well as non-capitalizable costs associated with building and maintaining solar energy systems subject to Customer Agreements.sales.$67.9$39.9 million increase in costCost of solar energy systems and product sales representswas due to the corresponding changes in solar energy systems and product sales discussed above.the direct and indirect material and personnel costs of solar energy systems sold directly to customers as well as solar panels, inverters and other solar-related products sold to resellers, including the costs associated with the customer lead sales.Sales and Marketing Expense. The $66.8 million increaseheadcount driving higher employee compensation. Included in sales and marketing expense was attributableis $8.6 million and $6.5 million of amortization of costs to the expansion of our direct-to-consumer channel as well as our continued efforts to grow our business by entering new markets, increasing hiring of salesobtain Customer Agreements for 2018 and marketing personnel and internal lead generation through advertising and other channels.2017, respectively.$1.3$3.8 million increase in researchResearch and development expenseswas primarily resulted from an increase in fees paid to external consultants in connection with ongoing development of our pricing and quoting platforms.General and Administrative Expense. The $16.3 million increase in general and administrative expenses primarily relatedattributable to hiring of personnel and increased consulting and legal fees as a result of our acquisition of CEE in 2015 and to support the growth of our business.Amortization of Intangible Assets$1.4$9.3 million increase in amortization expense resulted from the amortization of intangible assets acquired from the CEE acquisition in April 2015.Non-Operating ExpensesInterest Expense, net. The increase in interest expense, net of $5.7 million wasGeneral and administrative expenses primarily related to an increase in imputed interest onheadcount driving higher employee compensation. The remainder of the increase related to litigation and legal settlement activity. Year Ended
December 31, Change 2018 2017 $ % (in thousands) Interest expense, net $ 131,771 $ 92,255 $ 39,516 43 % Other (income) expenses, net (2,788 ) 1,874 (4,662 ) (249 )% Total interest and other expenses, net $ 128,983 $ 94,129 $ 34,854 37 % leasenon-recourse and pass-through obligationsfinancing obligation debt entered into in 2015 and additional2018. Included in net interest expense is $22.9 million and $21.1 million of non-cash interest recognized under Customer Agreements that have a significant financing component for 2018 and 2017, respectively.to additional borrowings entered into in late 2014 and in 2015.Other Expenses. The decrease in other expenses of $1.7 million primarily relates to the change in fair value of warrant derivatives which were issued to former Series D and E preferred stockholders as an inducement to convert their shares of convertible preferred stock into shares of common stock immediately prior to the closing of our initial public offering, partiallyinterest rate swap agreement during 2018, offset by an increase in losses from our investment in The Alliance for Solar Choice (“TASC”) in 2015.a loss on extinguishment of the related debt.BenefitExpense Year Ended
December 31, Change 2018 2017 $ % (in thousands) Income tax expense $ 9,322 $ 12,353 $ (3,031 ) (25 )% 34.0%21.0% for the year ended December 31, 20152018 was reduced by the allocation of the losses to noncontrolling interests and redeemable noncontrolling interests of 29.5%24.01% and change in valuation allowance of 3.04% and increased by other miscellaneous items of 2.4%2.33%. The statutory rate tax of 34.0% for the year ended December 31, 20142017 was reduced by the allocation of losses to noncontrolling interests and redeemable noncontrolling interests of 17.6%, by the tax impact of intercompany transactions of 9.4%51.03% and by other miscellaneous items of 1.0%3.4%. Year Ended
December 31, Change 2018 2017 $ % (in thousands) Net loss attributable to noncontrolling interests and redeemable noncontrolling interests $ (286,843 ) $ (413,104 ) $ 126,261 (31 )% Year Ended
December 31, Change 2017 2016 $ % (in thousands) Customer agreements $ 210,753 $ 155,870 $ 54,883 35 % Incentives 23,523 35,756 (12,233 ) (34 )% Customer agreements and incentives 234,276 191,626 42,650 22 % Solar energy systems 113,953 127,727 (13,774 ) (11 )% Products 184,313 157,754 26,559 17 % Solar energy systems and product sales 298,266 285,481 12,785 4 % Total revenue $ 532,542 $ 477,107 $ 55,435 12 % Year Ended
December 31, Change 2017 2016 $ % (in thousands) Cost of customer agreements and incentives $ 186,435 $ 154,244 $ 32,191 21 % Cost of solar energy systems and product sales 254,131 239,381 14,750 6 % Sales and marketing 146,426 168,737 (22,311 ) (13 )% Research and development 15,079 10,199 4,880 48 % General and administrative expense 107,400 92,416 14,984 16 % Amortization of intangible assets 4,204 4,206 (2 ) — % Total operating expenses $ 713,675 $ 669,183 $ 44,492 7 % Year Ended
December 31, Change 2017 2016 $ % (in thousands) Interest expense, net $ 92,255 $ 73,340 $ 18,915 26 % Other expenses (income), net 1,874 (840 ) 2,714 (323 )% Total interest and other expenses, net $ 94,129 $ 72,500 $ 21,629 30 % Year Ended
December 31, Change 2017 2016 $ % (in thousands) Income tax expense $ 12,353 $ 56,263 $ (43,910 ) (78 )% Year Ended
December 31, Change 2017 2016 $ % (in thousands) Net loss attributable to noncontrolling interests and redeemable noncontrolling interests $ (413,104 ) $ (395,968 ) $ (17,136 ) 4 % threesix investment funds since December 31, 2014, as well asin 2017, which use the HLBV method used in determiningto determine the amount of net income or loss attributable to noncontrolling interests and redeemable noncontrolling interests, which generally allocates more loss to the noncontrolling interest in the first several years after fund formation.Comparison of the Years Ended December 31, 2014 and 2013RevenueOperating lease revenue increased by $19.7 million related to an increase in solar assets under Customer Agreements being placed in service from December 31, 2013 through December 31, 2014 and due to a full year of revenue recognized in 2014 for systems placed in service in 2013 versus only a portion recognized in 2013. Revenue from incentives increased by $9.5 million primarily due to an increase in ITC revenue. Revenue from incentives in 2014 includes $5.6 million in ITC revenue due to lapsing of the first year of the ITC recapture period associated with solar energy systems placed in service in 2013 under lease pass-through arrangements. We did not recognize ITC revenue in 2013 as the first year of the ITC recapture period associated with solar energy systems placed in service in 2013 had not elapsed until 2014. Additionally, revenue from incentives increased $3.9 million in 2014 due to increased rebate and SREC revenue as a result of the increase in cumulative megawatts deployed under operating leases discussed above.The $114.6 million increase in revenue from solar energy systems and product sales was a result of the acquisition of MEC in 2014. We did not sell solar energy systems directly to homeowners or sell products to solar energy installers and distributors prior to this acquisition.Cost of Operating Leases and Incentives. The $29.8 million increase in cost of operating leases and incentives was primarily due to the increase in solar energy systems placed in service in the period from December 31, 2013 through December 31, 2014, plus a full year of expenses recognized for systems placed in service in 2013 versus only a portion recognized in 2013, which resulted in an increase in depreciation and amortization of solar energy system equipment costs and initial direct costs, as well as non-capitalizable costs associated with building and maintaining solar energy systems subject to Customer Agreements we incurred subsequent to the acquisition of MEC.Cost of Solar Energy Systems and Product Sales. The cost of solar energy systems and product sales of $100.8 million in 2014 represents the direct and indirect material and personnel costs of solar energy systems sold directly to customers as well as solar panels, inverters and other solar-related products sold to resellers. We did not sell solar energy systems directly to our customers, nor did we directly or indirectly sell solar panels and other related products to resellers prior to our acquisition of MEC in 2014. Instead, prior to the acquisition of MEC, we relied on solar partners to originate customers for our solar service offerings and procure and install the solar energy systems on our customers’ homes on our behalf. As a result of the acquisition, we began offering customer agreements and installing solar energy systems both directly to the customer and selling solar energy systems for cash through our direct-to-consumer channel.Sales and Marketing Expense. The $56.3 million increase in sales and marketing expense was attributable to the expansion of our direct-to-consumer channel as a result of our acquisition of MEC in February 2014, as well as our continued efforts to grow our business by entering new markets, increasing internal lead generation through advertising and other channels, and increased hiring of sales and marketing personnel.Research and Development. The $1.6 million decrease in research and development expenses primarily resulted from a shift in 2014 toward activities that qualified for capitalization as internally developed software rather than a decrease in research and development activity. We expect to continue to make significant investments in research and development.General and Administrative Expense. The $34.9 million increase in general and administrative expenses primarily resulted from increased personnel costs as a result of our acquisition of MEC in 2014 as well as an increase in professional service and legal fees driven primarily from our efforts in preparing to become a public company, as well as general corporate costs associated with supporting overall growth and formation of five additional investment funds in 2014.Interest Expense, net. The increase in interest expense, net of $15.8 million was related to a full year of interest on borrowings entered into in 2013 as well as imputed interest on additional lease pass-through obligations entered into in 2014.Other Expense. The increase in other expenses of $2.7 million primarily represents our loss from our investment in TASC in 2014.Income Tax BenefitThe statutory rate tax of 34.0% for the year ended December 31, 2014 was reduced by the allocation of losses to noncontrolling interests and redeemable noncontrolling interests of 17.6%, by the tax impact of intercompany transactions of 9.4% and by other miscellaneous items of 1.0%. The statutory rate tax of 34.0% for the year ended December 31, 2013 was reduced by the allocation of losses to noncontrolling interests and redeemable noncontrolling interests of 34.1%, offset by an increase in other miscellaneous items of 1.0%.Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling InterestsThe increase in net loss attributable to noncontrolling interests and redeemable noncontrolling interests was primarily a result of the addition of three investment funds between December 31, 2013 and December 31, 2014, as well as the HLBV method used in determining the amount of net loss attributable to noncontrolling interests and redeemable noncontrolling interests, which generally allocates more loss to the noncontrolling interest in the first several years after fund formation.Quarterly Results of OperationsThe following table represents our unaudited consolidated statement of operations for each of the quarters indicated. Our consolidated statement of operations for each of these quarters have been prepared on a basis consistent within our audited financial statements included elsewhere in this Annual Report on Form 10-K and, in the opinion of management, include all adjustments necessary for the fair presentation of our consolidated results of operations for these quarters. You should read this information together with our annual consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. Our quarterly results of operations are not necessarily indicative of our results for any future period.2015,2018, we had cash of $203.9$226.6 million, which consisted principally of cash held in checking and savings accounts with financial institutions. We finance our operations mainly through a variety of financing fund arrangements that we have formed with fund investors, sales of preferred and common stock, borrowings, cash generated from our operationssources of revenue and more recently, issuance of solar asset-backed notes in July 2015 and our initial public offering of our common stock in August 2015. Additionally, in January 2016, we entered intoproceeds from secured credit facilities agreementsarrangements with a syndicate of banks for up to $250.0$255.0 million in committed facilities.and from secured, long-term non-recourse loan arrangements for up to $121.4 million. Our principal uses of cash are funding our business, including the costs of acquisition and installation of solar energy systems, satisfaction of our obligationsarewill continue to be dependent on financing from outside parties. If financing is not available to us on acceptable terms if and when needed, we may be required to reduce planned spending, which could have a material adverse effect on our operations. While there can be no assurances, we anticipate raising additional required capital from new and existing investors. We believe our cash, investment fund commitments and available borrowings as further described below will be sufficient to meet our anticipated cash needs for at least the next 12 months. The following table summarizes our cash flows for the periods indicated: Year Ended December 31, 2018 2017 2016 (in thousands) Consolidated cash flow data: Net cash used in operating activities $ (62,461 ) $ (96,103 ) $ (200,141 ) Net cash used in investing activities (811,316 ) (777,319 ) (695,802 ) Net cash provided by financing activities 936,386 890,849 899,145 Net increase in cash $ 62,609 $ 17,427 $ 3,202 2015,2018, we used $105.3$62.5 million in net cash in operating activities. The primarydriver of our operating cash inflow consists of payments received from customers as well as incentives. The driver of our operating cash outflows primarily relate to the costs of our revenues, as well as sales, marketing and general and administrative costs. During 2018, our operating cash outflows were $47.3 million from our net loss excluding non-cash and non-operating items. Changes in working capital resulted in a net cash outflow of $15.2 million.$47.7$29.3 million relating to upfront lease payments received from customers and solar energy system incentive rebate payments received from various state and local utilities. This increase was offset by our operating cash outflows of $159.3$163.8 million from our net loss excluding non-cash and non-operating items. Net changesChanges in accounts payable resulted in a cash outflow of $40.3 million. Changes in working capital, other than deferred revenue and accounts payable, resulted in an inflowa cash outflow of cash of $6.3$25.3 million.2014,2018, we used $7.9 million in net cash from operations. During 2014, we had an increase in deferred revenue of approximately $97.4 million relating to upfront lease payments received from customers and solar energy system incentive rebate payments received from various state and local utilities and prepayment for future deliveries of SRECs. The increase generated from deferred revenue was offset by our operating cash outflows of $103.6 million from our net loss excluding non-cash and non-operating items. Net changes in working capital, other than deferred revenue, resulted in an outflow of cash of $1.7 million.During 2013, we generated $23.4 million in net cash from operations. During 2013, we had an increase in deferred revenue of $57.1 million relating to upfront lease payments received from customers and solar energy system incentive rebate payments received from various state and local governments. We had operating cash outflows of $31.7 million from our net loss excluding non-cash and non-operating items. Net changes in working capital, other than deferred revenue, resulted in an outflow of cash of $2.0 million.Investing ActivitiesDuring 2015, we used $627.5$811.3 million in cash in investing activities. Of this amount, we used $594.9$806.4 million to design, acquire and install solar energy systems and components under our long-term Customer Agreements. We used $19.6Agreements, and $4.9 million to acquire the CEE business. We used $13.0 million for capitalized software projects and the acquisition of vehicles, office equipment, leasehold improvements and furniture.2014,2017, we used $464.0$777.3 million in cash in investing activities. Of this amount, we used $412.3$769.4 million to design, acquire and install solar energy systems and components under our long-term customer agreements. We also used $15.3Customer Agreements, and $7.9 million for capitalized software projects and the acquisition of vehicles, office equipment, leasehold improvements and furniture and spent approximately $36.4equipment. for the acquisitions of businesses, which included the backlog purchased in connection with a new installer partner relationship, as well as the MEC acquisition.During 2013, we used $325.8 million in investing activities. Of this amount, we used $322.0$678.3 million in cash to design, acquire and install solar energy systems and components under operating leases with our customers. We also used $3.7long-term Customer Agreements, $12.5 million in cashfor capitalized software projects and the acquisition of office equipment and $5.0 million for additional purchase consideration for the acquisition of vehicles, office equipment, leasehold improvements and furniture.2015,2018, we generated $784.5$936.4 million from financing activities. We received $287.2This was primarily driven by $483.8 million in net proceeds from fund investors, and $280.6$438.1 million in proceeds from debt, issuances net of debt issuance costs and repayments, including the issuance and repayment of asset-backed notes. We received $222.1offset by $9.0 million in proceeds from our initial public offering, net of offering costs. We also received $4.7 million from state grants, net of recapture, and $3.6 million from the exercise of employee stock options. Restricted cash increased by $8.8 million. We made repayments of $4.9 million on capitalunder finance lease obligations.2014,2017, we generated $524.4$890.8 million in cash from financing activities. Of this amount, we received $311.7This was primarily driven by $511.2 million in net proceeds from fund investors. We also raised $143.4 million, net of transaction costs, from the issuance of convertible preferred stock. We received $64.7investors, $374.7 million in proceeds net offrom debt, issuance costs and repayments. We also received $2.7 million from the exercise of employee stock options and $1.6 million from state grants in 2014. Restricted cash decreased by $1.4 million. We made repayments of $1.1 million on capital lease obligations.During 2013, we generated $312.3 million in cash from financing activities. Of this amount, we received $166.3 million in net proceeds from fund investors. We also received $142.2 million, net of debt issuance costs and repayments, from long-term borrowings. We also received $1.1offset by $9.8 million in repayments under finance lease obligations.the exercise of employee stock options and $29.3 million from U.S. Treasury grants. We paid $22.0 million to acquire the noncontrolling interests in three investment funds. Lastly, we increased restricted cashfinancing activities. This was primarily driven by $4.6$550.0 million in 2013.Conversion of preferred stock and issuance of additional shares and warrants.July 2015,August 2017, we entered into an agreement with an affiliate ("Contractor") of Comcast Corporation ("Comcast") whereby Contractor will receive lead or sales fees for new customers it brings to us over a letter of intent to issue 1,250,764 warrants40-month term. We also issued Comcast a warrant to purchase up to 11,793,355 shares of our common stock, subject to contingencies being met to the former Series D and E preferred stockholders as an inducement to convert their shares of convertible preferred stock into shares of common stock immediately prior to the closing of our initial public offering and waive any potential anti-dilution adjustments resulting from the issuance of shares of common stock in our initial public offering. The warrants were issued on September 30, 2015. The warrants are exercisable for three years from the date of grant and haveat an exercise price of $22.50$0.01 per warrant share. The warrants are recordedwarrant would initially vest 50.05% when both (i) Contractor has earned a lead or sales fee with respect to 30,000 of installed solar energy systems, and (ii) Contractor or its affiliates have spent at fair value as derivative liabilities and reported in other liabilities in the Company’s consolidated balance sheet.Immediately prior to closing of our initial public offering, all 54,840,767 shares of our outstanding preferred stock were automatically converted into shares of common stock.Initial public offering. On August 10, 2015, we closed our initial public offering in which 17,900,000 shares of common stock were sold at a public offering price of $14.00 per share, resulting in net proceeds of approximately $221.3 million, after deducting underwriting discounts and commissions and $7.5least $10.0 million in offering expenses payablemarketing and sales in connection with the agreement. Thereafter, the warrant would vest in five additional increments for each additional 6,000 installed solar energy systems. On November 7, 2018 the warrant vesting schedule was modified so that it will initially vest either (i) as to 10.0% if Contractor has earned a lead or sales fee with respect to 6,000 of installed solar energy systems by us,September 30, 2019 or (ii) as to 13.3% if Contractor has earned a lead or sales fee with respect to 8,000 of installed solar energy systems by December 31, 2019, provided that, in either case, Contractor or its affiliates have spent at least $25.0 million in marketing and excludingsales in connection with the proceeds received byagreement. Thereafter, the selling stockholders who sold an aggregate of 417,732 shares of the total 17,900,000 shares soldwarrant will vest in additional 8.3% increments for each additional 5,000 installed solar energy systems. If the initial public offering.vesting conditions have not been met by December 31, 2019, the Warrant will expire. 2015,2018, we had undrawn committed capital of approximately $392.0$205.8 million which may only be used to purchase and install solar energy systems. We intend to establish new investment funds in the future, and we may also use debt, equity or other financing strategies to finance our business.2015:2018:Off-Balance Payments Due by Period Total (in thousands) Contractual Obligations: Debt obligations (including future interest) $ 140,819 $ 653,377 $ 472,869 $ 1,063,847 $ 2,330,912 Purchase commitments — 135,350 — — 135,350 15,847 — — — 15,847 Financing lease obligations (including accrued interest) 9,742 7,909 1,560 949 20,160 Operating lease obligations, net of sublease income 8,720 8,992 4,451 25 22,188 Total contractual obligations $ 175,128 $ 805,628 $ 478,880 $ 1,064,821 $ 2,524,457 The foregoing table does not include the amounts we could be required to expend under our redemption obligations discussed above. , to our consolidated financial statement included elsewhere in this Annual Report on Form 10-K10-K.$0.6$2.9 million and $1.0$2.6 million for the year ended December 31, 20152018 and 2014,2017, respectively.69707273747576and Stockholders of Sunrun Inc.20152018 and 2014, and2017, the related consolidated statements of operations, comprehensive loss,income, redeemable noncontrolling interests and stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015. 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.thesethe Company’s financial statements based on our audits.Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engagedmisstatement, whether due to perform an audit of the Company’s internal control over financial reporting.error or fraud. Our audits included considerationperforming procedures to assess the risks of internal control overmaterial misstatement of the financial reporting as a basis for designing auditstatements, whether due to error or fraud, and performing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includesrespond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sunrun Inc. at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.March 10, 2016 As of December 31, 2018 2017 As Recast Assets Current assets: Cash $ 226,625 $ 202,525 Restricted cash 77,626 39,265 Accounts receivable (net of allowances for doubtful accounts of $2,228 and $1,665
as of December 31, 2018 and 2017, respectively) 66,435 60,359 State tax credits receivable 2,697 11,085 Inventories 79,467 94,427 Prepaid expenses and other current assets 8,563 9,202 Total current assets 461,413 416,863 Restricted cash 148 — Solar energy systems, net 3,820,017 3,161,570 Property and equipment, net 34,893 36,402 Intangible assets, net 10,088 14,294 Goodwill 87,543 87,543 Other assets 335,685 246,464 $ 4,749,787 $ 3,963,136 Liabilities and total equity Current liabilities: Accounts payable $ 131,278 $ 115,193 Distributions payable to noncontrolling interests and redeemable noncontrolling interests 15,847 13,583 Accrued expenses and other liabilities 98,636 97,230 Deferred revenue, current portion 47,407 42,609 Deferred grants, current portion 7,885 8,193 Finance lease obligations, current portion 9,193 7,421 Non-recourse debt, current portion 35,484 21,529 Pass-through financing obligation, current portion 26,461 5,387 Total current liabilities 372,191 311,145 Deferred revenue, net of current portion 544,218 522,243 Deferred grants, net of current portion 221,739 227,519 Finance lease obligations, net of current portion 9,992 5,811 Recourse debt 247,000 247,000 Non-recourse debt, net of current portion 1,466,438 1,026,416 Pass-through financing obligation, net of current portion 337,282 132,823 Other liabilities 48,210 42,743 Deferred tax liabilities 93,633 83,119 3,340,703 2,598,819 Commitments and contingencies (Note 20) Redeemable noncontrolling interests 126,302 123,801 Stockholders’ equity: Preferred stock, $0.0001 par value—authorized, 200,000 shares as of
December 31, 2018 and 2017; no shares issued and outstanding
as of December 31, 2018 and 2017 — — Common stock, $0.0001 par value—authorized, 2,000,000 shares as of
December 31, 2018 and 2017; issued and outstanding, 113,149 and
107,350 shares as of December 31, 2018 and 2017, respectively 11 11 Additional paid-in capital 722,429 682,950 Accumulated other comprehensive loss (3,124 ) (4,113 ) Retained earnings 229,391 202,734 Total stockholders’ equity 948,707 881,582 Noncontrolling interests 334,075 358,934 Total equity 1,282,782 1,240,516 Total liabilities, redeemable noncontrolling interests and total equity $ 4,749,787 $ 3,963,136 (1)20152018 and 20142017 include $1,363,615$2,905,295 and $986,878,$2,568,378, respectively, in assets of variable interest entities, or VIEs,“VIEs”, that can only be used to settle obligations of the VIEs. Solar energy systems, net, as of December 31, 20152018 and 20142017 were $1,305,420$2,712,377 and $942,655,$2,385,329, respectively; cash as of December 31, 20152018 and 20142017 were $44,407$105,494 and $29,099,$118,352, respectively; restricted cash as of December 31, 20152018 and 20142017 were $757$2,071 and $593,$2,699, respectively; accounts receivable, net as of December 31, 20152018 and 20142017 were $12,965$18,539 and $14,351;$18,786, respectively; prepaid expenses and other current assets as of December 31, 20152018 and 20142017 were $66$387 and $180,$917, respectively and other assets as of December 31, 2018 and 2017 were $66,427 and $42,295, respectively. The Company’s consolidated liabilities as of December 31, 20152018 and 20142017 include $540,464$660,758 and $474,348,$677,955, respectively, in liabilities of VIEs whose creditors have no recourse to the Company. These liabilities include accounts payable as of December 31, 20152018 and 20142017 of $11,025$12,136 and $9,057,$15,929, respectively; distributions payable to noncontrolling interests and redeemable noncontrolling interests as of December 31, 20152018 and 20142017 of $8,063$15,797 and $6,426,$13,526, respectively; accrued expenses and other liabilities as of December 31, 20152018 and 20142017 of $175$7,122 and $340,$5,200, respectively; deferred revenue as of December 31, 20152018 and 20142017 of $374,736$396,920 and $301,792,$409,761, respectively; deferred grants as of December 31, 20152018 and 20142017 of $115,726$29,229 and $123,351,$30,406, respectively; and long-termnon-recourse debt as of December 31, 20152018 and 20142017 of $30,739$190,711 and $33,382,$201,285, respectively; and other liabilities as of December 31, 2018 and December 31, 2017 of $8,843 thousand and $1,848, respectively. Year Ended December 31, 2018 2017 2016 As Recast As Recast Revenue: Customer agreements and incentives $ 404,466 $ 234,276 $ 191,626 Solar energy systems and product sales 355,515 298,266 285,481 Total revenue 759,981 532,542 477,107 Operating expenses: Cost of customer agreements and incentives 240,857 186,435 154,244 Cost of solar energy systems and product sales 294,066 254,131 239,381 Sales and marketing 207,232 146,426 168,737 Research and development 18,844 15,079 10,199 General and administrative 116,659 107,400 92,416 Amortization of intangible assets 4,204 4,204 4,206 Total operating expenses 881,862 713,675 669,183 Loss from operations (121,881 ) (181,133 ) (192,076 ) Interest expense, net 131,771 92,255 73,340 Other (income) expenses, net (2,788 ) 1,874 (840 ) Loss before income taxes (250,864 ) (275,262 ) (264,576 ) Income tax expense 9,322 12,353 56,263 Net loss (260,186 ) (287,615 ) (320,839 ) Net loss attributable to noncontrolling interests and
redeemable noncontrolling interests (286,843 ) (413,104 ) (395,968 ) Net income attributable to common stockholders $ 26,657 $ 125,489 $ 75,129 Net income per share attributable to common stockholders Basic $ 0.24 $ 1.19 $ 0.73 Diluted $ 0.23 $ 1.16 $ 0.72 Weighted average shares used to compute net income
per share attributable to common stockholders Basic 110,089 105,432 102,367 Diluted 117,112 108,206 104,964 Loss Year Ended December 31, 2018 2017 2016 As Recast As Recast Net income attributable to common stockholders $ 26,657 $ 125,489 $ 75,129 Unrealized gain (loss) on derivatives, net of income taxes 6,187 (5,694 ) 335 Interest (expense) income on derivatives recognized into earnings, net of income taxes (5,198 ) 1,144 1,023 Other comprehensive income (loss) 989 (4,550 ) 1,358 Comprehensive income $ 27,646 $ 120,939 $ 76,487 Consolidated Statements of Redeemable Noncontrolling Interests and Stockholders’ Equity(In Thousands) Preferred Stock Common Stock Shares Amount Shares Amount Balance at December 31, 2015 (as reported) $ 147,139 — $ — 101,282 $ 10 $ 642,229 $ (921 ) $ (87,249 ) $ 554,069 $ 105,491 $ 659,560 Cumulative effect of adoption of new ASUs (No. 2014-09 and No. 2016-02) 5,710 — — — — — — 86,368 86,368 93 86,461 Balance at December 31, 2015 (as recast) $ 152,849 — $ — 101,282 $ 10 $ 642,229 $ (921 ) $ (881 ) $ 640,437 $ 105,584 $ 746,021 Exercise of stock options — — — 1,852 — 5,416 — — 5,416 — 5,416 Issuance of restricted stock units,
net of tax withholdings — — — 422 — (381 ) — — (381 ) — (381 ) Shares issued in connection with the Employee Stock Purchase Plan — — — 515 — 2,432 — — 2,432 — 2,432 Stock-based compensation — — — — — 18,817 — — 18,817 — 18,817 Contributions from noncontrolling interests and redeemable noncontrolling interests 123,023 — — — — — — — — 450,519 450,519 Distributions to noncontrolling interests and redeemable noncontrolling interests (13,606 ) — — — — — — — — (28,448 ) (28,448 ) Issuance of shares due to business acquisition in 2015 — — — 250 — — — — — — — Offering costs in connection with underwritten public offering — — — — — (437 ) — — (437 ) — (437 ) Net (loss) income (121,270 ) — — — — — — 75,129 75,129 (274,698 ) (199,569 ) Other comprehensive income, net of taxes — — — — — — 1,358 — 1,358 — 1,358 Balance - December 31, 2016 (as recast) $ 140,996 — $ — 104,321 $ 10 $ 668,076 $ 437 $ 74,248 $ 742,771 $ 252,957 $ 995,728 Cumulative effect of adoption of new ASU's (No. 2016-13 and No. 2016-16) — — — — — — — 2,996 2,996 — 2,996 Exercise of stock options — — — 686 — 1,984 — — 1,984 — 1,984 Issuance of restricted stock units, net of tax withholdings — — — 1,115 — (3,569 ) — — (3,569 ) — (3,569 ) Shares issued in connection with the Employee Stock Purchase Plan — — — 628 1 2,619 — — 2,620 — 2,620 Stock-based compensation — — — — — 22,088 — — 22,088 — 22,088 Acquisition of noncontrolling interests (37,919 ) — — — — (8,248 ) — — (8,248 ) (405 ) (8,653 ) Contributions from noncontrolling interests and redeemable noncontrolling interests 128,052 — — — — — — — — 469,617 469,617 Distributions to noncontrolling interests and redeemable noncontrolling interests (14,769 ) — — — — — — — — (42,690 ) (42,690 ) Issuance of shares due to business acquisition in 2015 — — — 600 — — — — — — — Net (loss) income (92,559 ) — — — — — — 125,490 125,490 (320,545 ) (195,055 ) Other comprehensive loss, net of taxes — — — — — — (4,550 ) — (4,550 ) — (4,550 ) Balance - December 31, 2017 (as recast) $ 123,801 — $ — 107,350 $ 11 $ 682,950 $ (4,113 ) $ 202,734 $ 881,582 $ 358,934 $ 1,240,516 Cumulative effect of adoption of new ASU (No. 2017-12) — — — — — — 1,992 — 1,992 — 1,992 Exercise of stock options — — — 3,271 — 17,178 — — 17,178 — 17,178 Issuance of restricted stock units, net of tax withholdings — — — 1,614 — (10,102 ) — — (10,102 ) — (10,102 ) Shares issued in connection with the Employee Stock Purchase Plan — — — 914 — 4,546 — — 4,546 — 4,546 Stock-based compensation — — — — — 27,857 — — 27,857 — 27,857 Contributions from noncontrolling interests and redeemable noncontrolling interests 111,125 — — — — — — — — 234,022 234,022 Distributions to noncontrolling interests and redeemable noncontrolling interests (11,057 ) — — — — — — — — (69,605 ) (69,605 ) Net (loss) income (97,567 ) — — — — — — 26,657 26,657 (189,276 ) (162,619 ) Other comprehensive loss, net of taxes — — — — — — (1,003 ) — (1,003 ) — (1,003 ) Balance - December 31, 2018 $ 126,302 — $ — 113,149 $ 11 $ 722,429 $ (3,124 ) $ 229,391 $ 948,707 $ 334,075 $ 1,282,782 Year Ended December 31, 2018 2017 2016 As Recast As Recast Operating activities: Net loss $ (260,186 ) $ (287,615 ) $ (320,839 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization, net of amortization of deferred grants 156,007 128,687 98,493 Deferred income taxes 9,322 12,353 56,263 Stock-based compensation expense 27,856 22,042 18,723 Interest on pass-through financing obligations 19,205 12,629 12,757 Reduction in pass-through financing obligations (25,005 ) (18,295 ) (44,913 ) Other noncash losses and expenses 25,484 24,471 15,705 Changes in operating assets and liabilities: Accounts receivable (5,707 ) (9,409 ) (1,973 ) Inventories 14,960 (27,101 ) 4,042 Prepaid and other assets (75,924 ) (51,633 ) (52,226 ) Accounts payable 8,848 47,837 (40,336 ) Accrued expenses and other liabilities 15,286 9,219 24,868 Deferred revenue 27,393 40,712 29,295 Net cash used in operating activities (62,461 ) (96,103 ) (200,141 ) Investing activities: Payments for the costs of solar energy systems (806,365 ) (769,363 ) (678,258 ) Purchases of property and equipment (4,951 ) (7,956 ) (12,544 ) Business acquisition — — (5,000 ) Net cash used in investing activities (811,316 ) (777,319 ) (695,802 ) Financing activities: Proceeds from state tax credits, net of recapture 10,887 13,773 9,081 Proceeds from issuance of recourse debt 17,000 170,400 458,400 Repayment of recourse debt (17,000 ) (167,400 ) (411,400 ) Proceeds from issuance of non-recourse debt 980,544 748,806 335,666 Repayment of non-recourse debt (517,594 ) (362,763 ) (23,076 ) Payment of debt fees (24,849 ) (14,392 ) (13,741 ) Proceeds from pass-through financing and other obligations 217,082 6,221 16,047 Payment of finance lease obligations (9,025 ) (9,836 ) (12,759 ) Contributions received from noncontrolling interests and redeemable
noncontrolling interests 345,147 594,921 573,542 Distributions paid to noncontrolling interests and redeemable noncontrolling interests (78,398 ) (54,530 ) (39,542 ) Acquisition of noncontrolling interests — (35,386 ) — Proceeds from exercises of stock options, net of withholding taxes paid on restricted stock units 12,592 1,035 7,364 Offering costs paid related to initial public offering — — (437 ) Net cash provided by financing activities 936,386 890,849 899,145 Net change in cash and restricted cash 62,609 17,427 3,202 Cash and restricted cash, beginning of period 241,790 224,363 221,161 Cash and restricted cash, end of period $ 304,399 $ 241,790 $ 224,363 Supplemental disclosures of cash flow information Cash paid for interest $ 76,313 $ 42,194 $ 26,191 Cash paid for 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 $ 27,169 $ 19,625 $ 18,547 Purchases of solar energy systems included in non-recourse debt $ — $ 12,873 $ — Right-of-use assets obtained in exchange for finance lease liabilities $ 14,302 $ 650 $ 12,961 a power purchasean agreement to utilize the solar system (“PPA”) or a lease (each, a “CustomerCustomer Agreement”) which typically has aan initial term of 20 or 25 years. Sunrun monitors, maintains and insures the Projects. As a result of the acquisition of Mainstream Energy Corporation, its fulfillment business AEE Solar and its racking business SnapNrack (collectively, “MEC”) completed in February 2014, theThe Company also sells solar energy systems and products, such as panels and racking and solar leads generated to customers.lease pass-throughs,pass-through financing obligations, (ii) partnership-flips and (iii) joint venture (“JV”) inverted leases.Sunrun acquired Clean Energy Experts, LLC (“CEE”), a consumer demand and solar lead generation company, in April 2015, to support the growth of the business, including reducing costs of obtaining customer leads externally. As a result of acquisition, the Company also sells a portion of solar leads generated to customers.The Company completed its initial public offering in August 2015 and its common stock is listed on the NASDAQ Global Select Market under the symbol “RUN”.conformityaccordance with U.S. generally accepted accounting principles (“GAAP”) and reflect the accounts and operations of the Company and those of its subsidiaries, including Funds, in which the Company has a controlling financial interest. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity. However, a controlling financial interest may also exist in entities, such as variable interest entities (“VIEs”), through arrangements that do not involve controlling financialvoting 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.76Sunrun Inc.Notes to Consolidated Financial Statements — Continuedsignificant 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 and estimated residual values of solar energy systems, the useful lives of property and equipment, the valuation and useful lives of intangible assets, the fair value of assets acquired and liabilities assumed in business combinations, the effective interest rate used to amortize lease pass-through financing obligations, the discount rate uses for operating and financing leases, the valuation of stock-based compensation, the valuation of the Company’s common stock, 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.areis as follows (in thousands): Year Ended December 31, 2018 2017 2016 Customer agreements $ 272,672 $ 210,753 $ 155,870 Incentives 131,794 23,523 35,756 Customer agreements and incentives 404,466 234,276 191,626 Solar energy systems 186,512 113,953 127,727 Products 169,003 184,313 157,754 Solar energy systems and product sales 355,515 298,266 285,481 Total revenue $ 759,981 $ 532,542 $ 477,107 Restricted Cashbalances collateralizing standby letters of credit, amounts related to obligations under certain financing transactions and future replacement of solar energy systemssystem components.obligations under certain financing transactions.77Sunrun Inc.Notesrestricted cash reported within the consolidated balance sheets that sum to Consolidated Financial Statements — Continued December 31, 2018 2017 2016 Cash $ 226,625 $ 202,525 $ 206,364 Restricted cash, current and long-term 77,774 39,265 17,999 Total $ 304,399 $ 241,790 $ 224,363 arrangements with customers,Customer Agreements, the customers typically assign incentive rebates to the Company.2015, 20142018, 2017 and 2013,2016, the Company recorded provisionprovisions for bad debt expense of $2.0$3.4 million, $0.5$2.1 million and $0.2$1.4 million, respectively, and wrote-off uncollectible receivables of $1.1$2.8 million, $0.1$1.6 million and $0.0$1.8 million, respectively. December 31, 2018 2017 Customer receivables $ 64,180 $ 59,263 Other receivables 1,466 1,319 Rebates receivable 3,017 1,442 Allowance for doubtful accounts (2,228 ) (1,665 ) Total $ 66,435 $ 60,359 marketnet realizable value on a first-in, first-out basis. Inventories consist of raw materials such as photovoltaic panels, inverters and mounting hardware as well as miscellaneous electrical components that are sold as-is by the distribution operations and used in installations and work-in-process. Work-in-process primarily relates to solar energy systems that will be sold to customers, which are partially installed and have yet to pass inspection by the responsible city or utility department. For solar energy systems where the Company performs the installation, the Company commences transferring component parts from inventories to construction in progress,construction-in-progress, a component of solar energy systems, once a lease contract with a lease customer has been executed and the component parts have been assigned to a specific project. Additional costs incurred including labor and overhead are recorded within construction in progress.leasedsubject to customerssigned Customer Agreements and solar energy systems that are under installation as solar energy systems, net on its consolidated balance sheet. Solar energy systems, net is comprised of system equipment costs and initial direct costs related to solar energy systems, less accumulated depreciation and amortization. Depreciation on solar energy systems is calculated on a straight-line basis over the estimated useful lives of the systems of 35 years. Prior to the fourth quarter of 2016, the Company calculated depreciation on solar energy systems on a straight-line basis to their estimated residual values over the estimated useful lives of systems, which was expected to be 20 years. The Company revised the estimated useful life of solar energy systems toin the fourth quarter of 2016, as the Company which is the expected holding period of typically 20 years, coinciding with the initial lease term78Sunrun Inc.Notes to Consolidated Financial Statements — Continuedof the Company’s Customer Agreements. The Company has determinedreviewed its assumptions and concluded that it iscustomers are more likely that the customer will elect to renew their lease rather than purchase the solar energy system at the end of the initial lease period rather than renew their customer agreement, due to the cost of purchasing the solar energy system being significantly lower than it was at the initiationterm. The impact of the customer agreement,change in order to reduce electricity costs, as well as increase the valueestimate was immaterial for 2016 and marketing attributes of their home. If a customer elects to renew their lease at the end of the initial lease term, the residual value will be depreciated over a revised estimated remaining useful life to the Company.future periods. The Company periodically reviews its estimates of residual value and its estimated useful life and recognizes changes in estimates by prospectively adjusting depreciation expense. Inverters and batteries are depreciated over their estimated useful life of 10 years.installationconstruction will be depreciated as solar energy systems leasedsubject to customerssigned Customer Agreements when the respective systems are completed and interconnected.Initial direct costs from the origination of Customer Agreements are capitalized and amortized over the initial term of the related Customer Agreement and are included within solar energy systems, net in the consolidated balance sheets. Amortization of these costs is recorded in cost of operating leases and incentives in the accompanying consolidated statements of operations.Leasehold improvements estimated useful life of the asset6 years or lease term which is typically 2 to 6 years5-75 years4-5 yearsCustomer relationships6-10 yearsBacklog1 yearDeveloped technology56-10 years5 years Trade names 4 months to 55-8 years79Sunrun Inc.Notes to Consolidated Financial Statements — Continuedasset.asset group. If the useful life is shorter than originally estimated, the Company amortizes the remaining carrying value over the new shorter useful life. No impairmentThe Company has recognized no material impairments of its long-lived assets has been recorded for the years ended December 31, 2015, 2014 and 2013.Business CombinationsAcquisitions of entities and certain solar projects with the associated leases that meet the definition of a business are accounted for as business combinations in accordance with ASC 805, Business Combinations. The Company records assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excessany of the purchase price over those fair values is recorded as goodwill. Acquisition-related expenses are expensed as incurred.assumed of MEC in February 2014 and CEE in April 2015.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, (“ASC 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-averageweighted average cost of capital and interpretation of currently enacted tax laws.TheAs of October 1, 2018, the Company did not note any indicatorsconcluded that the fair value of impairment in the qualitative assessment that would requireCompany exceeded its carrying value.quantitative analysis in 2015. The Company did not have any goodwillcustomer prior to 2014, and no impairment charges have been recordeddelivering goods or services to date.Deferred RevenueDeferredthe 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 a) amounts that are collected or assigned from customers, including upfront deposits and lease prepayments; b) rebatesprepayments, and incentives receivedrebates. 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 receivables from utility companies and various local and state government agencies; c) amounts relatedwill eventually net to investment tax credits (“ITC”) thatzero by the Company monetized in connection with its lease-pass through financing obligations; and d) amountsend of the initial term. Amounts received related to the sales of solar renewable energy credits (“SRECs”).80Sunrun Inc.NotesSRECs which have not yet been delivered to Consolidated Financial Statementsthe counterparty are recorded as deferred revenue. — Continued December 31, 2018 2017 Under Customer Agreements: Payments received $ 538,926 $ 517,544 Financing component balance 37,801 30,736 576,727 548,280 Under SREC contracts: Payments received 12,977 14,805 Financing component balance 1,921 1,767 14,898 16,572 Total $ 591,625 $ 564,852 State Grants.state tax credits. The Company applied for a renewable energy technologies income tax credit offered by one of the states in the form of a cash payment and deferred the tax credit as a grant on the consolidated balance sheets. The Company initially recordedrecords the grants as deferred grant incomegrants and recognizes the benefit on a straight-line basis over the estimated depreciable life of the associated assets as a reduction in costCost of operating leasescustomer agreements and incentives.providesaccrues warranty service and replacement on the majority of allcosts when revenue is recognized for solar energy systems soldsales, based on the estimated future costs of meeting its warranty obligations. Warranty costs primarily consist of replacement costs for supplies and installed.labor costs for service personnel since warranties for equipment and materials are covered by the original manufacturer’s warranty (other than a small deductible in certain cases). As such, the warranty reserve is immaterial in all periods presented. The major components are generally covered under a manufacturer’s limited warranty.In resolving claimsCompany makes and revises these estimates based on the number of solar energy systems under warranty, services, the Company has the option of remedying the defect to the warranted level through repair, refurbishment, or replacement. The warranty accrual is estimated and is re-evaluated regularly by management based upon the Company’s historical experience with warranty policy, applicable contractualclaims, assumptions on warranty obligations, an analysis of historical costsclaims to occur over a systems’ warranty period and age of installed systems and management’s evaluation of current claims in process. The warranty accrual is recorded as a component of accrued expenses and other liabilities in the Company’s consolidated balance sheets. Prior to the Company’s acquisition of the residential business from MEC in February 2014, no warranty accrual was necessary. The Company recorded a warranty accrual of $1.1 million and $0.9 million as of December 31, 2015 and 2014, respectively.IfAnnually or every two years, depending on the terms of the Customer Agreement, the Company determineswill refund a portion of electricity payments to a customer if his or her solar energy production output was less than the performance guarantee. The Company considers this a variable component that offsets the guaranteed minimum energy output is not achieved, it records a liability for the estimated amounts payable. As of December 31, 2015 and 2014, the Company recorded liabilities of $0.3 million and $0.4 million, respectively, as accrued expenses and other liabilities in the consolidated balance sheets relating to these guarantees based on the Company’s assessment of its exposure.earnings.81Sunrun Inc.Notes to Consolidated Financial Statements — ContinuedBeginningearnings and are included in 2015,other expenses (income), net in the consolidated statements of operations.current-periodcurrent period earnings. The remaining balance in accumulated other comprehensive loss associated with the derivative that has been discontinued is not recognized in the income statement unless it is probable that the forecasted transaction will not occur. Such amounts are recognized in earnings when earnings are affected by the hedged transaction.The Company recognized warrants with former preferred stockholders as an inducement to convert their shares of convertible preferred stock into shares of common stock immediately prior to the Company’s initial public offering as derivative liabilities. Such liabilities were valued when the financial instruments were initially issued, with the change in their respective fair values recorded as a gain or loss on revaluation within other expenses in the Company’s statement of operations. The Company determines the fair value of its warrant derivative liabilities using the Black-Scholes option-pricing model.techniquesapproaches 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
Notes to Consolidated Financial Statements — Continued·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.borrowings on the line of credit, long-term debt and solar asset-backed notes.82Sunrun Inc.Notes to Consolidated Financial Statements — Continued(i) persuasive evidencecontrol of an arrangement exists, (ii) delivery has occurredgoods or services have been rendered, (iii)is transferred to its customers, in an amount that reflects the sales price is fixedconsideration it expected to be entitled to in exchange for those goods or services.determinable, and (iv) collection of the related receivable is reasonably assured.Operating leases and incentivesOperating leasescustomer agreements, revenue fromCustomer Agreements in which the Company provides continuous access to a functioning solar energy system rebate incentives, revenue associated with ITCs assigned to investment funds that are classified as lease pass-through arrangements and revenue from the sales of SRECs generated by the Company’s solar energy systems to third parties.(“PTO”("PTO") is given by the local utility company or on the date daily operation commences if utility approval is not required. Revenue recognition does not necessarily follow the receipt of cash. The Company recognizes revenue on a straight-line basisevenly over the time that it satisfies its performance obligations over the initial term of the Customer Agreements (typically 20 years) that have minimum lease payments, or as earned when the customers are billed based on the actual electricity generated at a specific rate under the terms of the Customer Agreements.The Company considers upfront rebate incentives received from states and utilities for solar energy systems subject to Customer Agreements to be minimum lease payments. Rebate revenue is recognized on a straight-line basis over the lifetypically have an initial term of 20 or 25 years. After the initial contract term, ofour Customer Agreements typically automatically renew on an annual basis and the Customer Agreement beginning whenrate is initially set at up to a PTO letter is issued by the local utility company or on the date daily operation commences if utility approval is not required.The Company monetizes the ITCs associated with the leased systems on its lease pass-through financing obligations by assigning them10% discount to the investor together with the future customer lease payments. A portion of the cash consideration received from the investors is allocated to the estimated fair value of the assigned ITCs. The estimated fair value of the ITCs is determined by applying the expected internal rate of return to the investor on this structure to the gross amount of the ITCs that may be claimed by the investor.The ITCs are subject to recapture under the Internal Revenue Code (“Code”) if the underlying solar energy system either ceases to be a qualifying property or undergoes a change in ownership within five years of its placed in service date. The recapture amount decreases by 20% on each anniversary of the PTO date. As the Company has an obligation to ensure the solar energy systems is in service and operational for a term of five years to avoid any recapture of the ITCs, the Company recognizes revenue as the recapture provisions lapse assuming the other aforementioned revenue recognition criteria have been met. The monetized ITCs are initially recorded within deferred revenue on the consolidated balance sheets, and subsequently, one-fifth of the monetized ITCs are recognized as revenue in the consolidated statements of operations on each anniversary of the solar energy systems’ PTO date over the following five years.systems. SREC revenuesystems and is recorded in operating leases and incentives revenue. We recognize revenue related togenerally recognized upon delivery of the sale of SRECs to the extentcounterparty. For pass-through financing obligation Funds, the cumulativevalue attributable to the monetization of ITCs are recognized in the period a solar system is granted PTO - see Note 14, Pass-through Financing Obligations.delivered SRECs permoney 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 exceeds any possible liquidated damagescontains a significant financing component. When adjusting the promised amount of consideration for non-delivery,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.any.83The Company has determined that Customer Agreements are operating leases as opposed to capital leases pursuant to ASC 840, Leases. Management estimates the estimated useful life of solar energy systems to be 20 years, which coincides with the expected holding period and initial lease term of 20 years, as discussed in Note 2, Summary of Significant Accounting Policies, above. However, since the estimated economic life of solar energy systems is estimated to be at least 30 years, the lease term is less than 75% of its estimated economic life. Additionally, the Company evaluated the following lease classification criteria: (i) whether there is a transfer of ownership or bargain purchase option at the end of the lease and (ii) whether the present value of minimum lease payments exceeds 90% of the fair value at lease inception and determined that these criteria were not met.jurisdiction, provided all other revenue recognition criteria have been met.jurisdiction. The Company’s installation projects are typically completed in a short period of time.titlecontrol is transferred, generally upon shipment. Shipping and handling fees charged to customers are included in net sales. Total shipping and handling fees charged to customers were $2.6 million and $2.4 million for the year ended December 31, 2015 and 2014, respectively. Volume discounts given to customers are recorded as a reduction of revenue, since the Company does not receive goods or services in exchange for the discounts offered. Customer lead revenue, included in product sales, is recognized at the time the lead is delivered.revenue.Operating leasesoperating leasescustomer agreements and incentives is primarily comprised of (1) the (1) depreciation of the cost of the solar energy systems, as reduced by amortization of U.S. Treasurydeferred grants, (2) amortization of initial direct costs, (3) leasesolar energy system operations, monitoring and maintenance costs including associated personnel costs, and (4)(3) allocated corporate overhead costs.Developmentdevelopment Expensethe Company’s BrightPath software suite as well as its racking equipment.84Sunrun Inc.Notes to Consolidated Financial Statements — ContinuedAdvertising costs are expensed as incurred in the consolidated statements of operations. The Company incurred advertising costs of $34.8 million, $16.9 million and $7.7 million for the years ended December 31, 2015, 2014 and 2013, respectively.stock-based compensationstock options and restricted stock units (“RSUs”) for its equity incentive plan and employee stock purchase plan. Stock-based compensation to employees is measured based on the grant date fair value of the awards and recognized over the period during which the employee is required to perform services in exchange for the award (generally the vesting period of the award). The Company estimates the fair value of stock basedoptions and employee stock purchase plans awards granted using the Black-Scholes option-valuation model. Compensation cost is recognized over the vesting period of the applicable award using the straight-line method for those options expected to vest.restricted stock units (“RSUs”)RSUs to non-employees that vest upon the satisfaction of both performance and service conditions. TheFor RSUs granted to non-employees that vest upon the satisfaction of a performance condition, the Company starts recognizing expense on the RSUs when the performance condition is met.Fundingfunding structures were liquidated at recorded amounts. The Company’s initial calculation of the investor’s noncontrolling interest in the results of operations of these Fundingfunding arrangements is determined as the difference in the noncontrolling interests’ claim under the HLBV method at the start and end of each reporting period, after taking into account any capital transactions, such as contributions or distributions, between the Fund and the investors.During November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred income taxes. ASU 2015-17 provides presentation requirements to classify deferred tax assets and liabilities as noncurrent in a classified statement of financial position. The standard is effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is permitted for any interim and annual financial statements that have not yet been issued. We early adopted ASU 2015-17 effective December 31, 2015, retrospectively. Adoption resulted $3.0 million decrease in deferred tax assets, current and a $3.0 million decrease in deferred tax liabilities in our Consolidated Balance Sheets at December 31, 2014. Adoption had no impact on our results of operations.85Sunrun Inc.Notes to Consolidated Financial Statements — Continued2035 years in accordance with ASC Topic 810.Credit and Supplier Riskcustomer or installer.customer. The Company’s customers under Customer Agreements are primarily located in California, Arizona, New Jersey, Hawaii, New York and Massachusetts. The loss of a customer or an installer would not adversely impact the Company’s operating results or financial position. The Company’s customers under Customer Agreements are primarily located in California, Hawaii, Maryland, Massachusetts, New JerseyCompany depends on a limited number of suppliers of solar panels and New York.other system components. During the yearyears ended December 31, 20152018 and 2014,2017, the solar materials purchases from the top five suppliers were approximately $160.5$221.5 million and $69.1$188.8 million, respectively.Accounting Standards Update (“ASU”)Topic 606. The standard establishes a single revenue recognition model for all contracts with customers, eliminates industry specific requirements, and expands disclosure requirements. The Company adopted Topic 606 effective January 1, 2018, using the full retrospective method, which required the Company to recast each prior reporting period presented. The Company has elected to use the practical expedient under Topic 606 and has excluded disclosures of transaction prices allocated to remaining performance obligations and when the Company expects to recognize such revenue for all periods prior to the date of initial application.2014-09 2016-02, Revenue from Contracts with CustomersLeases (Topic 606), to replace existing lease guidance with Accounting Standards Codification Topic 842 ("Topic 842"). Topic 842 changes how the existingdefinition of a lease is applied and judgment may be required in applying the definition of a lease to certain arrangements. The Company elected to early adopt the standard effective January 1, 2018 concurrent with the adoption of Topic 606 related to revenue recognition, criteriausing the modified retrospective approach at the beginning of the earliest comparative period presented in the financial statements, which required the Company to recast each prior reporting period presented. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, to clarify how to apply certain aspects of the new leases standard. The clarifications address the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments. These amendments have the same effective date and transition requirements as the new leases standard, as such the Company adopted the new ASU and the impact of adopting this standard was not material to its financial statements with respect to leases where the Company is the lessee.contractsunder Topic 606 due to changes in the definition of a lease under Topic 842 when the Company was considered a lessor. For operating leases in which the Company is the lessee, the Company concluded that all existing operating leases under Accounting Standards Codification Topic 840 ("Topic 840"), Leases, continue to be classified as operating leases under Topic 842, and all existing capital leases under Topic 840 are classified as finance leases under Topic 842. The Company has lease agreements with customerslease and non-lease components, which are generally accounted for as a single lease component. The Company accounts for short-term leases on a straight-line basis over the lease term.establishinclude a significant financing component, as defined under Topic 606, which increases both revenue and interest expense. For pass-through financing obligation funds that report investment tax credit revenue, the disclosure requirementsITC revenue is now recognized in full at PTO. SREC revenue is estimated net of any variable consideration related to possiblefrom contracts with customers.currently recognized as solar energy systems and product sales. The core principleadoption of this standard is to recognize revenue when promised goods or services are transferred to customersTopic 606 also resulted in an amountadjustment to the Company's deferred tax liabilities, and impacted the analysis of the realizability of deferred tax assets, resulting in the release of valuation allowance related to state deferred tax assets.reflectsprovide electricity over the term of the Customer Agreement, it recognizes revenue evenly over the term of the Customer Agreements taking into account price escalators and performance guarantees when estimating variable consideration. Previously, the Company recognized revenue related to the sale of SRECs to the extent the cumulative value of delivered SRECs per contract exceeded any possible liquidated damages for non-delivery, if any. Under Topic 606, the Company estimates revenue net of any variable consideration thatrelated to possible liquidated damages, and recognizes revenue upon delivery of SRECs to the counterparty. Under Topic 605 and Topic 840, the Company previously reported ITC revenue over five years: following the point at which the related solar system was granted PTO, with one-fifth of the monetized ITCs recognized on each anniversary of the solar energy systems' PTO date. Under Topic 606, the Company recognizes ITC revenue in full at PTO. Previously, under Topic 840, the Company capitalized direct and incremental costs as a component of Solar energy systems, net on the consolidated balance sheets. Under Topic 606, 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. expectedthe lessee, primarily the inclusion of right-of use ("ROU") assets included in other assets on the consolidated balance sheets, and operating lease liabilities included in accrued expenses and other liabilities and other liabilities on the consolidated balance sheets. The income tax impact as a result of the adoption of Topic 842 was immaterial. December 31, 2017 As Reported Adoption Impact As Recast Accounts receivable, net of allowances for doubtful accounts $ 76,198 $ (15,839 ) $ 60,359 Solar energy systems, net 3,319,708 (158,138 ) 3,161,570 Other assets 37,225 209,239 246,464 Accrued expenses and other liabilities 85,639 11,591 97,230 Deferred revenue, current portion 77,310 (34,701 ) 42,609 Deferred grants, current portion 8,269 (76 ) 8,193 Pass-through financing obligation, current portion 6,087 (700 ) 5,387 Deferred revenue, net of current portion 584,427 (62,184 ) 522,243 Deferred grants, net of current portion 228,603 (1,084 ) 227,519 Pass-through financing obligation, net of current portion 138,124 (5,301 ) 132,823 Other liabilities 13,520 29,223 42,743 Deferred tax liabilities 59,131 23,988 83,119 Redeemable noncontrolling interests 123,737 64 123,801 Additional paid-in capital 684,141 (1,191 ) 682,950 Retained earnings 131,959 70,775 202,734 Noncontrolling interests 354,076 4,858 358,934 December 31, 2017 December 31, 2016 As Reported Adoption Impact As Recast As Reported Adoption Impact As Recast Revenue: Customer agreements and incentives $ 231,433 $ 2,843 $ 234,276 $ 168,417 $ 23,209 $ 191,626 Cost of customer agreements and incentives 193,954 (7,519 ) 186,435 159,858 (5,614 ) 154,244 Sales and marketing 137,115 9,311 146,426 162,781 5,956 168,737 General and administrative 107,420 (20 ) 107,400 92,377 39 92,416 Interest expense, net 70,518 21,737 92,255 53,244 20,096 73,340 Income tax expense 32,138 (19,785 ) 12,353 35,993 20,270 56,263 Net loss (286,734 ) (881 ) (287,615 ) (303,301 ) (17,538 ) (320,839 ) Net loss attributable to noncontrolling interests and redeemable noncontrolling interests (411,259 ) (1,845 ) (413,104 ) (394,988 ) (980 ) (395,968 ) Net income attributable to common stockholders 124,525 964 125,489 91,687 (16,558 ) 75,129 Basic net income per share attributable to common stockholders 1.18 0.01 1.19 0.90 (0.17 ) 0.73 Diluted net income per share attributable to common stockholders 1.15 0.01 1.16 0.87 (0.15 ) 0.72 December 31, 2017 December 31, 2016 As Reported Adoption Impact As Recast As Reported Adoption Impact As Recast Net loss $ (286,734 ) $ (881 ) $ (287,615 ) $ (303,301 ) $ (17,538 ) $ (320,839 ) Net cash used in operating activities (61,011 ) (35,092 ) (96,103 ) (150,580 ) (49,561 ) (200,141 ) Net cash used in investing activities (812,327 ) 35,008 (777,319 ) (745,112 ) 49,310 (695,802 ) Net cash provided by financing activities 869,499 21,350 890,849 898,192 953 899,145 (3,839 ) 21,266 17,427 2,500 702 3,202 206,364 17,999 224,363 203,864 17,297 221,161 202,525 39,265 241,790 206,364 17,999 224,363 Pursuant to Topic 230, restricted cash is included in the recasted balances in the statement of cash flows, as described above. The amounts in the previously reported column include only cash. receivedadopted:those goods or services.at fair value through net income as well as loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash. This ASU is effective for the Company for Annual Reporting periodsfiscal years beginning after December 15, 2017 including the2019 and interim reporting periods within thatthose fiscal year, and earlyyears. Early adoption is permitted. Adoption of thethis ASU is eitherapplied using a modified retrospective to each prior period presented or retrospectiveapproach, with certain aspects requiring a cumulative adjustment to retained earnings or accumulated deficit as of the adoption date.prospective approach. The Company is currently evaluating this guidance and the impact it may have on itsthe Company’s consolidated financial statements.86Sunrun Inc.Notes to Consolidated Financial Statements — Continued2014,2018, the FASB issued ASU 2014-16No. 2018-19, Determining WhetherCodification Improvements to Topic 326, Financial Instruments- Credit Losses, which clarifies that operating lease receivables are not within the Host Contract in a Hybrid Financial Instrument Issued in the Formscope of a Share is More Akin to Debt or to Equity. This guidance requires issuers and investors to consider all of a hybrid instrument’s stated and implied substantive terms and features, including any embedded derivative features being evaluatedTopic 326, but rather operating lease receivables will be tested for bifurcation. The guidance eliminates the “chameleon approach”,impairment under which all embedded features except the feature being analyzed are considered. The guidance is effective for the year beginning after December 15, 2015 and for interim periods within fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company believes the adoption of this guidance will have no impact on its consolidated financial statements.Topic 842. November 2014,June 2018, the FASB issued ASU 2014-15, No. 2018-07, Disclosure of Uncertainties About an Entity’s AbilityCompensation - Stock Compensation (Topic 718), Improvements to Continue as a Going ConcernNonemployee Share-Based Payment Accounting, which provides guidance on determining whenis intended to align the accounting for share-based payment awards issued to employees and hownonemployees, however, this amendment does not apply to disclose going-concern uncertaintiesinstruments issued in a financing transaction nor to equity instruments granted to a customer under a contract in the financial statements. Thescope of Topic 606. Currently, performance conditions are recognized once the performance conditions are met. Under this new standard requires management to perform interimamendment, equity-classified nonemployee share-based payments will be measured at the grant-date fair value and annual assessments of an entity’s ability to continue as a going concern within one yearwill be recognized based on the probable outcome of the date of issuance of the entity’s financial statements and provide certain disclosures when there is substantial doubt about the entity’s ability to continue as a going concern.performance conditions. This guidance applies to all entities andASU is effective for annualfiscal periods beginning after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company believes the adoption of this guidance will have no impact on its consolidated financial statements.In February 2015, the FASB issued ASU 2015-02 Amendments to the Consolidation Analysis, which provides consolidation guidance and changes the way reporting enterprises evaluate consolidation for limited partnerships, investment companies and similar entities, as well as variable interest entities. The ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2015. The Company believes the adoption of this guidance will have no impact on its consolidated financial statements.In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs, to simplify the presentation of debt issuance costs. In August 2015, the FASB issued ASU 2015-15, Interest—Imputation of Interest (Subtopic 835-30) Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangement. Prior to ASU 2015-03 and ASU 2015-15, issuance costs were presented as an asset on the balance sheet. Under ASU 2015-03 and ASU 2015-15, debt issuance costs related to a recognized debt liability are required to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-15 clarified that the SEC will not object to an entity presenting the cost of securing a revolving line of credit as an asset regardless of whether a balance is outstanding. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in these updates. The ASUs are effective for annual and interim periods in fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. The effect on the Company’s consolidated balance sheet for the year ended December 31, 2015 will be to reclassify $3.6 million in debt issuance costs from assets to a reduction in liabilities.In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, to specify that inventory should be subsequently measured at the lower of cost or net realizable value, which is the ordinary selling price less any completion, transportation and disposal costs. However, the ASU does not apply to inventory measured using the last-in-first-out or retail methods. The ASU is effective for interim and annual periods beginning after December 15, 2016. Adoption of the ASU is prospective.2018. The Company is currently evaluating this guidance and the impact it may have on itsthe Company's consolidated financial statements.87Sunrun Inc.Notes to Consolidated Financial Statements — ContinuedFebruary 2016,July 2018, the FASB issued ASU No. 2016-02,2018-09, Leases. Codification ImprovementsUnder. This amendment makes changes to a variety of topics to clarify, correct errors in, or make minor improvements to the new guidance, lessees will be required to recognize for all leases (withAccounting Standards Codification. The majority of the exception of short-term leases) a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Theamendments in ASU is2018-09 are effective for fiscal yearsperiods beginning after December 15, 2018 and interim periods within those fiscal years.2018. The Company is currently evaluating this guidance and the impact it may have on itsthe Company's consolidated financial statements.Note 3. AcquisitionsAcquisition of Residential BusinessIn February 2014, the Company acquired the residential business of MEC pursuant to an Agreement and Plan of Merger dated January 19, 2014. The residential business acquired engages in designing, installing and selling solar energy systems to residential customers, wholesale distributions as well as assembling of mounting systems and hardware for solar energy systems.The purchase consideration for the assets acquired and liabilities assumed was approximately $78.8 million consisting of $75.0 million in the issuance of 12,762,894 shares of common stock, $1.8 million in cash, $1.8 million in settlement of balances under a pre-existing relationship and $0.2 million in the form of 576,878 stock options. The settlement of the pre-existing relationship was related to the partner installation agreement between the Company and MEC, which existed prior to the acquisition date.The Company has included the results of operations of the acquired business in the consolidated statements of operations from the acquisition date. The assets acquired and liabilities assumed in the MEC acquisition have been recorded based on their fair value at the acquisition date. Goodwill represents the excess of the purchase price over the net tangible and intangible assets acquired and is not deductible for tax purposes. Goodwill recorded is primarily attributable to the acquired assembled workforce and the synergies expected to arise after the acquisition of the residential business, such as lowering the Company’s overall cost of the Company’s solar energy systems by enabling it to procure and build some of the solar energy systems themselves, ensuring access to MEC installation capacity, and scaling the Company’s growth by adding direct-to-consumer sales and installation activities. In addition, the Company is able to provide customers the option to purchase solar energy systems outright, as compared to offering leasing and PPA options. Transaction costs related to the acquisition were expensed as incurred.The following table summarizes the fair value of assets acquired and liabilities assumed (in thousands):882014,August 2018, the contributionFASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements as part of its disclosure framework project. Under this amendment, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the acquired businessfair value hierarchy. However, for Level 3 fair value measurements, disclosures around the range and weighted average used to develop significant unobservable inputs will be required. This ASU is effective for fiscal periods beginning after December 15, 2019. The Company is currently evaluating this guidance and the Company’s total revenues was $114.2 millionimpact it may have on the Company's consolidated financial statements and disclosures.measured fromassets or expense as incurred. This ASU is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019, and can be applied either prospectively to implementation costs incurred after the date of adoption or retrospectively to all arrangements. The Company is currently evaluating this guidance and the acquisition.impact it may have on the Company's consolidated financial statements.portionfinal rule also amends the interim financial statement requirements to require a reconciliation of total expenses and net income associated withchanges in stockholders’ equity in the acquired businessnotes or as a separate statement. These amendments are effective for all filings made 30 days after the amendments are published in the Federal Register, which was on October 4, 2018. The SEC announced that it would not separately identifiable due toobject if the integration withfirst presentation of the changes in stockholders’ equity for a calendar year end filer were made in the Company’s operations.Unaudited Pro Forma Informationfollowing table summarizesCompany plans to use the unaudited pro forma total revenuenew presentation beginning in 2019.net lossinterim periods within those years, beginning after December 15, 2019, and must be applied retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the combined company forearliest period presented. The Company is currently evaluating this guidance and the years ended December 31, 2014 and 2013 assuming that the acquisition occurred as of January 1, 2013 (in thousands, except per share):The pro forma financial information is basedimpact it may have on the combined results of operations of MEC and the Company with adjustments for MEC’s sales to the Company, the amortization of the acquired intangibles assets and the timing of acquisition expenses. The pro formaCompany's consolidated financial information is not necessarily indicative of the actual consolidated results of operations in prior or future periods had the acquisition actually been consummated on January 1, 2013.are due in two equal installments:were paid and issued as follows: $5.0 million which was paid and 250,000 shares were issued in October 2015 and the second installment of $5.0 million was paid and 250,000 shares is duewere issued in April 2016.$9.1$8.8 million in cash and 600,000599,999 shares of common stock may bewere issued on April 1, 2017 subjectdue to the achievement of certain sales targets as well as continued employment of certain key employees acquired in the transaction, which will bewas recorded as compensation expense over a two-year period unless and until the Company assesses that the achievement of sales targets is not probable.expense. The acquisition is expected to enhance the Company’s efficient and consistent access to high-quality leads in existing and new markets.The Company has included the results of operations of the acquired business in the consolidated statements of operations from the acquisition date. The assets acquired and liabilities assumed in the CEE acquisition have been recorded based on their fair value at the acquisition date. Goodwill represents the excess of the purchase price over the net tangible and intangible assets acquired and is not deductible for tax purposes. Goodwill recorded is primarily attributable to the acquired assembled workforce and the synergies expected to arise after the CEE acquisition. Transaction costs related to the acquisition were expensed as incurred.89Sunrun Inc.Notes to Consolidated Financial Statements — ContinuedThe following table summarizes the fair value of assets acquired and liabilities assumed (in thousands):The fair value of acquired intangible assets and their estimated useful life are as follows (in thousands, except estimated useful life):For the year ending December 31, 2015, the contribution of the acquired business to the Company’s total revenues was $16.9 million, as measured from the date of the acquisition. The portion of total expenses and net income associated with the acquired business was not separately identifiable due to the integration with the Company’s operations.Acquisition of Solar Projects with the Associated LeasesIn March 2014, the Company entered into a Backlog Lease Assignment and Assumption Agreement and Channel Agreement with an installation partner and purchased certain solar projects with the associated leases already originated by the installation partner. The Company paid $39.4 million to acquire 2,924 solar projects and the associated leases with an average remaining lease term of 20 years. The Company has accounted for the acquisition under ASC 805 and recorded the assets acquired at fair value at the acquisition date. As the terms of the acquired leases associated with these projects were at market terms at the acquisition date, no lease premiums or discounts were recorded. No goodwill was recognized from this acquisition as the Company paid fair value for the assets acquired.90Sunrun Inc.Notes to Consolidated Financial Statements — Continued20152018 and 2014,2017, the carrying value of receivables, accounts payable, accrued expenses and distributions payable to noncontrolling interests approximates fair value due to their short-term nature.nature and falls under the Level 2 hierarchy. The carrying values and fair values of debt instruments are as follows (in thousands): December 31, 2018 December 31, 2017 Carrying Value Fair Value Carrying Value Fair Value Bank line of credit $ 247,000 $ 247,000 $ 247,000 $ 247,000 Senior debt 828,517 828,309 808,455 807,698 Subordinated debt 273,337 272,937 111,488 111,095 Securitization debt 400,068 394,756 95,821 96,999 SREC Loans — — 32,181 32,183 Total $ 1,748,922 $ 1,743,002 $ 1,294,945 $ 1,294,975 20152018 and 2014,2017, the fair value of the Company’s lines of credit, and the syndicated termcertain senior, subordinated, and SREC loans approximatesapproximate their carrying values because their interest rates are variable rates that approximate rates currently available to the Company. At December 31, 2015,2018 and 2017, the fair value of the Company’s bank term loan, note payable and asset-backed notes are based on rates currently offered forother debt with similar maturities and terms. At December 31, 2014, the fair value of the Company’s non-bank term loan, bank term loan, and note payableinstruments 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 32 hierarchy. These valuation techniquesapproaches involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market.whichthat incorporates an assessment of the risk of non-performance by the interest rate swap counterparty and an evaluation of the Company’s credit risk in valuing derivative instruments. The valuation model uses various inputs including contractual terms, interest rate curves, credit spreads and measures of volatility.The Company determines the fair value of its warrants issued using the Black-Scholes option-pricing model. The key inputs used to determine value of the warrants was an estimated fair value of the Company’s common stock of $11.77 per share, risk-free interest rate of 1.21%, expected volatility of 32.03%, the remaining contact life of 2.56 years and expected dividend yield rate of 0.00%. The significant unobservable input used in the fair value measurement of the warrant liability was the expected volatility of the Company. Generally, increases (decreases) in the expected volatility of the Company would result in a directionally similar impact to the measurement of the Company’s stock options.2015,2018 and 2017, financial instruments measured at fair value on a recurring basis, based upon the fair value hierarchy are as follows (in thousands):91Sunrun Inc.Notes to Consolidated Financial Statements — Continued December 31, 2018 Level 1 Level 2 Level 3 Total Derivative assets: Interest rate swaps — 6,958 — $ 6,958 Total $ — $ 6,958 $ — $ 6,958 Derivative liabilities: Interest rate swaps — 11,910 — $ 11,910 Total $ — $ 11,910 $ — $ 11,910 December 31, 2017 Level 1 Level 2 Level 3 Total Derivative assets: Interest rate swaps — 1,917 — $ 1,917 Total $ — $ 1,917 $ — $ 1,917 Derivative liabilities: Interest rate swaps — 8,568 — $ 8,568 Total $ — $ 8,568 $ — $ 8,568 December 31, 2018 2017 Raw materials $ 64,256 $ 87,927 Work-in-process 15,211 6,500 Total $ 79,467 $ 94,427 December 31, 2018 2017 Solar energy system equipment costs $ 3,823,853 $ 3,124,407 Inverters 396,054 317,390 Total solar energy systems 4,219,907 3,441,797 Less: accumulated depreciation and amortization (535,891 ) (399,280 ) Add: construction-in-progress 136,001 119,053 Total solar energy systems, net $ 3,820,017 $ 3,161,570 and inverters have been leased to or are subject to a signed Customer AgreementAgreements with customers. The Company recorded depreciation expense related to solar energy systems of $70.7$139.2 million, $54.7$112.8 million and $40.0$87.7 million for the years ended December 31, 2015, 20142018, 2017 and 2013,2016, respectively. The depreciation expense was reduced by the amortization of deferred grants of $14.2$7.8 million, $13.9$7.6 million and $13.4$13.0 million for the years ended December 31, 2015, 20142018, 2017 and 2013,2016, respectively. December 31, 2018 2017 Machinery and equipment $ 6,888 $ 4,126 Leasehold improvements, furniture, and computer hardware 14,755 13,709 Vehicles 55,093 43,413 Computer software 32,768 30,483 Total property and equipment 109,504 91,731 Less: Accumulated depreciation and amortization (74,611 ) (55,329 ) Total property and equipment, net $ 34,893 $ 36,402 $11.2$20.4 million, $6.4$19.5 million and $3.0$18.8 million for the years ended December 31, 2015, 20142018, 2017 and 2013,2016, respectively.92Sunrun Inc.Notes to Consolidated Financial Statements — ContinuedThe Company vehicles are assets under capital leases with a corresponding accumulated amortization of $5.8 million and $1.2 million at December 31, 2015 and 2014, respectively. Amortization expense related to these assets was $5.3 million and $1.2 for the years ended December 31, 2015 and 2014. Prior to December 31, 2013, the Company did not have any assets under capital leases and therefore, did not record amortization expense related to these assets in the year ended December 31, 2013.change in the carrying value of goodwill is as follows (in thousands):Theand intangible assets were acquired as part of the acquisition of MECMainstream Energy Corporation, which included AEE Solar and CEE referred to in Note 3, Acquisitions.20152018 consist of the following (in thousands)thousands, except weighted average remaining life): Cost Accumulated
amortization Carrying
value Weighted
average
remaining life
(in years)Customer relationships $ 14,660 $ (7,716 ) $ 6,944 4.6 Developed technology 6,820 (5,328 ) 1,492 1.2 Trade names 6,990 (5,338 ) 1,652 4.1 Total $ 28,470 $ (18,382 ) $ 10,088 20142017 consist of the following (in thousands)thousands, except weighted average remaining life):93Sunrun Inc.Notes to Consolidated Financial Statements — Continued Cost Accumulated
amortization Carrying
value Weighted
average
remaining life
(in years)Customer relationships $ 14,660 $ (6,017 ) $ 8,643 5.5 Developed technology 6,820 (3,963 ) 2,857 2.2 Trade names 6,990 (4,196 ) 2,794 4.0 Total $ 28,470 $ (14,176 ) $ 14,294 $3.7$4.2 million, $4.2 million and $2.3$4.2 million for the years ended December 31, 20152018, 2017 and 2014.2016, respectively. As of December 31, 2015,2018, expected amortization of intangible assets for each of the five succeeding fiscal years and thereafter is as follows (in thousands):2019 $ 3,335 2020 2,143 2021 1,750 2022 1,743 2023 1,049 Thereafter 68 Total $ 10,088 Prepaid Expense and Other Current AssetsPrepaid expenses and other current December 31, 2018 2017 Costs to obtain contracts $ 219,307 $ 157,970 Accumulated amortization of costs to obtain contracts (24,992 ) (16,485 ) Unbilled receivables 81,703 51,710 Operating lease right-of-use assets 20,257 25,465 Other assets 39,410 27,804 Total $ 335,685 $ 246,464 94Sunrun Inc.Notes to Consolidated Financial Statements — Continued December 31, 2018 2017 Accrued employee compensation $ 39,738 $ 30,298 Operating lease obligations 7,857 9,202 Accrued interest 8,436 6,054 Accrued professional fees 9,199 5,837 Other accrued expenses 33,406 45,839 Total $ 98,636 $ 97,230 2015,2018, debt consisted of the following (in thousands)thousands, except percentages): Current Long Term Total Recourse debt: Bank line of credit $ — $ 247,000 $ 247,000 $ 406 5.45% - 5.77% April 2020 Total recourse debt — 247,000 247,000 406 Non-recourse debt: Senior 19,070 809,447 828,517 — 4.50% - 5.54% September 2020 - October 2024 Subordinated 5,824 267,513 273,337 — 7.03% - 10.00% September 2020 - January 2030 Securitization Class A 10,125 380,299 390,424 — 4.40% - 5.31% July 2024 - April 2049 Securitization Class B 465 9,179 9,644 — 5.38 % July 2024 Total non-recourse debt 35,484 1,466,438 1,501,922 — Total debt $ 35,484 $ 1,713,438 $ 1,748,922 $ 406 1(1)Loans under the facility bear interest at LIBOR + 3.25% or the Base Rate + 2.25%. The Base Rate is the highest of the Federal Funds Rate + 0.50%, the Prime Rate, or LIBOR + 1.00%.2014,2017, debt consisted of the following (in thousands)thousands, except percentages): Carrying Values, net of
debt discount Unused
Borrowing
Capacity
Rate (1) Maturity
Date Current Long Term Total Recourse debt: Bank line of credit $ — $ 247,000 $ 247,000 $ 406 4.58% - 4.87% April 2018 Total recourse debt — 247,000 247,000 406 Non-recourse debt: Senior 3,561 804,894 808,455 12,758 3.63% - 4.69% September 2020 - October 2024 Subordinated 4,301 107,187 111,488 27 6.36% - 7.13% September 2020 - October 2024 Securitization Class A 3,534 82,203 85,737 — 4.40 % July 2024 Securitization Class B 440 9,644 10,084 — 5.38 % July 2024 SREC Loans 9,693 22,488 32,181 — 7.28 % July 2021 Total non-recourse debt 21,529 1,026,416 1,047,945 12,785 Total debt $ 21,529 $ 1,273,416 $ 1,294,945 $ 13,191 In December 2014, theentered into credit facility agreements withhas outstanding borrowings under a syndicate of banks to borrow amounts that were used to pay off an existing line of credit, and obtain funding for working capital and general corporate purposes. The credit facility agreements had a $50.0 million committed facility which included a $1.0 million letter of credit sub-facility. On April 1, 2015, the Company paid off the unpaid balance of $49.7 million under the credit facility agreements, which included accrued interest and other fees, and terminated the facility.95Sunrun Inc.Notes to Consolidated Financial Statements — ContinuedIn April 2015, the Company entered into a new syndicated working capital facility with banks for a total commitment of up to $205.0$250.0 million. The working capital facility is secured by substantially all of the unencumbered assets of the Company, as well as ownership interests in certain subsidiaries of the Company. new working capital facility, the Company is required to meet various restrictive covenants, including meeting certain reporting requirements, such as the completion and presentation of audited consolidated financial statements. The Company is also required to maintainstatements, maintaining a minimum unencumbered liquidity of at least $25.0 million inat the aggregate as of the last dayend of each calendar month. The Company is further requiredmonth, maintaining quarter end liability to maintainbe at least $30.0 million, and maintaining a modifiedminimum interest coverage ratio of 2.00:1.003.00 or greater, measured quarterly as of the last day of each quarter. The Company was in compliance with all debt covenants as of December 31, 2015.Non-Bank Term LoansIn 2013, a subsidiary2018Company entered into an agreementbalance under this facility was $247.0 million with a non-bank lender for a term loan with an aggregate amount of up to $119.5 million. The proceeds of this term loan were principally used to finance the design, procurement, and installation of solar systems. The loan was collateralized by the assets and related cash flows of the borrower subsidiary and is non-recourse to our other assets.Inmaturity date in April 2015, the Company paid $3.5 million to repay the remaining outstanding balance of the non-bank term loan and incurred a loss on extinguishment charge of $0.4 million, which is recorded in non-operating loss from ordinary operations on our statement of operations.In December 2014, subsidiariesCompany entered into securedCompany's syndicated credit facilities agreements with a syndicate of banks for upcontain customary covenants including the requirement to $195.4 million in committed facilities. These facilities include a $158.5 million senior term loan (“Term Loan A”)maintain certain financial measurements and a $24.0 million subordinated term loan (“Term Loan B”). In addition, the credit facilities also include a $5.0 million working capital revolver commitment and a $7.9 million senior secured revolving letter of credit facility which draws are solely for the purpose of satisfying the required debt service reserve amount if necessary. Term Loan A, the working capital revolver and the letter of credit bear interest at a rate of LIBOR + 2.75% with a 25 basis point step up triggered on the fourth anniversary. Term Loan B bears interest at a rate of LIBOR + 5.00% with a LIBOR floor of not less than 1.00%. Prepayments are permitted under Term Loan A at par without premium or penalty, and under Term Loan B prepayment penalties range from 0%-2%, depending on the timingprovide lender reporting. Each of the prepayment. The proceeds of these facilities were used to repay certain non-bank term loans of $94.4 million and to fund general corporate needs.One of the Company’s subsidiaries is the borrower under the Term Loan A agreement and another of the Company’s subsidiaries is the borrower under the Term Loan B agreement. All obligations under the Term Loan A, working capital revolver and letter of credit are collateralized by the subsidiary borrower’s membership interests and assets in the Company’s investment Funds. All obligations under the Term Loan B are collateralized by the membership interest in the subsidiary borrower. Thesyndicated credit facilities also contain certain provisions in the event of default which entitle lenders to take certain actions including acceleration of amounts due under the credit facilities and acquisition of membership interests and assets that are pledged to the lenders under the terms of the credit facilities.Company is requiredfacilities are non-recourse to maintain certain financial measurements and reporting covenants under the terms of the credit facilities. At December 31, 2015, the Company was in compliance with the credit facility covenants.96Sunrun Inc.Notes to Consolidated Financial Statements — ContinuedIn December 2013, a subsidiary of the Company entered into an agreement with a bank for a term loan of $38.0 million. The proceeds of this term loan were distributedand are secured by net cash flows from Customer Agreements less certain operating, maintenance and other expenses which are available to the members of this subsidiary, including the Company. The loan is secured by the assets and related cash flow of this subsidiary and is nonrecourseborrower after distributions to the Company’s other assets.tax equity investors. The Company was in compliance with all debt covenants as of December 31, 2015.Notes PayableIn 2018.2013, a subsidiary31, 2018, certain subsidiaries of the Company entered intohave an outstanding balance of $282.7 million on secured credit facilities that were syndicated with various lenders due in October 2024. The credit facilities totaled $303.0 million and consisted of $293.0 million in term loans, and a Note Purchase Agreement$10.0 million revolving debt service reserve letter of credit facility. Term Loan A ("TLA") is a senior delayed draw term loan that bears interest at LIBOR +2.75% per annum for LIBOR loans or the Base Rate +1.75% per annum on Base Rate loans. Term Loan B ("TLB") is subordinated debt and consists of a Class A portion which accrues interest at a fixed interest rate of 7.03% per annum and a Class B portion which accrues interest at LIBOR +5.00% per annum or the Base Rate +4.00% per annum. The Base Rate is the highest of the Federal Funds Rate +0.50%, the Prime Rate, or LIBORinvestoroutstanding balance of $184.4 million on senior secured credit facilities that were syndicated with various lenders due in April 2024. These facilities are subject to the National Grid cash equity transaction. The credit facilities totaled $202.0 million and consisted of a $195.0 million senior delayed draw term loan facility and a $7.0 million revolving debt service reserve letter of credit facility. Loans under the facility bear interest at LIBOR +2.25% per annum for the issuanceinitial four-year period for LIBOR loans or the Base Rate +1.25% per annum for Base Rate Loans. The Base Rate is the highest of senior notes in exchange for proceeds of $27.2 million.the Federal Funds Rate +0.50%, the Prime Rate, or LIBOR +1.00%. The loan proceeds were distributedfacilities are non-recourse to the Company for general corporate purposes. On the last business day of each quarter, commencing with March 31, 2014, to the extent the Company’s subsidiary has insufficient funds to pay the full amount of the stated interest of the outstanding loan balance, a PIK interest rate of 12% is accrued and added to the outstanding balance. As of December 31, 2015 and 2014, the portion of the outstanding loan balance that related to PIK interest was $6.3 million and $2.9 million, respectively. The senior notes are secured by the assets and relatednet cash flows from Customer Agreements and SRECs, less certain operating, maintenance and other expenses which are available to the borrower after distributions to tax equity investors. Prepayments are permitted under the delayed draw term loan facility.Company’s subsidiariesCompany have an outstanding balance of $316.2 million on secured credit facilities agreements, as amended, with a syndicate of banks due in March 2023. The facilities totaled $595.0 million and consisted of a revolving aggregation facility (“Aggregation Facility”), a term loan ("Term Loan") and a revolving debt service reserve letter of credit facility. Senior loans under the Aggregation Facility bear interest at LIBOR +2.50% per annum for the initial three-year revolving availability period, stepping up to LIBOR +2.75% per annum in the following two-year period. The subordinated Term Loan bears interest at LIBOR +5.00% per annum for the first three-year period, stepping up to LIBOR +6.50% per annum thereafter. Term Loan prepayment penalties range from 0% - 1% depending on the timing of prepayments.nonrecoursesecured by net cash flows from Customer Agreements less certain operating, maintenance and other expenses which are available to the Company’s other assets. The entire outstanding principal balance is payable in full on the maturity date.borrower after distributions to tax equity investors, where applicable. The Company was in compliance with all debt covenants as of December 31, 2015.Solar Asset-Backed NotesIn July 2015,2018.securitization transaction pursuant to whichsubsidiary of the Company pooled and transferred qualifying solar energy systemshas an outstanding balance of $118.6 million on a term loan due in January 2030. The loan is secured by the assets and related lease agreementsnet cash flow of this subsidiary and is non-recourse to the Company’s other assets.intoheld by a special purpose entity (“Issuer”), and issued $100.0 million in aggregate principal of Solar Asset-Backed Notes, Series 2015-1, Class A, and $11.0 million in aggregate principal of Solar Asset-Backed Notes, Class B, backed by these Solar Assets to certain investors (“Notes”). The Issuer is wholly owned by the Company and is consolidated in the Company’s financial statements. Accordingly, the Company did not recognize a gain or loss on the transfer of these assets. As of December 31, 2015,2018 and December 31, 2017, these Solar Assets had a carrying value of $190.2$164.7 million and $172.8 million, respectively, and are included under Solarsolar energy systems, net, in the consolidated balance sheets. The Notes were issued at a discount of 0.08%.The Company retained $7.3 million net of fees from proceeds from the Notes. lease pass-through arrangements with an investor. The leasemodified pass-through arrangements had been accounted for as a borrowing and any amounts outstanding from the arrangements were reported as lease pass-through financing obligation as further explained in Note 13, Lease Pass-Through Financing Obligations. The balance that was then outstanding under these arrangements was $119.7 million. The Company partially repaid this obligation by paying the investor an aggregate amount of $88.9 million. The Company accounted for the modification of the lease pass-through obligation as a modification of debt and did not record any gain or loss on the transaction.The modified lease-pass through arrangements require the majority of the cash flows generated by the Solar Assets to be passed on to the Issuer through monthly lease payments from the Fund investor. Those cash flows are used to service the monthly Note principal of the Notes and interest payments and satisfy the Issuer’s expenses, and any residual cash flows are retained by the fundFund investor and recorded as a reduction in the remaining financing obligation. The Company recognizes revenue earned from the associated Customer Agreements in accordance with the Company’s revenue recognition policy. The assets and cash flows generated by the Solar Assets are not available to the other creditors of the Company, and the creditors of the Issuer, including the Note holders, have no recourse to the Company’s other assets. The Company was in compliance with all debt covenants as2015.97Sunrun Inc.Consolidated Financial Statements — Continuedthe other creditors of the Company, and the creditors of the Issuer, including the Note holders, have no recourse to the Company's other assets.schedulesscheduled maturities of debt, excluding debt discount, as of December 31, 20152018 are as follows (in thousands:thousands):2019 $ 38,673 2020 418,572 2021 70,425 2022 66,463 2023 277,591 Thereafter 906,955 Subtotal 1,778,679 Less: Debt discount (29,757 ) Total $ 1,748,922 12.13. DerivativesStarting in 2015, thesyndicated term loans.loans and aggregation facility. These swaps allow the Company to pay atincur fixed interest rates on these loans and receive payments based on variable interest rates with the swap counterparty based on the one or three month LIBOR on the notional amounts over the life of the swaps. The Company did not use interest rate swaps prior to 2015.In January 2015, the Company purchased interest rate swaps with a notional amount aggregating $109.1 million. The interest rate swap contracts were executed with four counterparties who were part of the lender group on the Company’s syndicated term loans. As of December 31, 2015 the unrealized fair market value loss on the interest rate swaps was $0.9 million as included in other liabilities in the consolidated balance sheet.2015,2018, the hedge relationships on the Company’s interest rate swaps have been assessed as highly effective as the critical terms of the interest rate swaps match the critical terms of the underlying forecasted hedged transactions. Accordingly, changes in the fair value of these derivatives are recorded as a component of accumulated other comprehensive loss,income, net of a provision for income taxes. Changes in the fair value of these derivatives are subsequently reclassified into earnings, and are included in interest expense, net in the Company’s statementstatements of operations, in the period that the hedged forecasted transactions affects earnings. Year Ended December 31, 2018 2017 2016 Derivatives designated as cash flow hedges: (Loss) gain in OCI at the beginning of the period $ (4,113 ) $ 437 $ (921 ) 6,187 (5,694 ) 335 (2,132 ) 1,144 1,023 1,992 — — (5,058 ) — — Net gain (loss) on derivatives 989 (4,550 ) 1,358 (Loss) gain in OCI at the end of the period $ (3,124 ) $ (4,113 ) $ 437 twelve12 months, the Company estimates that an additional $1.7expects to reclassify $1.0 million will be reclassified as an increaseof net gains on derivative instruments from accumulated other comprehensive income to interest expense.earnings. There were no undesignated derivative instruments recorded by the Company as of December 31, 2015.Instrument Description Gross Amounts of Recognized Assets / Liabilities Gross Amounts Offset in the Consolidated Balance Sheet Net Amounts of Assets / Liabilities Included in the Consolidated Balance Sheet Assets: Derivatives $ 6,958 $ (1,605 ) $ 5,353 Liabilities: Derivatives (11,910 ) 1,605 (10,305 ) Total $ (4,952 ) $ — $ (4,952 ) 2015,2017, the Company had the following designated derivative instruments classified as hedges of variable interest payments as derivative assets that are reported in other assets of $1.9 million and derivative liabilities as reported in other liabilities of $8.6 million in the Company’s balance sheet (in thousands, other than quantity and interest rates):WarrantsIn July 2015, the Company entered into a letter of intent to issue 1,250,764 warrants to purchase the Company’s common stock to the former Series D and E preferred stockholders as an inducement to98Sunrun Inc.Notes to Consolidated Financial Statements — Continuedconvert their shares of convertible preferred stock into shares of common stock immediately prior to the closing of the Company’s initial public offering and waive any potential anti-dilution adjustments resulting from the issuance of shares in the Company’s common stock in the Company’s initial public offering. The warrants were issued on September 30, 2015. The warrants are exercisable for three years from the date of grant and have an exercise price of $22.50 per share. The warrant derivatives are recorded at fair value as derivative liabilities as reported in other liabilities in the Company’s consolidated balance sheet. The fair market value of the warrants on the commitment date was $1.5 million. The warrants are remeasured at each reporting period with the changes in the fair value presented in other expenses in the Company’s statement of operations.2015,2018 the fair market value ofCompany had the warrant was $0.6 million, resultingfollowing derivative instruments (dollars in a gain of $0.9 million for the year ended December 31, 2015.Type Quantity Effective Dates Maturity Dates Interest rate swap 1 5/21/2018 9/20/2020 2.69% $ 80,453 $ (254 ) Interest rate swap 1 4/29/2016 8/31/2022 1.27% - 1.29% 13,660 444 Interest rate swaps 10 7/31/2017 - 1/31/2019 4/30/2024 - 10/31/2024 2.16% - 2.69% 346,867 3,201 Interest rate swaps 3 4/30/2021 10/30/2026 - 10/31/2026 2.89% - 3.08% 102,720 (1,895 ) Interest rate swap 1 10/22/2018 9/20/2027 2.97% 30,182 (669 ) Interest rate swap 1 9/20/2020 6/20/2030 2.57% 67,013 (95 ) Interest rate swap 1 9/20/2020 1/20/2031 2.61% 9,899 57 Interest rate swaps 5 1/31/2019 - 10/31/2024 7/31/2034 2.48% - 3.04% 144,379 1,049 Interest rate swaps 5 7/31/2017 - 4/30/2024 7/31/2035 2.56% - 2.95% 151,778 658 Interest rate swaps 5 1/31/2018 - 10/18/2024 10/31/2036 2.62% - 2.95% 183,529 648 Interest rate swaps 4 1/31/2019 - 4/30/2021 4/30/2037 3.25% - 3.30% 150,000 (7,268 ) Interest rate swaps 3 10/30/2026 - 10/31/2026 1/31/2038 3.01% - 3.16% 101,135 (828 ) Total $ 1,381,615 $ (4,952 ) 13. Lease Passthrough14. Pass-Through Financing ObligationsCompany has five ongoing transactions referred to as “leaseCompany's pass-through arrangements.” Under lease pass-through arrangements,financing obligations ("financing obligations") arise when the Company leases solar energy systems to Fund investors who are considered commercial customers under a master lease agreement, and these investors in turn are assigned the leasesCustomer Agreements with customers. The Company receives all of the value attributable to the accelerated tax depreciation and some or all of the value attributable to the other incentives. The Company assigns to the Fund investors the value attributable to the ITC, and, for the duration of the master lease term, the long-term recurring customer payments. Given the assignment of the operating cash flows, these arrangements are accounted for as financing obligations. In addition, in one ofThe Company also sells the lease pass-through structures,rights and related value attributable to the Company sold, as well as leased, solar energy systemsITC to a Fund investor under a master purchase agreement. As the substantial risks and rewards in the underlying solar energy systems were retained by the Company, this arrangement was also accounted for as a financing obligation.lease pass-throughfinancing obligation arrangements, wholly owned subsidiaries of the Company finance the cost of solar energy systems with investors for an initial term of typically 20 –or 25 years. The solar energy systems are subject to Customer Agreements with an initial term not exceedingof typically 20 years.or 25 years that automatically renew on an annual basis. These solar energy systems are reported under the line item solar energy systems, net in the consolidated balance sheets. As of December 31, 20152018 and 2014,2017, the cost of the solar energy systems placed in service under the lease pass-throughfinancing obligation arrangements was $447.4$664.1 million and $322.2$464.2 million, respectively. The accumulated depreciation related to these assets as of December 31, 20152018 and 20142017 was $33.5$82.1 million and $19.3$63.7 million, respectively.lease pass-through financing obligations.obligations on its consolidated balance sheets, and cash provided by financing activities in its consolidated statement of cash flows. These financing obligations are reduced over a period of approximately 2022 years by customer payments under the Customer Agreements, U.S. Treasury grants (where applicable), incentive rebates (where applicable), the fair value of the ITCs monetized (where applicable) and proceeds from the contracted resale of SRECs as they are received by the investor. Under this approach, the Company continues to accountIn addition, funds paid for the arrangement withITC value upfront are initially recorded as a refund liability and recognized as revenue as the customersassociated solar system reaches PTO. The ITC value is reflected in itscash provided by operations on the consolidated financial statements as if it is the lessor in the arrangement with the customer andstatement of cash flows. The Company accounts for the customer leaseCustomer Agreements and any related U.S. Treasury grants or incentive rebates as well as the resale of SRECs consistent with the Company’s revenue recognition accounting policies and the monetization of investment tax credits as described in Note 2, Summary of Significant Accounting Policies.99Sunrun Inc.Notes to Consolidated Financial Statements — Continued lease pass-through financing obligations using the effective interest rate method. The effective interest rate, which is adjusted on a prospective basis, is the interest rate that equates the present value of the estimated cash amounts including ITCs, to be received by the investor over the lease term with the present value of the cash amounts paid by the investor to the Company, adjusted for amounts received by the investor. The lease pass-through financing obligations are nonrecourse once the associated assets have been placed in service and all the contractual arrangements have been assigned to the investor.fourthe majority of the lease pass-through arrangements,financing obligations, the investor has a right to extend its right to receive cash flows from the customers beyond the initial term in certain circumstances. TheDepending on the arrangement, the Company has the option to settle the outstanding financing obligation on the ninth or eleventh anniversary for two of the lease pass-through obligations and on the eleventh anniversary for two of the lease pass-through financing obligationsFund inception at a price equal to the higher of (a) the fair value of future remaining cash flows or (b) the amount that would result in the investor earning their targeted return. In threeseveral of these lease pass-through arrangements,financing obligations, the investor has an option to require repayment of the entire outstanding balance of the financing obligation on the tenth anniversary of the Fund inception at a price equal to the fair value of the future remaining cash flows.the fourth lease pass through arrangement, the investor has an option to require repayment of the entire outstanding balance of theone financing obligation three business days prior to the 7th anniversary and on the 10th anniversary at a price equal to the fair value of the future remaining cash flows.In the fifth lease pass-through arrangement, the investor has a right, on June 30, 2019, to purchase all of the systems leased at a price equal to the higher of (a) the sum of the present value of the expected remaining lease payments due by the investor, discounted at 5%, and the fair market value of the investor’sCompany’s residual interest in the systems as determined through independent valuation or (b) a set value per kilowatt applied to the aggregate size of all leased systems.lease pass-through arrangements,financing obligations, the Company is responsible for services such as warranty support, accounting, lease servicing and performance reporting to the host customers. As part of the warranty and performance guarantee with the host customers, the Company guarantees certain specified minimum annual solar energy production output for the solar energy systems leased to the customers, which the Company accounts for as disclosed in Note 2, Summary of Significant Accounting Policies.As discussed in Note 11, Indebtedness, in connection with the pooling of assets related to the securitization transaction entered into in July 2015, an aggregate amount of $88.9 million of the lease pass-through financing obligation was repaid.In September 2015, the Company entered into a new lease pass-through arrangement and in connection with this arrangement, the Company agreed to defer a portion (up to 25%) of the amounts required to be paid upfront under the arrangement through a loan between an indirectly wholly owned subsidiary of the Company and a subsidiary of the fund investor. The term loan agreement is for an aggregate amount up to $30.0 million. The loan is collateralized by the related cash flows assigned to the fund investor. There is a legal right to offset the loan if an event of default has occurred. Therefore, the lease pass-through related to this arrangement is recorded net of the loan. As of December 31, 2015, the loan amount was $21.8 million.10014.15. VIE Arrangements20152018 and 2014.2017. The carrying amounts and classification of the VIEs’ assets and liabilities included in the consolidated balance sheets are as follows (in thousands): December 31, 2018 2017 Assets Current assets Cash $ 105,494 $ 118,352 Restricted cash 2,071 2,699 Accounts receivable, net 18,539 18,786 Prepaid expenses and other current assets 387 917 Total current assets 126,491 140,754 Solar energy systems, net 2,712,377 2,385,329 Other assets 66,427 42,295 Total assets $ 2,905,295 $ 2,568,378 Liabilities Current liabilities Accounts payable $ 12,136 $ 15,929 Distributions payable to noncontrolling interests
and redeemable noncontrolling interests 15,797 13,526 Accrued expenses and other liabilities 7,122 5,200 Deferred revenue, current portion 29,102 28,695 Deferred grants, current portion 982 1,021 Non-recourse debt, current portion 4,217 11,179 Total current liabilities 69,356 75,550 Deferred revenue, net of current portion 367,818 381,066 Deferred grants, net of current portion 28,247 29,385 Non-recourse debt, net of current portion 186,494 190,106 Other liabilities 8,843 1,848 Total liabilities $ 660,758 $ 677,955 101Sunrun Inc.Notes to Consolidated Financial Statements — Continuedfive leaseseven pass-through Fund arrangements as further explained in Note 13,14, Lease Pass-Through Financing Obligations.Obligations. The Company does not have material exposure to losses as a result of its involvement with the VIEs in excess of the amount of the pass-through financing liabilityobligation recorded in the Company’s consolidated financial statements. The Company is not considered the primary beneficiary of thethese VIEs.In 2013, the Company acquired an investor’s interest in three consolidated VIEs for a total cash consideration of $22.0 million. In these three entities, the Company was contractually required to make payments to the investor so that the investor achieved a specified minimum internal rate of return upon occurrence of certain events. Upon purchase of the investor’s stake in these entities, this obligation was satisfied. This transaction decreased the Company’s additional paid-in-capital, net of the related tax impact, by $2.8 million.15.16. Redeemable Noncontrolling Interests at December 31, 2015 and 2014 was greater than the redemption value except for two fundssix Funds at both December 31, 20152018 and 2014,2017, where the carrying value has been adjusted to the redemption value.16.17. Stockholders’ EquityOn August 10, 2015, the Company closed its initial public offering in which 17,900,000 shares of common stock were sold at a public offering price of $14.00 per share, resulting in net proceeds of approximately $221.3 million, after deducting underwriting discounts and commissions and $7.5 million in offering expenses paid by the Company, and excluding the proceeds received by the selling stockholders who sold an aggregate of 417,732 shares of the total 17,900,000 shares sold in the initial public offering.Immediately prior to closing of the Company’s initial public offering, all 54,840,767 shares of the Company’s outstanding preferred stock were automatically converted into shares of the Company’s common stock. In addition, the Company issued 1,667,683 shares of common stock and executed a letter of intent to issue 1,250,764 warrants subject to contingencies being met to purchase the Company’s common stock to the former Series D and E preferred stockholders as an inducement to convert their shares of convertible preferred stock into shares of common stock immediately prior to the closing of the Company’s initial public offering and to waive any potential anti-dilution adjustments resulting from the issuance of shares in the Company’s common stock in the Company’s initial public offering. The additional shares and warrants resulted in a beneficial conversion feature as a result of the inducement for Series D and E preferred stock and the Company recognized a $24.9 million deemed dividend to Series D and E preferred stockholders at the conversion date. This non-cash charge impacts net loss attributable to our common stockholders and basic and diluted net loss per share applicable to common stockholders. The warrants were issued on September 30, 2015 and are considered freestanding derivatives as disclosed in Note 12, Derivatives.102Sunrun Inc.Notes to Consolidated Financial Statements — Continued2015. 2018 and 2017.had five series of convertible preferred stock as follows as of December 31, 2014 (in thousands, except per share amounts):From the inception of the Company through December 31, 2015, no dividends have beenhas not declared or paid other than the $24.9 million deemed dividend to Series D and E preferred stockholdersany dividends in August 2015.2015,2018, no common stock dividends had been declared by the board of directors.103Sunrun Inc.Notes to Consolidated Financial Statements — Continued December 31, 2018 2017 Stock plans Shares available for grant 2015 Equity Incentive Plan 11,986 8,857 2015 Employee Stock Purchase Plan 5,202 3,970 Options outstanding 13,590 16,268 Restricted stock units outstanding 4,182 5,330 Total 34,960 34,425 17.18. Stock-Based Compensation2015,2018, options to purchase 527,770262,971 shares of the Company’s common stock remained outstanding under the MEC Plan.2015,2018, the Company had not granted restricted stock or other equity awards (other than options) under the 2013 Plan.104Sunrun Inc.Notes to Consolidated Financial Statements — Continuedyearyears ended December 31, 20152018 and 2017 (shares and aggregate intrinsic value in thousands):As of December 31, 2015, 180,000 outstanding stock options had a performance feature that is required Number of Options Weighted
Average
Exercise Price Weighted
Average
Remaining
Contractual Life Aggregate
Intrinsic
ValueOutstanding at December 31, 2016 12,897 $ 5.94 7.49 $ 9,625 Granted 5,266 5.17 Exercised (687 ) 2.96 Cancelled (1,208 ) 7.62 Outstanding at December 31, 2017 16,268 5.70 7.41 $ 14,832 Granted 1,529 8.63 Exercised (3,271 ) 5.23 Cancelled (936 ) 6.63 Outstanding at December 31, 2018 13,590 $ 6.07 6.63 $ 66,462 Options vested and exercisable at December 31, 2018 7,974 $ 5.64 5.52 $ 42,504 Options vested and expected to vest at December 31, 2018 13,590 $ 6.07 6.63 $ 66,462 be satisfied before the option is vested and exercisable. Consolidated Financial Statements — Continued517,285 and 469,000276,660 unvested exercisable shares as of the years ended December 31, 20152018 and December 31, 2014, respectively,2017, which are subject to a repurchase option held by the Company at the original exercise price. These exercisable but unvested shares have a weighted average remaining vesting period of 3.2 years.less than a year. There was no exercise of unvested options in the year ended December 31, 20152018 and 2014. There were no unvested options subject to repurchase as of December 31, 2015 and 2014.2015, 20142018, 2017 and 20132016 were $4.56, $3.72$4.21, $2.57 and $1.77$2.26 per share, respectively. The total intrinsic value of the options exercised during the year ended December 31, 2015, 20142018, 2017 and 20132016 was $8.1$21.4 million, $4.8$2.3 million and $1.4$6.3 million, respectively. The aggregate intrinsic value is the difference of the current fair value of the stock and the exercise price of thefor in-the-money stock option.options. The total fair value of options vested during the year ended December 31, 2015, 20142018, 2017 and 20132016 was $9.1$8.8 million, $3.9$7.5 million and $2.3$9.8 million, respectively.105Sunrun Inc.Notes to Consolidated Financial Statements — Continued Year Ended December 31, 2018 2017 2016 Risk-free interest rate 2.72% - 2.92% 1.88% - 2.22% 1.18% - 2.23% Volatility 44.87% - 54.61% 45.95% - 50.52% 36.00% - 49.64% Expected term (in years) 6.09 - 6.11 5.94 - 6.08 5.00 - 6.26 Expected dividend yield 0.00 % 0.00 % 0.00 % 2015, 20142018, 2017 and 2013,2016, the Company considered the volatility data of a group of publicly traded peer companies in its industry. Forfeiture rates are estimated using the Company’s expectations of forfeiture ratesThe Company accounts for the Company’s employeesforfeitures as they occur and, are adjusted when estimates change. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates,as such, amounts will be recorded as a cumulative adjustmentreverses compensation cost previously recognized in the period the estimates are revised. The Company considers many factors when estimating expected forfeitures, including historical forfeiture pattern,award is forfeited, for an award that is forfeited before completion of the types of awards and employee class. Actual results, and future changes in estimates, may differ substantially from management’s current estimates.requisite service periodthat are subject to certain performance targets to a third party partner. TheAs of December 31, 2017, 350,000 outstanding RSUs will vest uponhad a performance feature that is required to be satisfied before the third party originating certain thresholdsoption is vested. In March 2018, the Company amended the terms of expected megawatts in new systems for the period starting August 2014 and ending August 2017. In addition,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 the grant date fairrepayment value for all RSUs that are not forfeited if the third party breaches the exclusivity provision of the parties’ commercial agreement. Additionally, 372,342 of these RSUs are also subject to an additional performance-basedThe exclusivity clawback provision that is based onfor all of the third party originating certain additional thresholds of expected megawattsRSUs expires in new systems from April 2016 through September 2017. Both the exclusivity and performance-based clawback provisions expire in 2017.will start recognizingrecognizes expense whenonce the performance targets are met. The first performance target was met in 2015. The Company recognized $3.5 million, $0.8 million and $1.2 million compensation expense in the yearyears ended December 31, 2015 as2018, 2017 and 2016 upon certain performance targets werebeing met.In 2015, the Company granted 250,000 RSUsa third party partner, in addition to RSUs granted to employees as part of the 2015 Equity Incentive Plan. As of December 31, 2015, 783,228 outstanding RSUs had a performance feature that is required to be satisfied before the option is vested and exercisable. Consolidated Financial Statements — Continuedyearyears ended December 31, 20152018 and 2017 (shares in thousands): Shares Weighted
Average Grant
Date Fair
ValueUnvested balance at December 31, 2016 4,106 $ 6.87 Granted 3,540 5.30 Issued (1,115 ) 7.36 Cancelled / forfeited (1,201 ) 5.81 Unvested balance at December 31, 2017 5,330 5.82 Granted 2,019 8.75 Issued (1,720 ) 6.36 Cancelled / forfeited (1,447 ) 5.75 Unvested balance at December 31, 2018 4,182 $ 7.05 board of directors approved theCompany's 2015 Employee Stock Purchase Plan (“ESPP”) and adopted the ESPP(as amended in August 2015, under which 1,000,000 shares of the Company’s common stock have been reserved for issuance toMay 2017), eligible employees. The number of shares of common stock available for sale under the Company’s ESPP will also include an annual increase on the first day of each fiscal year beginning on January 1, 2016, equal to the least of (i) 5,000,000 shares (ii) 2% of the common stock as of the last day of the immediately preceding fiscal year or (iii) such other amount as the Company’s board of directors may determine. Employeesemployees are offered shares bi-annually through twoa 24 month offering period which encompasses four six month106Sunrun Inc.Notes to Consolidated Financial Statements — Continuedoffering periods, which begin purchase periods. Each purchase period begins on the first trading day on or after May 15 and November 15 of each year. The first offering period began on November 16, 2015. 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, up to $25,000 per calendar year, with a cap of 2,000$25,000 of fair market value of shares in any calendar year and 10,000 shares per employee per offeringpurchase period. As of December 31, 2015Under the Company hasESPP, 1,000,000 total shares of the Company’s common stock have been reserved for issuance to eligible employees. The ESPP provides for an automatic increase of the number of shares available for issuance under the ESPP on the first day of each fiscal year beginning on January 1, 2016, equal to the least of 5 million shares, 2% of the outstanding shares of our common stock on the last day of the immediately preceding fiscal year, or such other amount as may be determined by the Board of Directors. In 2018 and 2017, the Board of Directors authorized an additional 2,147,005 and 2,086,416 shares, respectively, reserved for issuance under the 2015 ESPP.Inputs used to calculate our stock based compensation for each stock purchase right granted under the 2015 ESPP included risk-free interest rate of 0.33%, expected volatility of 33.84%, expected term of 0.5 years and expected dividend yield rate of 0.00%. the compensation expense resulting from the sales of common stock by employees and former employees to existing investors and ESPP expenses, in the consolidated statements of operations as follows (in thousands):In the year ended December 31, 2015 and 2014, the Company recognized $1.6 million and $3.4 million, respectively, in compensation expense resulting from sales of 1,131,028 shares and 1,092,421 shares, respectively, by employees and former employees to existing investors for amounts in excess of the deemed fair value.The Company capitalized $0.2 million, $0.1 million and $0.0 million of stock based compensation for internal use software development projects during the years ended December 31, 2015, 2014 and 2013, respectively. Year Ended December 31, 2018 2017 2016 Cost of customer agreements and incentives $ 2,568 $ 2,299 $ 2,039 Cost of solar energy systems and product sales 718 609 409 Sales and marketing 7,191 5,196 7,831 Research and development 1,253 836 515 General and administration 16,126 13,102 7,929 Total $ 27,856 $ 22,042 $ 18,723 20152018 and 2014,2017, total unrecognized compensation cost related to outstanding stock options and RSUs was $20.9$40.0 million and $12.1$34.8 million, respectively, which is expected to be recognized over a weighted-average period of 2.82.3 years and 2.8 years, respectively.Note 18. Retirement PlanTheoffersentered into an agreement with an affiliate ("Contractor") of Comcast Corporation ("Comcast") whereby Contractor will receive lead or sales fees for new customers it brings to the Company over a retirement plan qualified under Section 401(k)40-month term. Comcast may also earn a warrant to purchase up to 11,793,355 shares of the CodeCompany's outstanding common stock, at an exercise price of $0.01 per warrant share. The warrant initially vests 50.05% when both (i) Contractor has earned a lead or sales fee with respect to its employees (the “401(k) plan”). The available investments are selected by the Company and allow participants to defer pre-tax amounts to the plan as allowed by the Code.Upon acquisition30,000 of MEC, the Company incurred post-acquisition contributions of $0.5 million to the MEC 401(k) plan for the year ended December 31, 2014. The MEC 401(k) plan was terminated effective December 31, 2014.Note 19. Operating Revenues under Customer AgreementsCustomer Agreements representing PPAs require customers to make payments to Sunrun based on the electricity production of the related Project, whereas Customer Agreements representing leases require fixed monthly payments from customers.107Total revenue from customers’ contingent payments under PPAs recognizedenergy systems, and (ii) Contractor or its affiliates have spent at least $10.0 million in marketing and sales in connection with the years endedagreement. Thereafter, the warrant will vest in five additional increments for each additional 6,000 installed solar energy systems. On November 7, 2018 the warrant vesting schedule was modified so that it will initially vest either (i) as to 10.0% if Contractor has earned a lead or sales fee with respect to 6,000 of installed solar energy systems by September 30, 2019 or (ii) as to 13.3% if Contractor has earned a lead or sales fee with respect to 8,000 of installed solar energy systems by December 31, 2015, 20142019, provided that, in either case, Contractor or its affiliates have spent at least $25.0 million in marketing and 2013 was $59.8 million, $42.8 millionsales in connection with the agreement. Thereafter, the warrant will vest in additional 8.3% increments for each additional 5,000 installed solar energy systems. If the initial vesting conditions have not been met by December 31, 2019, the Warrant will expire. As of February 28, 2019, none of the shares under this amended warrant have vested and, $31.5 million, respectively.Future minimum lease paymentstherefore, the modification has no current financial statement effect as no expense has been recognized to be received from customers whose Customer Agreements represent non-cancelable leases are as follows (in thousands):20.19. Income Taxes For the Year Ended December 31, 2018 2017 2016 Income attributable to common stockholders $ (35,979 ) $ (137,842 ) $ (131,392 ) Loss attributable to noncontrolling interest and redeemable noncontrolling interests 286,843 413,104 395,968 Loss before income taxes $ 250,864 $ 275,262 $ 264,576 108Sunrun Inc.Notes to Consolidated Financial Statements — Continued For the Year Ended December 31, 2018 2017 2016 Current Federal $ (1,100 ) $ — $ — State 292 — — Total current expense (808 ) — — Deferred Federal 1,995 4,784 47,677 State 8,135 7,569 8,586 Total deferred provision 10,130 12,353 56,263 Total $ 9,322 $ 12,353 $ 56,263 For the Year Ended December 31, 2018 2017 2016 Tax provision (benefit) at federal statutory rate (21.00 )% (34.00 )% (34.00 )% State income taxes, net of federal benefit 0.32 1.94 2.99 Effect of noncontrolling and redeemable noncontrolling interests 24.01 51.03 50.88 Stock-based compensation (1.77 ) 0.70 0.69 Effect of prepaid tax asset — — 0.50 Tax credits (1.35 ) (1.25 ) (1.63 ) Effect of federal rate change — (15.93 ) — Effect of valuation allowance 3.04 0.81 0.25 Other 0.47 1.20 1.58 Total 3.72 % 4.50 % 21.26 % significantthe components of the Company’s deferred tax assets and liabilities for the periods presented (in thousands):An analysis of deferred tax liabilities is as follows (in thousands): December 31, 2018 2017 Accruals and prepaids $ 18,871 $ 14,387 Deferred revenue — 7,602 Net operating loss carryforwards 288,039 187,038 Stock-based compensation 5,681 4,994 Investment tax and other credits 28,551 22,940 Interest Expense 9,614 — Interest rate derivatives 1,282 1,640 Total deferred tax assets 352,038 238,601 Less: Valuation allowance (10,506 ) (2,892 ) Gross deferred tax assets 341,532 235,709 Deferred revenue 17,526 — Capitalized initial direct costs 54,823 38,751 Fixed asset depreciation 218,701 173,175 Deferred tax on investment in partnerships 144,115 106,902 Gross deferred tax liabilities 435,165 318,828 $ (93,633 ) $ (83,119 ) 109Sunrun Inc.Notes to Consolidated Financial Statements — Continued2015, the Company had net operating loss carryforwards for federal, California and other state income tax purposes of approximately $595.0 million, $368.0 million and $178.6 million, respectively, which will begin to expire in the year 2028, 2020 and 2020, respectively, if not utilized. Of the federal, California, and other state NOL carryover, $5.3 million, $1.3 million and $2.5 million relates to windfall stock option deductions which, when realized, will be an increase to additional paid in capital. As of December 31, 2014, the Company had net operating loss carryforwards for federal, California and other state income tax purposes of approximately $454.5 million, $283.1 million and $126.5 million, respectively. Of the federal, California, and other state NOL carryover, $1.8 million, $1.1 million and $0.5 million relates to windfall stock option deductions which, when realized, will be an increase to additional paid in capital.As of December 31, 2015,2018, the Company has an investment tax credit carryforward of approximately $4.2 million and California enterprise zone credits of approximately $1.0$14.9 million which begins to expire in the year 2028, and 2023, respectively, if not utilized.utilized and $1.0 million of California enterprise zone credits which begin to expire in the year 2023. As of December 31, 2014,2017, the Company has an investment tax credit carryforward of approximately $2.4$11.5 million and California enterprise zone credits of approximately $0.9$1.0 million.revenueRevenue Code (IRC) of 1986, as amended and similar state provisions. The Company performed an analysis to determine whether an ownership change under Section 382 of the Code had occurred and determined that no ownership changes were identified as of December 31, 2015.there was sufficient positive evidence basedthat it is more likely than not that the benefit from certain federal tax credits, state net operating loss carryforwards, and state tax credits will not be realized. In recognition of this risk, the Company has provided a valuation allowance of $10.5 million on the reversal pattern of the deferred tax liabilityassets relating to these federal tax credits, state net operating loss carryforwards, and availablestate tax planning strategies being relied uponcredits which is an increase of $7.6 million in 2018.endtime of the transfer. As the Company sells solar energy systems to Funds, the Company records the current tax effect of the gain on the sale as well as a deferred tax asset related to the Company’s increased tax basis in the partnership as a result of the sale. With the adoption of ASU 2016-16 on January 1, 2017 the Company reversed net prepaid tax assets of $378.5 million and recorded the gross deferred tax assets associated with the historical intercompany sales of solar energy systems, which in turn reduced the deferred tax liabilities on investment in partnerships by $378.2 million with the remaining $0.3 million being recorded as a cumulative effect of adoption in the Company’s Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity. The adoption did not have an impact on the Company’s Consolidated Statement of Operations.2015 and December 31, 2014 to support the position that2018, the Company does not need to maintain a valuation allowance on deferredhas completed its accounting for all of the enactment-date income tax assets.The Company does not have any tax positions for which it is reasonably possible that the total amount of gross unrecognized tax benefits will significantly change within 12 months2015.110Sunrun Inc.Notes to Consolidated Financial Statements — ContinuedA reconciliation of2018 and 2017, the beginningCompany had $0.6 million and ending amounts$1.5 million, respectively, of unrecognized tax benefits is as follows (in thousands):Thererelated to an acquisition in 2015. In addition, there was 0.3$0.2 million and $0.4 million of interest and penalties for uncertain tax positions as of December 31, 2015. As2018 and 2017, respectively. During the 12 months ended December 31, 2018, the Company recorded an income tax benefit of $1.1 million, including penalties and interest, due to the expiration of federal and California statute of limitations. This benefit was fully offset by an indemnification asset that was written down to zero through operating expenses during the year. Due to the expiration of federal and California statute of limitations, the Company expects the total amount of gross unrecognized tax benefits will decrease by $0.6 million within 12 months of December 31, 2014, there was no2018.there were no2016, excluding penalties and interest, and penalties accrued for any uncertain tax position.Threeis as follows: For the Year Ended December 31, 2018 2017 2016 Unrecognized tax benefits at beginning of the year $1,525 $1,525 $1,525 Reversal of prior year unrecognized tax benefits due to the expiration of the statute of limitations (878 ) — — Unrecognized tax benefits at end of the year $647 $1,525 $1,525 IRS.IRS, and these investor audits involve a review of the fair market value determination of our solar energy systems. If these investor audits result in an adverse finding, we would be subject to an indemnity obligation to these investors. The Company is subject to taxation and files income tax returns in the U.S., its territories, and various state and local jurisdictions. Due to the Company’s net losses, substantially all of its federal, state and local income tax returns since inception are still subject to audit.Tax YearsU.S. Federal2011 - 2015StateTax Years U.S. Federal 20102015 - 2015State 2014 - 2018 21.20. Commitments and Contingencies20152018 and 2014,2017, the Company had $3.5$9.7 million and $5.8$16.4 million, respectively, of unused letters of credit outstanding, withwhich carry fees ranging from 2.00%of 2.5 - 3.25% per annum.Non-cancellable annum and 2.50 - 3.25% per annum, respectively.facilitiesreal estate under non-cancellable operating leases and equipment under finance leases. For the Year Ended December 31, 2018 2017 2016 Finance lease cost: Amortization of right-of-use assets $ 11,884 $ 11,029 $ 11,252 Interest on lease liabilities 676 640 889 Operating lease cost 10,467 10,177 9,380 Short-term lease cost 732 493 1,103 Variable lease cost 3,112 2,502 2,173 Sublease income (572 ) (24 ) (79 ) Total lease cost $ 26,299 $ 24,817 $ 24,718 For the Year Ended December 31, 2018 2017 2016 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 10,765 $ 10,027 $ 8,345 Operating cash flows from finance leases 482 591 885 Financing cash flows from finance leases 9,220 10,032 12,968 Right-of-use assets obtained in exchange for lease obligations: Operating leases 3,411 7,276 5,913 Finance leases 15,370 862 14,875 Weighted average remaining lease term (years): Operating leases 3.43 3.99 4.28 Finance leases 3.37 2.06 2.83 Weighted average discount rate: Operating leases 4.3 % 4.1 % 3.9 % Finance leases 4.3 % 3.1 % 3.0 % operating leases. Total operating lease expenses were $19.7 million, $13.8 million and $2.0 million for the years ended December 31, 2015, 2014 and 2013, respectively. Certain operating leases contain rent escalation clauses, which are recorded on a straight-line basis over the initial term of the lease with the difference between the rent paid and the straight-line rent recorded as a deferred rent liability. Lease incentives received from landlords are recorded as deferred rent liabilities and are amortized on a straight-line basis over the lease term as a reduction to rent expense. Deferred rent liabilities were $1.9 million and $2.0 million as of December 31, 2015 and 2014, respectively.Future minimum lease payments expected to be made under non-cancelable operating lease agreements as of December 31, 2015 for each of the years ending December 31, are2018 were as follows (in thousands):Capital Lease ObligationsAs of December 31, 2015 and 2014, capital lease obligations were $24.0 million and $7.4, respectively. The capital lease obligations bear interest at rates up to 10% per annum.111Sunrun Inc.Notes to Consolidated Financial Statements — ContinuedThe following is a schedule of future lease payments as of December 31, 2015 (in thousands): Operating Leases Sublease Income Net Operating Leases Finance leases 2019 $ 9,494 $ 774 $ 8,720 $ 9,742 2020 6,224 787 5,437 4,806 2021 4,194 639 3,555 3,103 2022 2,677 — 2,677 1,503 2023 1,774 — 1,774 57 Thereafter 25 — 25 949 Total future lease payments 24,388 2,200 22,188 20,160 Less: Amount representing interest (1,602 ) — (1,602 ) (975 ) Present value of future payments 22,786 2,200 20,586 19,185 Less: Short term leases not recorded as a liability (748 ) — (748 ) — Revised Present value of future payments 22,038 2,200 19,838 19,185 Less: Current portion (7,857 ) — (7,857 ) (9,193 ) Long term portion $ 14,181 $ 2,200 $ 11,981 $ 9,992 CommitmentsIn January 2015, theCommitmenta purchase commitmentcommitments, which have the ability to be canceled without significant penalties, with one of itsmultiple suppliers to purchase $70.0$135.4 million of photovoltaic modules overand inverters by the next 12 months with the first modules delivered in January 2015. In October 2015, the Company amended its commitment to purchase additional photovoltaic modules to be delivered until December 2016, for a total commitmentend of $146.0 million. As of December 31, 2015, the Company had $78.0 million of purchase commitments remaining.In June 2015, the Company entered into a purchase commitment with one of its suppliers to purchase $32.0 million of photovoltaic modules through December 2016. As of December 31, 2015, the Company had $8.0 million of purchase commitments remaining.Guaranteesguarantees oneaccrues warranty costs when revenue is recognized for solar energy systems sales, based on the estimated future costs of meeting its investorswarranty obligations. Warranty costs primarily consist of replacement costs for supplies and labor costs for service personnel since warranties for equipment and materials are covered by the original manufacturer’s warranty (other than a small deductible in one of its Funds an internal rate of return, calculated on an after-tax basis,certain cases). As such, the warranty reserve is immaterial in the event that it purchases the investor’s interest or the investor sells its interest to the Company.all periods presented. The Company does not expectmakes and revises these estimates based on the internal ratenumber of returnsolar energy systems under warranty, the Company’s historical experience with warranty claims, assumptions on warranty claims to fall below the guaranteed amount; however, due to uncertainties associated with estimating the timing and amount of distributions to the investoroccur over a systems’ warranty period and the possibility forCompany’s estimated replacement costs.timing of the liquidation of the Fund, the Company is unable to determine the potential maximum future payments that it would have to make under this guarantee.ITCCash Grant IndemnificationITCs.ITCs or U.S. Treasury grants. Generally, such obligations would arise as a result of reductions to the value of the underlying solar energy systems as assessed by the IRS.Internal Revenue Service (the “IRS”). At each balance sheet date, the Company assesses and recognizes, when applicable, the potential exposure from this obligation based on all the information available at that time, including any audits undertaken by the IRS. The Company believes that any payments to the investors in excess of the amount already recognized by the Company for this obligation areis not probable based on the facts known atas of the reporting date.filing date of this Annual Report on Form 10-K. The maximum potential future payments that the Company could have to make under this obligation would depend largely on the difference between the fair values ofprices at which the solar energy systems were sold or transferred to the Funds (or, in certain structures, the fair market value claimed in respect of such systems (referred to as "claimed values")) and the eligible basis determined by the Company and the values the IRS would determine as the fair value for the systems for purposes of claiming ITCs. ITCs are claimed based on the statutory regulations from the IRS. The Company usesset the purchase prices and claimed values based on fair market values determined with the assistance of an112Sunrun Inc.Notes to Consolidated Financial Statements — Continuedaswith respect to the basis for determining thesystems that generate ITCs that are passed-through to and claimed by the Fund investors. Since the Company cannot determine how the IRS willmay evaluate system values used in claiming ITCs, the Company is unable to reliably estimate the maximum potential future payments that it could have to make under this obligation as of each balance sheet date, though any potential future payments are mitigated by the insurance policy described below. In April 2018, the Company purchased an insurance policy providing for certain payments by the insurers in the event there is any final determination (including a judicial determination) that reduced the ITCs claimed in respect of solar energy systems sold orJuly 2012, the Departmenteach iteration of Treasurytheir complaint, plaintiffs seek statutory damages, equitable and injunctive relief, and attorneys’ fees and costs, on behalf of themselves and the Departmentabsent classes. On April 12, 2018, the Company and plaintiffs advised the Court that they reached a settlement in principle, and the Court vacated all deadlines relating to the motion for class certification. On September 27, 2018, Plaintiffs filed a motion for preliminary approval to settle all claims against the Company for $5.5 million, which was accrued as of Justice (together,March 31, 2018. On November 27, 2018, a hearing was held on Plaintiff’s motion for preliminary approval. The Court requested certain clarifications be made to the “Government”) opened a civil investigation intoproposed settlement agreement and notice documents. On January 11, 2019, Plaintiffs filed revised settlement documents reflecting the participationchanges requested by residential solar developersthe Court, and on January 29, 2019, the Court granted preliminary approval of the settlement.Section 1603 grant program.lawsuit relate to activities allegedly engaged in by third-party vendors, for which the Company denies any responsibility. The Government served subpoenas on several developers, includingvendors are contractually obligated to indemnify the Company for losses related to the conduct alleged. The Company has denied, and continues to deny, the claims alleged and the settlement does not reflect any admission of fault, wrongdoing or liability. The settlement is subject to definitive documentation, class notice and court approval.along with their investors and valuation firms. The focusInc., et al., Case No. CIV 538215, was filed in the Superior Court of California, County of San Mateo, against the Company, certain of the investigation isCompany’s directors and officers, the claimed fair market valueunderwriters of the solar systems the developers submitted to the Government in their grant applications. We have cooperated fully with the Government and plan to continue to do so. No claims have been brought against us. The Company is not able to estimate the ultimate outcome or a range of possible loss at this point.Note 22. Net Loss Per SharePrior to the Company’s initial public offering and conversioncertain other defendants. The complaint generally alleges that the defendants violated Sections 11, 12 and 15 of all preferred stock, the Company calculated net income (loss) per share (EPS) available to common stockholders using the two-class method. The two-class method allocates net income that otherwise would have been available to common shareholders to holdersSecurities Act of participating securities. In1933, as amended (the "Securities Act"), by making false or misleading statements in connection with the Company’s August 5, 2015 initial public offering regarding the continuation of net metering programs. The plaintiffs seek to represent a class of persons who acquired the Company’s common stock pursuant or traceable to the initial public offering. Plaintiffs seek compensatory damages, including interest, rescission or rescissory damages, an award of reasonable costs and attorneys’ fees, and any equitable or injunctive relief deemed appropriate by the court. On April 29, 2016, a purported shareholder class action captioned recognizedcertain of the Company’s directors and officers, and the underwriters of the Company’s initial public offering. The complaint generally alleges that the defendants violated Sections 11, 12 and 15 of the Securities Act by making false or misleading statements in connection with an August 5, 2015 initial public offering regarding the Company’s business practices and its dependence on complex financial instruments. The Cohen plaintiffs seek to represent the same class and seek similar relief as the plaintiffs in the Pytel, Nunez, and Baker actions. On September 26, 2016, the Baker, Cohen, Nunez, and Pytel actions were consolidated (such consolidated action referred to as the "state court litigation"). On December 27, 2017, the court granted Plaintiffs’ motion for class certification.deemed dividendmediation on May 4, 2018, the parties entered into an agreement in principle to settle all claims asserted in the state court litigation against all defendants. The aggregate amount of $24.9the settlement is $32.0 million, $30.1 million of which will be funded by the Company’s insurers and the remaining $1.9 million of which was accrued as of June 30, 2018. The Company and all defendants have denied, and continue to Series Ddeny, the claims alleged in the state court litigation and E convertible preferred shareholders,the settlement does not reflect any admission of fault, wrongdoing or liability as further discussedto any defendant. On December 14, 2018, the court granted final approval of the settlement and entered judgment.16, Shareholders’ Equity.21. Net Income Per Share (loss) per share is computed by dividing net income (loss) availableattributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) availableattributable to common stockholders by the weighted-average number of common shares outstanding during the period adjusted to include the effect of potentially dilutive securities. Potentially dilutive securities are excluded from the computation of dilutive EPS in periods in which the effect would be antidilutive.113Sunrun Inc.Notes to Consolidated Financial Statements — Continuedlossincome per share areis as follows (in thousands, except share and per share amounts): Years Ended December 31, 2018 2017 2016 Numerator: Net income attributable to common stockholders $ 26,657 $ 125,489 $ 75,129 Denominator: Weighted average shares used to compute net income per share attributable to common stockholders, basic 110,089 105,432 102,367 Weighted average effect of potentially dilutive shares to purchase common stock 7,023 2,774 2,597 Weighted average shares used to compute net income per share attributable to common stockholders, diluted 117,112 108,206 104,964 Net income per share attributable to common stockholders Basic $ 0.24 $ 1.19 $ 0.73 Diluted $ 0.23 $ 1.16 $ 0.72 lossincome per share as the impact of including those shares would be anti-dilutive:anti-dilutive (in thousands): Year Ended December 31, 2018 2017 2016 Warrants 625 1,251 1,251 Outstanding stock options 3,271 13,803 8,981 Unvested restricted stock units 649 1,451 1,564 Total 4,545 16,505 11,796 23. 22. Related Party Transactionsservespreviously served as one of the Company’s directors until March 2017 has direct and indirect ownership interests in Enphase Energy, Inc. For the years ended December 31, 2015 and 2014, the Company recorded $11.9 million and $8.9 million, respectively, in purchases from Enphase Energy, Inc. and had outstanding payables of $0.7 million and $1.1 million as of December 31, 2015 and 2014.An individual who served as one of the Company’s directors until March 2015 and his spouse have a direct material ownership interest in REC Solar Commercial Corporation (RECC)(“Enphase”). For the years ended December 31, 20152017 and 2014,2016, the Company recorded $0.3$9.1 million and $7.6$19.9 million, respectively, in solar energy systems and products sales revenuepurchases from sales to RECCEnphase and had outstanding receivablespayables to Enphase of $0.0 million and $0.1$2.0 million as of December 31, 20152017.2014, respectively.Note 24. Subsequent Events Three Months Ended December 31 September 30 June 30 March 31 2018 Total Revenue $ 240,120 $ 204,960 $ 170,538 $ 144,363 Cost of customer agreements and incentives $ 65,317 $ 63,195 $ 57,769 $ 54,576 Cost of solar energy systems and product sales $ 89,040 $ 76,179 $ 64,268 $ 64,579 Net loss $ (49,515 ) $ (47,524 ) $ (71,727 ) $ (91,420 ) Net (loss) income attributable to common stockholders $ (5,888 ) $ (2,896 ) $ 7,409 $ 28,032 Net (loss) income per share attributable to common stockholders, basic $ — $ — $ — $ — Net (loss) income per share attributable to common stockholders, diluted $ — $ — $ — $ — 2017 Total Revenue $ 152,265 $ 144,546 $ 130,622 $ 105,109 Cost of customer agreements and incentives $ 51,234 $ 47,299 $ 45,289 $ 42,613 Cost of solar energy systems and product sales $ 74,174 $ 69,588 $ 60,938 $ 49,431 Net loss $ (56,035 ) $ (82,815 ) $ (73,610 ) $ (75,155 ) Net income attributable to common stockholders $ 69,254 $ 28,007 $ 18,346 $ 9,882 Net income per share attributable to common stockholders, basic $ 0.65 $ 0.26 $ 0.17 $ 0.09 Net income per share attributable to common stockholders, diluted $ 0.63 $ 0.26 $ 0.17 $ 0.09 January 2016, certain subsidiariesthe second and third quarter of 2018, the Company entered into secured credit facilities agreements withreflected amounts received for ITCs from the investor in a syndicatepass-through financing obligation arrangement as proceeds from pass-through financing and other obligations in its consolidated statement of bankscash flows in the respective 2018 periods. The presentation of amounts received for up to $250.0 millionITCs from investors in committed facilities. The facilities include a $220.0 million aggregate facility (“Aggregate Facility”), $23.0 million term loan (“Term Loan”) and a $7.0 million letter of credit facility. The Aggregate Facility and letter of credit bear an interest rate of LIBOR + 250 basis pointspass-through financing obligation arrangements for the initial three-year revolving availability period, stepping upyear ended December 31, 2018 are presented in cash from operating activities upon the adoption of Topic 606 in January 2018. Accordingly, $53.5 million and $103.0 million previously reported in cash provided by financing activities during the six months ended June 30, 2018 and nine months ended September 30, 2018 have been reclassed to LIBOR + 275 basis pointsnet cash used in operating activities in the following two-year period. The Term Loan bears an interest rateCompany’s consolidated statement of LIBOR + 500 basis points (with a LIBOR floor of 100 basis points) incash flows for the first three years, stepping up to LIBOR plus 650 basis points in the following two-year period. The principal and accrued interest on any outstanding loans mature onyear ended December 31, 2020.114Sunrun Inc.Notes to Consolidated Financial Statements — ContinuedThe facilities are non-recourse to Sunrun and are secured by net cash flows of certain subsidiaries from power purchase agreements and leases, less certain operating, maintenance and other expenses which are available to the borrowers after distributions to tax equity investors. The facilities contain customary covenants including the requirement to maintain certain financial measurements and provide lender reporting. The credit facilities also contain certain provisions in the event of default which entitle lenders to take certain actions including acceleration of amounts due under the facilities. In March 2016, a subsidiary of the Company entered into a $24.5 million secured, non-recourse loan agreement. The loan will be repaid through cashflows from a lease pass-through arrangement previously entered into by the Company. The loan matures in September 2022 and has an interest rate of LIBOR + 2.25%. The loan agreement contains customary covenants including the requirement to maintain certain financial measurements and provide lender reporting. The loan also contains certain provisions in the event of default which entitles the lender to take certain actions including acceleration of amounts due under the loan.AccountantsAccountants on Accounting and Financial Disclosure.Not applicable2015.2018. The term “disclosure controls and procedures,” as defined in Rules 13a-15I and 15d-15I under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.This Annual Report on Form 10-K does not include a report of management’s assessment regardingan attestation reportthe COSO framework, to evaluate the effectiveness of internal control over financial reporting. Management believes that the COSO framework is a suitable framework for its evaluation of financial reporting because it is free from bias, permits reasonably consistent qualitative and quantitative measurements of our internal control over financial reporting, is sufficiently complete so that those relevant factors that would alter a conclusion about the effectiveness of our internal control over financial reporting are not omitted and is relevant to an evaluation of internal control over financial reporting.due to a transition period established by the rulesas stated in its report which is included in Item 8 of the SEC for newly public companies.this Annual Report on Form 10-K.that is foundwill be set forth in our proxy statement to be filed with the SEC in connection with the solicitation of proxies for our 20162019 Annual Meeting of Stockholders (Proxy Statement)(“Proxy Statement”) and is incorporated herein by reference to our 2015 Proxy Statement.reference. The 2015 Proxy Statement will be filed with the SEC within 120 days after the year-end of the fiscal year which this report relates.(1) (2) (3) Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.Company NameDate: March 10, 2016By:/s/ Lynn JurichLynn JurichChief Executive Officer and DirectorPursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.NameTitleDate/s/ Lynn JurichChief Executive Officer and Director (Principal Executive Officer)March 10, 2016Lynn Jurich/s/ Robert KominChief Financial Officer (Principal Accounting and Financial Officer)March 10, 2016Robert Komin/s/ Edward FensterChairman and DirectorMarch 10, 2016Edward Fenster/s/ Steve VassalloDirectorMarch 10, 2016Steve Vassallo/s/ Richard WongDirectorMarch 10, 2016Richard Wong/s/ Gerald RiskDirectorMarch 10, 2016Gerald Risk/s/ Jameson McJunkinDirectorMarch 10, 2016Jameson McJunkin/s/ Katherine August-deWildeDirectorMarch 10, 2016Katherine August-deWildeExhibit Incorporated by Reference Number Exhibit Description Form File No. Exhibit Filing Date 3.1 10-Q 001-37511 3.1 9/15/2015 3.2 10-Q 001-37511 3.2 9/15/2015 4.1 S-1 333-205217 4.1 6/25/2015 4.2 8-K 001-37511 4.1 10/2/2015 4.3 S-1 333-205217 4.2 6/25/2015 4.4 S-1 333-205217 4.3 6/25/2015 4.5 S-1/A 333-205217 4.5 7/22/2015 4.6 8-K 001-37511 4.1 8/24/2017 4.7 8-K 001-37511 4.2 8/24/2017 4.8 S-3 333-222099 4.5 12/15/2017 4.9 S-3 333-222099 4.8 12/15/2017 4.10 S-3 333-222099 4.9 12/15/2017 4.11 S-3 333-222099 4.10 12/15/2017 4.12 8-K 001-37511 4.12 11/7/2018 10.1+ S-1 333-205217 10.1 6/25/2015 10.2+ S-1/A 333-205217 10.2 7/22/2015 10.3+ 10-Q 001-37511 10.1 8/9/2018 10.4+ S-1 333-205217 10.4 6/25/2015 10.5+ S-1 333-205217 10.5 6/25/2015 10.6+ S-1 333-205217 10.6 6/25/2015 10.7+ S-1 333-205217 10.7 6/25/2015 10.8+ S-1 333-205217 10.8 6/25/2015 10.9+ 10-Q 001-37511 10.1 11/7/2018 10.10+ S-1 333-205217 10.10 6/25/2015 10.11+ S-1 333-205217 10.11 6/25/2015 10.12+ S-1 333-205217 10.12 6/25/2015 10.13+ S-1 333-205217 10.15 6/25/2015 Exhibit Incorporated by Reference Number Exhibit Description Form File No. Exhibit Filing Date 10.14 S-1 333-205217 10.16 6/25/2015 10.15¥ S-1 333-205217 10.17 6/25/2015 10.16¥ S-1 333-205217 10.18 6/25/2015 10.17¥ 10-Q/A 001-37511 10.2 12/29/2017 10.18¥ 10-Q 001-37511 10.1 8/11/2016 10.19¥ 10-Q 001-37511 10.2 8/11/2016 10.20¥ 10-Q 001-37511 10.3 8/11/2016 10.21¥ 10-Q 001-37511 10.4 8/11/2016 10.22¥ 10-K 10.25 3/8/2017 10.23¥ 10-K 10.26 3/8/2017 10.24¥ 10-K 10.27 3/8/2017 Exhibit Incorporated by Reference Number Exhibit Description Form File No. Exhibit Filing Date 10-Q/A 10.30 12/29/2017 10.26¥ 10-K 001-37511 10.29 3/6/2018 10.27¥ 10-K 001-37511 10.30 3/6/2018 10.28+ 8-K 001-37511 10.1 4/6/2018 10.29+ 8-K 001-37511 10.1 6/19/2018 10.30¥ 10-Q 001-37511 10.1 5/9/2018 10.31¥ 10-Q 001-37511 10.2 5/9/2018 10.32 10-Q 001-37511 10.3 5/9/2018 10.33¥ 10-Q 001-37511 10.2 11/7/2018 10.34¥ 10-Q 001-37511 10.3 11/7/2018 10.35 10-Q 001-37511 10.4 11/7/2018 Exhibit Incorporated by Reference Number Exhibit Description Form File No. Exhibit Filing Date 10.36¥ 10.37¥ 10.38¥ 21.1 S-1 333-205217 21.1 6/25/2015 23.1 31.1 31.2 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Schema Linkbase Document 101.CAL XBRL Taxonomy Definition Linkbase Document 101.DEF XBRL Taxonomy Calculation Linkbase Document 101.LAB XBRL Taxonomy Labels Linkbase Document 101.PRE XBRL Taxonomy Presentation Linkbase Document †† The certifications attached as Exhibit 32.1 that accompany this Annual Report on Form 10-K, are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Sunrun Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing. Indicates management contract or compensatory plan. ¥Confidential treatment has been requested as to certain portions of this exhibit, which portions have been omitted and submitted separately to the Securities and Exchange Commission. 121Date: February 28, 2019 By: /s/ Lynn Jurich Lynn Jurich Chief Executive Officer and Director Name Title Date /s/ Lynn Jurich Chief Executive Officer and Director (Principal Executive Officer) February 28, 2019 Lynn Jurich /s/ Robert Komin Chief Financial Officer (Principal Accounting and Financial Officer) February 28, 2019 Robert Komin /s/ Edward Fenster Chairman and Director February 28, 2019 Edward Fenster /s/ Katherine August-deWilde Director February 28, 2019 Katherine August-deWilde /s/ Leslie Dach Director February 28, 2019 Leslie Dach /s/ Alan Ferber Director February 28, 2019 Alan Ferber /s/ Mary Powell Director February 28, 2019 Mary Powell /s/ Gerald Risk Director February 28, 2019 Gerald Risk /s/ Steve Vassallo Director February 28, 2019 Steve Vassallo