UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~(Mark One)~~



☒

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2017~~2021



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-37511

Sunrun Inc.

(Exact name of registrant as specified in its charter)



~~Delaware~~

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

~~595 Market~~225 Bush Street, 29th ~~Floor~~Suite 1400

San Francisco, California ~~94105~~94104

(Address of principal executive offices and Zip Code)

(415) 580-6900

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	RUN	Nasdaq Global Select Market

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

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). ~~YES~~ Yes ☒ NO No ☐

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

Large accelerated filer

☐☒

Accelerated filer

☒☐

Non-accelerated filer

☐

~~(Do not check if a smaller reporting company)~~

Smaller reporting company

☐

Emerging growth company

☒☐

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

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

As of ~~November 6, 2017,~~August 2, 2021, the number of shares of the registrant’s common stock outstanding was ~~106,786,800.~~

205,932,911.

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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

•the amount of any costs, fees, expenses, impairments and charges relating to the merger with Vivint Solar;

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

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

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

•regulatory and policy development and changes;

•our ability to manage our supply chains and distribution channels and the impact of natural disasters and other events beyond our control, such as the COVID-19 pandemic;

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

•our strategic partnerships and expected benefits of such partnerships;

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

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

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

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

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

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

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

•the impact of seasonality on our business;

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

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

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

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

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

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

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

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

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

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

SELECTED RISKS AFFECTING OUR BUSINESS

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

Selected Risks Related to the Impacts of COVID-19

•The COVID-19 pandemic has had and could continue to have an adverse impact on our business, operations and the markets and communities in which we operate. Efforts to mitigate or contain the pandemic and the resulting weakened economic conditions may disrupt and adversely affect our business.

Selected Risks Related to the Solar Industry

•The solar energy industry is an emerging market which is constantly evolving and may not develop to the size or at the rate we expect.

•We have historically benefited from declining costs in our industry, and our business and financial results may be harmed not only as a result of any increases in costs associated with our solar service offerings but also any failure of these costs to continue to decline as we currently expect. If we do not reduce our cost structure in the future, our ability to continue to be profitable may be impaired.

•We face competition from traditional energy companies as well as solar and other renewable energy companies.

Selected Risks Related to Our Operating Structure and Financing Activities

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

•Rising interest rates would adversely impact our business.

•We expect to incur substantially more debt in the future, which could intensify the risks to our business.

Selected Risks Related to Regulation and Policy

•We rely on net metering and related policies to offer competitive pricing to customers in all of our current markets, and changes to such policies may significantly reduce demand for electricity from our solar service offerings.

•Electric utility statutes and regulations and changes to such statutes or regulations may present technical, regulatory and economic barriers to the purchase and use of our solar service offerings that may significantly reduce demand for such offerings.

•Regulations and policies related to rate design could deter potential customers from purchasing our solar service offerings, reduce the value of the electricity our systems produce, and reduce any savings that our customers could realize from our solar service offerings.

Selected Risks Related to Our Business Operations

•Our growth depends in part on the success of our relationships with third parties, including our solar partners.

•We and our solar partners depend on a limited number of suppliers of solar panels, batteries, and other system components to adequately meet anticipated demand for our solar service offerings. Any shortage, delay or component price change from these suppliers, or the acquisition of any of these suppliers by a competitor, could result in sales and installation delays, cancellations and loss of market share

•We may not realize the anticipated benefits of past or future investments, strategic transactions, or acquisitions, and integration of these acquisitions may disrupt our business and our management.

•A failure to hire and retain a sufficient number of employees and service providers in key functions would constrain our growth and our ability to timely complete customers' Projects and successfully manage customer accounts.

•Regulations may limit the type of electricians qualified to install and service our solar and storage systems in California, which may result in workforce shortages, operational delays, and increased costs.

•Our results of operations may fluctuate from quarter to quarter, which could make our future performance difficult to predict and could cause our results of operations for a particular period to fall below expectations, resulting in a decline in the price of our common stock.

•Our actual financial results may differ materially from any guidance we may publish from time to time.

Selected Risks Related to Taxes and Accounting

•Our ability to provide our solar service offerings to customers on an economically viable basis depends in part on our ability to finance these systems with fund investors who seek particular tax and other benefits.

•If the Internal Revenue Service makes determinations that the fair market value of our solar energy systems is materially lower than what we have claimed, we may have to pay significant amounts to our fund investors, and our business, financial condition and prospects may be materially and adversely affected.

•Our business currently depends on the availability of utility rebates, tax credits and other benefits, tax exemptions and other financial incentives. The expiration, elimination or reduction of these benefits, rebates, or incentives could adversely impact our business.

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

Sunrun Inc.

Consolidated Balance Sheets

(In Thousands, Except Share Par Values)

(Unaudited)


	June 30, 2021		December 31, 2020
Assets
Current assets:
Cash	$	679,588	$	519,965
Restricted cash	177,867		188,095
Accounts receivable (net of allowances for credit losses of $7,248 and $4,861 as of June 30, 2021 and December 31, 2020, respectively)	162,969		95,141

Inventories	341,423		283,045
Prepaid expenses and other current assets	34,805		51,483
Total current assets	1,396,652		1,137,729
Restricted cash	148		148
Solar energy systems, net	8,767,069		8,202,788
Property and equipment, net	58,855		62,182
Intangible assets, net	15,574		18,262
Goodwill	4,280,169		4,280,169
Other assets	910,369		681,665
Total assets (1)	$	15,428,836	$	14,382,943
Liabilities and total equity
Current liabilities:
Accounts payable	$	277,775	$	207,441
Distributions payable to noncontrolling interests and redeemable noncontrolling interests	33,421		28,627
Accrued expenses and other liabilities	312,746		325,614
Deferred revenue, current portion	113,959		108,452
Deferred grants, current portion	8,216		8,251
Finance lease obligations, current portion	10,612		11,037
Line of credit	217,284		0
Non-recourse debt, current portion	128,305		195,036
Pass-through financing obligation, current portion	16,791		16,898
Total current liabilities	1,119,109		901,356
Deferred revenue, net of current portion	722,234		690,824
Deferred grants, net of current portion	208,285		213,269
Finance lease obligations, net of current portion	10,295		12,929
Line of credit	0		230,660
Convertible senior notes	389,482		0
Non-recourse debt, net of current portion	4,874,487		4,370,449
Pass-through financing obligation, net of current portion	320,291		323,496
Other liabilities	230,263		268,684
Deferred tax liabilities	62,284		81,905
Total liabilities (1)	7,936,730		7,093,572
Commitments and contingencies (Note 15)	0		0
Redeemable noncontrolling interests	599,313		560,461
Stockholders’ equity:
Preferred stock, $0.0001 par value—authorized, 200,000 shares as of June 30, 2021 and December 31, 2020; 0 shares issued and outstanding as of June 30, 2021 and December 31, 2020	0		0
Common stock, $0.0001 par value—authorized, 2,000,000 shares as of June 30, 2021 and December 31, 2020; issued and outstanding, 205,374 and 201,406 shares as of June 30, 2021 and December 31, 2020, respectively	21		20
Additional paid-in capital	6,226,069		6,107,802
Accumulated other comprehensive loss	(81,444)		(106,755)
Retained earnings	11,811		76,844
Total stockholders’ equity	6,156,457		6,077,911
Noncontrolling interests	736,336		650,999
Total equity	6,892,793		6,728,910
Total liabilities, redeemable noncontrolling interests and total equity	$	15,428,836	$	14,382,943

September 30, 2017 December 31, 2016
(Unaudited)
Assets
Current assets:
Cash $ 216,142
$ 206,364
Restricted cash 14,036
11,882
Accounts receivable (net of allowances for doubtful accounts of $1,521 and $1,166 as of September 30, 2017 and December 31, 2016, respectively) 73,031
60,258
State tax credits receivable 11,085
13,713
Inventories 63,323
67,326
Prepaid expenses and other current assets 13,907
9,802
Total current assets 391,524
369,345
Restricted cash 5,952
6,117
Solar energy systems, net 3,147,383
2,629,366
Property and equipment, net 38,819
48,471
Intangible assets, net 15,345
18,499
Goodwill 87,543
87,543
Prepaid tax asset —
378,541
Other assets 31,187
34,936
Total assets ⁽¹⁾
$ 3,717,753
$ 3,572,818
Liabilities and total equity
Current liabilities:
Accounts payable $ 108,689
$ 66,018
Distributions payable to noncontrolling interests and redeemable noncontrolling interests 14,785
10,654
Accrued expenses and other liabilities 54,533
59,261
Deferred revenue, current portion 74,793
70,849
Deferred grants, current portion 7,827
8,011
Capital lease obligations, current portion 7,883
10,015
Recourse debt, current portion 247,000
—
Non-recourse debt, current portion 22,538
14,153
Lease pass-through financing obligation, current portion 6,043
5,823
Total current liabilities 544,091
244,784
Deferred revenue, net of current portion 581,517
583,401
Deferred grants, net of current portion 231,478
226,893
Capital lease obligations, net of current portion 7,060
12,965
Recourse debt, net of current portion —
244,000
Non-recourse debt, net of current portion 846,257
639,870
Lease pass-through financing obligation, net of current portion 137,997
137,958
Other liabilities 10,277
5,457
Deferred tax liabilities 68,975
415,397
Total liabilities ⁽¹⁾
2,427,652
2,510,725
Commitments and contingencies (Note 13)

Redeemable noncontrolling interests 176,460
137,907
Stockholders’ equity:
Preferred stock, $0.0001 par value—authorized, 200,000 shares as of September 30, 2017 and December 31, 2016; no shares issued and outstanding as of September 30, 2017 and December 31, 2016 —
—
Common stock, $0.0001 par value—authorized, 2,000,000 shares as of September 30, 2017 and December 31, 2016; issued and outstanding, 106,677 and 104,321 shares as of September 30, 2017 and December 31, 2016, respectively 11
10
Additional paid-in capital 684,398
668,076
Accumulated other comprehensive income (3,537 ) 437
Retained earnings 73,064
4,438
Total stockholders’ equity 753,936
672,961
Noncontrolling interests 359,705
251,225
Total equity 1,113,641
924,186
Total liabilities, redeemable noncontrolling interests and total equity $ 3,717,753
$ 3,572,818

1)The Company’s consolidated assets as of June 30, 2021 and December 31, 2020 include $7,965,715 and $7,190,866, respectively, in assets of variable interest entities (“VIEs”) that can only be used to settle obligations of the VIEs. These assets include solar energy systems, net, as of June 30, 2021 and December 31, 2020 of $7,321,816 and $6,748,127, respectively; cash as of June 30, 2021 and December 31, 2020 of $340,214 and $219,502, respectively; restricted cash as of June 30, 2021 and December 31, 2020 of $53,121 and $34,559, respectively; accounts receivable, net as of June 30, 2021 and December 31, 2020 of $61,971 and $35,152, respectively; inventories as of June 30, 2021 and December 31, 2020 of $31,207 and 23,306, respectively; prepaid expenses and other current assets as of June 30, 2021 and December 31, 2020 of $1,333 and $2,629, respectively; and other assets as of June 30, 2021 and December 31, 2020 of $156,053 and $127,591, respectively. The Company’s consolidated liabilities as of June 30, 2021 and December 31, 2020 include $2,139,358 and $1,857,967, respectively, in liabilities of VIEs whose creditors have no recourse to the Company. These liabilities include accounts payable as of June 30, 2021 and December 31, 2020 of $33,151 and $15,609, respectively; distributions payable to noncontrolling interests and redeemable noncontrolling interests as of June 30, 2021 and December 31, 2020 of $33,371 and $28,577, respectively; accrued expenses and other current liabilities as of June 30, 2021 and December 31, 2020 of $29,013 and $24,660, respectively; deferred revenue as of June 30, 2021 and December 31, 2020 of $578,560 and $538,067, respectively; deferred grants as of June 30, 2021 and December 31, 2020 of $26,268 and $26,898, respectively; non-recourse debt as of June 30, 2021 and December 31, 2020 of $1,409,946 and $1,192,411, respectively; and other liabilities as of June 30, 2021 and December 31, 2020 of $29,049 and $31,745, respectively.

The Company’s consolidated assets as of September 30, 2017 and December 31, 2016 include $2,597,441 and $2,065,232, respectively, in assets of variable interest entities, or “VIEs”, that can only be used to settle obligations of the VIEs. Solar energy systems, net, as of September 30, 2017 and December 31, 2016 were $2,437,363 and $1,920,330, respectively; cash as of September 30, 2017 and December 31, 2016 were $125,232 and $120,728, respectively; restricted cash as of September 30, 2017 and December 31, 2016 were $1,861 and $1,680, respectively; accounts receivable, net as of September 30, 2017 and December 31, 2016 were $30,198 and $20,771, respectively; prepaid expenses and other current assets as of September 30, 2017 and December 31, 2016 were $482 and $242, respectively and other assets as of September 30, 2017 and December 31, 2016 were $2,305 and $1,481, respectively. The Company’s consolidated liabilities as of September 30, 2017 and December 31, 2016 include $788,734 and $617,011, respectively, in liabilities of VIEs whose creditors have no recourse to the Company. These liabilities include accounts payable as of September 30, 2017 and December 31, 2016 of $25,329 and $14,873, respectively; distributions payable to noncontrolling interests and redeemable noncontrolling interests as of September 30, 2017 and December 31, 2016 of $14,785 and $10,654, respectively; accrued expenses and other liabilities as of September 30, 2017 and December 31, 2016 of $1,884 and $782, respectively; deferred revenue as of September 30, 2017 and December 31, 2016 of $460,886 and $422,685, respectively; deferred grants as of September 30, 2017 and December 31, 2016 of $105,860 and $109,034, respectively; and non-recourse debt as of September 30, 2017 and December 31, 2016 of $177,466 and $58,983, respectively.

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

Sunrun Inc.

Consolidated Statements of Operations

(In Thousands, Except Per Share Amounts)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenue:
Customer agreements and incentives	$	219,474	$	106,095	$	394,070	$	205,219
Solar energy systems and product sales	181,692		75,199		341,890		186,806
Total revenue	401,166		181,294		735,960		392,025
Operating expenses:
Cost of customer agreements and incentives	177,339		83,422		337,616		161,699
Cost of solar energy systems and product sales	151,588		63,746		285,670		155,344
Sales and marketing	144,599		69,701		270,712		139,971
Research and development	5,150		4,971		11,022		9,017
General and administrative	62,916		41,756		148,546		69,830
Amortization of intangible assets	1,343		1,167		2,688		2,650
Total operating expenses	542,935		264,763		1,056,254		538,511
Loss from operations	(141,769)		(83,469)		(320,294)		(146,486)
Interest expense, net	(74,999)		(50,721)		(149,269)		(100,645)
Other (expenses) income, net	(11,553)		(148)		22,794		(98)
Loss before income taxes	(228,321)		(134,338)		(446,769)		(247,229)
Income tax (benefit) expense	(14,912)		211		(29,038)		(3,131)
Net loss	(213,409)		(134,549)		(417,731)		(244,098)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests	(172,165)		(120,987)		(352,698)		(202,577)
Net loss attributable to common stockholders	$	(41,244)	$	(13,562)	$	(65,033)	$	(41,521)
Net loss per share attributable to common stockholders
Basic	$	(0.20)	$	(0.11)	$	(0.32)	$	(0.35)
Diluted	$	(0.20)	$	(0.11)	$	(0.32)	$	(0.35)
Weighted average shares used to compute net loss per share attributable to common stockholders
Basic	204,378		120,279		203,475		120,201
Diluted	204,378		120,279		203,475		120,201

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Revenue:
Operating leases and incentives $ 58,462
$ 43,150
$ 171,897
$ 123,084
Solar energy systems and product sales 82,829
68,883
211,359
210,230
Total revenue 141,291
112,033
383,256
333,314
Operating expenses:
Cost of operating leases and incentives 49,232
40,770
140,682
117,478
Cost of solar energy systems and product sales 69,588
57,264
179,957
176,376
Sales and marketing 37,298
40,192
101,758
127,096
Research and development 3,936
2,458
10,642
7,294
General and administrative 27,925
21,331
77,776
68,193
Amortization of intangible assets 1,052
1,051
3,154
3,154
Total operating expenses 189,031
163,066
513,969
499,591
Loss from operations (47,740 ) (51,033 ) (130,713 ) (166,277 )
Interest expense, net 17,707
13,957
49,586
38,535
Other expenses (income), net (94 ) 42
589
(460 )
Loss before income taxes (65,353 ) (65,032 ) (180,888 ) (204,352 )
Income tax expense 14,834
9,936
37,625
13,146
Net loss (80,187 ) (74,968 ) (218,513 ) (217,498 )
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests (107,969 ) (91,846 ) (284,144 ) (280,153 )
Net income available to common stockholders $ 27,782
$ 16,878
$ 65,631
$ 62,655
Net income per share available to common stockholders
Basic $ 0.26
$ 0.16
$ 0.62
$ 0.61
Diluted $ 0.25
$ 0.16
$ 0.61
$ 0.60
Weighted average shares used to compute net income per share available to common stockholders
Basic 105,783
102,707
105,060
101,988
Diluted 109,598
105,092
107,893
104,698

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

Sunrun Inc.

Consolidated Statements of Comprehensive ~~Income~~Loss

(In Thousands)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net loss attributable to common stockholders	$	(41,244)	$	(13,562)	$	(65,033)	$	(41,521)
Unrealized (loss) gain on derivatives, net of income taxes	(28,545)		(2,632)		18,588		(75,175)
Adjustment for net loss on derivatives recognized into earnings, net of income taxes	3,863		419		6,723		664
Other comprehensive (loss) income	(24,682)		(2,213)		25,311		(74,511)
Comprehensive loss	$	(65,926)	$	(15,775)	$	(39,722)	$	(116,032)

Sunrun Inc.

Consolidated Statements of Redeemable Noncontrolling Interests and Equity

Three Months Ended June 30, 2021 and 2020

(In Thousands)

(Unaudited)


	Three Months Ended June 30, 2021
	Redeemable Noncontrolling Interests		Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders' Equity		Noncontrolling Interests		Total Equity
				Shares			Amount
Balance at March 31, 2021	$	536,294		203,562	$	20		$	6,169,247	$	(56,762)	$	53,055	$	6,165,560	$	690,742	$	6,856,302

Exercise of stock options	—			451	—			3,703		—		—		3,703		—		3,703
Issuance of restricted stock units	—			918	1			—		—		—		1		—		1
Shares issued in connection with the Employee Stock Purchase Plan	—			443	—			6,761		—		—		6,761		—		6,761
Stock-based compensation	—			—	—			46,358		—		—		46,358		—		46,358
Contributions from noncontrolling interests and redeemable noncontrolling interests	90,818			—	—			—		—		—		—		237,479		237,479
Distributions to noncontrolling interests and redeemable noncontrolling interests	(16,145)			—	—			—		—		—		—		(31,374)		(31,374)
Net loss	(11,654)			—	—			—		—		(41,244)		(41,244)		(160,511)		(201,755)


Other comprehensive loss, net of taxes	—			—	—			—		(24,682)		—		(24,682)		—		(24,682)
Balance at June 30, 2021	$	599,313		205,374	$	21		$	6,226,069	$	(81,444)	$	11,811	$	6,156,457	$	736,336	$	6,892,793


	Three Months Ended June 30, 2020
	Redeemable Noncontrolling Interests		Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders' Equity		Noncontrolling Interests		Total Equity
				Shares			Amount
Balance at March 31, 2020	$	415,693		120,123	$	12		$	775,233	$	(125,051)	$	222,279	$	872,473	$	326,191	$	1,198,664

Exercise of stock options	—			388	—			2,709		—		—		2,709		—		2,709
Issuance of restricted stock units, net of tax withholdings	—			1,467	0			2,504		—		—		2,504				2,504
Shares issued in connection with the Employee Stock Purchase Plan	—			329	—			3,737		—		—		3,737				3,737
Stock-based compensation	—			—	—			22,519		—		—		22,519				22,519
Contributions from noncontrolling interests and redeemable noncontrolling interests	169,048			—	—			—		—		—		—		34,997		34,997
Distributions to noncontrolling interests and redeemable noncontrolling interests	(8,013)			—	—			—		—		—		—		(12,909)		(12,909)
Net (loss) income	(126,046)			—	—			—		—		(13,562)		(13,562)		5,059		(8,503)


Other comprehensive loss, net of taxes	—			—	—			—		(2,213)		—		(2,213)		—		(2,213)
Balance at June 30, 2020	$	450,682		122,307	$	12		$	806,702	$	(127,264)	$	208,717	$	888,167	$	353,338	$	1,241,505

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income attributable to common stockholders $ 27,782
$ 16,878
$ 65,631
$ 62,655
Other comprehensive income:
Unrealized loss on derivatives, net of income taxes (543 ) 421
(5,016 ) (5,212 )
Less interest expense on derivatives recognized into earnings, net of income taxes (138 ) (301 ) (1,042 ) (946 )
Comprehensive income $ 27,377
$ 17,600
$ 61,657
$ 58,389

Sunrun Inc.

Consolidated Statements of Redeemable Noncontrolling Interests and Equity

Six Months Ended June 30, 2021 and 2020

(In Thousands)

(Unaudited)


	Six Months Ended June 30, 2021
	Redeemable Noncontrolling Interests		Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders' Equity		Noncontrolling Interests		Total Equity
				Shares			Amount
Balance at December 31, 2020	$	560,461		201,406	$	20		$	6,107,802	$	(106,755)	$	76,844	$	6,077,911	$	650,999	$	6,728,910

Exercise of stock options	—			1,349	—			12,244		—		—		12,244		—		12,244
Issuance of restricted stock units	—			2,176	1			—		—		—		1		—		1
Shares issued in connection with the Employee Stock Purchase Plan	—			443	—			6,761		—		—		6,761		—		6,761
Stock-based compensation	—			—	—			126,990		—		—		126,990		—		126,990
Contributions from noncontrolling interests and redeemable noncontrolling interests	67,127			—	—			—		—		—		—		508,863		508,863
Distributions to noncontrolling interests and redeemable noncontrolling interests	(32,214)			—	—			—		—		—		—		(62,317)		(62,317)
Net income (loss)	8,511			—	—			—		—		(65,033)		(65,033)		(361,209)		(426,242)
Capped call transaction	—			—	—			(28,000)		—		—		(28,000)		—		(28,000)
Acquisition of noncontrolling interests	(4,572)			—	—			272		—		—		272		—		272
Other comprehensive income, net of taxes	—			—	—			—		25,311		—		25,311		—		25,311
Balance at June 30, 2021	$	599,313		205,374	$	21		$	6,226,069	$	(81,444)	$	11,811	$	6,156,457	$	736,336	$	6,892,793


	Six Months Ended June 30, 2020
	Redeemable Noncontrolling Interests		Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders' Equity		Noncontrolling Interests		Total Equity
				Shares			Amount
Balance at December 31,2019	$	306,565		118,451	$	12		$	766,006	$	(52,753)	$	251,466	$	964,731	$	366,701	$	1,331,432
Cumulative effect of adoption of new ASU (No. 2016-13)	—			—	—			—		—		(1,228)		(1,228)		—		(1,228)
Exercise of stock options	—			1,397	—			8,658		—		—		8,658		—		8,658
Issuance of restricted stock units, net of tax withholdings	—			2,130	—			(1,026)		—		—		(1,026)		0		(1,026)
Shares issued in connection with the Employee Stock Purchase Plan	—			329	—			3,737		—		—		3,737		0		3,737
Stock-based compensation	—			—	—			29,327		—		—		29,327		0		29,327
Contributions from noncontrolling interests and redeemable noncontrolling interests	319,952			—	—			—		—		—		—		54,997		54,997
Distributions to noncontrolling interests and redeemable noncontrolling interests	(15,097)			—	—			—		—		—		—		(26,521)		(26,521)
Net loss	(160,738)			—	—			—		—		(41,521)		(41,521)		(41,839)		(83,360)

Other comprehensive loss, net of taxes	—			—	—			—		(74,511)		—		(74,511)		—		(74,511)
Balance at June 30, 2020	$	450,682		122,307	$	12		$	806,702	$	(127,264)	$	208,717	$	888,167	$	353,338	$	1,241,505

Sunrun Inc.

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)


	Six Months Ended June 30,
	2021		2020
Operating activities:
Net loss	$	(417,731)	$	(244,098)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization, net of amortization of deferred grants	187,145		103,015
Deferred income taxes	(28,689)		(3,131)
Stock-based compensation expense	121,492		29,327


Interest on pass-through financing obligations	10,846		11,773
Reduction in pass-through financing obligations	(21,158)		(19,258)
Other noncash items	492		20,301
Changes in operating assets and liabilities:
Accounts receivable	(72,359)		15,128
Inventories	(58,378)		50,064
Prepaid and other assets	(185,557)		(14,345)
Accounts payable	52,297		(98,935)
Accrued expenses and other liabilities	18,697		(15,198)
Deferred revenue	37,139		13,104
Net cash used in operating activities	(355,764)		(152,253)
Investing activities:
Payments for the costs of solar energy systems	(751,539)		(362,080)
Purchases of property and equipment, net	(5,512)		(2,337)
Net cash used in investing activities	(757,051)		(364,417)
Financing activities:
Proceeds from state tax credits, net of recapture	0		6,219
Proceeds from line of credit	424,979		43,475
Repayment of line of credit	(438,356)		(46,525)
Proceeds from issuance of convertible senior notes, net of capped call transaction	371,998		0
Proceeds from issuance of non-recourse debt	758,032		197,251
Repayment of non-recourse debt	(325,795)		(37,312)
Payment of debt fees	(28,877)		0
Proceeds from pass-through financing and other obligations	5,298		3,721

Payment of finance lease obligations	(6,137)		(5,545)
Contributions received from noncontrolling interests and redeemable noncontrolling interests	575,990		374,949
Distributions paid to noncontrolling interests and redeemable noncontrolling interests	(89,734)		(39,929)
Acquisition of noncontrolling interest	(4,195)		0
Net proceeds related to stock-based award activities	19,007		11,369

Net cash provided by financing activities	1,262,210		507,673

Net change in cash and restricted cash	149,395		(8,997)
Cash and restricted cash, beginning of period	708,208		363,229
Cash and restricted cash, end of period	$	857,603	$	354,232
Supplemental disclosures of cash flow information
Cash paid for interest	$	104,060	$	56,766
Cash paid for income taxes	$	0	$	0
Supplemental disclosures of noncash investing and financing activities
Purchases of solar energy systems and property and equipment included in accounts payable and accrued expenses	$	69,255	$	75,190
Right-of-use assets obtained in exchange for new finance lease liabilities	$	3,164	$	213

Nine Months Ended September 30,
2017 2016
Operating activities:
Net loss $ (218,513 ) $ (217,498 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization, net of amortization of deferred grants 99,674
73,570
Deferred income taxes 37,624
13,146
Stock-based compensation expense 16,494
14,026
Noncash interest expense 13,144
8,024
Interest on lease pass-through financing obligations 8,963
9,051
Reduction in lease pass-through financing obligations (13,721 ) (14,149 )
Other noncash losses and expenses 6,849
4,154
Changes in operating assets and liabilities:
Accounts receivable (13,963 ) 9,183
Inventories 4,003
(14,573 )
Prepaid and other assets (3,620 ) (5,135 )
Accounts payable 31,669
(22,220 )
Accrued expenses and other liabilities (11,367 ) 8,014
Deferred revenue 3,598
7,176
Net cash used in operating activities (39,166 ) (127,231 )
Investing activities:
Payments for the costs of solar energy systems, leased and to be leased (583,188 ) (530,295 )
Purchases of property and equipment (5,956 ) (10,397 )
Business acquisition, net of cash acquired —
(5,000 )
Net cash used in investing activities (589,144 ) (545,692 )
Financing activities:
Proceeds from state tax credits, net of recapture 12,785
9,081
Proceeds from issuance of recourse debt 125,400
354,400
Repayment of recourse debt (122,400 ) (307,400 )
Proceeds from issuance of non-recourse debt 294,086
249,820
Repayment of non-recourse debt (92,801 ) (18,113 )
Payment of debt fees (6,332 ) (13,614 )
Proceeds from lease pass-through financing obligations 4,639
14,242
Contributions received from noncontrolling interests and redeemable noncontrolling interests 471,322
422,207
Distributions paid to noncontrolling interests and redeemable noncontrolling interests (38,761 ) (27,749 )
(Payments) proceeds from exercises of stock options, net of withholding taxes on restricted stock units and issuance of shares in connection with the Employee Stock Purchase Plan (207 ) 4,704
Offering costs paid related to initial public offering —
(437 )
Payment of capital lease obligations (7,585 ) (9,668 )
Change in restricted cash (2,058 ) (937 )
Net cash provided by financing activities 638,088
676,536

Net change in cash 9,778
3,613
Cash, beginning of period 206,364
203,864
Cash, end of period $ 216,142
$ 207,477
Supplemental disclosures of cash flow information
Cash paid for interest $ 29,383
$ 17,776
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 $ 29,206
$ 22,871
Purchases of solar energy systems included in non-recourse debt $ 12,873
$ —
Distributions payable to noncontrolling interests and redeemable noncontrolling interests $ 14,785
$ 9,817
Vehicles acquired under capital leases $ 166
$ 12,637

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

Sunrun Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Organization

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

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

The Company has formed various subsidiaries (“Funds”) to finance the development of Projects. These Funds, structured as limited liability companies, obtain financing from outside investors and purchase or lease Projects from Sunrun under master purchase or master lease agreements. The Company currently utilizes ~~three~~3 legal structures in its investment Funds, which are referred to as: (i) ~~lease pass-throughs,~~pass-through financing obligations, (ii) partnership-flips and (iii) joint venture (“JV”) inverted leases.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the "SEC") regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2016. The unaudited consolidated financial statements are prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (all of which are considered of normal recurring nature) considered necessary to present fairly the Company’s financial results. The results of the nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2017 or other future periods.2020.

The consolidated financial statements reflect the accounts and operations of the Company and those of its subsidiaries, including Funds, in which the Company has a controlling financial interest. Beginning October 8, 2020, the Company's consolidated subsidiaries also included Vivint Solar, Inc. ("Vivint Solar"). The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity. However, a controlling financial interest may also exist in entities, such as variable interest entities (“VIEs”), through arrangements that do not involve controlling voting interests. In accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 810 (“ASC 810”) Consolidation, the Company consolidates any VIE of which it is the primary beneficiary. The primary beneficiary, as defined in ASC 810, is the party that has (1) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb the losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company evaluates its relationships with its VIEs on an ongoing basis to determine whether it continues to be the primary beneficiary. The consolidated financial statements reflect the assets and liabilities of VIEs that are consolidated. All intercompany transactions and balances have been eliminated in consolidation.

Reclassifications

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

Use of Estimates

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company regularly makes ~~significant~~ estimates and assumptions, including, but not limited to, revenue recognition constraints that result in variable consideration, the discount rate used to adjust the promised amount of consideration for the effects of a significant financing component, the estimates

that affect the collectability of accounts receivable, the valuation of inventories, the useful lives of solar energy systems, the useful lives of property and equipment, the valuation and useful lives of intangible assets, the effective interest rate used to amortize pass-through financing obligations, the discount rate uses for operating and financing leases, the fair value of contingent consideration, the fair value of assets acquired and liabilities assumed in a business ~~combinations, the effective interest rate used to amortize lease pass-through financing obligations, the fair value used to value solar energy systems,~~combination, the valuation of stock-based compensation, the determination of valuation allowances associated with deferred tax assets, the fair value of debt instruments disclosed and the redemption value of redeemable noncontrolling interests. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable. Actual results may differ from such estimates.

Segment Information

The Company has ~~one~~1 operating segment with ~~one~~1 business activity, providing solar energy services and products to customers. The Company’s chief operating decision maker (“CODM”) is its Chief Executive Officer, who manages operations on a consolidated basis for purposes of allocating resources. When evaluating performance and allocating resources, the CODM reviews financial information presented on a consolidated basis.

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Customer agreements	$	196,935	$	98,525	$	354,765	$	192,778
Incentives	22,539		7,570		39,305		12,441
Customer agreements and incentives	219,474		106,095		394,070		205,219

Solar energy systems	90,422		44,579		179,472		115,856
Products	91,270		30,620		162,418		70,950
Solar energy systems and product sales	181,692		75,199		341,890		186,806
Total revenue	$	401,166	$	181,294	$	735,960	$	392,025

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

Cash and Restricted Cash

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

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Operating leases $ 47,600
$ 34,144
$ 129,696
$ 92,451
Incentives 10,862
9,006
42,201
30,633
Operating leases and incentives 58,462
43,150
171,897
123,084

Solar energy systems 30,734
27,585
79,431
93,655
Products 52,095
41,298
131,928
116,575
Solar energy systems and product sales 82,829
68,883
211,359
210,230
Total revenue $ 141,291
$ 112,033
$ 383,256
$ 333,314
The following table provides a reconciliation of cash and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statement of cash flows. Cash and restricted cash consists of the following (in thousands):


	Six Months Ended June 30,
	2021		2020
Beginning of period:
Cash	$	519,965	$	269,577
Restricted cash, current and long-term	188,243		93,652
Total	$	708,208	$	363,229

End of period:
Cash	$	679,588	$	269,569
Restricted cash, current and long-term	178,015		84,663
Total	$	857,603	$	354,232

As a result of the acquisition of Vivint Solar on October 8, 2020, cash and restricted cash increased by $537.2 million.

Accounts Receivable

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

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


	June 30, 2021		December 31, 2020
Customer receivables	$	164,260	$	97,723
Other receivables	812		710
Rebates receivable	5,145		1,569
Allowance for credit losses	(7,248)		(4,861)
Total	$	162,969	$	95,141

Deferred Revenue

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

The opening balance of deferred revenue was $729.5 million as of December 31, 2019. Deferred revenue consists of the following (in thousands):


	June 30, 2021		December 31, 2020
Under Customer Agreements:
Payments received, net	$	637,388	$	614,906
Financing component balance	55,187		51,835
	692,575		666,741

Under SREC contracts:
Payments received, net	136,473		126,793
Financing component balance	7,145		5,742
	143,618		132,535

Total	$	836,193	$	799,276

In the three months ended June 30, 2021 and 2020, the Company recognized revenue of $23.7 million and $20.3 million, respectively, and in the six months ended June 30, 2021 and 2020, the Company recognized revenue of $42.5 million and $37.7 million, respectively, from amounts included in deferred revenue at the beginning of the respective periods. Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized and includes deferred revenue as well as amounts that will be invoiced and recognized as revenue in future periods. Contracted but not yet recognized revenue was approximately $12.8 million as of June 30, 2021, of which the Company expects to recognize approximately 6% over the next 12 months. The annual recognition is not expected to vary significantly over the next 10 years as the vast majority of existing Customer Agreements have at least 10 years remaining, given that the average age of the Company's fleet of residential solar energy systems under Customer Agreements is less than four years due to the Company being formed in 2007 and having experienced significant growth in the last few years. The annual recognition on these existing contracts will gradually decline over the midpoint of the Customer Agreements over the following 10 years as the typical 20- or 25-year initial term expires on individual Customer Agreements.

Fair Value of Financial Instruments

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

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

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

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

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

~~Recently Issued and Adopted Accounting Standards~~Revenue Recognition

~~In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09~~ ~~Revenue from Contracts with Customers~~ (Topic 606). The standard establishes a single revenue recognition model for all contracts with customers, eliminates industry specific requirements, and expands disclosure requirements. This ASU is effective for the Company for annual reporting periods beginning after December 15, 2017 including the interim reporting

periods within that fiscal year. Adoption of this ASU is either retrospective to each prior period presented or retrospective with a cumulative adjustment to retained earnings or accumulated deficit as of the adoption date. The Company ~~plans~~recognizes revenue when control of goods or services is transferred to ~~adopt this ASU on a full retrospective basis.~~

~~The Company currently accounts for Customer Agreements pursuant to ASC 840,~~ ~~Leases.~~ ~~The Company currently believes~~its customers, in an amount that reflects the ~~adoption of ASC 842,~~ ~~Leases~~ ~~("ASC 842") will cause Customer Agreements to be accounted for under ASC 606. As such, the Company plans to adopt ASC 842 simultaneously with its adoption of ASC 606 on January 1, 2018.~~

~~Under ASC 606, total~~ consideration ~~for Customer Agreements, including price escalators, is~~it expected to be entitled to in exchange for those goods or services.

Customer agreements and incentives

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

The Company begins to recognize revenue on Customer Agreements when permission to operate ("PTO") is given by the local utility company or on the date daily operation commences if utility approval is not required. Revenue recognition does not necessarily follow the receipt of cash. For Customer Agreements that include a fixed fee per month which entitles the customer to any and all electricity generated by the system, and for which the Company’s obligation is to provide continuous access to a functioning solar energy system, the Company recognizes revenue evenly over the time that it satisfies its performance obligations, which is over the initial term of the Customer Agreements. For Customer Agreements that charge a fixed price per kilowatt hour, and for which the Company’s obligation is the provision of electricity from a solar energy system, revenue is recognized ~~ratably~~based on the actual amount of power generated at rates specified under the contracts. Customer Agreements typically have an initial term of 20 or 25 years. After the initial contract term, Customer Agreements typically automatically renew on an annual basis.

SREC revenue arises from the sale of environmental credits generated by solar energy systems and is generally recognized upon delivery of the SRECs to the counterparty or upon reporting of the electricity generation. For pass-through financing obligation Funds, the value attributable to the monetization of Commercial ITCs are recognized in the period a solar energy system is granted PTO - seeNote 10, Pass-through Financing Obligations.

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

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

The Company capitalizes incremental costs incurred to obtain a contract in Other Assets in the consolidated balance sheets. These amounts are amortized on a straight-line basis over the term of the Customer Agreements, and ~~recognized over a period~~are included in Sales and marketing in the consolidated statements of time, including ITCs, under ASC 606, revenue is expected to be recognized at a point in time. Therefore, for some revenue recognized in recent periods, or not yet recognized, the recognition timing will move to periods preceding the reported periods and be reflected in retained earnings upon adoption of ASC 606. The accounting is not expected to materially differ for revenue currently recognized as "Solaroperations.

Solar energy systems and product ~~sales."~~sales

For solar energy systems sold to customers, revenue is recognized when the solar energy system passes inspection by the authority having jurisdiction, which inspection generally occurs after installation but prior to PTO, at which time the Company has met the performance obligation in the contract. For solar energy system sales that include delivery obligations up until interconnection to the local power grid with permission to operate, the Company recognizes revenue at PTO. The ~~Company~~Company’s installation Projects are typically completed in less than twelve months.

Product sales consist of solar panels, racking systems, inverters, other solar energy products sold to resellers, roof repair, fees for extended services on solar energy systems sold to customers and customer leads. Product sales revenue is ~~continuing to assess~~recognized at the ~~impact~~time when control is transferred, upon shipment, or as services are delivered. Customer lead revenue, included in product sales, is recognized at the time the lead is delivered.

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

Cost of ~~such changes, as well as other potential impacts~~Revenue

Customer agreements and incentives

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

Solar energy systems and product sales

Cost of revenue for solar energy systems and ~~lease standards. The Company has a project plan in place~~non-lead generation product sales consist of direct and indirect material and labor costs for solar energy systems installations and product sales. Also included are engineering and design costs, estimated warranty costs, freight costs, allocated corporate overhead costs, vehicle depreciation costs and personnel costs associated with supply chain, logistics, operations management, safety and quality control. Cost of revenue for lead generations consists of costs related to ~~meet the requirements of these~~direct-response advertising activities associated with generating customer leads.

Recently Issued and Adopted Accounting Standards

Accounting standards ~~using internal resources and consultants. The Company has completed its initial assessment and is completing contract reviews and finalizing its accounting policy.~~

~~In February 2016, the FASB issued ASU No. 2016-02 to replace existing lease guidance with ASC 842,~~ ~~Leases~~. ASC 842 changes how the definition of a lease is applied and judgment may be required in applying the definition of a lease to certain arrangements. The new standard may result in certain contracts no longer being leases. For lessees, the standard requires all leases with an initial term greater than one year be recorded on the balance sheet as an asset and a lease liability. This ASU is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted and, as noted above, we plan to adopt early onadopted January 1, ~~2018. Adoption of this ASU is applied using a modified retrospective approach.~~2020:

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

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which replaces the current incurred loss impairment methodology with a current expected credit losses model. The amendment applies to entities ~~which~~that hold financial assets and net investment in leases that are not accounted for at fair value through net income as well as loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash. The Company adopted ASU No. 2016-13 effective January 1, 2020, using a modified retrospective transition method, which resulted in a cumulative-effect adjustment of $1.7 million for the establishment of a credit loss allowance for unbilled receivables related to Customer Agreements, as reflected in its consolidated statement of redeemable noncontrolling interests and stockholders' equity.

Accounting standards adopted January 1, 2021:

In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope, which permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by reference rate reform. This ASU is effective upon issuance and can generally be applied through December 31, 2022. The Company adopted ASU 2019-12 effective January 1, 2021, and there was no impact to its consolidated financial statements.

In November 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), which simplifies the accounting for income taxes, primarily by eliminating certain exceptions to the guidance in ASC 740. The Company adopted ASU 2019-12 effective January 1, 2021, and there was no impact to its consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40), simplifies the accounting for convertible instruments and the application of the derivatives scope exception for contracts in an entity’s own equity. This ASU is effective for fiscal ~~years~~periods beginning after December 15, ~~2019~~2021. The Company adopted ASU 2020-06 effective January 1, 2021, and ~~interim periods within those fiscal years. Early adoption is permitted. Adoption~~applied this guidance to the convertible senior notes issued in January 2021, see Note 8 Indebtedness, which allowed the Company to account for the notes and their underlying conversion feature as a liability. There was no other impact to the Company’s consolidated financial statements as a result of this adoption.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or other reference rates that are expected to be discontinued because of reference rate reform. This ASU is ~~applied using a modified retrospective approach, with~~available for adoption as of the beginning of the interim period that includes March 12, 2020 through

December 31, 2022, as contract modifications or hedging relationships entered into or evaluated after December 31, 2022 are excluded unless an entity has elected certain ~~aspects requiring a prospective approach.~~optional expedients for and that are retained through the end of the hedging relationship. For the Company’s cash flow hedges in which the designated hedged risk is LIBOR or another rate that is expected to be discontinued, the Company has adopted the portion of the guidance that allows it to assert that it remains probable that the hedged forecasted transaction will occur. The Company adopted the remainder of this guidance effective January 1, 2021, and there was no impact to its consolidated financial statements.

Accounting standards to be adopted:

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40), which requires issuers to account for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after the modification or exchange based on the economic substance of the modification or exchange. This ASU is effective for fiscal periods beginning after December 15, 2021. The Company is currently evaluating this guidance and the impact it may have on the Company’s consolidated financial statements.

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

~~gross deferred tax assets of $378.2 million and recorded a cumulative adjustment decreasing retained earnings by $0.3 million as of January 1, 2017.~~

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Statement of Cash Flows~~ (Topic 230), Restricted Cash, which requires a statement of cash flows to present the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash equivalents. This ASU is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted. Adoption of this ASU is applied using a retrospective approach. As a result, the Company will no longer present transfers between cash and restricted cash in the consolidated cash flow statements upon adoption in the first quarter of 2018.

~~In January 2017, the FASB issued ASU 2017-01,~~ ~~Business Combinations~~ (Topic 805), Clarifying the Definition of a Business, to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The amendments in this update provide a screen to determine when a set of operations is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. The Company early adopted the new ASU effective January 1, 2017 on a prospective basis.

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~Intangibles – Goodwill and Other~~ (Topic 350), Simplifying the Test for Goodwill Impairment, which eliminates Step 2 from the goodwill impairment test. Instead, under this amendment, an entity shall perform its annual, or interim, goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The ASU is effective for annual or any interim goodwill impairment tests beginning in fiscal years after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this standard would only have an effect on the Company’s consolidated financial statements if it failed Step 1 of the goodwill impairment test, which has not occurred to date.

~~In May 2017, the FASB issued ASU 2017-09,~~ ~~Compensation – Stock Compensation~~, Scope of Modification Accounting, which requires entities to apply modification accounting guidance when there are changes in the terms or conditions of a share-based payment award unless all of the following conditions are met: (i) the fair value of the modified award is the same as the fair value of the original award immediately before modification, (ii) the vesting conditions of the modified award are the same as the original award immediately before modification, and (iii) the classification of the modified award is the same as the original award immediately before modification. The Company early adopted the new ASU effective April 1, 2017, on a prospective basis.

~~In August 2017, the FASB issued 2017-12,~~ ~~Derivatives and Hedging,~~ Targeted Improvements to Accounting for Hedging Activities, which expands an entity's ability to hedge nonfinancial and financial risk components, eliminates the requirement to separately measure and report hedge ineffectiveness, and aligned the recognition and presentation of the effects of hedging instruments in the financial statements. The ASU is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. Adoption of this ASU is applied using a modified retrospective approach. The Company is currently evaluating this guidance and the impact it may have on the Company's consolidated financial statements.

Note 3. Fair Value Measurement

At ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, 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):

September 30, 2017 December 31, 2016
Carrying Value Fair Value Carrying Value Fair Value
Lines of credit $ 571,061
$ 571,061
$ 489,200
$ 489,200
Syndicated term loans 318,904
318,904
189,989
189,989
Bank loans 89,343
88,671
81,307
80,542
Note payable 39,218
39,294
36,232
35,396
Solar asset-backed notes 97,269
102,721
101,295
102,869
Total $ 1,115,795
$ 1,120,651
$ 898,023
$ 897,996


	June 30, 2021				December 31, 2020
	Carrying Value		Fair Value		Carrying Value		Fair Value
Recourse debt	$	606,766	$	562,832	$	230,660	$	230,660
Senior debt	1,930,662		1,931,429		1,722,730		1,733,767
Subordinated debt	999,825		1,027,504		934,386		958,880
Securitization debt	2,072,305		2,143,734		1,908,369		2,012,283
Total	$	5,609,558	$	5,665,499	$	4,796,145	$	4,935,590

At ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, the fair value of ~~the Company’s lines of credit, syndicated term loans~~certain recourse debt and certain ~~bank~~senior, subordinated and securitization loans approximate their carrying values because their interest rates are variable rates that approximate rates currently available to the Company. At ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, the fair value of the Company’s other debt instruments are based on rates currently offered for debt with similar maturities and terms. The Company’s fair value of the debt instruments fell under the Level 32 hierarchy. These valuation approaches involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market.

At June 30, 2021 and December 31, 2020, financial instruments measured at fair value on a recurring basis, based upon the fair value hierarchy, are as follows (in thousands):


	June 30, 2021
	Level 1		Level 2		Level 3		Total
Derivative assets:
Interest rate swaps	$	0	$	17,084	$	0	$	17,084
Total	$	0	$	17,084	$	0	$	17,084
Derivative liabilities:
Interest rate swaps	$	0	$	132,312	$	0	$	132,312
Total	$	0	$	132,312	$	0	$	132,312
Contingent consideration:
Contingent consideration	$	0	$	0	$	2,253	$	2,253
Total	$	0	$	0	$	2,253	$	2,253


	December 31, 2020
	Level 1		Level 2		Level 3		Total
Derivative assets:
Interest rate swaps	$	0	$	5,218	$	0	$	5,218
Total	$	0	$	5,218	$	0	$	5,218
Derivative liabilities:
Interest rate swaps	$	0	$	175,444	$	0	$	175,444
Total	$	0	$	175,444	$	0	$	175,444
Contingent consideration:
Contingent consideration:	$	0	$	0	$	4,653	$	4,653
Total	$	0	$	0	$	4,653	$	4,653

The above balances are recorded in other assets and other liabilities, respectively, in the consolidated balance sheets, except for $0.1 million as of December 31, 2020 which was recorded in prepaid and other assets and except for $25.8 million and $23.9 million as of June 30, 2021 and December 31, 2020, respectively, which is recorded in accrued expenses and other liabilities.

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

~~At September 30, 2017~~ The Company recorded contingent consideration in connection with the July 2019 acquisition of a specific customer pipeline and ~~December 31, 2016, financial instruments measured at fair value~~assembled workforce from Omni Energy, LLC, which is dependent on ~~a recurring basis, based upon~~the achievement of specified deployment milestones associated with the number of solar energy systems installed through 2022. The Company determined the fair value ~~hierarchy are as follows~~of the contingent consideration using a probability-weighted expected return methodology that considers the timing and probabilities of achieving these milestones and uses discount rates that reflect the appropriate cost of capital. Contingent consideration was valued with Level 3 inputs. The Company reassesses the valuation assumptions each reporting period, with any changes in the fair value accounted for in the consolidated statements of operations.

The following table summarizes the activity of Level 3 contingent consideration balance in the six months ended June 30, 2021 (in thousands):


Balance at December 31, 2020	$	4,653
Change in fair value recognized in earnings within sales and marketing expense	(2,400)

Balance at June 30, 2021	$	2,253

September 30, 2017
Level 1 Level 2 Level 3 Total
Derivative assets:
Interest rate swaps $ —
$ 388
$ —
$ 388
Total $ —
$ 388
$ —
$ 388
Derivative liabilities:
Interest rate swaps $ —
$ 5,924
$ —
$ 5,924
Warrants —
—
—
—
Total $ —
$ 5,924
$ —
$ 5,924

December 31, 2016
Level 1 Level 2 Level 3 Total
Derivative assets:
Interest rate swaps $ —
$ 1,632
$ —
$ 1,632
Total $ —
$ 1,632
$ —
$ 1,632
Derivative liabilities:
Warrants $ —
$ —
$ 20
$ 20
Total $ —
$ —
$ 20
$ 20

Note 4. Inventories

Inventories consist of the following (in thousands):


	June 30, 2021		December 31, 2020
Raw materials	$	297,535	$	241,095
Work-in-process	43,888		41,950
Total	$	341,423	$	283,045

As of January 1, 2020, the federal government offers a Commercial ITC of 26%, which is reduced from 30%, under Section 48(a) of the Internal Revenue Code of 1986, as amended, for the installation of certain solar power facilities owned for business purposes. The Internal Revenue Service (“IRS”) provided taxpayers a safe harbor opportunity to retain access to the pre-2020 30% tax credit amount through specific rules released in Notice 2018-59.The Company sought to avail itself of this safe harbor by incurring certain costs and taking title in the year the Company took delivery, for tax purposes, of the underlying inventory and/or by performing physical work on components that will be installed in solar facilities. As of June 30, 2021 and December 31, 2020, there was approximately $20.6 million and $37.5 million, respectively, of inventory that would qualify for a 30% tax credit.

September 30, 2017 December 31, 2016
Raw materials $ 58,906
$ 62,037
Work-in-process 4,417
5,289
Total $ 63,323
$ 67,326

Note 5. Solar Energy Systems, net

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

September 30, 2017 December 31, 2016
Solar energy system equipment costs $ 2,981,012
$ 2,459,856
Inverters 304,846
260,011
Initial direct costs 142,361
117,587
Total solar energy systems 3,428,219
2,837,454
Less: accumulated depreciation and amortization (389,538 ) (303,305 )
Add: construction-in-progress 108,702
95,217
Total solar energy systems, net $ 3,147,383
$ 2,629,366


	June 30, 2021		December 31, 2020
Solar energy system equipment costs	$	8,417,182	$	7,839,427
Inverters	948,853		883,785
Total solar energy systems	9,366,035		8,723,212
Accumulated depreciation and amortization	(1,088,957)		(914,551)
Construction-in-progress	489,991		394,127
Total solar energy systems, net	$	8,767,069	$	8,202,788

All solar energy systems, including construction-in-progress, ~~and inverters~~have been leased to or are subject to signed Customer Agreements with customers. The Company recorded depreciation expense related to solar energy systems of ~~$30.9~~$90.2 million and ~~$24.5~~$48.1 million for the three months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, respectively, and ~~$87.7~~$177.6 million and ~~$67.4~~$94.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, respectively. The depreciation expense was reduced by the amortization of deferred grants of ~~$1.9~~$2.0 million and ~~$3.7~~$2.1 million for the three months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, respectively, and ~~$5.7~~$4.1 million and ~~$11.1~~$4.1 million six months ended June 30, 2021 and 2020, respectively.

Note 6. Other Assets

Other assets consist of the following (in thousands):


	June 30, 2021		December 31, 2020
Costs to obtain contracts - customer agreements	$	541,673	$	377,839
Costs to obtain contracts - incentives	2,481		2,481
Accumulated amortization of costs to obtain contracts	(60,839)		(51,365)
Unbilled receivables	178,839		150,603
Allowance for credit losses on unbilled receivables	(2,017)		(1,731)
Operating lease right-of-use assets	87,747		81,516
Equity security investment	63,826		65,356
Other assets	98,659		56,966
Total	$	910,369	$	681,665

The Company recorded amortization of costs to obtain contracts of $5.4 million and $3.5 million for the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2021 and ~~2016, respectively.~~

2020,respectively, and $9.6 million and $6.9 million for the six months ended June 30, 2021 and 2020, respectively, in Sales and marketing in the consolidated statements of operations.

The majority of unbilled receivables arise from fixed price escalators included in the Company's long-term Customer Agreements. The escalator is included in calculating the total estimated transaction value for an individual Customer Agreement. The total estimated transaction value is then recognized over the term of the Customer Agreement. The amount of unbilled receivables increases while cumulative billings for an individual Customer Agreement are less than the cumulative revenue recognized for that Customer Agreement. Conversely, the amount of unbilled receivables decreases when the actual cumulative billings becomes higher than the cumulative revenue recognized. At the end of the initial term of a Customer Agreement, the cumulative amounts recognized as revenue and billed to date are the same, therefore the unbilled receivable balance for an individual Customer Agreement will be zero. As a result of the adoption of ASU No. 2016-13, an allowance for credit loss on unbilled receivables was established as of January 1, 2020. The Company applies an estimated loss-rate in order to determine the current expected credit loss for unbilled receivables. The estimated loss-rate is determined by analyzing historical credit losses, residential first and second mortgage foreclosures and consumers' utility default rates, as well as current economic conditions. The Company reviews individual customer collection status of electricity billings to determine whether the unbilled receivables for an individual customer should be written off, including the possibility of a service transfer to a potential new homeowner.

Note 6.7. Accrued Expenses and Other Liabilities

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


	June 30, 2021		December 31, 2020
Accrued employee compensation	$	96,705	$	91,115
Operating lease obligations	22,493		21,461
Accrued interest	39,046		38,340
Accrued professional fees	10,998		15,834
Other accrued expenses	143,504		158,864
Total	$	312,746	$	325,614

Note 8. Indebtedness

As of ~~September~~June 30, ~~2017,~~2021, debt consisted of the following (in thousands, except percentages):


	June 30, 2021		December 31, 2020		Unused Borrowing Capacity (1)		Weighted Average Interest Rate at June 30, 2021 (2)	Weighted Average Interest Rate at December 31, 2020 (2)	Contractual Interest Rate (3)	Contractual Maturity Date
Recourse debt
Bank line of credit (4)	$	217,284	$	230,660	$	413	3.37%	3.53%	LIBOR +3.25%	April 2022
0% Convertible Senior Notes (5)	400,000		0		0		0%	N/A	0%	February 2026
Total recourse debt	617,284		230,660		413
Unamortized debt discount	(10,518)		0		—
Total recourse debt, net	606,766		230,660		413

Non-recourse debt (6)
Senior revolving and delayed draw loans (7)(8)	1,009,300		587,600		56,628		2.74%	2.85%	LIBOR +2.50% - 3.25%	March 2023 - October 2027
Senior non-revolving loans	873,530		1,087,386		0		3.89%	3.68%	4.50% - 6.50%; LIBOR +2.125% - 2.25%	April 2022 - November 2040
Subordinated revolving and delayed draw loans	178,104		282,722		6,200		9.13%	8.43%	8.50% - 10.00%; LIBOR +9.00%	March 2024 - October 2032
Subordinated loans (9)	839,999		668,642		0		8.65%	8.76%	8.00% - 10.00%; LIBOR +5.00% - 6.75%	March 2023 - January 2042
Securitized loans	2,055,609		1,885,981		0		3.90%	4.18%	2.33% - 5.31%	August 2023 - February 2055
Total non-recourse debt	4,956,542		4,512,331		62,828
Unamortized debt premium/(discount), net	46,250		53,154		—
Total non-recourse debt, net	5,002,792		4,565,485		62,828
Total debt, net	$	5,609,558	$	4,796,145	$	63,241

Carrying Values, net of debt discount Unused Borrowing Capacity Annual Contractual Interest Rate Interest Rate Maturity Date
Current Long Term Total
Recourse debt:
Bank line of credit $ 247,000
$ —
$ 247,000
$ 406
Varies (1)
4.49% - 4.52%
April 2018
Total recourse debt $ 247,000
$ —
$ 247,000
$ 406

Non-recourse debt:
Term loan —
131,508
131,508
3,435
Varies (2)
3.98% - 4.06%
April 2024
Line of credit (Aggregation Facility) —
288,400
288,400
18,300
Varies (3)
3.73% - 3.81%
December 2020
Term Loan and Term Loan B 6,179
35,940
42,119
—
Varies (4)
6.31 % December 2020 and 2021
Term Loan A 586
144,691
145,277
5,000
Varies (5)
4.06 % December 2021
Bank loans —
35,661
35,661
—
Varies (6)
4.08% - 6.83%
September 2020
Bank term loan 8,839
22,126
30,965
—
Varies (7)
6.82% - 10.32%
July 2021
Bank term loan 1,446
24,016
25,462
—
4.50 % 4.50 % April 2022
Bank term loans 1,578
31,338
32,916
—
LIBOR + 2.25%
3.48 % September 2022
LIBOR + 3.00%
4.33 % September 2022
Solar asset-backed notes 3,910
93,359
97,269
—
4.40% - Class A
4.40 % July 2024
5.38% - Class B
5.38 % July 2024
Note payable —
39,218
39,218
—
12.00 % 12.00 % December 2018
Total non-recourse debt 22,538
846,257
868,795
26,735

Total debt $ 269,538
$ 846,257
$ 1,115,795
$ 27,141

(1) Represents the additional amount the Company could borrow, if any, based on the state of its existing assets as of June 30, 2021.

~~As of December 31, 2016, debt consisted of the following (in thousands, except percentages):~~(2) Reflects weighted average contractual, unhedged rates. See Note 9, Derivatives for hedge rates.

(3) Ranges shown reflect fixed interest rate and rates using LIBOR as applicable.

Carrying Values, net of debt discount Unused Borrowing Capacity Annual Contractual Interest Rate Interest Rate Maturity Date
Current Long Term Total
Recourse debt:
Bank line of credit $ —
$ 244,000
$ 244,000
$ 3,406
Varies (1)
3.96% - 5.75%
April 2018
Total recourse debt $ —
$ 244,000
$ 244,000
$ 3,406

Non-recourse debt:
Line of credit (Aggregation Facility) —
245,200
245,200
9,300
Varies (3)
2.93% - 3.39%
December 2020
Term Loan and Term Loan B 116
42,870
42,986
—
Varies (4)
6.00 % December 2020 December 2021
Term Loan A 616
146,387
147,003
5,000
Varies (5)
3.64 % December 2021
Bank term loan 7,286
23,802
31,088
1,032
Varies (7)
6.25% - 9.94%
July 2021
Bank term loan 1,331
26,565
27,896
—
4.50 % 4.50 % April 2022
Bank term loan 1,074
21,249
22,323
—
LIBOR + 2.25%
2.86 % September 2022
Solar asset-backed notes 3,730
97,565
101,295
—
4.40% - Class A
4.40 % July 2024
5.38% - Class B
5.38 % July 2024
Note payable —
36,232
36,232
—
12.00 % 12.00 % December 2018
Total non-recourse debt 14,153
639,870
654,023
15,332

Total debt $ 14,153
$ 883,870
$ 898,023
$ 18,738


~~(1)~~	~~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%.~~


~~(2)~~	~~Loans under the facility bear interest at LIBOR +2.75% per annum for the initial four-year period for LIBOR loans or the Base Rate +1.75% per annum for Base Rate Loans.~~


~~(3)~~	~~Loans under the 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.~~


~~(4)~~	Term loan under the facility 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 B under the facility bears interest at LIBOR +5.00% per annum.


~~(5)~~	~~Loan under the facility bears interest at LIBOR +2.75% per annum, stepping up to LIBOR +3.00% per annum on the fourth anniversary.~~


~~(6)~~	~~Loans under the facility bear interest at LIBOR +2.75% per annum for the senior secured loan, and LIBOR +5.50% per annum for the subordinated loan.~~


~~(7)~~	~~Loans under the facility bear interest at LIBOR +5.50% per annum for contracted SRECs and LIBOR +9.00% per annum for uncontracted SRECs.~~

~~Bank Line of Credit~~

~~The Company has outstanding borrowings under a~~(4) This syndicated working capital facility with banks ~~for~~has a total commitment of up to $250.0 ~~million. The working capital facility~~million and is secured by substantially all of the unencumbered assets of the Company, as well as ownership interests in certain subsidiaries of the Company.

~~Under~~ Loans under this facility bear interest at LIBOR +3.25% per annum or Base Rate +2.25% per annum. The Base Rate is the ~~terms~~highest of the ~~working capital facility,~~Federal Funds Rate +0.50%, the ~~Company is required~~Prime Rate, or LIBOR +1.00%. Subject to ~~meet~~ various restrictive covenants, such as the completion and presentation of audited consolidated financial statements, maintaining a minimum unencumbered liquidity of at least $25.0 million inat the ~~aggregate as of the last day~~end of each calendar month, maintaining quarter end liquidity to be at least $35.0 million, and maintaining a ~~modified~~minimum interest coverage ratio of ~~2.00~~3.50 or greater, measured quarterly as of the last day of each quarter. The Company was in compliance with all debt covenants as of ~~September~~June 30, ~~2017.~~2021.

(5) These convertible senior notes ("Notes") will not bear regular interest, and the principal amount of the notes will not accrete. The Notes may bear special interest under specified circumstances relating to the Company’s failure to comply with its reporting obligations under the Indenture or if the Notes are not freely tradeable as required by the Indenture. The Notes will mature on February 1, 2026, unless earlier repurchased by the Company, redeemed by the Company or converted pursuant to their terms. The initial conversion rate of the Notes is 8.4807 shares of the Company’s common stock, par value $0.0001 per share, per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $117.91 per share. The conversion rate will be subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid special interest. In addition, upon the occurrence of a make-whole fundamental change or an issuance of a notice of redemption, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Notes in connection with such make-whole fundamental change or notice of redemption. The debt discount recorded on the Notes is being amortized to interest expense at an effective interest rate of 0.57%. As of ~~September~~June 30, ~~2017,~~2021, $0.9 million of the ~~balance under this facility~~debt discount was ~~$247.0 million~~amortized to interest expense. In connection with ~~a maturity date in April 2018. As~~the offering of ~~September 30, 2017,~~ the ~~Company’s cash balance was $216.1 million and as such,~~Notes, the Company ~~does not currently~~entered into privately negotiated capped call transactions (“Capped Calls”) with certain of the initial purchasers and/or their respective affiliates at a cost of approximately $28.0 million. The Capped Calls are classified as equity and were recorded to additional paid-in-capital within stockholders’ equity as of June 30, 2021. The Capped Calls each have an initial strike price of approximately $117.91 per share, subject to certain adjustments, which corresponds to the ~~funds required~~initial conversion price of the Notes. The Capped Calls have initial cap prices of $157.22 per share. The Capped Calls cover, subject to ~~fully repay~~anti-dilution adjustments, approximately 3.4 million shares of common stock. The Capped Calls are expected generally to reduce the ~~debt. As this facility has a three year term,~~potential dilution to the common stock upon any conversion of Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the Notes, as the case may be, in the ~~process~~event the market price per share of ~~negotiating refinancing options and plans to extend~~common stock, as measured under the ~~maturity date~~Capped Calls, is greater than the strike price of the ~~facility. Although~~Capped Call, with such offset subject to a cap. If, however, the market price per share of the common stock, as measured under the Capped Calls, exceeds the cap price of the Capped Calls, there ~~is no assurance~~would be dilution and/or there would not be an offset of such potential cash payments, in each case, to the extent that the ~~Company will be able~~then-market price per share of the common stock exceeds the cap price. The final components of the Capped Calls are scheduled to ~~do so,~~expire on January 29, 2026.

(6) Certain loans under these categories are part of project equity transactions.

(7) Under a loan within this category, the Company ~~believes that it~~may incur up to an aggregate principal amount of $100.0 million in revolver borrowings. Borrowings under this revolving loan may be designated as base rate loans or LIBOR loans, subject to certain terms and conditions. Base rate loans accrue interest at a rate per year equal to 2.25% plus the highest of (i) the federal funds rate plus 0.50%, (ii) Bank of America, N.A.’s published “prime rate,” and (iii) LIBOR rate plus 1.00%, subject to a 0.00% floor. LIBOR loans accrue interest at a rate per annum equal to 3.25 % plus the fluctuating rate of interest equal to LIBOR or a comparable successor rate approved by the administrative agent, subject to a 0.00% floor. In addition to customary covenants for these type of facilities, the Company is ~~probable that it will~~subject to financial covenants and is required to have unencumbered cash and cash equivalents at the end of each fiscal quarter of at least the greater of (i) $30.0 million and (ii) the amount of unencumbered liquidity to be ~~able to extend or otherwise refinance~~maintained by Vivint Solar, Inc., a wholly owned subsidiary of the Company, in accordance with any loan documents governing recourse debt facilities of Vivint Solar, Inc. As of June 30, 2021, Vivint Solar, Inc. did not have any recourse debt facilities other than the facility ~~prior~~described in this paragraph.

(8) Pursuant to ~~maturity.~~the terms of the aggregation facilities within this category the Company may draw up to an aggregate principal amount of $1.7 billion in revolver borrowings depending on the available borrowing base at the time.

~~Syndicated Credit~~(9) A loan under this category with an outstanding balance of $124.2 million as of June 30, 2021 contains a put option that can be exercised beginning in 2036 that would require the Company to pay off the entire loan on November 30, 2037.

Senior and Subordinated Debt Facilities

Each of the Company's ~~syndicated credit~~senior and subordinated debt facilities contain customary covenants, including the requirement to maintain certain financial measurements and provide lender reporting. Each of the ~~syndicated credit~~senior and subordinated debt facilities also contain certain provisions in the event of default ~~which~~that entitle lenders to take certain actions including acceleration of amounts due under the facilities and acquisition of membership interests and assets that are pledged to the lenders under the terms of the ~~credit~~senior and subordinated debt facilities. ~~The Company was in compliance with all debt covenants as of September 30, 2017.~~

~~Term loan due in April 2024~~

As of September 30, 2017, a subsidiary of the Company has an outstanding balance of $131.5 million on senior secured credit facilities that was syndicated with various lenders. The credit facilities totaled $202.0 million and consisted of a $195.0 million delayed draw term loan facility and a $7.0 million revolving debt service reserve letter of credit facility. The facilities are non-recourse to the Company and are secured by net cash flows from Customer Agreements ~~and solar renewable energy credits ("SRECs"),~~or inventories less certain operating, maintenance and other expenses which are available to the borrower after distributions to tax equity ~~investors. Prepayments are permitted~~investors, where applicable. Under the terms of these facilities, the Company's subsidiaries pay interest and principal from the net cash flows available to the subsidiaries. The Company was in compliance with all debt covenants as of June 30, 2021.

Securitization Loans

Each of the Company's securitized loans contains customary covenants including the requirement to provide reporting to the indenture trustee and ratings agencies. Each of the securitized loans also contain certain provisions in the event of default which entitle the indenture trustee to take certain actions including acceleration of amounts due under the ~~delayed draw term loan facility.~~

~~Line~~facilities and acquisition of ~~credit (Aggregation Facility)~~membership interests and ~~Term Loan~~

~~As of September 30, 2017, certain subsidiaries~~assets that are pledged to the lenders under the terms of the Company have an outstanding balance of $310.9 million on secured credit facilities agreements, as amended, with a syndicate of banks. The facilities include a revolving aggregation facility (“Aggregation Facility”), a term loan (“Term Loan”) and a revolving debt service

~~reserve letter of credit facility.~~securitized loans. The facilities are non-recourse to the Company and are secured by net cash flows ~~of certain subsidiaries~~ from Customer Agreements less certain operating, maintenance and other expenses ~~which~~that are available to the ~~borrowers~~borrower after distributions to tax equity ~~investors. Term Loan prepayment penalties range~~investors, where applicable. Under the terms of these loans, the Company's subsidiaries pay interest and principal from ~~0% - 1% depending on~~ the ~~timing of the prepayment.~~

~~Term Loan A and Term Loan B~~

As of September 30, 2017, certain subsidiaries of the Company have an outstanding balance of $164.9 million on secured credit facilities agreements with a syndicate of banks. These facilities include a senior term loan (“Term Loan A”) and a subordinated term loan (“Term Loan B”). In addition, the credit facilities also include a working capital revolver commitment and a revolving debt service reserve letter of credit facility which draws are solely for the purpose of satisfying the required debt service reserve amount if necessary. The facilities are non-recourse to the Company and are secured by net cash flows ~~of certain subsidiaries from Customer Agreements, less certain operating, maintenance and other expense which are~~ available to the ~~borrowers after distributions to tax equity investors. Prepayments are permitted under Term Loan A and Term Loan B at par without premium or penalty.~~

~~Bank Loans~~

~~Bank loans due in September 2020~~

~~As of~~ September 30, 2017, a subsidiary of the Company has an outstanding balance of $35.7 million on a revolving loan facility. The facility is secured by the assets and related net cash flow of this subsidiary and is non-recourse to the Company's other assets.subsidiaries. The Company was in compliance with all debt covenants as of ~~September~~June 30, ~~2017.~~2021.

~~Bank term loan due in July 2021~~

~~As of~~ September 30, 2017, a subsidiary of the Company has an outstanding balance of $31.0 million on a secured credit agreement. The facility is non-recourse to the Company and is secured by substantially all of the assets of the subsidiary, including its rights in and the net cash flows from the generation of contracted and uncontracted SRECs by certain subsidiaries. The facility contains customary covenants including the requirement to provide lender reporting. The Company guarantees the delivery of SRECs on the subsidiary’s underlying contracts in the event of a delivery shortfall pursuant to the SREC contracts with counterparties. The Company does not guarantee payments of principal or interest on the loan. The credit facility also contains certain provisions in the event of default which entitles the lender to take certain actions including acceleration of amounts due under the facilities. The Company was in compliance with all debt covenants as of September 30, 2017.

~~Bank term loan due in April 2022~~

~~As of~~ September 30, 2017, a subsidiary of the Company has an outstanding balance of $25.5 million on a term loan. The loan is secured by the assets and related net cash flow of this subsidiary and is non-recourse to the Company’s other assets. The Company was in compliance with all debt covenants as of September 30, 2017.

~~Bank term loans due in September 2022~~

~~As of~~ ~~September 30, 2017~~, a subsidiary of the Company has an outstanding balance of $12.6 million on a non-recourse loan. The loan is secured by substantially all of the assets of the subsidiary including this subsidiary’s membership interests and assets in its investment funds. The loan contains certain provisions in the event of default which entitles the lender to take certain actions including acceleration of amounts due under the loan. The Company was in compliance with all debt covenants as of September 30, 2017.

~~As of~~ September 30, 2017, a subsidiary of the Company has an outstanding balance of $20.4 million on a secured, non-recourse loan agreement. The loan will be repaid through cash flows from a lease pass-through arrangement previously entered into by the Company. The loan agreement contains customary covenants including the requirement to maintain certain financial measurements and provide lender reporting. The loan also contains certain provisions in the event of default which entitles the lender to take certain actions including acceleration of amounts due under the loan. The Company was in compliance with all debt covenants as of September 30, 2017.

~~Solar Asset-Backed Notes~~

As of September 30, 2017, a subsidiary of the Company has an outstanding balance of $97.3 million on solar asset-backed notes ("Notes") secured by associated customer contracts (“Solar Assets”) held by a special purpose entity (“Issuer”). As of September 30, 2017 and December 31, 2016, these Solar Assets had a carrying value of $175.2 million and $181.8 million, respectively, and are included under solar energy systems, net, in the consolidated balance sheets. The Notes were issued at a discount of 0.08%.

In connection with the transaction, the Company modified two lease pass-through arrangements with an investor. 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 principal of the Notes and interest payments and satisfy the Issuer’s expenses, and any residual cash flows are retained by the Fund 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 as of September 30, 2017.~~

~~Notes Payable~~

~~As of~~ September 30, 2017, a subsidiary of the Company has an outstanding balance of $39.2 million on a note purchase agreement with an investor for the issuance of senior notes. 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 payment-in-kind (“PIK”) interest rate of 12% is accrued and added to the outstanding balance. As of September 30, 2017 and December 31, 2016, the portion of the outstanding loan balance that related to PIK interest was $12.3 million and $9.5 million, respectively. The senior notes are secured by the assets and related cash flows of certain of the Company’s subsidiaries and are non-recourse to the Company’s other assets. The Company was in compliance with all debt covenants as of September 30, 2017.

~~Note 7.~~9. Derivatives

Interest Rate Swaps

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

~~The~~Certain interest rate swaps have been designated as cash flow hedges. The credit risk adjustment associated with these swaps is the risk of non-performance by the counterparties to the contracts. In the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, the majority of hedge relationships on the Company’s interest rate swaps have been assessed as highly effective as the ~~critical terms~~quarterly assessment performed determined changes in cash flows of the ~~interest rate swaps match~~derivative instruments have been highly effective in offsetting the ~~critical terms~~changes in the cash flows of the ~~underlying forecasted~~ hedged ~~transactions.~~items and are expected to be highly effective in the future. Accordingly, changes in the fair value of these derivatives are recorded as a component of accumulated other comprehensive income, net of income taxes. Changes in the fair value of these derivatives are subsequently reclassified into earnings, and are included in interest expense, net in the Company’s statements of operations, in the period that the hedged forecasted transactions ~~affects~~affect earnings. To the extent that the hedge relationships are not effective, changes in the fair value of these derivatives are recorded in other expenses, net in the Company's statements of operations on a prospective basis.

The Company’s master netting and other similar arrangements allow net settlements under certain conditions. When those conditions are met, the Company ~~recorded an unrealized loss~~presents derivatives at net fair value. As of ~~$0.5~~June 30, 2021, the information related to these offsetting arrangements were as follows (in thousands):


Instrument Description	Gross Amounts of Recognized Assets / Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Assets / Liabilities Included in the Consolidated Balance Sheet		Notional Amount (1)
Assets:
Derivatives designated as hedging instruments	$	17,084	$	(1,528)	$	15,556	$	414,157
Derivatives not designated as hedging instruments	0		0		0		0
Total derivative assets	17,084		(1,528)		15,556		414,157

Liabilities:
Derivatives designated as hedging instruments	(107,726)		1,528		(106,198)		1,394,502
Derivatives not designated as hedging instruments	(24,586)		0		(24,586)		434,131
Total derivative liabilities	(132,312)		1,528		(130,784)		1,828,633
Total derivative assets and liabilities	$	(115,228)	$	—	$	(115,228)	$	2,242,790

(1) Comprised of 56 interest rate swaps which effectively fix the LIBOR portion of interest rates on outstanding balances of certain loans under the senior and securitized sections of the debt footnote table (see Note 8, Indebtedness) at 0.57% to 3.37% per annum. These swaps mature from August 31, 2022 to January 31, 2043.

As of December 31, 2020, the information related to these offsetting arrangements were as follows (in thousands):


Instrument Description	Gross Amounts of Recognized Assets / Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Assets / Liabilities Included in the Consolidated Balance Sheet		Notional Amount
Assets:
Derivatives designated as hedging instruments	$	4,293	$	(6)	$	4,287	$	191,737
Derivatives not designated as hedging instruments	925		(13)		912		166,138
Total derivative assets	5,218		(19)		5,199		357,875

Liabilities:
Derivatives designated as hedging instruments	(165,996)		6		(165,990)		1,796,596
Derivatives not designated as hedging instruments	(9,448)		13		(9,435)		190,530
Total derivative liabilities	(175,444)		19		(175,425)		1,987,126
Total derivative assets and liabilities	$	(170,226)	$	—	$	(170,226)	$	2,345,001

The losses (gains) on derivatives designated as cash flow hedges recognized into OCI, before tax effect, consisted of the following (in thousands):


	Six months ended June 30,
	2021		2020
Derivatives designated as cash flow hedges:
Interest rate swaps	$	(25,063)	$	102,648

The losses (gains) on derivatives financial instruments recognized into the consolidated statements of operations, before tax effect, consisted of the following (in thousands):


	Six months ended June 30,
	2021				2020
	Interest expense, net		Other expense, net		Interest expense, net		Other expense, net
Derivatives designated as cash flow hedges:
Interest rate swaps
Losses (gains) reclassified from AOCI into income	$	9,213	$	0	$	907	$	0
Derivatives not designated as cash flow hedges:
Interest rate swaps
Gains recognized into income	0		(20,162)		0		0
Total losses (gains)	$	9,213	$	(20,162)	$	907	$	0

All amounts in Accumulated other comprehensive income (loss) ("AOCI") in the consolidated statements of redeemable noncontrolling interests and equity relate to derivatives, refer to the consolidated statements of comprehensive (loss) income. The net (loss) gain on derivatives includes the tax effect of $9.2 million and ~~$5.0~~$0.8 million for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017,~~2021 and 2020, respectively, ~~net of applicable tax benefit of $0.3~~and $9.0 million and ~~$3.2 million, respectively. The Company recorded an unrealized gain of $0.4 million and an unrealized loss of $5.2~~$27.2 million for ~~the three and nine~~six months ended ~~September~~June 30, ~~2016, respectively, net of applicable tax expense of $0.3 million~~2021 and ~~tax benefit of $3.3 million,~~2020, respectively. The Company recognized interest expense on derivatives into earnings of $0.1 million and $1.0 million for the three and nine months ended September 30, 2017, respectively, net of tax expense of $0.1 million and $0.7 million, respectively. The Company recognized interest expense on derivatives into earnings of $0.3 million and $0.9 million for the three and nine months ended September 30, 2016, respectively, net of tax expense of $0.2 million and $0.6 million, respectively.

During the next ~~twelve~~12 months, the Company ~~estimates that~~

~~an additional $1.9~~expects to reclassify $24.5 million ~~will be reclassified as an increase~~of net losses on derivative instruments from accumulated other comprehensive income to ~~interest expense.~~earnings. There were no3 undesignated derivative instruments recorded by the Company as of ~~September~~June 30, ~~2017.~~2021.

At September 30, 2017, the Company had designated derivative instruments classified as derivative assets as reported in other assets of $0.4 million and derivative liabilities as reported in other liabilities of $5.9 million in the Company’s balance sheet. At December 31, 2016, the Company had designated derivative instruments classified as derivative assets as reported in other assets of $1.6 million in the Company’s balance sheet. At September 30, 2017, the Company had the following derivative instruments (in thousands, other than quantity and interest rates):

Type Quantity Maturity Dates Hedge Interest Rates Notional Amount Fair Market Value
Interest rate swaps 2
8/31/2022 - 9/30/2022 1.29% - 2.37% $ 28,434
$ 96
Interest rate swaps 6
4/30/2024 - 10/31/2024 2.16% - 2.69% $ 151,088
$ (2,280 )
Interest rate swaps 4
10/31/2028 2.17% - 2.18% $ 124,963
$ 78
Interest rate swap 1
9/30/2031 3.23% $ 9,905
$ (251 )
Interest rate swaps 5
7/31/2034 2.48% - 3.04% $ 144,379
$ (1,524 )
Interest rate swaps 5
7/31/2035 2.56% - 2.95% $ 140,521
$ (1,647 )

Note ~~8. Lease Pass-Through~~10. Pass-through Financing Obligations

The ~~Company has five ongoing transactions referred to as “lease~~Company'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 ~~leases~~Customer Agreements with customers. The Company receives all of the value attributable to the accelerated tax depreciation and some or all of the value attributable to the other incentives. ~~The Company assigns to the Fund investors the value attributable to the investment tax credit (“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 of~~The Company also sells the ~~lease pass-through structures,~~rights and related value attributable to the ~~Company sold, as well as leased, solar energy systems~~Commercial ITC 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.these investors.

Under these ~~lease pass-through~~financing obligation arrangements, wholly owned subsidiaries of the Company finance the cost of solar energy systems with investors for an initial term of typically 20 ~~– 25~~or 22 years, and one fund with an initial term of 7 years. The solar energy systems are subject to Customer Agreements with an initial term ~~not exceeding~~of 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 ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, the cost of the solar energy systems placed in service under the ~~lease pass-through~~financing obligation arrangements was ~~$493.3~~$712.6 million and ~~$494.9~~$715.5 million, respectively. The accumulated depreciation related to these assets as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016~~2020 was ~~$64.3~~$133.0 million and ~~$50.8~~$120.2 million, respectively.

The investors make a series of large up-front payments and, in certain cases, subsequent smaller quarterly payments (lease payments) to the subsidiaries of the Company. The Company accounts for the payments received from the investors under the financing obligation arrangements as borrowings by recording the proceeds received as financing obligations on its consolidated balance sheets, and cash provided by financing activities in its consolidated statement of cash flows. These financing obligations are reduced over a period of approximately 22, or over 7 years in the case of one fund, by customer payments under the Customer Agreements, U.S. Treasury grants (where applicable) and proceeds from the contracted resale of SRECs as they are received by the investor. In ~~2015,~~addition, funds paid for the Commercial ITC value upfront are initially recorded as a refund liability and recognized as revenue as the associated solar energy system reaches PTO. The Commercial ITC value is reflected in cash provided by operations on the consolidated statement of cash flows. The Company accounts for the Customer Agreements and any related U.S. Treasury grants, as well as the resale of SRECs consistent with the Company’s revenue recognition accounting policies as described in Note 2, Summary of Significant Accounting Policies.

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

Under the majority of the financing obligations, the investor has a ~~lease pass-through arrangement and~~right to extend its right to receive cash flows from the customers beyond the initial term in ~~connection with this~~certain circumstances. Depending on the arrangement, the Company ~~agreed~~has the option to ~~defer a portion (up to 25%) of~~settle the ~~amounts required to be paid upfront under~~outstanding financing obligation on the ~~arrangement through a loan between an indirect wholly owned subsidiary of the Company and a subsidiary~~ninth or eleventh anniversary of the Fund ~~investor. The loan is collateralized by~~inception at a price equal to the ~~related~~higher of (a) the fair value of future remaining cash flows ~~assigned~~or (b) the amount that would result in the investor earning their targeted return. In several of these financing obligations, the investor has an option to require repayment of the entire outstanding balance on the tenth anniversary of the Fund inception at a price equal to the ~~Fund investor. There is a legal right to offset the loan if an event of default has occurred. Therefore, the lease pass-through financing obligation related to this arrangement is recorded net~~fair value of the ~~loan.~~future remaining cash flows.

Under the majority of the financing obligations, the Company is responsible for services such as warranty support, accounting, lease servicing and performance reporting to customers. As part of ~~September 30, 2017~~the warranty and ~~December 31, 2016,~~performance guarantee with the ~~loan amount was $21.2 million and $23.2 million, respectively.~~customers in applicable funds, 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.

Note 9.11. VIE Arrangements

The Company consolidated various VIEs at ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016.~~2020. The carrying amounts and classification of the VIEs’ assets and liabilities included in the consolidated balance sheets are as follows (in thousands):

September 30, 2017 December 31, 2016
Assets
Current assets
Cash $ 125,232
$ 120,728
Restricted cash 1,861
1,680
Accounts receivable, net 30,198
20,771
Prepaid expenses and other current assets 482
242
Total current assets 157,773
143,421
Solar energy systems, net 2,437,363
1,920,330
Other assets 2,305
1,481
Total assets $ 2,597,441
$ 2,065,232
Liabilities
Current liabilities
Accounts payable $ 25,329
$ 14,873
Distributions payable to noncontrolling interests and redeemable noncontrolling interests 14,785
10,654
Accrued expenses and other liabilities 1,884
782
Deferred revenue, current portion 31,666
25,827
Deferred grants, current portion 3,544
3,644
Non-recourse debt, current portion 10,285
8,616
Total current liabilities 87,493
64,396
Deferred revenue, net of current portion 429,220
396,858
Deferred grants, net of current portion 102,316
105,390
Non-recourse debt, net of current portion 167,181
50,367
Other liabilities 2,524
—
Total liabilities $ 788,734
$ 617,011


	June 30, 2021		December 31, 2020
Assets
Current assets
Cash	$	340,214	$	219,502
Restricted cash	53,121		34,559
Accounts receivable, net	61,971		35,152
Inventories	31,207		23,306
Prepaid expenses and other current assets	1,333		2,629
Total current assets	487,846		315,148
Solar energy systems, net	7,321,816		6,748,127
Other assets	156,053		127,591
Total assets	$	7,965,715	$	7,190,866
Liabilities
Current liabilities
Accounts payable	$	33,151	$	15,609
Distributions payable to noncontrolling interests and redeemable noncontrolling interests	33,371		28,577
Accrued expenses and other liabilities	29,013		24,660
Deferred revenue, current portion	47,902		44,906
Deferred grants, current portion	1,002		1,007
Non-recourse debt, current portion	41,057		31,594
Total current liabilities	185,496		146,353
Deferred revenue, net of current portion	530,658		493,161
Deferred grants, net of current portion	25,266		25,891
Non-recourse debt, net of current portion	1,368,889		1,160,817
Other liabilities	29,049		31,745
Total liabilities	$	2,139,358	$	1,857,967

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

The Company holds certain variable interests in nonconsolidated VIEs established as a result of ~~five lease~~7 pass-through Fund arrangements as further explained in Note 8, ~~Lease Pass-Through~~10, Pass-through Financing Obligations. The Company does not have material exposure to losses as a result of its involvement with the VIEs in excess of the amount of the pass-through financing ~~liability~~obligation recorded in the Company’s consolidated financial statements. The Company is not considered the primary beneficiary of ~~the~~these VIEs.

Note ~~10.~~12. Redeemable Noncontrolling Interests and Equity

~~The changes~~During certain specified periods of time (the “Early Exit Periods”), noncontrolling interests in certain funding arrangements have the right to put all of their membership interests to the Company (the “Put Provisions”). During a specific period of time (the “Call Periods”), the Company has the right to call all membership units of the related redeemable noncontrolling ~~interests, total stockholders’ equity and noncontrolling interests were as follows (in thousands):~~interests.

Redeemable Noncontrolling Interests Total Stockholders' Equity Noncontrolling Interests
Total Equity
Balance — December 31, 2016 $ 137,907
$ 672,961
$ 251,225
$ 924,186
Exercise of stock options —
1,573
—
1,573
Issuance of restricted stock units, net of tax withholdings —
(2,925 ) —
(2,925 )
Shares issued in connection with the Employee Stock Purchase Plan —
1,145
—
1,145
Stock based compensation —
16,530
—
16,530
Contributions from noncontrolling interests and redeemable noncontrolling interests 105,167
—
368,902
368,902
Distributions to noncontrolling interests and redeemable noncontrolling interests (11,794 ) —
(31,098 ) (31,098 )
Cumulative effect of adoption of new ASUs —
2,996
—
2,996
Net income (loss) (54,820 ) 65,630
(229,324 ) (163,694 )
Other comprehensive loss, net of taxes —
(3,974 ) —
(3,974 )
Balance — September 30, 2017 $ 176,460
$ 753,936
$ 359,705
$ 1,113,641

The carrying value of redeemable noncontrolling interests was greater than the redemption value except for ~~seven and four~~15 Funds at ~~September~~both June 30, ~~2017~~2021 and December 31, ~~2016, respectively,~~2020, where the carrying value has been adjusted to the redemption value.

Note ~~11.~~13. Stock-Based Compensation

Stock Options

The following table summarizes the activity for all stock options under all of the Company’s equity incentive plans for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 (shares and aggregate intrinsic value in thousands):

Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value
Outstanding at December 31, 2016 12,897
$ 5.94
7.49
Granted 4,656
5.06

Exercised (538 ) 2.92

Cancelled (687 ) 8.11

Outstanding at September 30, 2017 16,328
$ 5.70
7.56 $ 11,942

Options vested and exercisable at September 30, 2017 7,952
$ 5.49
6.19 $ 8,875


	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding at December 31, 2020	8,019	$	10.35	6.87	$	473,371
Granted	275	52.28
Exercised	(1,349)	8.69
Cancelled	(219)	17.91
Outstanding at June 30, 2021	6,726	$	12.23	6.53	$	293,669

Options vested and exercisable at June 30, 2021	4,385	$	7.80	5.47	$	210,495

Restricted Stock Units

The following table summarizes the activity for all restricted stock units (“RSUs”) under all of the Company’s equity incentive plans for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 (shares in thousands):


	Number of Awards	Weighted Average Grant Date Fair Value
Unvested balance at December 31, 2020	7,103	$	40.17
Granted	1,078	48.66
Issued	(2,175)	38.44
Cancelled / forfeited	(413)	29.83
Unvested balance at June 30, 2021	5,593	$	43.34

Warrants for Strategic Partners

During the quarter ended June 30, 2021,the Company issued warrants exercisable for up to 373,504 shares of its common stock to certain strategic partners (calculated using the closing stock price of $55.78 on June 30, 2021). The exercise price of the warrants is $0.01 per share, and no exercises occurred during the six months ended June 30, 2021. During the three and six months ended June 30, 2021, the Company recognized stock-based compensation expense of $1.0 million and $2.0 million based on time and performance milestones achieved under such warrants during the respective timeframes.

Number of Awards Weighted Average Grant Date Fair Value
Unvested balance at December 31, 2016 4,106
$ 6.87
Granted 3,129
5.21
Issued (943 ) 7.61
Forfeited (914 ) 5.78
Unvested balance at September 30, 2017 5,378
$ 5.77

Employee Stock Purchase Plan

Under the Company's 2015 Employee Stock Purchase Plan ("ESPP") ~~(as amended in May 2017)~~, eligible employees are offered shares bi-annually through a ~~24 month~~24-month offering period ~~which~~that encompasses ~~four six month~~4 six-month purchase periods. Each purchase period begins on the first trading day on or after May 15 and November 15 of each year. Employees may purchase a limited number of shares of the Company’s common stock via regular payroll deductions at a discount of 15% of the lower of the fair market value of the Company’s common stock on the first trading date of each offering period or on the exercise date. Employees may deduct up to 15% of payroll, with a cap of $25,000 of fair market value of shares in any calendar year and 10,000 shares per employee per purchase period.

Stock-Based Compensation Expense

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Cost of customer agreements and incentives	$	1,992	$	930	$	4,224	$	2,876
Cost of solar energy systems and product sales	1,045		270		2,349		943
Sales and marketing	23,227		1,821		50,333		5,299
Research and development	803		466		1,479		1,541
General and administration	16,396		6,895		63,107		18,668
Total	$	43,463	$	10,382	$	121,492	$	29,327

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Cost of operating leases and incentives $ (69 ) $ 711
$ 1,792
$ 1,550
Cost of solar energy systems and product sales 171
86
441
284
Sales and marketing 1,580
2,484
4,304
5,992
Research and development 259
115
594
361
General and administration 3,164
1,983
9,363
5,839
Total $ 5,105
$ 5,379
$ 16,494
$ 14,026

~~In August 2017,~~During the ~~Company entered into an agreement with an affiliate ("Contractor") of Comcast Corporation ("Comcast") whereby Contractor will receive lead or sales fees for new customers it brings~~three and six months ended June 30, 2021, stock-based compensation expense capitalized to the Company over a 40-month term. Comcast may also earn a warrant to purchase up to 11,793,355 shares of the Company's outstanding common stock, at an exercise price of $0.01 per warrant share. The warrant initially vests 50.05% when both (i) Contractor has earned a lead or sales fee with respect to 30,000 of~~installed~~ solar energy systems, net in the Company’s consolidated balance sheet was $2.9 million and ~~(ii) Contractor or its affiliates have spent at least $10.0~~$5.5 million, ~~in marketing and sales in connection with the agreement. Thereafter, the warrant will vest in five additional increments for each additional 6,000 installed solar energy systems.~~respectively.

Note ~~12.~~14. Income Taxes

The income tax ~~expense~~benefit (expense) rate for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017~~2021 and 2020 was ~~(22.7)%~~6.5% and ~~(20.8)~~(0.2)%, ~~respectively. The income tax expense rate~~respectively, and for the ~~three and nine~~six months ended ~~September~~June 30, ~~2016was(15.3)%~~2021 and ~~(6.4)%~~2020 was 6.5% and 1.3%, respectively. The differences between the actual consolidated effective income tax rate and the

U.S. federal statutory rate were primarily attributable to the allocation of losses on noncontrolling interests and redeemable noncontrolling interests, which assumes a hypothetical liquidation of these partnerships as of the reporting dates and therefore a deferred tax expense is calculated on the income available to common shareholders.an increase in stock-based compensation deductions.

The Company sells solar energy systems to investment Funds. As the investment Funds are consolidated by the Company, the gain on the sale of the assets has been eliminated in the consolidated financial ~~statements. These transactions~~statements, however gains on sale are ~~treated as intercompany sales and any~~recognized for tax ~~expense incurred related to these sales prior to fiscal year 2017 was deferred. As described in Note 2,~~ ~~Summary of Significant Accounting Policies~~ ~~– Recently Issued Accounting Standards, ASU 2016-16,~~ ~~Intra-Entity Transfers of Assets Other Than Inventory~~, requires entities to recognize income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. As a result, a reporting entity would recognize the tax expense from the sale of assets in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of the transaction are eliminated in the consolidated financial statements. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer. As the Company sells solar energy systems to Funds, the Company will record 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. As a result of the adoption of ASU 2016-16, the Company recognized in retained earnings the reversal of the net prepaid tax assets of $378.5 million previously recorded for the tax deferral, and recognized gross a deferred tax asset of $378.2 million at January 1, 2017.purposes.

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

~~Uncertain Tax Positions~~

As of September 30, 2017 and December 31, 2016, the Company had $1.5 million of unrecognized tax benefits related to an acquisition in 2015. In addition, there was $0.4 million and $0.3 million of interest and penalties for uncertain tax positions as of September 30, 2017 and December 31, 2016, respectively. The Company does not have any tax positions for which it is reasonably possible that the total amount of gross unrecognized benefits will increase or decrease within the next 12 months. The Company is subject to taxation and files income tax returns in the United States, 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.

~~Net Operating Loss Carryforwards~~

As a result of the Company’s net operating loss carryforwards as of September 30, 2017 and December 31, 2016, the Company does not expect to pay income tax, including in connection with its income tax provision for the nine months ended September 30, 2017 until the Company’s net operating losses are fully utilized. As of December 31, 2016, the Company’s federal and state net operating loss carryforwards were $571.0 million and $524.9 million, respectively. If not utilized, the federal net operating loss will begin to expire in the year 2028 and the state net operating losses will begin to expire in the year 2024.

Note ~~13.~~15. Commitments and Contingencies

Letters of Credit

As of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, the Company had ~~$10.1~~$20.1 million and ~~$6.2~~$37.0 million, respectively, of unused letters of credit outstanding, which each carry fees of ~~2.50%~~2.13% - ~~3.00%~~3.25% per ~~annum~~annum.

Guarantees

Certain tax equity funds and ~~2.50% per annum, respectively.~~debt facilities require the Company to maintain an aggregate amount of $30.0 million of unencumbered cash and cash equivalents at the end of each month.

~~Non-cancellable~~ Operating and Finance Leases

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

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Finance lease cost:
Amortization of right-of-use assets	$	3,200	$	2,279	$	6,399	$	4,936
Interest on lease liabilities	236		207		507		424
Operating lease cost	6,706		3,032		12,923		6,158
Short-term lease cost	1,243		119		1,647		239
Variable lease cost	1,743		971		3,361		1,781
Sublease income	(202)		(212)		(397)		(372)
Total lease cost	$	12,926	$	6,396	$	24,440	$	13,166

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	6,845		$	2,924		$	13,585		$	5,499
Operating cash flows from finance leases	234			195			503			416
Financing cash flows from finance leases	3,050			2,591			6,137			5,545
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	19,546			0			19,859			32
Finance leases	2,074			33			3,164			213
Weighted average remaining lease term (years):
Operating leases	6.74			4.83			6.74			4.83
Finance leases	2.84			2.48			2.84			2.48
Weighted average discount rate:
Operating leases	4.1		%	5.5		%	4.1		%	5.5		%
Finance leases	4.5		%	4.2		%	4.5		%	4.2		%

Future minimum lease commitments under non-cancellable operating leases. Total operating lease expenses were $3.0 million and $2.9 million for the three months ended September 30, 2017 and 2016, respectively, and $9.3 million and $8.5 million for the nine months ended September 30, 2017 and 2016, 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 $2.6 million and $2.9 million as of ~~September~~June 30, ~~2017~~2021 were as follows (in thousands):


	Operating Leases		Sublease Income		Net Operating Leases		Finance Leases
2021	$	26,648	$	1,014	$	25,634	$	11,299
2022	22,855		1,151		21,704		7,550
2023	19,949		758		19,191		2,612
2024	14,415		185		14,230		459
2025	12,817		0		12,817		0
Thereafter	34,422		0		34,422		0
Total future lease payments	131,106		3,108		127,998		21,920
Less: Amount representing interest	15,691		—		15,691		1,013
Present value of future payments	115,415		3,108		112,307		20,907

Less: Tenant incentives	0		—		0		—
Net present value of future payments	115,415		3,108		112,307		20,907
Less: Current portion	22,493		—		22,493		10,612
Long-term portion	$	92,922	$	3,108	$	89,814	$	10,295

Purchase Commitment

The Company entered into purchase commitments, which have the ability to be canceled without significant penalties, with multiple suppliers to purchase $57.8 million of photovoltaic modules, inverters and ~~December 31, 2016, respectively.~~

~~Capital Lease Obligations~~

Asbatteries by the end of ~~September 30, 2017 and December 31, 2016, capital lease obligations were $14.9 million and $23.0 million, respectively. The capital lease obligations bear interest at rates up to 10% per annum.~~2022.

Warranty Accrual

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

~~Guarantees~~

~~The Company guarantees one of its investors in one of its Funds an internal rate of return, calculated on an after-tax basis, in~~ A warranty is provided for solar energy systems sold and leased. However, for the ~~event that it purchases~~solar energy systems under Customer Agreements, the ~~investor’s interest or the investor sells its interest to the Company. The~~ Company does not expect the internal rate of return to fall below the guaranteed amount; however, due to uncertainties associated with estimating the timing and amount of distributions to the investor and the possibility for and timingaccrue a warranty liability because those systems are owned by consolidated subsidiaries of the ~~liquidation~~Company. Instead, any repair costs on those solar energy systems are expensed when they are incurred as a component of ~~the Fund, the Company is unable to determine the potential maximum future payments that it would have to make under this guarantee.~~customer agreements and incentives costs of revenue.

Commercial ITC ~~and Cash Grant~~ Indemnification

The Company is contractually committed to compensate certain investors for any losses that they may suffer in certain limited circumstances resulting from reductions in ~~ITCs or U.S. Treasury grants.~~Commercial ITCs. Generally, such obligations would arise as a result of reductions to the value of the underlying solar energy systems as assessed by the Internal Revenue Service (the “IRS”) ~~or U.S. Treasury Department.~~. 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~~One of the Company's investors is being audited by the IRS. Since this audit is ongoing, the Company ~~believes that this obligation~~ is ~~not probable based on~~unable to determine the ~~facts known~~potential tax liabilities as of the filing date of this Quarterly Report on Form 10-Q. 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 of~~prices at which the solar energy systems were sold or transferred to the Funds (or, in certain structures, the fair market value claimed in respect of such systems (referred to as "claimed values")) and the eligible basis determined by ~~the 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 ~~uses~~set the purchase prices and claimed values based on fair market values determined with the assistance of an independent third-party appraisal aswith respect to the ~~basis for determining the~~systems that generate Commercial ITCs that are passed-through to, and claimed by, the Fund investors. ~~Since~~In April 2018, the Company ~~cannot determine how~~purchased an insurance policy providing for certain payments by the ~~IRS will evaluate system values used~~insurers in ~~claiming~~the event there is any final determination (including a judicial determination) that reduced the Commercial ITCs claimed in respect of solar energy systems sold or transferred to most Funds through April 2018, or later, in the case of Funds added to the policy after such date. In general, the policy indemnifies the Company ~~is unable~~and related parties for additional taxes (including penalties and interest) owed in respect of lost Commercial ITCs, gross-up costs and expenses incurred in defending such claim, subject to ~~reliably estimate the maximum potential future payments that it could have~~negotiated exclusions from, and limitations to, ~~make under this obligation as of each balance sheet date.~~coverage.

Litigation

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

In July 2012, the U.S. Treasury Department and the Department of Justice (together, the “Government”) opened a civil investigation into the participation by residential solar developers in the Section 1603 grant program. The Government served subpoenas on several developers, including Sunrun, along with their investors and valuation firms. 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. The Company has cooperated fully with the Government and plans to continue to do so. No claims have been brought against the Company. The Company is not able to estimate the ultimate outcome or a range of possible loss at this point in time.

On ~~November 20, 2015,~~April 8, 2019, a putative class action captioned ~~Slovin~~Loftus et al. v. Sunrun Inc. ~~and Clean Energy Experts, LLC~~, Case No. ~~4:15-cv-05340,~~3:19-cv-01608, was filed in the United States District Court, Northern District of California. The complaint generally ~~alleged~~alleges violations of the Telephone Consumer Protection Act (the “TCPA”) on behalf of an individual and putative classes of persons alleged to be similarly situated. Plaintiffs filed a First Amended Complaint on ~~December 2, 2015, and a Second Amended Complaint on March 25, 2016,~~June 26, 2019, adding defendant MediaMix 365, LLC, also asserting individual and putative class claims under the ~~TCPA. By Order entered on April 28, 2016,~~TCPA, along with claims under the ~~Court granted~~California Invasion of Privacy Act. In the Company’s motion to strike the class allegations set forth in the Second Amended Complaint, and granted leave to amend. Plaintiffs filed a Third Amended Complaint on July 12, 2016. On October 12, 2016, the Court denied the Company’s motion to again strike the class allegations set forth in the Third Amended Complaint. On October 3, 2017, plaintiffs filed a motion for leave to file a Fourth Amended Complaint, seeking to, among other things, revise the definitions of the classes that plaintiffs seek to represent. The Company has opposed that motion. In each iterationamended version of their Complaint, plaintiffs seek statutory damages, equitable and injunctive relief, and attorneys’ fees and costs on behalf of themselves and the absent purported classes. While plaintiffs have not identified the number of total violations for which they are claiming on a class-wide basis, on August 25, 2017, plaintiffs claimed in their expert report that the classes consist of thousands of alleged putative class members.

Most, if not all, of the claims asserted in the lawsuit relate to activities allegedly engaged in by third-party vendors, for which the Company denies any responsibility. ~~The vendors are contractually obligated to indemnify~~While the ~~Company for losses related to the conduct alleged. The~~ Company believes that the claims against it are without merit, in view of the cost and ~~intends~~risk of continuing to defend ~~itself vigorously.~~

~~On April 13, 2016,~~the action, it reached an agreement with plaintiffs to settle the lawsuit on a ~~purported shareholder class action captioned~~ ~~Pytel v. Sunrun Inc., et al., Case No. CIV 538215,~~class-wide basis for $5.5 million, which was ~~filed~~accrued as of June 30, 2020, in exchange for a release of all claims that were or could have been asserted in the ~~Superior Court of California, County of San Mateo, against~~litigation. The settlement is subject to court approval. Preliminary approval was granted on September 25, 2020, and the court granted final approval on May 11, 2021. The Company ~~certain of~~subsequently made the Company’s directors and officers, the underwriters of the Company’s initial public offering and certain other defendants. The complaint generally alleges that the defendants violated Sections 11, 12 and 15 of the Securities Act of 1933 by making false or misleading statementssettlement payment 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~~mid-June.

In October 2019, 2 shareholders filed separate putative 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 21, 2016, a purported shareholder class action captioned ~~Mancy v. Sunrun Inc., et al., Case No. CIV 538303, was filed~~actions in the ~~Superior~~U.S. District Court for the Eastern District of ~~California, County of San Mateo. On April 22, 2016, a purported shareholder class action captioned~~ ~~Brown et al.~~New York (Crumrine v. ~~Sunrun~~Vivint Solar, Inc.~~, et al., Case No. CIV 538311, was filed in the Superior Court of California, County of San Mateo. On April 29, 2016, a purported shareholder class action captioned~~ ~~Baker et al.~~ and Li v. ~~Sunrun~~Vivint Solar, Inc.~~, et al., Case No. CIV 538419, was filed in the Superior Court of California, County of San Mateo. On May 10, 2016, a purported shareholder class action captioned~~ ~~Nunez v. Sunrun Inc., et al., Case No. CIV 538593, was filed in the Superior Court of California, County of San Mateo. On June 10, 2016, a purported shareholder class action captioned~~ ~~Steinberg v. Sunrun Inc., et al., Case No. 539064, was filed in the Superior Court of California, County of San Mateo. The~~ ~~Mancy~~, ~~Brown~~, ~~Baker, Nunez~~ ~~and~~ ~~Steinberg~~ ~~complaints are substantially similar to the~~ ~~Pytel~~ ~~complaint, and seek similar relief against similar defendants~~) purportedly on behalf of themselves and all others similarly situated. The lawsuits purport to allege violations of Federal Securities Laws. In March 2020, the ~~same purported class.~~

~~On April 21, 2016, a purported shareholder class action captioned~~ ~~Cohen, et al. v. Sunrun Inc., et al., Case No. CIV 538304, was filed in~~court consolidated the ~~Superior Court of California, County of San Mateo, against the Company, certain of the Company’s directors~~two actions and ~~officers,~~appointed lead plaintiffs 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 of 1933 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~~lead counsel to represent the ~~same class and seek similar relief as~~alleged putative class. Subsequently, in December 2020, the ~~plaintiffs~~Eastern District of New York transferred the actions to the District of Utah, where they are now pending. Vivint Solar disputes the allegations in the ~~Pytel~~complaint. While Vivint Solar believes that the claims against it are without merit, in view of the cost and risk of continuing to defend the action, Vivint Solar mediated the action with plaintiffs on May 19, 2021, and reached an agreement to resolve the action on a class-wide basis for $1.25 million. A portion of the $1.25 million will be covered by insurance proceeds, and the Company accrued approximately $750,000 as of June 30, 2021. The parties have informed the court of their agreement, and they anticipate submitting final settlement documents to the court in the next 60 days or so.

In December 2019, 10 customers who signed residential power purchase agreements named Vivint Solar in a putative class action lawsuit captioned Dekker v. Vivint Solar, Inc. (N.D. Cal.), ~~Mancy~~, ~~Brown, Nunez, Steinberg~~alleging that the agreements contain unlawful termination fee provisions. The Company disputes the allegations in the complaint. On January 17, 2020, Vivint Solar moved to compel arbitration with respect to nine of the 10 plaintiffs whose contracts included arbitration provisions. The court issued an order compelling 8 plaintiffs to pursue their claims in arbitration but subsequently rescinded the order as to certain plaintiffs. At this time, certain plaintiffs’ claims remain pending before the court and ~~Baker~~ ~~actions.~~other plaintiffs’ claims are in arbitration. The Company is unable to estimate a range of loss, if any, at this time.

~~On September 26, 2016, the~~ ~~Baker, Brown, Cohen, Mancy, Nunez, Pytel~~

In March 2020, a shareholder filed a derivative action captioned Oyola-Rivera v. Allred (DE Chancery Court) against various officers and ~~Steinberg~~ ~~actions were consolidated. On September 14, 2017, the Superior Court~~directors of ~~California, County of San Mateo granted Mancy’s~~

~~request to voluntarily dismiss the~~ ~~Mancy v. Sunrun~~Vivint Solar, Inc., ~~et al., Case No. CIV 538303, action. On September 19, 2017,~~alleging that they breached their duties of loyalty, care, and good faith. Vivint Solar, Inc. is named as a nominal defendant. The defendants dispute the ~~Superior Court of California, County of San Mateo granted Steinberg’s request to voluntarily dismiss the~~ ~~Steinberg v. Sunrun Inc., et al., Case No. 539064~~, ~~action. On October 4, 2017, the Superior Court of California, County of San Mateo granted Brown et al.’s request to voluntarily dismiss the~~ ~~Brown et al. v. Sunrun Inc., et al.~~ ~~Case No. CIV 538311, action.~~

~~On May 3, 2017, a purported shareholder class action captioned~~ ~~Fink, et al. v. Sunrun Inc., et al., Case No. 3:17-cv-02537, was filed~~allegations in the ~~United States District Court, Northern District~~complaint. The Company is unable to estimate a range of loss, if any, at this time.

On December 2, 2020, the California Contractors State License Board (the “CSLB”) filed an administrative proceeding against the Company and certain of ~~the Company’s directors and officers. The complaint generally alleges~~its officers related to an accident that ~~the defendants violated Sections 10(b) and 20(a) of the Exchange Act of 1934, and Securities and Exchange Commission Rule 10b-5,~~occurred during an installation by making false or misleading statements in connection with public filings made between September 15, 2015 and March 8, 2017 regarding the number of customers who canceled contracts after signing up for the Company’s home-solar energy system. The plaintiff seeks compensatory damages, including interest, attorney's fees, and costs, on behalf of all persons other than the defendants who purchased the Company's securities between September 16, 2015 and May 2, 2017. On May 4, 2017, a purported shareholder class action captioned ~~Hall, et al. v. Sunrun Inc., et al., Case No. 3:17-cv-02571, was filed in the United States District Court, Northern District of California. On May 18, 2017, a purported shareholder class action captioned~~ ~~Sanogo, et al. v. Sunrun Inc., et al., Case No. 3:17-cv-02865, was filed in the United States District Court, Northern California District of California. The~~ ~~Hall~~ ~~and~~ ~~Sanogo~~ ~~complaints are substantially similar to the~~ ~~Fink~~ ~~complaint, and seeks similar relief against similar defendants on behalf of a substantially similar class. On August 23, 2017, the~~ ~~Fink~~, ~~Hall, and~~ ~~Sanogo~~ ~~actions were consolidated, and on September 25, 2017, plaintiffs filed a consolidated amended complaint which alleges the same underlying violations as the original~~ ~~Fink, Hall and Sanogo~~ ~~complaints.~~

~~On June 29, 2017, a shareholder derivative complaint captioned~~ ~~Barbara Sue Sklar Living Trust v. Sunrun Inc. et al., was filed in the United States District Court, Northern District of California, against the Company and certain~~one of the Company’s ~~directors~~channel partners, Horizon Solar Power, which holds its own license with the CSLB. If this proceeding is not resolved in the Company’s favor, it could potentially result in fines, a public reprimand, probation or the suspension or revocation of the Company’s California Contractor’s License. The Company strongly denies any wrongdoing in the matter and ~~officers. The complaint generally alleges~~intends to work cooperatively with the CSLB while vigorously defending itself in this action. Any potential effect of the CSLB proceeding on the Company’s consolidated financial statements is unknown.

In addition to the matters discussed above, in the normal course of business, the Company has from time to time been named as a party to various legal claims, actions and complaints. While the outcome of these matters cannot currently be predicted with certainty, the Company does not currently believe that the ~~defendants violated Section 14(a)~~outcome of any of these claims will have a material adverse effect, individually or in the aggregate, on its consolidated financial position, results of operations or cash flows.

The Company accrues for losses that are probable and can be reasonably estimated. The Company evaluates the adequacy of its legal reserves based on its assessment of many factors, including interpretations of the ~~Exchange Act~~law and assumptions about the future outcome of 1934 by making false or misleading statements in connection with public filings, including proxy statements, made between September 10, 2015 and May 3, 2017 regarding the number of customers who cancelled contracts after signing up for the Company’s home solar energy system. The Plaintiff seeks, among other things, damages in favor of the Company, certain corporate actions to purportedly improve the Company’s corporate governance, and an award of costs and expenses to the putative plaintiff stockholder, including attorneys’ fees.each case based on available information.

Note ~~14.~~16. Earnings Per Share

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Numerator:
Net loss attributable to common stockholders	$	(41,244)	$	(13,562)	$	(65,033)	$	(41,521)
Denominator:
Weighted average shares used to compute net loss per share attributable to common stockholders, basic	204,378		120,279		203,475		120,201
Weighted average effect of potentially dilutive shares to purchase common stock	0		0		0		0
Weighted average shares used to compute net loss per share attributable to common stockholders, diluted	204,378		120,279		203,475		120,201
Net loss per share attributable to common stockholders
Basic	$	(0.20)	$	(0.11)	$	(0.32)	$	(0.35)
Diluted	$	(0.20)	$	(0.11)	$	(0.32)	$	(0.35)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Numerator:

Net income attributable to common stockholders $ 27,782
$ 16,878
$ 65,631
$ 62,655
Denominator:

Weighted average shares used to compute net income per share attributable to common stockholders, basic 105,783
102,707
105,060
101,988
Weighted average effect of potentially dilutive shares to purchase common stock 3,815
2,385
2,833
2,710
Weighted average shares used to compute net income per share attributable to common stockholders, diluted 109,598
105,092
107,893
104,698
Net income per share attributable to common stockholders

Basic $ 0.26
$ 0.16
$ 0.62
$ 0.61
Diluted $ 0.25
$ 0.16
$ 0.61
$ 0.60

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


	Three Months Ended June 30,		Six Months Ended June 30,
	2021	2020	2021	2020

Outstanding stock options	770	1,896	664	2,256
Unvested restricted stock units	2,306	1,845	1,325	1,924
Convertible senior notes (if converted)	3,392	0	2,865	0
Total	6,468	3,741	4,854	4,180

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Warrants 1,251
1,251
1,251
1,251
Outstanding stock options 9,346
9,650
12,257
8,723
Unvested restricted stock units 787
1,064
1,099
1,445
Total 11,384
11,965
14,607
11,419

Note ~~15.~~17. Related Party Transactions

An individual who previously served as one of the Company’s directors until March 2017 has direct and indirect ownership interests in Enphase Energy, Inc. (“Enphase”). For the three months ended September 30, 2017 and 2016, the Company recorded $2.2 million and $4.3 million, respectively, and $6.6 million and $18.7 million for the nine months ended September 30, 2017 and 2016, respectively, in purchases

Advances Receivable—Related Party

Net amounts due from ~~Enphase and had outstanding payables to Enphase of $2.1 million and $0.4~~direct-sales professionals were $12.3 million as of ~~September~~June 30, ~~2017~~2021. The Company provided a reserve of $0.6 million as of June 30, 2021 related to advances to direct-sales professionals who have terminated their employment agreement with the Company.

Note 18. Acquisitions

Vivint Solar, Inc.

On October 8, 2020, the Company acquired Vivint Solar, a leading full-service residential solar provider in the United States, at an estimated purchase price of $5.0 billion, pursuant to an Agreement and ~~December 31, 2016, respectively.~~Plan of Merger, dated as of July 6, 2020, by and among the Company, Vivint Solar and Viking Merger Sub, Inc., a Delaware corporation and direct wholly owned subsidiary of the Company (“Merger Sub”), pursuant to which Merger Sub merged with and into Vivint Solar, with Vivint Solar continuing as the surviving corporation (the “Merger”). As a result of the Merger, Vivint Solar became a direct wholly owned subsidiary of the Company.

As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period (a period not to exceed 12 months) in 2021. The Company is in the process of finalizing its third-party valuations of solar energy systems; thus, the provisional measurements of solar energy systems, goodwill and deferred income tax assets are subject to change as additional information is received and certain tax returns are finalized.

Note 16. 19. Subsequent Events

On ~~October 20, 2017, certain subsidiaries~~August 5, 2021, the Company announced that, effective August 31, 2021, Ms. Lynn Jurich would transition from her position as Chief Executive Officer of the Company ~~entered into an aggregate $303.0 million~~to the role of ~~senior secured credit facilities. The facilities are syndicated with various lenders and consist of: (i) a $234.5 million senior delayed draw term loan facility with an initial interest rate~~Co-Executive Chair of LIBOR + 2.75% until October 31, 2021, stepping up to LIBOR + 3.00% thereafter; (ii) a $58.5 million subordinated delayed draw term loan facility, with 30% of loans having an interest rate of LIBOR + 5.00% and the remaining 70% of loans having an interest rate of 7.03%; and (iii) a $10.0 million debt service reserve letter of credit facility. The facilities are non-recourse to the Company and ~~are secured by net cash flows from Customer Agreements available to~~that Ms. Mary Powell would be appointed Chief Executive Officer of the ~~borrowers after distributions to tax equity investors~~Company. A Form 8-K with copies of the Company’s amended employment agreement with Ms. Jurich and ~~payment of certain operating, maintenance and other expenses. All facilities mature~~the Company’s employment agreement with Ms. Powell was filed with the SEC on ~~October 20, 2024.~~

August 5, 2021.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

~~our ability to finance solar energy systems through financing arrangements with fund or other investors;~~

~~our ability and intent to establish new investment funds;~~

~~our dependence on the availability of rebates, tax credits and other financial incentives;~~

~~determinations by the Internal Revenue Service or the U.S. Treasury Department of the fair market value~~analysis of our ~~solar energy systems;~~

financial condition and results of operations together with the ~~retail price of utility-generated electricity or electricity from other energy sources;~~

~~regulatory~~unaudited consolidated financial statements and ~~policy development and changes;~~

~~our ability to maintain an adequate rate of revenue growth;~~

~~our industry’s continued ability to cut costs associated with solar service offerings;~~

~~our strategic partnerships and expected benefits of such partnerships;~~

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

~~our need to raise capital and finance our operations from new and existing investors;~~

~~our ability to refinance existing debt;~~

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

~~our business plan and our ability to effectively manage our growth;~~

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

~~our expectations concerning relationships with third parties, including the attraction and retention of qualified channel partners;~~

~~the impact of seasonality on our business;~~

~~our investment in research and development;~~

~~our expectations regarding certain performance objectives; and~~

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

~~These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section titled “Risk Factors” and~~related notes included elsewhere in this Quarterly Report on Form 10-Q. ~~Moreover, we operate in a very competitive~~This discussion contains forward-looking statements that involve risks and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may causeuncertainties. Our actual results tocould differ materially from those ~~contained~~discussed below. Factors that could cause or contribute to such differences include those identified below and those discussed in ~~any forward-looking statements we may make. In light of these risks, uncertainties and assumptions,~~ the ~~forward-looking events and circumstances discussed~~section titled “Risk Factors” included elsewhere in this Quarterly Report on Form ~~10-Q may not occur~~10-Q.

Overview

Sunrun’s mission is to provide our customers with clean, affordable solar energy and ~~actual results could differ materially~~storage, and ~~adversely from those anticipated or implied~~a best-in-class customer experience. In 2007, we pioneered the residential solar service model, creating a low-cost solution for customers seeking to lower their energy bills. By removing the high initial cost and complexity of cash system sales that used to define the residential solar industry, we have fostered the industry’s rapid growth and exposed an enormous market opportunity. Our relentless drive to increase the accessibility of solar energy is fueled by our enduring vision: to create a planet run by the sun.

On October 8, 2020, we completed the acquisition of Vivint Solar, Inc. ("Vivint Solar") a leading full-service residential solar provider in the ~~forward-looking statements.~~

~~You should not rely upon forward-looking statements~~United States, at an estimated purchase price of $5.0 billion, pursuant to an Agreement and Plan of Merger, dated as ~~predictions~~ of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or eventsJuly 6, 2020, by and ~~circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy~~among Sunrun, Vivint Solar and ~~completeness~~Viking Merger Sub, Inc., a Delaware corporation and direct wholly owned subsidiary of the ~~forward-looking statements. We undertake no obligation~~Company (“Merger Sub”). Further information about the acquisition of Vivint Solar can be found in Note 18, Acquisitions to ~~update publicly any forward-looking~~our consolidated financial statements ~~for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations, except as required by law.~~

~~You should read this Quarterly Report on Form 10-Q and the documents that we reference~~included elsewhere in this Quarterly Report on Form ~~10-Q~~10-Q.

We are engaged in the design, development, installation, sale, ownership and ~~have filed with~~maintenance of residential solar energy systems (“Projects”) in the Securities and Exchange Commission (the “SEC”) as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.

~~Overview~~

United States. We provide clean, solar energy ~~to homeowners~~typically at ~~a significant~~ savings compared to traditional utility energy. Our primary customers are residential homeowners. We ~~have been selling~~also offer battery storage along with solar energy systems to our customers in select markets and sell our services to certain commercial developers through our multi-family and new homes offerings. After inventing the residential solar service model and recognizing its enormous market potential, we have built the infrastructure and capabilities necessary to rapidly acquire and serve customers ~~through~~in a ~~variety~~low-cost and scalable manner. Today, our scalable operating platform provides us with a number of ~~offerings since~~unique advantages. First, we ~~were founded in 2007. We, either directly or through one of~~are able to drive distribution by marketing our solar ~~partners, install~~service offerings through multiple channels, including our diverse partner network and direct-to-consumer operations. This multi-channel model supports broad sales and installation capabilities, which together allow us to achieve capital-efficient growth. Second, we are able to provide differentiated solutions to our customers that, combined with a great customer experience, we believe will drive meaningful margin advantages for us over the long term as we strive to create the industry’s most valuable and satisfied customer base.

Our core solar service offerings are provided through our lease and power purchase agreements, which we refer to as our “Customer Agreements” and which provide customers with simple, predictable pricing for solar energy that is insulated from rising retail electricity prices. While customers have the option to purchase a solar energy system onoutright from us, most of our customers choose to buy solar as a ~~customer’s home and either sell~~service from us through our Customer Agreements without the ~~system to the homeowner or, as is more often the case, sell the energy generated by the system to the homeowner pursuant to~~significant upfront investment of purchasing a lease or power purchase agreement (“PPA”) with no or low upfront costs. We refer to these leases and PPAs as “Customer Agreements.” Following installation, a system is interconnected to the local utility grid. The home’s energy usage is provided by the solar energy system, with any additional energy needs provided by the local utility. Unless the solar energy system is connected to a battery, any excess solar energy that is not immediately used by the homeowners 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.

~~We offer~~system. With our solar service offerings, ~~both directly~~we install solar energy systems on our customers’ homes and provide them the solar power produced by those systems for typically a 20- or 25-year initial term. In addition, we monitor, maintain and insure the system during the term of the contract. In exchange, we receive predictable cash flows from high credit quality customers and qualify for tax and other benefits. We finance portions of these tax benefits and cash flows through tax equity, non-recourse debt and project equity structures in order to fund our upfront costs, overhead and growth investments. We develop valuable customer relationships that can extend beyond this initial contract term and provide us an opportunity to offer additional services in the ~~homeowner~~future, such as our home battery storage service. Since our founding, we have continued to invest in a platform of services and ~~through~~tools to enable large scale operations for us and our partner network, and these partners include solar ~~partners, which include~~integrators, sales ~~and~~partners, installation partners and other strategic ~~partners,~~partners. The platform includes processes and software, as well as fulfillment and acquisition of marketing leads. We believe our platform empowers new market entrants and smaller industry participants to profitably serve our large and underpenetrated market without making the significant investments in technology and infrastructure required to compete effectively against established industry players. Our platform provides the support for our multi-channel model, which ~~include retail partners. In addition,~~drives broad customer reach and capital-efficient growth.

Delivering a differentiated customer experience is core to our strategy. We emphasize a customized solution, including a design specific to each customer’s home and pricing configurations that typically drive both customer savings and value to us. We believe that our passion for engaging our customers, developing a trusted brand, and providing a customized solar service offering resonates with our customers who are accustomed to a traditional residential power market that is often overpriced and lacking in customer choice.

We have experienced substantial growth in our business and operations since our inception in 2007, as well as through our acquisition of Vivint Solar in 2020. As of June 30, 2021, we ~~sell~~operated the largest fleet of residential solar energy systems ~~directly to customers for cash. We also sell solar energy panels and other products (such as racking) to resellers. As of September 30, 2017, we sell our solar services to customers~~ in ~~22 states, plus the District of Columbia, and sold solar energy panels and other products to resellers throughout~~ the United States. ~~Approximately half~~We have a Networked Solar Energy Capacity of ~~our cumulative systems deployed are in California.~~

~~We compete mainly with traditional utilities. In~~4,238 Megawatts as of June 30, 2021, which represents the ~~markets we serve,~~aggregate megawatt production capacity of our strategy is to price the energy we sell below prevailing local retail electricity rates. As a result, the price our customers pay to buy energy from us through our solar service offerings varies depending on the state where the customer lives, 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.

~~Our ability to offer Customer Agreements depends in part on our ability to finance the purchase and installation of the~~ solar energy systems ~~by monetizing~~that have been recognized as deployments, from our inception through the ~~resulting customer cash flows~~measurement date. Gross Earning Assets as of June 30, 2021 were approximately $8.6 billion. Please see the section entitled “Key Operating Metrics” for more details on how we calculate Networked Solar Energy Capacity and ~~related investment~~Gross Earning Assets.

We also have a long track record of attracting low-cost capital from diverse sources, including tax ~~credits (“ITCs”), accelerated tax depreciation~~equity and ~~other incentives from governments and local utilities. We monetize these incentives under~~debt investors. Since inception we have raised tax equity investment funds ~~which are generally structured as non-recourse project financings. From inception~~ to ~~November 6, 2017, we have established 34 investment funds, which represent financing for an estimated $6.2 billion in value~~finance the installation of solar energy ~~systems~~systems.

Impacts of COVID-19 on Our Business

The COVID-19 pandemic and the resulting impact on the U.S. economy have accelerated many of our operational initiatives to deliver best-in-class customer value and to reduce costs. We have invested in technology to streamline our installation processes, including online permitting and interconnection in many locations, enabled our entire salesforce to complete sales consultations in a ~~cumulative basis.~~virtual setting, and employed extensive use of drone technology to complete rooftop surveys. We ~~intend~~believe this transition towards a digital model for many sales channels will position us well to ~~establish additional investment funds~~realize sustaining reductions in customer acquisition costs.

The COVID-19 pandemic has had an unprecedented impact on the U.S. economy, resulting in governments and ~~may also use debt, equity~~organizations implementing public health measures in an effort to contain the virus, including physical distancing, work from home, supply chain logistical changes and ~~other financing strategies~~closure of non-essential businesses. With vaccine administration rising, governments and organizations have responded by adjusting such restrictions and guidelines accordingly. We are monitoring this fluid situation and will continue to ~~fund~~follow official regulations to protect our ~~growth.~~employees and customers.

The ultimate impact of the COVID-19 pandemic (and virus variants) is still highly uncertain and subject to change, and we do not yet know the full extent of potential delays or impacts on our business, operations or the global economy as a whole. We will continue to monitor developments affecting our workforce, our customers, and our business operations generally and will take actions that we determine are necessary in order to mitigate these impacts.

Investment Funds

Our Customer Agreements provide for recurring customer payments, typically over 20 or 25 years, and the related solar energy systems are generally eligible for Commercial ITCs, accelerated tax depreciation and other government or utility

incentives. Our financing strategy is to monetize these benefits at a low weighted 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 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 Commercial ITCs, accelerated depreciation and certain government or utility incentives associated with the funds’ ownership of solar energy systems.

~~From inception to November 6, 2017,~~As of June 30, 2021, we ~~have formed 34~~had 64 active investment ~~funds. Of these 34~~ funds, ~~29 are currently active and~~which 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.

We currently utilize three legal structures in our investment funds, which we refer to as: (i) ~~lease pass-throughs,~~pass-through financing obligations, (ii) partnership flips and (iii) joint venture (“JV”) inverted leases. We reflect ~~lease~~ pass-through ~~arrangements~~financing 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 a redeemable noncontrolling interest at the greater of the HLBV and the redemption value.

The table below provides an overview of our current investment funds ~~(in millions, except number of funds and MW Deployed)~~(dollars in millions):

Consolidated Joint Ventures
Lease Pass-Through Partnership Flip JV Inverted Lease
Consolidation Owner entity consolidated, tenant entity not consolidated Single entity, consolidated Owner and tenant entities consolidated Owner and tenant entities consolidated
Balance sheet classification Lease pass-through financing obligation Redeemable noncontrolling interests and noncontrolling interests Redeemable noncontrolling interests and noncontrolling interests Noncontrolling interests
Revenue from ITCs Recognized annually over 5 years as the recapture period elapses None None None
Method of calculating investor interest Effective interest rate method Greater of HLBV or redemption value Greater of HLBV or redemption value Pro rata
Liability balance as of September 30, 2017 $ 144.0
N/A
N/A
N/A
Noncontrolling interest balance (redeemable or otherwise) as of September 30, 2017 N/A
$ 456.8
$ 72.4
$ 7.0
Number of funds (as of September 30, 2017) 5
17
5
1
MW deployed (as of September 30, 2017) 129.5
639.4
149.1
20.7
Carrying value of solar energy systems, net (as of September 30, 2017) $ 429.1
$ 1,800.1
$ 519.5
$ 80.5
Contributions from third-party fund investors (through September 30, 2017) $ 508.0
$ 1,572.9
$ 388.4
$ 86.3

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

Revenue from Commercial ITCs

Recognized on the permission to operate ("PTO") date

None

Method of calculating investor interest

Effective interest rate method

Greater of HLBV or redemption value; or pro rata

Liability balance as of June 30, 2021

337.1

N/A

Noncontrolling interest balance (redeemable or otherwise) as of June 30, 2021

N/A

1,297.4

38.3

For further information regarding our investment funds, including the associated risks, see ~~“Risk Factors—Our~~Part II, Item 1A. Risk Factors— "Our ability to provide our solar service offerings to ~~homeowners~~customers on an economically viable basis depends in part on our ability to finance these systems with fund investors who seek particular tax and other benefits”, as well as Note 8, ~~Lease Pass-Through~~10, Pass-through Financing Obligations, Note 9, 11, VIE Arrangements and Note ~~10,~~ 12, Redeemable Noncontrolling Interests and Equity to our consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

Key Operating Metrics

We regularly review a number of metrics, including the following key operating metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. Some of our key operating metrics are estimates that are based on our management’s beliefs and assumptions and on information currently available to management. Although we believe that we have a reasonable basis for each of these estimates, we caution you that these estimates are based on a combination of assumptions that may prove to be inaccurate over time. Any inaccuracies could be material to our actual results when compared to our calculations. Please see the section titled “Risk Factors” in this Quarterly Report on Form 10-Q 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.

During the fourth quarter of 2016, we reviewed our key operating metrics to ensure our reported metrics remain aligned with how we currently operate our business. Based on our growing operating experience, unique business model and industry trends, we modified our method for calculating Megawatts Booked and replaced Estimated Retained Value and Estimated Nominal Contracted Payments Remaining with Gross Earning Assets. We believe these changes provide investors with improved indicators of performance and trends and are better aligned with our current sales compensation and key operating objectives. As a result of this modification, the presentation of Megawatts Booked for periods prior to December 31, 2016 in the tables below has been recast to reflect the updated calculation methodology. In addition, we have now modified the definition of Gross Earning Assets to explain that in calculating Gross Earning Assets we deduct estimated cash distributions to our cash equity financing providers, similar to how we exclude estimated cash distributions to investors in consolidated joint ventures.

~~Megawatts Booked~~represents the aggregate megawatt production capacity of our solar energy systems, whether sold directly to customers or subject to an executed Customer Agreement, for which we have confirmation that the systems have reached NTP, net of cancellations.

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

Systems that have met this criteria are considered to be deployed.

•Gross Earning Assetsis calculated as Gross Earning Assets Contracted Period plus Gross Earning Assets Renewal Period.

◦Gross Earning Assets Contracted Period represents the present value of the remaining net cash flows (discounted at 6%5%) during the initial term of our Customer Agreements as of the measurement date. It is calculated as the present value of cash flows (discounted at 5%) we expect to receive ~~during~~from Subscribers in future periods, after deducting expected operating and maintenance costs, equipment replacements costs, distributions to tax equity partners in consolidated joint venture partnership flip structures, and distributions to project equity investors. We include cash flows we expect to receive in future periods from state incentive and rebate programs, contracted sales of solar renewable energy credits, and awarded net cash flows from grid service programs with utility or grid operators.

◦Gross Earning Assets Renewal Period is the forecasted net present value we would receive upon or following the expiration of the initial ~~20-year~~Customer Agreement term ~~of our Customer Agreements for systems that have been deployed as~~but before the 30th anniversary of the ~~measurement date, plus~~system’s activation (either in the form of cash payments during any applicable renewal period or a ~~discounted estimate of the value of the Customer Agreement renewal term or solar energy~~ system purchase at the end of the initial ~~term. Consistent with industry standards, we use a discount rate~~term), for Subscribers as of 6%. We consider a discount rate of 6% to be appropriate and consistent with recent market transactions that demonstrate that a portfolio of residential solar homeowner contracts is an asset class that can be securitized successfully on a long-term basis, with a coupon of less than 5%.the measurement date. We calculate the Gross Earning Assets ~~value of the purchase or renewal~~Renewal Period amount at the expiration of the initial contract term assuming either a ~~10-year~~system purchase or a renewal, forecasting only a 30-year customer relationship (although the customer may renew for additional years, or purchase the system), at a contract rate equal to 90% of the customer’s contractual rate in effect at the end of the initial contract term. After the initial ~~(typically~~ ~~20-year~~) contract term, our Customer Agreements ~~provide customers~~typically automatically renew on an annual basis and the ~~option~~rate is initially set at up to ~~renew their contracts for the remaining life of the solar energy system typically at~~ a 10% discount to then-prevailing utility power prices.

~~Gross Earning Assets excludes estimated cash distributions to investors in consolidated joint ventures and estimated operating, maintenance and administrative expenses~~◦Subscribers represent the cumulative number of Customer Agreements for systems ~~deployed~~that have been recognized as ofdeployments through the measurement date. ~~In calculating Gross Earning Assets, we deduct estimated cash distributions to~~

•Customers represent the cumulative number of deployments, from our ~~cash equity financing providers. In calculating Gross Earning Assets, we do not deduct customer payments we are obligated to pass~~inception through ~~to investors in lease pass-throughs as these amounts are reflected on our balance sheet as long-term and short-term lease pass-through obligations, similar to~~ the way that debt obligations are presented. In determining our finance strategy, we use lease pass-throughs and long-term debt in an equivalent fashion as the schedule of payments of distributions to lease pass-through investors is more similar to the payment of interest to lenders than the internal rates of return (IRRs) paid to investors in other tax equity structures.measurement date.


◦	~~Gross Earning Assets Under Energy Contract~~represents the net cash flows during the initial (typically 20 year) term of our Customer Agreements (less substantially all value from SRECs prior to July 1, 2015), for systems deployed as of the measurement date.


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

Gross Earning Assets is forecasted as of a specific date. It is forward-looking, and we use judgment in developing the assumptions used to calculate it. Factors that could impact Gross Earning Assets include, but are not limited to, customer payment defaults, or declines in utility rates or early termination of a contract in certain circumstances, including prior to installation.

The definitions of Gross Earning Assets, Gross Earning Assets Contracted Period, and Gross Earning Assets Renewal Period use a discount rate of 5%; whereas the definitions used in our periodic reports [prior to [date]] used a discount rate of 6%.


	As of June 30,
	2021	2020
Networked Solar Energy Capacity (megawatts)	4,238	2,163
Customers	599,743	301,310


	As of June 30,
	2021		2020

	(in thousands)
Gross Earning Assets Contracted Period	$	5,797,376	$	2,891,899
Gross Earning Assets Renewal Period	2,815,292		1,494,950
Gross Earning Assets	$	8,612,668	$	4,386,849

For the Three Months Ended September 30,
2017 2016
MW Booked (during the period) (1)
93 83
MW Deployed (during the period) 90 80


~~(1)~~	~~MW Booked for the three months ended September 30, 2016 has been recast to reflect the updated method of calculating MW Booked as discussed above.~~

As of September 30,
2017 2016
Cumulative Megawatts Deployed (end of period) (1)
1,117 801


~~(1)~~	~~The Cumulative Megawatts Deployed may not equal the sum of all MW deployed each year due to rounding.~~

As of September 30,
2017 2016

(in thousands)
Gross Earning Assets Under Energy Contract $ 1,359,017
$ 1,107,858
Gross Earning Assets Value of Purchase or Renewal 709,414
561,239
Gross Earning Assets $ 2,068,431
$ 1,669,097

As a result of the acquisition of Vivint Solar in October 2020, we added $2.9 billion of Gross Earning Assets, of which $2.0 billion related to Gross Earning Assets Contracted Period and $0.9 billion related to Gross Earning Assets Renewal Period.

The tables below provide a range of Gross Earning Asset amounts if different default, discount and purchase and renewal assumptions were used.

Gross Earning Assets ~~Under Energy Contract:~~Contracted Period:


	As of June 30, 2021
	Discount rate
Default rate	3%		4%		5%		6%		7%

	(in thousands)
5%	$	6,695,649	$	6,130,008	$	5,635,070	$	5,200,280	$	4,816,858
0%	$	6,898,192	$	6,310,775	$	5,797,376	$	5,345,961	$	4,948,372

As of September 30, 2017
Discount rate
Default rate 4% 5% 6% 7% 8%

(in thousands)
5% $ 1,559,176
$ 1,434,253
$ 1,323,525
$ 1,225,096
$ 1,137,354
0% $ 1,602,766
$ 1,473,525
$ 1,359,017
$ 1,257,270
$ 1,166,606

Gross Earning Assets ~~Value of Purchase or Renewal:~~Renewal Period:


	As of June 30, 2021
	Discount rate
Purchase or Renewal rate	3%		4%		5%		6%		7%

	(in thousands)
80%	$	3,661,648	$	2,983,738	$	2,439,958	$	2,002,213	$	1,648,593
90%	$	4,223,224	$	3,442,020	$	2,815,292	$	2,310,695	$	1,903,005
100%	$	4,784,800	$	3,900,301	$	3,190,624	$	2,619,176	$	2,157,417

As of September 30, 2017
Discount rate
Purchase or Renewal rate 4% 5% 6% 7% 8%

(in thousands)
80% $ 941,825
$ 762,149
$ 618,804
$ 504,057
$ 411,901
90% $ 1,079,608
$ 873,699
$ 709,414
$ 577,897
$ 472,265
100% $ 1,217,391
$ 985,249
$ 800,024
$ 651,736
$ 532,629

Total Gross Earning Assets:


	As of June 30, 2021
	Discount rate
Purchase or Renewal rate	3%		4%		5%		6%		7%

	(in thousands)
80%	$	10,559,840	$	9,294,514	$	8,237,335	$	7,348,174	$	6,596,964
90%	$	11,121,417	$	9,752,796	$	8,612,668	$	7,656,656	$	6,851,377
100%	$	11,682,992	$	10,211,077	$	8,988,001	$	7,965,137	$	7,105,789

As of September 30, 2017
Discount rate
Purchase or Renewal rate 4% 5% 6% 7% 8%

(in thousands)
80% $ 2,544,591
$ 2,235,674
$ 1,977,821
$ 1,761,328
$ 1,578,507
90% $ 2,682,374
$ 2,347,224
$ 2,068,431
$ 1,835,167
$ 1,638,871
100% $ 2,820,157
$ 2,458,774
$ 2,159,041
$ 1,909,007
$ 1,699,235

Critical Accounting Policies and Estimates

~~There~~

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been ~~no material~~prepared in accordance with 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 ~~critical~~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, ~~and estimates during the nine months ended September 30, 2017 from those disclosed in~~see Note 2, Summary of Significant Accounting Policies of our ~~Annual Report~~annual report on Form 10-K for the year ended December 31, ~~2016, as filed~~2020.

We believe that policies associated with our principles of consolidation, revenue recognition, goodwill, impairment of long-lived assets, provision for income taxes, business combinations and calculation of noncontrolling interests and redeemable noncontrolling interests have the ~~SEC pursuant~~greatest impact on our consolidated financial statements. Therefore, we consider these to ~~the Exchange Act.~~

be our critical accounting policies and estimates.

Results of Operations

The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020

	(in thousands, except per share data)
Revenue:
Customer agreements and incentives	$	219,474	$	106,095	$	394,070	$	205,219
Solar energy systems and product sales	181,692		75,199		341,890		186,806
Total revenue	401,166		181,294		735,960		392,025
Operating expenses:
Cost of customer agreements and incentives	177,339		83,422		337,616		161,699
Cost of solar energy systems and product sales	151,588		63,746		285,670		155,344
Sales and marketing	144,599		69,701		270,712		139,971
Research and development	5,150		4,971		11,022		9,017
General and administrative	62,916		41,756		148,546		69,830
Amortization of intangible assets	1,343		1,167		2,688		2,650
Total operating expenses	542,935		264,763		1,056,254		538,511
Loss from operations	(141,769)		(83,469)		(320,294)		(146,486)
Interest expense, net	(74,999)		(50,721)		(149,269)		(100,645)
Other (expenses) income, net	(11,553)		(148)		22,794		(98)
Loss before income taxes	(228,321)		(134,338)		(446,769)		(247,229)
Income tax (benefit) expense	(14,912)		211		(29,038)		(3,131)
Net loss	(213,409)		(134,549)		(417,731)		(244,098)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests	(172,165)		(120,987)		(352,698)		(202,577)
Net loss attributable to common stockholders	$	(41,244)	$	(13,562)	$	(65,033)	$	(41,521)
Net loss per share attributable to common stockholders
Basic	$	(0.20)	$	(0.11)	$	(0.32)	$	(0.35)
Diluted	$	(0.20)	$	(0.11)	$	(0.32)	$	(0.35)
Weighted average shares used to compute loss per share attributable to common stockholders
Basic	204,378		120,279		203,475		120,201
Diluted	204,378		120,279		203,475		120,201

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016

(in thousands, except per share data)
Revenue:
Operating leases and incentives $ 58,462
$ 43,150
$ 171,897
$ 123,084
Solar energy systems and product sales 82,829
68,883
211,359
210,230
Total revenue 141,291
112,033
383,256
333,314
Operating expenses:

Cost of operating leases and incentives 49,232
40,770
140,682
117,478
Cost of solar energy systems and product sales 69,588
57,264
179,957
176,376
Sales and marketing 37,298
40,192
101,758
127,096
Research and development 3,936
2,458
10,642
7,294
General and administrative 27,925
21,331
77,776
68,193
Amortization of intangible assets 1,052
1,051
3,154
3,154
Total operating expenses 189,031
163,066
513,969
499,591
Loss from operations (47,740 ) (51,033 ) (130,713 ) (166,277 )
Interest expense, net 17,707
13,957
49,586
38,535
Other expenses (income), net (94 ) 42
589
(460 )
Loss before income taxes (65,353 ) (65,032 ) (180,888 ) (204,352 )
Income tax expense (benefit) 14,834
9,936
37,625
13,146
Net loss (80,187 ) (74,968 ) (218,513 ) (217,498 )
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests (107,969 ) (91,846 ) (284,144 ) (280,153 )
Net income attributable to common stockholders $ 27,782
$ 16,878
$ 65,631
$ 62,655
Net income per share attributable to common stockholders
Basic $ 0.26
$ 0.16
$ 0.62
$ 0.61
Diluted $ 0.25
$ 0.16
$ 0.61
$ 0.60
Weighted average shares used to compute net income per share attributable to common stockholders
Basic 105,783
102,707
105,060
101,988
Diluted 109,598
105,092
107,893
104,698

Comparison of the Three Months Ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020

Revenue


	Three Months Ended June 30,				Change
	2021		2020		$		%

	(in thousands)
Customer agreements	$	196,935	$	98,525	$	98,410	100	%
Incentives	22,539		7,570		14,969		198	%
Customer agreements and incentives	219,474		106,095		113,379		107	%

Solar energy systems	90,422		44,579		45,843		103	%
Products	91,270		30,620		60,650		198	%
Solar energy systems and product sales	181,692		75,199		106,493		142	%
Total revenue	$	401,166	$	181,294	$	219,872	121	%

Three Months Ended September 30, Change
2017 2016 $ %

(in thousands)
Operating leases $ 47,600
$ 34,144
$ 13,456
39 %
Incentives 10,862
9,006
1,856
21 %
Operating leases and incentives 58,462
43,150
15,312
35 %

Solar energy systems 30,734
27,585
3,149
11 %
Products 52,095
41,298
10,797
26 %
Solar energy systems and product sales 82,829
68,883
13,946
20 %
Total revenue $ 141,291
$ 112,033
$ 29,258
26 %

~~Operating Leases~~Customer Agreements and Incentives. ~~Operating lease~~The $98.4 million increase in revenue ~~increased by $13.5 million,~~from Customer Agreements was primarily due to both an increase in solar energy systems under Customer Agreements being added to our fleet upon the acquisition of Vivint Solar in October 2020, as well as new systems placed in service in the period from ~~October~~July 1, ~~2016~~2020 through ~~September~~June 30, ~~2017, and~~2021, plus a full quarter of revenue recognized in the ~~third~~second quarter of ~~2017~~2021 for systems placed in service in the ~~third~~second quarter of ~~2016~~2020 versus only a ~~portion recognized in the third~~partial quarter of ~~2016.~~such revenue related to the period in which the assets were in service in 2020. Revenue from incentives primarily consists of sales of SRECs, which increased by ~~$1.9~~$15.0 million ~~primarily due~~during the three months ended June 30, 2021, compared to ~~an increase in solar renewable energy credits ("SRECs") revenue as a result of~~ the ~~sales under contracts whereby revenue was recognized upon delivery.~~prior year.

Solar Energy Systems and Product Sales. Revenue from solar energy systems sales increased by ~~$3.1~~$45.8 million compared to the prior year primarily due to solar energy systems sales from Vivint Solar, as well as increased demand ~~in certain states.~~through retail partners. Product sales increased by ~~$10.8~~$60.7 million, ~~compared to the prior year period~~ primarily due to ~~an increase in~~lower volume of ~~fulfillment~~wholesale products sold ~~offset~~in 2020, which was impacted by ~~industry-wide price decreases.~~COVID-19.

Operating Expenses


	Three Months Ended June 30,				Change
	2021		2020		$		%

	(in thousands)
Cost of customer agreements and incentives	$	177,339	$	83,422	$	93,917	113	%
Cost of solar energy systems and product sales	151,588		63,746		87,842		138	%
Sales and marketing	144,599		69,701		74,898		107	%
Research and development	5,150		4,971		179		4	%
General and administrative	62,916		41,756		21,160		51	%
Amortization of intangible assets	1,343		1,167		176		15	%
Total operating expenses	$	542,935	$	264,763	$	278,172	105	%

Three Months Ended September 30, Change
2017 2016 $ %

(in thousands)
Cost of operating leases and incentives $ 49,232
$ 40,770
$ 8,462
21 %
Cost of solar energy systems and product sales 69,588
57,264
12,324
22 %
Sales and marketing 37,298
40,192
(2,894 ) (7 )%
Research and development 3,936
2,458
1,478
60 %
General and administrative 27,925
21,331
6,594
31 %
Amortization of intangible assets 1,052
1,051
1
— %
Total operating expenses $ 189,031
$ 163,066
$ 25,965
16 %

Cost of ~~Operating Leases~~Customer Agreements and Incentives. The ~~$8.5~~$93.9 million increase in ~~cost~~Cost of ~~operating leases~~customer agreements and incentives was primarily due to the increase in solar energy systems added to our fleet upon the acquisition of Vivint Solar in October 2020, as well as new systems placed in service in the period from ~~October~~July 1, ~~2016~~2020 through ~~September~~June 30, ~~2017,~~2021, plus a full quarter of ~~expenses~~costs recognized in 2021 for systems placed in service in the ~~third~~second quarter of ~~2016~~2020 versus only a partial quarter of such expenses related to the period in which the assets were in service in ~~2016. This resulted~~2020. Additionally, there was an increase of $32.0 million related to depreciation expense on solar fixed assets recorded in ~~an $8.2 million increase in depreciation and amortization of solar energy system equipment costs and~~the initial ~~direct costs.~~

purchase accounting for the acquisition.

The cost of ~~operating leases~~Customer Agreements and incentives ~~decreased to 84%~~remained relatively consistent at 81% of ~~operating lease~~revenue from customer agreements and incentives ~~revenue~~ during the three months ended ~~September~~June 30, ~~2017, from 94%~~2021, compared with 79% during the three months ended ~~September~~June 30, ~~2016. This reduction in cost compared to revenue is due to a reduction in the proportion of leased systems installed~~2020.

by us as opposed to third parties compared to the prior year. Systems installed by us bear an allocation of costs, such as warehouse rent and utilities, information technology, administrative and product planning costs, that are expensed during the construction and installation phase as these costs do not meet the criteria for capitalization under Accounting Standards Codification (“ASC”) 360 ~~Property, Plant, and Equipment~~. These costs can fluctuate depending on the volume of megawatts installed directly by us for systems under an operating lease, and are not necessarily proportional to the increase in revenue generated by our entire fleet of leased systems. As such, the cost of operating leases and incentives as a percentage of operating lease and incentives revenue can vary from period to period.

Cost of Solar Energy Systems and Product Sales. The ~~$12.3~~$87.8 million increase in ~~cost~~Cost of solar energy systems and product sales was ~~primarily~~ due to anthe corresponding net increase in the ~~sales of~~ solar energy systems and product sales discussed above.

Sales and Marketing Expense. The ~~$2.9~~$74.9 million increase in Sales and marketing expense was attributable to increases in headcount, which were primarily driven by the acquisition of Vivint Solar in October 2020, resulting in higher employee compensation in the three months ended June 30, 2021 compared to the same period in the prior year. Additionally, we spent more in costs to acquire customers through our sales lead generating partners. Partially offsetting these increases in Sales and marketing expense is a decrease in costs related to retail lead generating partners, as well as a decrease of $6.9 million in non-recurring costs incurred during the three months ended June 30, 2021. Included in sales and marketing expense is $5.4 million and $3.5 million of amortization of costs to obtain Customer Agreements for the three months ended June 30, 2021 and 2020, respectively.

Research and Development Expense. Research and development expense increased $0.2 million during the three months ended June 30, 2021, which was relatively consistent with the same period in the prior year.

General and Administrative Expense. The $21.2 million increase in General and administrative expenses was primarily attributable to ~~a decrease~~the acquisition of Vivint Solar, resulting in ~~average headcount and decrease in our use of certain third party lead generation and direct mailer provider services as we continue to generate more leads internally.~~

~~General and Administrative Expense. The $6.6 million increase in general and administrative expenses primarily relates to hiring of personnel to support the growth of our business and~~ an increase in ~~professional services.~~headcount driving higher employee compensation, consulting costs, partially offset by a decrease of $7.3 million in nonrecurring (primarily acquisition-related) costs during the three months ended June 30, 2021.

Non-Operating Expenses

Three Months Ended September 30, Change
2017 2016 $ %

(in thousands)
Interest expense, net $ 17,707
$ 13,957
$ 3,750
27 %
Other expenses (income), net (94 ) 42
(136 ) (324 )%
Total interest and other expenses, net $ 17,613
$ 13,999
$ 3,614
26 %


	Three Months Ended June 30,				Change
	2021		2020		$		%

	(in thousands)
Interest expense, net	$	(74,999)	$	(50,721)	$	(24,278)	48	%
Other expenses, net	$	(11,553)	$	(148)	$	(11,405)	7,706	%

Interest Expense, net. The increase in ~~interest~~Interest expense, net of ~~$3.8~~$24.3 million ~~was~~is primarily related to ~~additional borrowings entered into~~the $24.7 million of interest expense associated with the debt acquired with Vivint Solar. Included in ~~2017.~~net interest expense is $6.5 million and $6.2 million of non-cash interest recognized under Customer Agreements that have a significant financing component for the three months ended June 30, 2021 and 2020, respectively.

Other Expenses, net. The increase in other expenses of $11.4 million relates primarily to losses on derivatives recognized in the three months ended June 30, 2021, with no such comparable activity in the three months ended June 30, 2020.

Income Tax Expense (Benefit)


	Three Months Ended June 30,				Change
	2021		2020		$		%

	(in thousands)
Income tax benefit	$	(14,912)	$	211	$	(15,123)	(7,167)	%

Three Months Ended September 30, Change
2017 2016 $ %

(in thousands)
Income tax expense $ 14,834
$ 9,936
$ 4,898
49 %

The increase in income tax ~~expense~~benefit of $15.1 million primarily relates to an increase in ~~our deferred~~ tax ~~liabilities~~benefit related to ~~partnerships, depreciation expense~~a higher pre-tax loss and ~~capitalized indirect costs. Given our net operating loss carryforwards as of December 31, 2016, we do not expect to pay income tax, including~~an increase in ~~connection with our 2017 income tax provision, until our net operating losses are fully utilized. As of December 31, 2016, our federal~~stock compensation deductions that was offset by an increase in noncontrolling interest and state net operating loss carryforwards were $571.0 million and $524.9 million, respectively. If not utilized, the federal net operating loss will begin to expire in the year 2028 and the state net operating losses will begin to expire in the year 2024.redeemable noncontrolling interests.

Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests

Three Months Ended September 30, Change
2017 2016 $ %

(in thousands)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests $ (107,969 ) $ (91,846 ) $ (16,123 ) 18 %


	Three Months Ended June 30,				Change
	2021		2020		$		%

	(in thousands)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests	$	(172,165)	$	(120,987)	$	(51,178)	42	%

~~The increase in net~~Net loss attributable to noncontrolling interests and redeemable noncontrolling interests was primarily athe result of ~~the~~an additional $22.7 million net loss related Vivint Solar's noncontrolling interests and redeemable noncontrolling interests, as well as an addition of 7five other new investment funds since ~~September~~June 30, ~~2016, as well as~~2020, for which the HLBV method used in determining the amount of net ~~income or~~ loss attributable to noncontrolling ~~interests and redeemable~~interests. Redeemable noncontrolling interests ~~which~~ generally allocates more loss to the noncontrolling interest in the first several years after fund formation.

Comparison of the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020

Revenue


	Six Months Ended June 30,				Change
	2021		2020		$		%

	(in thousands)
Customer agreements	$	354,765	$	192,778	$	161,987	84	%
Incentives	39,305		12,441		26,864		216	%
Customer agreements and incentives	394,070		205,219		188,851		92	%

Solar energy systems	179,472		115,856		63,616		55	%
Products	162,418		70,950		91,468		129	%
Solar energy systems and product sales	341,890		186,806		155,084		83	%
Total revenue	$	735,960	$	392,025	$	343,935	88	%

Nine Months Ended September 30, Change
2017 2016 $ %

(in thousands)
Operating leases $ 129,696
$ 92,451
$ 37,245
40 %
Incentives 42,201
30,633
11,568
38 %
Operating leases and incentives 171,897
123,084
48,813
40 %

Solar energy systems 79,431
93,655
(14,224 ) (15 )%
Products 131,928
116,575
15,353
13 %
Solar energy systems and product sales 211,359
210,230
1,129
1 %
Total revenue $ 383,256
$ 333,314
$ 49,942
15 %

~~Operating Leases~~Customer Agreements and Incentives. ~~Operating lease~~The $162.0 million increase in revenue ~~increased by $37.2 million,~~from Customer Agreements was primarily due to both an increase in solar energy systems under Customer Agreements being ~~placed~~added to our fleet upon the acquisition of Vivint Solar in ~~service in the period from~~ October 1, 2016 through September 30, 2017, and due to a full nine months of revenue recognized in 2017 for systems placed in service in the nine months ended September 30, 2016 versus only a portion recognized in 2016. Revenue from incentives increased by $11.6 million due to an increase in ITC revenue, which relates to solar energy systems in lease pass-through funds being placed in service in the prior year2020, 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. Additionally, the increase in revenue from incentives was due to an increase in SREC revenuewell as a result of the sales under contracts whereby the revenue recognition had previously been deferred until minimum levels of deliveries were met, assuring there would be no potential penalties due to the customer and the sales under contracts whereby revenue was recognized upon delivery.

~~Solar Energy Systems and Product Sales~~. Revenue from solar energy systems sales decreased by $14.2 million compared to the prior year due to softer customer demand in our retail sales channel. Product sales increased by $15.4 million, compared to the prior year period primarily due to an increase in volume of fulfillment products sold, offset by industry-wide price decreases.

~~Operating Expenses~~

Nine Months Ended September 30, Change
2017 2016 $ %

(in thousands)
Cost of operating leases and incentives $ 140,682
$ 117,478
$ 23,204
20 %
Cost of solar energy systems and product sales 179,957
176,376
3,581
2 %
Sales and marketing 101,758
127,096
(25,338 ) (20 )%
Research and development 10,642
7,294
3,348
46 %
General and administrative 77,776
68,193
9,583
14 %
Amortization of intangible assets 3,154
3,154
—
— %
Total operating expenses $ 513,969
$ 499,591
$ 14,378
3 %

~~Cost of Operating Leases and Incentives. The $23.2 million increase in cost of operating leases and incentives was primarily due to an increase in depreciation expense related to the increase in solar energy~~new systems placed in service in the period from ~~October~~July 1, ~~2016~~2020 through ~~September~~June 30, ~~2017,~~2021, plus a full ~~nine~~six months of ~~expenses~~revenue recognized in 2021 for systems placed in service in the ~~nine~~first six months ~~ended September 30, 2016~~of 2020 versus only a ~~portion~~partial amount of such revenue related to the period in which the assets were in service in 2020. Revenue from incentives primarily consists of sales of SRECs, which increased by $26.9 million during the six months ended June 30, 2021, compared to the prior year.

Solar Energy Systems and Product Sales. Revenue from solar energy systems sales increased by $63.6 million compared to the prior year primarily due to solar energy systems sales from Vivint Solar, as well as increased demand through retail partners. Product sales increased by $91.5 million, primarily due to lower volume of wholesale products sold in 2020, which was impacted by COVID-19 and customers' reduced purchases in 2020 after purchasing safe harbor materials in 2019 for use in 2020.

Operating Expenses


	Six Months Ended June 30,				Change
	2021		2020		$		%

	(in thousands)
Cost of customer agreements and incentives	$	337,616	$	161,699	$	175,917	109	%
Cost of solar energy systems and product sales	285,670		155,344		130,326		84	%
Sales and marketing	270,712		139,971		130,741		93	%
Research and development	11,022		9,017		2,005		22	%
General and administrative	148,546		69,830		78,716		113	%
Amortization of intangible assets	2,688		2,650		38		1	%
Total operating expenses	$	1,056,254	$	538,511	$	517,743	96	%

Cost of Customer Agreements and Incentives. The $175.9 million increase in Cost of customer agreements and incentives was primarily due to the increase in solar energy systems added to our fleet upon the acquisition of Vivint Solar in October 2020, as well as new systems placed in service in the period from July 1, 2020 through June 30, 2021, plus a full six months of costs recognized in 2021 for systems placed in service in the six months of 2020 versus only a partial amount of such expenses related to the period in which the assets were in service in ~~2016.~~2020. Additionally, there was an increase of $64.0 million related to depreciation expense on solar fixed assets recorded in the initial purchase accounting for the acquisition.

The cost of ~~operating leases~~Customer Agreements and incentives ~~decreased~~increased to ~~82%~~86% of ~~operating lease~~revenue from customer agreements and incentives ~~revenue~~ during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, from ~~95%~~79% during the ~~nine~~six months ended ~~September~~June 30, ~~2016. This reduction in cost compared to revenue is~~2020. The increase was impacted by the acquisition of Vivint Solar, which had negative gross margins due to a reduction in the proportion of leased systems installed by us as opposed to third parties compared to the prior year. Systems installed by us bear an allocation of costs, such as warehouse rent and utilities, information technology, administrative and product planning costs, that are expensedseasonality during the ~~construction and installation phase~~winter months at the beginning of the year when solar production is lower, as ~~these costs do not meet the criteria for capitalization under ASC 360~~ ~~Property, Plant, and Equipment. These costs can fluctuate depending on the volume of megawatts installed directly by us for systems under an operating lease, and are not necessarily proportional to~~well as the increase in ~~revenue generated by our entire fleet~~depreciation expense related to the step up in solar systems fair value upon the acquisition of ~~leased systems. As such, the cost of operating leases and incentives as a percentage of operating lease and incentives revenue can vary from period to period.~~Vivint Solar discussed above.

Cost of Solar Energy Systems and Product Sales. The ~~$3.6~~$130.3 million increase in ~~cost~~Cost of solar energy systems and product sales was due to anthe corresponding net increase in the solar energy systems and product sales discussed above.

Sales and Marketing Expense. The ~~$25.3~~$130.7 million increase in Sales and marketing expense was attributable to increases in headcount, which were primarily driven by the acquisition of Vivint Solar in October 2020, resulting in higher employee compensation. Additionally, we spent more in costs to acquire customers through our sales lead generating partners in the first six months of 2021 compared to the prior year period. Partially offsetting these increases in Sales and marketing expense is a decrease in costs related to retail lead generating partners, as well as a decrease of $7.7 million in non-recurring and restructuring costs incurred during the six months ended June 30, 2021. Included in sales and marketing expense is $9.6 million and $6.9 million of amortization of costs to obtain Customer Agreements for the six months ended June 30, 2021 and 2020, respectively.

Research and Development Expense. The $2.0 million increase in Research and development expense was primarily attributable to the ~~decrease~~acquisition of Vivint Solar, resulting in ~~our use of certain third party lead generation and direct mailer provider services as we continue to generate more leads internally and decrease in personnel.~~

~~Research and Development Expense.~~ ~~The~~ ~~$3.3 million~~an increase in ~~research~~headcount driving higher employee compensation costs, consulting costs and ~~development~~$0.2 million of nonrecurring acquisition related costs.

General and Administrative Expense. The $78.7 million increase in General and administrative expenses was primarily attributable to ~~hiring~~the acquisition of ~~personnel to support the growth of our business.~~

~~General and Administrative Expense. The $9.6 million increase~~Vivint Solar, resulting in ~~general and administrative expenses primarily relates to hiring of personnel to support the growth of our business and~~ an increase in ~~professional services.~~headcount driving higher employee compensation and consulting costs, partially offset by a decrease of $5.6 million in nonrecurring (primarily acquisition-related) costs during the six months ended June 30, 2021.

Non-Operating Expenses

Nine Months Ended September 30, Change
2017 2016 $ %

(in thousands)
Interest expense, net $ 49,586
$ 38,535
$ 11,051
29 %
Other expenses (income), net 589
(460 ) 1,049
(228 )%
Total interest and other expenses, net $ 50,175
$ 38,075
$ 12,100
32 %


	Six Months Ended June 30,				Change
	2021		2020		$		%

	(in thousands)
Interest expense, net	$	(149,269)	$	(100,645)	$	(48,624)	48	%
Other income (expenses), net	$	22,794	$	(98)	$	22,892	(23,359)	%

Interest Expense, net. The increase in ~~interest~~Interest expense, net of ~~$11.1~~$48.6 million ~~was~~included $45.5 million of interest expense associated with the debt acquired with Vivint Solar. The remaining increase is primarily related to additional ~~borrowings~~non-recourse debt entered into subsequent to June 30, 2020. Included in ~~2017.~~net interest expense is $12.9 million and $12.3 million of non-cash interest recognized under Customer Agreements that have a significant financing component for the six months ended June 30, 2021 and 2020, respectively.

Other Income (expenses), net. The increase in other income of $22.9 million relates primarily to gains on derivatives recognized in the six months ended June 30, 2021, with no such comparable activity in the six months ended June 30, 2020.

Income Tax Expense (Benefit)


	Six Months Ended June 30,				Change
	2021		2020		$		%

	(in thousands)
Income tax benefit	$	(29,038)	$	(3,131)	$	(25,907)	827	%

Nine Months Ended September 30, Change
2017 2016 $ %

(in thousands)
Income tax expense $ 37,625
$ 13,146
$ 24,479
186 %

The increase in income tax ~~expense~~benefit of $25.9 million primarily relates to an increase in ~~our deferred~~ tax ~~liabilities~~benefit related to ~~partnerships, depreciation expense~~a higher pre-tax loss and ~~capitalized indirect costs. The~~an increase in ~~our deferred tax liabilities~~stock compensation deductions that was offset by ~~the adoption of ASU 2016-16,~~ ~~Intra-Entity Transfers of Assets Other Than Inventory, which netted prepaid tax assets of $378.2 million against deferred tax liabilities. Given our net operating loss carryforwards as of December 31, 2016, we do not expect to pay income tax, including~~an increase in ~~connection with our 2017 income tax provision, until our net operating losses are fully utilized. As of December 31, 2016, our federal~~noncontrolling interest and state net operating loss carryforwards were $571.0 million and $524.9 million, respectively. If not utilized, the federal net operating loss will begin to expire in the year 2028 and the state net operating losses will begin to expire in the year 2024.redeemable noncontrolling interests.

Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests

Nine Months Ended September 30, Change
2017 2016 $ %

(in thousands)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests $ (284,144 ) $ (280,153 ) $ (3,991 ) 1 %


	Six Months Ended June 30,				Change
	2021		2020		$		%

	(in thousands)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests	$	(352,698)	$	(202,577)	$	(150,121)	74	%

~~The increase in net~~Net loss attributable to noncontrolling interests and redeemable noncontrolling interests was primarily athe result of ~~the~~an additional $71.4 million net loss related Vivint Solar's noncontrolling interests and redeemable noncontrolling interests, as well as an addition of 7five other new investment funds since ~~September~~June 30, ~~2016, as well as~~2020, for which the HLBV method used in determining the amount of net ~~income or~~ loss attributable to noncontrolling ~~interests and redeemable~~interests. Redeemable noncontrolling interests ~~which~~ generally allocates more loss to the noncontrolling interest in the first several years after fund formation.

Liquidity and Capital Resources

As of ~~September~~June 30, ~~2017,~~2021, we had cash of ~~$216.1~~$679.6 million, which consisted 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, ~~borrowings,~~ cash generated from our sources of revenue and ~~more recently, proceeds~~borrowings from secured credit facilities arrangements with syndicates of banks and from secured, long-term non-recourse loan arrangements. In 2020, we received $595.0 million of new commitments on secured credit facilities arrangements ~~for up to $402.0 million.~~with syndicates of banks and $1.3 billion of commitments from secured, long-term non-recourse loan arrangements. Our principal uses of cash are funding our business, including the costs of acquisition and

installation of solar energy systems,

satisfaction of our obligations under our debt instruments and other working capital requirements. As of ~~September~~June 30, ~~2017,~~2021, we had outstanding borrowings of $217.3 million on our $250.0 million corporate bank line of credit maturing in April 2022. Additionally, we have purchase commitments, which have the ~~balance under our working capital facility was $247.0~~ability to be canceled without significant penalties, with multiple suppliers to purchase $57.8 million of photovoltaic modules, inverters and batteries by the end of 2022. In January 2021, we issued $400.0 million of convertible senior notes with a maturity date ~~in April 2018. As~~ of ~~September 30, 2017, our cash balance was $216.1 million and as such, we do not currently have the funds required to fully repay the debt. As this facility has a three year term, we are in the process~~February 1, 2026, for net proceeds of negotiating refinancing options and we expect to extend the maturity date of the facility. Although there is no assurance that we will be able to do so, we believe that it is probable that we will be able to extend or otherwise refinance the facility prior to maturity.

approximately $389.0 million. 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 will 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 ~~(other than the repayment of our working capital facility expected to be refinanced)~~ for at least the next 12 months. The following table summarizes our cash flows for the periods indicated:


	Nine Months Ended September 30,							Six Months Ended June 30,
	2017			2016				2021		2020

	(in thousands)							(in thousands)
Consolidated cash flow data:							Consolidated cash flow data:
Net cash used in operating activities	$	(39,166	)	$	(127,231	)	Net cash used in operating activities	$	(355,764)	$	(152,253)
Net cash used in investing activities	(589,144		)	(545,692		)	Net cash used in investing activities	(757,051)		(364,417)
Net cash provided by financing activities	638,088			676,536			Net cash provided by financing activities	1,262,210		507,673
	$	9,778		$	3,613
Net change in cash and restricted cash							Net change in cash and restricted cash	$	149,395	$	(8,997)

Operating Activities

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, we used ~~$39.2~~$355.8 million in net cash infrom operating activities. The driver of our operating cash ~~inflow~~outflow consists of ~~payments received from customers.~~the cost of our revenue, as well as sales, marketing and general and administrative costs. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, our operating cash outflows were $49.5 million from our net loss excluding non-cash and non-operating items. The $49.5 million includes a final cash payment of $8.8 million related to the Clean Energy Experts, LLC ("CEE") acquisition as discussed in Note 3, ~~Acquisitions~~ of our Form 10-K for the year ended December 31, 2016. Changes in working capital, other than inventory, resulted in a net cash inflow of $6.3 million. Changes in inventory resulted in a cash inflow of $4.0 million.

During the nine months ended September 30, 2016, we used $127.2 million in net cash in operating activities. The primary driver of our operating cash inflow consists of payments received from customers. During the nine months ended September 30, 2016, we had an increase in deferred revenue of approximately $7.2 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 $109.7$147.6 million from our net loss excluding non-cash and non-operating items. Changes in ~~inventory~~working capital resulted in a net cash outflow of ~~$14.6~~$208.2 million.

During the six months ended June 30, 2020, we used $152.3 million in net cash from operating activities. The driver of our operating cash inflow consists of the costs of our revenue, as well as sales, marketing and general and administrative costs. During the six months ended June 30, 2020, our operating cash outflows were $102.1 million from our net loss excluding non-cash and non-operating items. Changes in working capital ~~other than deferred revenue and inventory,~~ resulted in ~~an outflow~~a net cash inflow of ~~cash of $10.1~~$50.2 million.

Investing Activities

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, we used ~~$589.1~~$757.1 million in cash in investing activities. ~~Of this amount, we~~The majority was used ~~$583.2 million~~ to design, acquire and install solar energy systems and components under our long-term Customer ~~Agreements, and $6.0 million for capitalized software projects and the acquisition of office equipment.~~Agreements.

During the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, we used ~~$545.7~~$364.4 million in cash in investing activities. ~~Of this amount, we~~The majority was used ~~$530.3 million~~ to design, acquire and install solar energy systems and components under our ~~long-~~

~~term~~long-term Customer ~~Agreements, $10.4 million for the acquisition of office equipment, leasehold improvements and furniture, and $5.0 million for additional purchase consideration for the acquisition of CEE.~~Agreements.

Financing Activities

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, we generated ~~$638.1~~$1,262.2 million from financing activities. This was primarily driven by ~~$437.2~~$487.4 million in net proceeds from fund investors ~~$195.0~~and $762.0 million in net proceeds from ~~non-recourse~~ debt, ~~net of repayments and debt fees, and $12.8 million from state grants, net of recapture,~~ offset by ~~$7.6~~$6.1 million in ~~payments for capital~~repayments under finance lease obligations.

During the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, we generated ~~$676.5~~$507.7 million from financing activities. This was primarily driven by ~~$408.7~~$338.7 million in net proceeds from fund investors ~~$265.1~~and $156.9 million in net proceeds from debt, ~~net of debt issuance costs and~~offset by $5.5 million in repayments ~~including repayment of asset-backed notes, and $9.1 million from state grants, net of recapture.~~under finance lease obligations.

Debt and ~~Financing~~Investing Fund Commitments

~~Debt Instruments~~

~~For a discussion of the terms and conditions of debt instruments and changes thereof in the period, refer to Note 6,~~ ~~Indebtedness,~~ ~~to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.~~

~~Investment Fund Commitments~~

As of ~~September~~June 30, ~~2017,~~2021, we had ~~undrawn~~ committed and available capital of approximately ~~$148.7~~$650.6 million ~~which~~ that 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.

~~Contractual Obligations~~ For a discussion of the terms and ~~Other Commitments~~

~~The following table summarizes our contractual obligations as~~conditions of ~~September 30, 2017 (in thousands):~~

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) $ 314,696
$ 207,580
$ 533,467
$ 239,917
$ 1,295,660
Purchase commitments 98,000
72,000
—
—
170,000
Distributions payable to noncontrolling interests and redeemable noncontrolling interests 14,785
—
—
—
14,785
Capital lease obligations (including accrued interest) 8,439
7,102
328
18
15,887
Operating lease obligations 9,033
11,664
5,220
1,948
27,865
Total contractual obligations $ 444,953
$ 298,346
$ 539,015
$ 241,883
$ 1,524,197

~~Off-Balance Sheet Arrangements~~

~~We include~~debt instruments and changes thereof in the period, refer to Note 8, Indebtedness, to our consolidated financial statements ~~all assets~~included elsewhere in this Quarterly Report on Form 10-Q.

Convertible Senior Notes Offering

On January 25, 2021, we entered into a purchase agreement (the “Purchase Agreement”) with Credit Suisse Securities (USA) LLC and ~~liabilities~~Morgan Stanley & Co. LLC, as representatives of the several initial purchasers (the “Purchasers”), to issue and ~~results~~sell $350.0 million aggregate principal amount of ~~operations~~0% Convertible Senior Notes due 2026 (the “Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The Notes were sold to the Purchasers pursuant to an exemption from the registration requirements of ~~investment fund arrangements~~the Securities Act afforded by Section 4(a)(2) of the Securities Act. In addition, we granted the Purchasers an option to purchase, during a 13-day period beginning on, and including, the date on which the Notes were first issued, up to an additional $50.0 million aggregate principal amount of Notes on the same terms and conditions. The Purchasers exercised their option in full on January 26, 2021. The net proceeds from the sale of the Notes issued on January 28, 2021 (after deducting the Purchasers’ discount and estimated offering expenses) was approximately $389.0 million.

On January 28, 2021, we entered into an Indenture (the “Indenture”) with Wells Fargo Bank, National Association, as trustee (the “Trustee”), pursuant to which we issued $400.0 million aggregate principal amount of Notes. The Notes will not bear regular interest, and the principal amount of the notes will not accrete. The Notes may bear special interest under specified circumstances relating to our failure to comply with our reporting obligations under the Indenture or if the Notes are not freely tradable as required by the Indenture. The Notes will mature on February 1, 2026, unless earlier repurchased by us, redeemed by us or converted pursuant to their terms.

In connection with the offering of the Notes, on January 25, 2021 and January 26, 2021, we entered into privately negotiated capped call transactions with Credit Suisse Capital LLC, represented by Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. LLC, Barclays Bank PLC, through its agent Barclays Capital Inc., and Royal Bank of Canada, represented by RBC Capital Markets, LLC (the “Capped Calls”). The Capped Calls each have an initial strike price of approximately $117.91 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes. The Capped Calls have initial cap prices of $157.22 per share. The Capped Calls cover, subject to anti-dilution adjustments, approximately 3.4 million shares of common stock. The Capped Calls are expected generally to reduce the potential dilution to the common stock upon any conversion of Notes and/or offset any cash payments we are required to make in excess of the principal amount of the Notes, as the case may be, in the event the market price per share of common stock, as measured under the Capped Calls, is greater than the strike price of the Capped Call, with such offset subject to a cap. If, however, the market price per share of the common stock, as measured under the Capped Calls, exceeds the cap price of the Capped Calls, there would be dilution and/or there would not be an offset of such potential cash payments, in each case, to the extent that ~~we have entered into.~~the then-market price per share of the common stock exceeds the cap price. We ~~do not have any off-balance sheet arrangements.~~used approximately $28.0 million from the net proceeds from the issuance and sale of the Notes to purchase the Capped Calls. The final components of the Capped Calls are scheduled to expire on January 29, 2026.

Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks in the ordinary course of our business. Our primary exposure includes changes in interest rates because certain borrowings bear interest at floating rates based on LIBOR plus a specified margin. We sometimes manage our interest rate exposure on floating-rate debt by entering into derivative instruments to hedge all or a portion of our interest rate exposure in certain debt facilities. We do not enter into any derivative instruments for trading or speculative purposes. Changes in economic conditions could result in higher interest rates, thereby increasing our interest expense and operating expenses and reducing funds available for capital investments, operations and other purposes. ~~A hypothetical 10% increase in~~For quantitative and qualitative disclosures about market risk, see Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of our ~~interest rates~~annual report on ~~our variable rate debt facilities would have increased our interest expense by $2.0 million~~Form 10-K for the ~~nine months~~year ended ~~September 30, 2017, which has~~December 31, 2020. Our exposures to market risk have not changed materially ~~from $1.5 million~~ since December 31, ~~2016.~~2020.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our “disclosure controls and procedures” as of the end of the period covered by this Quarterly Report on Form 10-Q, pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act.

In connection with that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective and designed to provide reasonable assurance that the information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the ~~Securities and Exchange Commission~~SEC's rules and forms as of ~~September~~June 30, ~~2017.~~2021. The term “disclosure controls and procedures,” as defined in Rules ~~13a-15l~~13a-15I and ~~15d-15l~~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.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

See Note ~~13,~~ 15, Commitments and Contingencies, to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors.

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q,

including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, before making a decision to invest in our common stock. The risks and uncertainties described below may not be the only ones we face. If any of the risks actually occur, our business, financial condition, results of operations, cash flows and prospects could be materially and adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.

Risks Related to the Impacts of COVID-19

The COVID-19 pandemic has had and could continue to have an adverse impact on our business, operations, and the markets and communities in which we operate.Efforts to mitigate or contain the pandemic and the resulting weakened economic conditions may disrupt and adversely affect our business.

The COVID-19 pandemic has had an unprecedented impact on the U.S. economy and has impacted our business and created significant uncertainties for our industry and the economy in general. As COVID-19 continues to spread and impact the country, effects such as the widespread growth in infections, travel restrictions, quarantines, return-to-work restrictions, government regulations, and site closures have impacted and may continue to impact our ability to staff sales and operations centers and install and maintain solar energy systems in the field, as well as direct-to-home sales activities of our Vivint Solar business. The rise of increasingly infectious strains of COVID-19, such as the Delta variant, have added additional challenges and unpredictability that may result in workforce constraints, delays, and additional costs, particularly in regions experiencing significant outbreaks.

Due to these impacts and uncertainties, we have run multiple scenarios to stress test our business and operations to evaluate the impact of significant reductions in demand, and restraints or regulations limiting our ability to sell and/or install our products in some or all jurisdictions in which we operate.Given these developments and mitigation measures that restrict certain paths to market our services, we have accelerated our transition to a more digital sales-focused model and reduced the size of certain parts of our workforce, particularly in our retail sales channels. We believe that the actions we have taken, and may continue to take in the future, to address these impacts will better position our company to manage these risks; however, we cannot ensure that the steps we have taken will be successful, and such steps may also disrupt our operations, impede our productivity, or otherwise be ineffective in a rapidly changing environment.

We are further responding by taking steps to mitigate the potential risks to us posed by the spread of COVID-19. For example, we are taking extra precautions to safeguard our employees who work in the field and for employees who continue to work in our facilities, including implementing social distancing policies, and have implemented work-from-home policies where appropriate. We have also implemented several protocols aimed at safeguarding customers. Because we provide a critical service to our customers, we believe that we must take steps aimed at keeping our employees and customers safe and minimizing unnecessary risk of exposure to the virus. Even with the mitigation strategies we have employed, we may not be successful in limiting the spread of COVID-19 among our employees or our customers, which could damage our reputation among our employee base and among our customers and materially and adversely impact our business and damage our reputation.

In an effort to curtail the spread of the disease, various state and local jurisdictions adopted executive orders, shelter-in-place orders, quarantines, and similar government orders and restrictions on the operations of many businesses and industries.In many such jurisdictions, we have been deemed an essential service, allowing us to continue our installation and field service operations. However, in 2020, certain jurisdictions temporarily enacted restrictions that prevented our field sales and installations. Following our acquisition of Vivint Solar, the impact of these and any additional restrictive orders could have an additional material adverse impact on our business given the importance of the direct-to-home sales model used by Vivint Solar.

The COVID-19 pandemic has also led to significant volatility in global financial markets, which could negatively affect our cost of and access to capital and could have an adverse impact on customer demand and the financial health and credit risk associated with our customers. Future disruptions or instability in capital markets could also negatively impact our ability to raise capital from third parties, such as tax equity partners, to grow our business.In addition, a recession or market correction resulting from the COVID-19 pandemic could adversely affect our business and the value of our common stock. The full economic impact of the pandemic and resulting restrictive governmental orders is still not known. Our customers may face reduced income, unemployment or increased medical bills as a result of the pandemic, which could negatively impact their ability to pay for our services and may cause potential new customers to delay or choose not to engage in a dialogue with us about our services, which may materially and adversely impact our business.

COVID-19 has caused disruptions to the supply chain across the global economy, including within the solar industry, and we are working with our equipment suppliers to minimize disruptions to our operations. Certain suppliers have experienced, and may continue to experience, delays related to a variety of factors, including logistical delays, component shortages from upstream vendors, and COVID-related factory shutdowns. We continue to monitor the situation closely and are working closely with our solar partners and suppliers to develop contingency plans for potential operations and supply chain interruptions.

The global COVID-19 pandemic continues to rapidly evolve.The ultimate impact of the pandemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, operations or the global economy as a whole. However, these effects could have a material impact on our operations. We will continue to monitor developments affecting our workforce, our customers, and our business operations generally and will take additional actions that we determine are necessary in order to mitigate the impacts, however, any steps we take may be inadequate and, as a result, our business may be harmed.

Risks Related to the Solar Industry

The solar energy industry is an emerging market which is constantly evolving and may not develop to the size or at the rate we expect.

The solar energy industry is an emerging and constantly evolving market opportunity. We believe the solar energy industry will still take several years to fully develop and mature, and we cannot be certain that the market will grow to the size or at the rate we expect. For example, we have experienced increases in cancellations of our Customer Agreements in certain geographic markets during certain periods in our operating history. Any future growth of the solar energy market and the success of our solar service offerings depend on many factors beyond our control, including recognition and acceptance of the solar service market by consumers, the pricing of alternative sources of energy, a favorable regulatory environment, the continuation of expected tax benefits and other incentives, and our ability to provide our solar service offerings cost-effectively. If the markets for solar energy do not develop to the size or at the rate we expect, our business may be adversely affected.

Solar energy has yet to achieve broad market acceptance and depends in part on continued support in the form of rebates, tax credits, and other incentives from federal, state and local governments. If this support diminishes materially, our ability to obtain external financing on acceptable terms, or at all, could be materially adversely affected. These types of funding limitations could lead to inadequate financing support for the anticipated growth in our business. Furthermore, growth in residential solar energy depends in part on macroeconomic conditions, retail prices of electricity and customer preferences, each of which can change quickly. Declining macroeconomic conditions, including in the job markets and residential real estate markets, could contribute to instability and uncertainty among customers and impact their financial wherewithal, credit scores or interest in entering into long-term contracts, even if such contracts would generate immediate and long-term savings.

Furthermore, market prices of retail electricity generated by utilities or other energy sources could decline for a variety of reasons, as discussed further below. Any such declines in macroeconomic conditions, changes in retail prices of electricity or changes in customer preferences would adversely impact our business.

We have historically benefited from declining costs in our industry, and our business and financial results may be harmed not only as a result of any increases in costs associated with our solar service offerings but also any failure of these costs to continue to decline as we currently expect. If we do not reduce our cost structure in the future, our ability to continue to be profitable may be impaired.

Declining costs related to raw materials, manufacturing and the sale and installation of our solar service offerings have been a key driver in the pricing of our solar service offerings and, more broadly, customer 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 restrictions stemming from the COVID-19 pandemic, tariffs and trade barriers, export regulations, regulatory or contractual limitations, industry market requirements, and changes in technology and industry standards.

For example, we and our solar partners purchase a significant portion of the solar panels used in our solar service offerings from overseas manufacturers. In January 2018, in response to a petition filed under Section 201 of the Trade Act of 1974, President Trump 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 stepped down by 5% annually in the second and third years, and were scheduled to step down 5% in the fourth year. However, in October 2020, President Trump issued a proclamation increasing the tariff from 15% to 18% for the fourth and final year of the original Sec. 201 proclamation imposing the tariffs. While the tariffs are currently set to expire in February 2022, the Biden Administration could decide to extend them.

The United States and China each imposed additional 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 and a tariff on inverters, certain batteries and other electrical equipment initially set at 10%. In May 2019, the 10% tariff was increased to 25%. The United States also has, from time to time, announced potential tariffs on goods imported from other countries. We cannot predict what actions may ultimately be taken with respect to tariffs or trade relations between the United States and other countries, what products may be subject to such actions, or what actions may be taken by the other countries in retaliation. The tariffs described above, the adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs, trade agreements or related policies have 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. We cannot predict whether and to what extent U.S. trade policies will change under the Biden administration and cannot ensure that additional tariffs or other restrictive measures will not continue or increase.

Other factors may also impact costs, such as our choice to make significant investments to drive growth in the future.

We face competition from traditional energy companies as well as solar and other renewable energy companies.

The solar energy industry is highly competitive and continually evolving as participants strive to distinguish themselves within their markets and compete with large utilities. We believe that our primary competitors are the established utilities that supply energy to homeowners by traditional means. We compete with these utilities primarily based on price, predictability of price, and the ease by which homeowners can switch to electricity generated by our solar service offerings. If we cannot offer compelling value to customers based on these factors, then our business and revenue will not grow. Utilities generally have substantially greater financial, technical, operational and other resources than we do. As a result of their greater size, utilities may be able to devote more resources to the research, development, promotion and sale of their products or respond more quickly to evolving industry standards and changes in market conditions than we can. Furthermore, these competitors are able to devote substantially more resources and funding to regulatory and lobbying efforts.

Utilities could also offer other value-added products or services that could help them compete with us even if the cost of electricity they offer is higher than ours. In addition, a majority of utilities’ sources of electricity are non-solar, which may allow utilities to sell electricity more cheaply than we can. Moreover, regulated utilities are increasingly seeking approval to “rate-base” their own residential solar and storage businesses. Rate-basing means that utilities would receive guaranteed rates of return for their solar and storage businesses. This is already commonplace for utility-scale solar projects and commercial solar projects. While few utilities to date have received regulatory permission to rate-base residential solar or storage, our competitiveness would be significantly harmed should more utilities receive such permission because we do not receive guaranteed profits for our solar service offerings.

We also face competition from other residential solar service providers. Some of these competitors have a higher degree of brand name recognition, differing business and pricing strategies, and greater capital resources than we have, as well as extensive knowledge of our target markets. If we are unable to establish or maintain a consumer brand that resonates with customers, maintain high customer satisfaction, or compete with the pricing offered by our competitors, our sales and market share position may be adversely affected, as our growth is dependent on originating new customers. We also face competitive pressure from companies that may offer lower-priced consumer offerings than we do.

In addition, we compete with companies that are not regulated like traditional utilities but that have access to the traditional utility electricity transmission and distribution infrastructure. These energy service companies are able to offer customers electricity supply-only solutions that are competitive with our solar service offerings on both price and usage of solar energy technology while avoiding the long-term agreements and physical installations that our current fund-financed business model requires. This may limit our ability to attract customers, particularly those who wish to avoid long-term contracts or have an aesthetic or other objection to putting solar panels on their roofs.

Furthermore, we 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.

As the solar industry grows and evolves, we will continue to face existing competitors as well as new competitors who are not currently in the market (including those resulting from the consolidation of existing competitors) that achieve significant developments in alternative technologies or new products such as storage solutions, loan products, or other programs related to third-party ownership. Our failure to adapt to changing market conditions, to compete successfully with existing or new competitors and to adopt new or enhanced technologies could limit our growth and have a material adverse effect on our business and prospects.

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.

A customer’s decision to buy solar energy from us is impacted by a desire to lower electricity costs. Decreases in the retail prices of electricity from utilities or other energy sources would harm our ability to offer competitive pricing and could harm our business. The price of electricity from utilities could decrease as a result of:

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

•the construction of additional electric transmission and distribution lines;

•a reduction in the price of natural gas or other natural resources;

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

•development of new energy technologies that provide less expensive energy, including storage; and

•utility rate adjustments and customer class cost reallocation.

A reduction in utility electricity prices would make the purchase of our solar service offerings less attractive. If the retail price of energy available from utilities were to decrease due to any of these or other reasons, we would be at a competitive disadvantage. As a result, we may be unable to attract new customers and our growth would be limited.

The production and installation of solar energy systems depends heavily on suitable meteorological and environmental conditions. If meteorological or environmental conditions are unexpectedly unfavorable, the electricity production from our solar service offerings may be below our expectations, and our ability to timely deploy new systems may be adversely impacted.

The energy produced and revenue and cash flows generated by a solar energy system depend on suitable solar and weather conditions, both of which are beyond our control. Furthermore, components of our systems, such as panels and inverters, could be damaged by severe weather or natural catastrophes, such as hailstorms, tornadoes, fires, or earthquakes. In these circumstances, we generally would be obligated to bear the expense of repairing the damaged solar energy systems that we own. Sustained unfavorable weather or environmental conditions also could unexpectedly delay the installation of our solar energy systems, leading to increased expenses and decreased revenue and cash flows in the relevant periods. Extreme weather conditions, as well as the natural catastrophes that could result from such conditions, can severely impact our operations by delaying the installation of our systems, lowering sales, and causing a decrease in the output from our systems due to smoke or haze. Weather patterns could change, making it harder to predict the average annual amount of sunlight striking each location where our solar energy systems are installed. This could make our solar service offerings less economical overall or make individual systems less economical. Any of these events or conditions could harm our business, financial condition, and results of operations.

Climate change may have long-term impacts on our business, our industry, and the global economy.

Climate change poses a systemic threat to the global economy and will continue to do so until our society transitions to renewable energy and decarbonizes. While our core business model seeks to accelerate this transition to renewable energy, there are inherent climate-related risks to our business operations. Warming temperatures throughout the United States, and in California in particular, have contributed to extreme weather, intense drought, and increased wildfire risks. These events have the potential to disrupt our business, our third-party suppliers, and our customers, and may cause us to incur additional operational costs. For instance, natural disasters and extreme weather events associated with climate change can impact our operations by delaying the installation of our systems, leading to increased expenses and decreased revenue and cash flows in the period. They can also cause a decrease in the output from our systems due to smoke or haze. Additionally, if weather patterns significantly shift due to climate change, it may be harder to predict the average annual amount of sunlight striking each location where our solar energy systems are installed. This could make our solar service offerings less economical overall or make individual systems less economical.

Our corporate mission is to create a planet run by the sun, and we seek to mitigate these climate-related risks not only through our core business model and sustainability initiatives, but also by working with organizations who are also focused on mitigating their own climate-related risks.

Risks Related to Our ~~Business~~Operating Structure and ~~Our Industry~~Financing Activities

We need to raise capital to finance the continued growth of our ~~residential~~operations and solar service business. If capital is not available to us on acceptable terms, as and when needed, our business and prospects would be materially and adversely impacted. In addition, our business is affected by general economic conditions and related uncertainties affecting markets in which we operate. Volatility in current economic conditions could adversely impact our business, including our ability to raise financing.

Our future success depends on our ability to raise capital from third parties to grow our business. To date, we have funded our business principally through low-cost tax equity investment funds. If we are unable to establish new investment funds when needed, or upon desirable terms, the growth of our solar service business would be impaired. Changes in tax law could also affect our ability to establish such tax equity investment funds, or impact the terms of existing or future ~~funds.~~funds, or reduce the pool of capital available for us to grow our business.

The contract terms in certain of our existing investment fund documents contain various conditions with respect to our ability to draw on financing commitments from the fund investors, including conditions that restrict our ability to draw on such commitments if an event occurs that could reasonably be expected to have a material adverse effect on the fund or, in some instances, us. If we ~~were~~are not able to satisfy such conditions due to events related to our business, a specific investment fund, developments in our industry, including tax or regulatory changes, or otherwise, and as a result, we ~~were~~are unable to draw on existing funding commitments, we could experience a material adverse effect on our business, liquidity, financial condition, results of operations and prospects. If any of the investors that currently invest in our investment funds ~~were to~~ decide not to invest in future investment funds to finance our solar service offerings due to general market conditions, concerns about our business or prospects or any other reason, or materially change the terms under which they ~~were~~are willing to provide future financing, we would need to identify new investors to invest in our investment funds and our cost of capital may increase.

In addition, our business and results of operations are materially affected by conditions in the global capital markets and the economy. A general slowdown or volatility in current economic conditions, ~~stemming from~~ the level of U.S. national debt, currency fluctuations, unemployment rates, the availability and cost of credit, the U.S. housing market, tariffs, trade wars, inflation levels, ~~negative~~ interest rates, energy costs, and concerns over a ~~slow economic recovery~~slowing economy or other factors, could adversely affect our business, including our ability to raise financing.

There can be no assurance that we will be able to continue to successfully access capital in a manner that supports the growth of our business. Certain sources of capital may not be available in the future, and competition for any available funding may increase. We cannot be sure that we will be able to maintain necessary levels of funding without incurring high funding costs, unfavorable changes in the terms of funding instruments or the liquidation of certain assets. If we are unable to continue to offer a competitive investment profile, we may lose access to these funds or they may only be available on less favorable terms than those provided to our competitors or currently provided to us. If we are unable to arrange new or alternative methods of financing on favorable terms, our business, liquidity, financial condition, results of operations, and prospects could be materially and adversely affected.

~~The solar energy industry is an emerging market that is constantly evolving~~

Rising interest rates would adversely impact our business.

Rising interest rates may increase our cost of capital. Our future success depends on our ability to raise capital from fund investors and ~~may not develop~~obtain secured lending to help finance the ~~size or at the rate we expect.~~

The solar energy industry is an emerging and constantly evolving market opportunity. We believe the solar energy industry will take several years to fully develop and mature, and we cannot be certain that the market will grow at the rate we expect. For example, we have experienced increases in cancellations of our Customer Agreements in certain geographic markets during certain periods throughout our operating history. Any future growth of the solar energy market and the successdeployment of our solar service ~~offerings depend on many factors beyond~~offerings. Part of our ~~control, including recognition~~business strategy is to seek to reduce our cost of capital through these arrangements to improve our margins, offset reductions in government incentives and ~~acceptance~~maintain the price competitiveness of ~~the~~our solar service ~~market by consumers, the pricing of~~

~~alternative sources of energy, a favorable regulatory environment, the continuation of expected tax benefits and other incentives and~~offerings. Rising interest rates may have an adverse impact on our ability to ~~provide~~offer attractive pricing on our solar service offerings ~~cost-effectively.~~to customers, which could negatively impact sales of our solar energy offerings.

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 customers who enter into these Customer Agreements. If the ~~markets for solar energy do not develop at~~rate of return required by capital providers, including debt providers, rises as a result of a rise in interest rates, it will reduce the ~~rate~~present value of the customer payment stream and consequently reduce the total value derived from this monetization. Any measures that we ~~expect, our business may be adversely affected.~~

~~Solar energy has yet~~could take to ~~achieve broad market acceptance and depends in part~~mitigate the impact of rising interest rates on ~~continued support in the form of rebates, tax credits and other incentives from federal, state and local governments. If this support diminishes,~~ our ability to ~~obtain external~~secure third-party financing could ultimately have an adverse impact on the value proposition that we offer customers.

We expect to incur substantially more debt in the future, which could intensify the risks to our business.

We and our subsidiaries expect to incur additional debt in the future, subject to the restrictions contained in our debt instruments. Some of our existing debt arrangements restrict our ability to incur additional indebtedness, including secured indebtedness, and we may be subject to similar restrictions under the terms of future debt arrangements. These restrictions could inhibit our ability to pursue our business strategies. Increases in our existing debt obligations would further heighten the debt related risk discussed above.

Furthermore, there is no assurance that we will be able to enter into new debt instruments on acceptable terms or at all, could be materially adversely affected. These types of funding limitations could lead to inadequate financing support for the anticipated growth in our business. Furthermore, growth in residential solar energy depends in part on macroeconomic conditions, retail prices of electricity and homeowner preferences, each of which can change quickly. Declining macroeconomic conditions, including in the job markets and residential real estate markets, could contribute to instability and uncertainty among homeowners and impact their financial wherewithal, credit scores or interest in entering into long-term contracts, even if such contracts would generate immediate and long-term savings.

Market prices of retail electricity generated by utilities or other energy sources could decline for a variety of reasons, as discussed further below. Any such declines in macroeconomic conditions or changes in homeowner preferences would adversely impact our business.

Our ability to provide our solar service offerings to homeowners on an economically viable basis depends in part on our ability to finance these systems with fund investors who seek particular tax and other benefits.

Our solar service offerings have been eligible for federal investment tax credits (“ITCs”), U.S. Treasury grants and other tax benefits. We have relied on, and will continue to rely on, tax equity investment funds, which are financing structures that monetize a substantial portion of those benefits, in order to finance our solar service offerings.all. If ~~for any reason,~~ we were unable to ~~continue to monetize those benefits through these arrangements, we may be unable to provide~~satisfy financial covenants and ~~maintain~~other terms under existing or new instruments, or obtain waivers or forbearance from our ~~solar service offerings for homeowners on an economically viable basis.~~

~~The availability of this tax-advantaged financing depends upon many factors, including:~~

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

~~the state of financial and credit markets;~~

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

~~non-renewal of these incentives or decreases in the associated benefits.~~

The federal government currently offers a 30% ITC (the “Commercial ITC”) under Section 48(a) of the Internal Revenue Code of 1986, as amended (the “Code”), for the installation of certain solar power facilities owned for business purposes. The depreciable basis of a solar facility is also reduced by 50% of the tax credit claimed. Similarly, the federal government currently offers a 30% investment tax credit (“Residential ITC”) for the installation of certain solar power facilities owned by residential taxpayers. The Commercial ITC was set to step down to 10% and the Residential ITC was set to expire at the end of 2016. However in December 2015, Congress passed legislation extending both the Commercial and Residential ITC for an additional five years with a ramp down from 30% to 26% for solar property commencing construction in 2020 and then further to 22% for solar property commencing construction in 2021. Current law provides that the Commercial ITC will be 10% for both (i) solar property commencing construction after 2021 and (ii) solar property which commenced construction during or prior to 2021 but which is placed in service after 2023, and the Residential ITC will expire after 2021.

Potential investors must remain satisfied that the funding structures that we offer will make the tax benefits associated with solar energy systems available to these investors, which depends on the investors’ assessment of the tax law, the absence of any unfavorable interpretations of that law and the continued application of existing tax law and interpretations to our funding structures. Adverse 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, if corporate tax rates are reduced, there will be less appetite for tax benefits overall, which will reduce the pool of available funds, and certain benefits (such as depreciation) will have less value, 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 were unable to finance our solar service offerings through tax-advantaged structureslenders, or if we were unable to ~~realize~~obtain refinancing or ~~monetize Commercial ITCs~~new financings for our working capital, equipment, and other needs on acceptable terms if and when needed, our business would be adversely affected.

We may be required to make payments or contribute assets to our investors upon the occurrence of certain events, including one-time reset or true-up payments or upon the exercise of a redemption option by one of our tax equity investors.

Our investors in our tax equity investment funds typically advance capital to us based on, among other things, production capacity estimates. The models we use to calculate prepayments in connection with certain of our tax equity investment funds are updated at a fixed date occurring after placement in service of all applicable solar energy systems or an agreed upon date (typically within the first year of the applicable term) to reflect certain specified conditions, as they exist at such date including the ultimate system size of the equipment that was sold or leased to the tax equity investment fund, the cost thereof, and the date the equipment went into service. In some cases, these true-up models also incorporate any changes in law, which would include any reduction in rates (and thus any reduction in the benefits of depreciation). As a result of this true-up, applicable payments are resized, and we may ~~no longer~~ be ~~able~~obligated to ~~provide~~refund a portion of the tax equity investor’s prepayments or to contribute additional assets to the tax equity investment fund. In addition, certain of our tax equity fund investors have the right to require us to purchase their interests in the tax equity investment funds after a set period of time, generally at a price equal to the greater of a set purchase price or fair market value of the interests at the time of the repurchase. Any significant refunds, capital contributions, or purchases that we may be required to make could adversely affect our liquidity or financial condition.

Loan financing developments could adversely impact our business.

The third-party ownership structure, which we bring to market through our solar service offerings, continues to be the predominant form of system ownership in the residential solar market in many states. However, with the development of new ~~homeowners on an economically viable basis,~~loan financing products, we have seen a modest shift from leasing and power purchase arrangements to outright purchases of the solar energy system by the customer (i.e., a customer purchases the solar energy system outright instead of leasing the system or buying power from us). Continued increases in third-party loan financing products and outright purchases could result in the demand for long-term Customer Agreements to decline, which would require us to shift our product focus to respond to the market trend and could have ~~a material~~an adverse effect on our business. The majority of our customers have historically chosen our solar service offerings as opposed to buying a solar energy system outright. Our financial model is impacted by the volume of customers 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.

Additionally, as discussed above, further reductions in the Commercial ITC as scheduled may impact the attractiveness of solar energy to certain customers and could potentially harm our business. Further reductions in, eliminations of, or expirations of, governmental incentives such as the Residential Energy Efficiency Tax Credit could reduce the number of customers who choose to purchase our solar energy systems.

Servicing our debt requires a significant amount of cash to comply with certain covenants and satisfy payment obligations, and we may not have sufficient cash flow from our business to pay our substantial debt and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

We have substantial amounts of debt, including our Notes, the working capital facility and the non-recourse debt facilities entered into by our subsidiaries, as discussed in more detail in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, in each case, included in this periodic report. Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures to operate our business. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to timely repay or otherwise refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations and negatively impact our financial condition and prospects.

Indebtedness under our Bank Line of Credit and certain of our Senior and Subordinated Debt Facilities bear interest at variable interest rates based on LIBOR. Changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect interest rates on our current or future indebtedness and may otherwise adversely affect our financial condition and results of operations.

In July 2017, the ~~Internal Revenue Service~~Financial Conduct Authority, the authority that regulates LIBOR, announced that it intended to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee (“ARRC”) in the U.S. has proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative to the U.S. dollar LIBOR for use in derivatives and other financial contracts that are currently indexed to LIBOR. ARRC has proposed a paced market transition plan to SOFR from U.S. dollar LIBOR and organizations are currently working on industry-wide and company-specific transition plans as relating to derivatives and cash markets exposed to U.S. dollar LIBOR. We have certain financial contracts, including our Bank Line of Credit and many of our Senior and Subordinated Debt Facilities, that are indexed to U.S. dollar LIBOR. Furthermore, changes in the method of determining LIBOR, or the ~~U.S. Department~~replacement of LIBOR with an alternative reference rate, may adversely affect interest rates on our current or future indebtedness. Any transition process may involve, among other things, increased volatility or illiquidity in markets for instruments that rely on LIBOR, reductions in the value of certain instruments or the effectiveness of related transactions such as hedges, increased borrowing costs, uncertainty under applicable documentation, or difficult and costly consent or amendment processes. We are monitoring this activity and evaluating the related risks, and any such effects of the ~~Treasury makes determinations that the fair market value~~transition away from LIBOR may result in increased expenses, may impair our ability to refinance our indebtedness or hedge our exposure to floating rate instruments, or may result in difficulties, complications or delays in connection with future financing efforts, any of which could adversely affect 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~~results of operations.

We may not have the ability to raise the funds necessary to settle conversions of the Convertible Senior Notes in cash or to repurchase the Convertible Senior Notes upon a fundamental change, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the Convertible Senior Notes.

Holders of the Convertible Senior Notes (the “Notes”) will have the right to require us to repurchase all or a portion of their Notes upon the occurrence of a fundamental change under the indenture, which includes certain events such as a change of control, before the maturity date at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid special interest, if any.In addition, upon conversion of the Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Notes being converted. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Notes surrendered therefor or pay cash for Notes being converted. In addition, our ability to repurchase the Notes or to pay cash upon conversions of the Notes may be ~~materially~~limited by law, by regulatory authority or by agreements governing our indebtedness at the time.

Our failure to repurchase Notes at a time when the repurchase is required by the indenture governing such Notes or to pay any cash payable on future conversions of the Notes as required by the indenture would constitute a default. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our existing or future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and ~~adversely affected.~~repurchase the Notes or make cash payments upon conversions thereof.

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 what 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 beare 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 outcomecounterparty risk with respect to the ~~Department~~capped call transactions.

In connection with our issuance of the ~~Treasury Inspector General investigation discussed elsewhere~~Notes in ~~this “Risk Factors” section~~January 2021, we entered into privately negotiated capped call transactions (the “Capped Call transactions”) with certain financial institutions (the "option counterparties"). The option counterparties are financial institutions or affiliates of financial institutions, and we will be subject to the risk that one or more of such option counterparties may default under the Capped Call transactions. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. If any option counterparty becomes subject to bankruptcy or other insolvency proceedings, with respect to such option counterparty’s obligations under the relevant Capped Call transaction, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under such transaction. Our exposure will depend on many factors but, generally, an increase in our exposure will be positively correlated to an increase in our common stock market price and in the section entitled “Item 1. Legal Proceedings” elsewhere in this Quarterly Report on Form 10-Q, 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 valuevolatility of the ~~solar energy systems related to approximately $269.0 million in U.S. Treasury grants that we have received since the beginning~~market price of our common stock. In addition, upon a default by any of the ~~U.S. Treasury grant program through December 31, 2014, would obligate us to repay approximately $14.0 million~~option counterparties, we may suffer adverse tax consequences and dilution with respect to our ~~fund investors. Two of our investors are currently being audited by~~common stock. We can provide no assurance as to the IRS, both of which involve a review of our fair market value determinations of our solar energy systems. If these audits result in an adverse finding, we may be subject to an indemnity obligation to these investors. Since the Company cannot determine how the IRS will 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.

~~We have historically benefited from declining costs in our industry, and our business and~~ financial ~~results may be harmed not only as a result~~stability or viability of any increases in costs associated with our solar service offerings but also any failure of these costs to continue to decline as we currently expect. If we do not reduce our cost structure in the future, our ability to continue to be profitable may be impaired.

Declining costs related to raw materials, manufacturing and the sale and installation of our solar service offerings has 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 trade barriers, export regulations, regulatory or contractual limitations, industry market requirements and changes in technology and industry standards. Any such cost increases or decreases in availability could slow our growth and cause our financial results and operational metrics to suffer. For example, in the past, we and our solar partners purchased a significant portion of the ~~solar panels used in our solar service offerings from manufacturers based in China or containing components from China.~~option counterparties.

In April 2017, Suniva, Inc., a U.S.-based solar panel manufacturer (“Suniva”), filed a petition for global safeguards with the U.S. International Trade Commission (USITC), which included requests for the imposition of tariffs on crystalline silicon photovoltaic (CSPV) solar cellsRisks Related to Regulation and the establishment of a minimum price for solar modules imported into the United States. Another solar panel manufacturer, SolarWorld AG, later joined Suniva’s petition. On September 22, 2017, the USITC determined that increased imports of solar panels and cells are a substantial cause of injury to the U.S. solar panel manufacturing industry. On October 31, 2017, three differentPolicy

remedies were proposed by the four USITC Commissioners, each limited to four years in length. Two of the four Commissioners agreed on a four-year “tariff-rate quota” that would initially allow for up to 1 gigawatt (GW) of tariff-free cell imports, with any imports over 1 GW subject to a thirty percent (30%) tariff. Each subsequent year, the tariff would decrease by five percent (5%) and the in-quota amount would increase by 0.2 GW. The USITC will formally report these recommendations to the President of the United States on November 13, 2017. These recommendations will be reviewed by the US Trade Representative and on or before January 12, 2018, the President will then determine what, if any, remedies or trade relief should be implemented for an initial period of up to four years. If a remedy is ultimately imposed it could adversely affect our costs, our supply, or have other material adverse impacts on our business. For example, if a tariff is imposed, it would be reflected in the purchase price of the solar panels and components we and our solar partners purchase, and if a quota is imposed, it could adversely impact our future access to solar panels and components.

As another example, in February 2015, the U.S. government imposed antidumping and countervailing duties on solar cells manufactured in China and Taiwan. In addition, we may face other increases in our operating expenses, including increases in wages or other labor costs, as well as marketing, sales or branding related costs. In addition, we are investing heavily in building our direct-to-consumer capabilities after our 2014 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 Mainstream Energy Corporation (“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 continue to make significant investments to drive growth in the future. Increases in any of these costs could adversely affect our results of operations and financial condition and harm our business and prospects. If we are unable to reduce our cost structure in the future, it could have a material adverse effect on our ability to be profitable and on our business and prospects.

We rely on net metering and related policies to offer competitive pricing to ~~homeowners~~customers in all of our current markets, and changes to ~~net metering~~such policies may significantly reduce demand for electricity from our solar service offerings.

As of ~~September~~June 30, ~~2017,~~2021, a substantial majority of states have adopted net metering policies. Net metering policies are designed to allow homeowners to serve their own energy load using on-site ~~energy~~ generation. Electricity that is generated by a solar energy system and consumed on-site avoids a retail energy purchase from the applicable utility, and excess electricity that is exported back to the electric grid generates a retail credit within a homeowner’s monthly billing period. 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 energy 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 them, cap them, reduce the value of the credit provided to homeowners for excess generation, or impose charges on homeowners that have net metering. For example, on April 14, 2020, the New England Ratepayers Association filed a petition with the Federal Energy Regulatory Commission (“FERC”), asking it to assert exclusive federal jurisdiction over state net metering programs. Such a declaratory order, if granted, would have encouraged legal challenges to state net metering programs and could have reduced the bill credits customers receive for the electricity they export to the grid. On July 16, 2020, FERC dismissed the petition unanimously on procedural grounds, but at least one commissioner indicated that FERC could revisit the issue of net metering jurisdiction in the future.

In October 2015 the Hawaii Public Utilities Commission (the “Hawaii Commission”) issued an ~~Order~~order that eliminates net metering for all new customers. In its place, the Commission implemented two programs: an interim program until October 21, 2017 that reduced the credit customers received when they exported power, and a second program for non-exporting systems. On October 20, 2017 the Commission announced two new programs replacing the interim export program: (i) one providing customers with a credit when they export power during certain periods of time, and (ii) another paying customers for exported power at all times but at a lower rate and allowing the utility the ability to shut off customers’ solar systems during grid emergencies. The exact parameters of these new programs are expected to be finalized by the utility by December 20, 2017, and customers will have the option of opting into either the existing non-exporting system program or the two new replacement export programs.homeowners. All existing net metering customers and customers who submitted net metering applications before October 12, 2015 are grandfathered indefinitely under the old rules. Interim tariffs currently exist in Hawaii. Permanent tariffs are currently under consideration by the Hawaii Commission, and customers on the interim tariff may be switched over to these newer tariffs. We ~~will~~ continue to sell, build, and service ~~these systems.~~ systems in Hawaii. The new programs in Hawaii are more complex, which decreases certainty in the economic value proposition we provide to customers and potentially slows down market growth. Recent proposals submitted by utility companies have proposed significant changes to the marketplace, such as utility ownership/control over solar energy systems, which may further detrimentally impact the economic value proposition to customers and slow down market growth.

In addition, in early 2016 we ceased new installations in Nevada in response to the elimination of net metering by the Public Utilities Commission of Nevada (“PUCN”). However, in September 2016, the PUCN issued an ~~Order grandfathering in~~order making customers ~~under~~eligible for the prior net metering rules ~~who~~if they had installed a solar energy system or had submitted a net metering application prior to December 31, 2015. Furthermore, in June 2017, ~~the governor of~~ Nevada ~~signed~~enacted legislation, AB 405, ~~which~~that restores net metering at a reduced credit ~~— starting at 95% of the retail rate and~~

~~declining as solar penetration increases —~~ and ~~grandfathers~~guarantees new customers ~~for 20 years at~~receive the net metering rate in effect at the time they ~~apply~~applied for ~~interconnection.~~interconnection for 20 years. As another example, in December 2016, the Arizona Corporation Commission (“ACC”) issued a decision to eliminate net metering ~~and reduce export rates~~ for new solar ~~customers. The specific rate changes applicable to Arizona solar~~ customers and replace it with a net-feed in tariff (a fixed export rate). In 2019 Connecticut extended net metering through the end of 2021, after which two successor tariffs will take effect. On February 10, 2021 the Public Utilities Regulatory Authority issued an order creating the successor tariffs which will initially provide a net metering-equivalent value but in the future may be reduced on an annual basis as determined ~~in utility~~through a rate ~~cases taking place in 2017.~~setting process. In ~~Arizona~~November 2017, the Utah Public Service ~~Company’s ("APS"~~Commission (“Utah PSC”) ~~rate case, intervenors agreed upon~~approved a settlement ~~which~~between the ~~ACC accepted~~solar industry and Rocky Mountain Power, the main investor-owned utility in ~~August 2017.~~Utah. The agreement reduced the compensation customers receive for power exported to the grid by about 10% below the retail rate. The Utah PSC then initiated a case to quantify the value of power exported from behind-the-meter solar energy systems. In ~~addition,~~December 2020, after a three-year case, the ~~ACC is scheduled to hold hearings beginning in November 2017 to consider~~Utah PSC established a new compensation rate changes applicable to solar customers proposed by Tuscon Electric Power and UNS Electric. In addition, New Hampshire issued its net metering order in June 2017, which removes a previously existing 100 MW cap on net metering and grandfathers in customers under existing rates until 2040.at roughly 45% below the average retail rate.

Some states set limits on the total percentage of a utility’s customers that can adopt net metering. For example, South Carolina ~~has~~had a net metering ~~cap. New York and New Jersey currently have no net metering~~ cap ~~however, these states have caps~~ that ~~trigger commission~~was eliminated in May 2019 when South Carolina enacted the Energy Freedom Act. The new law allows for regulatory review of net metering ~~policies.~~after two years, with changes to rate design to occur in June 2021. While South Carolina stakeholders and Duke Energy have reached a settlement in South Carolina, and the state’s Public Service Commission has approved a portion of the proposal, with the final adoption pending. Conversely, Dominion filed an anti-net energy metering plan that we opposed, and the PSC rejected Dominion’s proposal on May 26, 2021. Illinois has a threshold that triggers a commission process to determine what valuation of solar comes after net metering rate design. New Jersey currently has no net metering cap; however, it has a threshold that triggers commission review of its net metering policy. These policies could be subject to change 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~~those jurisdictions will not have access to the economic value proposition net metering allows. In addition, if overall solar consumer demand in South Carolina grows as expected in the coming year and the cap is not increased or otherwise extended, the South Carolina net metering cap may be reached.provides. Our ability to sell our solar service offerings may be adversely impacted by the failure to extend 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 solar energy systems, or the introduction of rate designs ~~such as the “unbundled” rates~~ mentioned above, would adversely impact our business.

California’s Public Utilities Commission (“CPUC”) has made changes to rate design for solar customers, such as adopting "time of use" rates with different electricity prices during peak and off peak hours, as well as modifications to the minimum bill for solar customers. The CPUC is revisiting its net metering policy in a proceeding that began in the third quarter of 2020 and is expected to conclude near the end of 2021 and not take effect until sometime in 2022, or in early 2023.The California investor-owned utilities, along with other parties, are seeking to reduce the level of compensation for customer-owned generation and to impose grid access fees on solar customers. Similarly, certain California municipal utilities, which are not regulated by the CPUC and would not be governed by the CPUC's net metering policy, have also announced they plan to review their net metering policies. Such reviews have been taking place at California municipal utilities since 2015.

Electric utility statutes and regulations and changes to such statutes or regulations may present technical, regulatory and economic barriers to the purchase and use of our solar service offerings that may significantly reduce demand for such offerings.

Federal, state and local government statutes and regulations concerning electricity heavily influence the market for our solar service ~~offerings.~~offerings and are constantly evolving. These statutes, regulations, and ~~regulations~~administrative rulings relate to electricity pricing, net metering, consumer protection, incentives, taxation, competition with utilities, and the interconnection of homeowner-owned and third party-owned solar energy systems to the electrical grid. These statutes and regulations are constantly evolving. Governments, often acting through state utility or public service commissions, change and adopt different rates for residential customers on a regular basis and these changes can have a negative impact on our ability to deliver savings, or energy bill management, to ~~homeowners.~~customers.

~~Utilities,~~

In addition, many utilities, their trade associations, and fossil fuel interests in the country, ~~each of~~ which ~~has~~have significantly greater economic, technical, operational, and political resources than the residential solar industry, are currently challenging solar-related policies to reduce the competitiveness of residential solar energy. Any adverse changes in solar-related policies could have a negative impact on our business and prospects. For example, in early 2016, we ceased new installations in Nevada as a result of the elimination of net metering (which was thereafter amended by the PUCN to grandfather in customers who had installed a solar energy system or submitted a net metering application prior to December 31, 2015). In June 2017, the governor of Nevada signed legislation, AB 405, which restores net metering at a reduced credit — starting at 95% of the retail rate and declining as solar penetration increases — and grandfathered customers for 20 years.

~~We face competition from traditional energy companies as well as solar energy companies.~~

The solar energy industry is highly competitive and continually evolving as participants strive to distinguish themselves within their markets and compete with large utilities. We believe that our primary competitors are the established utilities that supply energy to homeowners by traditional means. We compete with these utilities primarily based on price, predictability of price, and the ease by which homeowners can switch to electricity generated by our solar service offerings. If we cannot offer compelling value to homeowners based on these factors, then our business and revenue will not grow. Utilities generally have substantially greater financial, technical, operational and other resources than we do. As a result of their greater size, these competitors may be able to devote more resources to the research, development, promotion and sale of their products or respond more quickly to evolving industry standards and changes in market conditions than we can. Furthermore, these competitors are able to devote substantially more resources and funding to regulatory and lobbying efforts.

Utilities could also offer other value-added products or services that could help them compete with us even if the cost of electricity they offer is higher than ours. In addition, a majority of utilities’ sources of electricity are non-solar, which may allow utilities to sell electricity more cheaply than us. Moreover, regulated utilities are increasingly seeking approval to “rate-base” their own residential solar businesses. Rate-basing means that utilities would receive guaranteed rates of return for their solar businesses. This is already commonplace for utility scale solar projects and commercial solar projects. While few utilities to date have received regulatory permission to rate-base residential solar, our competitiveness would be significantly harmed should more utilities receive such permission because we do not receive guaranteed profits for our solar service offerings.

We also face competition from other residential solar service providers. Some of these competitors have a higher degree of brand name recognition, differing business and pricing strategies, and greater capital resources than we have, as well as extensive knowledge of our target markets. If we are unable to establish or maintain a consumer brand that resonates with homeowners, or competes with the pricing offered by our competitors, our sales and market share position may be adversely affected as our growth is dependent on originating new homeowners. We may also face competitive pressure from companies who offer lower priced consumer offerings than us.

We also compete with companies that are not regulated like traditional utilities but that have access to the traditional utility electricity transmission and distribution infrastructure. These energy service companies are able to offer homeowners electricity supply-only solutions that are competitive with our solar service offerings on both price and usage of solar energy technology while avoiding the long-term agreements and physical installations that our current fund-financed business model requires. This may limit our ability to attract homeowners, particularly those who wish to avoid long-term contracts or have an aesthetic or other objection to putting solar panels on their roofs.

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.

As the solar industry grows and evolves, we will continue to face existing competitors as well as new competitors who are not currently in the market (including those resulting from the consolidation of existing competitors) that achieve significant developments in alternative technologies or new products such as storage solutions, loan products or other programs related to third-party ownership. Our failure to adapt to changing market conditions, to compete successfully with existing or new competitors and to adopt new or enhanced technologies could limit our growth and have a material adverse effect on our business and prospects.

Regulations and policies related to rate design could deter potential ~~homeowners~~customers from purchasing our solar service offerings, reduce the value of the electricity weour systems produce, and reduce ~~the~~any savings that our ~~homeowners~~customers could realize from our solar service offerings.

All states regulate investor-owned utility retail electricity pricing. In addition, there are numerous publicly owned utilities and electric cooperatives that establish their own retail electricity pricing through some form of regulation or internal process. These regulations and policies could deter potential ~~homeowners~~customers from purchasing our solar service offerings. For example, some utilities in states ~~including~~such as Arizona ~~Massachusetts~~ and ~~New Hampshire are seeking~~Utah have sought and secured rate design changes that reduce credit for residential solar exports to ~~“unbundle” rates, utilities in Utah have sought such changes in~~below the ~~past~~retail rate and ~~utilities~~impose new charges for rooftop solar customers. Utilities in additional states ~~such as New York~~ may ~~potentially~~ follow suit. ~~This form of “unbundling”~~Such rate changes can include changing rates to charge lower volume-based ~~rates –~~ rates—the rates charged for kilowatt hours of electricity purchased by a residential ~~customer –~~customer—while raising unavoidable fixed charges that a homeowner is subject to when they purchase solar energy from third parties, and levying charges on homeowners based on their point of maximum demand during a month (referred to as “demand charge”). For example, the Arizona Public Service Company offers residential demand charge rate plans and if our solar customers have subscribed to those plans, they may not realize typical savings from our offerings. These forms of rate design ~~would~~could adversely impact our business by reducing the value of the electricity our solar energy systems produce compared to retail net metering, and reducing ~~the~~any savings ~~homeowners receive~~customers realize by purchasing our solar service offerings. These proposals could continue or be replicated in other states. In addition to changes in general rates charged to all residential customers, utilities are increasingly seeking solar-specific charges (which may be fixed charges, capacity-based charges, or other rate charges). Any of these changes could materially reduce the demand for our ~~products~~offerings and could limit the number of markets in which our ~~products~~offerings are

competitive with electricity provided by the utilities. As mentioned above, in December 2016, the ACC issued a decision to eliminate net metering and reduce export rates for new solar customers. The specific rate changes applicable to Arizona solar customers may be determined in utility rate cases taking place in 2017. In APS's current rate case, intervenors agreed upon a settlement, which the ACC accepted in August 2017. Additionally, the ACC is scheduled to hold hearings beginning in November 2017 to consider rate changes for solar customers proposed by Tucson Electric Power and UNS Electric. As another example, in early 2016, we ceased new installations in Nevada in response to the elimination of net metering by the PUCN, which decision was amended by the PUCN in September 2016 to grandfather in customers who had installed a solar energy system or submitted a net metering application prior to December 31, 2015 under the prior net metering rules. In June 2017, the governor of Nevada signed legislation, AB 405, which restores net metering at a reduced credit — starting at 95% of the retail rate and declining as solar penetration increases — and grandfathered customers for 20 years.

Our business currently depends on the availability of utility rebates, tax credits 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.

Our business depends on government policies that promote and support solar energy and enhance the economic viability of owning solar energy systems. U.S. federal, state and local governmental bodies provide incentives to owners, distributors, installers and manufacturers of solar energy systems to promote solar energy. These incentives include the ITCs, as discussed above, as well as other tax credits, rebates and other financial incentives, such as system performance payments and payments for solar renewable energy credits (“SRECs”) associated with solar energy generation. Some markets, such as New Jersey and Massachusetts, currently utilize SRECs. SRECs can be volatile and could decrease over time as the supply of SREC-producing solar energy systems installed in a particular market increases. We rely on the incentives listed above to lower our cost of capital and to incent investors to invest in our funds, all of which enables us to lower the price we charge homeowners for our solar service offerings. These incentives have had a significant impact on the development of solar energy but they could change at any time, especially in light of the recent change in administration, as further described below. These incentives may also expire on a particular date (as discussed above with respect to the ITC), end when the allocated funding is exhausted, or be reduced, terminated or repealed without notice. The financial value of certain incentives may also decrease over time.

The current administration’s proposed environmental and tax policies may create regulatory uncertainty in the solar energy industry and may lead to a reduction or removal of various clean energy programs and initiatives designed to curtail climate change. Such a reduction or removal of incentives could diminish the market for solar energy. The current administration has also made public statements regarding reducing the corporate tax rate, expensing capital costs and imposing a border adjustment tax on imported goods. A reduction in the corporate tax rate and the expensing of capital costs could diminish the capacity of potential fund investors to benefit from tax incentives, and could require additional cash to be distributed to such fund investors in lieu of tax benefits. In addition, a border adjustment tax on imported goods could increase our cost inputs. Furthermore, the current administration has made public statements regarding overturning or modifying policies of, or regulations enacted by, the prior administration that placed limitations on coal and gas electric generation, mining and/or exploration. Any effort to overturn federal and state laws, regulations or policies that are supportive of solar energy generation or that remove costs or other limitations on other types of energy generation that compete with solar energy projects could materially and adversely affect our business.

Our business model also relies on multiple tax exemptions offered at the state and local levels. For example, solar energy systems are generally not considered in determining values for calculation of local and state real and personal property taxes as a result of applicable property tax exemptions. If solar energy systems were not excluded, the property taxes payable by homeowners would be higher, which could offset any potential savings our solar service offerings could offer. For example, the Arizona Department of Revenue has determined that the rule that solar energy systems have no value and add no value does not apply to solar panels that are leased (as opposed to owned) and has subjected our leased solar panels to personal property taxes in that state. While we are challenging that determination, an adverse outcome will subject us and other solar companies to an increase in personal property taxes. If we pass this additional tax on to our customers in the form of higher prices, it could reduce or eliminate entirely the savings that these solar panels would otherwise provide to the homeowner. We are involved in ongoing litigation challenging the Arizona personal property tax determination. In May 2017, the Arizona Court of Appeals upheld the tax court’s ruling that the Arizona Department of Revenue had no legal authority to assess rooftop solar energy equipment, reversed the Tax Court’s ruling that the statute, Section 42-11054(C)(2) is unconstitutional, and ruled that the counties have no authority to tax rooftop solar equipment. The Arizona

Department of Revenue is currently appealing that decision and there can be no assurances that this litigation will be resolved in a manner that is favorable to us or other solar companies. If this litigation is not resolved in a manner that is favorable to us and other solar companies, it will adversely impact our operations in Arizona. If we decide to pass the tax cost on to our customers, such price increase could adversely impact our ability to attract new customers in Arizona, and the savings that our current Arizona customers realize could be reduced or eliminated by the additional tax imposed, which will make our solar service offerings less attractive to those customers and could increase the risk of default from those customers. In addition, South Carolina counties do not currently assess property tax on residential solar energy systems, although state law does not provide for an explicit exemption. In general, we rely on certain state and local tax exemptions that apply to the sale of equipment, sale of power, or both. These state and local sales tax exemptions can be changed by the state legislature and other regulators, and such a change, for example if South Carolina were to begin assessing property tax on residential solar energy systems, could adversely impact our business.

We are not currently regulated as a utility under applicable laws, but we may be subject to regulation as a utility in the future or become subject to new federal and state regulations for any additional solar service offerings we may introduce in the future.

~~Federal,~~

Most federal, state, and municipal laws do not currently regulate us as a utility. As a result, we are not subject to the various regulatory requirements applicable to U.S. utilities. However, any federal, state, local or ~~otherwise~~other applicable regulations could place significant restrictions on our ability to operate our business and execute our business plan by prohibiting or otherwise restricting our sale of electricity. These regulatory requirements could include restricting our sale of electricity, as well as regulating the price of our solar service offerings. For example, the New York Public Service Commission and the Illinois Power Agency have issued orders regulating distributed energy providers in certain ways as if they were energy service companies, which increases the regulatory compliance burden for us in such states. If we ~~were~~become subject to the same regulatory authorities as utilities in ~~the United States~~other states or if new regulatory bodies ~~were~~are established to oversee our business, ~~then~~ our operating costs could materially increase.

Our business depends in part on the regulatory treatment of ~~third-party owned~~third-party-owned solar energy systems.

Our Customer Agreements are third-party ownership arrangements. Sales of electricity by third parties face regulatory challenges in some states and jurisdictions. These challenges pertain to issues such as whether ~~third party-owned~~third-party-owned systems qualify for the same ~~levels of~~ rebates, tax exemptions or other non-tax incentives available for homeowner-owned solar energy systems, whether third-party-owned systems are eligible at all for these incentives, and whether third-party-owned systems are eligible for net metering and the associated significant cost savings. ~~Reductions in, or eliminations of, the current~~Adverse regulatory treatment of third-party ownership arrangements could reduce demand for our solar service offerings, adversely impact our access to capital and cause us to increase the price we charge ~~homeowners~~customers for energy.

Interconnection limits or circuit-level caps imposed by regulators may significantly reduce our ability to sell electricity from our solar service offerings in certain markets or slow interconnections, harming our growth rate and customer satisfaction scores.

Interconnection rules establish the circumstances in which rooftop solar will be connected to the electricity grid. Interconnection limits or circuit-level caps imposed by regulators may curb our growth in key markets. Utilities throughout the country have different rules and regulations regarding interconnection and some utilities cap or limit the amount of solar energy that can be interconnected to the grid. Our systems do not provide power to ~~homeowners~~customers until they are interconnected to the grid. ~~The vast majority of our current homeowners are connected to the grid, and we expect most homeowners to continue to be connected to the grid in the future.~~

Interconnection regulations are based on claims from utilities regarding the amount of solar ~~electricity~~energy that can be connected to the grid without causing grid reliability issues or requiring significant grid upgrades. Although recent rulings from the Hawaii ~~Public~~ Utilities Commission have helped resolve some problems, historically, interconnection limits or circuit-level caps have slowed the pace of our installations in Hawaii. Similar interconnection limits could slow our future installations in Hawaii or other markets, harming our growth rate and customer satisfaction scores.

We Similarly, the California and Hawaii Public Utilities Commissions require the activation of some advanced inverter functionality to head off presumed grid reliability issues, which may be required to make payments or contribute assets to our investors upon the occurrence of certain events, including one-time reset or true-up payments or upon the exercise of a redemption option by one of our investors.

Our fund investors typically advance capital to us based on energy estimates. The models we use to calculate prepayments in connection with certain of our investment funds will be updated for each investment fund at a fixed date occurring after placement in service of all applicable solar energy systems or an agreed upon date (typically within the first yearrequire more expensive equipment and more oversight of the applicable term) to reflect certain specified conditions as they exist at such date including the ultimate system size of the equipment that was leased, how much it cost, and when it went into service. In some cases, these true-up models will also incorporate any changes in law, which would include any reduction in rates (and thus any reduction in the benefits of depreciation). As a result of this true up, applicable payments are resized, and we may be obligated to refund a portion of the investor’s prepayments or to contribute additional assets to the investment fund. In addition, certain of our fund investors have the right to require us to purchase their interests in the investment funds after a set period of time, generally at a price equal to the greater of a set purchase price or fair market value of the interests at the time of the repurchase. Any significant refunds, capital contributions or purchases that we may be required to make could adversely affect our liquidity or financial condition.

~~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.~~

We believe that a homeowner’s decision to buy solar energy from us is primarily driven by a desire to lower electricity costs. Decreases in the retail prices of electricity from utilities or other energy sources would harm our ability to offer competitive pricing and could harm our business. The price of electricity from utilities could decrease as a result of:

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

~~the construction of additional electric transmission and distribution lines;~~

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

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

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

~~It is difficult to evaluate our business and prospects due to our limited operating history.~~

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 a 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. Our limited operating history, combined with the rapidly evolving and competitive nature of our industry, may not provide an adequate basis for you to evaluate our results of operations and business prospects. In addition, we only have limited insight into emerging trends, such as alternative energy sources, commodity prices in the overall energy market, and legal and regulatory changes that impact the solar industry, any of which could adversely impact our business, prospects and results of operations.

~~We have incurred losses and may be unable to achieve or sustain profitability in the future.~~

We have incurred net losses in the past and may continue to incur net losses as we increase our spending to finance the expansion of our operations, expand our installation, engineering, administrative, sales and marketing staffs, increase spending on our brand awareness and other sales and marketing initiatives, and implement internal systems and infrastructure to support our growth. We do not know whether our revenue will grow rapidly enough to absorb these costs and our limited operating history makes it difficult to assess the extent of these expenses or their impact on our results of operations. Our ability to achieve profitability depends on a number of factors, including but not limited to:

~~growing our customer base;~~

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

~~maintaining or further lowering our cost of capital;~~

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

~~growing and maintaining our channel partner network;~~

~~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.~~

~~Even if we do achieve profitability, we may be unable to sustain or increase our profitability in the future.~~

Our results of operations may fluctuate from quarter to quarter, which could make our future performance difficult to predict and could cause our results of operations for a particular period to fall below expectations, resulting in a decline in the price of our common stock.

Our quarterly results of operations are difficult to predict and may fluctuate significantly in the future. We have experienced seasonal and quarterly fluctuations in the past and expect these fluctuations to continue. However, given that we are an early-stage company operating in a rapidly changing industry, those fluctuations may be masked by our recent growth rates and thus may not be readily apparent from our historical results of operations. As such, our past quarterly results of operations may not be good indicators of likely future performance.

In addition to the other risks described in this “Risk Factors” section, as well as the factors discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section, the following factors could cause our results of operations and key performance indicators to fluctuate:

~~the expiration or initiation of any governmental tax rebates or incentives;~~

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

~~changes in financial markets, which could restrict our ability to access available financing sources;~~

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

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

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

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

~~changes in regulatory policy related to solar energy generation;~~

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

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

~~actual or anticipated changes in our growth rate;~~

~~general economic, industry and market conditions; and~~

~~changes to our cancellation rate.~~

In the past, we have experienced seasonal fluctuations in sales and installations, particularly in the fourth quarter. This has been the result of decreased sales through the holiday season and weather-related installation delays. In addition, energy production is greater in the second and third quarters of the year, causing variability in operating lease revenue throughout the year. Our incentives revenue is also highly variable due to associated revenue recognition rules, as discussed in greater detail in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Seasonal and other factors may also contribute to variability in our sales of solar energy systems and product sales. For these or other reasons, the results of any prior quarterly or annual periods should not be relied upon as indications of our future performance. In addition, our actual revenue or key operating metrics in one or more future quarters may fall short of the expectations of investors and financial analysts. If that occurs, the trading price of our common stock could decline and you could lose part or all of your investment.

~~Our actual financial results may differ materially from any guidance we may publish from time to time.~~

We have in the past and may, from time to time, provide guidance regarding our future performance that represents our management’s estimates as of the date such guidance is provided. Any such guidance is based upon a number of assumptions with respect to future business decisions (some of which may change) and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive uncertainties and contingencies (many of which are beyond our control). Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions that inform such guidance will not materialize or will vary significantly from actual results. Our ability to meet deployment volume, cost, net present value or any other forward-looking guidance is impacted by a number of factors including, but not limited to, the number of our solar energy systems sold versus leased, changes in installation costs, the availability of additional financing on acceptable terms, changes in the retail prices of traditional utility generated electricity, the availability of rebates, tax credits and other incentives, changes in policies and regulations including net metering and interconnection limits or caps, the availability of solar panels and other raw materials, as well as the other risks to our business that are described in this section. Accordingly, our guidance is only an estimate of what management believes is realizable as of the date such guidance is provided. Actual results may vary from such guidance and the variations may be material. Investors should also recognize that the reliability of any forecasted financial data diminishes the farther in the future that the data is forecast. In light of the foregoing, investors should not place undue reliance on our financial guidance, and should carefully consider any guidance we may publish in context.

~~If we fail to manage our recent and future growth effectively, we may be unable to execute our business plan, maintain high levels of customer service or adequately address competitive challenges.~~

We have experienced significant growth in recent periods, and we intend to continue to expand our business 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.

In addition, our current and planned operations, personnel, systems and procedures might be inadequate to support our future growth and may require us to make additional unanticipated investment in our infrastructure, including additional costs for the expansion of our employee base and our solar partners as well as marketing and branding costs. 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.

We have substantial amounts of debt, including the working capital facility and the non-recourse debt facilities entered into by our subsidiaries, as discussed in more detail in the section titled “Management’s Discussion and

Analysis of Financial Condition and Results of Operations” and our consolidated financial statements. Specifically, as of September 30, 2017, we have a $247.0 million bank line of credit maturing in April 2018, which management expects to refinance with an extended maturity date. In addition, our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures to operate our business. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to timely repay or otherwise refinance our indebtedness (including, but not limited to, the bank line of credit disclosed above) will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

~~We expect to incur substantially more debt in the future, which could intensify the risks to our business.~~

We and our subsidiaries expect to incur additional debt in the future, subject to the restrictions contained in our debt instruments. Our existing debt arrangements restrict our ability to incur additional indebtedness, including secured indebtedness, and we may be subject to similar restrictions under the terms of future debt arrangements. These restrictions could inhibit our ability to pursue our business strategies. Increases in our existing debt obligations would further heighten the debt related risk discussed above.

Furthermore, there is no assurance that we will be able to enter into new debt instruments on acceptable terms. If we were unable to satisfy financial covenants and other terms under existing or new instruments, or obtain waivers or forbearance from our lenders, or if we were unable to obtain refinancing or new financings for our working capital, equipment and other needs on acceptable terms if and when needed, our business would be adversely affected.

The production and installation of solar energy systems depends heavily on suitable meteorological conditions. If meteorological conditions are unexpectedly unfavorable, the electricity production from our solar service offerings may be below our expectations, and our ability to timely deploy new systems may be adversely impacted.

The energy produced and revenue and cash flows generated by a solar energy system depend on suitable solar and weather conditions, both of which are beyond our control. Furthermore, components of our systems, such as panels and inverters, could be damaged by severe weather or natural catastrophes, such as hailstorms, tornadoes, fires or earthquakes. In these circumstances, we generally would be obligated to bear the expense of repairing the damaged solar energy systems that we own. Sustained unfavorable weather also could unexpectedly delay the installation of our solar energy systems, leading to increased expenses and decreased revenue and cash flows in the relevant periods. Weather patterns could change, making it harder to predict the average annual amount of sunlight striking each location where our solar energy systems are installed. This could make our solar service offerings less economical overall or make individual systems less economical. Any of these events or conditions could harm our business, financial condition and results of operations.

~~Our business is concentrated in certain markets, putting us at risk of region specific disruptions.~~

As of September 30, 2017, approximately half of our customers were in California. Accordingly, our business and results of operations are particularly susceptible to adverse economic, regulatory, political, weather and other conditions in this market and in other markets that may become similarly concentrated, in particular the east coast, where we have seen significant growth in 2016. In addition, our corporate and sales headquarters are located in San Francisco, California, an area that is at a heightened risk of earthquakes. We may not have adequate insurance, including business interruption insurance, to compensate us for losses that may occur from any such significant events, including damage to our solar energy systems. A significant natural disaster, such as an earthquake, could have a material adverse impact on our business, results of operations and financial condition. In addition, acts of terrorism or malicious computer viruses could cause disruptions in our or our solar partners’ businesses or the economy as a whole. To the extent that these disruptions result in delays or cancellations of installations or the deployment of our solar service offerings, our business, results of operations and financial condition would be adversely affected.

~~Loan financing developments could adversely impact our business.~~

The third-party ownership structure, which we bring to market through our solar service offerings, continues to be the predominant form of system ownership in the residential solar market in many states. However, with the development of new loan financing products, we have seen a modest shift from leasing to outright purchasesoperation of the solar energy ~~system by the homeowner (i.e.,~~systems over time. As a ~~homeowner purchases the solar energy system outright instead of leasing the system from us~~result, these regulations may hamper our ability to sell our offerings in certain markets and paying us for the solar power produced by that system for a 20-year initial term). Continued increases in third-party loan financing products and outright purchases could result in the demand for long-term Customer Agreements to decline, which would require us to shiftincrease our product focus to respond to the market trend and could have an adverse effect on our business. In 2017, 2016 and 2015, 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 harmcosts, adversely affecting our business, operating results, financial condition, and ~~financial results.~~prospects. These advanced functions will become more commonplace as regions start to require 1547-2018 inverters, with activation of some advanced functions starting January 2022 in Maryland, Colorado and Arizona, with more to follow.

~~The federal government currently offers a 30% Residential ITC for the installation of certain solar power facilities owned by residential taxpayers. The Residential ITC was set~~

Risks Related to expire at the end of 2016. In December 2015, Congress passed legislation extending the Residential ITC for an additional five years with a ramp down from 30% to 26% for solar property commencing construction in 2020 and then further to 22% for solar property commencing construction in 2021. The Residential ITC is set to expire after 2021. 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.Our Business Operations

Our growth depends in part on the success of our relationships with third parties, including our solar partners.

A key component of our growth strategy is to develop or expand our relationships with third parties. For example, we are investing resources in establishing strategic relationships with market players across a variety of industries, including large retailers, to generate new customers. These programs may not roll out as quickly as planned or produce the results we anticipated. A significant portion of our business depends on attracting and retaining new and existing solar partners. Negotiating relationships with our solar partners, investing in due diligence efforts with potential solar partners, training such third parties and contractors, and monitoring them for compliance with our standards require significant time and resources and may present greater risks and challenges than expanding a direct sales or installation team. If we are unsuccessful in establishing or maintaining our relationships with these third parties, our ability to grow our business and address our market opportunity could be impaired. Even if we are able to establish and maintain these relationships, we may not be able to execute on our goal of leveraging these relationships to meaningfully expand our business, brand recognition and customer base. This would limit our growth potential and our opportunities to generate significant additional revenue or cash flows.

We and our solar partners depend on a limited number of suppliers of solar panels, batteries, and other system components to adequately meet anticipated demand for our solar service offerings. Any shortage, delay or component price change from these suppliers, or the acquisition of any of these suppliers by a competitor, could result in sales and installation delays, cancellations, and loss of market share.

We and our solar partners purchase solar panels, inverters, batteries, and other system components ~~and batteries~~ from a limited number of suppliers, making us susceptible to quality issues, shortages and price changes. If we or our solar partners fail to develop, maintain and expand our relationships with these or other suppliers, we may be unable to adequately meet anticipated demand for our solar service offerings, or we may only be able to offer our systems at higher costs or after delays. If one or more of the suppliers that we or our solar partners rely upon to meet anticipated demand ceases or reduces production, we may be unable to quickly identify alternate suppliers or to qualify alternative products on commercially reasonable terms, and we may be unable to satisfy this demand.

The acquisition of a supplier by one of our competitors could also limit our access to such components and require significant redesigns of our solar energy systems or installation procedures and have a material adverse effect on our business.

In particular, there ~~are~~is a limited number of suppliers of inverters, which are components that convert electricity generated by solar panels into electricity that can be used to power the home. For example, once we design a system for use with a particular inverter, if that type of inverter is not readily available at an anticipated price, we may incur delays and additional expenses to redesign the system. Further, the inverters on our solar

energy systems generally carry only ten year warranties. If there is an inverter equipment shortage in a year when a substantial number of inverters on our systems need to be replaced, we may not be able to replace the inverters to maintain proper system functioning or may be forced to do so at higher than anticipated prices, either of which would adversely impact our business.

Similarly, there is a limited number of suppliers of batteries. Once we design a system for use with a particular battery, if that type of battery is not readily available from our supplier, we may incur delays and additional expenses to install the system or be forced to redesign the system. Global demand has increased for lithium-ion battery cells, which may cause challenges for our battery suppliers, including delays or price volatility. Any such delays or reduced availability of battery cells (or other component materials) may impact our sales and operating results. Further, these risks may increase as market demand for our solar and storage offering grows.

There have also been periods of industry-wide shortage of key components, including solar panels, in times of rapid industry ~~growth.~~growth or regulatory change. For example, guidance from the IRS on the steps required for construction to be deemed to have commenced in time to qualify for federal investment tax credits resulted in significant module shortages in the market as utilities and large commercial customers started purchasing supplies in advance of the December 2019 deadline to qualify for a 30% Commercial ITC. Further, 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,~~Additionally, 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.

In addition, our supply chain and operations (or those of our partners) could be subject to events beyond our control, such as earthquakes, wildfires, flooding, hurricanes, tsunamis, typhoons, volcanic eruptions, droughts, tornadoes, the effects of climate change and related extreme weather, public health issues and pandemics, war, terrorism, government restrictions or limitations on trade, and geo-political unrest and uncertainties. For example, COVID-19 has caused disruptions to the supply chain across the global economy, including within the solar industry, and we are working with our equipment suppliers to minimize disruptions to our operations. The extent to which the COVID-19 pandemic may impact our supply chain and operations is uncertain. The extent of the impact of the COVID-19 pandemic on our business and operations will depend on several factors, such as the duration, severity, and geographic spread of the outbreak and the impact of variants. In addition, human rights issues in foreign countries and the U.S. government response to them could disrupt our supply chain and operations. For example, allegations regarding forced labor in China and U.S. regulations to prohibit the importation of any goods derived from forced labor could affect our supply chain and operations.

As the primary entity that contracts with ~~homeowners,~~customers, we are subject to risks associated with construction, cost overruns, delays, customer cancellations, regulatory compliance and other contingencies, any of which could have a material adverse effect on our business and results of operations.

We are a licensed contractor in certain communities that we service, and we are ultimately responsible as the contracting party for every solar energy system installation. We may be liable, either directly or through our solar partners, to ~~homeowners~~customers for any damage we cause to them, their home, belongings or property during the installation of our systems. For example, we, either directly or through our solar partners, frequently penetrate ~~homeowners’~~customers’ roofs during the installation process and may incur liability for the failure to adequately weatherproof such penetrations following the completion of construction. In addition, because the solar energy systems we or our solar partners deploy are high voltage energy systems, we may incur liability for any failure to comply with electrical standards and manufacturer recommendations.

For example, on December 2, 2020, the California Contractors State License Board (the “CSLB”) filed an administrative proceeding against Sunrun and certain of its officers related to an accident that occurred during an installation by one of our channel partners, Horizon Solar Power, which holds its own license with the CSLB. If this proceeding is not resolved in our favor, it could potentially result in fines, a public reprimand, probation or the suspension or revocation of our California Contractor’s License. We strongly deny any wrongdoing in the matter and intend to work cooperatively with the CSLB while vigorously defending ourselves in this action.

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~~Customers may cancel their Customer Agreement, subject to certain conditions, during this process until commencement of installation, and we have experienced increased customer cancellations in certain geographic markets during certain periods ~~throughout~~in our operating history. We or our solar partners may face customer cancellations, delays or cost overruns which may adversely affect our or our solar partners’ ability to ramp up the volume of sales or installations in accordance with our plans. These cancellations, delays or overruns may be the result of a variety of factors, such as labor shortages or other labor issues, defects in materials and workmanship, adverse weather conditions, transportation constraints, construction change orders, site changes or roof conditions, geographic factors and other unforeseen difficulties, any of which could lead to increased cancellation rates, reputational harm and other adverse effects. 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~~may be materially and adversely affected.

In addition, the installation of solar energy ~~systems, energy-storage~~ systems and other energy-related products requiring building modifications are subject to oversight and regulation in accordance with national, state and local laws and ordinances relating to building, fire and electrical codes, safety, environmental protection, utility interconnection and metering, and related matters. We also rely on certain of our and our partners' employees to maintain professional licenses in many of the jurisdictions in which we operate, and our failure to employ properly licensed personnel could adversely affect our licensing status in those jurisdictions. It is difficult and costly to track the requirements of every individual authority having jurisdiction over our installations and to design solar energy systems to comply with these varying standards. Any new government regulations or utility policies pertaining to our systems may result in significant additional expenses to us and our ~~homeowners~~customers and, as a result, could cause a significant reduction in demand for our solar service offerings.

~~While we~~

We have a variety of stringent quality standards that we apply in the selection, supervision, and oversight of our third-party suppliers and solar partners. We exercise oversight over our partners ~~we do not control~~through written agreements requiring compliance with the laws and requirements of all jurisdictions, including regarding safety and consumer protections, by oversight of compliance with these agreements, and enforced by termination of a partner relationship for failure to meet those obligations. However, because our suppliers and ~~solar~~ partners ~~or their business practices. Accordingly,~~are third parties, ultimately, we cannot guarantee that they will follow our standards or ethical business practices, such as fair wage practices and compliance with environmental, safety and other local ~~laws.~~laws, despite our efforts to hold them accountable to our standards. A lack of demonstrated compliance could lead us to seek alternative

suppliers or contractors, which could increase our costs and result in delayed delivery or installation of our products, product shortages or other disruptions of our operations. Violation of labor or other laws by our suppliers and solar partners or the divergence of a supplier’s or solar ~~partners’~~partner's labor or other practices from those generally accepted as ethical in the United States or other markets in which we do business could also attract negative publicity for us and harm our business, brand and reputation in the market.

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.

We typically bear the risk of loss and are generally obligated to cover the cost of maintenance, repair and removal for any solar energy system that we sell or lease to our investment funds. At the time we sell or lease a solar energy system to an investment fund, we enter into a maintenance services agreement where we agree to operate and maintain the system for a fixed fee that is calculated to cover our future expected maintenance costs. If our solar energy systems require an above-average amount of repairs or if the cost of repairing systems were higher than our estimate, we would need to perform such repairs without additional compensation. If our solar energy systems, ~~approximately half~~more than 40% of which ~~are~~were located in California as of June 30, 2021, are damaged as the result of a natural disaster beyond our control, losses could exceed or be excluded from, our insurance policy limits, and we could incur unforeseen costs that could harm our business and financial condition. We may also incur significant costs for taking other actions in preparation for, or in reaction to, such events. We purchase property insurance with industry standard coverage and limits approved by an investor’s third-party insurance advisors to hedge against such risk, but such coverage may not cover our losses.

~~Disruptions to our solar production metering solution could negatively impact our revenues and increase our expenses.~~

Our ability to invoice homeowners for the energy produced by our solar energy systems and monitor solar energy production for various purposes depends on the operation of our metering solution. We could incur significant expense and disruption to our operations in connection with failures of our metering solution, including meter hardware failures and failure of the cellular technology that we use to communicate with those meters. Many of our meters operate on either the 2G or 3G cellular data networks, which are expected to sunset before the term of our contract with homeowners. Upgrading our metering solution may cause us to incur a significant expense. Additionally, our meters communicate data through proprietary software, which we license from our metering partners. Should we be unable to continue to license, on agreeable terms, the software necessary to communicate with our meters, it could cause a significant disruption in our business and operations.

Problems with product quality or performance may cause us to incur warranty expenses and performance guarantee expenses, may lower the residual value of our solar energy systems and may damage our market reputation and cause our financial results to decline.

Homeowners who buy energy from us under leases or power purchase agreements are covered by production guaranties and roof penetration warranties. As the owners of the solar energy systems, we or our investment funds receive a warranty from the inverter and solar panel manufacturers, and, for those solar energy systems that we do not install directly, we receive workmanship and material warranties as well as roof penetration warranties from our solar partners. For example, in 2015 and 2014, we had to replace a significant number of defective inverters, the cost of which was borne by the manufacturer. However, our customers were without solar service for a period of time while the work was done, which impacted customer satisfaction. Furthermore, one or more of our third-party manufacturers or solar partners could cease operations and no longer honor these warranties, leaving us to fulfill these potential obligations to homeowners. Further, we provide a performance guarantee with certain solar service offerings pursuant to which we compensate homeowners on an annual basis if their system does not meet the electricity production guarantees set forth in their agreement with us. Homeowners who buy energy from us under leases or power purchase agreements are covered by production guarantees equal to the length of the term of these agreements, typically 20 years.

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.~~

Product liability claims against us could result in adverse publicity and potentially significant monetary damages.

If our solar service offerings, including our racking systems, photovoltaic modules, batteries, inverters, or other products, injured someone, we ~~could~~would be exposed to product liability claims. Because solar energy systems and many of our other current and anticipated products are electricity-producing devices, it is possible that ~~individuals~~customers or their property could be injured or damaged by our products, whether by product malfunctions, defects, improper installation or other causes. We rely on third-party manufacturing warranties, warranties provided by our solar partners and our general liability insurance to cover product liability claims and have not obtained separate product liability insurance. Our solar energy systems, including our photovoltaic modules, batteries, inverters, and other products, may also be subject to recalls due to product malfunctions or defects. Any product liability claim we face could be expensive to defend and divert management’s attention. The successful assertion of product liability claims against us could result in potentially significant monetary damages that could require us to make significant payments, as well as subject us to adverse publicity, damage our reputation and competitive position and adversely affect sales of our systems and other products. In addition, product liability claims, injuries, defects or other problems experienced by other companies in the residential solar industry could lead to unfavorable market conditions to the industry as a whole, and may have an adverse effect on our ability to attract ~~homeowners,~~customers, thus affecting our growth and financial performance.

Our business is concentrated in certain markets, putting us at risk of region-specific disruptions.

As of June 30, 2021, more than 40% of our customers were in California, and we expect many of our future installations to be in California, which could further concentrate our customer base and operational infrastructure. Accordingly, our business and results of operations are particularly susceptible to adverse economic, regulatory, political, weather and other conditions in this market, including the impacts of the COVID-19 pandemic, and in other markets that may become similarly concentrated, in particular the east coast, where we have seen significant growth recently.

Our corporate and sales headquarters are located in San Francisco, California, an area that has a heightened risk of earthquakes and nearby wildfires. We may not have adequate insurance, including business interruption insurance, to compensate us for losses that may occur from any such significant events, including damage to our solar energy systems. A significant natural disaster, such as an earthquake or wildfire, or a public health crisis, such as a pandemic, or civil unrest could have a material adverse impact on our business, results of operations and financial condition. In addition, acts of terrorism or malicious computer viruses could cause disruptions in our or our solar partners’ businesses or the economy as a whole. To the extent that these disruptions result in delays or cancellations of installations or the deployment of our solar service offerings, our business, results of operations and financial condition would be adversely affected.

The ~~residual~~majority of the Vivint Solar business is conducted using the direct-to-home sales channel.

Historically, the Vivint Solar business’ primary sales channel has been a direct-to-home sales model. We are vulnerable to changes in laws and regulations related to direct sales and marketing that could impose additional limitations on unsolicited residential sales calls and may impose additional restrictions such as adjustments to our marketing materials and direct-selling processes, and new training for personnel. If additional laws and regulations affecting direct sales and marketing are passed in the markets in which we operate, it would take time to train our sales professionals to comply with such laws, and we may be exposed to fines or other penalties for violations of such laws. If we fail to compete effectively through our direct-selling efforts, our financial condition, results of operations and growth prospects could be adversely affected.

Expansion into new sales channels could be costly and time-consuming. As we enter new channels, we could be at a disadvantage relative to other companies who have more history in these spaces.

As we continue to expand into new sales channels, such as direct-to-home, homebuilder, retail, and e-commerce channels and adapt to a remote selling model, we have incurred and may continue to incur significant costs. In addition, we may not initially or ever be successful in utilizing these new channels. Furthermore, we may not be able to compete successfully with companies with a historical presence in such channels, and we may not realize the anticipated benefits of entering such channels, including efficiently increasing our customer base and ultimately reducing costs. Entering new channels also poses the risk of conflicts between sales channels. If we are unable to successfully compete in new channels, our operating results and growth prospects could be adversely affected.

Obtaining a sales contract with a potential customer does not guarantee that a potential customer will not decide to cancel or that we will not need to cancel due to a failed inspection, which could cause us to generate no revenue from a product and adversely affect our results of operations.

Even after we secure a sales contract with a potential customer, we (either directly or through our solar partners) must perform an inspection to 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 have incurred sales-related, design-related, and other expenses and generated no revenue.

The value of our solar energy systems at the end of the associated term of the lease or power purchase agreement may be lower than projected, which may adversely affect our financial performance and valuation.

We depreciate the costs of our solar energy systems over their estimated useful life of 35 years. At the end of the initial ~~20-year~~typically 20- or 25-year term of the Customer Agreement, customers may choose to purchase their solar energy systems, ask to remove the system at our cost or renew their Customer Agreements. ~~Homeowners~~Customers may choose to not renew or purchase for any reason, ~~such as~~including pricing, decreased energy consumption, relocation of residence, or switching to a competitor product.

Furthermore, it is difficult to predict how future environmental regulations may affect the costs associated with the removal, disposal or recycling of our solar energy systems. If the value in trade or renewal revenue is less than we expect, ~~after giving effect to any associated removal and redeployment costs,~~ we may be required to recognize all or some of the remaining unamortized costs. This could materially impair our future results of operations.

We ~~have guaranteed a minimum return~~are exposed to ~~be received by an investor in one~~the credit risk of customers and payment delinquencies on our accounts receivables.

Our Customer Agreements are typically for 20 or 25 years and require the customer to make monthly payments to us. Accordingly, we are subject to the credit risk of customers. As of June 30, 2021, the average FICO score of our customers under a Customer Agreement with 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 ~~which could adversely affect our business and financial condition if~~are relaxed. While customer defaults have been immaterial to date, 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~~expect that the ~~investor does not achieve a specified minimum internal rate~~risk of return in this fund. 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 which is assessed annually. Because of uncertainties associated with estimating the timing and amounts of distributions to the investor,customer defaults may increase as we cannot determine the potential maximum future payments that we could have to make under this guarantee, in particular in the face of potential changes in tax law. 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.

~~Damage to our brand and reputation or failure to expand our brand would harm our business and results of operations.~~

~~We depend significantly on our brand and reputation for high-quality solar service offerings, engineering and customer service to attract homeowners and~~ grow our business.

Due to the immaterial amount of customer defaults to date, our reserve for this exposure is minimal, and our future exposure may exceed the amount of such reserves. If we ~~fail to continue to deliver~~experience increased customer credit defaults, our solar service offerings within the planned timelines, if our solar service offerings do not perform as anticipated or if we damage any homeowners’ properties or cancel projects, our brand and reputation could be significantly impaired. We also depend greatly on referrals from homeowners for our growth. Therefore, our inability to meet or exceed homeowners’ expectations would harm our reputation and growth through referrals. Further, we have 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. In addition, members of our direct sales force and our solar partners may engage in what is perceived as aggressive sales tactics that could be unappealing to customers, which could harm our brand and reputation with potential customers. If we cannot manage our hiring and training processes to avoid potential issues related to expanding our sales team or solar partners and maintain appropriate customer service levels, our business and reputation may be harmedrevenue and our ability to attract homeowners 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, weraise new investment funds 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 expansionbe adversely affected. If economic conditions worsen, certain of our ~~brand recognition or increase our revenues.~~

~~A failure to hire~~customers may face liquidity concerns and retain a sufficient number of employees and service providers in key functions would constrain our growth and our ability to timely complete homeowners’ projects and successfully manage homeowner accounts.

To support our growth, we need to hire, train, deploy, manage and retain a substantial number of skilled employees, engineers, installers, electricians, sales and project finance specialists. Competition for qualified personnel in our industry is increasing, particularly for skilled personnel involved in the installation of solar energy systems. We may be unable to ~~attract or retain qualified and skilled installation personnel or installation companies~~satisfy their payment obligations to be our solar partners, which would have an adverse effect on our business. We and our solar partners also compete with the homebuilding and construction industries for skilled labor. As these industries grow and seek to hire additional workers, our cost of labor may increase. The unionization of the industry’s labor force could also increase our labor costs. Shortages of skilled labor could significantly delay a project or otherwise increase our costs. Because our profitus on a particular installation is based in part on assumptions as to the cost of such project, cost overruns, delays or other execution issues may cause us to not achieve our expected margins or cover our costs for that project. In addition, because we are headquartered in the San Francisco Bay Area, we compete for a limited pool of technical and engineering resources that requires us to pay wages that are competitive with relatively high regional standards for employees in these fields. Further, we need to continue to expand upon the training of our customer service team to provide high-end account management and service to homeowners before, during and following the point of installation of our solar energy systems. Identifying and recruiting qualified personnel and training them requires significant time, expense and attention. It can take several months before a new customer service person 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.

In addition, to support the growth and success of our direct-to-consumer channel, we need to recruit, retain and motivate a large number of sales personnel on a continuing basis. We compete with many other companies for qualified sales personnel, and it could take many months before a new salesperson is fully trained on our solar service offerings. If we are unable to hire, develop and retain qualified sales personnel or if they are unable to achieve desired productivity levels, we may not be able to compete effectively.

~~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~~timely basis 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.

~~The loss of one or more members of our senior management or key employees may adversely affect our ability to implement our strategy.~~

We depend on our experienced management team, and the loss of one or more key executives could have a negative impact on our business. In particular, we are dependent on the services of our chief executive officer and co-founder, Lynn Jurich, and our Chairman and co-founder, Edward Fenster. We also depend on our ability to retain and motivate key employees and attract qualified new employees. Neither our founders nor our key employees are bound by employment agreements for any specific term, and we may be unable to replace key members of our management team and key employees in the event we lose their services. Integrating new employees into our management team could prove disruptive to our operations, require substantial resources and management attention and ultimately prove unsuccessful. An inability to attract and retain sufficient managerial personnel who have critical industry experience and relationships could limit or delay our strategic efforts,all, which could have a material adverse effect on our ~~business,~~ financial condition and results of operations.

We may not realize the anticipated benefits of past or future investments, strategic transactions, or acquisitions, and integration of these acquisitions may disrupt our business and management.

We ~~acquired MEC~~have in ~~February 2014~~the past and ~~Clean Energy Experts, LLC (“CEE”) in April 2015. We~~ may in the future, acquire ~~additional~~ companies, ~~project~~Project pipelines, Projects, SRECs, products, or technologies or enter into joint ventures or other strategic ~~initiatives.~~transactions. For example, we completed the acquisition of Vivint Solar on October 8, 2020. Also, in July 2020, we announced a venture with SK E&S Co., Ltd. and other affiliated companies focused on home electrification. We may not realize the anticipated benefits of past or future investments, strategic transactions, or acquisitions, and ~~any acquisition has~~these transactions involve numerous risks that are not within our control. These risks include the following, among others:

•failure to satisfy the required conditions and otherwise complete a planned acquisition, joint venture or other strategic transaction on a timely basis or at all;

•legal or regulatory proceedings, if any, relating to a planned acquisition, joint venture or other strategic transaction and the outcome of such legal proceedings;

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

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

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

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

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

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

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

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

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

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

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

Our failure to address these risks, or other problems encountered in connection with our past or future investments, strategic transactions, or acquisitions, could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities, and harm our business generally. Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses, incremental expenses or the write-off of goodwill, any of which could harm our financial condition or results of ~~operations.~~operations, and the trading price of our common stock could decline.

Mergers and acquisitions ~~of companies~~ are inherently risky, may not produce the anticipated benefits and could adversely affect our business, financial condition or results of operations.

If we are unsuccessful in developing and maintaining our proprietary technology, including our BrightPath software, our ability to attract and retain solar partners could be impaired, our competitive position could be harmed and our revenue could be reduced.

Our future growth depends on our ability to continue to develop and maintain our proprietary technology that supports our solar service offerings, including our design and proposal software, BrightPath. In addition, we rely, and expect to continue to rely, on licensing agreements with certain third parties for aerial images that allow us to efficiently and effectively analyze a ~~homeowner’s~~customer’s rooftop for solar energy system specifications. In the event that our current or future products require features that we have not developed or licensed, or we lose the benefit of an existing license, we will be required to develop or obtain such technology through purchase, license or other arrangements. If the required technology is not available on commercially reasonable terms, or at all, we may incur additional expenses in an effort to internally develop the required technology. In addition, our BrightPath software was developed, in part, with U.S. federal government funding. When new technologies are developed with U.S. government funding, the government obtains certain rights in any resulting patents, including a nonexclusive license authorizing the government to use the invention for non-commercial purposes. These rights may permit the government to disclose ~~our~~certain confidential information related to BrightPath to third parties and to exercise “march-in” rights to use or allow third parties to use our patented technology. We are also subject to certain reporting and other obligations to the U.S. government in connection with funding for BrightPath. If we ~~were~~are unable to maintain our existing proprietary technology, our ability to attract and retain solar partners could be impaired, our competitive position could be harmed and our revenue could be reduced.

Disruptions to our solar production metering solution could negatively impact our revenue and increase our expenses.

Our ability to monitor solar energy production for various purposes depends on the operation of our metering solution. We could incur significant expense and disruption to our operations in connection with failures of our metering solution, including meter hardware failures and failure or obsolescence of the cellular technology that we use to communicate with those meters. For example, many of our meters operate on either the 3G or 4G cellular data networks, which are expected to sunset before the term of our Customer Agreements, and newer technologies we use today may become obsolete before the end of the term of Customer Agreements entered into now. Upgrading our metering solution may cause us to incur significant expense. Additionally, our meters communicate data through proprietary software, which we license from our metering partners. Should we be unable to continue to license, on agreeable terms, the software necessary to communicate with our meters, it could cause a significant disruption in our business and operations.

Customers who enter into Customer Agreements with us are covered by production guarantees and roof penetration warranties. As the owners of the solar energy systems, we or our investment funds receive a warranty from the inverter and solar panel manufacturers, and, for those solar energy systems that we do not install directly, we receive workmanship and material warranties as well as roof penetration warranties from our solar partners. Furthermore, one or more of our third-party manufacturers or solar partners could cease operations and no longer honor these warranties, leaving us to fulfill these potential obligations to customers, or such warranties may be limited in scope and amount, and may be inadequate to protect us. We also provide a performance guarantee with certain solar service offerings pursuant to which we compensate customers on an annual basis if their system does not meet the electricity production guarantees set forth in their agreement with us. Customers who enter into Customer Agreements with us are covered by production guarantees equal to the length of the term of these agreements, typically 20 or 25 years. We may suffer financial losses associated if significant performance guarantee payments are triggered.

Because of our limited operating history and the length of the term of our Customer Agreements, 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 customers 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.

Our business may be harmed if we fail to properly protect our intellectual property, and we may also be required to defend against claims or indemnify others against claims that our intellectual property infringes on the intellectual property rights of third parties.

We believe that the success of our business depends in part on our proprietary technology, including our software, information, processes and know-how. We rely on copyright, trade secret and patent protections to secure our intellectual property rights. Although we may incur substantial costs in protecting our technology, we cannot be certain that we have adequately protected or will be able to adequately protect it, that our competitors will not be able to utilize our existing technology or develop similar technology independently, that the claims allowed with respect to any patents held by us will be broad enough to protect our technology or that foreign intellectual property laws will adequately protect our intellectual property rights. Moreover, we cannot be certain that our patents provide us with a competitive advantage. Despite our precautions, it may be possible for third parties to obtain and use our intellectual property without our consent. Unauthorized use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property rights, may adversely affect our business. In the future, some of our products could be alleged to infringe existing patents or other intellectual property of third parties, and we cannot be certain that we will prevail in any intellectual property dispute. In addition, any future litigation required to enforce our patents, to protect our trade secrets or know-how or to defend us or indemnify others against claimed infringement of the rights of third parties could harm our business, financial condition, and results of operations.

The Office of the Inspector General of the U.S. Department of the 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 the 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 the 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.

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.

We are involved in legal proceedings and receive inquiries from government and regulatory agencies. For example, in addition to the pending U.S. Department of the Treasury investigation discussed above, in connection with its review of the Department of Treasury’s Section 1603 program, which allows taxpayers to receive cash grants for certain qualified renewable energy projects, the United States Senate Committee on Finance and the House Committee on Ways and Means sent us an inquiry regarding our use of solar energy incentives, third-party financing, and methods of determining cost basis for solar energy properties, to which we have responded. 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 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 significant 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.

If we are not successful in our legal proceedings and litigation, we may be required to pay significant monetary damages, which could hurt our results of operations. Lawsuits are time-consuming and expensive to resolve and divert management’s time and attention. Although we carry general liability insurance, our insurance may not cover potential claims or may not be adequate to indemnify us for all liability that may be imposed. We cannot predict how the courts will rule in any potential lawsuit against us. Decisions in favor of parties that bring lawsuits against us could subject us to significant liability for damages, adversely affect our results of operations and harm our reputation.

A failure to comply with laws and regulations relating to our interactions with current or prospective residential customers could result in negative publicity, claims, investigations, and litigation, and adversely affect our financial performance.

Our business involves transactions with homeowners. We must comply with numerous federal, state and local laws and regulations that govern matters relating to our interactions with homeowners, including those pertaining to privacy and data security, consumer financial and credit transactions, home improvement contracts, warranties and direct-to-home solicitation. These laws and regulations are dynamic and subject to potentially differing interpretations, and various federal, state and local legislative and regulatory bodies may expand current laws or regulations, or enact new laws and regulations, regarding these matters. Changes in these laws or regulations or their interpretation could dramatically affect how we do business, acquire customers, and manage and use information we collect from and about current and prospective customers and the costs associated therewith. We strive to comply with all applicable laws and regulations relating to our interactions with residential customers. It is possible, however, that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Our noncompliance with any such laws 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.

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.

The installation of solar energy systems requires our employees and employees of our solar partners to work with complicated and potentially dangerous electrical systems. The evaluation and installation of our energy-related products require these employees to work in locations that may contain potentially dangerous levels of asbestos, lead or mold or other substances. We also maintain large fleets of vehicles that these employees use in the course of their work. There is substantial risk of serious injury or death if proper safety procedures are not followed. Our operations are subject to regulation under the U.S. Occupational Safety and Health Act (“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.

~~We are exposed to the credit risk of homeowners and payment delinquencies on our accounts receivables.~~

Our Customer Agreements are typically for 20 years and require the homeowner to make monthly payments to us. Accordingly, we are subject to the credit risk of homeowners. As of September 30, 2017, the average FICO score of our customers under a lease or power purchase agreement with 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.

Obtaining a sales 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 results of operations.

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 have incurred significant expense and generated no revenue.

~~The requirements of being a public company may strain our resources, divert management’s attention and 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. Although we have already hired additional employees to comply with these requirements, we may need to hire more employees in the future, which will increase our costs and expenses.

We use “open source” software in our solutions, which may require that we release the source code of certain software subject to open source licenses or subject us to possible litigation or other actions that could adversely affect our business.

We utilize software that is licensed under so-called “open source,” “free” or other similar licenses. Open source software is made available to the general public on an “as-is” basis under the terms of a non-negotiable license. We currently combine our proprietary software with open source software but not in a manner that we believe requires the release of the source code of our proprietary software to the public. However, our use of open source software may entail greater risks than use of third-party commercial software. Open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code. In addition, if we combine our proprietary software with open source software in a certain manner, we could, under certain open source licenses, be required to release the source code of our proprietary software to the public. This would allow our competitors to create similar offerings with lower development effort and time.

We may also face claims alleging noncompliance with open source license terms or infringement or misappropriation of proprietary software. These claims could result in litigation, require us to purchase a costly license or require us to devote additional research and development resources to change our software, any of which would have a negative effect on our business and results of operations. In addition, if the license terms for open source software that we use change, we may be forced to re-engineer our solutions, incur additional costs or discontinue the use of these solutions if re-engineering cannot be accomplished on a timely basis. Although we monitor our use of open source software to avoid subjecting our offerings to unintended conditions, few courts have interpreted open source licenses, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to use our proprietary software. We cannot guarantee that we have incorporated or will incorporate open source software in our software in a manner that will not subject us to liability or in a manner that is consistent with our current policies and procedures.

Any security breach or unauthorized disclosure or theft of personal information we gather, store and use, or other hacking and phishing attacks on our systems, could harm our reputation, ~~and~~ subject us to claims or ~~litigation.~~litigation, and have an adverse impact on our business.

We receive, store and use personal information of ~~homeowners,~~customers, including names, addresses, e-mail addresses, credit information and other housing and energy use 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. In 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 the personal information in our possession, has resulted in, and could result in future claims or litigation arising from damages suffered by 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 disclosure of such information could harm our reputation, substantially impair our ability to attract and retain ~~homeowners~~customers and have an adverse impact on our business.

While we currently maintain cybersecurity insurance, such insurance may not be sufficient to cover us against claims, and we cannot be certain that cyber insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.

Our business is subject to complex and evolving laws and regulations regarding privacy and data protection (“data protection laws”). Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, increased cost of operations, or otherwise harm our business.

The regulatory environment surrounding data privacy and protection is constantly evolving and can be subject to significant change. New data protection laws, including recent California legislation and regulation which affords California consumers an array of new rights, including the right to be informed about what kinds of personal data companies have collected and why it was collected, pose increasingly complex compliance challenges and potentially elevate our costs. Complying with varying jurisdictional requirements could increase the costs and complexity of compliance, and violations of applicable data protection laws could result in significant penalties. Any failure, or perceived failure, by us to comply with applicable data protection laws could result in proceedings or actions brought against us by governmental entities or others, subject us to significant fines, penalties, judgments and negative publicity, require us to change our business practices, increase the costs and complexity of compliance, and adversely affect our business.

Damage to our brand and reputation or failure to expand our brand would harm our business and results of operations.

We depend significantly on our brand and reputation for high-quality solar service offerings, engineering and customer service to attract customers and grow our business. If we fail to continue to deliver our solar service offerings within the planned timelines, if our solar service offerings do not perform as anticipated or if we damage any customers’ properties or cancel Projects, our brand and reputation could be significantly impaired. We also depend greatly on referrals from customers for our growth. Therefore, our inability to meet or exceed customers’ expectations would harm our reputation and growth through referrals. We 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 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 limit potential issues and maintain appropriate customer service levels, our brand and reputation may be harmed and our ability to grow our business would suffer. In addition, if we were unable to achieve a similar level of brand recognition as our competitors, some of which may have a broader brand footprint, 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 revenue. We cannot assure you that such marketing and branding expenses will result in the successful expansion of our brand recognition or increase our revenue. We are also subject to marketing and advertising regulations in various jurisdictions, and overly restrictive conditions on our marketing and advertising activities may inhibit the sales of the affected products.

A failure to hire and retain a sufficient number of employees and service providers in key functions would constrain our growth and our ability to timely complete customers’ Projects and successfully manage customer accounts.

To support our growth, we need to hire, train, deploy, manage and retain a substantial number of skilled employees, engineers, installers, electricians, sales and project finance specialists. Competition for qualified personnel in our industry is increasing, particularly for skilled personnel involved in the installation of solar energy systems. We have in the past been, and may in the future be, unable to attract or retain qualified and skilled installation personnel or installation companies to be our solar partners, which would have an adverse effect on our business. We and our solar partners also compete with the homebuilding and construction industries for skilled labor. As these industries grow and seek to hire additional workers, our cost of labor may increase. The unionization of the industry’s labor force could also increase our labor costs. Shortages of skilled labor could significantly delay a project or otherwise increase our costs. Because our profit on a particular installation is based in part on assumptions as to the cost of such project, cost overruns, delays or other execution issues may cause us to not achieve our expected margins or cover our costs for that project. In addition, because we are headquartered in the San Francisco Bay Area, we compete for a limited pool of technical and engineering resources that requires us to pay wages that are competitive with relatively high regional standards for employees in these fields. Further, we need to continue to expand upon the training of our customer service team to provide high-end account management and service to customers before, during and following the point of installation of our solar energy systems. Identifying and recruiting qualified personnel and training them requires significant time, expense and attention. It can take several months before a new customer service team member is fully trained and productive at the standards that we have established. If we are unable to hire, develop and retain talented technical and customer service personnel, we may not be able to realize the expected benefits of this investment or grow our business.

If we or our solar partners cannot meet our hiring, retention and efficiency goals, we may be unable to complete customers’ Projects on time or manage customer 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.

Regulators may limit the type of electricians qualified to install and service our solar and storage systems in California, which may result in workforce shortages, operational delays, and increased costs.

On July 27, 2021, the California Contractors State License Board (CSLB) decided that, effective October 25, 2021, only electricians with a certain license (C-10) will be eligible to install energy storage systems in California (the “CSLB Decision”). This represents a deviation from the CSLB’s long standing policy of allowing electrical workers operating under a different license (C-46) to install and service energy storage systems. (The CSLB Decision would not restrict C-46 certified workers from installing solar-only systems that do not include a battery storage system.) The CSLB Decision also requires that storage projects now requiring a C-10 license include “certified electricians” on-site.

While our workforce includes workers operating under both C-10 and C-46 licenses in California, there are a limited number of C-10 certified electricians in the state, which may result in workforce shortages, operational delays, and increased costs if the CSLB Decision stands. Obtaining a C-10 license can be an extended process, and the timing and cost of having a large number of our C-46 licensed electricians seek such additional qualification is unclear.

A significant portion of our customer base is in California, and as the state deals with growing wildfire risk and grid instability, an increasing number of our customers are choosing our solar and storage offerings. If we are unable to hire, develop and retain sufficient certified electricians, our growth of solar and storage customers in California may be significantly constrained, which would negatively impact our operating results.

It is anticipated that the California Solar and Storage Association (CALSSA) will seek to appeal or delay the CSLB Decision; however, such challenges may be unsuccessful. Our workforce has led the industry in safely installing solar and storage systems for tens of thousands of customers across the country, and we intend to work with regulators, industry partners, and stakeholders to grow the solar and storage market throughout California.

The loss of one or more members of our senior management or key employees may adversely affect our ability to implement our strategy.

We depend on our experienced management team, and the loss of one or more key executives could have a negative impact on our business. On August 5, 2021, we announced that Ms. Jurich will be transitioning from her role as our Chief Executive Officer to the role of Co-Executive Chair and that Mary Powell will become our new Chief Executive Officer effective as of August 31, 2021. Our future success depends in part on successfully transitioning Ms. Powell into her new role. With any change in leadership, there is a risk to organizational effectiveness and employee retention as well as the potential for disruption to our business. None of our key executives or our key employees are bound by employment agreements for any specific term, and we may be unable to replace key members of our management team and key employees in the event we lose their services. Integrating new employees into our management team could prove disruptive to our operations, require substantial resources and management attention and ultimately prove unsuccessful. An inability to attract and retain sufficient managerial personnel who have critical industry experience and relationships could limit or delay our strategic efforts, which could have a material adverse effect on our business, financial condition, and results of operations.

We are subject to legal proceedings, regulatory inquiries and litigation, and we have previously been, and may in the future 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.

We are involved in legal proceedings and receive inquiries from government and regulatory agencies from time to time. 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-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 significant 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.

Our business involves transactions with customers. We and our solar partners must comply with numerous federal, state and local laws and regulations that govern matters relating to our interactions with customers, including those pertaining to privacy and data security, consumer financial and credit transactions, home improvement contracts, warranties and direct-to-home solicitation, along with certain rules and regulations specific to the marketing and sale of residential solar products and services. These laws and regulations are dynamic and subject to potentially differing interpretations, and various federal, state and local legislative and regulatory bodies may expand current laws or regulations, or enact new laws and regulations, regarding these matters. Changes in these laws or regulations or their interpretation could dramatically affect how we do business, acquire customers, and manage and use information we collect from and about current and prospective customers and the costs associated therewith. We strive to comply with all applicable laws and regulations relating to our interactions with residential customers. It is possible, however, that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Noncompliance with any such laws 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.

Any investigations, actions, adoption or amendment of regulations relating to the marketing of our products to residential consumers could divert management’s attention from our business, 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 or could reduce the number of our potential customers.

We cannot ensure that our sales professionals and other personnel will always comply with our standard practices and policies, as well as applicable laws and regulations. In any of the numerous interactions between our sales professionals or other personnel and our customers or potential customers, our sales professionals or other personnel may, without our knowledge and despite our efforts to effectively train them and enforce compliance, engage in conduct that is or may be prohibited under our standard practices and policies and applicable laws and regulations. Any such non-compliance, or the perception of non-compliance, has exposed us to claims and could expose us to additional claims, proceedings, litigation, investigations, or enforcement actions by private parties or regulatory authorities, as well as substantial fines and negative publicity, each of which may materially and adversely affect our business and reputation. We have incurred, and will continue to incur, significant expenses to comply with the laws, regulations and industry standards that apply to us.

The installation of solar energy systems requires our employees and employees of our solar partners to work with complicated and potentially dangerous electrical and utility systems. The evaluation and installation of our energy-related products also require these employees to work in locations that may contain potentially dangerous levels of asbestos, lead or mold or other substances. We also maintain large fleets of vehicles that these employees use in the course of their work. There is substantial risk of serious illness, injury, or death if proper safety procedures

are not followed. Our operations are subject to regulation under the U.S. Occupational Safety and Health Act ("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 illness, 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, illnesses, 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.

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.

Our success and ability to compete are dependent on the products ~~which~~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 as 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 continue 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 innovative 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.

If we fail to manage our recent and future growth effectively, we may be unable to execute our business plan, maintain high levels of customer service, or adequately address competitive challenges.

We have experienced significant growth in recent periods, including as a result of our recent acquisition of Vivint Solar, and we intend to continue to expand our business within existing markets and in a number of new locations in the future. This growth has placed, and any future growth may continue to place, a significant strain on our management, operational and financial infrastructure. In particular, we have been in the past, and may in the future, 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 customers, suppliers, and other third parties and attract new customers and suppliers, as well as to manage multiple geographic locations.

In addition, our current and planned operations, personnel, systems and procedures might be inadequate to support our future growth and may require us to make additional unanticipated investment in our infrastructure, including additional costs for the expansion of our employee base and our solar partners as well as marketing and branding costs. 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 customer 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.

It is difficult to evaluate our business and prospects due to our limited operating history.

Our limited operating history, particularly as a publicly traded company, combined with the rapidly evolving and competitive nature of our industry, may not provide an adequate basis for you to evaluate our results of operations and business prospects. We cannot assure you that we will continue to be successful in generating revenue from our current solar service offerings or from any additional solar service offerings we may introduce in the future. In addition, we only have limited insight into emerging trends, such as alternative energy sources, commodity prices in the overall energy market, and legal and regulatory changes that impact the solar industry, any of which could adversely impact our business, prospects and results of operations.

We have incurred losses and may be unable to sustain profitability in the future.

We have incurred net losses in the past and may continue to incur net losses as we increase our spending to finance the expansion of our operations, expand our installation, engineering, administrative, sales and marketing staffs, increase spending on our brand awareness and other sales and marketing initiatives, make significant investments to drive future growth in our business and implement internal systems and infrastructure to support our growth. We do not know whether our revenue will grow rapidly enough to absorb these costs and our limited operating history makes it difficult to assess the extent of these expenses or their impact on our results of operations. Our ability to sustain profitability depends on a number of factors, including but not limited to:

•mitigating the impact of the COVID-19 pandemic on our business;

•growing our customer base;

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

•maintaining or further lowering our cost of capital;

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

•growing and maintaining our channel partner network;

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

•successfully integrating the Vivint Solar business;

•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.

Even if we do sustain profitability, we may be unable to achieve positive cash flows from operations in the future.

Our quarterly results of operations are difficult to predict and may fluctuate significantly in the future. We have experienced seasonal and quarterly fluctuations in the past and expect these fluctuations to continue. However, given that we are operating in a rapidly changing industry, those fluctuations may be masked by our recent growth rates and thus may not be readily apparent from our historical results of operations. As such, our past quarterly results of operations may not be good indicators of likely future performance.

In addition to the other risks described in this “Risk Factors” section, as well as the factors discussed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section, the following factors, among others, could cause our results of operations and key performance indicators to fluctuate:

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

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

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

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

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

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

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

•changes in regulatory policy related to solar energy generation;

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

•our failure to successfully integrate the Vivint Solar business;

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

•actual or anticipated changes in our growth rate;

•general economic, industry and market conditions, including as a result of the COVID-19 pandemic; and

•changes to our cancellation rate.

In the past, we have experienced seasonal fluctuations in sales and installations, particularly in the fourth quarter. This has been the result of decreased sales through the holiday season and weather-related installation delays. Our incentives revenue is also highly variable due to associated revenue recognition rules, as discussed in greater detail in Management's Discussion and Analysis of Financial Condition and Results of Operations. Seasonal and other factors may also contribute to variability in our sales of solar energy systems and product sales. For these or other reasons, the results of any prior quarterly or annual periods should not be relied upon as indications of our future performance. In addition, our actual revenue or key operating metrics in one or more future quarters may fall short of the expectations of investors and financial analysts. If that occurs, the trading price of our common stock could decline and you could lose part or all of your investment.

Our actual financial results may differ materially from any guidance we may publish from time to time.

We have in the past provided, and may from time to time provide, guidance regarding our future performance that represents our management’s estimates as of the date such guidance is provided. Any such guidance is based upon a number of assumptions with respect to future business decisions (some of which may change) and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic, and competitive uncertainties and contingencies (many of which are beyond our control, including those related to the COVID-19 pandemic). Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions that inform such guidance will not materialize or will vary significantly from actual results. Our ability to meet deployment volume, cost, net present value or any other forward-looking guidance is impacted by a number of factors including, but not limited to, the number of our solar energy systems purchased outright versus the number of our solar energy systems that are subject to long-term Customer Agreements, changes in installation costs, the availability of additional financing on acceptable terms, changes in the retail prices of traditional utility generated electricity, the availability of rebates, tax credits and other incentives, changes in policies and regulations including net metering and interconnection limits or caps, the availability of solar panels and other raw materials, as

well as the other risks to our business that are described in this section. Accordingly, our guidance is only an estimate of what management believes is realizable as of the date such guidance is provided. Actual results may vary from such guidance and the variations may be material. Investors should also recognize that the reliability of any forecasted financial data diminishes the farther in the future that the data is forecast. In light of the foregoing, investors should not place undue reliance on our financial guidance, and should carefully consider any guidance we may publish in context.

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members and officers.

We are ~~obligated~~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 ~~proper~~effective disclosure controls and ~~effective~~procedures and internal controls over financial reporting. ~~We may not complete~~Maintaining our ~~analysis of our~~disclosure controls and procedures and internal controls over financial reporting in accordance with this standard requires significant resources and management oversight. As a ~~timely manner,~~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 future, which will increase our costs and expenses.

Risks Related to Taxes and Accounting

Our ability to provide our solar service offerings to customers on an economically viable basis depends in part on our ability to finance these systems with fund investors who seek particular tax and other benefits.

Our solar service offerings have been eligible for federal investment tax credits, U.S. Treasury grants, and other tax benefits. We have relied on, and will continue to rely on, tax equity investment funds, which are financing structures that monetize a substantial portion of those benefits, in order to finance our solar service offerings. If, for any reason, we are unable to continue to monetize those benefits through these arrangements, we may be unable to provide and maintain our solar service offerings for customers on an economically viable basis.

The availability of this tax-advantaged financing depends upon many factors, including:

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

•the state of financial and credit markets;

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

•legislative or regulatory changes or decreases to these incentives including the anticipated step-down of the Commercial ITC (described below).

The federal government currently offers an investment tax credit (“Commercial ITC”) under Section 48(a) of the Internal Revenue Code of 1986, as amended (the “Code”), for the installation of certain solar power facilities owned for business purposes. If construction on the facility began before January 1, 2020, the amount of the Commercial ITC available is 30%, if construction began during 2020, 2021, or 2022, the amount of the Commercial ITC available is 26%, and if construction begins during 2023, the amount of the Commercial ITC available is 22%. The Commercial ITC steps down to 10% if construction of the facility begins after December 31, 2023 or if the facility is not placed in service before January 1, 2026. The depreciable basis of a solar facility is also reduced by 50% of the amount of any Commercial ITC claimed. The Internal Revenue Service (the “IRS”) provided taxpayers guidance in Notice 2018-59 for determining when construction has begun on a solar facility. This guidance is relevant for any facilities which we seek to deploy in future years but take advantage of a higher tax credit rate available for an earlier year. For example, we have sought to avail ourselves of the methods set forth in the guidance to retain the 30% Commercial ITC that was available prior to January 1, 2020 by incurring certain costs

and taking title to equipment in 2019 or early 2020 and/or by performing physical work on components that will be installed in solar facilities. From and after 2023, we may seek to avail ourselves of the 26% credit rate by using these methods to establish the beginning of construction in 2020, 2021, or 2022 and we may plan to similarly further utilize the program in future years if the Commercial ITC step down continues. While we have attempted to ensure that these transactions will comply with the guidance issued by the IRS, this guidance is relatively limited and potentially subject to change. Either the IRS or our financing partners could challenge whether a facility is properly qualified for the relevant tax credit rate under the guidance, which could either result in lower tax equity advances or trigger indemnification obligations to our tax equity investors. It is also possible that we will not be able to use all of the equipment purchased or manufactured to satisfy the beginning of construction rules set forth in the guidance.

The federal government also currently offers a personal income tax credit under Section 25D of the Code (“Residential Energy Efficiency Tax Credit”), for the installation of certain solar power facilities owned by residential taxpayers, which is applicable to customers who purchase a solar energy system outright as opposed to entering into a Customer Agreement. The Residential Energy Efficiency Tax Credit is currently 26% if the facility is placed in service during 2020, 2021, or 2022, and 22% if placed in service during 2023. The Residential Energy Efficiency Tax Credit is not available for property placed in service after December 31, 2023.

Future reductions in the Commercial ITC and any further legislative reductions or changes to the Commercial ITC may impact the attractiveness of solar energy to certain tax equity investors and could potentially harm our business.Obtaining tax equity funding (and tax equity funding on advantageous terms) also may become more challenging. Additionally, the benefits of the Commercial ITC have historically enhanced our ability to provide competitive pricing for customers. Further reductions in, eliminations of, or expirations of, governmental incentives such as the Residential Energy Efficiency Tax Credit could reduce the number of customers who choose to purchase our solar energy systems.

Additionally, potential investors must remain satisfied that the structures that we offer make the tax benefits associated with solar energy systems available to these investors, which depends on the investors’ assessment of the tax law, the absence of any unfavorable interpretations of that law 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 IRS and/or the courts could reduce the willingness of investors to invest in funds associated with these solar energy systems. Moreover, reductions to the corporate tax rate may have reduced the appetite for tax benefits overall, which could reduce the pool of available funds. 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 become available, but 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 are unable to finance our solar service offerings through tax-advantaged structures or if we are 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 customers on an economically viable basis, which would have a material adverse effect on our business, financial condition, and results of operations.

If the IRS 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. 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 may also subsequently audit the fair market value and determine that amounts previously awarded 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 what we or our tax equity investment funds reported, we may owe our fund investors an amount equal to this difference (including any interest and penalties), 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 further disagrees now or in the future with the amounts we or our tax equity investment funds reported regarding the fair market value of our solar energy systems, it could have a material adverse effect on our business, financial condition, and prospects.

We have purchased insurance policies insuring us and related parties for additional taxes owed in respect of lost Commercial ITCs, gross-up costs and expenses incurred in defending the types of claims described above. However, these policies only cover certain investment funds and have negotiated exclusions from, and limitations to, coverage and therefore may not cover us for all such lost Commercial ITCs, taxes, costs and expenses.

One of our investment funds covered by our 2018 insurance policy is currently being audited by the IRS in an audit involving a review of the fair market value determination of our solar energy systems. If this audit results in an adverse determination, we may be subject to an indemnity obligation to our investor, which may result in certain out-of-pocket costs and increased insurance premiums in the future. The IRS audit is still ongoing, and we are unable to determine the potential tax liabilities, if any, at this time.

Our business currently depends on the availability of utility rebates, tax credits and other benefits, tax exemptions and exclusions and other financial incentives. We may be adversely affected by changes in U.S. tax laws, and the expiration, elimination or reduction of these benefits could adversely impact our business.

Our business depends on government policies that promote and support solar energy and enhance the economic viability of owning solar energy systems. U.S. federal, state and local governmental bodies provide incentives to owners, distributors, installers and manufacturers of solar energy systems to promote solar energy. These incentives include Commercial ITCs and Residential Energy Efficiency Tax Credit, as discussed above, as well as other tax credits, rebates and solar renewable energy credits (“SRECs”) associated with solar energy generation. Some markets, such as New Jersey and Maryland, currently utilize SRECs. SRECs can be volatile and could decrease over time as the supply of SREC-producing solar energy systems installed in a particular market increases. For example, in New Jersey, because of the substantial supply of solar energy systems installed, the state was on the cusp of reaching the solar carve-out under the state’s Renewable Portfolio Standard. In May 2018, legislation was enacted to expand New Jersey’s solar carve-out to 5.1% of kilowatt hours of electricity sold in the state. In December 2019, the state regulators adopted a transition program to follow the current SREC program that will be based on a fixed price SREC model and which is anticipated to be available to replace the current SREC program.We rely on these incentives to lower our cost of capital and to attract investors, all of which enable us to lower the price we charge customers for our solar service offerings. These incentives have had a significant impact on the development of solar energy but they could change at any time, especially in light of the recent change in administration, as further described below. These incentives may also expire on a particular date (as discussed above with respect to the Commercial ITC and Residential Energy Efficiency Tax Credit), end when the allocated funding is exhausted, or be reduced, terminated or repealed without notice. The financial value of certain incentives may also decrease over time.

In December 2017, significant tax legislation was enacted, including a change to the corporate tax rate (the “Tax Act”). As part of the Tax Act, the current corporate income tax rate was reduced, and there were other changes including limiting or eliminating various other deductions, credits and tax preferences. This reduction in the corporate income tax rate may have reduced appetite for the Commercial ITC and depreciation benefits available with respect to solar facilities. We cannot predict whether and to what extent U.S. the corporate income tax rate will change under the Biden administration. Further limitations on, or elimination of, such tax benefits could significantly impact our ability to raise tax equity investment funds or impact the terms thereof, including the amount of cash distributable to our investors. Similarly, any unfavorable interpretations of tax law by the IRS and/or the courts with respect to our financing structures could reduce the willingness of investors to invest in our funds associated with any such structure.

Any effort to overturn federal and state laws, regulations or policies that are supportive of solar energy generation or that remove costs or other limitations on other types of energy generation that compete with solar energy projects could materially and adversely affect our business.

Our business model also relies on multiple tax exemptions offered at the state and local levels. For example, some states have property tax exemptions that exempt the value of solar energy systems in determining values for calculation of local and state real and personal property taxes. State and local tax exemptions can have sunset dates, triggers for loss of the exemption, and can be changed by state legislatures and other regulators, and if solar energy systems were not exempt from such taxes, the property taxes payable by customers would be higher, which could offset any potential savings our solar service offerings could offer. Similarly, if state or local legislatures or tax administrators impose property taxes on third-party owners of solar energy systems, solar companies like us would

be subject to higher costs. In Connecticut, a number of municipalities have assessed property tax on third-party-owned solar energy systems, despite an applicable exemption under state law. California provides an exclusion (the “Solar Exclusion”) from the assessment of California property taxes for qualifying “active solar energy systems” installed as fixtures before January 1, 2025, provided such systems are locally rather than centrally assessed (“Eligible Property”). However, the Solar Exclusion is not a permanent exclusion from the assessment of property tax. Once a change in ownership of the Eligible Property occurs, the Eligible Property may be subject to reassessment and California property taxes may become due.

In general, we rely on certain state and local tax exemptions that apply to the sale of equipment, sale of power, or both. These state and local tax exemptions can expire or can be changed by state legislatures, regulators, tax administrators, or court rulings and such changes could adversely impact our business and the profitability of our offerings in certain markets.

As a result of our acquisition of Vivint Solar, we may be subject to adverse California property tax consequences.

The State of California provides an exclusion (the “Solar Exclusion”) from the assessment of California property taxes for qualifying “active solar energy systems” installed as fixtures before January 1, 2025, provided such systems are locally rather than centrally assessed (“Eligible Property”). However, the Solar Exclusion is not a permanent exclusion from the assessment of property tax. Once a change in ownership of the Eligible Property occurs, the Eligible Property may be subject to reassessment and California property taxes may become due.

Vivint Solar, through certain of its subsidiaries, owns solar energy systems that constitute Eligible Property (the “California PV Systems”). To the extent Vivint Solar or its subsidiaries are considered the tax owners of the California PV Systems for purposes of the California Revenue and Tax Code (“CR&T”), our acquisition of Vivint Solar would constitute a change of control of the California PV Systems triggering the loss of the Solar Exclusion and the imposition of California property taxes, which could adversely affect our business.

If we are unable to maintain effective disclosure controls and internal controls over financial reporting, investors may ~~not be determined to be effective, which may adversely affect investor~~lose confidence in the accuracy and completeness of our ~~company~~financial reports and, as a result, the value of our common ~~stock.~~stock may be materially and adversely affected.

We are required, pursuant to the Exchange Act, to furnish a report by management on, among other things, the effectiveness of our internal controls over financial reporting. This assessment ~~will need to include~~includes disclosure of any material weaknesses, if any, identified by our management in our internal controls over financial reporting. ~~When~~We are continuing to develop and refine our disclosure controls and improve our internal controls over financial reporting.We have expended, and anticipate that we ~~are no longer an emerging growth company,~~will continue to expend, significant resources in order to maintain and continuously look for ways to enhance existing effective disclosure controls and procedures and internal controls over financial reporting.Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our ~~management report on~~business, including the integration of Vivint Solar, which presents additional complexities relating to the design and implementation of our disclosure controls and internal control over financial ~~reporting will need to be attested to by~~reporting. In addition, we or our independent ~~registered public~~ accounting ~~firm.~~firm may identify weaknesses and deficiencies that we may not otherwise identify in a timely manner in the future. If we are not able to complete the work required under Section 404 of the Sarbanes-Oxley Act on a timely basis for future fiscal years, our annual report on Form 10-K may be 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.

We 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 consolidated financial statements may be materially misstated. In addition, we cannot guarantee that our internal ~~control~~controls 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 net income (loss) between our stockholders and noncontrolling interests under the hypothetical liquidation at book value (“HLBV”) method as well as the income tax consequences of these fund structures. As we enter into additional investment funds, which may have contractual provisions different from those of our existing funds, the analysis as to whether we consolidate these funds, the calculation under the HLBV method, and the analysis of the tax impact could become increasingly complicated. This additional complexity could require us to hire additional resources and increase the chance that we experience errors in the future.

Historically, in connection with the audits of our consolidated financial statements for the years ended December 31, 2013 and 2012, we identified material weaknesses in our internal control over financial reporting relating to certain aspects of our financial statement close process 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

~~will not be prevented or detected on a timely basis. These material weaknesses resulted from an aggregation of deficiencies.~~

In addition, 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 resulted in the restatement of our 2012 consolidated financial statements. Subsequent to the quarter ended March 31, 2015, we also identified and corrected an immaterial error related to the accounting for taxes on intercompany transactions.

While we were able to determine in our management's report for fiscal 2016 that our internal control over financial reporting is effective, we may not be able to complete our evaluation, testing and any required remediation in a timely fashion in future fiscal years. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting that we are unable to remediate before the end of the same fiscal year in which the material weakness is identified, we will be unable to assert that our internal controls are effective. If we are unable to assert that our internal ~~control~~controls over financial reporting is effective, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline. In addition, we could become subject to investigations by ~~the NASDAQ Stock Market,~~Nasdaq, the SEC or other regulatory authorities, which could require additional management attention and which could adversely affect our business.

Our reported financial results may be ~~adversely~~ affected, and comparability of our financial results with other companies in our industry may be impacted, by changes in ~~U.S. tax laws.~~the accounting principles generally accepted in the United States.

~~Congress~~

Generally accepted accounting principles in the United States are subject to change and interpretation by the Financial Accounting Standards Board (“FASB"), the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results and on the financial results of other companies in our industry, and may even affect the reporting of transactions completed before the announcement or effectiveness of a change. For example, in June 2016 the FASB issued Accounting Standards Update No. 2016-13, Measurement of Credit Losses on Financial Instruments ("ASU No. 2016-13"), which replaces the current ~~administration have indicated~~incurred loss impairment methodology with a ~~desire to reform the U.S. corporate income tax. As part of any tax reform, it is possible that the~~ current ~~corporate income tax rate~~expected credit losses model. Other companies in our industry may be ~~reduced, and there may be~~affected differently by the adoption of ASU No. 2016-13 or other ~~potential changes~~new accounting standards, including ~~limiting or eliminating various other deductions, credits or tax preferences. A reduction in~~timing of the ~~corporate income tax rate could reduce~~adoption of new accounting standards, adversely affecting the ~~value~~comparability of certain benefits, such as depreciation, and reduce capacity for other benefits, such as tax credits. Limitations on, or elimination of, such tax benefits could significantly impact our ability to raise tax equity investment funds or impact the terms thereof, including the amount of cash distributable to third parties. At this time, it is not possible to measure the potential impact on our tax equity investment funds, the value of our deferred tax assets, business, prospects or results of operations that might result upon enactment.financial statements.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

As of December 31, ~~2016,~~2020, we had U.S. federal ~~net operating loss carryforwards of approximately $571.0 million~~ and state net operating loss carryforwards (“NOLs”) of approximately ~~$524.9 million,~~$0.7 billion and $2.1 billion, respectively, which begin expiring in varying amounts in 2028 and 2024, respectively, if unused. Our U.S. federal and certain state NOLs generated in tax years beginning after December 31, 2017 total approximately $1.1 billion and $176.3 million, respectively, have indefinite carryover periods, and do not expire. 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~~NOLs and other pre-change tax ~~attributes,~~assets, such as ~~research~~ tax credits, to offset its ~~post-change~~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. Additionally, states may impose other limitations on the use of NOLs and tax credit carryforwards. For example, California has recently imposed other limitations on the use of NOLs and limited the use of certain tax credits for taxable years beginning in 2020 through 2022. Any such limitations on our ability to use our ~~net operating loss carryforwards~~NOLs and other tax assets could adversely impact our business, financial condition, and results of operations. We have performed an analysis to determine whether an ownership change under Section 382 of the Code had occurred and determined that only Vivint Solar, Inc. underwent an ownership change as of October 8, 2020.

We may be required to record ~~a charge to earnings if~~an impairment expense on our goodwill or intangible ~~assets become impaired.~~assets.

We are required under generally accepted accounting principles to test goodwill for impairment at least annually or when events or changes in circumstances indicate that the carrying amount may be impaired, and to review our intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that can lead to impairment of goodwill and intangible assets include significant adverse changes in the business climate and actual or projected operating results, declines in the financial condition of our business and sustained decrease in our stock price. AsSince our annual impairment test of goodwill for the fiscal year ended December 31, ~~2016, our market capitalization did~~2020, we have not ~~exceed our carrying value and we performed~~identified any qualitative factors that would require a ~~step 1 analysis in accordance with ASU 350~~ ~~Intangibles – Goodwill and Other~~ ~~and determined that our fair value exceeded our carrying value and thus we did not have an~~quantitative goodwill impairment ~~related to our goodwill.~~analysis. However, if we identify any factors that could indicate an impairment, including a sustained decrease in our stock price, we may be required to record charges to earnings if our goodwill becomes impaired.

Risks Related to Ownership of Our Common Stock

Our executive officers, directors and principal stockholders continue to have substantial control over us, which will limit your ability to influence the outcome of important matters, including a change in control.

Each of our executive officers, directors and each of our stockholders who beneficially own 5% or more of our outstanding common stock and their affiliates, in the aggregate, beneficially own approximately ~~48.9%~~39.2% of the outstanding shares of our common stock, based on the number of shares outstanding as of ~~September~~June 30, ~~2017.~~2021. 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.

The market price of our common stock has been and may continue to be volatile, and you could lose all or part of your ~~investment.~~investment in our common stock.

The trading price of our common stock has been volatile since our initial public offering, and is likely to continue to be volatile. Factors that could cause fluctuations in the market price of our common stock include the following:

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

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

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

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

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

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

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

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

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

•actual or anticipated changes in our results of operations;

•the continued adverse impact of the COVID-19 pandemic;

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

•actual or perceived privacy or data security incidents;

•our ability to protect our intellectual property and other proprietary rights;

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

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

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

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

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

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

•major catastrophic events or civil unrest;

•negative publicity, including accurate or inaccurate commentary or reports regarding us, our products, our sales professionals or other personnel, or other third parties affiliated with us, on social media platforms, blogs, and other websites;

•any significant change in our management; and

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

Further, ~~in recent years~~ the stock markets have experienced ~~extreme~~ 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, the stock prices of many renewable energy companies have experienced ~~wide~~ 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~~trading price of the notes and 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. We are party to litigation ~~which~~that could result in substantial costs and a diversion of our management’s attention and resources.

Sales of a substantial number of shares of our common stock in the public market, including by our existing stockholders, could cause our stock price to fall.

Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that these sales and others may have on the prevailing market price of our common stock.

In addition, certain of our stockholders, including SK E&S Co., Ltd. and other affiliated companies as well as certain stockholders who received shares as a result of our acquisition of Vivint Solar, have registration rights that would require us to register shares of our capital stock owned by them for public sale in the United States. We have also filed a registration statement to register shares of our common stock reserved for future issuance under our equity compensation ~~plans.~~plans, including shares underlying equity awards assumed in connection with our acquisition of Vivint Solar. Subject to the satisfaction of applicable exercise periods and applicable volume and restrictions that apply to affiliates, the shares of our common stock issued upon exercise of outstanding options will become available for immediate resale in the public market upon issuance.

Future sales of our common stock may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales also could cause the market price of our common stock to decline and make it more difficult for you to sell shares of our common stock.

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.

Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions ~~which~~that could have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable by our board of directors and therefore depress the trading price of our common stock. Among other things, our amended and restated certificate of incorporation and amended and restated bylaws include provisions:

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

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

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

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

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

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

These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.

As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents certain stockholders holding more than 15% of our outstanding capital stock from engaging in certain business combinations without approval of the holders of at least two-thirds of our outstanding capital stock not held by such stockholder.

Any provision of our amended and restated certificate of incorporation, amended and restated bylaws or Delaware law that has the effect of delaying or preventing a change in control could limit the opportunity for our

stockholders to receive a premium for their shares of our capital stock and could also affect the price that some investors are willing to pay for our common stock.

Provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws limit the ability of our stockholders to call special meetings and prohibit stockholder action by written consent.

Our amended and restated certificate of incorporation provides 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.

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.

Our amended and restated bylaws provide advance notice procedures for stockholders seeking to bring business before, or nominate candidates for election as directors at, our annual or special meetings of stockholders. In addition, our amended and restated certificate of incorporation provides 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.

Our amended and restated bylaws provide that a 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.

Our amended and restated bylaws provide that, unless we consent to the selection of an alternative forum, 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 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~~In addition, our amended and restated bylaws also provide that, unless we consent to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts of the United States of America shall be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. If a court were to find the choice of forum ~~provision~~provisions 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.

If securities or industry analysts cease publishing research or reports about us, our business, our market or our competitors, or if they adversely change their recommendations regarding our common stock, the market price of our common stock and trading volume could decline.

The market for our common stock is influenced by the research and reports that securities or industry analysts publish about us, our business, our market or our competitors. If any of the analysts who cover us adversely change their recommendations regarding our common stock, or provide more favorable recommendations about our competitors, the market price of our common stock would likely decline. If any of the analysts who cover us cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the market price of our common stock and trading volume to decline.

We do not expect to declare any dividends in the foreseeable future.

We do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. In addition, our credit agreements contain restrictions on payments of cash dividends. Consequently, investors may need to rely on sales of our common stock after price appreciation, which may never occur or only occur at certain times, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase shares of our common stock.

Additional issuances of our capital stock ~~issuances~~or equity-linked securities could result in ~~significant~~ dilution to our stockholders.

We may issue additional equity securities to raise capital, make acquisitions or for a variety of other purposes. For example, we recently completed the acquisition of Vivint Solar, in which we issued 0.55 shares of our common stock for each share of Vivint Solar’s common stock owned prior to the acquisition, which resulted in dilution to our stockholders. Additional issuances of our capital stock may be made pursuant to the exercise or conversion of new or existing convertible debt securities (including the Notes), warrants, stock options or other equity incentive awards to new and existing service providers. Any such issuances will result in dilution to existing holders of our stock. We also rely on ~~equity- based~~equity-based compensation as an important tool in recruiting and retaining employees. The amount of dilution due to equity-based compensation of our employees and other additional issuances ~~could be substantial.~~

~~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~~or securities convertible into or exchangeable or exercisable for our common stock could be substantial, and the market price of our common stock could decline.

The Capped Call transactions may affect the value of our common stock.

In connection with the issuance of the Notes, we entered into the Capped Call transactions with the option counterparties. The capped call transactions are expected generally to ~~investors.~~

Wereduce the potential dilution to our common stock upon any conversion of Notes and/or offset any cash payments 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~~make in excess of the ~~Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation~~principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap.

The option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in ~~our periodic reports and proxy statements, and exemptions from~~secondary market transactions prior to the ~~requirements~~maturity of ~~holding~~the Notes (and are likely to do so during the observation period for conversions of Notes following November 1, 2025 or following any repurchase of Notes by us). This activity could also cause or avoid an increase or a ~~nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We are utilizing, and we plan~~decrease 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 anniversarymarket price of our ~~initial public offering, or until~~common stock.

The potential effect, if any, of these transactions and activities on the ~~earliest~~market price of ~~(1) the last day of the first fiscal year~~our common stock will depend in which our annual gross revenue reaches or exceeds $1.07 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, 2018 or (3) the datepart on ~~which we have issued more than $1.0 billion in non-convertible debt securities during the preceding three-year period.~~market conditions and cannot be ascertained at this time.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

~~None.~~During the three months ended June 30, 2021, we issued warrants exercisable for up to 373,504 shares of our common stock to certain strategic partners, calculated using the closing stock price of $55.78 on June 30, 2021. The shares underlying the warrants will vest upon certain time- and performance-based criteria as set forth in the warrants. The exercise price of the warrants is $0.01 per share, and no exercises occurred during the quarter ended June 30, 2021.

The warrants were issued and sold pursuant to an exemption from the registration requirements of Section 5 of the Securities Act of 1933, as amended, as they did not involve a public offering under Section 4(a)(2) and were issued as restricted securities pursuant to Rule 144 of the Act.

Issuer Purchases of Equity Securities

None.

Item 5. OTHER INFORMATION

None.

Item 6. EXHIBITS

The documents listed in the Exhibit Index of this Quarterly Report on Form 10-Q are incorporated by reference or are filed with this Quarterly Report on Form 10-Q, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).

EXHIBIT INDEX

Incorporated by Reference

Exhibit
Number

Exhibit Description

Form

File No.

Exhibit

Filing Date

Filed Herewith

10.1

Sunrun-VSI 2014 Equity Incentive Plan, and the forms thereunder

10.2¥

Credit Agreement, dated as of April 20, 2021, among Sunrun Luna Portfolio 2021, LLC, Credit Suisse AG, New York Branch (as administrative agent), Wells Fargo Bank, National Association (as collateral agent and as paying agent) and each of the lenders and funding agents identified on the signature pages thereto

10.3¥

Amendment to the Credit Agreement, dated as of May 5, 20201, among Sunrun Luna Portfolio 2021, LLC, Credit Suisse AG, New York Branch (as administrative agent) and each of the lenders and funding agents identified on the signature pages thereto

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 - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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.

104

Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, and 101.PRE)

_____________________

¥ Portions of this exhibit have been omitted from the exhibit because they are both not material and are the type of information that the Company treats as private or confidential.

† The certifications attached as Exhibit 32.1 that accompany this Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.


			SUNRUN INC.

Date: August 5, 2021			~~SUNRUN INC.~~
By:
~~Date: November 8, 2017~~	~~By:~~	/s/ Lynn Jurich
				Lynn Jurich
				Chief Executive Officer
				(Principal Executive Officer)

	~~By:~~	~~/s/ Bob Komin~~
		~~Bob Komin~~
		~~Chief Financial Officer~~
		~~(Principal Accounting and Financial Officer)~~

~~EXHIBIT INDEX~~

Incorporated by Reference
Exhibit
Number
Exhibit Description Form File No. Exhibit Filing Date

4.1 Warrant to Purchase Shares of Common Stock of Sunrun Inc. 8-K
001-
37511
4.1 8/24/17

4.2 Registration Rights Agreement between Sunrun Inc. and Comcast Corporation, dated August 23, 2017. 8-K
001-
37511
4.1 8/24/17

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.


†	The certifications attached as Exhibit 32.1 that accompany this Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.By:	/s/ Tom vonReichbauer
		Tom vonReichbauer
		Chief Financial Officer
		(Principal Financial Officer)


		Page

	Special Note Regarding Forward-Looking Statements	~~Page~~ 2
	Selected Risks Affecting our Business	3
Item 11.	Financial Statements (Unaudited)	26
	Consolidated Balance Sheets	26
	Consolidated Statements of Operations	48
	Consolidated Statements of Comprehensive Income (Loss)	59
	Consolidated Statements of Redeemable Noncontrolling Interests and Equity	10
	Consolidated Statements of Cash Flows	612
	Notes to Consolidated Financial Statements	713
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2639
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4152
Item 4.	Controls and Procedures	4153

	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	4154
Item 1A.	Risk Factors	4154
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6989
Item 5.	Other Information	6989
Item 6.	Exhibits	6989
	Signatures	7091



	September 30, 2017			December 31, 2016
	(Unaudited)
Assets
Current assets:
Cash	$	216,142		$	206,364
Restricted cash	14,036			11,882
Accounts receivable (net of allowances for doubtful accounts of $1,521 and $1,166 as of September 30, 2017 and December 31, 2016, respectively)	73,031			60,258
State tax credits receivable	11,085			13,713
Inventories	63,323			67,326
Prepaid expenses and other current assets	13,907			9,802
Total current assets	391,524			369,345
Restricted cash	5,952			6,117
Solar energy systems, net	3,147,383			2,629,366
Property and equipment, net	38,819			48,471
Intangible assets, net	15,345			18,499
Goodwill	87,543			87,543
Prepaid tax asset	—			378,541
Other assets	31,187			34,936
Total assets ⁽¹⁾	$	3,717,753		$	3,572,818
Liabilities and total equity
Current liabilities:
Accounts payable	$	108,689		$	66,018
Distributions payable to noncontrolling interests and redeemable noncontrolling interests	14,785			10,654
Accrued expenses and other liabilities	54,533			59,261
Deferred revenue, current portion	74,793			70,849
Deferred grants, current portion	7,827			8,011
Capital lease obligations, current portion	7,883			10,015
Recourse debt, current portion	247,000			—
Non-recourse debt, current portion	22,538			14,153
Lease pass-through financing obligation, current portion	6,043			5,823
Total current liabilities	544,091			244,784
Deferred revenue, net of current portion	581,517			583,401
Deferred grants, net of current portion	231,478			226,893
Capital lease obligations, net of current portion	7,060			12,965
Recourse debt, net of current portion	—			244,000
Non-recourse debt, net of current portion	846,257			639,870
Lease pass-through financing obligation, net of current portion	137,997			137,958
Other liabilities	10,277			5,457
Deferred tax liabilities	68,975			415,397
Total liabilities ⁽¹⁾	2,427,652			2,510,725
Commitments and contingencies (Note 13)
Redeemable noncontrolling interests	176,460			137,907
Stockholders’ equity:
Preferred stock, $0.0001 par value—authorized, 200,000 shares as of September 30, 2017 and December 31, 2016; no shares issued and outstanding as of September 30, 2017 and December 31, 2016	—			—
Common stock, $0.0001 par value—authorized, 2,000,000 shares as of September 30, 2017 and December 31, 2016; issued and outstanding, 106,677 and 104,321 shares as of September 30, 2017 and December 31, 2016, respectively	11			10
Additional paid-in capital	684,398			668,076
Accumulated other comprehensive income	(3,537		)	437
Retained earnings	73,064			4,438
Total stockholders’ equity	753,936			672,961
Noncontrolling interests	359,705			251,225
Total equity	1,113,641			924,186
Total liabilities, redeemable noncontrolling interests and total equity	$	3,717,753		$	3,572,818



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenue:
Operating leases and incentives	$	58,462		$	43,150		$	171,897		$	123,084
Solar energy systems and product sales	82,829			68,883			211,359			210,230
Total revenue	141,291			112,033			383,256			333,314
Operating expenses:
Cost of operating leases and incentives	49,232			40,770			140,682			117,478
Cost of solar energy systems and product sales	69,588			57,264			179,957			176,376
Sales and marketing	37,298			40,192			101,758			127,096
Research and development	3,936			2,458			10,642			7,294
General and administrative	27,925			21,331			77,776			68,193
Amortization of intangible assets	1,052			1,051			3,154			3,154
Total operating expenses	189,031			163,066			513,969			499,591
Loss from operations	(47,740		)	(51,033		)	(130,713		)	(166,277		)
Interest expense, net	17,707			13,957			49,586			38,535
Other expenses (income), net	(94		)	42			589			(460		)
Loss before income taxes	(65,353		)	(65,032		)	(180,888		)	(204,352		)
Income tax expense	14,834			9,936			37,625			13,146
Net loss	(80,187		)	(74,968		)	(218,513		)	(217,498		)
Net loss attributable to noncontrolling interests and redeemable noncontrolling interests	(107,969		)	(91,846		)	(284,144		)	(280,153		)
Net income available to common stockholders	$	27,782		$	16,878		$	65,631		$	62,655
Net income per share available to common stockholders
Basic	$	0.26		$	0.16		$	0.62		$	0.61
Diluted	$	0.25		$	0.16		$	0.61		$	0.60
Weighted average shares used to compute net income per share available to common stockholders
Basic	105,783			102,707			105,060			101,988
Diluted	109,598			105,092			107,893			104,698



	Carrying Values, net of debt discount						Unused Borrowing Capacity		Annual Contractual Interest Rate		Interest Rate		Maturity Date
	Current		Long Term		Total
Recourse debt:
Bank line of credit	$	247,000	$	—	$	247,000	$	406	Varies (1)		4.49% - 4.52%		April 2018
Total recourse debt	$	247,000	$	—	$	247,000	$	406
Non-recourse debt:
Term loan	—		131,508		131,508		3,435		Varies (2)		3.98% - 4.06%		April 2024
Line of credit (Aggregation Facility)	—		288,400		288,400		18,300		Varies (3)		3.73% - 3.81%		December 2020
Term Loan and Term Loan B	6,179		35,940		42,119		—		Varies (4)		6.31	%	December 2020 and 2021
Term Loan A	586		144,691		145,277		5,000		Varies (5)		4.06	%	December 2021
Bank loans	—		35,661		35,661		—		Varies (6)		4.08% - 6.83%		September 2020
Bank term loan	8,839		22,126		30,965		—		Varies (7)		6.82% - 10.32%		July 2021
Bank term loan	1,446		24,016		25,462		—		4.50	%	4.50	%	April 2022
Bank term loans	1,578		31,338		32,916		—		LIBOR + 2.25%		3.48	%	September 2022
									LIBOR + 3.00%		4.33	%	September 2022
Solar asset-backed notes	3,910		93,359		97,269		—		4.40% - Class A		4.40	%	July 2024
									5.38% - Class B		5.38	%	July 2024
Note payable	—		39,218		39,218		—		12.00	%	12.00	%	December 2018
Total non-recourse debt	22,538		846,257		868,795		26,735
Total debt	$	269,538	$	846,257	$	1,115,795	$	27,141



Type	Quantity	Maturity Dates	Hedge Interest Rates	Notional Amount		Fair Market Value
Interest rate swaps	2	8/31/2022 - 9/30/2022	1.29% - 2.37%	$	28,434	$	96
Interest rate swaps	6	4/30/2024 - 10/31/2024	2.16% - 2.69%	$	151,088	$	(2,280	)
Interest rate swaps	4	10/31/2028	2.17% - 2.18%	$	124,963	$	78
Interest rate swap	1	9/30/2031	3.23%	$	9,905	$	(251	)
Interest rate swaps	5	7/31/2034	2.48% - 3.04%	$	144,379	$	(1,524	)
Interest rate swaps	5	7/31/2035	2.56% - 2.95%	$	140,521	$	(1,647	)



	Redeemable Noncontrolling Interests			Total Stockholders' Equity			Noncontrolling Interests			Total Equity
Balance — December 31, 2016	$	137,907		$	672,961		$	251,225		$	924,186
Exercise of stock options	—			1,573			—			1,573
Issuance of restricted stock units, net of tax withholdings	—			(2,925		)	—			(2,925		)
Shares issued in connection with the Employee Stock Purchase Plan	—			1,145			—			1,145
Stock based compensation	—			16,530			—			16,530
Contributions from noncontrolling interests and redeemable noncontrolling interests	105,167			—			368,902			368,902
Distributions to noncontrolling interests and redeemable noncontrolling interests	(11,794		)	—			(31,098		)	(31,098		)
Cumulative effect of adoption of new ASUs	—			2,996			—			2,996
Net income (loss)	(54,820		)	65,630			(229,324		)	(163,694		)
Other comprehensive loss, net of taxes	—			(3,974		)	—			(3,974		)
Balance — September 30, 2017	$	176,460		$	753,936		$	359,705		$	1,113,641



	Number of Awards		Weighted Average Grant Date Fair Value
Unvested balance at December 31, 2016	4,106		$	6.87
Granted	3,129		5.21
Issued	(943	)	7.61
Forfeited	(914	)	5.78
Unvested balance at September 30, 2017	5,378		$	5.77



			Consolidated Joint Ventures
	Lease Pass-Through		Partnership Flip		JV Inverted Lease
Consolidation	Owner entity consolidated, tenant entity not consolidated		Single entity, consolidated		Owner and tenant entities consolidated		Owner and tenant entities consolidated
Balance sheet classification	Lease pass-through financing obligation		Redeemable noncontrolling interests and noncontrolling interests		Redeemable noncontrolling interests and noncontrolling interests		Noncontrolling interests
Revenue from ITCs	Recognized annually over 5 years as the recapture period elapses		None		None		None
Method of calculating investor interest	Effective interest rate method		Greater of HLBV or redemption value		Greater of HLBV or redemption value		Pro rata
Liability balance as of September 30, 2017	$	144.0	N/A		N/A		N/A
Noncontrolling interest balance (redeemable or otherwise) as of September 30, 2017	N/A		$	456.8	$	72.4	$	7.0
Number of funds (as of September 30, 2017)	5		17		5		1
MW deployed (as of September 30, 2017)	129.5		639.4		149.1		20.7
Carrying value of solar energy systems, net (as of September 30, 2017)	$	429.1	$	1,800.1	$	519.5	$	80.5
Contributions from third-party fund investors (through September 30, 2017)	$	508.0	$	1,572.9	$	388.4	$	86.3



	As of September 30,
	2017	2016
Cumulative Megawatts Deployed (end of period) (1)	1,117	801



	As of September 30, 2017
	Discount rate
Default rate	4%		5%		6%		7%		8%

	(in thousands)
5%	$	1,559,176	$	1,434,253	$	1,323,525	$	1,225,096	$	1,137,354
0%	$	1,602,766	$	1,473,525	$	1,359,017	$	1,257,270	$	1,166,606



	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)	$	314,696	$	207,580	$	533,467	$	239,917	$	1,295,660
Purchase commitments	98,000		72,000		—		—		170,000
Distributions payable to noncontrolling interests and redeemable noncontrolling interests	14,785		—		—		—		14,785
Capital lease obligations (including accrued interest)	8,439		7,102		328		18		15,887
Operating lease obligations	9,033		11,664		5,220		1,948		27,865
Total contractual obligations	$	444,953	$	298,346	$	539,015	$	241,883	$	1,524,197