# Sunrun Inc. (RUN) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Sunrun Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1469367/000146936725000039/run-20241231.htm
Accession: 0001469367-25-000039
Filing date: 2025-02-27
Report date: 2024-12-31
Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub.
Confidence: high

Company profile: /company/RUN/
All MD&A years: /company/RUN/mda/
Previous year: /company/RUN/mda/fy2023/ (FY 2023)
Next year: /company/RUN/mda/fy2025/ (FY 2025)

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 Annual Report on Form 10-K. Our Annual Report on Form 10-K for the year ended December 31, 2023 includes a discussion and analysis of our financial condition and results of operations for the year ended December 31, 2022 in Item 7 of Part II, “Management's Discussion and Analysis of Financial Condition and Results of Operations.” 

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[[/GREPCENT_TABLE]]

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Comparison of the Years Ended December 31, 2024 and 2023

Revenue

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[[/GREPCENT_TABLE]]

Customer Agreements and Incentives. The $311.3 million increase in Revenue from Customer Agreements was primarily due to new systems placed in service in 2024 and a full year of revenue recognized in 2024 for systems placed in service in 2023 versus only a partial amount of such revenue related to the period in which the assets were in service in 2023. Revenue from incentives consisted primarily of sales of SRECs. The $7.2 million increase when compared to the prior year related to the timing and volume of SREC sales, which were responsive to market conditions.

Solar Energy Systems and Product Sales. Revenue from solar energy systems sales decreased by $451.6 million compared to the prior year primarily due to an increase in the proportion of customers choosing to enter into a Customer Agreement versus purchasing a system outright using a loan, likely due to increased interest rates. Product sales decreased by $89.0 million compared to the prior year primarily due to the lower average sales price of solar energy products, as well as lower sales volume of solar energy products to installers of solar energy systems compared to the prior year, due to easing of supply chain constraints and the wind-down of the AEE Solar operations in 2024.

Operating Expenses

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[[/GREPCENT_TABLE]]

Cost of Customer Agreements and Incentives. The $92.1 million increase in Cost of customer agreements and incentives was primarily due to the new systems placed in service in 2024, plus a full year of costs recognized in 2024 for systems placed in service in 2023 versus only a partial amount of such expenses related to the period in which the assets were in service in 2023.

The Cost of customer agreements and incentives decreased to 78% of customer agreements and incentives revenue during 2024, from 91% in the prior year. This decrease is primarily due to customer pricing increases

catching up to costs.

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Cost of Solar Energy Systems and Product Sales. There was a $479.7 million decrease in Cost of solar energy systems and product sales, which was primarily due to the corresponding net decrease in the solar energy systems and product sales discussed above.

The Cost of solar energy systems and product sales increased to 101% of solar energy systems and product sales revenue during 2024, when compared with 95% in the prior year, primarily as the result of a $22.1 million increase in inventory reserves recorded in the first quarter of fiscal 2024 related to the wind-down of the AEE Solar operations.

Sales and Marketing Expense. The $123.7 million decrease in Sales and marketing expense was primarily attributable to decreases in headcount driving lower employee compensation and costs to acquire customers through our sales lead generating partners. Included in sales and marketing expense were $76.2 million and $56.3 million of amortization of costs to obtain Customer Agreements for 2024 and 2023, respectively.

Research and Development Expense. The $17.5 million increase in Research and development expense was primarily attributable to an increase in headcount driving higher employee compensation costs, as well as an increase in support related consulting costs.

General and Administrative Expense. The $24.1 million increase in General and administrative expenses was primarily attributable to an increase in headcount driving higher employee compensation costs. Additionally, there were increases related to information technology related consulting costs, when compared to the prior year period.

Goodwill impairment. The $2.0 billion increase in Goodwill impairment expense related to an impairment charge of $3.1 billion that was a result of an interim impairment test performed during the fourth quarter of 2024 and an impairment charge of $1.2 billion that was a result of an interim impairment test performed during the third quarter of 2023. For further detail, see Note 2, Summary of Significant Accounting Policies to our consolidated financial statement included elsewhere in this Annual Report on Form 10-K.

Non-Operating Expenses

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[[/GREPCENT_TABLE]]

Interest expense, net. The increase in Interest expense, net of $195.4 million is primarily related to additional non-recourse debt entered into in 2024. Included in net interest expense is $34.8 million and $31.2 million of non-cash interest recognized under Customer Agreements that have a significant financing component for 2024 and 2023, respectively.

Other income (expense), net. The increase in other income of $225.4 million relates primarily to an increase in gains on derivatives during 2024, as well as a $7.4 million decrease in loss on an equity investment, as we recorded a $51.3 million loss on an equity investment in 2024, compared with a $58.7 million loss on an equity investment during 2023.

Income Tax Benefit

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The increase in Income tax benefit of $14.1 million primarily relates to an increase in pre-tax loss, increased proceeds from investment tax credit transfers, and a decrease in valuation allowance on certain federal and state

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tax credits and net operating losses, which was offset by goodwill impairment and an increase in noncontrolling interest and redeemable noncontrolling interests.

Given our net operating loss carryforwards as of December 31, 2024, we do not expect to pay income tax, including in connection with our 2024 income tax provision, until our net operating losses are fully utilized. As of December 31, 2024, we had net operating loss carryforwards for federal, state, and foreign income tax purposes of approximately $720.7 million, $3.3 billion, and $459.9 million, respectively, which will begin to expire in 2028 for federal purposes, in 2025 for state purposes, and in 2031 for foreign purposes. In addition, federal and certain state net operating loss carryforwards generated in tax years beginning after December 31, 2017 total $2.0 billion and $334.4 million, respectively, and have indefinite carryover periods and do not expire.

Net Loss Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests 

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[[/GREPCENT_TABLE]]

Net loss attributable to noncontrolling interests and redeemable noncontrolling interests was primarily the result of an addition of seven new investment funds since December 31, 2023, for which the HLBV method was used in determining the amount of net loss attributable to noncontrolling interests. Investment funds generally allocate more loss to the noncontrolling interest in the first several years after fund formation.

Liquidity and Capital Resources

As of December 31, 2024, we had cash of $575.0 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, cash generated from our sources of revenue and borrowings from secured credit facilities arrangements with syndicates of banks and from secured, long-term non-recourse loan arrangements. In 2024, we received $3.4 billion of new commitments on secured credit facilities arrangements and $1.5 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 December 31, 2024, we had outstanding borrowings of $384.2 million on our $447.5 million credit facility maturing in March 2027. In February 2024, we amended one of our subsidiary’s senior secured credit facility to, among other things, increase the total commitments from $1.8 billion to $2.4 billion and extend the maturity date from April 2025 to April 2028. In July 2024, we amended the same senior secured credit facility to increase total commitments from $2.4 billion to $2.6 billion. In February 2024, we amended our bank line of credit to, among other things, reduce the total commitments from $600.0 million to $447.5 million, and to extend the maturity date from January 2025 to November 2025. As of September 30, 2024, this maturity date was automatically extended to March 1, 2027, due to us maintaining funds on deposit in a collateral account equal to an amount sufficient to repay at the scheduled maturity all of our 0% Senior Convertible Notes due 2026 that are outstanding as of September 30, 2024 and being otherwise in compliance with our quarter-end liquidity covenant.

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Additionally, we have purchase commitments, which have the ability to be canceled without significant penalties, with multiple suppliers to purchase $574.0 million of photovoltaic modules, inverters and batteries by the end of the fourth quarter of 2025. In February 2024, we issued $475.0 million of convertible senior notes with a maturity date of March 1, 2030, for net proceeds of approximately $470.1 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 for at least the next 12 months. We believe we will meet longer-term expected future cash requirements and obligations through a combination of cash flows from operating activities, available cash balances, and available credit via our credit facilities. The following table summarizes our cash flows for the periods indicated:

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[[/GREPCENT_TABLE]]

Operating Activities

During 2024, we used $766.2 million in net cash from operating activities. The driver of our operating cash outflow consisted of the cost of our revenue, as well as sales, marketing and general and administrative costs. During 2024, our operating cash outflows were $447.6 million from our net loss excluding non-cash and non-operating items. Changes in working capital resulted in a net cash outflow of $318.5 million.

During 2023, we used $820.7 million in net cash from operating activities. The driver of our operating cash outflow consisted of the cost of our revenue, as well as sales, marketing and general and administrative costs. During 2023, our operating cash outflows were $625.6 million from our net loss excluding non-cash and non-operating items. Changes in working capital resulted in a net cash outflow of $195.3 million.

Investing Activities

During 2024, we used $2.7 billion in cash in investing activities. The majority was used to design, acquire and install solar energy systems and components under our long-term Customer Agreements.

During 2023, we used $2.6 billion in cash in investing activities. The majority was used to design, acquire and install solar energy systems and components under our long-term Customer Agreements. Included within cash used in investing activities during 2023, was a $5.0 million contribution we made as an additional investment in Lunar Energy.

Financing Activities

During 2024, we generated $3.4 billion from financing activities. This was primarily driven by $1.3 billion in net proceeds from fund investors, $2.1 billion in net proceeds from debt, $124.3 million in net proceeds from trade receivable financing, $98.2 million in net proceeds from convertible senior notes and $18.9 million in net proceeds from stock-based awards activity, offset by $26.2 million in acquisition of noncontrolling interests and $27.2 million in repayments under finance lease obligations.

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During 2023, we generated $3.5 billion from financing activities. This was primarily driven by $1.4 billion in net proceeds from fund investors, $2.2 billion in net proceeds from debt, $22.6 million in net proceeds from stock-based awards activity, offset by $1.5 million in repurchase of convertible senior notes, $46.3 million in acquisition of noncontrolling interests and $23.3 million in repayments under finance lease obligations.

Debt, Equity, and Financing Fund Commitments

Debt Instruments

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

Investment Fund Commitments

As of December 31, 2024, we had committed and available capital of approximately $260.2 million 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.

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Recent Accounting Pronouncements

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

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