Sunrun Inc. (RUN) FY 2025 MD&A

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, 2024 includes a discussion and analysis of our financial condition and results of operations for the year ended December 31, 2023 in Item 7 of Part II, “Management's Discussion and Analysis of Financial Condition and Results of Operations.”

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Comparison of the Years Ended December 31, 2025 and 2024

Revenue

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Customer Agreements and Incentives. The $320.1 million increase in Revenue from Customer Agreements was primarily due to new systems placed in service in 2025 and a full year of revenue recognized in 2025 for systems placed in service in 2024 versus only a partial amount of such revenue related to the period in which the assets were in service in 2024. Revenue from incentives consisted primarily of sales of SRECs. The $6.3 million decrease when compared to the prior year related to the timing and volume of SREC sales, which were responsive to market conditions.

Energy Systems and Product Sales. Revenue from energy systems sales increased by $673.6 million compared to the prior year primarily due to a transaction that Sunrun entered into in the third quarter of 2025 whereby certain storage and energy systems subject to newly originated Customer Agreements are sold to a third-party investor; however, Sunrun continues to maintain the customer experience and servicing relationships and can sell future goods and services to these customers. Product sales decreased by $68.1 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.

Cost of Customer Agreements and Incentives. The $113.1 million increase in Cost of customer agreements and incentives was primarily due to the new systems placed in service in 2025, plus a full year of costs recognized in 2025 for systems placed in service in 2024 versus only a partial amount of such expenses related to the period in which the assets were in service in 2024.

The Cost of customer agreements and incentives decreased to 70% of customer agreements and incentives revenue during 2025, from 78% in the prior year. This decrease is primarily due to customer pricing increases

catching up to costs.

Cost of Energy Systems and Product Sales. There was a $237.4 million increase in Cost of energy systems and product sales, which was primarily due to the corresponding net increase in the energy systems and product sales discussed above.

The Cost of energy systems and product sales decreased to 68% of energy systems and product sales revenue during 2025, when compared with 101% in the prior year, primarily due to the increase in system sales to a third-party investor related to the transaction Sunrun entered in Q3 2025 discussed above, as well as 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 with no such comparable activity in 2025.

Sales and Marketing Expense. The $92.1 million increase in Sales and marketing expense was primarily attributable to increases in costs to acquire customers through our sales lead generating partners, partially offset by a decrease in headcount driving lower employee compensation. Included in sales and marketing expense were $95.3 million and $76.2 million of amortization of costs to obtain Customer Agreements for 2025 and 2024, respectively.

Research and Development Expense. The $3.2 million decrease in Research and development expense was primarily attributable to a decrease in support-related consulting costs, as well as a decline in employee compensation.

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General and Administrative Expense. The $32.9 million increase in General and administrative expenses was primarily attributable to an increase in employee compensation costs. Additionally, there were increases related to information technology related consulting costs, when compared to the prior year period.

Goodwill impairment. The $3.1 billion decrease 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. 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

Interest expense, net. The increase in Interest expense, net of $148.4 million is primarily related to additional non-recourse debt entered into in 2025. Included in net interest expense is $38.1 million and $34.8 million of non-cash interest recognized under Customer Agreements that have a significant financing component for 2025 and 2024, respectively.

Other (expense) income, net. The decrease in other income of $215.0 million related primarily to losses on derivatives recognized in 2025, as well as to gains on extinguishment of debt during 2024, with no such comparable activity in 2025.

Income Tax Benefit

The increase in Income tax benefit of $140.4 million primarily relates to increased proceeds from investment tax credit transfers and a reduction of goodwill impairment, which was partially offset by an overall increase in valuation allowance on certain tax credits and net operating losses, a decrease in pre-tax loss, and a decrease in losses allocable to noncontrolling interests and redeemable noncontrolling interests.

Given our net operating loss carryforwards as of December 31, 2025, we do not expect to pay income tax, including in connection with our 2025 income tax provision, until our net operating losses are fully utilized. As of December 31, 2025, we had net operating loss carryforwards for federal, state, and foreign income tax purposes of approximately $720.7 million, $3.5 billion, and $1.3 billion, respectively, which will begin to expire in 2028 for federal purposes, in 2026 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 $2.6 billion and $371.4 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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The decrease in Net loss attributable to noncontrolling interests and redeemable noncontrolling interests was primarily the result of an addition of only six new investment funds in 2025, as compared to the addition of seven new investment funds in 2024, 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, 2025, we had cash of $823.4 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 2025, we received $1.2 billion of new commitments on secured credit facilities arrangements and $1.6 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 energy systems, satisfaction of our obligations under our debt instruments and other working capital requirements. As of December 31, 2025, we had outstanding borrowings of $238.3 million on our $321.4 million credit facility maturing in March 2028. In December 2025, we amended our bank line of credit to, among other things, reduce the total commitments from $447.5 million to approximately $321.4 million, and to extend the maturity date from March 2027 to March 2028. In 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 $2.6 billion and extend the maturity date from April 2025 to April 2028. For further information regarding certain of the impacts our ability to raise capital on our business, see Part I, Item 1A. Risk Factors— 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.”

Additionally, we have purchase commitments, which have the ability to be canceled without significant penalties, with multiple suppliers to purchase $2.0 billion 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 energy systems. The 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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Operating Activities

During 2025, we used $421.4 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 2025, after adjusting our net loss to exclude non-operating and non-cash items, we had operating cash outflows of $20.3 million. Additionally, changes in working capital resulted in a net cash outflow of $441.7 million.

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, after adjusting our net loss to exclude non-operating and non-cash items, we had operating cash outflows of $447.6 million. Additionally, changes in working capital resulted in a net cash outflow of $318.5 million.

Investing Activities

During 2025, we used $2.5 billion in cash in investing activities. The majority was used to design, acquire and install energy systems and components under our long-term Customer Agreements.

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

Financing Activities

During 2025, we generated $3.2 billion from financing activities. This was primarily driven by $1.8 billion in net proceeds from fund investors, $1.6 billion in net proceeds from debt, $2.1 million in net proceeds from convertible senior notes and $16.8 million in net proceeds from stock-based awards activity, offset by $124.3 million in net repayments from trade receivable financing, $30.7 million in acquisition of noncontrolling interests and $25.2 million in repayments under finance lease obligations.

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.

Debt and Fund Commitments

As of December 31, 2025, we had committed and available capital of approximately $1.0 billion that may only be used to purchase and install 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. 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.

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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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