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Sunrun(RUN) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Sunrun's unaudited consolidated financial statements for Q2 2025, detailing the company's financial position, performance, and cash flows Consolidated Balance Sheets As of June 30, 2025, total assets increased to $21.23 billion from $19.90 billion at year-end 2024, with total liabilities rising to $16.78 billion from $15.73 billion, and total equity growing to $3.73 billion from $3.54 billion Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $21,230,135 | $19,897,884 | | Cash | $618,057 | $574,956 | | Solar energy systems, net | $16,063,482 | $15,032,115 | | Total Liabilities | $16,783,913 | $15,733,674 | | Non-recourse debt, net | $13,224,063 | $12,037,846 | | Total Equity | $3,730,637 | $3,540,051 | - Assets of Variable Interest Entities (VIEs) that can only be used to settle VIE obligations amounted to $14.46 billion as of June 30, 2025, up from $13.29 billion at the end of 202425 Consolidated Statements of Operations For Q2 2025, total revenue grew to $569.3 million, while net loss widened to $279.0 million, yet net income attributable to common stockholders increased to $279.8 million due to noncontrolling interests Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $569,336 | $523,866 | $1,073,607 | $982,054 | | Customer agreements and incentives | $458,000 | $387,825 | $860,920 | $710,792 | | Solar energy systems and product sales | $111,336 | $136,041 | $212,687 | $271,262 | | Loss from Operations | ($112,249) | ($128,048) | ($227,137) | ($311,170) | | Net Loss | ($278,984) | ($259,928) | ($556,155) | ($543,078) | | Net Income Attributable to Common Stockholders | $279,773 | $139,074 | $329,784 | $51,256 | | Diluted EPS | $1.07 | $0.55 | $1.28 | $0.23 | Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash used in operating activities was $396.9 million and investing activities was $1.35 billion, offset by $1.81 billion from financing, resulting in a $64.7 million net increase in cash Consolidated Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | ($396,865) | ($351,638) | | Net cash used in investing activities | ($1,347,842) | ($1,144,249) | | Net cash provided by financing activities | $1,809,368 | $1,550,297 | | Net change in cash and restricted cash | $64,661 | $54,410 | Notes to Consolidated Financial Statements The notes detail significant accounting policies, including VIE consolidation and revenue recognition, alongside disclosures on financial instruments, debt, derivatives, stock-based compensation, and commitments - The company's primary business is the design, installation, sale, ownership, and maintenance of home battery storage and solar energy systems. It utilizes a partnership-flip legal structure for its financing Funds3941 - Revenue from customer agreements is recognized when the system receives permission to operate (PTO), typically on a straight-line basis over the 20 or 25-year contract term. Revenue from solar energy system sales is recognized upon passing inspection by the local authority6065 - As of June 30, 2025, the company had total debt of $14.04 billion, consisting of $814.7 million in recourse debt and $13.22 billion in non-recourse debt82 - The company uses interest rate swaps to hedge variable interest payments on its debt, with a total notional amount of over $4.3 billion as of June 30, 20258991 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Sunrun's financial performance, key operating metrics, and liquidity, addressing macroeconomic challenges and regulatory impacts on its solar-plus-storage business Overview and Market Environment Sunrun, a leading solar-plus-storage provider, navigates macroeconomic headwinds and regulatory shifts like California's NBT and the federal OBBB Act, while pursuing home electrification and grid services opportunities - Sunrun's core offering is a solar-plus-storage service through 20- or 25-year Customer Agreements, insulating customers from rising retail electricity prices121 - The business is impacted by macroeconomic challenges such as rising interest rates, which increase the cost of capital, and trade policy uncertainties, including tariffs on solar components128129 - The One Big Beautiful Bill Act (OBBB), signed into law on July 4, 2025, presents a significant regulatory challenge by shortening the availability of the Section 48E tax credit for solar facilities to the end of 2027 and ending the Section 25D residential credit in 2026130 - In California, the Net Billing Tariff (NBT) has enhanced the value proposition for storage offerings, making the state predominantly a solar-plus-storage market for new installations130 Key Operating Metrics As of June 30, 2025, key metrics show Networked Solar Capacity at 7,949 MW, total customers at 1,105,080, Gross Earning Assets at $19.8 billion, and Q2 subscriber additions of 28,823 with $1.44 billion in contracted value Key Metrics as of June 30 | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Networked Solar Capacity (MW) | 7,949 | 7,058 | | Customers | 1,105,080 | 984,000 | Gross Earning Assets as of June 30 (in thousands) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Contracted Gross Earning Assets | $15,154,928 | $12,050,938 | | Non-contracted or Upside Gross Earning Assets | $4,630,393 | $3,640,744 | | Gross Earning Assets | $19,785,321 | $15,691,682 | Subscriber Additions for Q2 | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Subscriber Additions | 28,823 | 24,984 | | Contracted Subscriber Value (per Subscriber) | $49,919 | $41,872 | | Aggregate Contracted Subscriber Value (in thousands) | $1,438,803 | $1,046,136 | Results of Operations For Q2 2025, total revenue increased 9% to $569.3 million, while total operating expenses rose 5% to $681.6 million, resulting in a $279.0 million net loss but a $279.8 million net income attributable to common stockholders Revenue Comparison - Q2 2025 vs. Q2 2024 (in thousands) | Revenue Category | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Customer agreements and incentives | $458,000 | $387,825 | $70,175 | 18% | | Solar energy systems and product sales | $111,336 | $136,041 | ($24,705) | (18)% | | Total Revenue | $569,336 | $523,866 | $45,470 | 9% | - The decrease in solar energy systems sales revenue was primarily due to a higher proportion of customers choosing service agreements over outright purchases, likely influenced by increased interest rates174 Operating Expense Comparison - Q2 2025 vs. Q2 2024 (in thousands) | Expense Category | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Cost of customer agreements and incentives | $345,376 | $298,665 | $46,711 | 16% | | Cost of solar energy systems and product sales | $104,144 | $130,120 | ($25,976) | (20)% | | Sales and marketing | $152,459 | $151,657 | $802 | 1% | | General and administrative | $71,543 | $61,229 | $10,314 | 17% | | Total Operating Expenses | $681,585 | $651,914 | $29,671 | 5% | - The increase in net loss attributable to noncontrolling interests was primarily due to the addition of six new investment funds since June 30, 2024, as these funds typically allocate more losses to the noncontrolling interest in their early years184 Liquidity and Capital Resources As of June 30, 2025, Sunrun had $618.1 million in cash, with operations primarily financed by investment funds and debt, and management expects sufficient liquidity for the next 12 months contingent on external financing - As of June 30, 2025, the company had cash of $618.1 million and outstanding borrowings of $336.5 million on its $447.5 million credit facility199 - The business model requires substantial outside financing to fund growth. The company anticipates raising additional capital from new and existing investors and believes it has sufficient liquidity for at least the next 12 months200 - The company has a purchase commitment with a supplier to purchase $422.4 million of batteries by the end of Q4 2025, which can be canceled without significant penalties108200 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on variable-rate debt, which it hedges using derivative instruments, with no material changes since December 31, 2024 - The company's main market risk is from interest rate fluctuations on its variable-rate debt208 - Sunrun uses derivative instruments to hedge its interest rate exposure and does not use them for speculative purposes208 Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period210 - No material changes to the company's internal control over financial reporting were identified during the quarter211 PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is subject to ordinary course legal proceedings, which management does not currently expect to have a material adverse effect on its financial position - The company is subject to legal proceedings in the ordinary course of business but does not currently expect them to have a material adverse effect113214 Item 1A. Risk Factors The company faces significant risks from evolving industry dynamics, regulatory changes, financing challenges, operational vulnerabilities, and tax policy uncertainties Risks Related to the Battery Storage and Solar Industry The company operates in an evolving market, facing intense competition, rising material costs, and adverse changes to government incentives from the new OBBB Act - The business is highly dependent on government incentives. The OBBB Act, signed July 4, 2025, adversely changes tax policies by shortening the availability of the Section 48E credit for solar and ending the Section 25D residential credit in 2026218 - The company faces significant competition from traditional utilities, which have greater resources, and from other solar providers229231 - Costs for solar panels and raw materials may increase due to supply chain disruptions, inflation, and trade policies, including new tariffs and national security investigations into imported components like polysilicon221222223 Risks Related to Our Operating Structure and Financing Activities Sunrun's growth depends on raising capital through tax equity funds, which are constrained by tax law changes and rising interest rates, increasing the cost of capital - The company's future success depends on its ability to raise capital at acceptable terms. The OBBB Act is expected to create additional challenges for securing tax equity financing246247 - Rising interest rates increase the company's cost of capital, reduce the proceeds from investment funds, and may negatively impact the attractiveness of its offerings to customers253 - The company has substantial debt and expects to incur more in the future, which intensifies risks related to servicing debt obligations and complying with financial covenants256261 Risks Related to Regulation and Policy The business is heavily influenced by federal, state, and local regulations, including the OBBB Act and California's NBT, impacting tax policy, customer value, and market demand - The OBBB Act, signed July 4, 2025, directly impacts the business by shortening the availability of the Section 48E tax credit for solar facilities and ending the Section 25D residential credit268 - Changes in state policies, particularly California's move away from traditional net metering to a Net Billing Tariff (NBT), have altered the economics of residential solar and increased the importance of battery storage272273 - The company faces risks from changes in utility rate design, such as the imposition of fixed charges or demand charges, which could reduce customer savings and demand for solar offerings278 Risks Related to Our Business Operations Operational risks include supplier dependence, construction challenges, customer cancellations, workforce management, and geographic concentration in California, increasing vulnerability to regional disruptions - The company depends on a limited number of suppliers for solar panels, inverters, and batteries, making it susceptible to shortages, price changes, and quality issues286 - As the primary contractor, Sunrun is subject to risks associated with construction, cost overruns, delays, and regulatory compliance for every installation294 - The business is geographically concentrated, with over 45% of its customer base in California as of June 30, 2025, increasing its exposure to regional economic, regulatory, and environmental risks305 - The company faces risks related to cybersecurity breaches, data privacy regulations, and the need to protect its intellectual property325329 Risks Related to Taxes and Accounting The company's viability relies on monetizing federal tax benefits through tax equity funds, a model facing uncertainty from the OBBB Act and potential IRS challenges to system valuations - The business model relies on monetizing federal ITCs through tax equity investment funds. The OBBB Act has accelerated the sunsetting of certain ITCs and introduced restrictions, which could make this financing more challenging382385 - The IRS could determine that the creditable basis of the company's solar systems is lower than claimed, which could result in reduced tax credits and significant indemnity payments to fund investors392 - The business depends on the availability of various federal, state, and local incentives, including tax credits, rebates, and SRECs, which are subject to expiration, reduction, or elimination395 Risks Related to Ownership of Our Common Stock Ownership of common stock involves risks including price volatility, substantial control by insiders limiting shareholder influence, and anti-takeover provisions deterring acquisitions - Executive officers, directors, and principal stockholders beneficially own approximately 45.2% of outstanding common stock, giving them substantial control over matters requiring stockholder approval410 - The market price of the company's common stock has been and is expected to continue to be volatile411 - The company does not expect to declare any dividends in the foreseeable future, so returns on investment may depend solely on stock price appreciation428 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or issuer purchases of equity securities during the period - There were no unregistered sales of equity securities during the quarter433 Item 5. Other Information This section discloses the adoption and modification of Rule 10b5-1 trading plans by company executives, including Jeanna Steele and Lynn Jurich, during the period - On May 16, 2025, Jeanna Steele (Chief People and Legal Officer) amended her Rule 10b5-1 trading plan437 - On June 9, 2025, Lynn Jurich (Co-Executive Chair) adopted a new Rule 10b5-1 trading plan for the sale of up to 800,000 shares438 Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including the company's Restated Certificate of Incorporation, Bylaws, and certifications from the CEO and CFO as required by the Sarbanes-Oxley Act - Lists all exhibits filed with the 10-Q, including certifications by the CEO and CFO pursuant to the Sarbanes-Oxley Act439441