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Stock-Based Compensation | 12 Months Ended
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Dec. 31, 2022
Share-Based Payment Arrangement [Abstract] |
Stock-Based Compensation | Stock-Based Compensation 2013 Equity Incentive Plan In July 2013, the Board of Directors approved the 2013 Equity Incentive Plan (“2013 Plan”). In March 2015, the Board of Directors authorized an additional 3,000,000 shares reserved for issuance under the 2013 Plan. An aggregate of 4,500,000 shares of common stock are reserved for issuance under the 2013 Plan plus (i) any shares that were reserved but not issued under the plan that was previously in place, and (ii) any shares subject to stock options or similar awards granted under the plan that was previously in place that expire or otherwise terminate without having been exercised in full and shares issued that are forfeited to or repurchased by the Company, with the maximum number of shares to be added to the 2013 Plan pursuant to clauses (i) and (ii) equal to 8,044,829 shares. Stock options granted to employees generally have a maximum term of ten-years and vest over a four-year period from the date of grant; 25% vest at the end of one year, and 75% vest monthly over the remaining three years. The options may include provisions permitting exercise of the option prior to full vesting. Any unvested shares shall be subject to repurchase by the Company at the original exercise price of the option in the event of a termination of an optionee’s employment prior to vesting. All the remaining shares that were available for future grants under the 2013 Plan were transferred to the 2015 Equity Incentive Plan (“2015 Plan”) at the inception of the 2015 Plan. As of December 31, 2022, the Company had not granted restricted stock or other equity awards (other than options) under the 2013 Plan. Sunrun-VSI 2014 Equity Incentive Plan Upon completion of the Merger, the Company may grant equity awards through the Sunrun-VSI 2014 Equity Incentive Plan (“Sunrun-VSI 2014 Plan”), which was previously called the Vivint Solar 2014 Equity Incentive Plan. Under the Sunrun-VSI 2014 Plan, the Company may grant stock options, restricted stock, restricted stock units (“RSUs”), stock appreciation rights, performance stock units, performance shares and performance awards to its employees, directors and consultants, and its parent and subsidiary corporations’ employees and consultants. As of December 31, 2022, a total of 9.5 million shares of common stock were available for grant under the Sunrun-VSI 2014 Plan, subject to adjustment in the case of certain events. In addition, any shares that otherwise would be returned to the Omnibus Plan (as defined below) as the result of the expiration or termination of stock options may be added to the Sunrun-VSI 2014 Plan. The number of shares available to grant under the Sunrun-VSI 2014 Plan is subject to an annual increase on the first day of each year. Long-term Incentive Plan In July 2013, Vivint Solar’s board of directors approved shares of common stock for six Long-term Incentive Plan Pools (“LTIP Pools”) that comprise the 2013 Long-term Incentive Plan (the “LTIP”). Participants in the LTIP are allocated a portion of the LTIP Pools relative to the performance of other participants on a measurement date that is determined once performance conditions are met. The Merger Agreement provided that the LTIP awards outstanding immediately prior to the Closing Date were canceled and terminated and that subsequent to the Closing Date, each holder of a canceled LTIP award would be granted an RSU award to be settled in shares of Sunrun common stock, with the number of shares underlying such award calculated as if the LTIP performance hurdles were achieved, with the Closing Date as the determination date. As a result, approximately 1.5 million shares of the Company common stock were awarded as RSUs to LTIP participants with a grant date equal to the Closing Date. These RSUs vest in three equal installments, subject to the grantee’s continued provision of services to the Company. One-third vested 30 days after the Closing Date, one-third vested nine months after the Closing Date, and one-third vested 18 months after the Closing Date. As of December 31, 2022, there are no remaining shares available for grant under the LTIP. 2015 Equity Incentive Plan In July 2015, the Sunrun Board approved the 2015 Plan. An aggregate of 11,400,000 shares of common stock are reserved for issuance under the 2015 Plan plus (i) any shares that were reserved but not issued under the 2013 Plan at the inception of the 2015 Plan, and (ii) any shares subject to stock options or similar awards granted under the 2008 Plan, 2013 Plan and 2014 Plan that expire or otherwise terminate without having been exercised in full and shares issued that are forfeited to or repurchased by the Company, with the maximum number of shares to be added to the 2015 Plan pursuant to clauses (i) and (ii) equal to 15,439,334 shares. The 2015 Plan provides for annual automatic increases on January 1 to the shares reserved for issuance. The automatic increase of the number of shares available for issuance under the 2015 Plan is equal to the least of 10 million shares, 4% of the outstanding shares of common stock as of the last day of the Company’s immediately preceding fiscal year or such other amount as the Board of Directors may determine. In 2022 and 2021, an additional nil and 8,056,251 shares, respectively, were reserved for issuance under the 2015 Plan pursuant to the automatic increase provision. Stock options granted to employees generally have a maximum term of ten-years and vest over a four-year period from the date of grant; 25% vest at the end of one year, and 75% vest monthly over the remaining three years. The options may include provisions permitting exercise of the option prior to full vesting. Any unvested shares shall be subject to repurchase by the Company at the original exercise price of the option in the event of a termination of an optionee’s employment prior to vesting. RSUs granted to employees generally vest over a four-year period from the date of grant; 25% vest at the end of one year, and 75% vest quarterly over the remaining three years. Stock Options The following table summarizes the activity for all stock options under all of the Company’s equity incentive plans for the years ended December 31, 2022 and 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, 2020 |  | 8,019 |  |  | $ | 10.35 |  |  | 6.87 |  | $ | 473,371 |
Granted |  | 641 |  |  | 47.06 |  |  |  |  |
Exercised |  | (1,977) |  |  | 8.88 |  |  |  |  |
Canceled |  | (426) |  |  | 24.70 |  |  |  |  |
Outstanding at December 31, 2021 |  | 6,257 |  |  | 13.60 |  |  | 6.19 |  | 140,326 |
Granted |  | 942 |  |  | 28.10 |  |  |  |  |
Exercised |  | (1,401) |  |  | 8.04 |  |  |  |  |
Canceled |  | (581) |  |  | 28.17 |  |  |  |  |
Outstanding at December 31, 2022 |  | 5,217 |  |  | $ | 16.08 |  |  | 5.68 |  | $ | 58,784 |
Options vested and exercisable at December 31, 2022 |  | 3,820 |  |  | $ | 11.36 |  |  | 4.58 |  | $ | 55,466 |
Options vested and expected to vest at December 31, 2022 |  | 5,217 |  |  | $ | 16.08 |  |  | 5.68 |  | $ | 58,784 |
The weighted-average grant-date fair value of stock options granted during the year ended December 31, 2022, 2021 and 2020 were $17.21, $27.72 and $9.33 per share, respectively. The total intrinsic value of the options exercised during the year ended December 31, 2022, 2021 and 2020 was $30.8 million, $106.1 million and $251.7 million, respectively. The aggregate intrinsic value is the difference of the current fair value of the stock and the exercise price for in-the-money stock options. The total fair value of options vested during the year ended December 31, 2022, 2021 and 2020 was $16.7 million, $36.4 million and $104.8 million, respectively. The Company estimates the fair value of stock-based awards on their grant date using the Black-Scholes option-pricing model. The Company estimates the fair value using a single-option approach and amortizes the fair value on a straight-line basis for options expected to vest. All options are amortized over the requisite service periods of the awards, which are generally the vesting periods. The Company estimated the fair value of stock options with the following assumptions:
|  | Year Ended December 31,
|  | 2022 |  | 2021 |  | 2020
Risk-free interest rate |  | 1.60% - 3.80% |  | 0.90% - 1.30% |  | 0.30 % - 1.50 %
Volatility |  | 65.60% - 69.40% |  | 63.00% - 67.80% |  | 54.40 % - 59.70 %
Expected term (in years) |  | 6.10 |  | 6.00 - 6.10 |  | 5.30 - 6.10
Expected dividend yield |  | —% |  | —% |  | —%
The expected term assumptions were determined based on the average vesting terms and contractual lives of the options. The risk-free interest rate is based on the rate for a U.S. Treasury zero-coupon issue with a term that approximates the expected life of the option grant. For stock options granted in the year ended December 31, 2022, the expected volatility was calculated based on the Company’s average historical volatilities and for the stock options granted in the year ended December 31, 2021 and 2020, the Company considered the volatility data of a group of publicly traded peer companies in its industry. The Company accounts for forfeitures as they occur and, as such, reverses compensation cost previously recognized in the period the award is forfeited, for an award that is forfeited before completion of the requisite service period. Restricted Stock Units The following table summarizes the activity for all RSUs under all of the Company’s equity incentive plans for the years ended December 31, 2022 and 2021 (shares in thousands):
|  | Shares |  | Weighted Average Grant Date Fair Value
Unvested balance at December 31, 2020 |  | 7,103 |  |  | $ | 40.17 |
Granted |  | 1,992 |  |  | 48.12 |
Issued |  | (3,755) |  |  | 42.70 |
Canceled / forfeited |  | (855) |  |  | 34.05 |
Unvested balance at December 31, 2021 |  | 4,485 |  |  | 42.73 |
Granted |  | 4,500 |  |  | 27.66 |
Issued |  | (2,968) |  |  | 40.31 |
Canceled / forfeited |  | (1,475) |  |  | 35.85 |
Unvested balance at December 31, 2022 |  | 4,542 |  |  | $ | 31.60 |
Warrants for Strategic Partners The Company has issued warrants for up to 846,943 shares of its common stock to certain strategic partners (calculated using the respective quarter of grant's closing stock price). The exercise price of each warrant is $0.01 per share, and 346,269 and 69,309 warrants were exercised during the years ended December 31, 2022 and 2021, respectively. During the years ended December 31, 2022 and 2021, the Company recognized stock-based compensation expense of $4.3 million and $10.7 million, respectively, under time-based warrants. 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 offering period which encompasses four 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. Under the ESPP, 1,000,000 shares of the Company’s common stock have been reserved for issuance to eligible employees. The ESPP provides for an automatic increase of the number of shares available for issuance under the ESPP on the first day of each fiscal year beginning on January 1, 2016, equal to the least of 5 million shares, 2% of the outstanding shares of the Company’s common stock on the last day of the immediately preceding fiscal year, or such other amount as may be determined by the Board of Directors. In 2022 and 2021, the Board of Directors authorized an additional nil and 4,028,125 shares, respectively, reserved for issuance under the ESPP. Stock-Based Compensation Expense The Company recognized stock-based compensation expense, including ESPP expenses, in the consolidated statements of operations as follows (in thousands):
|  | Year Ended December 31,
|  | 2022 |  | 2021 |  | 2020
Cost of customer agreements and incentives |  | $ | 9,181 |  |  | $ | 11,469 |  |  | $ | 4,315 |
Cost of solar energy systems and product sales |  | 9,274 |  |  | 5,775 |  |  | 1,582 |
Sales and marketing |  | 56,857 |  |  | 104,087 |  |  | 53,366 |
Research and development |  | 2,667 |  |  | 3,806 |  |  | 2,518 |
General and administration |  | 32,654 |  |  | 85,863 |  |  | 108,806 |
Total |  | $ | 110,633 |  |  | $ | 211,000 |  |  | $ | 170,587 |
During the years ended December 31, 2022 and 2021, stock-based compensation expense capitalized to the Company’s consolidated balance sheet was $12.4 million and $10.9 million, respectively. As of December 31, 2022 and 2021, total unrecognized compensation cost related to outstanding stock options and RSUs was $142.3 million and $175.8 million, respectively, which are expected to be recognized over a weighted-average period of 2.7 years. Total unrecognized compensation cost includes the assumed unvested Vivint Solar awards to be recognized as stock-based compensation expense over the remaining requisite service period. Per ASC 805, the replacement of stock options or other share-based payment awards in conjunction with a business combination represents a modification of share-based payment awards that must be accounted for in accordance with ASC 718, Stock Compensation. As a result of the Company’s issuance of replacement awards, a portion of the fair-value-based measure of the replacement awards is included in the purchase consideration. To determine the portion of the replacement awards that is part of the purchase consideration, the Company measured the fair value of both the replacement awards and the historical awards as of the Acquisition Date. The fair value of the replacement awards, whether vested or unvested, was included in the purchase consideration to the extent that pre-acquisition services were rendered. In the year ended December 31, 2022, the Company recognized compensation cost of $4.6 million for modifications due to accelerated vesting of unvested outstanding shares for 30 grantees. 401(k) Plans The Sunrun 401(k) Plan and the Vivint Solar 401(k) Plan are deferred salary arrangements under Section 401(k) of the Internal Revenue Code. Under both the Sunrun and Vivint Solar 401(k) Plans, participating U.S. employees may defer a portion of their pre-tax earnings, up to the IRS annual contribution limit ($19,500 for calendar year 2022). Under the Sunrun 401(k) Plan, the Company matches 100% of the first 1% and 50% of the next 5% of each employee's contributions. Under the Vivint Solar 401(k) Plan, the Company matches 33% of each employee's contributions up to a maximum of 6% of the employee’s eligible earnings. The Company recognized expense of $21.5 million, $14.7 million and $9.6 million in the years ended December 31, 2022, 2021 and 2020, respectively.

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