Q1 2020 Earnings Call
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Welcome to the quarter Y., Katherine it's funny Sunrun incorporated earnings conference call all I feel place all your different that any background noise.
Your speakers remarks, there will be a question and answer session. If you watch asked a question during that time suppress far down the number one on your telephone keypad.
That's right your question.
Okay. Thank you.
It sounds like saturates during the conference over to Mr. Patrick Jobin.
Hi, Thank you operator, thank you for those on the call joining us today Im sorry for the briefed away.
Before we get please note that certain remarks, we will make on this conference call constitute forward looking statements. Although we believe these statements reflect our best judgment based on factors currently known to US actual results may differ materially and adversely please refer to the company's filings with the FCC for more inclusive discussion of risks and other factors that may cause our actual results.
To differ from projections made in any forward looking statements. Please also note. These statements are being made as of today and we disclaim any obligation to update or revise them on the call today or when George Sunrun co founder and CEO, Bob Coleman Sunrise carts, CFO and at Fenster Sunrise co founder and executive Chairman the presents.
Asian today will your slides, which are available on our website that investors dot sunrun dot com.
Now, let me turn the call the what.
Thanks, Patrick we were pleased to share some runs first quarter results and progress against our strategic priorities.
In the first quarter, we added 13500 customers, representing 97 megawatts of deployments, a 13% year over year increase.
We generated 81 million of net present value and created the NPV per watt 98 cents or over $7100 per customer.
We grew our pace of customers, 23% compared to last year now nearly 300000 strong.
On completing the initial analysis of the likely near term impacts of cobot in March we expressly pivoted our strategy to focus foremost on prioritizing the strength of our balance sheet.
But the secondary consideration to remain in position to quickly ramp growth when appropriate.
We believe this strategy is proving successful.
Today, we expect the company will maintain our cash balance and generate that earning assets during 2020.
So what I'm most excited about is our increased corporate metabolism.
Specifically the improvement in our operating pace and agility.
Many of the changes we went up recently made were based on improvement initiatives initiatives that up in a well underway for some time cobot simply provided a powerful catalyst.
Our teams have compressed what may have been months or even years of evolution in two weeks, we ramped our digital lead generation efforts rapidly and that led to an all time high number of digital leads in April.
We launched a successful consumer promotion inside of two weeks, we moved our entire field sales team to digital sales within one week, we changed our lead routing and improve the productivity of our sales consultant.
All of these actions culminated in end of April order volumes that were out and even above pre covered level.
[laughter] down funnel, we haven't moved to drone based site inspections and over 80% of our branch is allowing us to quickly pivot to contact free inspections.
We have accelerated our progress in reducing permitting costs by bringing more building departments online.
We are starting to use a new proprietary racking technology that we expect to have a meaningful impact on in full productivity.
We've also launched a new field optimization software platform.
Well, it's too early to determine the full benefit that these actions. It is clear that our teams are embracing the changes necessary to help us drive meaningful improvements to our profitability and ability to scale quickly.
Well sales volumes in our direct business were briefly down as much as 40% in late March they've been growing steadily sense and we have begun recalling furloughed workers.
We do expect better withdrawal from big box retail stores permitting delays in certain jurisdictions and other frictional costs related to cope and May continue for some time and impede our near term cost declines in insulation volumes.
Because our generally strong unit margins at low capital call afford us the ability to operate at reduced NPP levels without consuming cash we are choosing to maintain an athletic positioned to benefit from a quick recovery.
Such we expect NPV levels will be below our typical targets for the next two quarters. However, we expect our increase change management will enable us to emerge with lower unit cost higher volumes and an even more diverse set up lead channeled into 2021.
These sales and operating initiatives combined could deliver around $2000 in cost savings per customer in the medium term, which would be a 25% improvement in MPV per customer.
I'm confident that we will emerge stronger and in a position to gain market share both through improvements in our direct business and share gains in our channel business.
The current environment has highlighted to local solar companies that sunrun. It's the best partner, we have the tool to enable virtual selling a strong brand that consumers trust in a reputation of financial stability.
We have built our channel partner business to maximize the value for our partners, our investors and our customers and to be run sustainably.
Recently added five new channel partners to our platform with the majority on exclusive terms they have chosen to partner with us for the value they derive from sunrun, not because of higher pricing or bonus payments.
All five new channel partners will utilize our advanced selling tool and cited this is one of the many reasons for wanting to work with Sunrise.
Overall more than 90% of our partners have signed on to use this quoting and design platform as it helps them optimize their sales activities, including virtual selling we believe the tool is unique and further differentiates us.
In addition to all the exciting transitions that are underway in tells an operation we continue to advance our grid service business development activities and increase the adoption of brightbox or solar and storage offering.
Attachment rates for Brightbox remain strong and it is clear that solar plus storage will be the standard offering in the coming years.
In April battery attachment rates for over 60% in the Bay area across all geographies and the first quarter, we group Brightbox installations, and our direct business more than 50% year over year.
Nationally we have now installed over 10005 Bucks systems, and we will be launching more markets in the coming back.
Our solar and battery offering is important because it provides customers with the ability to better manage when they consume energy from the grid and provide backup power. During blackout. It's also strategically important because it unlocks additional sources of value to utilities in grid operators and to Sunrun as the resources can be shared with the grid.
We now have more than 50 million up grid service revenue either contracted oriented advanced pipeline.
We have announced five awards and expect to announce more programs in the coming months.
The interest is very strong for instance in California, we're in discussions with all types of load serving entities that sort of millions of potential customers to partner with them to provide capacity and energy at the local level.
As the market leader Sunrun is the natural partner.
These partnerships will not only provide further proof of the value of home solar and batteries, but extend our scale advantage and improve our customer acquisition costs by leveraging co marketing opportunities and enhance data driven lead generation.
With our solar as a service model customers can adopt fuller with zero upfront costs and realize immediate savings.
As more people are working and staying at home they will be relying on more daytime energy than they did previously.
In California households are using as much as 20% more electricity.
Home solar and batteries can offer more certainty during uncertain times greater financial value and protection for families. When they'd be done. Most this is particularly critical in markets like California, which will soon to enter another wildfires season with rolling blackouts, that's part of the utilities wildfire prevention efforts.
This year, many fire preventative actions may not be completed as prescribed burns have been halted.
Well, we're not providing guidance in this environment early indications are that even if the country enters the prolonged economic downturn with poor consumer confidence people will still want solar and they want it even more since it allows them to save money and received reliable power without constraining their debt capacity.
The recent events have only strengthen my conviction in a strong long term growth outlook for the sector and sunrise ability to gain share at the clear leader in the coming years.
Our improving sales performance through April affirmed this outlook.
Turning to a brief update on heart U.S.G. efforts.
We believe building a sustainable business by embracing environmental social and governance is important for employees our partners, our investors and for the communities in which we operate.
This year, we created a formal committee a female management senior management to oversee yes. She matters. In addition to board level oversight.
A few weeks ago. We also published our third annual impact report I'm pleased to share that we're making a big difference.
Sunrun systems have prevented the emission of pollutant known to harm public health, including preventing nearly 5 million tons of Seo too.
In short, yes, she is core to our business model and our company culture.
[noise] last week, we announced that Tom been Reich power has joined Sunrun as its new CFO effective next week.
Replace Bob Coleman, who has decided to leave the company to spend additional time with has extended family and support is interest in higher education.
Well, we're sad to see Bob leave we're excited that Tom has agreed to join the team Tom brings a wealth of experience that will help sunrun scale. It service offering even even further into the home. He has been a leader at disruptive mission driven companies in the consumer energy industry, including Google That's at Tesla.
With that I'm going to turn it over to Bob to review the Q1 performance, Bob we're not letting you off the hook just yet.
Thanks Len.
It's been a personal and professional highlight to be part of this tremendous team from before the IPO I mean, the market leader, while nearly tripling the base of customers and helping the company build cash flow momentum over these last five years.
Looking now to the first quarter's results.
NPV into first quarter was approximately $7100 per customer or 98 cents per watt.
Project value was approximately $29700 per customer or $4.07 per watt in Q1.
Moving on to creation costs on slide nine.
In Q1 total creation cost for approximately $22600 per customer where $3.09 per watt.
An improvement of 37 cents or 11% from the first quarter of 29 team.
I was with project value creation costs to fluctuate quarter to quarter.
Blended installation cost per watt.
Which includes the cost of solar project quite by our channel partners as well as installation costs incurred for Sunrun built systems.
$2.39 per watt.
20 cents improvement from the first quarter 2019.
It's all cost for systems built by Sunrun were $2.07 per watt.
An increase of 11 cents from last quarter.
Increasing mix of batteries combined with typical seasonal decrease in Q1 deployment volume contributed to the increasing cost computed on a unit basis.
In Q1.
Our sales and marketing costs were 76 cents per watt.
Down two cents from the first quarter 2019.
Our total sales and marketing unit costs are calculated by dividing cost in the period by total megawatts deployed.
In Q1.
In a cost for 16 cents per watt.
Finally.
When we calculate creation costs, we subtract the GAAP gross margin contribution realized from our platform services.
This concludes our distribution racking and lead generation businesses.
As well as solar systems, we sell for cash or with a third party loan.
Our platform services gross margin was 21 cents per watt Q1, one cents higher than the first quarter of 2019.
Our cash and third party loan mix was 15% in Q1.
We expect this mix to remain in the team.
These systems are able to benefit from safe harbor into extend by TT higher level.
In the first quarter, we deployed 97 megawatts.
Turning now to our balance sheet.
We ended the first quarter with $366 million in total cash.
Quarterly cash tender with generation was $5 million.
We define cash generation has the change in our total cash left the change in recourse debt and other adjustments, including our Safe Harbor program business acquisitions and common stock repurchases.
Cash generation can fluctuate significantly due to the timing of project finance activity.
Now I'll turn it over to add for the last time.
Thanks, Bob.
Hi, I'm going to review, our gross and net earning asset metrics for the quarter and then I'll discuss the financing markets for our assets, our asset performance and recap our capital runway.
Turning to slide 10.
Most earning assets were 3.9 billion as of March 31, an increase of 22% or $695 million from the prior year.
Net earning assets were 1.6 billion, an increase in 12% or 170 million from the prior year.
Our total cash balance was 366 million as of March 31st an increase of 3 million from last quarter or 56 million from March 31 of last year.
Well the onset of covert caused certain public market investors to divest assets will be digested the implications on their portfolios.
The ongoing data becomes available in fact based decision making is again possible markets are beginning to normal.
Return to database decision, making is aware residential solar signs brightness.
Consistent with the 2008 to 2011 financial crisis, we continued to experience excellent customer payment performance.
As of April 30, 2020.
Delinquencies as a percent of total P.P.A. and lease accounts receivable in each basket 30, 60, 90 and 120 days.
Our lower than they have been at anytime in the past six months.
Hum electricity is at the top of the customer payment waterfall, we charge last for power than the incumbent utility and due to the tiering of electricity, placing in many jurisdictions.
Greetings from solar grows the electricity use increases this further enhances our value proposition.
You can see this strong performance on slide 13.
The initial credit market reaction from the onset of co bid would have increased our weighted average capital costs from around 5% to around 6%.
How do we have been forced to raise capital as both senior and subordinated debt became slightly more expensive.
However, because we're producing strong payment performance and we expect that trends continue spread should fall over the medium term like me the all time low.
At the same time, we have entered a long term [laughter] ultra low interest rate environment.
Today, the interest rate futures market quote the 10 year swap at or below 1.5% at all times through 2039.
As we demonstrate the resiliency of this asset class through a second recession, we expect that the result, lower spreads will combine with low base rate can provide a weighted average capital costs below 5% soon and for decades to come.
Well, we spent well we've been active in the asset backed securities market. The last couple of years.
Option to date, we've raised twice as much senior debt in the commercial bank market as in the ABS market.
We enjoy numerous strong relationships with commercial bank lenders.
Today, the commercial bank market offers relatively better terms for senior debt with all in yield at about 4%.
One additional advantage the commercial bank market right now is that we can lock in todays base rate was long term interest rate swaps, while enjoying the ability to reduce spreads as market conditions improve.
In addition, as capital inflows to asset backed securities return, we expect that market will recover becoming cheaper than ever as our collection performance through this time period extend and becomes understood.
We continue to.
See significant interest from tax equity investors were pricing and terms don't vary significantly through cycles in April we upsized, one tax equity fund on terms materially identical to the existing facility and we are an ongoing discussions with other investors also a capital costs in line with existing funds.
[noise] suddenly has a long in improving project finance, one way the affords us the ability to be selective in capital markets activities.
As it may six 2020, considering only close tax equity and debt capital commitments. The company's pre arranged financing provide capital to fund approximately 220 megawatts at least projects beyond what was deployed Q1 at above 90% of contracted project side.
We also have additional project finance capital to fund installations at lower advance rate.
With that I'll turn the call back over the line.
Thank you Ed let's open the line for questions. Please.
At this time, if he would like to ask a question. Please press Star then to number one on your telephone keypad I didn't ask that question. Please press star one on your Touchtone telephone, we'll pause for just a moment to fees or any question.
And your first question comes from Blonde that Brian Lee from Goldman Sachs.
Turning to open.
Hey, everyone. Thanks for taking the questions hope or hope you, all well and safe.
I guess, just you know in this environment and with all that's going on maybe a bigger picture question to start off I'm wondering what sort of success, you're seeing the shift to virtual sales that platform.
I know you gave some broader commentary around trends, but specific to that ship kind of what you're seeing and then as you think further out sort of how how structural a part of your business model do you think that's going to end up being what could it means you know to the cost structure any kind of quantification. If you could provide that'd be great.
The last thing just on that front, how do you differentiate I suppose everyone listening to this new environment and everyone's going virtual in online, but what do you guys do or what do you what does anyone due to kind of differentiate on that platform versus the channel we've been accustomed to in resi solar.
[laughter] great questions, Brian So I'll take those and so I think we're seeing a lot of success and the conversion to digital sales and I really do think one of the benefits of that says you know we've taken how the industry would have evolved you know probably in two years and we've done. It then you know a mom.
So you know what we're seeing is that where overall holding conversion rates and digital and selling environment versus of face to face and what we see is that the <unk>. The people are less likely to sign if their digital they're less likely to sign the order.
Her but they're more likely to follow with all the way through to the install it feels like a stickier sale to the overall conversion as a wash which is fantastic because that means our sales force can be a lot more productive they can handle on many more appointments per day than when they have to drive and just to.
Just to kind of put a finer point on that you know we had our.
A day in April where we delivered record orders ever and its with us significantly smaller salesforce.
So it's it's incredibly encouraging you know we still we still of course, you now have a big footprint historically through retail stores and other face to face activities. So you know while digital sales are up and hitting kind of record in April you know overall, we're still going to see a slow.
Down over the next couple of quarters as you know, we adjusted and H. chains are closed and you know just other friction sources, but I think that says it's I think it's a long term structural shift. So it's hard to say you know what percentage, but you know if we're seeing the same kind of.
Conversion rates with higher productivity, you may want to shift most at your activity to you know virtual sale, you're still probably going to want to do the lead generation out of the big box retail stores like we do because those are efficient ways to reach homeowners, but I'm I'm very encouraged by the transitioning them what it can be per acquisition.
Cost you know I quantified in the call I think a lot of these activities both sales and operations combined will save about $2000 per customer I put about half of that towards though the sales improvements that we're seeing so you know somewhere around a thousand dollars per customer is probably directionally where.
We are you know, which is which is pretty meaningful.
The question around differentiation I think I think you know first.
Way that we differentiate us that you know, we just do have sleeker tools and system to [laughter] excuse me.
Do the design and create the design remotely for the homeowner in a way where you're not going to have to make a bunch of downstream changes.
After you visit the site. So there is real technology platform differentiation for that quoting and design piece of the equation and I think that's part of why we're seeing our ability really to gain share and when channel partners because they're more attracted to though tools that in this market. There's also just spend.
Fits from.
You know, having the balance sheet and the strength could spend on advertising you know advertising is cheap right now that's one of the benefits. So you know that stronger you know better capitalized companies are able to spend there and actually generate believed.
You know and then I think there. There's also just the the the financial stability, which is really attracting people to a company where they feel there's more long term you know security and they want to sell on top of that platform. So those would be some other ways that we differentiate on that.
Digital sell it sounds right.
Did I get all your question, let me know if I were yeah. Yeah. Yeah. You did appreciate you covering all four of them just one last one for Fred and I'll pass it on on the you know the financial stability point, you mentioned I appreciate the the overview as always that you provided but can you give us just in this context.
In this environment I think before it really digging into sort of the financials in the balance sheet, and where everyone's liquidity sort of comes from.
Can you give us a bit more granular color around sort of your sources of liquidity.
As it stands here today I know, what we can see on paper and what you've talked about in terms of capacity, but maybe if you could walk us through a couple of the pieces what capacity you have and then also you know there's a few other pieces it sounds like that are less transparent but.
But you could leverage in the case, where you needed to go if you could just kind of walk us through a couple of pieces around the a the sources of liquidity.
Sure Great question Brian.
So the liquidity come in several facets right on the on the one hand, there's the cast which we have on the balance sheet, which is clear.
And then on the other hand, there are our undrawn and available tax equity and debt commit that.
It's worth noting that in a footnote 11, I think it as well in the indebtedness footnote the availability there is disclosed only in the context of what could be drawn against assets that are already in service.
So look elsewhere in the queue for the total capital commitments.
Available to the company.
To see you know what is available to us as a the.
I continue to build and what assets, obviously, we've summarized that in the call.
By saying that you know we can fund.
The next.
200, and a 20 megawatts beginning to of assets at or above 90% of contracted project value.
Even if we didnt raise any additional capital that said we are in discussions with folks as always and markets remain open.
Open to us.
I expect we'll continue to raise capital even over the near term to add to that stockpile. So sort of between you know that which we have on the balance sheet.
And that which is committed and available to US you know we're confident that you know we have the capital you know to.
You know fund all the installation than we might have this year. In addition.
We expect that we'll be able to hold our corporate cash balance over the course of the year and add to book value.
Okay. Thanks, a lot ever.
I might just before as we wait as we wait for the next question I understand that some of the prepared comments may have had subs Bobby coverages. So we have posted the transcript to our web page investors Dot dot com.
So you can pull it down there if you missed pieces I bet.
Your next question is from Julien Dumoulin Smith from Bank of America Merrill Lynch.
The open.
[noise] excellent or good afternoon, everyone Hope you all are doing well wanted to just follow up on three issues and if I may maybe you'd be question hard hard to respond per se, but.
Relative to what you all have talked about at various points. How are you thinking about the trajectory for cash burn this year.
And I know that presuppose, a certain assumptions, but I'd be curious how you frame that.
How are we do but MPV per watt metrics and again I know you just talk to it in round terms, a moment ago, but just to be a little bit more articulate how are you thinking about that and TV trajectory as well and then related how are you thinking about the trajectory of like gross volumes as well relative to the.
Jeffrey that we've seen you know cobot, if you want to talk to that as well in terms of compounded growth I I know, there's a lot there but.
That's for sure generation within trajectory of just volume metric.
Expectations, given what seems like a very surplus.
Yes, Thank you Jill and those aren't the key levers. So I'm pleased to answer that you know what we are seeing is you know I think again.
Not providing formal guidance in this environment, because they're just too many things outside of the company's control you know with H is closed and the retail stores not open for business. So you know those are you know real constraints that are you know we're facing on if you look at most of the industry sources, they're reporting that residential.
Sales will be down in Q2, 30 to 50 Percentish and at this moment, we'd be tracking to the more favorable end to that range. You know again, assuming there aren't any further shutdowns, but we you know we believe we're doing on the you know performing on the other better and that the industry.
I think you know what we would see that for NPV out of that is that you would see MPV come down over the next quarter and probably into Q3 as well into lower level, you know sub the taller target and we think that that would then.
Climb back up after those couple of quarters to more normalized levels. So I think it's a couple of quarters of washing through with all of this friction on you know the good news is that the strength of the capital markets and you know some of the cost actions, we've taken would mean that.
Even given that shape, we will preserve our cash balance through the year. So we will generate book value. We're gonna have you know likely to have maintained the cash plus grow anyway, you know without refinancing any existing assets. So that you know really shows the resiliency of the business and I think again more.
Are you know what we're more excited about is coming out of the other side of this it's clear consumer interest is there I mean, you see that with how significant the sales have come back in April and you know again coming up on another wildfires season, and just the lack of control that people feel that.
Resilient see message around solar and batteries and taking care of my family and take care of my home. It's just a resonating not much more cheaply and where our products like hot nothing upfront and save people money.
So it really resonating so we're quite optimistic about emerging out of that stronger and you know even given the you know a couple of quarters to wash. All this friction through we will you know we do expect to grow book value is here.
Got it but just to clarify what you were saying second to know too cold.
Implicitly you're talking about no transferred one isn't going to be those can be on about.
But no classroom for 20 years.
Aspirationally, we stand right now and then separately with respect to per watt.
He was a certain amount of we'd go to refund I'm going on.
Based on what you're doing a good reason to believe that.
Over the course of a couple quarters yorkie backup relatively comparable if you do not for.
Yeah, five major you know again assuming.
Assuming there are not further changes to shelter in place and like that things generally are easing a bit as we've seen them over the last month, yes that would be our expectation and you know part of you know part of what we're trying to do as well you know, we're making the decision to you know.
Keep investing you know keep as many people working up call over the next couple of quarters, because we believe that growth is going to come back and we want to be in athletic position to take advantage of that so that the health of the financing markets and the cost of capital and our backlog in capital allows us.
To make those calls where MPV will be lower than historical for the next quarter to but we should come back out of that at the end of the year.
Right.
The goal, but doesn't give you enough. This is a quarter Brooklyn, new financings that we're putting in place today right just you.
<unk>.
To be very clear it to be very clear yet with our existing you know contracted project finance, we think we're not relying on we're not counting on you know a significant improvement or anything to drive that result.
Right existing markets for <unk>.
Yes in the range that's exactly correct.
Correct absolutely.
Thank you all for the clarity appreciate it.
Yep.
Your next question from Stephen Byrd.
From Morgan Stanley here that is now open.
A union families are all doing well.
Thank you. Thanks I wanted to just go back to your excellent commentary on the state of the financing markets I guess as you think about normalized cost of financing, let's assume that this low interest rate environment continues, which I think it's safe to assume.
But some of the sort of market volatility settles down we might just giving a little more commentary about how you might think about the long term cost of a financing for some run in a in the very low entry apart, we find ourselves in sort of putting the noises side.
Okay. Great question, yes, so as I was I think alluding to little bit in the prepared remarks, we would expect it on a weighted average cost of capital basis to be below fives.
And Ah you know consistently.
You know we saw prior to a co bed spreads for a senior debt you know at or slightly below 200 basis points over call. It the swap rate.
Which today is about 0.7%.
And then on the sporting needed capital side, you know in the high single digits.
And those capital cost in part you know reflected I think some investor uncertainty as to how assets might perform you know in a economic downturn.
You know, even though we actually have good data from the 2008 to 2011 financial crisis not all other.
Developers in the market due to I think what will happen you know when we come out the other side of this with what we believe we'll continue to be excellent payment performance.
Is that you know advance rates on the senior debt may increase spreads, particularly on the senior debt should decrease.
And then likely cost of capital on the subordinated piece should decrease as well.
Long said I thought that you know residential solar is actually lower risk asset class than utility scale solar.
And because utility scale solar systems have you know individual points of failure single customers, who are weak investment grade subject to individual regulation.
And residential assets have fantastic diversity and equipment offtake and regulatory regime.
And and actually as as we're showing here because it's the sale of electricity incredibly high credit quality and so I think that as you.
You know people get back to investing and look at the data and figure out where the you know put their money. That's all find this to be a very attractive asset class, which will I think tribes. The weighted average cost of capital you know as I mentioned below 5%.
That's that's really helpful. And then I wanted to step back and just think about the limits on growth because as your target markets.
Emerge from coping 19, and and there's an attempt to.
To bring the economy back in activity resumes.
Hi level, you've given commentary on through the state of the business overall, but just what do you think of is the the limiting factors there in terms of.
Resuming a very strong growth would it be.
From personnel point of view it sounds like financings not been nothing to challenge.
Is it sort of getting out to a two to visit customers, which also sounds like it's not an issue I guess, what I'm struggling with is it feels like within relatively short order growth growth can you you can achieve excellent growth, but I'm just trying to think through what might be the limiting factors here.
Oh.
Yes. Good question, we do agree with you and I think you know as I've mentioned on the call the consumer value proposition around control and taking care of the house and resiliency with battery is getting cheaper and.
Or quint services opportunities to offset the cost the battery the value proposition is getting stronger than where it was previously with just a solar only kind of savings oriented product. So that's a really big healthy shift and the positioning and what customer is actually contracting for.
And I think you're right I think the you know the short term. The short term constraints are really there are you know just permitting off is that our CLO physically. So you know, it's getting better but if you look that and the March it was about 30% permitting off this just weren't ticket permits you know and the Bay area stop.
For a while New York is still down you know now it's much better and were chipping away at it and people are recognizing that this is an essential service, but I think we're still lot fifteenish Chris that.
Closed down and then you just there's just a customer awareness factor and the industry with so a cost them to generating leads with face to face method.
That there's just an adjustment period. So you know how does the industry joswick more traditional sort of advertising.
You know that just will take some time and also you know it's likely that we figure out how to how to have faith, social doesn't thing and a little more face to face activity and returned to those retail stores. So you know we're planning for that certainly in certain geographies as earlier. This month, so be on so I either so the constraint as well.
I believe that you know that the health and safety concerns on but again I you know, it's not it's not years it's quarters.
That's really helpful. Thank you very much whatsoever.
Thank you.
The other thing I would offer to its hopefully you know one of the other things we're focusing on is really improving the cycle apart from when a customer.
Signed the contract to when it gets installed and you know I do you guys know that's been a couple months typically a if we're able to affect a lot of his process changes that we haven't in motion right now and you tightening that you get recovery comes faster and just to highlight what's possible the seamless.
That's a move to an intent permit and we were able to just last week do a same day install to the customer signed up in the morning, We got the permit through and we installed in the afternoon. So.
So you know that's not going to be our normal way of operating but again, what's possible. When you can start to streamline the whole system.
And your next question is from Michael Weinstein from credit Suisse through United sell thing.
Hi, good afternoon guys.
<unk>.
Good afternoon [laughter].
I was wondering if you could talk a little bit more about resources loan under the current condition or customers, referring to see leases in a major recession.
No I would have been my expectation, but I'm not sure what you're actually seeing on the ground.
No it's too early to.
Conclusively you know comment on that but I think that is something that we will we do expect to happen as well I think its intuitive.
But the fact that as things get tighter people do not want a week there pressure that capacity if they don't have to and could be attracted to the so at the service model, which you know obviously doesn't constrained them. So intuitively, we think it makes sense. There's some positive early signs, but it's too early to call.
Hi.
And it's Ed I might mention even before cooler bid. We were we were seeing some differentiation in payment performance between solar loans and solar leases.
Thats something people will be watching carefully to because it might affect the relative capital cost of each product and therefore, the relative attractiveness to customers as well.
Mhm area, and one and one other nuance hip pile on there is.
Well remember, we have a pretty robust safe Harbor program, where we you know warehouse equipment or about 500 megawatts at the 30% tax credit. So you know that getting is likely to extend further than expected now of course, given you know that covert interruption. So you know the Dell.
The also starts to get bigger you know as we are able to use that 30% credit but that also helps just kind of shift that market and shifted behavior.
Right.
When you mentioned the $2000 per customer incremental value.
You're cutting costs, making things more efficient sales process is that and that's over the medium term. What do you think the medium term really means that this year or is it next year.
Yeah, I would say I would say, it's not you know the next again, it's going to take a couple quarters to.
You know washed through this interruption just given cycle times, some things and interest that work still not able to operate at full capacity, but it's within reach and you know it.
Four quarters, you know I would call. It about that you know early first half next year.
Gosh it.
Are you hearing anything about Oh expectations for policy support in DC renewable [laughter] coin heading into an election year and under the current circumstances.
You know we're at were.
We are advocating for you know extension of the tax credit we think it's a great policy and one of the that one of the biggest impact we can have on climate change you know, but I think we're not we're certainly not counting on it I don't know that we would we would put our chances that greater than 50% on that and I don't know.
You want to add anything.
No I think that's a good summary, there a number of people who are strongly supportive of that there's obviously a lot of priorities at the moment.
Our our base case.
I would be you know that it's less likely than not to occur.
But we do continue to think it would be a good policy. It makes sense given the interruption that Ur cobot has caused them the growth of all forms of.
Solar utility scale to residential and that it would be a good policy rationale for and it may or may not happen, but we're certainly proceeding with our plans under the Oh the base case assumption that it's not.
Right actually.
With 500 megawatts of Safe Harbor, he might not want an extension of the tax credit anyway, you're.
He will remain an advantageous position right.
But you know, we generally prefer a large [laughter] pie.
Hi.
Right policy, but yes, we are well positioned if there is not a or if there's not an extension <unk> yeah.
One last question on grid services.
Yeah.
The weak results.
The auction this year I'm just wondering how how has the crisis affected you know the ability to generate value in this section of your Uh huh.
I wouldn't say, it's just been moving along independently you know I think that the the only challenge with credit services. It's it's not really the value proposition that sort of.
Helping to really work that the rules in the market. So that people can participate and are able to participate in our fairly valued for you know the value stack that they bring so we've just been slowly chipping away at that and educating different load serving entities.
So I don't it's really continued to you know progress I think obviously, there's some people who aren't working you know quite as much. So they they slow a little bit, but we're optimistic that we'll be announcing further progress I'm out over the next couple of months.
Great. Thank you very much for your time. Thank you.
Your next question is from Joseph Osha from JMP Securities. Your line is now open.
Oh, hi, doing thanks for taking the good question I have three completely unrelated questions get first through weights to tax equity at I. I heard your commentary I'm wondering webber.
What's happening here, you've got market really hasn't been impacted worried that it has been in some people are just being treated a little more equal where you can get others Oh. That's my first question, but the second one.
Just relates to workforce, we build below the I know that has been a a problem I'm just kind of puts and takes on the one here and activity is lower but the other hand people were disrupted so I'm just wondering what what the situation looks like in terms of the availability of 12 installation crews and then Oh, but there are more involved a war oh.
Okay.
That's true I can answer the tax equity questioning Lynn can you talk to the workforce considerations.
The tax equity market continues to be healthy you know, there's some investors who have more capacity.
Because they're supermarkets.
Or because they are doing better or some of their existing projects are being deferred. So a couple investors you probably have less tax capacity by and large you really haven't seen any significant change pre or post code that at least and the availability or in terms of tax equity that we as someone who face in the marketplace.
Yeah and in terms in terms of the workforce availability I mean, certainly we yes, we talked about on the Q1 preview. We really are prioritizing trying to furlough wherever possible because we do expect the growth to return and we have started and you know and.
Geos hiring those workers back on so you know we do believe that that that that we will be well served by that decision on but it's a it's gotta being on where you know we're not dropping the ball on trying to be a real you know have a differentiated place to work I think you know.
He just look forward and you know our ambitions for how many batteries were gonna be installing and how much growth. We're gonna habits gonna be skilled labor is going on p., a shortage and you know electricians and things. So we're pleased with a lot of the programs that we put in place around career pathing competitive pay and you know I'm you know really building.
As a company culture that it's human centered and and values. The frontline employees. So we think that will serve us well to be a preferred employer, but we're not dropping the ball on it because I do think it's going to be an ongoing it ongoing thing I do I don't worry over the next couple of quarters that it's a big challenge for us.
Okay.
Thank you and then the third and final question back to your grid services. This is kind of a foreign going how do you think about how you price your storage offerings in the context of future potential grid services revenue or what I mean by batteries are you, saying, Hey look storage has to stand on its own to be Yeah. Then he third party monetization.
This is just gravy or are we saying, hey, let's let's push a little harder on the pricing and assume that overtime. We can recoup that is some of these these deals oh come to fruition.
We've really we've great question and the ongoing debate we've really.
<unk>.
Lean towards the first so for Santyl sort of stand alone. If we know we have a contract like and like the New England. You know, we will lead into some discount.
Because we have contracted value, but we really are not you know we're trying to keep solar at you know NPV neutral or positive storage excuse me out NPV neutral or positive and not counting on different services that is that as an identified so we couldn't take a more aggressive opinion I you know more aggressive attempt I mean that maybe.
At the right they do but we haven't done that sense and just our continued focus on sustainability in unit level economics, and yeah near term cash generation.
Okay, so that but it is interesting in areas, where you've got a specific deal when the bag like ISO New England, you will lead into those customers Oh <unk>.
HM Okay, Yes, our goal is really our goal is really too.
Let's have grid service program accessible and as many geography if possible.
You know because then it because then you can start to count on it. So we're doing the market development work and you know, California is really a place where we've been spending a lot of time and focus on that what I alluded to on the call. It that we're making some progress there you notice for you know stores actually care.
For capacity and be relied upon on so you know to start opening up you know a lot of the ISO new England. It's a big one you know, but a lot of the earlier projects have been smaller virtual power plant and what we want to do is really open up the opportunity for millions of customers to make their you know turned.
Our electric comes into it and I know, there's an electric habit. So that's the vision.
And Joe one. Thank you so mark I might add is is that when we talk about grid services.
Contract being worth about $2000, a customer we are making the assumption that to a certain extent, we're leaning in as a as one describes.
Understood. Thank you.
And your next question is from Phillips on from Roth Capital Markets. Your line is now open.
Questions on the follow up on the trajectory of installations.
When you talked about what we could see in Q2, what do you see for Q3 relative to Q2 therapies could it be higher or do you expect to shoot possibly lower because a.
Lag time, or the you know between sales and P.T. Rowe.
Is that timeframe extending.
So just if you can comment on relative to Q2, where Q3 might go that'd be great. Thanks sure I think you will see improvements in Q3. So just as we you know initially Pos sales drop by about 40% that's really steadily recovered week by week Adam.
You know as I said, we even had a record day and in April so.
So I think you know I think theres, there will still be.
Much of it will still be close.
You know building.
Permit office to New York is still shut down so it will extend into Q3, but it will not but it's coming back you know faster than we expected. So I would I would guess as long as things don't get worse or think change that Q3 will be an improvement from Q2.
But I'm not so not all the way back to previous level.
Right.
In terms of mix between dealer direct consoles and 2020, you know I know you guys on publicize it was exact numbers, but was wondering how that may have changed for 2020.
Recoded versus postcode do you expect to see more direct consoles now what more dealers falls for example relative to pre closing.
Yes.
Yes. Good question, we do we are seeing that that larger companies like ourselves.
And some of the larger dealers are faring better. It's just they have the balance sheet to keep people employed to install they can spend on advertising and digitization of the selling process.
So you know all in I would suspect that our direct will take share versus the pre covert for all those reasons that you know the you know the market leaders I think we'll take share generally, but we also have you know attractive dealers in our portfolio that are you know.
I have to have strong financial conditions that we'll see growth could vary the dealer market. The data is not it's very interesting its its wide variation in terms of the performance.
Okay. Thanks, and then a couple of other questions I'm you know I know you guys to go leadership role in policy and a last month I believe the New England Breakers Association filed a petition with for that potentially could render no net metering I'm going to challenge.
Mission I was wondering if you could comment on that and and provide some context and maybe you're not look out as to how this might resolve and maybe some probabilities. If you can get that the and then separately and completely on related was wonder if you could talk through yes market outlook I know that Mark is coming back now seem to watch the.
Deals price, mostly for auto, but you know when do you expect WPS market to possibly come back for.
Oh solar industry. Thanks.
Sure I felt that I can handle both question. So first you know there's really no substance of merit to the petition or to the petitioner for that matter you know their name as you mentioned is the new England rate pair Association.
But it's really just the dark money group it doesn't disclose its members and it doesn't really have rate there.
Second and probably most importantly, FERC has held and reaffirmed that states of jurisdiction over net metering. So you know most recently in 2009 and up holding an earlier 2001 decision for wrote that you know net metering policies as their drafted do not create a sale let alone a sale at wholesale.
And as you know FERC only regulates the transmission and wholesale sale of electricity.
You know in addition, there is a long line of states and regulators, including never rule.
Who are intervening and we anticipate nearly all will be vigorously in support of keeping control net metering with the state.
State level net metering policies existing 39 states you know D.C. in four territories. This you probably know.
And then finally I would note there are 2 million net metered customers in the United States and so for FERC to reverse its previous written guidance and harm those American plus thousands of major businesses no less in the middle of the depression, you know would just be political suicide and you may recall that the career regulator in Nevada, who oversaw the net.
Metering decision there in 2015 was not reappointed by a Republican Governor and how does over his ruling overturned and.
Later.
You know and finally.
Actually initially requested comments in 30 days you know.
And although now roof requested in was granted an extension you'll given the short timeframe. We believe FERC doesn't tend to rewrite decades of precedence on a matter of no urgency. So I guess you know to summarize the lack of married to the petition the overwhelming opposition the political calculus and perks proposed timeline really all just give us confidence first gonna denied the.
The potential.
In terms of the ABS markets.
You know the ABS market is subject to capital flows.
You know like many other public you know a debt credit and equity markets and I think if people will just generally become comfortable and you'll see capital inflows that.
You know that.
Pricing in that market will improve its currently not pricing to credit quality, it's just pricing to supply demand imbalance and so that's why I noted you know in the prepared remarks that on the senior debt side. You know, we expect the commercial bank market be more attractive you know, it's not like commercial banks are suffering math.
Outflows of their deposits other liquidity situation is good they're able to do underwriting. They look at you know data and make you know fact based decision, making so the fundamental story is like the senior debt market is intact. It's going to you know over the near term I expect it will be in the commercial bank market and you know.
Over time has inflows return Tvs market, you know I would expect that that market to report back over time.
Great Thanks to the color.
Your next question is from Colin Rusch from Oppenheimer. Your line is now open.
Thanks, so much and thanks for the color on the number permit offices that are open I'd love to get a better sense of special throughput as those offices and the actual levels of permit approvals that you're seeing right now relative to historic levels.
And how that's been changed over the last month or so.
Sure, calling so I think that.
One month ago nationwide. It was about 26% of Ace chance were closed and then by May force, that's reduced to 14%.
So that can you just said that.
Nationwide summary.
You know that kind of pain point for us have been California. The Bay area, which now is is it I think about a month ago, probably about 50% of installs in the bay area couldn't precede and we're down to 20% as of today and even likely even further this week and then about 20%.
I've been talking the northeast can't Kristina, that's not that hasn't changed yet do that rolls in Boston and New York.
So you know so that those are the ones that actually shut in terms of the ones that are opening more than 50% of our it should have moved to email and mail for permitting. So you know it has worked and we you know we do think that long term. This will be a nice push for these often said to adopt the solar.
Happened automate that process, because they're starting to get more comfortable with that but you know the it outside of the ones that are closed it hasn't been a huge bottleneck.
And then in terms of inspection to approve the but you know turn in the systems on you know how different is that that process at this point RIS and stuff is coming out so what's the systems.
Yeah. There's there are there some delays certainly on that as well you know I think theres been you know we've had some delays with PGT in particular, I think you know, but again, there's a lot of pressure because of wildfires you know that it's been dry and they haven't gotten the preventative maintenance.
That needed to get down because of all this it's Sean just so I think theres a real risk that we'll have more blackouts. This fall. So there's some pressure you know to to start to expedite the stuff I think you know that's starting to take hold but yeah I I don't have a quantification of the friction, but it's certainly there.
And so that's one last quick one yeah, just given where the you know.
Isn't that extra bandwidth on up installation crews potentially Romney how much are you looking at it change any inflation processes are optimizing those and integrating a potential switched to new hardware at all it's just one.
Yes, we're making a lot of progress there. We one you know we have.
[laughter] drowned out for the plate, but that which can help make it contact free you know we've changed the you know the working rules to help preserve the safety of our people and customers you know ticket separate cars to the site having fewer people outside.
Hand washing all the best practices around there. So we have seen a change that some of the the inflation practices and one of the thing we talked about a bit on the call. It. We are we did launch a new <unk> proprietary racking product called speed track that has showing some really early.
Promising results in terms of insulation efficiencies. So you know again early due early the quantify how does that change we've made that we're looking forward to.
Thanks, So much was.
Thank you.
Your next question is from Jeffrey Campbell from Tuohy Brothers here, let's now open.
Thanks for taking my questions.
On a long call here and it's not really fruit Poland.
When we think about soft costs.
If we can quantify it this way what percentage of it costs could potentially be reduced by the digital sales you Ben describing what percentage could be reduced by permitting automation.
Mhm, yeah, the big than thing bogey is about $7000. If you just look at the cost and.
Europe, and Australia versus the U.S., where you know they really treat at their ads more like installing an appliance. Yeah. So you don't have to go through a lot of the.
Permitting and interconnection hurdles that we do.
So that's a that's a bogey not possible you know the U.S. is different and so it's unlikely that we're going to eliminate you know a lot of the code requirements and things that we have and some of the local desire for control. So I don't think we get all the way there yeah I think in the short term I do think.
<unk>, let me think medium term you know again per my earlier answer over four or five quarters I think that we can see about 1000 colors come out of the acquisition cost and about 1000 come out of the install cost due to the efforts we put in place right now, but I think it can be you know it's somewhere between that 2000 7000 at least.
Start to get the automated permitting rollout and chips are really compressed the cycle time.
And the friction that's created by all the back and forth and that kind of long linear profit that customers have to go through.
So just to make sure that I understood thing or that you're saying that over the time period of time about a thousand could come out on the sales on a thousand on escalation in there and the permitting automation would represent upside from those two level correct correct right.
Just quickly because I was listening to it I thought was everything on the grid services under regarding pricing the batteries.
There's a good compromise would be the whole relied on price as you describe now when you're selling into a market where there aren't over it services that offer customers and piece of the pie whatever the services emerge later on that translation.
Then a feasible approach.
Absolutely.
[music].
Okay.
Just to be clear and she said that you're doing your best to hold on to headcount, but business is going to decline some large percentage over the next couple of corners should we expect the total customer costs increase during that period.
Yes, you shut so the you know the comments that I made around the MTV being lower than historical levels that will be due to just less fixed cost absorption and and you know a higher overall cost that because of the reduced volumes on you know again I want.
To emphasize we can do that without burning cash because of our you know strong that's wrong financing environment. So we think it's the right do given that confidence we haven't think rebounding, but yet you will see higher unit level cost over the next couple of quarters.
Okay, that's what I thought and my last question as if it's possible can you kind of gives just a quick sketch.
Sales and installation with regard to very little human contact I know you mentioned the drawn. So for example, I was surprised I read there.
We're able to install system without any personnel in the house at all.
I'm also wondering how sort of standard things like on site visits or to ascertain the system. That's at the house before the solar goes on other sort of things are being avoided. Thank you.
Mhm mhm, yeah. So I think you know so one that said drones shifts certainly can help avoid a person having to climb up on the roof. On you know what we're also doing and having the customer take photos of some of those things internally that normally we.
I would do so the electrical panel on as well as the rosters and you know, but in the attic to check on that the you know structural quality of the roof.
So that's really how we've adopted it so that our crews don't have to come inside because we've gotten the interior photos from the customer themselves the interesting part about that too and the customer.
I think this is kind of helping with a customer buying as well, it's just that escalation for their commitment that you know as they're part of the processor about much more likely to want to follow through with it. So it's actually been a positive change for US you know so you know possibly.
One that we could stick with [laughter] so.
That's very helpful. Thank you appreciate it.
Thank you, Okay, I think we ever last question from Sophie.
Yes. Your last question is from silty cast from Keybanc. Your line is the open.
I am not encore close on my question.
Hi, Good discussion then a lot of topics to cover I was just wondering how that's going to handle you know soon.
'cause client right most of the two it's nice to have [laughter] sends a disconnects one month payments at this time.
Could you remind us that's the same bill that's consumed with I guess in other words they enough dissipate, then oh, well not getting paid or do you have your own doing and what stands he's taken or potential delays like I'm going to disconnect and people taking system down we've taken a wait and see a personal so what's your what's your.
Yeah. Thank you.
So Sophie this is Ed so so first I might mention we've shared.
Our payment performance in the Powerpoint presentation, which we posted and I discussed it briefly also on the call by mentioning that are that.
When season, and all baskets 30, 60, 90, and 120 days are actually on a six month low so it hasn't really been.
You know a challenge for us at the moment, we do save people money and eventually you'll have to pay your electric bill, but the utility if you're not.
And and so we're seeing good payments performance, we do bill separately. So we do not built through electric utilities, so people receive.
Their bills directly from us in many instances folks pay by you CHS, well and Ah and this is consistent with the performance that we saw in 2008 2011 in the financial crisis as well.
Hi, Thank you.
Okay, well thank you.
Please go ahead now.
Great well. Thank you again, everyone for joining us and I hope everyone States. They thought that we'll talk to you guys against it.
This concludes today's conference call. Thank you for your participation and have a wonderful day Kimi all disconnect.
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