Q1 2020 Earnings Call

[music].

Today's call is being recorded and we have all located on our prepared remarks question and answer.

At this time I would like to turn the conference over to Rodney fan <unk>.

Presidents Investor Relations at <unk>. Thank you. Please go ahead.

[music]. Thank you operator, and good morning, everyone yesterday, we released our earnings press release impose a slide presentation to the Investor relations portion of our website and investors that Sonova dot com, which will be reference during this call. Joining me today, our Jon Berger sort of as chairman and Chief Executive Officer.

Robert Blake Executive Vice President and Chief Financial Officer.

Before we begin let me remind everyone that this call may contain certain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act that 1995.

These include remarks about future expectations beliefs estimates plans and prospects such statements are subject to a variety of risks uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements such risks and other factors are set forth in our press releases and filings with the security.

These exchange Commission.

We do not undertake any duty to update such forward looking statements.

Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with yeah. A reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in our earnings release.

I'll now turn the call over to John.

Good morning, and thank you for joining us for Q1 2020 earnings call.

Before discussing our quarterly results, let me start by saying I Hope you and your family had stayed safe and healthy through these unique and challenging times.

As everyone is aware much has changed since our last earnings call with the Kobin Nike pandemic spreading across the globe, creating a dual health and economic crisis.

That's a nova we met the Kobe 19 challenges head on my first and foremost ensuring the health and safety of our customers employees and dealers, while still delivering best in class service to our customers.

Second we let our dealers do what they do best which has to be innovative and entrepreneurial.

They quickly created solutions to continue originating and installing solar energy systems, well remaining in compliance with all applicable health and safety guidelines.

Third we focused on ensuring the company had more than enough liquidity to make it through this crisis. However, long it may last.

We implemented aggressive cost cutting plan and close on several financing transactions, Rob will expand upon later in the call.

Before getting too deep into the details.

Let me start out by saying that despite all the uncertainty in Q1.

We were still able to deliver strong quarterly results.

Thanks to these strong results as well as other influencing factors will describe in greater detail later in the call.

We're pleased to be able to reaffirm our 2020 guidance.

Well these difficult times, the advantage of our business model and our disciplined and focused approach has never been more apparent.

Well dealing with a pandemic has been challenging it is clearly demonstrated that providing inexpensive and reliable power to our customers through our solar and solar plus storage offerings is more important now than ever before.

The Cobot 19 pandemic has also demonstrated the flexibility and superiority of the dealer model, which allowed our dealers to focus exclusively on what was going on in the field and tailor their actions to the local situation well, we had to know where we're able to direct our focus on people capital assisting our dealer.

In providing service to our customers.

Finally.

These uncertain times, a further highlighted the importance of not only creating but also retaining long term contracted cash flows.

Cash flows provide financial stability and the financial strength needed to raise capital in a difficult environment.

On slide three you will see that we closed out another quarter of strong growth.

This another team worked tirelessly to increase our customer base expand or dealer network and booster storage attachment rate as a result, we were able to exceed our 2020 financial and operational estimates for the quarter.

In spite of the disruption caused by Kobin 19 in Q1 2020, we still added nearly 7000, new customers, which was our best quarter in company history, and 107% more than a number of customers. We added in the first quarter of 2019.

At this started the year, we exceeded our plan origination rate setting New records for January and February and positioning March to be the strongest month of the quarter.

Well origination pace did decline slightly due to the onset of coping 19, we still managed not to experienced a year over year decline in origination for the month of April.

So far this month, we are again experiencing strong origination growth.

This has all been made possible in large part thanks to our dealer model as we saw more and more cities across America, calling for stay at home orders, our dealers quickly and nimbly adjusted their prophecy by increasing their use of virtual tools to support both are sales and interconnection activities.

Our dealers also worked with their respective agencies, having jurisdiction to utilize electronic inspections and permitting.

These actions have reduced our dealers reliant upon face to face meetings, therefore, allowing them to be able to continue selling our solar energy service and get new customers placed in service.

Now more than ever the strength of the dealer model is on full display.

At March 30, Onest 2020, the total number of dealers in sub dealers to a partner Woodson of a reached 191 at 23% increase from the end of 2019.

Even in this environment. We currently have a growing backlog of high quality contractors, who are looking to become snowbird dealers and an increasing number of them for asking for exclusivity.

One trend that has continued to surge throughout all of this is our storage attachment rate on origination, which we saw growth from 24% in Q4, 2019% to 30% in Q1 2020.

In fact, and only to shore quarters, we've seen that rig double from 15% in Q3 2019 to the current 30% achieved this quarter. Additionally, the ability to network and remote operate our customers battery enabled systems allows us to offer new energy services individually and through aggregation in short.

This pandemic caused an acceleration of what we already saw as a mega trend for the global energy industry and our Q4 2019 call. We called 2020 the year the battery and we still believe that to be true.

Millions of Americans find themselves spending more time and their houses.

Which have become more than just tones, but also schools in offices for all of us having clean affordable and reliable power is more important than ever battery provider customers with pizza mine, knowing that when they're electric grid failed them. They will still have the power they need to educate their children and work from home.

Sadly with both wildfire and hurricane season, just around the corner, we will again see the purging city at the traditional centralized power infrastructure on full display with power outages continuing to play consumers.

As a result, we expect demand for our solar plus storage offerings will continue to increase as consumers what for energy options that provide higher energy resiliency and reliability. Most recently the uncertainty brought upon by Kobin 19, as shown us the world may be more fragile than we originally thought magnified.

In the importance of being self reliant and further proving the economic and societal value of solar plus storage.

Turning to slide four we provide a summary of our first quarter 2020 results, which are further expanded on slide five our total customer count adjusted EBITDA, the principal and interest we collect on solar loans and our adjusted operating cash flow, we're all above our expectations for the quarter.

On slide six we reflect on both our estimated net and gross contracted customer value over the previous three years using a discount rate of 4% neck contracted customer value or end CCB increased from 952 million on March 30, Onest 2019 to one point.

2 billion or $14.41 per share on March 31, 2020.

As we noted before our gross contract the customer value metric represents only our existing contracted cash flow base and excludes any upside potential from renewable value ability to upsell existing customers selling energy services or any of our growth prospects to.

To reach our end CCB, we subtract out debt liability, both corporate and asset level from our total present value cash flows.

As reflected on this slide our NCB is experiencing significant increases year over year, which translates directly into shareholder value creation.

We have long believed the service we provide is inherently essential.

Which lead customers to pay in both good economic times and then bad.

As we expected during this crisis, our customers have continued to pay and to date to Nova customer payment behavior has not materially changed since the onset of cobot 19.

The percentage of customer payables collected in April was 99.5% or the preceding 12 months and we continue to see strong collectability into the month of men. In addition, but a few accounts that are past due we've experienced a great deal success in our collection efforts the strong collectability of customer account.

We will directly relate to the expected drop in the industry's long term cost of capital as macro financial market liquidity issues subside over time.

We also continue to reap the benefits of our increasingly attracted solar service contracts due to our practice of retaining the long term contracted cash flows from our customers versus those who do not retain them.

The strategic decision continued to under our benefit at the strong payment performance of our customers further reduces our cost of capital, resulting in significant improvements to our gross and net contract the customer value per share as we move from a PV fix to a p. before.

Well I cannot promise with the future will hold I do know that Sanofi will continue to be a leader to our customers our dealers our lenders are shareholders and the communities, we serve and thanks to the ample amount of liquidity, we have secured and the strength and flexibility for our business model, we're better positioned than anyone.

And the industry to not only get through this current prices, but to navigate any additional challenges. These uncertain times may bring.

I will now turn the call over to Rob to walk you through our financial results, our recent financing activities and our guidance in greater detail.

Thank you John starting on slide eight we recorded revenue of $29.8 million for the three months ended March 30, Onest Twentytwenty a period over period increased $3.1 million or 12%, thanks to our strong customer growth.

As a reminder, revenue does not include the cash we receive from the principal and interest payments, we come back on solar loans. So our actual cash generation will grow at a higher percentage rate than our GAAP revenue.

Adjusted operating expense, which represents the full recurring cash expenses to grow and run our service operations also increased in response to the increase in the number of customers served to $23.6 million for the three months ended March 30, Onest Twentytwenty.

While total adjusted operating expense increase we are seeing an overall decline on a per customer basis and projected adjusted operating expense per customer will be at least 10% lower for the full year twentytwenty versus full year 2019.

Adjusted EBITDA for the first quarter of 2000 $26.2 million down from $8.1 million during the same period last year.

This decrease is primarily driven by the growth in our customer loan portfolio has the costs associated with these loans are allocated to adjusted EBITDA. While the cash collected is represented outside of adjusted EBITDA.

That customer cash inflow is the principal and interest payments from our solar loans, which were $6.4 million and $4.4 million respectively. For the three months ended March 31st 2020, nearly doubled the amounts from last year.

As we laid out in our Q4 2019 earnings call. We made a few changes to how our adjusted operating cash flow or AOCF metric is calculated.

As investors are aware, we use AOCF to adjust items that are more investing or financing in nature out of operating cash flow as well as to move cash flows that are more operating in nature, but classified per GAAP as investing or financing back into operating cash flow.

Starting this year, we're backing out realize interest rate swap breakage income and expense, we incur at a securitization as we consider this financing cost that would not occur except for moving assets from a warehouse or term facility into a securitization.

We consider these costs in our projections for net cash proceeds from investing and financing.

We're also subtracting out cash received for inventory sales, which is adjusted for items such as batteries that we pre purchase for our customer loans. We believe these changes keep investors a clear picture of the operating cash flows.

AOCF was lower in the first quarter twentytwenty compared to the first quarter of 2019, primarily because of increased interest expense from our larger asset portfolio and changes in our working capital. However, we are forecasting an increase of approximately 100% year over year and AOCF.

Estimated in CCB as of March 30, Onest Twentytwenty was approximately $895 million using the industry standard, 6% discount rate up 26% from $709 million as of March 31 to 2019.

On a quarter over quarter basis in TCV improved slightly as increases in customer value and increased tax equity deployments were largely offset by interest rate hedge breakage costs associated with our tipo securitization in February and the seasonally lower cash flows are the first quarter relative to the rest of year.

As a reminder to investors in CCB will experience seasonal and transactional induced volatility, but we still project value creation, along the lines of what we discussed last quarter.

Changes in working capital and interest rate hedge breakage fees will cause some fluctuations to these rules of value creation from time to time.

On slide nine you will find the summary of our year to date financing activities, while the financial markets, including the ABS market have experienced a great deal of turmoil over the past several weeks I am pleased by the progress to finance team has made to successfully navigate this challenging environment.

Thanks for their tremendous efforts as well as the efforts of our debt and equity investors, we were able to execute on several important financing transactions that will ensure sonova has the capital it needs to continue funding its high level of growth.

Twentytwenty refinancing transactions completed to date included a 412 and a half million dollar securitization two expansions of our third party operated warehouse facilities $150 million in new tax equity funds and a $190 million convertible debt facility, assuming the full exercise of the inverse.

Estimate option.

Going forward, we will target a range at 55% to 60% of debt to assets to the company's capitalization, including subsidiaries. This range will serve as a rough guide to our long term capitalization and will be dependent in the short term on financial market pricing of various securities and maintaining liquidity targets are prime.

Very goal remains recurring cash flow to our common equity and we believe this is only accomplish by a balanced approach to capitalization.

Consistent with this philosophy is a new convertible debt, we raise that on an as converted basis gives us a pro forma debt to asset ratio of 55% as of March 31st 2020, and is immediately accretive to end TCV on a PV six basis, we believe that this corporate capital will provide adequate working capital.

For our rapid growth to the end of Twentytwenty, one and possibly beyond.

It also provides the we may need it debt capital markets do not continue to improve or even worse.

As we move forward in time the company is naturally deleveraging by paying down it's front end loaded debt amortization, having its tax equity facilities slip once tax equity investors received the returns and by paying off its renewable energy credit hedges.

Due to this corporate capital and natural deleveraging in addition to our confidence in continuing our operating leverage improvement we expect the company to maintain this capitalization range for the next several years.

Even under strain financial market scenarios over the next three years. We currently see this corporate capital as being adequate however, we will be opportunistic in our approach to the equity and equity linked markets only to the extent the transactions like this one will be accretive to recurring operating cash flow per share an end TCV per share metrics.

We will use this corporate capital and our strong balance sheet to drive down our cost of capital at the asset level.

Irrs are growing realization that solar industry contracts in all forms are inherently service contracts and as such our highly dependent on the performance of the service platform company.

This realization will continue to increase the acid investors focus on the quality of the service companies balance sheet as well as its recurring cash flows that are not dependent on the capital markets.

There is a balance between corporate and asset level capital that is optimal for the lowest long term cost of capital that we expect to achieve in the coming quarters.

In this difficult environment, we are grateful to our investors, who see the importance of having sufficient liquidity and a well funded balance sheet, coupled with our strong recurring operational cash flows and a continued focus on deleveraging.

Turning to slide 11, you will find our full year guidance for Twentytwenty.

As John noted earlier in the call. We're pleased to be able to reaffirm our guidance ranges for twentytwenty as they remain unchanged and customer additions of 20 to 30000, adjusted EBITDA of $50 million to $62 million customer principal payments received from solar loans net of amounts recorded in red.

Revenue of $32 million to $36 million interest received from solar loans of $17 million to $21 million and adjusted operating cash flow of $10 million to $20 million.

Our ability to reaffirm guidance was made possible by the strength and flexibility of our business model, our disciplined and concerted approach to running the business and the steps. We took early in the pandemic, which resulted in cost cutting measures. These cost rationalizations included eliminating all non critical expenses, reducing our role.

Alliance on third party contractors and renegotiating contract terms from certain vendors.

Further contributing to our high level of comfort and reaffirming guidance is the fact that our business model provides excellent visibility into future cash flows.

By retaining our customers, we now have 91% of the midpoint of our Twentytwenty targeted revenue and principal and interest received from solar loans locked in from existing customers as of May Onest 2020.

Propelling our growth and giving even further visibility into our guidance. Our unique technology partnerships are growing list of distinctive and innovative product offerings and the fact that we are uniquely agnostic to financing times for our service offerings.

It is important to remind everyone. Once again that sonova, we don't count a customer until they have been placed into service, meaning they have received permission to operate from the local authorities, having jurisdiction and we are receiving monthly payments.

On our Q4 2019 earnings call. We noted that based on our forecast used to set guidance, we expect to capture approximately 10% of our adjusted EBITDA and principal and interest from solar loans in the first quarter 2020.

Happy to report, we exceeded that target as actual Q1, 2020, adjusted EBITDA and principal and interest from solar loans equaled $17 million or 15% of the midpoint of our Twentytwenty guidance.

Based on our most recent forecasts and for the balance of the year. We now expect to capture at least 25% of our adjusted EBITDA and principal interest from solar loans in the second quarter Twentytwenty, increasing to approximately 30% in Q3 and the remaining balance in Q4.

As for customer growth, we expect our customer additions to continue to occur fairly evenly throughout the year with approximately 45% of are forecasted customer additions happening during the first half of the year, while the remaining 55% should occur over the last six months.

In addition to reaffirming our more formal guidance. We're also updating our high level twentytwenty projected cash proceeds found on slide 12.

As you will see our projected cash flows from existing operations, which is our adjusted operating cash flow less corporate capex remains unchanged at $5 million to $15 million.

The box on the right includes all of our MPC costs, including our dealer network bonus payments payments for work in progress and inventory as well as our financing and financing in foods proceeds from tax equity net securitization proceeds debt amortization payments and the recently raised convertible notes.

When we compare our expectations for growth financing with where we were almost a quarter ago much has changed especially with respect to the ABS markets.

Even as base rates of lower spreads have widened and expectations for advance rates have come down. This means that for the double B rated tranches interest rates are expected to be higher than what we executed in our February securitization, resulting in lower proceeds.

And while we see that market continuing to improve it could still be several months or quarters before we returned to the levels. We saw just three months ago, when we price our twentytwenty dashboard financing.

Further the lower base rate means that we would also expect to have higher hedge breakage costs relative to where we were earlier this year.

The quality of the solar asset classes, especially synovus assets in our strong customer payment behavior is not reflected in the current financial market conditions.

However, the new corporate capital gives us significant flexibility to potentially fund the higher end of the advance rate on our balance sheet for now and wait until we have been able to demonstrate our collections and performance through the capital markets through more payment cycles.

That would give us the opportunity to finance deeper into the stack at much more favorable terms next year effectively time shifting the full securitization.

There is of course still significant potential for us to improve these numbers. This year, if the market and its view of Synovus paper continues to improve.

In the meantime, the convertible notes allow us to finance the top of the asset stack, regardless of where ABS advance rate settle enable us to drive competitive pricing and terms in the asset level capital markets provide needed working capital as our growth continues to accelerate and provide us with a capital cushion to withstand more.

Our potential financial market shocks, well through 2021 and possibly beyond.

As we look forward and consistent with what we're hearing from investors. We expect to transition. This slide to one that focuses more on generating positive recurring operating cash flow or Aro CF, which as we noted on our last earnings call is equal to revenues and other customer cash inflows less the principal and interest.

We pay on our debt.

We also subtract out the service related expenses and allocated overhead, which together account for approximately 60% of our cash costs. We believe positive RMCF will be achieved in the $3.8 billion to $4.8 billion asset range sometime in 2021 or 20 to 22.

We continue to see that goal is achievable in that asset range and timeframe due to our continued growth stable unit economics and ability to raise capital even amid a challenging environment.

This marries up with our targeted leverage and keeping rather than selling off our customer cash flows by keeping cash inflows on the balance sheet and responsibly capitalizing those cash flows. We believe we are very well positioned to achieve our aro CF positive goal, while still are creating value on an in TCV per share.

This is simply put we plan to grow long term value and long term cash flow simultaneously.

Like you John and I are shareholders, Onesource, and we plan to increase value to our common equity with a view towards long term sustainable cash flows and true value creation.

I will now turn the call back over to John to provide closing remarks.

Thanks, Rob.

As we have repeatedly discussed we strongly believe that due to the inclusion of batteries and other technologies and our service offerings, along with our focus on using standard financial metrics.

That unit level returns should be expressed in terms of unlevered yields.

Our year to date asset level returns, including leases PA is in loans have dipped slightly to approximately 9.75% due to contract type and geography mix. However, due to actions taken last quarter. We expect these returns to quickly move back towards our 10% target.

For fully burdened Unlevered single asset returns. We would also include the sales and marketing portion of overhead spend working capital interest expense and the indirect sales expenses that are incurred.

Currently we estimate that are fully burden asset level returns inclusive of loans are between 8.25% and 8.75%.

Without including loans, the fully burden single asset returns would be even higher.

Our unlevered asset level returns have been relatively unchanged for several quarters, and we expect that trend to continue.

Our fully burdened asset level returns have been trending higher over the last several quarters due to increasing operating leverage and we expect that trend to continue as well.

Additionally, the Unlevered returns exclude any potential increase in value for such items as the renewal the contract providing customers energy services or battery or other upsell opportunities.

It is important to note that between our CF and are fully burdened unlevered returns that there are no cash expenses excluded.

Investors have a full complete and straightforward picture of all of our expenses and the resulting cash generation.

In closing.

While the past several weeks have been filled with uncertainty. They have also been filled with hope the termination ingenuity and compassion for one another.

With ample liquidity, increasing customer growth and battery attachment rates strong collectability of customer payments. The achievement of positive RMCF just on the horizon and its superior business model designed to whether any storm. So nova is well positioned for 2020 and beyond.

With that operator, please open the line for questions.

At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

Your first question comes from Julien Dumoulin Smith with Bank of America Merrill Lynch. Your line is open.

Hey, good morning team congratulations on holding the line on 20 here.

Well done one of the follow up specifically on on financing angles here and dig into the latest issuance. So can you comment on why raising 190 million further option and then the extremes basically wines. So much liquidity and also why the offering of the exchange.

And then related to that why not sell down cash flows from your existing assets given presumably that would have been a lower cost of capital, but again I want to curious to understand the liquidity position that you are coming from the understand that the totality of the issuance here's Ken.

Yes, Thanks, Julien this John.

First.

This is a very uncertain environment I think that.

We're getting a little repreve here coming out of the full lockdowns, but there is no. There's no guarantee right that we go into the fall or even the late summer in fact, we're starting to see some a little bit of a concern about opening schools fully and such so if you want to call. It cobot, two or you want to call. It a retracement of.

The pandemic whatever there's a lot of riskier and I'm not entirely sure that the financial markets are going to take that and bounce back as well as they did.

Back in and last month in April. So you know this is a very uncertain time and I think it's very prudent tab insurance and it's very prudent to make sure that we are the best capitalize from by far in the industry and so that's first and foremost why we took the action we did.

It we've been telegraphing for quite a while as you know that are large growth rate uses a large amount of working capital.

As every every from does and so we solve that problem through this as well.

And it really goes to the proper leveraging of the company and the balance sheet, we talked about giving some guidance in that 55% to 60% debt to asset ratio.

Again, Thats, a long term rough guide to help fill out, but we don't want to over lever the business and we think that the liquidity and the long term durability that our customers can count on our dealers can count on our lenders can count on our shareholders can count on his best done to have a both strong balance sheet, but also up.

Very strong cash flow statement thats years and years in the making and so I would offer up that having both the cash flow statement and looking towards having a near term are relatively near term recurring operational cash flow positive plus having the cash on the balance sheet really should get us.

Lot of investors the ability to sleep at night and say that we are fully prepared for really almost any scenario that may come our way and I fear that we're not out of this crisis yet.

So the last thing I would add is is that.

I don't think there has been full transparency given into the asset level equity market. However, you want to phrase that they have different terms as the bottom end of the.

Stack of the asset and that market and we referenced this in the piece of capital right above it the double B traunch market was under extreme stress. It has come back quite a ways, but it's still not anything close to what we did back in February and our securitization and so that asset level.

Market sits right equity markets, it's right below that double b and that market is from we can tell largely closed.

Well it open back up again, it's possible that I think we could all agree that we'd much rather see or you would much rather season investor to buy the double b market before you do the asset level equity so.

Take I take issue with the fact of the cost of capital would be lower doing that but also we're looking at a long term.

Cost of capital overall, and balancing the corporate and the asset level cost capital and giving durability to the investors.

Drilling it on the exchange.

We felt it was better to have the single class.

Of of capital. There was also felt at the that the cash terms, we're going to be better for us we increased the exchange rate.

That was being offered.

We still have the equity claw backs or we have still the capability to bring that.

To bring that back in the same way that we did before perhaps even even a bigger amount there.

And.

And just on the numbers real quick it was 130 of new capital with another 60 million of new capital.

On the Investor option so.

Just want to make sure that I understood your.

Where you were calling out the 190.

The total amount of new would be would be 190, if that if we do the full investor option.

Right.

And then.

In terms of your debt Paydown thought process.

You all the cost price turned 21, Paydown I think of the prior 55.

As it stands now.

Thank you maintain liquidity.

For what it's worth the through the current period I think that's obvious.

But then related to that how do you think about.

The decision.

The cycling of the total capital that.

Well you can elaborate a little bit further on that side.

Well, how come up with the one might be for instance.

How are you thinking about that given the comment on liquidity in working capital et cetera.

Yeah. So ill answer a couple and then Rob can chime in Julien. So first of all we assume that we would have lower amount of secured number of securitizations. This year. So effectively time shifting the cash flows from 20 to 21.

And so that's a we wanted to make sure we had enough capital upfront to be able to fund all the way through that if we so chose to time shift those securitizations.

The market does continues to improve and they may go ahead and execute on something that again, we don't fruit.

Perceived to be likely in the next month or so that would be the same as february but but not bad overall in terms of a blended cost to capital. However that can change on a dime and that is are there are concerns. We wanted to make sure that we took care of that secondly in probably may even more importantly is is that this gets us in a very.

Your KONI and scenarios all the way through 2021 and possibly beyond so this is.

It was basically.

Our way of making sure that again shareholders can sleep at night that we can get through almost any thing that comes our way and we can do so in and find fashion did you want to add anything to that Rob, Yes, I mean, I think there a couple of the things that we want to make sure we have some security around to what John said.

Interest rates are lower but spreads have spreads of increase in the in the ABS market you could see that in the secondary trades. So that's sort of leads to two things one for the securitization securitizations that we would do we would expect to have a lower advanced rate compared to where we were able to have an advance rate back in February.

Right.

Well as potentially higher interest rate breakage costs to the extent were not able to roll some of our out of the money hedges.

Even hedges that were put on two three months ago or out of the money right now so it really behooves us to take the due to be able to give ourselves a maximum amount of flexibility possible.

And at the end of the day drilling we are a high growth company, we are the highest growth rate of the.

Publicly traded companies out there. So we wanted to make sure that we didn't do anything and put a stumbling block in front of us.

That would prevent us from continuing that growth. Thanks to the fantastic work that our dealers are doing out in the field.

I'd add to more things go into that is in the commercial bank market is something that we started with as a company. So we know pretty well.

Very very interesting times convinced Texas banks to to fund solar but.

I would also point out that that doesn't get you through the full stock that we have even been securitizing, let alone getting into what others in the industry do all the way through the cost of the stock and so that that market, whether it's in the ABS market or the bank market is still something that we see as has been troubled by the.

The financial market dependent pandemic and again like asset level equity as I said, we don't see that open.

And then overall, we're seeing we picked this up in our last securitization.

We made comments Rob may comments on on that just a few minutes ago that the investors in the asset level are starting to understand that these are.

Solar service contracts and therefore.

There are looking upstairs to the quality not only the balance sheet do you have a little bit of cash on hand, given your burn rate versus your burn rate, but do you have both cash on hand and.

Cash flow, that's long term endurable because remember they are investing for years not just a just a few months. So we believe that that proper balancing and that good balance sheet, coupled with that great cash flow statement. That's again multi year cash flows are going to driver overall cost of capital down we've started to see that we continue to see that.

That to be the cases wells were looking at an overall blended cost to capital for the company not just something at the asset level.

Yes, so very much on the back.

Thanks Julien.

Your next question comes from Brian Lee of Goldman Sachs. Your line is open.

Hey, guys. Thanks for taking the questions I hope everyone is is doing well.

I guess just to follow up on Juliens question.

That should cone in scenario John doesn't play out over the next kind of 12 to 18 months, maybe the world normalizes, a little bit quicker.

And then you are bracing for.

What what's your ability to do something to replace that converts sort of what timeframe is that allowed in and are there any prepayment restrictions in place.

Yes, no. Thanks for that question Brian.

So we have one third claw back that we can that we can go do a do it equity raise if we find our price goes up pretty significantly.

And that we have that option in the first two years.

And then in addition to that we can call in the notes or forced convert to notes in certain circumstances beginning in year three.

Along the same lines, though I mean, we're very happy to have these investors and we think they're fantastic partners to have.

And.

Well, let me my belief is it we're going to continue to as a growth company, we're going to continue to benefit from from having that convert there.

The other thing and I'll just point this out if things are not draconian.

That brings us to this recurring operating cash flow, even faster and Thats really thats really what we're aiming for is flowing cash flow to the equity.

And this really gives us that opportunity.

One thing I'd, just sort of remind you is is that when we get to the top of the asset stack, whether it's selling off 100% of you residual cash flows so that they don't exist anymore or whether it is some of the more draconian suites that we can find in the really tight high yield markets either one of those.

Needs at the assets are paid for but we're not flowing cash down im sorry, not playing catch up to the corporate equity.

Even even if we're paying a coupon here on this debt because it doesn't have an amortization on it it really gives us that opportunity to flow more cash up towards the equity so.

We're excited for the flexibility that it gives us and they are just not draconian that accrues to everybody's benefit.

Okay great.

And then just a second question here.

On the the outlook in the guidance I appreciate the.

The 91% coverage that you noted on revenue and the P. and I am wondering kind of if you had any.

Similar metrics to provide on the visibility for the 28 to 30000 customer additions outlook for 2020 I guess the.

The guidance does imply based on the 45 55 split you mentioned for first half second half that.

Q2, new customer additions will be sort of 6300 or so.

In about 6% sequentially as much better than your peers. So just wondering how much visibility you have here into that Q2 level, but also.

Into some of the increasing numbers in the back half of the here.

Yeah, Brian. Thank you that's that's good math.

I would say that first and foremost you look at it we did roughly little north of 6800 for Q1 for last quarter. Obviously, if you just multiply that times for you get pretty close to the to the bottom into the range, we gave for the entire year.

We would have done a little bit north of 7000 had we not been hit with the pandemic. The at the end of March I think was the worst.

Along with maybe the first week of April for for everybody. So we have seen a continued pick up not only in origination but in in service. We have a very large backlog fully installed systems and rate waiting to be in service. So I would say that what we can affect.

Typically do we talked about a two quarter lag given our backlog, we have pretty strong visibility all into Q3, and even moving into Q4, how that may fall between Q2, or Q3 or Q3 or Q4, we don't quite.

Have that level of specifics of course, just given the events is look relative uncertainty, but the backlog gives us a pretty strong and the pace. We've already been at all the way through to this call may 15th today gives us very strong confidence that we can get into that range for.

For the entire year. So if we that's one of the reasons, we waited frankly to have the call you probably know that we would like to be earlier, but we wanted to have a little bit more information to share with everybody and say look things are really moving up here and all we need is.

Couple more months of good origination, which were well on the track too and we feel very comfortable being able to hit that that range I'd also point out that.

There is a lot of discussion about whether we could hit a 30% annual growth or maybe it's really 25, and then obviously, we had something that we guided to quite a bit north of that from 29% 2020, I would just point to Q1 19 to Q1 2020 was over over 100%, So probably something you ought to read into.

Hi, everybody should read into is that we're very conservative company, I think thats coming through and how we look at the world and when you look at that Q1 Q1 growth rate I think it kind of gives you some visibility of what we had in the tank.

Prior to the pandemic and Thats why we can come out and be confident in our in our guidance.

All right. Thanks, guys.

Thank you.

Your next question comes from Philip Shen of Roth Capital Partners.

So.

Hey, guys. Thanks for the questions.

Coming back to convert was wondering if you could talk through the process that landed on this deal specifically.

Can you talk through what other options you were looking at.

When you look at.

Some of the details it looks like a near 10% coupon it looks like from the Q, There's a 5% no I'd.

And so it seems like our the net proceeds.

Actually closer to 124 million and then in terms of the prepayment penalty.

It seems like there could be a.

It could be 10% to 15% depending on the timing so given the potential dilution here and so forth was wondering if you could talk through what other options you guys look that did you consider pure equity.

Come back to joins question.

Did you consider selling any of the cash flows from the assets it sounds like.

The answer probably was no.

And is no given the focus on cash with equity, but just wanted to see if we could get a little more color on the process of landing on the specific deal.

Yes.

Phil I appreciate the question.

Let me start at the end and then I'll bring afford when we look at the cash flows through the equity that's still sort of a safety valve and that's that's what we look at is something that.

If we had to do something we add know whether asset let we know we have an incredible amount of value still there that is completely untapped right.

[laughter].

Compared to our peers, who use it as a regular way financing. It is something there that we still have as an asset if we needed to a break glass type thing.

But again that is not the value thesis that we have and thats not what.

How the company was built.

We did however to your point look at a lot of other different options, including equity, including a public converge, including.

Including straight debt and including some other options we.

Part of the reason why we said on this option was one overall, we felt it would result in lower leverage overall for the company.

If we were to do straight equity we were not finding it available really in the quantum to be able to do it.

In this in the same size, where we could sort of feel that we were that we could be done really and not be going back into the markets unless there was a unless there was a positive reason to do so I am going forward. So did this gave us a quantum without.

Without really increasing leverage we did see a lot of other opportunities out there we are grateful for everyone.

Who is working with us to be able to come up with creative solutions.

But then what other region and I'll be honest as we really like the investors. We felt that they are really focused on our business we felt that.

They really understood our business and took the time to do so.

A lot of these are guys that have been with us for some time, we have some folks it.

While they are newer to to be investors, we had spoken with before.

And our just very pleased to have such strong partners to work with.

At the end of the day, Phil I think I think your numbers certainly are correct. What I can tell you is that out there what we saw the discounts we would have had to take in order to make.

Ordered it and make a public transaction work.

I would have been incredibly punitive to us and still not been able to achieve the quantum of capital that we were able to achieve here.

Yes until just to build on what Rob said on the asset level.

Equity side or selling off that market is either shut or very punitive and rates at this point in time could that change and improve as you move towards default and absolutely. It has been improving as I noted from the end of March 1st of April, but those those rates were not attractive whatsoever.

Compared to other alternatives.

I think thats been glossed over out there a bit and what I would also tell you is that we have done very well as a company to our shareholders by retaining these.

Cash flows not only to lower the long term overall cost to capital for the company, but we firmly believe and going back to our customer payment.

Performance and it's a it's great and but the other the rest of the industry has done well too as you noted on my competitors calls.

That means that these assets are worth more than what anybody would be willing to pay even prior to the pandemic, but certainly during this during this crisis. So if you look at it overall I think over the over the certainly over the long term measured in quarters not necessarily years, we feel very comfortable that overall this.

Shareholders are going to which obviously at the top of list, including myself and Robin. The management team are are going to be better off by retaining these and look at we're never going to say no somebody wants to come in and by some assets, whether those are loans or leases or PVA and wants to pay us. We feel is a very full price.

We will certainly we'll certainly do that.

But again, we're very focused on generating return recurring operational cash flow through bolster.

Our of our financial position as a company so everybody can against sleep at night.

Great Thanks for that color.

Shifting over to the ABS market, John and Rob I think you guys addressed this a bit but specifically.

Was wondering when you think that market could open up for you guys based on the conversations you're having.

And in the meantime to what degree is the term loan any market available to John you commented earlier that the commercial banks in Texas.

Like we may not be available now, but was wondering if other options might be as it relates to term loan A's and then finally.

In terms of your warehouse.

Checking over your Q.

Looks like for the 400 million dollar warehouse it still remains on committed so.

To what degree or when do you expect that could be converted to committed and why has not been thus far thanks.

Yes first of all just to correct.

Texas banks are definitely open for business so.

We've got a number of relationships there if that happens to be the the best path forward. We can certainly take that I was making the point that thats. How the company got started actually was in the commercial bank market not the EPS markets, we have a lot of familiarity relationships there.

I guess, maybe very bluntly, we've made a lot of money for the banks.

And so they are more than happy to do that again.

When the yen specific on the ABS market quality and I'll turn the rest over to Rob but.

That top end or that at a investment grade traunch has come back quite a bit.

So we think thats in good shape.

We also we could see that.

If you a triple B piece would be in good shape as well and again the double b market has improved significantly.

But somebody's got to open up the market here on the ABS transaction side really get some price discovery outside the secondary trades, which had been very.

At least liquidity is improving a bit but certainly the price discovery is not what we would all like to see in terms of the amount of quantity of capital traded so.

We'll see what happens and look you know at the ABS market continues to improve all the way up the top of the stacked and that's great and again it goes back into what we're going to perform a lot better and will generate a lot more cash flow and will generate a lot more cash proceeds, but I think it's in this and this could climb and I think its a.

Prudent to be conservative probably want to talk about ABS and coming transactions or you know and so Phil what I'd say as it were still getting ready to go out there and we will still be doing unless things change dramatically. We will still be doing transactions. This year, we will still be securitizing are taking advantage of the terminal in a market Weve had some very.

Excellent discussions with a number of players who are very eager to work with us.

And really this is the timing folks come out with very creative solutions, where they understand at the markets are temporarily dislocated in a trillion some matter of proving out things that they already know and that we've already been able to demonstrate that we need to broader market to see a little bit more.

Part of one of the reasons why we felt it was very important to come out.

On this call and talk about.

Where our collections were relative to where they had I mean, they're basically unchanged in our and our team that goes after delinquencies has really been.

As really been strong.

I do want to also if you don't my correct. One thing that you should find in sub events, which is that that is now a fully committed facility that we have with credit Suisse.

That is committed up to now $390 million 10 million, that's a and committed on the be tranche of that which.

We could still draw on it.

And it's just they when they went to the full commitment they just.

As for their own for their own internal that we go ahead and continue that went on the on the sort of draw as you go basis.

But that is fully committed as you would also seeing some events. We also just close and another.

Piece of tax equity.

We expect to have one to two more pieces of tax equity close by the next time, we talk and and we're still moving down the path there to too.

To to continue our negotiations for the next features so we feel very comfortable on our capitalization.

Yes. This this new convert does give us a great deal more flexibility, but it's not really changing.

How we're going about the basic end of our business, which is to make sure to aggregate assets.

Off of our warehouses, and securitize them or otherwise put them into some form of term vehicle.

So so that pace really hasn't slowed down nearly as much as one might have expected to.

Great John Rob Thanks, very much I'll pass it on.

Thank you.

Your next question comes from Ben Kallo of Baird. Your line is open.

Hey, guys.

One more convert question.

Two other questions. So I just think about whatever the all in costs on the converters.

I think about how the applies to your view the economics.

If I just.

Take as simple as possible, maybe that's not the way the do it but how do you have returns on your individual investments with the cost of capital that or how are those of you are positively towards or is that not the right way to look so I look out more of this is some type of short term bridge when you look.

So the weighted average cost across the life of the portfolio because you expect to build refinance it with cheaper capital.

Yes, Ben this John.

What I would say is when you look at the overall company weighted average cost of capital obviously, everybody needs equity we need we've laid out where we feel like is a proper capitalization for a company.

Whether you have a dealer model or.

Put the.

Contractor on balance sheet.

So I may have a very much more aggressive view of the world. We don't think thats prudent in this environment and all leverages, good leverage and any sort of equity issuance whatsoever is bad.

We don't feel like that would be a prudent thing at all because at the end of the day, if they get stuck in the markets. You end up you end up with zero right the bankrupt and Theres been too many times in this industry in particular that people have made that misjudgment and we we are again want to make sure Bunny sleep at night to your point about the.

Cost is relative to the Unlevered returns on the unit economics.

What I would say as one those are burdened by the.

Interest on our working capital so some of that you'd gross up a bit if you are looking out the.

Some of this capital being for working capital right and then there is a very small piece of the capital stack that would actually be funded at this.

One thing is is that the asset level equity market is typically been 12% or higher and again I think that that market is relatively shot at this point in time as much more expensive you just look at the whole asset purchasing as some of these the market is readjusting to some.

Slightly higher cost of capital.

Much higher cost capital towards the equity portion. So the market is telling you need to fund some of these assets with equity at least some small percentage of that and so I think that would you look at it overall, though that doesn't really move your overall cost of capital very much at the asset level and then when you look at your weighted average cost of capital as a company it certainly doesn't.

Move it.

It is very much and is offset by again, having less stress on the bond the balance sheet, you're more properly balanced you're not over Levered. How are you want to put it and you've got recurring cash flows coming in and again given investors both at the asset level and the equity investors comfort do you have enough liquidity almost no.

No matter what comes upon you.

Great.

Just as far as your dealers go.

And your business partners, maybe could you talk about what you've seen over the past.

Cold.

Two three months, just the health of their business and how you monitor.

Your your key relationships there as far as their liquidity position.

And just maybe because if you could contrast that with.

Yes.

That.

You are framework of having that that model using dealer networks has become a strength or weakness when we worried about liquidity small businesses, but how you process.

Yes, that's a great question I would say that we constantly monitor we have a very stringent process of bringing it to dealers onboard we have very much again. This goes to the focus of the business model Ben were completely focused on the success of our dealers, we're not going to compete with them it's not some other.

Quote channel or anything else of that nature. This is who we are.

And what that means is that we have a lot of very talented folks that are working hand in hand, with our dealers they understand what's going on in their world and it is very different as you can imagine in terms of if you're a dealer in New York versus if you are dealer in Texas those are very different experiences of less to it.

Three months, obviously, New York is a lot a lot worse and so what we demonstrated through this is that this combination of having these strong entrepreneur worse in the field, where they've grown up they know everybody in that area. They have the ability to move quick.

Finally, and do the right things whether that is adjusting personnel, whether thats adjusting processes, whether its sales are in service installation and service whatever it may be in conjunction with we're focused on our cost structure. We're focused on taking care of our customers taking care both in the truck rolls in the service, but also in the billing and collection.

Okay, and everything that goes in with service the capitalization and so part of this is we make sure that they're in a good financial condition, which they are especially our large dealers and with that as a long term focus for the company. So nothing changed there. We just made sure that everything was still what we thought it to be and get again doing the constant checks we all.

Please do and then the other side here is making sure that we have a great balance sheet, great cash flow statement were strong and we can weather any storm with them.

And again I want to point out that we feel very strongly that with our dealers.

We're in this together and if they're in good shape and we're in good shape, we're going to come out of this even stronger than what we came into it and I think that our performance to date relative to industry and our guidance today relative to the industry puts that in a very.

Very start focus.

Thank you.

On the tax equity that you raised.

Could you just talk about how what you see the tax that we market as far as breadth goes as this business of new partner.

How deep as the market right now and then.

How much of the cost of capital there change and then I'll turn it over thanks.

Hi, its with an existing partner, it's our second from with that partner and we expect to be doing a number of more.

Those funds.

One thing about this tax equity market is that the there are too.

There are two providers that have.

Said that they are open very much open for business and our standing by their commitments and we have relationships with both of them. In addition, we're talking with other folks as well to add some.

Taking that that side.

We.

We find a lot of folks who want to use tax equity strategically as well not just on the bank side.

And we're very happy to be partnering with them, what I'd say from rates is that.

Generally speaking with the base rate having gone down.

I dare, there's the opportunity for us to bring the rate down little bit, but we've generally kept the rates about the same.

Just because there is a little bit of a level of a spread widening at the same time. So we haven't seen really a change in in rates overall.

And I don't think our peers have seen that either at least from the comments that they've made.

We're very fortunate to have the relationships that we do we're also very fortunate to have.

Some very interesting inbounds.

We've been working with.

And given sort of where we are with what with what we're working on we feel very comfortable certainly in the near term about that we'll have sufficient tax equity.

And as we look towards what we're going to be doing for the for the late fourth quarter and 21, we're already in discussions there as well. So it's it's really remained a strong market for a for those of US who are proven that we can perform.

So as tax capacity does become more precious to a lot of folks.

They're making sure to go with the ones that they know can and will user responsible.

One thing to add to that and I.

I think the again this has been relatively glossed over but.

As you can imagine this environment, particularly with banks.

The banks are looking more and more to the platform company or the corporation rather than just necessarily.

The asset entity SPV.

And again I made that comment that the ABS market earlier that we certainly I certainly saw that was very eye opening for me had been predicting that as you know for a number of years analog folks are realizing these are service contracts. These are not just put them on the shelf pieces of paper there there's perform and as that realization is coinciding with this pan.

Then the crisis.

But you're seeing we're certainly seeing it is a lot more of the banks going whereas your cash flows upstairs how much cash do you have like to be fully ran out and you didn't get any contracts what would you look like.

These are things that really we need to all think about that the banks are certainly thinking about and they're looking towards who has the strong balance sheet, who has a strong cash flow statement. So that you can go quarters not a couple months. If you didn't bring in certain certain number of contracts, maybe any contracts being entre koning their analysis.

And can you be there when you make it where you make.

We make me.

Pole and so if you look at it that way I think we've got some of the strongest tax equity partnerships in the industry, we know that.

Im not saying at others do not but we certainly have some of the strongest did not the strongest and we certainly see that we have the best financial position balance sheet and cash flow statement. The entire industry. So we will when it comes down to it we will get the last amount of tax equity of I think that.

Markets and relatively good shaping or competitors, Rob mentioned mentioned that as well, but again, we're preparing for the worst and hoping for the best.

Thank you does.

Thanks.

Your next question comes from Paul Coster of JP Morgan Your line is open.

Yeah. Thanks for taking my question.

In the opening remarks, you mentioned that you have had some slow pace with no pose no very many but you've had success in collections can you just talk us through a case study so we understand how that works.

And how it might work prospectively.

Yes, Paul it's John I'll try to answer that.

So what we were what we do as we look at past due one past due 30, and then delinquencies basically past few 60 days and then default we've had a very stringent default definition I think relative to others. It about its 120 days and so when we're looking at.

Our performance through this.

Financial and and health crisis, where we're doing as we're looking at all those indicators plus other sort of indicators such as removal from which is their legal right removal from automatic payment, which the vast majority I think night 95 plus percent of our customers are still an automatic.

Withdrawal CH and so we're looking for all sorts of indicators that would tell us our people going to move in that delinquency bucket or people going to move into that default bucket.

We increased our staff significantly just to deal with this and if you recall in previous.

Earnings calls that I anticipated that we're going to have.

A recession at some point, obviously didnt anticipate anything like this but we're already gearing ourselves for that and not having as wide aperture on terms of taking very low FICO scores as maybe some others do in the fintech role and so forth. So what we did was we made sure that are.

Our credit scorecard screening was very was very tight we made sure that we're getting on top of customers and talking with them and having conversations right away not waiting for the past due 60 in the past due 120, and we felt it is very important to make sure that people are able to keep up with their bills and not let.

Them get behind we've noticed that over the years that when you let people get behind you may seem that that is.

The right thing to do but it's actually not it's a it's making people aware they can't ever catch up and so we're always working with our customers, but we're making sure that there are staying current.

And we're seeing a lot of our customers effectively treat us as a utility which again is what we've always talked about that that would happen that is indeed happening. So we can't predict the future, but I would tell you a nice share this with everybody that our payment performance from our customers.

Surprises even the this management team that is very good.

And then in that that should and again leads to a lower cost of capital over time as the market recognizes that.

Helpful. Thank you and then one last question.

Some of the dealers must be encountering some issues in specific locations, where stay at home or does the most stringent.

And I have fixed costs and food for you they are variable cost and so they submit true.

How do you help them out so.

Specifically in those situations, where they're carrying a fixed cost.

It's difficult for themselves so keep going.

Well each each is different you're right. It varies on the dealer it varies on the geography and most of the vast majority of our dealers have been.

Doing doing fairly well now what I would say is is that if you have a.

Door, knocking group as part of your Labor force of origination and so forth. It is highly likely that that group is no longer working for you as a dealer I think we can all understand that knocking doors.

It was.

Basically band and many of the territories that doesn't mean that that can't come back and we're seeing some early signs of that by the way.

But we're our dealers pivoted very quickly and this has been much talked about but we were the first two to talk about that out there in the marketplace way back in.

Late March early April it to the video conferencing sales the phone sales and so forth that obviously that retraining. If you will took some time.

It was done some firms some dealers did it better than others and some dealers to the quicker than others, but largely everybody's moved to that and I would tell you that the consensus opinion is amongst all the dealers is is that this works. It's cheaper we're going to keep this doesn't mean, we don't bring back some door, knocking and so forth, but at the end of the day. This is a lot more cost.

Effective and if as customers were truly sign up for this way.

Just think about all the.

Savings in time as a sales person you have not to go out to the home and so forth and so again, not saying 100% of that will happen at post pandemic post crisis, but.

Certainly I think the large percentage of the sales will be done that way and that's a lot more efficient not only for the individual salesperson certainly for the dealer and overall for the industry. So it's.

It's something that again it varies by dealer, but they've they've been very successful as a whole with.

Got it thank you.

Your next question comes from Michael Weinstein of Credit Suisse. Your line is.

Hi, John.

Hi, Michael.

Right.

Maybe we could talk about the.

Uncertainty you talked about where the economy and going forward how much visibility do have into Q4, considering there's about four to six month lag between.

New originations for customers and the installation collections of cash.

And what can you say what does that say about Q4 cash flows and maybe even 2021 cash flows.

Yeah. So once you get to Q4, if we had 91% of our revenue as of May 1st you can imagine that we have near 100% as you get into Q4, and certainly as you move through Q4, it definitely hits, 100% right. So.

And we certainly can control costs I think we've demonstrated that time and time again, so we have a pretty on all of our financial metrics adjusted EBITDA principal and interest from customer loans cash flow with pretty good visibility at this point in time really good visibility into the into the Q4 timeframe the customer.

In service or the customer growth. That's one we have less than the financials side of things, but again, what we're seeing right now on origination which is really this quarter is going to be for some at least of Q4, plus what we have in the backlog.

We again are seeing some pretty significant growth and.

With that means for US is is that we feel we still feel comfortable about the Q4 account now I would hope in and we're working hard to do this that we can pull up more.

And Brian earlier pointed out a number for Q2 I think that was the math was great, but I would love to see us if we can pull that up into Q2 in Q3 and foot less pressure on Q4, so to speak but again, given our backlog and given the origination growth that we saw through some I think we could all agree really horrific times.

In terms of being able to do business.

And just the living life is we're all doing to this helped in economic crisis that gives us a lot. It gives me a lot apart and again strong visibility into our growth and then what we're seeing right now.

Last few weeks and certainly continues as recently as a yesterday is really good growth that we feel very good about in terms of being able to forecast on the Q4 customer growth metric.

Why not issue straight corporate debt or something that might be cheaper.

Or even say corporate equity incentive convertible equity something that might actually have less cash allow put outflows.

Period of time, your stock's trading at a pretty decent price.

I'm wondering why those options, we're not yet.

We certainly looked at them, but the price for corporate debt that we found was much higher.

Then the rates that we are finding here.

Bye bye several points.

And.

And there wasn't nearly the certainty of being able to close on that even we could find.

Rates are only it.

Three or four points higher was still very uncertain that could actually be closed.

In the in the time period that we wanted to make sure that we had in close by.

And then on the equity side for us to have gone out and done an equity deal. We can either have done a very small pipe and that would not have really have helped us nearly to the to the quantum than we had here or we can do a public offering but if that were the case, we're an S. One filer at this point so for us to go out as soon as an S. One filer, we have to spend.

Two days publicly out there before we can price that just adds especially in the market like today and with the stock as volatile as ours really too much risk out there I think to the equity shareholders. We could have lost a great deal of value just going out there.

And while we're marketing the deal and then having to price the deal. So we felt that this was really the option that did the best to preserve.

Our stock price and bring in the right cost of capital.

I would add to that Michael and I want to point out that.

Our retained cash flows from our customers really enabled us to raise is kind of capital. We could have raised a lot more if we so chose that to be prudent. We obviously picked up piece as at my comments earlier mentioned that in terms of quantum we felt was very prudent to get us through.

Draconian times, even all the way through 21 and beyond.

But the only reason we were able to do this is we retain or cash flows.

The idea that you have in assigned asset value or sign value on your balance sheet to an uncontracted potential revenue from customers and that you can borrow against that or even.

So any sort of security against that is just not true and certainly not in this environment.

What our overall point out is that again when you look at your burn rate as a company and we have a very low one because of our model and we don't have the comp the contractor on balance sheet. What's your what's you're looking at as the number of months that you could go if the capital markets were shot and you would have a hugo.

Through if you have the contract or dealer on balance sheet. We go through a surprisingly large amount of cash if that were to occur and that's why we don't do that model. That's why we retain the cash flow Thats why we like the cash flows and it gives us that optionality to raise capital and what clearly as in any environment at relatively.

And I would point out again. These are this is an accretive on in TCB PB six basis. So on a per share basis. This is very accretive to shareholders.

Lastly, I would say optimization optimization on a spreadsheet by financial folks is great until the real World hits. The rural just hit in mid March and continues.

This is what really happens this is what really goes on in a trenches and this isn't fitting on well on a spreadsheet or anything else. This is the real life and we need to be all prepared for realized and I don't know what's going to come down the pipe here no. One does if it's really up in off to the races in the pandemic melts away I mean God.

Less than straight that'd be great. If it doesn't happen I want to be able to look everybody in the eye and said we were fully prepared we did the right thing and we're going to make it through I would also say, we certainly have the firepower now that if anybody gets in trouble we are willing to step in at the right time and.

Basically make any sort of acquisition, we seem prudent in accreted to shareholders. So we have the strongest balance sheet, we had the strongest cash flow statement and we're going to continue to improve it with our strong growth rate.

It sounds like the of the finance markets are more dislocated then the actions on the solar market.

That's the real.

The real issue.

Can you talk a little bit about the a battery attachment rate battery attachment.

Value right, that's how much about how much extra that how much is that contribute to the increasing net contracted customer value.

That you're seeing.

I don't know if we had that off the tougher ahead, we can certainly try to get that out to everybody but.

We basically when we give our unit level.

Economics or Unlevered both.

Gross and then fully burdened as we as we gave out.

Those are all inclusive of batteries and so when we deploy capital we look at an aggregate basis, obviously on some on some contracts, we make more money in some contracts and make less money, but we look at an average and that's what we've laid out quarter after quarter. What we're doing so we're quite pleased with the returns that were getting on batteries and I would say its.

Not including the energy services that were starting to see those opportunity. So those are further growth cash flows that we'll be able to add as a company and be able to leverage.

With those assets in terms of being able to sell additional energy services to our customers or in aggregation in some people, calling grid services, but energy services into the into the local centralized grid system. So.

The unit economics for us are pretty strong.

And baked into those overall unit economics with batteries and we continue to see that there's going be a lot more an additional accretion or additional unit economic increase overtime as we demonstrate.

And execute on energy service opportunities.

Okay. Thank you very much.

Thank you.

Your next question comes from Sophie Karp of Keybanc. Your line is.

Hi, good morning.

A couple of questions related to demonstrate some how are you going to.

I'm here.

So first.

Well clearly the financial markets for solar yes, maybe dislocated.

Temporary and with interest rates going basically zero RDC, 4% this country.

No.

In my second question is what does it to your loan business with consumer rates again going down, especially for consumers and higher ranges of their great weather than this.

We see level trends had zero percent for long term financing right right now so what does it do a little bit term to your loan businesses that they've been.

Well for you to continue to realize that spread that you're looking for.

Thanks, Sophie Yeah, I think what you pointed out is is that.

The risk free rate has dropped tremendously.

However, in all asset classes mortgages included the this spread is still up from where it was a early March in certainly in our securitization in February.

What I would also say, though is that again, mainly due to the fed intervention, which we which we applaud chairman chairman Pal for doing and being so aggressive in the front end, which really I think it.

It really made the opportunity to get out of this crisis or at least muddle through it.

A lot to a lot better.

Then when it would have been otherwise say if had waited as long as what was had to than done and await nine financial crisis.

With that said the investment grade portion of the ABS market, which is commensurate roughly with a commercial bank market.

In in terms of what portion of the capital stack, they're willing to fund, though that is getting is gone come down quite a bit and that has a lot to do with again the fed intervention and so we see that to be a relatively attractive cost to capital not too far.

Maybe 50 70 basis points away from what we did in February the problem and gets into when you start getting into asset classes are portion of the capital stack that the fed is not intervening in directly or even somewhat indirectly then that starts to get those spreads start to widen out pretty pretty substantially again, if you look at the double b market as we've talked.

About a couple of times that widened out significantly in the secondary trades and the earlier days of the crisis, it's come back down quite a bit, but I would point out that in our February securitization that.

Great was 5.4% certainly right now it's not near that so the overall spreads regardless of asset class reverse a solar have increased there comes a lot down from where they were in the in the apex of the crisis at least to date, that's the that with the apex back in late March in early April but.

We still have a ways to go all all in though if you wait.

The tranche as a capital we still calculate that were well south of a PV five so I think thats.

I think we're still headed back down to a PV for I would also say that at the risk free rate stays where it is at roughly 60 basis points to 70 basis points on the 10.

The the overall PV is definitely going to go in terms of the cost to capital to a four or maybe even less simply because as the spreads come back in as the payment performance that we've been talking about and demonstrates.

The fundamentals if you will the industry will take over and drive that cost of capital even lower.

And on the alone business.

On the on the loan business side of things.

We see roughly about the same returns there we've seen some people need to get more aggressive to get enough volume to feed their overhead we don't need had that need again, we have these strong long term cash flows and we've set we're set up completely differently.

So we're not going to be aggressive in that area.

However, I would also say that obviously.

As folks get more aggressive the has a lot more risk, whether they're going to make it through the crisis or not but.

Overall, we we've seen that market be relatively stable as I as I spoke about my opening comments on terms of Unlevered to unit economics.

Either grocer fully burdened and so we still see the viability. If you will on keeping the spreads that we've talked about.

Again, it's more likely that our cost of capital will drop faster over a period of time, given where we sit today given the payment performance than our overall rates that were able to are embedded.

Unlevered returns that were getting in our loans tour to our customers.

Thank you.

Today's final question comes from Paavo multi channel.

Raymond James Your line is open.

Thanks for taking the question you've gotten a lot of finance question Tonight, well turn kilo more of an operational topic.

Just paint that's a visual picture what that social distancing look like.

On a rooftop solar work site, how do you or how do your dealers.

That is do though.

Nicole labor.

In the conditions that we all find ourselves and right now.

Yeah, that's a good question Vogel.

What I would say first is is that you must have your equipment right. So you everybody, whereas a face mask everybody's got a lot of the per well and you've got all of the gear that you need to be safe gloves et cetera, and so that was standard issue to all of our service technicians as well as our dealers to the same for their crews.

You do distance yourself that means that Youre limited to the number of people you put in a truck. That's typically one so that you don't have that kind of.

Delivery is spread amongst your your folks and then on the job site itself you make sure you have quite quite a bit of distancing that's not too different than what is the normal operation by the way. If you can imagine across construction side I grew up.

In the construction business.

And in you would you would be able to pretty easily be able to stay more than six feet away from folks as your as we're operating even when you run a rooftop.

And then the last thing I would say is is that.

For over 90% of our installations, you don't need to go into the house. There are some things you need to go back in and take care of.

Maybe when others, we feel more comfortable with it you certainly you're going to get in full gear and make sure that you are not touching anything in the house and so forth. So there is a way to do this and I'm proud that we've been able to work with our dealers and really.

Others in the industry to show that the Ortiz, having jurisdiction, whether that and governors and whatever that may be that this can be done and is being done any very safe manner that health is our first and foremost priority, but we can make this happen and indeed, what we need to do as a society as a.

Country It have a balance between focusing on making sure people are healthy and staying healthy and making sure that we have an economy that we can move forward on so that we can all put food on the table pay the mortgage pay the power Bill and so forth and move on and I think what what I'm. Most proud of what we've done as a company coming out of.

This and with our with our partners. Our dealers is that we've been able to strike that right balance to make sure that people are taking care of but the same time moving forward and taking care of our customers, who we are selling the most essential service which is power.

One more question kind of on on the locked down aspect that this so youre in a lot of jurisdictions some of them have been rather strict in there.

Isn't as closure and operating enforcement others have not.

Where have you.

Again, Youre Taylor said expose more directly have had the the greatest headwinds in terms of resuming normal operations during the reopening phase in the last four weeks, let's say.

I don't think it'd come as any surprise anybody New York has been the most difficult area and New York City proper.

That has been the most difficult area and I think it's understandable and again I'm very confident.

That we've been able to demonstrate not only as his company in our dealers our partners, but also the rest of the industry. I think has done a very good job too that we can operate very responsibly and I would encourage.

Those those local leaders to to be able to have us to do that so that is the most intense area. If you will have the entire footprint that we have.

And but I think it's also understandable, but again I think and I'm very confident that we could operate in a very responsible manner.

Thank you very much.

That was or break your question for today I will now return the call to our presenters.

Thank you everyone for joining us.

I think that it goes without saying that this sees these times are very uncertain.

These times are very difficult on everybody. This is not only a health crisis, but it's also an economic crisis and what I'm very proud of is it not only as an industry, but certainly is sonova and the company and our dealers our partners. We've done a tremendous job navigating very uncertain very difficult times.

I was going down to very personal in nature in terms of those who are the most vulnerable but also we all recognize that we must move forward, we must figure out how to deal in love with this thing that is the virus until it is eradicated through vaccine or rather than other methods, but I'm very proud that everything that we've been building over the years since I founded the company.

Is in full display that we have the right people at the right time doing the right things and that's what gives me the greatest amount of.

Comfort and so it gives me the greatest amount of really satisfaction to see this this happened and see how well we have been all and be able to execute I'm very confident in the company's future. Obviously, we've done a lot of hard work and the right strategy, including the right financial strategy to make sure that we have very strong underpinnings that no matter.

What comes up we will make it through and we will not only survive. This crisis. We are thriving we're going to be a better company coming out of this them, which would then what we were going into this crisis and I have to thank all my employees my customers on lenders my shareholders and write dealers.

For all pitching and to make that truly possible and making it happen. So thank you very much and look forward to the next earnings call.

Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.

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