Q2 2020 Sunrun Inc Earnings Call

Hello, and welcome to the someone second quarter 2020 earnings conference call.

At this time, all participants are not listen only mode.

Well you watch require operator assistance. Please press star zero under a telephone keypad. A question answer session will follow the formal presentation. As a reminder, this conference is being recorded it's now my pleasure to trickle over to Patrick Jobin. Please go ahead Patrick.

Thank you Kevin and thank you to those on the call for joining US today before we begin. Please note that certain remarks, we will make on this conference call may contain indoor constitute forward looking statements related to Sunrun seven solar and the acquisition of different solar that involve substantial risks uncertainties and assumptions I could cause actual results could differ materially.

From those expressed or implied by such statements.

All statements other than historical facts included in our discussion, including but not limited to statements regarding the timing in closing of the transaction the potential benefits and financial impact of the transaction Sunrise and different solar plans objectives expectations and intentions, the financial condition results of operations and business of Sunrise.

It doesn't solar and any assumptions underlying any of their foregoing and forward looking statements. Although we believe these statements reflect their best judgment based on factors currently known to US actual results may differ materially and adversely from those are anticipated to reflect circumstances or events that occur. After these statements are made please refer to it to the Sunrun and defense always filings with the FCC and the.

Filings that will be made in connection with the transaction with the FCC, including the joint proxy statement prospectus for a more exhaustive discussion of risks and other factors that may cause our actual results to differ from projections made in any forward looking statements.

You may read and a copy then he reports of the information filed or they will be filed by sunrun of different solar at the FCC public reference room in Washington, D.C. Sunrun of difference all those filings with the FCC are also available to the public from commercial document retrieval services on the website maintained by the FCC at Www Dot FCC, that's kind of although.

We believe these statements reflect our best judgment based on factors currently known to US actual results may differ materially and adversely from those are anticipated to reflect circumstances or events that occur. After these statements are made please refer to southern Vince always filings with the FCC Anda filings that will be made in connection with the transactional tests, including the joint proxy statement prospectus.

For a more exhaustive discussion of breast and other factors that may cause our actual results to differ projections made any forward looking statements you.

He may reading copy.

[music].

You may reading copying it reports or other information files are there will be filed with sunrun they've been sold it FCC public reference human Washington D.C. Please also note. These statements are being made as of today and we disclaim any obligation to update or revise them.

The call today's couldn't Jouret's Sunrise co founder and CEO at Fenster, Sunrun, SCO, founder and executive Chairman and Tom been rock powered Sunrun CFO.

Presentation today will you slides, which are available on our website at investors that Sunrun dot com.

With all that doesn't let me now turn the call over the Lynn.

Thanks, Patrick.

We're pleased to share Sunrun second quarter results in progress against our strategic priority.

We grew our customer base, 21% compared to last year now well over 300000 strong.

And the second quarter, you Gotta 10700 customers, representing 78 megawatts of deployments.

Our performance exceeded our expectations that the onset of co bad and we're on track to deliver sequential improvements in our grass and that customer margins in the back half will be here.

Consumer interest in clean affordable and resilient power is stronger than ever with increased outages from storm and wildfires combined with more time spend at home.

Ongoing technological improvements in energy storage and electric vehicles are leading to an enhanced value proposition at solar in batteries can afford of labor place more of consumers energy needs and unlock virtual power plant revenue opportunities.

These tailwinds combined with our increased operating efficiency and customer reach will lead to strong improvements in the value we create for our customers and shareholders.

Over the last few months, we've accelerated our corporate metabolism in operating effectiveness here are a few examples.

Our sales productivity has increased by approximately 50% and improved cycle times from customers signature to install and installation labor productivity that 20% compared to the same period last year.

These changes result in reduced cost and an improved customer experience.

We continue to expect 2000 per customer I've enduring cost improvements from these initiatives.

Order volumes in March in early April did decline due to restricted access to certain sales channels not lower customer interest level.

And as a result, we have lower insulation volumes near term near term or gradually and safely reentering. The retail channel. Our sales team continued to successfully execute with virtual selling and the direct to home channel that several of our partners to utilize remains robust.

Order volumes are now returning to pre kobin level, and we expect a significant sequential increase in deployments into Q3 and into Q4.

For Q3, we expect over 20% sequential grass.

Our strategy is to be that go to company for clean and reliable energy as our world transition towards renewable power and electrification.

Consumer spend over 180 billion per year on electricity and even more on all energy sources.

Well utilities, and that's more than 100 billion per year in new energy infrastructure.

Today, only 3% of U.S. households have made the transition to home solar and yet survey show nearly nine out of 10 people in the U.S. paper expand into using solar power.

Over the last few months, we've expanded our capabilities to lead the industry and accelerate the transition to consumer led electrification.

In July we reached an agreement to acquire pivot solar which will expand our customer reach provide cost synergies and increase our base of customers.

The combined company, we already have over a half million customers and will be a leading owner of solar assets globally.

In the quarter, we've doubled our number of print services awards now totaling 10 and have over 50 million and awarded contracts are those in advanced stages.

These programs are where we network solar and batteries together to form virtual power plants.

They present, a flywheel opportunity this grid services revenue, coupled with lower customer acquisition costs can enable lower customer pricing, allowing for even deeper penetration in regions with these programs.

This further increases incremental recurring revenue opportunities well differentiating our customer offering.

We have now developed proof of concept programs and 10% of our geography. This quarter. Our team was incredibly busy watching programs with southern California Edison once the largest utilities in the U.S. and Orange and rock when a subsidiary of Con Ed and three community choice Aggregators in California that provide power for nearly.

1 million Bay area.

In addition, we announced that we formed a venture to accelerate the electrification of the home with Okay group and affiliated company.

The new venture well conduct research and development activities to accelerate the adoption of renewable electrification of home and the transition to a connected and distributed consumer energy system.

Before I turn it over to add I want to say, how proud I am of all the work our team's doing more focus on near term execution, but also delta EMD strategy for someone to lead the industry force our team's ability to drive change will deliver benefits not only the customers and shareholders, but also our country ever do you add.

Thanks Lynn.

Today, I'll discuss the financing market for our assets, our asset performance and recap our capital runway.

We're now seeing significant tailwinds and financing markets.

Our contracted long term high quality recurring cash flows have always been the bedrock on which we raised nonrecourse project financing to fund our growth and offer customers are compelling value proposition.

The strength of these cash flows, especially apparent in environments like this one.

The positive trend we highlighted last call is continued with capital costs and continued decline.

Senior debt in particular is currently pricing at or below all time lows.

Mr is increasingly appreciate the low risk stable cash flows of our asset class.

Consistent with my comments last quarter customer payment trends remain strong supporting capital cost below 6% as performance continues to be proven through economic cycles.

As of July 31, delinquencies as a percent of total P.P. and lease accounts receivable in each basket 30, 60, 90, and 120 days are lower now than before the onset of cobot.

This is not surprising at home electricity is at the top up the customer payment waterfall in our customers are homed opens mail.

We charge less for power than the incumbent utility and due to the cheering them electricity pricing in many jurisdictions savings from solar grows electricity use increases this further enhances our value proposition.

We continue to maintain a long project finance runway that affords us the ability can be selective in capital market activities.

Just in the last four weeks Weve continued to raise tax equity at terms similar to those we thought before the onset of cobot.

We also have a long pipeline of additional project finance opportunities that we are evaluating.

As of August 10, considering only committed debt and close tax equity funds. The company's prearranged financings provide capital to fund approximately 200 megawatts at least projects beyond what was deployed through the ended the second quarter 2020.

We also have executed term sheets for did no additional project finance capital to fund installations and with that I'll now turn the call at the top.

Thanks, Ed.

Looking now to the second quarter's results and our outlook in spite of the restrictions we faced during the early stages to cope with the Sunrun team powered through an executed well.

Our Q2 volumes exceeded initial expectations and we continue to see strong sequential improvements were sales activities back to pre covert levels. We also responded to the challenge presented an accelerated efforts to streamline our operations, improving but cost him customer experience.

In the second quarter, we deployed 78 megawatts of solar capacity to approximately 10007 of our customers. We now have 309000 customers growing 21% year over year with most of them paying us on recurring monthly basis for the clean electricity, we provide them under 20 or 25 year contracts.

Elements in the second quarter decline from the first quarter as a result of restrictions on our business during the onset of coated most notably our retail stores and with local permitting authorities.

Project value was approximately $31400 per customer in Q2 total creation costs were approximately $27600 per customer.

PV in the second quarter was approximately $3800 per customer.

The impact of lower volumes at our business during Q2 led to less advantageous cost absorption offsetting gains from our operational efficiency efforts.

We saw improving indicators of sales in April we deliberately maintain a measured level of staffing and market presence to be able to respond to opportunities as restrictions were lifted.

Additionally, we experienced sequential increases in sales and each month of Q2, which resulted in higher in period sales and marketing costs for volumes. It would be installed at a future period further pressure in Q2 MPV per customer.

The combination of continued operational improvements and sequential volume increases that Lynn mentioned earlier have us optimistic about the second half of 2020.

We expect to see customer net values are NPV to continue to improve sequentially in Q3 in Q4 with Q4 levels of more than $8000 per customer.

With the operational efficiency improvements discussed earlier, we expect to enter 2021 with an improved cost structure and higher net customer values as an independent company.

We also expect the acquisition of <unk> power will provide additional competitive differentiation and cost leverage with the combined entity, creating additional value for customers shareholders and society at large.

Turning now to gross and net earning assets on our balance sheet.

Gross earning assets for $3.9 billion at the under the second quarter, reflecting an increase of $31 million in the first quarter.

Turning now says the measure of cash flows we expect to receive from customers overtime net of distributions to tax equity partners and partnership structures project equity financing partners and operating and maintenance expenses discounted at a 6% Unlevered whack.

We generally have several active fund at any point in time during the second quarter are fun mix is more heavily weighted towards the partnership on that Alex It's more cash flows to the partner competitive cost to capital.

As a result, Q2 had less growth in gross earning assets, but more proceeds unless new project up.

Net earning assets were $1.6 billion at the end of the second quarter also reflected an increase of $31 million from the first quarter.

Net earning assets is gross earning assets less all project level nonrecourse finances.

We ended the second quarter with $354 million and total cash, reflecting a decline of $12 million from the prior quarter, but flat on a year over year basis.

We believe looking at the combination of cash and net earning assets provides a way to evaluate our performance in generating shareholder value. Despite the lower volumes in Q2, and the corresponding cost absorption challenges, we increased the combination of cash net earning assets by over $200 million compared to the prior year.

We expect to maintain our strong cash balance this year, while also increasing our Saturday ourselves.

With that let's open the lines for questions. Please.

Thank you another teamed up to your question answer session.

If you like to be placement question Q. Please press star one under telephone keypad, a confirmation tone with indicates the why isn't the question Q.

You May press star to if you'd like to move your question from the Q for participants using speaker equipment, they may be necessary to pick up your handset before pressing star one one moment. Please what we pull for questions. My first question today is coming from Mark Strouse from JP Morgan. Your line is that a lot.

Hi, good afternoon. Thank you very much for taking my questions.

Thank you for the the detail on the Fourq you Unlevered NPV for per household that's a that's pretty interesting I'm curious, though when I look at the the volumes in Threeq you up over 20% that suggests we could still see some year over year declines in Threeq you <unk> question is.

When do you think we should get back to year over year growth do you think that happens in fourq <unk> or is that more of a 2021 thing.

[noise] right now I think the because we're comfortable getting real clarity is due to the 20% sequential into Q3, but but all sort of confidence around that customer margins in Q4 and part of that is because we continue to navigate you know some of the restrictions that are still in place.

In the market around retail restrictions little bit afloat.

Some permanent locations.

But the growth into Q3, we feel very good about and you know well position going into twice for one.

Sounds good okay. Thank you and then just one follow up or just any feedback that you've received from any of your your dealer partners. Your financing partners are kind of your your entire value chain sense. The the acquisition of event was announced any qualitative color you can provide would be great.

Yeah that response has been very strongly I you know there there that channel partners. In particular are excited about what a larger scale can bring in terms I've seen a product offering brand recognition and you know and improved pricing for customers as well on yeah. I think as we've noted in the path that it's such a fragmented industry.

Still and you know when we look at even just on our kind of internal data of how many customers Oh or leads that we've touched and that becoming a you know I've event customer it's about 3%, it's very small and again just the underscoring that there isn't a lot.

You know that that kind of rising tide the call, but an awareness is really what the industry needs that are penetration level. So I would say that thing quite positive response.

Great. Okay. That's it for us thank you.

Thank you.

Your next question today is coming from Julien Dumoulin Smith.

From Bank of America. Your line is that a lot.

Hey, good afternoon, everyone. Thank you for the time just to clarify here on the on the acquisition. How do you think about integration process in terms of consolidated growth metrics right. So talk about that and customers et cetera, but you didn't put it this way if you've got about the.

Previous expectations for vivid and Sunrun separately, especially not just in the next quarter, but sort of compounding through the <unk> through your how are your initial expectations trending again that combined pro from outlook.

Sure you know one I just have to emphasize again that that transaction has not closed yet. So we're very much running that two companies as separate entities as you might expect I think that you know there.

We don't believe there any strong revenue or growth dis synergies.

You know and and part of by give an example of how little that the overlap as it's really just underscore that I think there. So you know no no reason to believe that Jeff.

When you put the two companies together they can sell each complement our sales model can still generate that sort of historical rates that that they've each discussed that we'd be just got there's not there's a couple opportunities that I think really I'm up more growth in more value and the first one is with battery and you know we've been.

Oh pattern has been a leader in that there that has not had the same penetration levels that we have and so that's a really immediate incremental on value creator it to increase that makes a battery ultra their sales force. The other thing we're excited about from a differentiation standpoint are the merger.

Since I've been spread services contract, which we really do you believe barks create that sort of flywheel effect and where that's you know take share locally. So you know where the company who has that the contract with the utility to provide.

The batteries and and and the capacity you know it gives us a customer acquisition edge, which allows us to you know pass some of the savings along to that consumers generating more density, which then makes your credit services that much more valuable to the grid because you're operating at an even bigger scale and when you look at that director.

Home model that they didn't brings its quite supportive of these credits harvest the type programs, where you really want to target you know you can more directly target the salesforce.

And the in the areas, where you have that personal power plant contracts.

I think there's some new you know unlocks around growth, particularly around you know not just more megawatts that increase in value per customer.

Right. It can you talk just briefly here on the contracted gross earnings asset I mean, obviously somewhat flattish over the quarter not Miss obviously, the seasonality dynamics here in cash dynamics, but how are you thinking about that through the course of the year and growing your core earnings base here and also just talk about your your cost expectations given this.

Recovery here through year end, if you can't do.

Yes so.

You know that in Q2.

Yeah, but led to smaller increasing gross lending assets, but.

No additional project up there and so you see that flow through fully on on anyway, I think goes as we move forward.

We continue to have a range of funds that will deploy I think the headline figures that we we intend to maintain cash and grow net earning assets over the over the balance of what you're hearing so.

I feel good well positioned in that regard.

Okay, then not ready to commit further on cash.

No.

Okay, Alright fair enough they've got.

Thank you.

Thank you. Our next question today is coming from Michael Weinstein from Credit Suisse. Your line is not alive.

Hi, guys.

Hey, Jim could you guys talk a little bit about the come back and demand that you're seeing in the second half or at least in the third quarter.

As specifically a you know what kinds of what kinds of things are you what kind of assumptions are you, making that demand will rebound or you are looking at states, where only or I guess the virus is starting to recede or what a second locked down in any particular place a up and those assumptions that anyway.

Yes. Good question I think you know what we.

You know a couple of things are different versus you know what happened and March even if there's a second wave one as we clarified with different jurisdictions.

That we are essential services. So we've been through you know that cycle, we've instituted all the practices to install safely we pivoted the sales team digitally so all of those initiatives, which were able to get done quickly, but you know they still took some time to put in force. You know are already you know operating improvements that we've made and would end.

A lot to you know continue to to perform even stronger if there were to be even additional restriction at this point right now we're not restricted Fran installing anywhere we still have some I'm you know.

Some of the of the Big box retail stores that were not fully ramped back into that is putting a little bit of a drag on the year over year calm.

But that the point really the reason we have the conviction is one we have to backlog to the customer interest was never the problem. The problem you know the reason for the slowdown was really Jeff.

Yeah that restrictions and operating and you know three we've worked through a lot of those operating restrictions to have backup plans if not even when one of the benefits of this whole situation, which we touched on earlier calls that it has forced us to make faster operating improvements that will endure.

So you know yet this quarter doesn't look ray from your growth rate and you know the margin is lower because we have left unit, Ted you know, but be spread the fixed cost around but it's it's really the changes we are able to me in this quarter or are really going to benefit us.

You know as we exit this and returned to.

More business as usual.

Gotcha and as a follow up for battery storage adoption, how is that looking in the second half than the third quarter, specifically have the blackouts in the northeast or you don't have the other outages snowstorms that you know were real hearing about right. Now are living room is that have said any noticeable effect on battery sticky adoption, especially.

The new England.

Yes, yes, absolutely there's two things that are happening.

The back half of the or that should increase Stuart's adoption. The first one is that consumer pain point from the storm and the outage as and.

No we haven't had any wildfire. So that's yet we're just emerging into that season here in northern California. If you just think about numbers. It was 1.3 million New Jersey resident then how power in California, Las Vegas, two and a half million that law power. So again think about you know, even just penetrating and that was sort of markets you know.

Where we as a you know combine that and Sunrun were again, one of the largest solar assets globally, So where owners club and we only on 500000 customers. So even just you know if you think about the market ties available to us in places where people have felt real restrictions on in terms of how they are.

Our living I think that that will.

Increase.

Option considerably the other thing that we have happening it's for that for the first time really in and in quarter. As we are seeing on price improvements on them.

On the battery system. So we will be the you know that the price improvements for the battery that where you know selling back half of this year, it's 15% lower that than first half and you know again, we're gonna be passing through you know someone that onto our customers to just make the value proposition strong.

Longer so we'll be on so those two factors give us confidence that will start to see increased adoption and the third is really a secret services programs get more traction you know, we're having we have the utilities marketing on our behalf, making customers aware that you know solar and batteries is that resilience.

Technologically ready affordable solution.

So those are all combined to make us quite optimistic.

Thanks, a lot less.

Thank you.

Your next question to these coming from Brian Lee from Goldman Sachs. Your line is now alive.

Hey, everyone. Thanks for taking the questions and maybe linzess to follow up on the last part of the the answer you just gave.

I might've missed some of the details here, but you mentioned I think 10 grid services contracts. During your prepared remarks, and then $50 million in revenue opportunity is that annual revenue or is that over the course of the committed contracts in aggregate and then you also mentioned the pipeline can you give us a sense of how many.

More negotiations you have at advanced stage and sense of what the a incremental revenue opportunity that pipeline could be worth versus the 50 million.

Sure. So the 50 million is at over the life of that contract.

On you know and.

Our strategy is really how do we you know because you have to open up these markets. The markets have not been necessarily designed to have a mechanism where they can pay for the value that the battery ads. So just let me give you. One small example in California. For example, we get paid five four reduce.

I think the amount of load the home is using but there's no mechanism to actually get paid per pushing extra power back into the grant. So what we're doing is you know going across the country trying to find the areas that would most benefit from these personal power plants and really helping changed the ruled and pilot programs that proved to be that work and they.

And replace traditional Capex. So today, we've we've you know sort of convinced our or made the market development for lack of a better term.

About 10% of our geography is just start to pilot on and testing virtual power plant our pipeline.

And would have us.

Being able to address in about 50% of our current geography. So it's very early still on you know and again, we want to caution people that you know we these early program to affirm our view that credit services can add an incremental 2000 esh per customer on that as you know really affirmed by.

Right that negotiations in these early contract, but they're still very much you know pilot prove it out develop the market and so it'll it'll be meaningful.

But it's not a you know it's not going to be a huge revenue line item in 2021.

Okay Fair enough I appreciate the color and then just a second question here for maybe for Ed on the financing markets I appreciate the the update as usual on your runway, but can you speak a bit system typically on maybe the tax equity market there.

Seems to be a bit more chatter and maybe concerned.

About 2021 availability just given how banks are posturing right now just wondering if he can speak to that some and then what sort of confidence or visibility you have to secure the funding needed for next year from that particular.

Financing partner <unk>. Thanks.

Sure.

So you know we continue to feel comfortable a with the tax equity pipeline. Both the committed capital that we have and the discussions ongoing that we have to lengthen it.

You know our pipeline is you know our committed capital brings us into next year, you know given announced the same up you know in their reported earnings.

And frankly, I think if there's a little tightness it might actually accrued our benefit you know residential is of a flow business. It's a smooth earnings profile for banks that use that.

It has much more diversity of risk.

And then do utility scale projects.

And the Counterparties find it relatively easy to transact and we're obviously you know the massive market leader I'm, sorry, I continued to be comfortable.

In a in tax equity both Ah Ah you know certainly in a in 2021.

Okay, and just maybe as a as a quick follow on any thoughts around.

I'm not trying to get you to look into your crystal ball for the election, but dependent on election outcome is what do you think there could be applications that are meaningful for a the tax equity markets and kind of your availability.

Well, so I mean, obviously, they're they're an increasing number of pounds you know winning pads in terms of.

Federal outcome. Currently so there are a large number of paths to an ITC extension.

You know that could come with a new Senate a new president you know a big relief package, you know corporate income tax rates could go up you know, which actually are a benefit for an industry like ours, which has as much depreciation it as it does you may recall when the corporate tax rate was reduced we law.

At about 10 cents, a watt and project value.

So we actually prefer a higher corporate tax rates higher corporate tax rates would also suggest that you know other companies would pay more income taxes and that might help the depth of market, but again, you know whether or not we we see an increase in the depth of market. You know, we feel comfortable with our ability to finance the business in 2021.

Alright, thanks, so much appreciated.

Thanks, Brian.

Your next question is coming from Philip Shen from Roth Capital Partners. Your line is not a lot.

Hi, guys. Thanks for the questions first question's a follow up on storage.

Sorry, if I missed this but was wondering if you might go to share your storage attach rate was.

For Q2, and then how do you what do you expected to be in Q3 and four.

Sure. The you know the we're seeing strong incremental improvement on its highly variable based on geography as you know so it's you know 100% in.

Hawaii, California is and you know high Thirtys person and then you know somebody other markets are at zero. So you know at that based on yet some of the disclosures. We've provided previously it incrementally improving but we're not giving an overarching number just especially given that we don't really.

And you know manage threat GL by Geo, we Ah you know that's not how we run the business.

So I think for the other reasons I listed which as we're coming out with a lower priced option on as well as you know that pain that people will fail from these outages I would expect more acceleration and that attached to happen in the back half and it's happened this year, but certainly.

It's steadily growing it continues to grow you know much faster than the solar only product that's.

Great. Thanks, when as it relates to your grid services you know historically I believe you guys have not been too keen on integrating generators into your offering.

But some say that solar plus storage a generator can be complementary.

So just wanted to see if you see any benefits in adding generators as an option to VP peas and to your customer base and just what's your latest view on jitters and.

In general.

You know well well certainly there is one of the thing Thats unique about.

You know the residential market is there's a lot of different use cases, and there's a lot of each each home can be specific each area can be specific with some of the constraints or the the energy pattern used in the house on so they're they're probably applications, where you know solar battery plots generate I can make sense, especially if you really want reliable off grid power.

I do think that that the minority of you know minority of cases, you with the battery and the solar as we've proven through the you know multiple outages over the last couple of years. They work. They work for multiple days, you know that solar recharge the batteries the battery powered through through the night.

So it's unclear for you know.

You know sort of an average customer that's that's just looking for relief from that started temporary blackout why a generator is necessary you know the other the other just structural advantage of the battery is on because of the ability that use the battery park print services and low load chef everyday.

It's just a useful asset it's a useful asset versus you know generator that just kicks on.

And.

Hey, you know when the when when the power without so it's a much more efficient technology. When you look system wide. In addition, the being you know carbon.

Free and in addition to the fact that you know with with our business model selling it as a service with.

So let's call. It the battery you know people can adopt it with zero upfront cost.

Okay, Great and then one more if I may in terms of you talked about your MPV per customer being $8000. In Q4 was wondering if you can kind of give us a little bit more color on the cost per watt.

Trend and we saw through 72 per watt in Q2, where do you see it in Q3 and four I can imagine.

It's inversely related with that customer NPV, which turns out to be about I think a dollar plus.

For walk, but wanted to see if you could comment on that a bit more and then also as it relates the safe Harbor in Q4, given the many paths to an extension and and so forth. What is your view now on safe harboring and about in Q4 and for this year.

Yeah, so on the sort of thought.

Go ahead of you want to go forward.

[laughter] so on the Oh.

On the questions around Q4 in terms of cost him what that looks like you know obviously, the improved volumes and again over 20% sequential increase into Q3, and then expecting continued increases into Q4.

Helps us a lot with cost absorption you know you will notice, we're really trying to shift towards talking about using customer turns because that is the the appropriate unit of measure, especially as you deploy more things like batteries that you know don't.

I want to buy back into a into a per watt thing on a on a very reasonable basis. So.

You'll see cost improvement there a continuation of both cost absorption higher volumes and the operational efficiency gains that we've talked about you're right. The $8000 unit does translate to more than a dollar per watt and so that's a.

A good framework to be thinking about.

And as to Safe Harbor, or so so first I would make the point you know we executed a approximately 500 megawatt safe Harbor program heading into this year and so expect to have you know a triple digit number of megawatt you know safe Harbor does is 30%.

Credit.

In 2021, regardless.

Obviously, we are carefully tracking a you know as I mentioned before the different possibilities.

That makes this for extension you know one of the advantages we have here as you know as they extremely large purchaser of equipment, whose regularly in the market and the clear you know industry leader.

We have a lot of capability you know with our suppliers to make these decisions you know as late as possible. We also have balance sheet flexibility said this will probably be a decision that we're going to make you know overtime and closer to the ended the year based on evolving information and will be.

Able to share more at a later time.

Thank you all I'll pass it on [noise].

Thank you next question is coming from Colin Rusch from Oppenheimer. Your line is not alive.

Thanks, So much yeah can you help us understand how you guys just thinking about potentially passing on cost savings on the customers.

Spending addressable market.

In new geographies.

Yeah, I think that's a great great question, it's something we're going to work through it and that's all they have different strategy for different segments and differentiate us I mean, if you kind of you know add up the opportunities that we have you know that we see available to us I mean, we try to see you know as we mentioned our operating improvement can.

Generate you know 2000 of MPV per customer you know grant services can generate another 2000 per customer.

Synergy number you know that we feel you know field felt confident and with fake with that demand at 90 million as another you know.

Plus dollar a watt.

Oh excuse me a thousand dollars per customer. So all those opportunities are available to us and then we'll be you know and then we have the battery hardware cost improvements on you know another another you know improvements on the cost on the materials cost side. So there's there's a there's a good solid back into value.

You to be distributed to you know the customers in order to grow share and you know that again, when we look at the potential market size of you now and we see that 3% of U.S. homes have adopted you know rose really delivering good value to customers and growth is really.

The you know the priority for us.

Great and could you give us a enough it on trends and sales conversion you know from from leads into actual sales, especially as folks are spent more time in their home and looking at home and project Uh Huh.

<unk>.

Yeah, it's an exciting.

It's really an exciting development you know if we if we look at what we've seen you know, 50% uptake and productivity per sales rep and that's really.

It's simple, but at the attributed to the fact that the majority of them say they've saved 10 hours per week driving.

And so you know you see you know you see as that there's puts and takes or the hotels process. So one or so people are able to 50% more active and getting cuts you know reached converting customers per week.

Little bit of a lower conversion from the you know virtual sale versus the end home sale, but you make up for it really in terms of how many of those customers are actually really being fulfilled all the way through to install so you know again, we wait the initial indications are that cut size to about a thousand dollars.

You know savings per customer and these productivity improvements and we're really encouraged that their sticking.

Hi, Thanks, so much.

Thank you. My next question today is coming from Jeffrey Campbell from Tuohy Brothers. Your line is now alive.

Good afternoon, [laughter], [laughter] offering a benefit to an existing customer too.

Participating the VPP is it's easy to understand but I'd like to better understand how this AIDS and new customer acquisition does this essentially man that Ron will devote any of its margin that it receives from the VPP too.

Over the new customer costing gain that market share or is this something else.

Yeah, Hi, our plan certainly is too you know pass on a portion of the saving to the customer. We think that you know there's you know when you again look at that that combine benefit of the lower acquisition costs plus cigarette services revenue it definitely makes sense to pay.

Awesome through to the customer and generate more you know assets in that on that virtual power plant and ethics habits word <unk>. It has a flywheel effect because more than you can contribute a bigger your b P. P. The more you know opportunities. There are two open up some of these you know markets.

And have really you know change some of the regulations and the way. These things are compensated to really get fair value for all surfaces that the batteries provide so that's just you know it's the calculation that we're going to make you know sort of program by program and just to give a really tangible example.

You know what he is.

Ccas in California. So the programs are the utilities will spend on marketing for us they'll spend on you know emailing their customer base as saying, there's that's offered the opportunity available well give customers a you know at discount.

But you know more than offset by just the efficiencies gained by the lower acquisition costs and then the increased credit services revenue. So there isn't a specific formula it's very much gonna be market by market value proposition driven but you know again, our ambition as you know we need to align our pie.

The country and we need to be an all group and how batteries and everything go home and so we're driving hard on on you know lowering black Hawk to make that you know not a barrier to make us more competitive at March geography. That's you know that's strategy number one.

And just a quick follow up on what you just said, which was very helpful. When you're talking about.

Yeah catalyst to regulatory change that lives back to what you were talking about earlier, where you may not be getting paid for power the to putting on regret <unk> credit for that.

No that's kind of thing we're talking about okay, exactly my fault and the more and more year at reliable and scaled resource you know the more motivating the more airtime you're going to get to actually.

Affect those changes.

Because it's worthwhile for the regulators.

Right well, yeah definitely and my follow up is can you just provide any kind of color regarding the sort of R&D that you expect to do in the Jay do with SK in asked to obtain the your acceleration goals that you outlined in the press release <unk>.

Sure. Thanks for asking about that we we really do you believe that we're at a.

You know tipping point around you know big scale electrification homes and cars on you know I think people are just now starting to really realize and it's only going to grow that you know what life is better with renewable powered I you know all electric energy sources, its better to drive easy you know.

Patrick heating is better solar in batteries provides resiliency, it's a better power source and it can all be done affordably you know like if you. If you run the math on you know converting the home you know eliminating a natural gas line into the house, which a lot of communities are banning now a lot of utilities are saying, hey, I don't want to actually in that.

Infrastructure anymore, because it's going to be obsolete.

So we just believe strongly that that's trend electrification around the house and the east are going to happen and so the JV is really exploring you know different ways of.

Attacking not problem different you know products and services and then again, making sure that we're not just providing a solution for a single home, we're actually networking everything together to build brilliant energy internet and so the specifics our were not commenting on but the fact that what the vision as is really to accelerate.

This home electrification.

Okay. Thank you.

<unk>.

Thank you. My next question today is coming from Moses Sutton from Barclays. Your line is that a lot.

Thanks for squeezing me in any update on ABS issuance is perhaps the chance to do another transaction this year or or we're looking at 2021.

Sure. My this is Ed so the ABS market is definitely recovered nicely and could potentially.

Make for a good issuance.

Generally speaking you know spreads are still a little bit wide of where I expect them to be even over the next six months.

And so that would in our mind make a bank market transaction.

More attractive on a full term basis, because they can be called immediately get refinanced as spreads compressed.

So while I think you might start to see some very attractive leap priced solar ABS transactions I still think probably for us. It is more likely at 2021 next issuance.

Got it very helpful. And then switching gears here renewal per watt I'm really speaking for wide here. It's dropped another 10 cents per water. So is this a function of sort of geographic mix areas with lower PA or escalators, how should we sort of think of drivers there.

[noise] primary thing on on renewal. There is just the continued shift to a more 25 year contracts versus a larger mix of 20 or in the past and so you see renewal decreasing due to the shorter time horizon there.

Got it our 25, maybe Jim just to clarify that right. We only we only reports through the 30 a year.

Irrespective of the contract life not not all of our peers do it that way so just want to underscore.

Got it very helpful and are you more toward 25 your contracts now where it's still sort of an even blend.

Correct.

25 years, though the printer.

Great Great and then one last one committed financing are ready you know you still have in place for 200 megawatts go forward.

How much are you able to give a number of how much of the term sheets would cover if we sort of added that I know that's not the same committed level, but you know how might we think of that that level.

So obviously, we have you know term sheets you know.

Four and can exist in multiple areas of the capital structure.

Tax equity.

Senior and junior.

Ah debt and so as you start to move past that you know some are longer than others. So we thought this was a nice place to cut it but certainly if I think about the term sheets that we have in the discussions that we have you know with counterparties.

You know hundreds and hundreds of millions of dollars of additional capital.

Got it thanks very helpful.

Thank you next question to me is coming from Marshall Carver from Heikkinen Energy Advisors. Your line is alive.

Yes, good afternoon. Thanks for.

The question you talked about the B b pieces, not being approved yet in most areas. So there's no way to monetize that if it does get.

Approval could we see an immediate uplift to gross and net earning assets.

I can this is Ed so no currently.

Glenn you want to go ahead.

No go ahead.

I was just gonna say you know we currently you know do not estimate and can track did grids services revenue.

In our reporting of contracted and renewal.

Gross earning assets so to the extent that there were some sort of change and policy and it more contracted you would start to see it.

But if it were just a change in policy and Uncontracted, although that would be a significant value enhancement.

This moment in time, we're not including that in the reported numbers.

Okay. Thank you.

Then a follow up so building.

Talked about but offering batteries and only a few states.

Talked about it being either barely profitable or.

We're not profitable in most areas.

You offer batteries almost everywhere.

Do you see the battery.

Offering is a profit center or more of a way to attract customers.

Definitely Bose.

I think he I mean, I think we've been innovators on figuring out how to until February deliver the battery and the solar as a service again. So you know if you look at where competitors are in terms of pricing far if you if you want to purchase a.

Battery with all the labor and everything it can range from you know 8000 to 12000, plus a lot more if you want multiple batteries you know so so I think you know if you're if it depends on again also how.

Important robot reliable power as deal and so I think also you know maybe that seemed expensive, but for sure and a half million people in the area have their power said, often and 1.3 in New Jersey, you know when you have that happened to you you know maybe that doesn't sound as expensive also as I mentioned.

We really to lever that the service and helped arrange that financing or it so that it can be a you know compelling value proposition out at the gate without a huge capital outlay. So you know we have we did announce that part of that.

And you know when we were on the call together announcing that that signature for the acquisition that we did see this at the pretty strong.

Synergy.

Alright, Thank you very much.

Thank you.

Thank you we reach of our question answer session or what's the trend before back over to been pretty further closing comments.

Nothing for that for me. Thank you all for listening and you won't be a touch them.

Take care.

That does conclude todays teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.