Q1 2021 Sunnova Energy International Inc Earnings Call
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Yes.
Good morning personnel from first quarter 2021 earnings Conference call. Today's call is being recorded and we have allocated an hour for prepared remarks and question and answer.
At this time I would like to turn the conference I'll, let you want <unk> Vice President Investor Relations ethanol, but thank you. Please go ahead.
Thank you operator, and good morning, everyone yesterday, we released our earnings press release and posted a slide presentation to the Investor relations portion of our website, which will be referenced during this call.
Joining me today are John Berger, <unk>, Chairman and Chief Executive Officer, and Robert Lane, Executive Vice President and Chief Financial Officer.
Before we begin let me remind everyone that this call may contain certain statements that cost.
Forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
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 statements.
Such risks and other factors are set forth on our press releases and filings with the Securities and 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 GAAP.
<unk> of these non-GAAP measures to the most comparable GAAP measure can be found in our earnings release I will now turn the call over to John.
Thank you Rodney.
And thank you for joining US 2021 is off to an excellent start thanks to strong Q1 results a quick closing at the Sun Street acquisition, and our continued ability to grow faster than the overall market.
So Nova is well positioned for an exciting year ahead, which includes delivering on its reaffirm full year 2021 guidance on.
On slide three you will see the details of our strong operational results, where we grew our customer base increased both our battery penetration on attachment rates and continuing to expand our dealer network.
Our customer growth remains healthy.
As we've added 8900 customers in the first quarter of 2021.
This is before any contributions from the Sun Street acquisition, which closed on April one.
On storage, we continue to see strong demand as frustrated homeowners seek out more reliable and resilient energy solutions to combat outdated and ineffective power grids.
As discussed during our last earnings call. This demand outpaced available inventory in the second half of 2020, resulting in an industry wide supply constraint and energy storage systems. However.
However, these constraints began to subside in Q1, resulting in an increase in our battery attachment rate on origination from 19% in Q4, 2020% to 23% in Q1 2021.
With this strong customer focus on reliability and resiliency, we continue to see an increasing penetration rate of storage on our full base.
Our penetration rate now sits at 10, 5% as of March 31, 2021, more than double where it stood just one year ago.
We expect this rate to rise even further and could see it reach as high as the mid to upper teens by the end of the year on unexpected customer base of roughly 200000.
This exceptional growth is fueled by our over 500 dedicated dealers and sub dealers driven.
Driven by the attractiveness of the Sunoco network.
We anticipate our dealer count to grow even further in the coming quarters and be at or near 1000 by the end of 2022.
Finally on this slide we've added information on customer contract life and expected cash flows.
As of March 31, 2021, the weighted average contract life remaining on our customer contracts equaled $22 four years, while the cash inflows, we expect to receive over the next 12 months.
Taking into account only our existing customer base of 116400 <unk>.
Stands at $266 million or $2285 per customer.
Turning to slide four we provide a summary of our Q1 2021 financial results on our Q4 2020 earnings call. We noted that we expected to capture approximately 15% of both our full year 2021, adjusted EBITDA and principal and interest from solar loans in the first quarter.
I am pleased to report we exceeded that target as actual Q1 2021 results were all ahead of that goal.
As expected our cash flow results were negative for the quarter due to the typical seasonality of our business as well as the impact of large annual cash expenses exclusive to Q1.
We continue to anticipate large year over year growth in adjusted operating cash flow for full year 2021, as well as maintain a breakeven mid point.
On our recurring operating cash flow. So investors should expect these results to be positive for the balance of the year.
On slide five we provide a summary of our full year adjusted EBITDA and the principal and interest we received on our solar loans from the past few years, including our guidance estimate for 2021.
As you can see we've experienced significant growth in these key financial metrics with adjusted EBITDA expected to double between 2018 and 2021.
And solar loan P&I to increased seven times over the same time period.
This rapid growth together with the anticipated issuance of a non amortizing green bond at the corporate level should translate directly into a significant increase in recurring operating cash flow in the coming years.
On slide six you will see both our gross contracted customer value or <unk>.
And our net contracted customer value or <unk> are experiencing significant increases year over year.
Using what is now a conservative discount rate of 4%.
And CTV increase from $1 2 billion on March 31, 2020 to $1 8 billion on March 31 2021.
This equates to roughly $16 62 per share as of March 31, 2021, which is approximately a 15% increase from March 31 2020.
We continue to see and CTV per customer and services per customer trending higher.
The NCC EV per share calculation is relatively straightforward.
It excludes any value for growth renewals are up sales given that these cash flows are financed almost entirely with debt, whose interest rate will continue to lower and presently sits below the 4% discount rate used to calculate <unk>.
We view this as a metric that is well below any reasonable valuation floor for our common shares.
As such we encourage investors to consider other valuation methodologies such as those debt utilized cash flow metrics or consider attaching a multiple to afford estimate of our adjusted EBITDA and the principal and interest we received on solar loans.
Although these metrics, especially in CTV varian growth quarter to quarter due to financing transactions onetime items and growth intensity. We do expect these metrics to grow at or above the rate of our customer growth when viewed over several years.
The growth in adjusted EBITDA, and the P&I from our solar loans should trend higher than the customer growth once meter replacement spend ends and growth investment abates in the coming years.
Earlier this month <unk> published its inaugural ESG report.
Detailing the Companys strategy and performance on material ESG themes.
As noted on slide seven this report is aligned with the leading ESG frameworks, including the sustainability accounting standards Board and the United Nations Sustainable development goals.
As I have said from the beginning I founded <unk> to deliver a better energy service at a better price and to make a positive difference in the lives of our customers community and the world.
I firmly believe that we have a moral imperative to make the world a better place for future generations and Thats Inova, we intend to do just that by leading to a cleaner and more sustainable energy future.
Since inception through the end of 2020, so never systems have generated $2 4 billion kilowatt hours of clean energy, resulting in $1 7 million metric tons of Cotwo avoided now.
Not only did our systems help address climate change and avoid pollution, but they also provide our customers with affordable and reliable power that they can feel good about.
While we believe that our core business is fundamentally more environmentally sustainable than the old energy paradigm. We also believe it's important to not rest on our environmental strength alone, but to also focus on being a good corporate citizen and making a positive difference in the communities where we operate.
We are proud to support high quality and good paying jobs in both Houston and across the United States and its territories and.
In addition to supporting Green jobs. We've also supported our communities in times of need such as after Hurricane Maria struck Puerto Rico, and the aftermath Sunoco was there to support power service recovery efforts by donating panels in batteries that families and nonprofits and need.
To this day.
<unk> by far the largest residential solar and storage service provider on that on.
We are also committed to upholding strong corporate governance practices and conducting business the right way as our core values of service synergy and sustainability underpinning our corporate culture.
We look forward to continuing our work on ESG and we will continue to communicate our progress over time, we welcome your feedback on our first report as we enhance our strategies for long term ESG performance.
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.
Turning to slide nine you will see the momentum we've gained on our first quarter results over the past few years for.
For instance, Q1 2021 revenues were up 55% from Q1 2019.
While over the same period adjusted EBITDA.
Non interest received on solar loans increased by 58% and 237% respectively.
As John noted earlier Q1, historically generates negative adjusted and recurring operating cash flows, which you can see reflected on this slide how.
However, the year over year trend remains up into the right as we gain operating leverage.
Slide 10 summarizes our recent financing activity.
The 2021 financing transactions completed to date include our first solar loan securitization of the year in February that was sized at $189 million.
Weighted average blended yield of just over 2%.
Other financing on these included a loan warehouse restructuring of $350 million and $75 million and new closed tax equity funds.
We have additional commitments of approximately $500 million of tax equity debt, we expect to close in the near future.
We will continue to work with lenders to properly finance the company with the goal of increasing near term cash flow to the corporate balance sheet.
To facilitate this we remain focused on the issuance of a green bond within the next few months, which should help turn our strong adjusted EBITDA and P&I growth into strong recurring operating cash flow.
Our total cash balance as of March 31, 2021 was $263 5 million up from $169 2 million at March 31, 2020, but below our all time quarter end high of $377 9 million at December 31, 2020.
This decline since the end of last year was primarily driven by over $30 million in securitized debt paydowns intentional under buying on our warehouse facilities. The timing of tax equity contributions relative to fund specific construction milestones. The overall seasonality of cash flows as previously discussed and a high level.
<unk> of EPC spin fueled by our robust growth it made up approximately 84% of the Companys total cash outflows for the quarter.
In summary, this change in cash primarily reflects our usage of working capital to facilitate our high rate of growth.
On slide 11, we provide additional color around unit economics as you will see our fully burdened unlevered return on new origination was eight 9% as of March 31, 2021 based on a trailing 12 months, while a similarly calculated weighted average cost of debt was three 1%. This.
Resulted in a trailing 12 months implied spread of five 8% as of Q1 2020.
Above the five 1% spread for full year 2020.
As a technology enabled service company, we focus on the long term relationships, we have with our customers, which serves as both our value driver free cash flow engine.
Looking at our margins across all services and service contracts, we estimate that net of allocated overhead we achieved approximately 60% of our net spread from financing our service contracts and approximately the remaining 40% from all our other service offerings. We have seen this split move more towards a lower percentage generated from.
The financing of customer contracts as the number of and contributions from <unk> non financing services grows and expands a trend we expect to continue for the foreseeable future.
We estimate that we achieved a gross margin of 50% on our service revenues.
While unit economics can fluctuate quarter to quarter, we expect to continue to see improving fully burdened unlevered returns. This is true regardless of any to average system size regional mix or even contract mix such as the shift. We are currently seeing away from leases and ppas to more loans as we have noted on numerous.
Occasions, where finance contract type agnostic and are thus just as happy to add a customer under a loan contract as we are a lease or PPA.
Furthermore, no matter what type of contracted customer chooses all customers benefit from the peace of mind that comes with Synovia protect so nobody's comprehensive service solution.
Additionally, we will also target similar or greater returns on any new service offerings that become available such as electric vehicles.
Secondary generation, which are expected to launch by the end of this year.
On Slide 13, you will see our guidance ranges, which remain unchanged from when they were raised on our last earnings call. We continue to be highly confident in our ability to hit our 2021 targets. Thanks to the inherent predictability in our business model and stronger than expected first quarter results.
As of March 31, 2021, approximately 86% at the midpoint of our 2021 targeted revenue and solar loan P&I are already contracted to existing customers as of that same day.
As we forecasted the sudden street acquisition closed at the very beginning of Q2, and thus we continue to anticipate 9000 customers added in 2021 through our new home business. Additionally, as of March 31, 2021, we have spent approximately $4 million of the anticipated $30 million in integration and transaction cost we.
Debt to spend over the next few years associated with sunscreen.
In our last earnings call, we estimated that our adjusted EBITDA and the principal on interest we receive on solar loans will increase by 75% in 2022 compared with the midpoint of our 2021 guidance on there.
Happy to report that after our most recent forecast update we now estimate this increase will be closer to 80%.
We are also maintaining our year over year increase in customer growth of 40% for 2022 over our 2021 levels, Although we were becoming increasingly more constructive on our 2022 growth.
Finally, we remain focused on bringing down our cost on a per system basis, which we did in the first quarter of 2021 and expect to continue to do so in the coming quarters as such even with meter replacement costs of $10 5 million in 2021 and net.
In 2022, we continue to expect a 25% reduction in adjusted operating expense per system between 2020 and 2022.
I will now turn the call back over to John.
Thanks, Rob until recently, our industry was dominated by solar only sale debt, primarily focused on saving homeowners money as compared to the centralized monopoly power rates.
Storage and increasing consumer demand for a more reliable resilient power service has catalyzed our industry to move towards an integrated multiple technology solutions sale.
As the wireless power service that we've been building for a number of years and to which the industry as a whole is beginning to pivot towards.
To serve customers with a wireless power solution and make it as efficient and worry free as possible is a significant technological logistical and operational undertaking.
<unk> has been and is continuing to invest in software capabilities that enabled services to be delivered to consumers. In addition platform companies such as Sonoma are providing an increasing amount of services and scalability to originators installers and closely partnering with the best equipment innovators and providers in.
The world to create and deliver these integrated technology services to homeowners.
We have woven the software and service capabilities together to create an interconnected platform that we call the <unk> network.
As we attain an increasing amount of scale, we can better utilize the sunoco networks combination of software and services to enable certain aggregation capabilities and to create additional value for not only our customers, but also our dealers and equipment partners.
Is this cohesion of the three components software services and aggregation that creates tremendous value for our dealers equipment partners and most importantly, our customers.
So nova along with its dealer on equipment partners are increasingly building bigger moats against competitors, including the existing centralized utilities.
Our unique capitalization strategy has also reached a major tipping point that will produce greater cash flow to the shareholders of Sonoma.
Since our founding we are focused on doing what was right over the long term and now that patience and investment is paying off with significant competitive advantages and greater cash flows for years to come with that operator. Please open the line for questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
During our question comes from account on Husky.
Keith Please standby Robert to profit.
Day roster.
Your next question is from cash.
Harrison with Simmons energy.
Good morning, all.
Great start to the year and thank you for taking my question.
So I'll start with the big one.
Few days ago, and based on indicated that they're going to have issues meeting demand throughout 2021 due to chip shortages and this has weighed on the sector just given the potential bottlenecks.
Can you help us just provide some context around your supply chain. What gives you the confidence that you can hit your numbers for the rest of the year, maybe anything surrounding the amount of Inverters you have on your inventory backlog, our storage systems and what Youre hearing from all your major suppliers any context at all would be great.
Certainly.
Thank you for the question.
First and foremost I wanted to point out that we were the first ones way back in July of last year to signal that there was a supply chain problems and specifically in the energy storage system area.
I think it took several months for others too to recognize that.
On our last earnings call in late February we said that debt, we saw those constraints freeing up a bit and specifically on the energy storage system on <unk>.
<unk> if you recall at the end of the year last year, rather and through the first quarter. We did express that we thought there might be a little bit of tightness in the inverter supply.
Marketplace, and maybe specifically one on one or two players if you will of providers.
I would say that.
What we did there is is that we have a fairly significant safe.
Harbor inventory of Inverters, we did stockpile a lot of those.
Quite a bit and we have them.
And we also stockpile quite a bit of energy storage systems, and we have those.
We also again anticipating this issue further purchased more inverters.
In anticipation of something going wrong and as recently as a few weeks ago I didn't think anything would go wrong. It appears that there is.
At least a bit of difficulty with at least one supplier.
We're pretty covered in that regard. So we also have a very large purchasing power as insurers of all my other competitors do as well.
Anything else that we would need yet, but we have plenty.
And indeed I look at this as an opportunity to drop some of our inventory down because we are quite confident especially listening the president of items address to the nation yet on last night debt.
Forward ITC extension, we're on 30% will get extended at some point here in the coming months.
In addition to that on the energy storage system, which has been our problem.
We do see.
This is very recent information that our anticipation of a loosening of that again, if you recall back to the Q4 earnings call. A couple of months ago, we thought that the energy storage system market would loosen up in terms of supply.
Towards the end of this Q2.
Beginning of Q3, I am pleased to report that we.
Our seeing that possibly loosen earlier.
And in particular with one partner and we see that loosening happening in the next three to four weeks there'll be a couple of weeks of delivery time to our various locations around the world were on the country.
But we're also seeing quite a bit of new.
Very well managed very.
Competent.
Farms, such and partners of ours, such as <unk> is ramping up quite significantly innovating the product quite aggressively enphase.
It has done so as well and I would note that <unk> made.
Comment that he doesn't see any problems there with the in charge system and indeed, we have a lot of those already.
In place and moving towards.
Previously sold.
Storage customers and.
In addition to that.
Anticipating.
Solar Ridge.
On their product out here in the next few weeks as well although.
<unk> can certainly cover that and.
This is an earnings call. So all in all we actually see the supply chain situation improving.
We have prepared for what we thought would be the bumps on the road quite more than adequately and we actually are quite optimistic and we don't see this getting in a way of anything that we have planned to do in the coming quarters.
And cash if I can just add real quick on the 10-Q that was filed this morning.
On to the inventory note on page 11, we've actually broken out.
SaaS and modules and Inverters that we have within our inventory.
You can see that we still have.
Quite a few of both and modules and ended sorry modules and Inverters is on lot more weighted towards <unk>.
So that's our safe Harbor. In addition to goes on other purchases net John did referenced.
Thanks, guys that's excellent color appreciate it.
And then my second set of questions around California.
Just curious if youre seeing any demand pull forward associated with the uncertainty surrounding net energy metering and then.
Maybe.
Not quite related to that but are you also seeing.
Interest from homebuilders.
And using the <unk> platform.
That could help you further penetrate that new homes market and I'll leave it there. Thanks.
Thank you.
The California question.
No we're not seeing pull forward, yet and wouldn't have expected to and again, we expect that.
That process to maybe take a little bit longer.
Time to work itself out probably.
At the very end of this year for the Commission, California Public utility Commission to make a decision maybe even early next year.
On the other part of that of course is that we expect.
Debt the leaders of California will recognize that the amount of good paying jobs and so much progress has been made in really California has done an excellent job of leading the country everybody knows this.
In a clean energy World, which obviously is now just dominating the entire country and as we move forward and really rapidly transform our energy industry.
And do a clean and more reliable energy system.
So we see that.
The California, NIM process will end in the right way.
And so I don't anticipate that there'll be any ported part of demand pull forward, but.
That's certainly something that we wouldn't expect to see total much later this year if any.
On the second.
Yes, we've had several wins of late didn't take long to close on that acquisition and we already had some several big wins most of these homes I think would come later in this year.
Just given the build cycle times and into 2022, it's one of the key reasons why we're starting to get very very constructive on 2022 growth and so yes, it's already directly paying off we're making more wins and we certainly expect to see a lot more wins as we fully integrate.
The Sun Street platform into Sunoco platform.
Thanks for the detail.
Thank you.
Your next question is from Philip Shen with Roth capital.
Hey, guys. Thanks for taking my questions.
As it relates to the growth rates.
We're targeting.
About 100 percentage year over year in 'twenty one.
Q1 came in lighter so I was wondering if you might be able to share how do you expect customer additions to trend.
In Q2, and three and to what degree do you think we can.
Could see upside to that.
'twenty one growth rates.
Given the rate at which youre, adding dealers.
Just to cover off real quick the right Phil I think that when we had done our first quarter.
Our year end call, we guided that we expected about 30% of the customer adds to happen in the first and second quarter and about 70% of the customer adds to happen.
Third and fourth quarter I think we're still very much on track for that.
Given where we came in this quarter and given the trajectory.
As far as.
Upside opportunities on prime rate John cover that.
I think that we actually came in very much where where folks were expecting and actually ahead of where most of the consensus was.
Yes, I would say that we're actually trending more towards that $35 65, maybe even little better weighting on that so I'd say we're on.
We're in decent from pretty good shape.
I don't want to comment on any more on 'twenty, one growth, it's already pretty heady quite.
Quite candidly I don't really see this reflected in.
Our equity and I don't think Theres anything I pointed pushing it out further.
We're seeing a lot of strong growth, we're seeing a lot of growth in areas more specifically in services offered per customer, whether it's a new additional technologies generators EV charging load managers.
On a bunch of these.
Technology that we laid out in our third quarter 2020 call.
And we simply are rushing as fast as we can to get those implemented put into a nice products make sure. We have the appropriate licensing get those out to our dealers trained them up at a sell on how to install and that just takes a lot of times a huge operational lift and it takes some time and again, we're seeing these opportunities pull forward.
And so again, our as we look to 2022, we're getting we're getting very very constructive. So that's all I'll say about growth and hopefully as we continue to execute and.
On the investors will.
I appreciate that growth rate.
Great. Thanks, guys for color.
My second question here is around unit economics.
It looks like you were able to expand.
Those economics on the implied spread nicely.
Five 8% from $5 one.
In the year ago period.
Actually in the Q4 period on a trailing 12 month basis, but in your footnote there you highlight that.
I think the spread is even greater so I was wondering if you could talk about kind of the Q1 expansion and then.
Also what you might see in terms of debt and client spread.
Hang on I think you've talked about.
The fully burdened unlevered return on expanding as well so anything on a forward looking basis would be great. Thanks.
Sure.
Yes, so if you look at our.
Last year 2020.
It was roughly about 510.
Basis points of spread and we certainly see that much higher.
Our seeing our unleveraged returns in a bit of a surprise that continue to be fairly strong and we don't see any dissipation on that.
We also achieved a record low and then a lot of our other competitors followed up so it wasn't a one hit wonder so to speak just a couple of weeks later in the midst.
The worst bond market performance I think since the early 19 eighties.
So the risk free certainly did not have the impact.
On a negative impact and so if you took that net spread that is an increase towards the 9% and higher.
And you have to call it low twos.
On a cost of capital.
All the way through 100% of the fully burdened cost you start to get something thats closer with a seven handle on it so to speak.
I think that the best way to do this is to look at a trailing 12 month, both Rob and I.
We have looked at this and said there is some volatility with issuance of Securitizations growth and.
Timing of financings and so on and so I think thats about a better way of looking at things and so that gives US also a more conservative standpoint to be able to look ahead and say, yes. We think these returns either stay here or move higher and we're quite confident that we can then move higher.
The coming in the coming quarters. So we're.
We're doing we're doing very well on that and I would say that as a bit of a surprise how strong those.
Those spreads continue to be.
Great. Thanks, Sean.
Your next question is from Brian Lee with Goldman Sachs.
Hey, guys. Good morning, Thanks for taking my questions.
Kudos on the good execution here.
John maybe just a follow up on that I know you guys are focused on the spreads and rightfully so.
On <unk>.
Represent increasing value.
The business model, but you guys have historically.
<unk> talked about.
Net contracted customer value.
The customer I didnt see that interest in the slides. This time I might have missed it but you usually disclose on way in the bag.
EBITDA was that lift out deliberately do you you said that taking the call that the numbers have moved up could you give us some sense of where those are in.
How they've been trending here.
I don't think we had actually lifted out the net contracted customer value per customer. We certainly have the numbers in there we have the number of customers and we have the in CTV.
I think we would actually.
<unk>.
Run that calculation.
In the back of the book adapting.
That being said its still continues on trend to.
To be very strong now if you take a look at what we expect to happen on a per customer basis going forward, there's going to be some stuff in there that changes that a little bit.
Recall that for Sun Street, we're going to pick up about 35000 customers to 45000 customers that we're going to actually bring into that denominator.
We're just providing the service for at this point and that we expect to have a lot more on opportunities with.
And in addition to that we're going to have.
The new homebuilder customers, which typically have smaller systems and typically have systems that don't have batteries are attached to them. So that's going to change that in GCB per customer metric as well.
I think we're really concentrated on is how we can continue to raise <unk> per share.
At the same time, and then come back to the Sun Street customers and raise <unk> per customer on them as.
As we do look forward basis, but.
That isn't a number that was taken out the only number that we took out and we did in fact preview this.
Last time and say in fact that we were with the net system value per customer again for the same reasons that we had mentioned last time that.
It doesn't really make sense when youre trying to look across geographies when you're trying to compare.
On different system sizes, when youre trying to compare systems with storage systems without <unk>.
Different types of tax equity and the like so we felt that that was again sort of on our cage metric for.
For the industry.
But.
If you still need the <unk> per customer you definitely have the two numbers on these.
On page 29, you can run that math.
And I think.
Brian I think roughly I think it's roughly about just south of 16000 per customer and just to be clear as we laid out previously.
By 2025, we still see the number of services per customer getting towards in that range of seven.
And PCB per customer being broken into 18 to 28000 range as a result of target. So that's still that's still the same even with the acquisition.
Okay. That's great I apologize either on Soliant takes I was actually speaking to that metric around the net system value for any customer, but I appreciate the.
On the additional context there.
Maybe as a follow up and also on the unit economics.
The creation cost leveled off a bit here they were actually down a decent amount in leases on.
On a quarter on quarter basis, I know this jumps around a bit but.
Is it mix or what kind of drove those dynamics are you seeing some cost savings and where are those coming from.
I think it really is the primary driver is as we grow just getting more and more operating leverage scaling we've talked to have talked about this for years already Brian is as we grow the business up we're just scale the cost in <unk>.
As we continue to have this rapid growth, we're going to continue to scale the cost out and we've laid out what that cost reduction looks like I think in the four years. Once you start taking out one time items like meter replacements, and so forth you will see an even bigger pickup and probably a more simplistic way of looking at debt is as I've mentioned in our opening comments.
The adjusted EBITDA, plus our principal and interest from solar loans are.
Loans that should continue to trend much higher and over time.
You should expect to see that trend higher than the customer growth and you've seen that we've done that in a few quarters, even over a year or so before we went.
Public and we are experiencing such a high rate of growth right now there's about a year lag and spending as I've talked about previously, but as again as you move forward and we get bigger and bigger while have numbers right and talk about in the four years, you would see that growth investment et cetera slowdown to date as I made in my comments and <unk>.
Onetime items drop out and Youll see even higher operating leverage that's already embedded into the company right now so we're quite.
<expletive>.
And it really.
Certain of moving forward with increasing our operating leverage.
Okay, that's great and maybe if I could just squeeze one last one in on the financing side.
On the refinancing you guys have kind of day telegraphing that.
For Q2.
We're there now in terms of timing can you give us a bit of sense around.
Maybe more specific timing and the magnitude of what you are thinking of doing there and what sort of cost of capital. You think you can achieve versus what you will be.
Refinancing and taking off the books thanks, guys.
I think it's pretty clear.
We've been targeting our earlier securitization.
That there is definitely opportunity there if you take a look at any of our first three securitization the cost of capital there as well.
About two extra more above what we can achieve in the market today.
And then sort of regular cadence you could see that we tend to do a securitization on the GPO side, it's been accelerating certainly over time, we did about one year moving up to two a year.
I think debt.
If you are looking at that you should still expect to see something.
Here by Baidu mid summer certainly not earlier than that.
On the market still remains very strong and one thing that we're really happy with and you saw this not only on our securitization, but in the ones that immediately followed is that.
There is there continues to be compression on the spread.
So even with interest rates, having a little bit evolve to them.
The overall rates that we're able to achieve in the market is still fantastic and thats because of a just this overall recognition that this asset class has more resilience in just about any other and b that the service level that we are providing especially big.
We are the only ones providing this high of a level of service on loans is keeping the customer happy and pain and debt.
Those low default delinquency rates are really being recognized by the market.
Thanks, guys I appreciate it.
And Brian I would just add real quickly to that is that wouldn't upset us in the lease debt to see the risk free move up here 2030 basis points or whatever.
And why is that seems a curious comment wells because as we've laid out in the previous call. We do have hedges in place and those hedges once we break them and term out the.
The debt that means money upfront will collect because they are in the money.
And then on the other piece of this to build on what Rob was saying is that it's very difficult when the risk free was plummeting like it was last year to get that spread that risk premiums spreads to compress. It actually spans if you look at this time last year right and so as the risk free moves up what Youre seeing and you saw this in February.
And we expect that to continue as you would be you would see the risk premium compress because again most investors in the ABS market are absolute yield investors and so what that means is that is how you make them.
Money is having that risk premium and compressed and thats, what Rob is saying and we continue to see that so we actually are not upset in the lease debt to see the risk free move up here.
Even as much as it has done over the last few months and as it moves up a little bit more debt.
Not a problem and it's actually the way Robin on laid it out a little bit a little bit of a benefit to us.
Your next question is from Dan Channel with Baird.
Hey, guys good morning.
Good morning.
So few questions.
Dealer network.
Could you just remind us.
Those are big pick up there.
Just remind us.
On the.
What percentage of growth.
Exclusive relationships.
Maybe John.
What's driving.
Well.
For you guys.
To keep total dealers up first.
First question.
Yes, certainly.
I think honestly I have lost track of how many exclusive relationships. We have we continue to see them escalate in terms of requests for those and signing of those quite quite a lot and they had.
Each of them are slightly different.
Transactions are documents.
Depending up on the requirements of that.
Of that dealer.
But it.
It is a very large part of our network and.
I think the practical reality is this is where the industry is trending towards I've talked about this for a number of years. It just makes sense.
If we're not the right home for you.
Go marry up with their service provider and platform.
But the idea about moving in between the service providers and platforms is just it is not realistic.
As the industry becomes more of an integrated.
Technology solutions sales, we laid out.
<unk> been more specific on slides 15, and 16 and hopefully it helps investors really understand what we're talking about and again I don't see this is unique to us necessarily our competitors.
Set themselves up and see this as very much on the same way but.
It's driving a more of a requirements of software and services to these dealers so more and more as this becomes more complex and you want to offer a simple solution to the customer, it's becoming stickier and stickier with the dealers now why do they come to us.
Aside from charisma or anything else that my folks have not made but my folks I think it's pretty clear, it's we're dedicated to them on.
We are not going to compete with our dealers.
We have everything invested in them to be successful and they know that.
We have the widest equipment partnerships in terms of the best technology. The best partnerships. This firm partners, well, we play well with others.
<unk> been very very.
Helpful and I see that continuing to be a big part of the value that we provide.
Our dealers.
Software tools that we have we're about to in the next few weeks and months, we are going to launch out a number of big huge steps on software capabilities for our dealers across whether it's starting starts in the origination side, all the way into commissioning and making sure that the equipment is done in turn.
Over properly.
And when you look at the.
The debt capitalization strategy of the company.
It gives them a lot of peace of mind, we're going to get paid as we again go towards and being very close on issuing the <unk>.
Green bond.
Falling more and more cash to the equity that it also gives them peace of mind that theyre going to get paid and have the ability to marry up if you will over the long term. So each of these I don't think I will take the time, obviously to go through all this and aggregation services as we continue to provide a lot of value there, especially on the storage side of things.
On to our dealers each of these is a is a huge network and huge value set that goes to our dealers and in many ways. This is very unique to US now we've got to continue to work hard and continue to push on this and continue to innovate whether it's software and services on our aggregation capabilities, but.
I feel very good about where we're sitting competitive wise you're right. It is driving a lot of a very large amount of dealer growth in <unk>.
And for the first on we feel very very comfortable on saying look given our trend we see this doubling.
On a fairly large number of 500 by the end of next year I think the systemic growth and goes to a point about pointing towards our growth rate.
Okay.
Third question on my second question was.
Just on the green bonds.
You talked a little bit about that within your guidance.
We will go.
Cool.
And any new metrics.
Crude volume.
We haven't really talked too much about it and I think that we don't want to get too far ahead, but what I would say is that anything we would do in that area would be accretive.
On to our primary metrics, especially to the recurring operating cash flow.
It still remains something that we want to be.
Prepared for delivery for that we do still very much intend to do.
But I don't want to get out ahead of my skis here.
It is a big focus of mine.
And part.
Part of the point is it would be very accretive to our OCI for the other party is debt by retaining the cash flows we're really the only ones in that position to be able to go out to the market.
And do something of that nature, So again don't want to they don't.
Don't want to get out ahead, but they show very much focus.
What we're trying to work on.
So my third question is about the hub.
Until your Skus.
Thank you guys.
Gross.
2022.
For all of Us.
So from a long term.
We look at those brokers.
But.
Yes.
It's also the visibility.
What else does so.
I guess what.
Why do you do that.
Give those.
Hello.
Hello.
Visibility.
Just maybe.
From from a high level, what what gives you confidence.
Throughout 2022 numbers.
Yes, I think first of all in on our financial metrics were adjusted EBITDA, plus the principal and interest from our customer loans and on cash flow metrics.
Right now as at the end of March 31, I think we have 86% of our cash flow is locked in for the year.
So look I wouldn't say that reading is mail it in and be done with it we certainly with this high rate of growth. We've got to manage the expense side of the equation quite carefully, but we do have a huge amount of visibility on the financial metrics.
Across the board because of our very conservative capitalization strategy.
So when you do gain on sale nothing wrong with that but it does have a lot more volatility to it so.
Our belief is that investors over time will appreciate the stability of the financial metrics. The conservatism that the company has been set up lift.
And I would point out that if you go back and year to go look at late 2018 or early 2019 before our IPO and you were to look forward in time and look at all of these metrics we've exceeded them.
And that again goes to the stability and conservative nature of the way that the company is set up and again I hope investors start to appreciate that.
As far as.
Yes.
That that can vary it does vary more but again, we're counting a customer when they go in service in the rest of the industry. I think is doing very early stage of our equipment install which is fine, but it will lead to more volatility.
In the in the quarters ahead and not as much certainty so.
Lot of what we have right now and we're looking forward certainly for this quarter and even next quarter as we already have in hand, and so that has been given us a lot more stability and predictability and then having a lot of our dealers and having.
Good plans as far as software building and other capabilities and new technologies, new products, we have the ability to.
Integrate not only.
And PPA, but loans and do some creates some very innovative products out there and again, it's creating a stickiness factor with dealers and it's something that we continue to be able to look at to have that kind of stability with those.
Exclusivity.
In arrangements with our dealers and more and more of like I said earlier, one of those exclusive relationships with us so it's.
Just setting ourselves up and it's taking the pain in the short term focusing on the long term and making sure. We're set up in a way that we can give more predictability to investors.
Adjusted.
But as I look at home guys what growth.
We would think that was directly.
So.
Yes no.
Appreciate that and I appreciate that.
Take care.
Want to make sure Ben look through it.
So I'll make sure that.
It's something on focus of me and the rest of the management team and the board.
Consequently, youre looking at this and pushing this is not easy this is not easy, but we have a great strategy. We've been conservative on on how we set the company up and Thats been painful on the front end.
I can tell you, but over the long term I just a program that we believe doing on try to long term.
Being conservative is going to is going to pay off.
Thanks, Rob.
Your next question is from Julien Dumoulin Smith with Bank of America Securities.
Hey, good morning team, maybe if I can pick up off of that last dealer conversation here.
Given your expectations to double by year end 'twenty two what does that mean about implications from continued customer addition growth into 'twenty. Three I know you said you were cautious to give too much incremental on customer growth, but clearly.
The implication of just annualizing the thousand dealer target by year end 'twenty, two should have pretty sizable implications on 20% compounded growth rate.
Well now forecasting in 2023 to bend from it probably is reckless for me to do that at this point, but.
But look I understand running.
Evaluation analysis of the company day look at yes. It obviously is going to have a positive net knock on impact to growth and I don't want to get into what that is.
But.
You should you should definitely look at that as a positive.
Impact on growth and I would also add.
In becoming just as important is the launching of new service products upsell opportunities to our existing customer base and we just simply cannot get all of that out the door fast and nothing really up and running against a huge operational lift and we just see enormous amount of opportunities on our grid services, we're running flat out.
Michael grids.
That's something that I thought would take a while we're getting inbounds like crazy from folks like we want to do this we wanted to this project right.
And then you've got generators, you've got EV Chargers, you've got load managers, all the stuff is coming so fast.
That's going to have.
Knock on implications, particularly into 2022 and beyond of set up selling more services, making more margin more revenue per customer on.
On both existing customers and new customers. So we're again related out in the Q3 call last year, but we're growing and seeing a lot more opportunities to grow both on.
On the per customer basis, all the new and then on the overall customer growth.
Got it and then if I can pivot back to that.
Inventory and supply question here.
Commentary about shifting away from providing power walls with third parties just talk about the overall mix and ability and then more importantly, perhaps how does this reconcile against your overall attach rates and yearend penetration targets.
Mid upper teens, if you will.
Yes.
To our knowledge and it's very recent.
The relationship there with Tesla is very good it's something that we value and I think they value it as well.
Yes, I would say that we're not aware that they will not sell too good partners like ourselves and so we continue to take delivery of units and expect delivery of units.
And again the value of the relationship there.
I think that was mostly a commentary.
Mr must made on not selling and his service part of the business without batteries and I applaud them on that and I think that's exactly the best will rethink everything is going to go I think faster than people think I do think we're going to need to see some price declines in the essas and.
Coming couple of years or so to really get that penetration rate up there, but I think we're going to get it.
The point is on.
The weighted out on answering the first question, which is we.
Have a lot more.
Partners on the ESI side.
So, we're just coming to market and where we know that theyre going to have a good product very well run company good partner.
And <unk> is continuing to do a lot of great things and innovate their product roadmap and what Theyre doing is just on it's unbelievable and theyre going to have a lot of new products out there and phase is doing a phenomenal job. So theres going to be a lot more availability just period out there, but I think thats, great and I think.
I think Elon would agree.
Having a lot there's a lot to do there is a lot of business out there and we want to do what's right and make the energy system convert over because we have a climate emergency we had a major humanitarian crisis that may resolve and there's plenty to do and so we see a lot of different partnerships.
And they're bringing new products and they are innovating those products fairly quickly. So overall there is no way that we're not in a better situation in terms of this company and can speak to that in the coming three to six months on <unk> than we've ever debt.
But no firm year on commitment.
But from year commitments in and what Julien.
Okay.
Total penetration per year.
Well I've talked about it and we'll commentary about.
Titration rate moving from the 10, 5% to kind of mid to upper teens.
With that that is something about as close as what we'll get at this point to move in and consider the new home market, which is going to have a little bit of a slower uptake, possibly maybe I'm wrong on that on storage penetration, we're certainly going to push it but.
But we don't know how exactly on that map will work out I will tell you that including yesterday in the last few weeks are our storage penetration rate is moving right back up very smartly from from.
From the 23% pushing into the into the third and so.
No I think.
We're in good shape and I think that the guidance I gave out there is probably better than anybody else is willing to give and again to do anything more on that I think would be a bit reckless on my part.
Impressive alright, good luck. Thank you.
Thanks.
Your next.
Question is from Michael Weinstein with credit Suisse.
So.
A lot of my questions have been answered but.
Maybe you could talk a little bit about the.
If you look at the fully burdened.
Hi.
Fully burdened return or IRR of eight 9% trailing 12 months. If you look at the first quarter alone.
With nine 1%.
I think thats a decline from fourth quarter of <unk>.
7% is there some something you could talk about there, but what's driving the reduction.
Yes. It really is there is a lot of influence that on a quarter on quarter basis that could be the the structure and the terms of certain tax equity funds over others. It could be that the geographic mix. It could be the difference in mix of different products and so forth. So again I think what Robin and I are looking towards is just say look it.
The trailing 12 months and that gets you to that general trend.
The focus on that but look.
I am proud of the $9 one I'll tell you that I mean, I didn't see that one coming in.
And again, who knows at this point in time, it could that move back up, possibly but non one's pretty darn good and again I'd point to trailing 12 months I think we will give the investors the best visibility the overall spread.
Yes, I'll comment on it.
We want to.
What we don't want to do is to have the deployment into a particular tax equity fund or.
If we're doing more loans releases or if we have a big boon in one state.
<unk> jewelry.
Yes.
They can't go up or down on an end point to it and say Aha.
The number right there, we really want to look at it on an overall company basis and.
<unk> brought in a period of time that we can actually get some insights on to that number.
Makes sense and I think you said something earlier about with green bonds.
But your advantages that you have the retaining the cash flows right to the green bonds is that Athena.
Does that mean in terms of ABS and tax equity usage going forward.
That's going to be less I think it would be still work through the ABS market, we'd still look to the tax equity market.
Think debt.
Where where there is some advantage is really how reduced from a debt structuring within the ABS market.
And again.
Your firm as you know, we do we do a lot with them. So.
Really looking forward to continuing to working with them on optimizing those structures.
Got you.
In terms of dealer landscape.
If you're projecting about 1000 next year.
What is the what's the total addressable dealer market out there how many dealers are there how many sub dealers are there at what point does Synovia University, you really have to kick off the year.
While we still have a ways to go we think and.
I would say that theres thousands out there.
<unk>.
With math and several thousand so.
And they are growing in number.
Seeing continuously seeing new new names.
Some folks leave others and starts around and so on and Thats just normal not just this industry, but whether it's cellular telephony satellite cable television home security et cetera. So we.
We see ample opportunity.
Really do in debt at the same time, we're going to be.
Getting very serious about it.
And diligent with us and over to you.
So we want to create more.
Any of those who need a lot more was let's get the.
Even more growth in the outer years.
Hey, one last question on slide 23, looking at the cash assets Theres, a dip there in the latest quarter and an incident.
Steadily grows over time.
Just wondering I mean, if you look at.
Total total cash, including construction on progress in inventory debt.
<unk> basically $100 million on the quarter.
Whats driving that is Christmas kind of debt, Brian There's a couple of different things that are going on there. One we did a restructuring of one of our credit facilities that released a lot of cash we've been held.
In.
In reserve.
Had some significant reserves in one of our credit facilities, we were able to get released.
We lowered some of the debt fall were not we didnt borrow 100% gross or 100% of our facilities, which you tend to do.
At month end, so that was there on the first quarter is usually going to be a quarter, where youre going to see.
Some fall anyway from from the prior quarter and in fact, if you look back historically, the first quarter is always a little lower than.
And then prior quarters.
But when we have more and more securitization zero of CF impact, it's going to be greater.
In that we paid off $30 million worth of debt in that first quarter net in that secured accusation debt.
And then the final thing is that we really started ramping up on our EPC. So I'd say the final thing that that really is the biggest one that we were ramping up a lot.
And we expect to continue.
To be able to.
I put those into facilities, which should help us catch up a little bit on cash and we really we keep talking about this but it's probably a really good point worth reiterating is if we take a look at.
What moves that cash number.
We're originating assets.
On a fully burdened.
Phases at or above breakeven.
And we are moving to <unk> positive and that's really all of the movements of cash with the exception of just working capital and naturally the Arlington, it's going to be moving around a little debt.
From from quarter to quarter.
This is just one of those quarters, where it ended up being downloaded a bit just because of the big uptick in <unk>.
On new opportunities.
Got you. Thank you so it sounds it sounds like a lot of just lumpiness and timing.
More than anything else welcome to the solar business on a lot of Lumpiness from time.
On the capital on that.
Very good day business yet.
Right.
Thanks, John I'm, sorry that was my two year on the background there.
Screaming very excited about so these days.
Welcome to take your questions.
Okay.
Alright, Thanks, a lot guidance.
Thanks, Thank you.
Your next question is from Mark Strouse with Jpmorgan.
Yes. Good morning, Thank you very much for taking my questions.
Just wanted to go back to your comment about.
TV charters being available later this year.
Can you just kind of clarify for us what your expectations are for the cadence.
Of new hardware offerings, whether it be EV chargers or generators over the foreseeable future and how we should think about.
How we should think about the value per customer.
Ramping over time without is there kind of a learning period that you are expecting there.
People are fine tuning the sales on the installation process and then the value really kicks in 1234 quarters. Later on what are you what are you expecting there.
Yes, it's a good question.
What I've said in the past is is that I thought most of these would be in the 2022 and beyond timeframe. What we're seeing now from customers is that they want it now I mean I can't tell you how many times I Didnt had friends come in and say.
One I want solar storage and a generator and what they don't know task force a load manager as well and then they come back and say Oh by the way I've just bought on EV, So darla charger in there.
And.
Then they said and I want you to run it all the service and all of that I don't want to worry about it on one.
On the uptime.
And I want to pay this bill and that's it.
That's complex to put all of those different pieces, together and product ties that offering and those integration of technologies across multiple manufacturers I think is the realistic way of looking at this.
And so that can take net debt.
That will definitely take a long time with whether you are developing your software platform to launch those products out you guys think about youre doing across multiple states you guys adhere to there.
And individual licensing requirements and so forth and the length legal language on the contracts that you guys got PPA, you've got a lease you've got alone you've got all the different tenures.
Loans and so forth so there's a lot there.
We're launching our products we've been doing it for at least three years, but we continue to see more and more opportunity to launch even newer products out the door, even faster and we continue to build up our <unk>.
Quite extensive.
Key capabilities in terms of personnel on people.
We're hiring like crazy for those positions.
<unk> been doing so for the last couple of years and so all of that leads to is is that we're trying to get these out instead of 2022 towards the end of the year as we talked about.
But.
It will it take some time to knock the rest often and get the debt.
Appreciable amount of the dealer network really moving share it will and so right now we haven't really been able to factor that into our growth plans, but we know it's going to hit.
Sometime later this year in 2022 versus EMI previous expectations on really starting to hit.
On a late 'twenty, two and 'twenty three and beyond.
Okay. That's very helpful. John Thank you.
Thank you.
Your next question is from Pavel.
Moshe.
Jim.
Thanks for taking the question.
You've talked several times already on <unk>.
The landscape of rising interest rates, maybe I'll, just ask with kind of a very high level.
At what point.
Would be.
So broad on yield environment GAAP.
Actual point, where you would have to say.
It's getting tough.
For solar leasing is that 3% 10 year treasury, 4%, 5%, what's the magic number.
Yes.
I think at the end of the day I think it would be foolhardy to pick a magic number.
Well.
We can all in that's not just lenovo, but we're all adjust our pricing whether the financing arrangement with the customer chooses as a lease or a PPA or alone will adjust our pricing accordingly to the risk free market as you would expect us to do and then as we're going through.
Issuing the term Securitizations and then down the road here with a corporate bond.
Those are long term.
Debt issuance and so we don't really.
Worry too much.
About a movement and the risk in that regard because we walked on our cost of debt and the term of debt.
For the most part need.
And I would say that.
Your competitor our competitor rather the utilities one of their biggest cost inputs as interest rates and so their costs are going to go up and again when I look at this and I've been in the power business now hard to believe 25 years of quarter of a century and.
I will tell you I see no reason for power rates to drop zero.
I see nothing but reason.
The reasons for them to go up and Thats inclusive included in there is interest rates spend so.
On the price to be is just getting easier and easier.
<unk> to be frankly and.
As a pile on more and more costs.
That's that's creating more and more of the upward pressure on rates and so again that gets a wider and wider spread because that's why you want to look at it, especially as our equipment cost, namely batteries DSS is drop in the coming years, we will continue to drop.
All of this goes to the point, where they're actually widening so I think a risk free move and certainly if you look at even the risk free movie we had over the last few months really crimped the refinancing demand in the mortgage market and in potentially even on the ability to buy homes I think anything north of like 3% on the 10 year is going on.
Cause real broad economic damage and that that would be the least of your concerns as far as what our cost of capital, but simply put we will adjust to it there is no.
Right that youll pick there would be really a problem and were terming out our debt obligations and we're doing so at record low rates, even despite the pretty significant move up here. So we feel again.
So quite comfortable about it.
Speaking of utilities in the 90 days or so.
On last earnings call we have.
Joined application by the California utilities to the regulator for new.
Great connection fees for solar households.
Any any comment on those.
But I don't think that they're good for the people of California, and it's pretty clear.
If they really cared about serving low moderate income customers and other customers that may have challenging credit rates.
We certainly will take the same subsidy if they have is terms of credit backstop from the state.
We will certainly take that.
Certainly.
And the leadership of California, and in some ways. We're already are but happy to step that up significantly to address those those folks if that's truly what they care about I think it's really more of an anti competitive move into anti consumer moves and again I don't think debt.
It's going to stand I don't think the leadership of California's going to when it really crush a very bright spot for their economy and for the consumers in California.
Thank you very much.
Your next question is from Sophie Karp with Keybanc.
Hi, Good morning, and thank you for taking my question.
Most of my questions have been answered I just also wanted to.
I'll ask a philosophical question, but about the numbers that day.
<unk> put out.
So you just announced kind of loss provisions out of your EBIT change there.
Blows grow bigger as a part of your mix as you hinted.
Does that make sense to maybe adjust that.
Loss provision that you've taken to match.
I'll close with me on numbers or is that in total that didn't close in Nash does it make sense to us with a good day.
Take it out.
Okay, adjusted EBITDA and cash.
That's why just curious to hear your thoughts on that.
Yes, it's a great question I mean keep in mind that seasonal is trying to take your full credit losses for the entire 25 years in one slug as soon as you originate the loan.
One of the things that we've been doing is realizing that and this is really a great credit to our credit and collections team.
We continue to do better than sort of where our expectations on our modeling has been but if you want to say well where are we taking it out what's being taken out in the actual similar loan P&I. So every quarter, we're actually actually realizing it on a cash basis and Thats why we present adjusted EBITDA together with the slowing loan P&I.
<unk> is to give you that full picture. So that is non cash seasonal is noncash, but where it comes and gets realized is in what we actually produce.
In solar loan P&I on because the default we're not collecting if theres a delinquency we're not collecting there. So it's already fully baked into the numbers that we show on a cash basis.
Got it very helpful. Thank you that's go ahead.
Thanks, Sophie one comment to build on that is we did see in this last quarter.
Really surprising amount of very good delinquency and default numbers. So that continues to trend much better loan payoffs continue to trend much higher than we expected so.
Things are very good on the credit front and if everybody recalls where we were this time last year.
Amazing.
But how well.
Our credit team and collections team has done just a phenomenal job.
Your next question is from Richard Kim Lewis with capital one Securities.
Hey, Thanks, Good morning, everyone two quick questions hopefully.
Moving on I guess.
The large U S utility reported recently and it sounded like on.
On the call comment that they were looking to get a little bit more aggressive on the solar front I guess, it's mainly ppas initially how do you view the current competitive landscape.
For the solar providers in relation to the utilities I know you talked a little bit on your opening comments about building moats, but how do you see the landscape at this point.
Yes.
I would obviously.
I think it's best for the consumers of the country to make sure that they have a choice.
And if they have a choice.
And I think that if your focus is on this business, which is materially different again of operated.
I've traded power across the entire country of operating utility system from the control room I understand how the centralized power system works I think better than anybody in our part of the industry and is materially different and does.
It doesn't mean that they can't be successful, but were total refocused on this as well.
<unk> and so I think that I certainly respect.
I think I know, who you're referring to and highly respect them as a company.
But it needs to be in terms of the competition provided on the competitive side not the monopoly side of the equation I think thats very very damaging to the consumers in the country people need choices, we need competition.
The competitive landscape increasingly very quickly we're moving to a service provider on that.
It's something we've talked about for a number of years, where they're simply just offering out one financial product or something of that nature is not competitive enough and you look at what tussle is doing obviously with Sunpower sunrun and ourselves I think thats a very good competitive landscape. That's obviously continues to get smaller.
Certainly got smaller last year, we made it even smaller with our acquisition of Sun Street.
So I think that the.
Scale and operating leverage that you need and again are laid out the logistical and operational and financial complexity that goes into what our businesses. It's a huge huge lift.
And I think that thats going to be a I know it is a very daunting task no matter, how big you are and it's not doesn't mean that it can't be pulled off but it is a day.
Very daunting task.
Thank you John that's helpful and just lastly.
The Nova B.
Based in Texas following the.
The winter storm Ouray in February how much additional solar and storage business could be generated say over the next two years just from the storm.
Compared to your prior thoughts and how many of the 250000 bodnar homes or.
Roughly are located in the Texas area that also could per bottle uplift.
Yes, I think most of the homes.
<unk> is built to do.
Focus on the California area and some other states, but they do have a good presence in Texas and so I don't know what the breakout is but.
It's certainly something that will be available to us and we're ramping that up right now as far as creating your lead generation from our dealers and such.
In terms of.
Definitely seen our storage attachment rate.
Move up on Texas.
We continue to see a lot of demand the other thing Thats happened well known as there is a lot of outages.
Increasing amount of the.
Power failures in the utilities and certainly even my house Luckily I've got the service.
That frequency and the fear and keep in mind, what we just went through is Texas that was the easy season Winter now gets hard you've got storm season, particularly on sitting here in Houston on the on the.
<unk>.
And you've got the cooling season or the hot summer that's coming.
There is going to be some more problems I don't know if there'll be this year on next year, but there's more problems coming and people know that and they're going out looking for solutions.
And we are here and they are coming to us so I see nothing but upward pressure on the growth rate in Texas.
Debt.
Consumers of Texas to people with doctors constantly get reminded a really should cost and hoping to get a better energy service.
Thank you John.
Your next question is from Sean Morgan with Evercore.
Hey, John.
So in terms of the 60 $60 guidance Q1, what's the thought process. There are you, adding mostly on existing from a strong geographies, California, New Jersey orders there economies of scale that you kind of weigh versus maybe becoming new incumbent and expanding into new states and territories and sort of how do you.
Those kind of factors.
And so we made an announcement a few days ago on entering.
Ohio, and North Carolina, and we have others on the care. So we are expanding geographies this year and that was a pull forward.
Based on demand from some non prospective dealers.
And we're going to continue to do that.
But the preponderance of our growth focus is on the existing areas. However, as we continue to add new states.
It becomes a self fulfilling prophecy right. There's only there's only 50 states in the Union plus the territories if.
If you keep you keep adding on eventually it will just all day about the existing current you'll have to.
To look towards the international market so.
Right now most of our focus is on the existing areas and continues to be.
I think each day.
Southern part of United States in the middle part of the United States.
As an area of particular focus on us and we're seeing a lot of.
<unk> and interest there from from.
Dealers, some or some new firms as well.
I think thats.
Youll see a lot more of our state additions if you will in the coming months.
Okay. Thanks, and just a quick follow up on the G&A was up a little bit this quarter and I think from there then some acquisition costs that can be backed out of that but when youre integrating the century over the next couple of quarters do you expect that debt Q1 to see sort of a run rate or do you is that kind of there is some anomalous.
First quarter items and that debt.
Maybe.
And lastly, we'll see going forward.
Yes, it's a little bit of both in there, but I think that there are going to be some.
From acquisition and integration costs, clearly, we are bringing on some additional G&A here with Sun Street as well.
We had already had baked into the numbers that we had.
Here in the quarter for the full year.
And there are a few other things that are in there Mike.
On the supervision debt Sophie had talked about that or that are non cash, but one of the bigger ones was just had to do with a first quarter phenomenon on having to do with the vesting of stock options.
So a lot of that really didn't even flow through the P&L.
And just being backed out of the P&L anyway, it's more of a financing charge.
And it ends up being treated on the cash flow statement as a as a financing.
As our cost of financing.
No.
I think when we get to the first quarter.
As many of you know.
We receive as part of our compensation stock I think to just about everyone here wood.
Would rather receive more stock.
Relative to other forms of compensation given the opportunity.
But that's just going to flow through as a as a noncash charge on debt.
P&L in the first quarter, when we reach the investing anniversaries.
Okay, and while we're on the topic of the stock that $3 3 million at closing first on street, that's going to hit April 1st of all of these second quarter items.
Yes.
Thanks, that's all I have Greg.
Yeah.
There are no further questions I would like to turn the call back over to John Berger for any closing remarks.
Thank you.
I first want to pause briefly and say something.
Tom Warner is Sunpower is going to retire in a few days.
And he had given 18 years for the industry and I think too often.
Especially our part of the industry.
There's two vicious and competition and certainly everybody knows that we're competitive where our competitors together.
Just as competitive as they come but at the same time I think we need to be respectful with each other and I have a high degree of respect for Tom and everything that he has done.
And just wanted to let him know and for everybody here at Sonoma Houston on across the country, our tipping your hat to them and very appreciative for everything that he has done for us and our industry over his 18 years of his life, he's dedicated and wish him the best in the years to come.
We want to thank our dealers our equipment partners, our employees and most of all our customers for a great quarter and building to what is obviously, even better coming execution over the next few quarters and next few years.
The world of energy is changing on an excel in place and what the company is focused on delivering and creating bigger moats and greater cash flows look forward to hearing and talking to everybody on the next.
Second quarter call. Thank you.
Yeah.
This concludes today's conference call. Thank you for participating you may now disconnect.