Q1 2021 Sunrun Inc Earnings Call
Greetings and welcome to the Sunrun first quarter 2021 earnings call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Mr. P.
Hatrick Jobin Investor Relations. Please go ahead Sir.
Thank you Hector before we begin please note that certain remarks, we will make on this conference call constitute forward looking statements. Although we believe these statements reflect our best judgment based on factors currently known to US actual results may differ materially and adversely please refer to the company's filings with the SEC for a more inclusive discussion of risks and other factors that may cause our actual results.
The differ from projections made in any forward looking statements. Please also note. These statements are being made as of today and we disclaim any obligation to update or revise them.
On the call today are Lynn Jurich, Sunrun co founder and CEO, Ed Fenster, Sunrun co founder and executive Chairman and Tom <unk> Bauer Sunrun CFO I'll now turn the call over to Lynn.
Thanks, Patrick.
We are pleased to share of Sunrun, Inc. First quarter results, our improving outlook for 2021 and our progress transitioning the country for a clean affordable and resilient grid.
The year is on track to be the vast from the company's history with an accelerating growth rate operating scale and expanding market reach we are leading the country to of clean energy future.
We ended Q1 with more than 573000 customers, reflecting 18% year over year grass.
We are increasing our new solar capacity installation guidance from 20 to 25 per cent to 25 to 30 per cent for the full year.
Innovating accelerating growth and integrating different solar while maintaining strong unit margin and performing at a scale of about two times greater than our nearest competitor.
Non runs expanding customer value proposition and competitive advantages are delivering market share gains.
We delivered all time record Q1 volume through our direct to home sales channel.
And our homebuilder and our channel partner businesses delivered all time record volumes.
We have an unmatched consumer reach through our multi channel strategy, we focused on working with the selective group of channel partners and grew the number of partners. We work with by over 20 per cent in Q1.
Given the value of our brand strength technology platform and financing advantages nearly all of them of our new channel partners have a great true exclusive agreements.
Our new home business, starting to scale and group by more than 50 per cent of the first quarter compared to the prior year pro forma for solar.
We are working with 20 of the top 30 homebuilders in California.
Our pipeline of new homes span hundreds of communities across the country.
We continue to advance our lead on batteries in virtual power plant.
Sunrun has installed nearly 20000 brite box systems nationwide, which offer homeowners the ability of the power through blackout with clean and reliable locally produced home energy.
On a daily basis. These batteries optimized when power is purchased or supply to the grid, helping manage energy constraints during peak times.
Battery attachment rates increased the getting from last quarter and are at record levels across the business.
Sunrun has already for its 12 virtual power plant opportunities and we continue to grow the pipeline.
We now have over 75 million in expected revenue from grid services opportunities that had been awarded or in late stage discussion.
These opportunities provide incremental recurring revenue and offer an enhanced customer value proposition, while further differentiating penguins of offering from competitors that competitors that lack the scale network density and the technical capabilities necessary to serve this market.
We continue to expect more than 100% growth in battery installations. This year despite supply constraints.
As for manufacturers expand battery offerings, we expect cost to improve further and supply constraints to ease, allowing us to meet pent up demand and accelerate adoption even faster.
We are actively exploring ways to help consumers in the grad manage the transition to electric vehicles, we know the country must make the switch the EPS to further reduce carbon emissions and we believe sunrun will be a key enabler of this transition.
Homes with Evs consume approximately double the amount of electricity.
On the solar and batteries are needed to meet this increased strain on the electric system and Sunrun is well positioned to be a leading provider of the services given our expertise managing installing at home energy infrastructure and our national footprint.
Electric vehicles create positive flywheel effects.
Tom's need larger solar system to support the increased electricity consumption. These larger systems come out of high incremental margin since the cost to increase the size is relatively low.
And E vs can be integrated into a comprehensive home energy management system to maximize the economic benefits and resiliency for families.
He's compounding benefits will accelerate the transition to a distributed grid, the home solar and batteries and EPS, even faster than most realize.
Turning now to our ESG and sustainability efforts.
We are proud to lead one of the fastest growing sectors in the American economy in Q1, we launched the Sunrun Academy.
Net of initiatives and programs that expand job opportunities and enhance the career advancement.
By investing in our people, we can attract and retrain retain the best work force with the skills needed to electrify homes across the country as part of this initiative all Sunrun employees have access to an expanded tuition reimbursement program to develop career building skills. The.
Sunrun Academy will help us develop and train our emerging leaders with the focus on critical in demand skills like electrical work.
In April we unveiled the sustainability goals in our annual impact report the.
The school include offsetting more than 600 million metric tons of carbon emissions from the system, we will deploy over the next decade.
Net zero carbon emissions from our operations by 2040 transitioning our vehicle for your fleet to one third of electric or hybrid within five years and deploying at least 500 megawatts of solar to lower income households by 2030.
Finally, we aim to create a healthier environment for future generations of aggressively retiring fossil fuel plants with the virtual power plant powered by local solar energy.
The solar systems, we deployed in just Q1 are expected to prevent the emission of over $3 9 million metric tons of C. O. Two over the next 30 years.
Before I turn it over to Ed I'd like to thank our fantastic team for another great quarter over to you Ed.
Thanks Lynn.
Today I'll touch on some recent political developments, our evolving capital structure strategy and recap our robust capital runway.
Washington of taking note the distributed solar represents about seven in 10 of all jobs in wind and solar development.
The labor Department predicts the job growth for solar installers will exceed any other category of employment through 2026.
Even better our jobs are desirable we employ people nationwide throughout local communities rather than an desolate locations. Our jobs remained consistent year in and year out rather than the feast or famine reality of project driven jobs.
And the need to automate scale and organize our industry's growth create the wide range of career advancement opportunities.
Over the coming years distributed energy is uniquely positioned to add hundreds of thousands of jobs that are secure well paid close to home and don't require a college degree exactly the sort of the focus of our leaders today.
We're at a crossroads and believe our vision of intelligent grid, where power is reliably produced and locally consumed is the.
The obvious future.
Support for our vision within the media and at the state level of strong.
Key editorial boards continue to see the intuitive elegance of the distributed solar and storage and to that end, we've seen recent compelling editorials and the most influential publications such as the New York Times, the Los Angeles Times, and the Sacramento Bee the.
These papers recognized that electrifying, our vehicles and our heating oil required doubling of the electricity needs of our communities.
And that the major utilities, particularly in California have fallen decades behind maintaining the grid and are unable alone to deliver against the urgent needs of today, let alone tomorrow.
The state regulators by and large I appreciate this as well.
For instance, in South Carolina, we reach a win win settlement with Duke energy.
When Dominion was unwilling to negotiate in good faith, the public utilities Commission that regulates them entirely rejected the request.
Our all in capital costs are at or near all time lows. Despite the increase in treasuries earlier this year.
For now treasuries the stabilized at very attractive levels, while the spreads to treasuries, we pay continues to fall.
While we don't expect materially higher interest rates in the near term I note that sunrun delivered excellent customer value and cash flow results in recent periods with base rates were at least twice what they are now.
And today, we enjoy lower costs and more revenue sources like batteries and the virtual power plants.
Modest inflationary environment, which would further drive up retail electric rates would frankly be good for us.
Meanwhile, our increased scale continues to open new financing opportunities.
We expect to leverage that scale and to an overall lower cost capital strategy that will increase long term cash flows available to our common shareholders were valuing of number of possibilities to achieve this vision and we will share updates over the next quarter or so that was the final as of course of action.
We continue to maintain a robust project finance runway as of May 1st closed transactions and executed term sheets provide us expected tax equity and project debt capacity to fund over 540 megawatts for subscribers.
And what was deployed through the first quarter.
I'll turn the call over to Tom.
Thanks, Ed.
The strong momentum we saw in the fourth quarter has continued into 2021 the <unk>.
The team again delivered an exceptional quarter with year over year volume growth at strong margins, we were proud to post a solid quarter, even as we meet the significant ongoing demands of integrating solar into our operations.
We are leaning in to accelerate our growth even further while enhancing our customer offering and value we bring to our partners.
Turning first to volumes in.
In the first quarter customer additions were approximately 23500, including approximately 20100 subscriber additions.
All of our energy capacity installed was 168 megawatts in the first quarter of 2021 of 9% increase from the first quarter last year pro forma to include been solar and down approximately 2% from Q4, a much smaller decline from Q4 into Q1 than what we have historically observed given seasonality in our business.
Our network solar energy capacity was $4 one gigawatts at the end of Q1, an increase of 18 per cent compared to the prior year.
We ended Q1 with over 573000 customers of nearly 499000 subscribers our subscribers generate significant recurring revenue with most under 20 or 25 year contracts for the clean energy we provide.
At the end of Q1, our annual recurring revenue or <unk> stood at $683 million with an average contract life remaining of 17 years, representing over $10 billion in revenue visibility just from existing customers.
In Q1 subscriber value was approximately $35700 in creation cost was approximately $27500 delivering the net subscriber value of approximately $8200.
Total value generated which is the net subscriber value multiplied by the number of subscriber additions in the period was $165 million in the first quarter.
Turning now to gross and net earning assets on our balance sheet.
Gross earning assets were $8 1 billion at the end of the first quarter.
Gross earning assets as the measure of cash flows we expect to receive from customers over time net of distributions to tax equity partners and partnership flip structures project equity financing partners and operating and maintenance expenses discounted at a 5% Unlevered WAC.
Net earning assets were $4 $2 billion at the end of the first quarter net earning assets its gross or any of the assets plus cash less all debt.
We ended the first quarter with $813 million in total cash note that in Q1, we consumed approximately $43 million of cash related to the convert capped call and acquisition related costs.
Turning now to our outlook.
Our team is executing exceptionally well with strong sales momentum across all of our channels, even as we focus on integrating the different solar we believe our strengthening brand investment in customer experience and expanded sales reach have us well positioned to respond to the market opportunity in front of us.
We're increasing our growth outlook for 2021.
We now forecast solar energy capacity installed growth to be in the range of 25% to 30% in 2021 for the full year, an increase from the prior guidance of 20 to 25 per cent.
Total value generated is now expected to be over $750 million for the full year up from the prior guidance of more than $700 million.
We continue to estimate of cost synergies derived from the acquisition of IFF and solar to be approximately of $120 million of run rate synergies exiting this year.
While we are very focused on integration in the near term, we expect to see sequential quarterly growth of solar energy capacity installed in Q2 that is well above 10%.
The combination of investments to accelerate growth on our progressive ramp and the synergy realization will result in more frontloaded costs, resulting in lower net subscriber values in Q2, but what the sequential increases throughout the second half of the year.
Consumer demand for alternatives to an old expensive and Dirty energy infrastructure continues to increase at a rapid pace and we believe we of the products business model and operational capabilities to deliver against this demand in 2021 and beyond.
With that let's open the line for questions. Please.
Thank you at this time.
We will be conducting a question and answer session if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the.
Darkies one moment, please while we poll for questions.
Your first question comes from the line of Brian Lee with Goldman Sachs. Please proceed with your question.
Hey, everyone. Thanks for taking the questions and kudos on the the solid execution here and increased guidance.
On the topic.
Just wondering.
A standard <unk> comps are easy for Q2, but if we assume the Olympics, 50% growth Inc. Q2, it's still implies 30% average growth in Q3 and Q4.
On the year on year basis to get to your range is that kind of the right cadence of how we should be thinking about the run rate here in the second half given the skew that we'll see in Q2.
And then I had a follow up.
Brian Yes that is the.
Right way to think about it.
Okay, and then I guess as a follow up you know just given the better demand outlook.
Two questions here and then I'll pass it on one on the supply chain, just anything whether panel of in burgers batteries that youre seeing tightness or.
Or potential price fluctuations that are hit.
It impacts of the guidance for the year and then on the the second part of the question would just be around labor.
We are hearing some industries are having.
Challenge of getting workers back to work.
With the increased volume growth outlook you know.
The high quality problem to have but how are you guys thinking about or what sort of visibility do you have on the labor side of thing. Thanks a lot.
Sure. Brian This is Ed maybe I'll just kick it off on on batteries, and then hand it off.
To keep going.
In terms of battery supply of the good news is we installed more batteries in Q1 than in Q1 than in Q4, which represented of total installed growth of more than 100% year over year and we also still expect to grow of battery installations over 100% during 2021 the.
Bad news is we could be growing that even faster if not for the tightness in the market.
And one impact of the tightness and the pricing for batteries has not fallen alongside the input prices for those batteries we.
We do forecast I, you know significant increases in both supply and demand of batteries with supply increasing low faster than demand over the near term, which should help a little bit.
Across all manufacturers, we expect to obtain enough batteries to support the growth we forecast of not full of intrinsic and customer demand.
And we are experiencing a little bit of low inventory levels, but we've been working through that and planning around that successfully so far.
Maybe I'll hand, it the Tom to talk about inventory.
Yeah, Hey, Brian so across the rest of the supply chain, we feel comfortable that we're well insulated to the supply chain situation that some of manufacturers are highlighted.
As we've said before our position as the market leader.
Sit in a pretty important customer positioning for these companies and believe that puts us in a strong position in their pecking order.
Given our scale, we have strong supply contracts the the.
In many cases have non penalties for non delivery of orders. We have also increased our target inventory levels in response to some of the supply chain disruptions and we already reach those new buffered levels without difficulty.
Finally, the diversified the supply chain that we manage you know using multiple suppliers for all of our components helps further mitigate risk here. So we feel pretty good on this issue, let me pass over to Lynn for the Labor issue Yeah, Yeah sure. Brian Great question. This is something we're extremely vigilant about it you know as we as we know you know electrifying all of the.
Homes in the U S can add 25 million jobs.
So that's why it has the bipartisan support it does we.
We do feel like we're in a solid position kind of first year of all future, but we're investing a lot here, we talked about some of the external partnerships, we've launched like scalper edge.
And you know partnerships with the department of Defense, which gives us access because of talent pool of 75000 people you know we're launching our center in the Academy to develop internal talent and you know just the always offering competitive wages and career popping and really focusing on building not talent pay them out so short story.
Feel solid.
You know right now and.
And continuing to invest here.
Alright, thanks, everyone. So much for the color I appreciate it.
Your next question comes from the line of Julien Dumoulin Smith with Bank of America. Please proceed with your question.
Hey, good afternoon.
Time, Inc.
All of the uptake here.
The start with that you talked about 750 million of value generated this year right and I suppose this flow naturally from the added compounding customer growth of the 25 to 30, but how do you think about this trend through the course of the year, it's a little bit like the last one given that the NDA growth for <unk> I think here was $59 million. How do you how do you think about that true.
<unk> through the course of the year really again I think the same genre of the question. How do you think about that backend weighted presumably and then in terms of the percent increase versus the customers I'm going from 20 to 25 to 25 to 30 I would've thought of going from seven hundreds of the baseline maybe might be imply a little bit more than 750. So.
Both kind of trend in cadence as well as you know how do you think about.
The cost per growth relative to the value of addition in terms of the uptick.
Yeah sure thing Julien So on first on the guidance for <unk>, we increased volume guidance of at the midpoint of the range by approximately 4%.
But increase total value generated by approximately 7%. So you are seeing some of that incremental leverage there as we as we bumped up volume guidance. If you just kind of look at the midpoint of the range on volume.
Throughout the course of the year, we expect to continue to tighten the operating costs continued process improvements and reductions in our physical branch footprint as a result of the acquisition as well the cycle time improvements.
And further we reaffirmed the synergy delivery this year of 120 million exit rate value.
That obviously has a ramp throughout the year.
And then with the market opportunity that we're seeing in front of US right now the.
The accelerating growth and investment and in that opportunity.
The timing of some of these sales cost recognitions.
The recognition does create a bit more drag in Q1, and Q2, where we're seeing a higher ratio of sales to installed.
But if you look at the results here in Q1.
Installed it's all costs are down in spite of higher battery mix and G&A costs are coming down. So you can see a lot of at the beginning to materialize at the beginning of Q1 also had a slightly higher mix of 26% ITC eligible projects than we had in 2020. So I think you will see.
Some of that drag here in the first half of the year, but continued ramp throughout the year as synergies are realized and then I think on on any of it in cash.
We mentioned in the commentary, we had about $43 million of.
<unk> of one time cash expenses from the convert the capped call and that's of integration items that created a bit of a drag on NDA under the new definition, which is now inclusive of cash.
All of Fairpoint. Thank you and then if if I may I want to sidestep, the net energy metering conversation, but really thinking beyond the current year end of 'twenty. Two onwards, how do you think about the the various puts and takes on value creation levers right whether that you know again storage deflation returns in terms of the costs.
Solar panels continue going down perhaps other scale advantages etcetera, but you know at the end of the day. When you think about the the Dev co side of the piece here, obviously, perhaps you might have a little bit of pressure from many of them perspective, what are the offsets when you think about customer value creation sort of beyond the current year.
Okay. Thanks, Great question.
The I'll look at extremely positive. So you know on the on the on the top and here you know you have that.
Fred services market for opening up so you know and for those newer to the strike grid services are markets, where we're able to actually monetize the capacity out of the battery to add another source of value and if you look at the grid services programs. We have in our pipeline right now of that represents about 10% of our.
Oh excuse me of the contracts you have representing about 10 per cent of our geography, but our pipeline shows about 50 per cent and you know as the you know as the the country moved further to the intermittent.
Renewable resources the demand for instance.
Instantly dispatching power out of the battery.
Will become increasingly valuable.
So that's one.
You know you also have just the additional revenue from the battery.
And the battery adoption I think we're just still on that the early early innings of people feeling the resiliency of pain around outages like California and Texas.
Which will continue that really drive that consumer interest in adding the battery.
You know you also have the further electrification of vehicles and the house and this is the this is the huge what so if we just by electrifying of your vehicles and your home you need twice the amount of power to your house.
And yeah.
The one that increases the potential system size, which is really the most profitable business for us because a lot of our costs are now.
The per home not per kw. So you have bad massive.
Increase in the system. So I think what you're really seeing for you now what our vision is to help really lead this energy transition and we're really moving from just a solar on the company to a company that offers broader electrification both for the home, but then also into the group.
To help them build a stable grant that can actually hit the the carbon goals. So I think you know the unit level economics are going to look.
Different going forward because of that and you know and the and the overwhelming.
And the majority of the trends are our tailwind.
Got it well thank you.
Thanks.
Your next question comes from the line of Moses Sutton with Barclays. Please proceed with your question.
Thanks for taking my questions and congrats on sides equally beating on what seems like every metric.
If California specifics, specifically, helping drive the MPV strength.
Looking at average realized utility rates in California, rising about 7% year to date wondering if you're capturing this in lease and PPA origination pricing.
Thanks for that question, you know, we well that'll be a long term benefit we have not.
The change pricing in California, So it's not coming from that.
Great, Great and then thinking about which states and areas youre actually pushing deeper into maybe.
Maybe you could provide an update on high growth markets, like Texas, and Florida, and really any new states youre looking at where utility rates versus the solar economics are starting to emerge that youre not at yet.
Sure I think you know we are in about 23 mm.
The states right now I think you know some of the places where you know really excited about are the Texas, Florida, I think Puerto Rico is poised to deliver some growth for.
For us as well, but I would note that the current growth rate of the current guidance is not predicated on a lot of geographic expansion. I think you will see a return for us to more of geographic expansion. This year, and you know and particularly I'm like you said that the value drivers are enabling.
Whereas grid power prices are getting higher or putting the cost there are decreasing.
The appeal of batteries is that much more powerful and then again. The addition of electric vehicles and the bigger system sizes makes that even that much more economical. So we do you know last year, we did not expand into and a lot of new geographies.
And this year, we will be doing that but again the growth.
Expectations are not reliant on that.
That's very helpful and maybe one last one and I'll jump in the queue, maybe this one's for Ed.
You came to market with the ABS on legacy of different assets recently with great terms, it's been maybe one and a half years now since you came.
The market with run assets any update on timing could we expect some things in the next one for two quarters.
A great question.
We are you know, we we obviously periodically accessed the.
Financing markets.
In various different formats.
And during the pandemic actually raised the number of delayed draw of credit facilities that were designed to be delayed to draw to be drawn and used over time.
As a way to mitigate risk.
Things look different than they did ultimately during that period. So we will again continue to avail ourselves of the securitization market.
But haven't made any public statements at the moment as to when the next transaction will occur, but we certainly do have.
A number of obviously funds deploying.
And a number of refinancing opportunities that are starting to develop this year.
And obviously for assets originated recently you know there is no delineation between the legacy of the vet them.
And the legacy of Southern Africa.
Great. Thanks very helpful.
Thank you.
Your next question comes from the line of Stephen Byrd with Morgan Stanley. Please proceed with your question.
Hi, congratulations on the the great results from the excellent the update on growth.
I wanted to focus on the opportunity for home electrification and Lynn you've spoken quite a bit about this y'all have a couple of very good slides describing it I wanted to talk about EV charging and just maybe talk a little bit more about sort of the capabilities. You you would need to be able to pursue this the the two.
Period over which the skippy very meaningful I mean, it just strikes me as very logical pretty exciting as you mentioned in terms of.
The additional value to customers as well as to the shareholders, but wonder if you could just talk a bit more about how this might unfold.
Sure I think there's a couple of dimensions to know the the one just quickly repeat that the the increase in power needed in the house really can drive larger system size, but again I can't emphasize how you know the incremental.
The incremental kilowatt hours aren't really quite valuable. So I think that's number one I think you also it also gives the a.
The moment out of consideration for the homeowners. So you know one of the issues of our business is conversion and you know most people want to know whether they like it you know, it's very popular but I'd say why now there's not often.
And urgency around that and so what the the purchase of the electric of electric vehicles.
Eight of them no matter, where it makes sense then to make the investment in the solar, particularly the solar company. Can then also take care of the car charger installation and you know youre going to have double the electric Bill and that you wanted to be powered by clean energy. So it's it's certainly an area of that word.
And business development efforts around and you know so I do think that our success in that market should parallel.
The growth rate in EPS, so stay tuned on that one but I think it's.
We're really excited about it and again I you know because we have the you know because of the installation.
Print it really.
It just makes sense for us to take care of that.
Charging at the same time, we installed.
Install the solar panel.
That's great and maybe just following up on that line I mean, the I very much take your point that at the point of sale when a consumer buys an EV that that's a logical point for them to consider.
You know providing their energy with with the with renewable energy so sort of awareness of Sunrun at that particular point of strikes me as fairly important as that is that fair or could it just sort of pattern.
That's absolutely fair and then you know what it also a follow on the you know effect to it resiliency becomes that much more important as well and and so I think this is the point that we're starting to talk about we're starting to see them in California. It was hot in Texas, but.
We will continue to see out of it shows the multi day outages and so you know the demand for the solar plus the battery the power through that.
Especially if you're exposed to electric vehicles I think that that also is you know another you know another potential of reason to peak the interest of consumers and to encourage them to convert over.
Yeah, and I guess it just strikes me that auto that there's a.
Not the.
Yes, there's a positive overlap between you and auto Oems I mean, you're not competing with them you can offer quite of bit of value to their to the exact yep yep exactly that's all thank you. Thank you.
Your next question comes from the line of the Kashi Harrison with Simmons Energy. Please proceed with your question.
Good afternoon, thanks for taking the questions and the you know I echo the congrats on the beat and raise.
So just looking at your your cash balance net of recourse debt, it's grown quite considerably over the past several years.
I'm just wondering is there a target level of net cash.
But you're looking for maybe before you start exploring doing something creative with that cash and then maybe just educate us on.
What you might be thinking about using any excess cash for to create value for shareholders.
Sure. This is Ed so that's the that's a great question.
And it's one that we've been working on this year and definitely falls into the excellent problem the half category.
So as I had mentioned on the call. We're looking at what do we think is the right future of run rate way to finance new asset growth and then also to reevaluate our existing.
The credit arrangements to figure out, which you know are most of above market, which we should get rid of of or maybe refinance or replace and the.
Then as we finish the that particular exercise.
And I think communicate the results of that.
We will then have more opportunity to talk about our general capital allocation strategy I think.
I'd like to believe that we have a reputation of being good capital allocators, we have in the past.
Share buyback program, we have no immediate plans at the moment to return that you know but.
But I think that the the short story right now is we want to nail down the right capital structure for the business and then turn to figure out what we wanted to do after we achieve that goal so stay tuned and we'll probably be sharing more in the coming quarters.
That's great. Thanks for that and then my next question as you know surrounds the <unk> the cost structure for the for every solar.
Looking at the.
The external model the I'll provide you know customer acquisitions of cross or stool still pretty high.
And you know it seems like that's the biggest opportunity for cost reduction.
Which you know feels even more crucial because you know net energy metering in its current form is unsustainable and you know I know you talked about some of the opportunities to increase value posting them, but maybe if you could talk about some opportunities for rapid cost reduction that you think are possible and maybe give us a sense of a time line. So the.
We can see you know.
How how you intend to attack the cost structure of the business moving forward.
Yes, great Great question. So on so a couple of things in there.
Customer acquisition cost one dynamic you're seeing is that the customer lifetime value support the high acquisition cost.
If we didn't spend that next incremental dollar to acquire that next customer we'd be leaving.
Leaving money on the table, you know and and and that's the market force and and and the reason of proof point to support that is if you actually look and some geographies where maybe the the value proposition is a little weaker to the consumer you can actually see pretty materially lower acquisition cost. So it's highly.
Variable based on that.
So that's one of them yeah, just just feature which makes it unlikely really to reduce in the near term and not something we would target because again.
You know, we would want it that incremental customer valuable to US now we're still don't get me wrong like we're still tightening.
Our operating playbook, and the increasing improving our close rates and moving more to virtual selling.
And you know expanding and building out the sort of online experience for all of those initiatives are underway and will tighten it.
But because of these market forces the it's unlikely to see that materially decline.
The decline in the short term.
Over time, I'm confident it will come down because I think the category will be more.
I'm comfortable for people.
The E com people will get more comfortable through of ecommerce experience there will be the.
And as I highlighted earlier with electric vehicles.
The resiliency and benefit of batteries is going to get more and more painful for you know more and more painful when the outages kind of them, which will drive you know.
Adoption. So all of those are positive trends going forward.
And then the biggest opportunity here at the.
Red tape around local construction of these assets and you know we've been talking about this for a long time of the soft costs around permit variation of co variation.
And the interconnection at about $7000 per customer, including a lot in the CAC area, because you're spending money on customers that don't end up converting because of too cumbersome of the process. So the big bets.
Way to eliminate this is to streamline all of the bureaucracy around going solar.
And we're working on that it's getting a ton of attention finally from the administration the department of energy and in the recent infrastructure Bill. There's a proposal for $20 million every year to help fund the soft cost reduction, whereas the industry. We're building a software program.
Called the solar opt to have instant permitting.
You know that the trial right now in a number of shares and so then again as a proof point of how that will be meaningful if we look at the customer acquisition costs in markets, where there's instantaneous permitting and interconnection it is dramatically lower.
The other markets. So that's an initiative, we're really excited about.
And then if I could I wanted to go back one more benefit of E vs that I had had left off I think it's worth discussing which is.
The.
The strain on the grid from E D will make our batteries and solar that much more valuable and that is you know again I don't think of people really appreciate that yet is that are you know that the amount of investment we're going to have to make in the distribution system and locally it will be served Easter.
And more cost effectively west using existing infrastructure up rooftops and batteries.
So that'll be another benefit from the electrification of vehicles.
That's great color. Thanks, so much for that or I really appreciate it have a good one inc.
Your next question comes from the line of James West with Evercore ISI. Please proceed with your question.
Hey, good afternoon, everyone.
I'm curious if there's any.
Issues that perhaps are out of your control of that have driven. This this recent acceleration in growth of the things like how the market tightness or for.
Fear of inflation and driving of electricity costs. The is there something that's outside of just the pure <unk> brand recognition and the drive towards solar.
I don't believe that there's any short term effect driving the sort of growth rate and I think if anything it.
You know, it's just the XL.
The writing in a sustainable way.
Okay. Okay. It makes sense and then obviously Linda you've driven home help important E vs or for your <unk> will be for your business.
How do you think about that with the go to market strategy and your sales force do you kind of link around where the EBIT. We agreed the growth of the strongest from how are you guys thinking about that.
Great question you know.
Again, when we have.
You know I'm, a pretty broad distribution, you know right now and are taken in terms of sharing our existing business and so.
I'm not counting on you know evs to hit the targets or to even kind of sustain this accelerated growth, but what we are but because the you know the cross selling opportunity here is so makes so much strength I think you will see us.
Working to link up with.
Axa has to offer them you know off for programs that are win win them. So you know again stay.
Stay tuned on that but that'll be a a way to sort of cross sell and and and reach customers at the moment. When they you know are enticed to power their homes with the alert me without the additional need and I. The one of the other advantage of that Sunrun hasn't said with our nationwide footprint as you know where all of the appealing.
For those types of partnerships, because we have such a broad geographic reach.
It makes more sense for them, you know large Oems to to choose a scale player.
Right, that's great color. Thanks Lynn.
Thank you.
Your next question comes from the line of Mark Strouse with Jpmorgan. Please proceed with your question.
Yeah. Good afternoon, and thank you very much for taking the question.
You mentioned it was kind of a record volume.
Across your channels and <unk> when.
When you look out to your guidance.
The the increase that you had is that fairly broad based as well or are you, particularly seeing strength in one particular channel.
Kind of a.
The related follow up to that is the supply constraints that you're seeing within the industry. Do you think that that has accelerated in the I understand it's probably a bit early but are you starting to see an acceleration in some of the the smaller mom and pop installers that are looking to partner with a larger installers such of Sunrun.
Great Great questions. Marc we we are seeing growth across the board. So you now if you look at our different avenues to market around our direct to home business our E.
You know online business hour.
Retail business and the home depot Costco stores.
Our new homes business are low income.
And our channel partner of business, all will deliver growth. So it's really across the board and I think you know we're pretty excited about the sort of the brands that we're creating and.
The consumer mind share that we're creating around being in all of those different places.
And the to your point around the local installers that that has been a growth area for us. If you look at our Q1 result, which is typically Q1 of its typically seasonally the.
You know a that's the lowest quarter of the year, given weather and Inc.
And we saw a record and our partner business in that quarter. So across all quarters. Historically, so yes, we are seeing strong growth there and I you know we believe we uniquely.
Serve that and solar market with our you know our tank car financing advantages and the brand that we can offer them.
Yeah, Alright that makes sense. Thank you very much. Thank you.
Your next question comes from line of Michael Weinstein with Credit Suisse. Please proceed with your question.
Hey, this is Maggie on behalf of Mike Thanks for taking the questions.
The first one just from the NPV per customer.
And of the spoke about potential decline in the.
The Q2, given the higher cost of funds, but just wanted understand how should we think of it in the second half just thinking of the annual guidance. It seems like in the 7000 dollar customers range, but just wanted to make sure we got the right number.
Yes, great Great question. So in Q1, we were just shy of $8200 per customer.
If you take the the guidance here of $750 million.
Mid point of the range you get to a full year number that's more of the $8300 range of bi.
Especially as you're not adjusting for some amount of free cash and loan mix and the AR and the volumes there.
And it all of the not doing a lot of it leaves customer basis, which is what we got to.
I gotcha of veteran makes sense and.
And then maybe just from the channel strategy isn't going to talk about the split of the in house and channel business within the true.
The press release, the spoke about our channel business.
Drawing our year over year, so how should we think about that mix going.
Here to the sheer rolling into next year.
Great question, you know we.
What we do is we really look kind of geography, and you know route our path to market in that geography, with you know the best way to.
For each consumer so we don't manage it to a mix of.
You know sunrun tailed vs channel partner sales. So you know we will give color on how it turned out each quarter, but but we don't manage to a mix there and so we don't we don't disclose that or guide to it.
Alright, and then.
Just last one from me.
Jump back in the queue is just from the.
The potential impact of any higher costs in the supply chain the.
So far for this year.
You have said it the manageable and you have enough inventory of enough contracts to manage the higher cost of our modules.
From modules or another for competence, but.
To the extent of the increase later this year or next year.
Yeah.
Who absorbs the cause is it something which losses zone to the customer or.
Does the acquisition costs to absorb that.
Hi.
Hardware costs.
Yeah. So you know as we said it I think this year, we feel really well positioned given.
Supply contracts purchase orders in place levels of inventory that we have on hand to be well buffered there no I think longer term actually you you'll get back into the.
The the general deflationary trends that we've seen a lot of the equipment.
Places like batteries, where you'll continue to see new manufacturers bring products to market that will increase competition. There I think you'll you'll see similar a similar stories of crossing burgers and handful of other components. So I think we'll continue to be in this the cost decline environment of the economic wedge between.
The distributed residential solar and.
At the local utility will continue to get wider over time so.
Nothing nothing significant of note there that we're particularly concerned about.
We feel pretty well positioned given the rising utility rates in terms of pricing power of the opportunity to have a small amount of buffer there to offset it if needed.
Yeah.
Gotcha alright, thanks for the question.
Okay.
Your next question comes from the line of Philip Shen with Roth Capital Partners. Please proceed with your question.
Hi, everyone. Thanks for taking my questions. The first one is on.
The channel partners, the new ones that you've added for those dealers you highlighted some exclusives was wondering if you could provide some color on that how many new exclusives did you add and maybe some color on the structure. It would be helpful. So how long are the.
Are those payments structured.
How large of those payments and when you think about.
Your net subscriber value with the exclusive payments do you expect the incremental megawatts from those dealers to be in line lower of higher relative to the net subscriber value. Thanks.
Thanks for all credit question the.
As we mentioned we've kept our channel partner of fitness fair.
Of the exclusive so our strategy is focused on you know its 80 20 strategy so focus on the larger.
You know regional players that have competitive routes to market and unique routes to market in their and they're in their communities and and and high quality customer experience. Most importantly.
And so we've kept that fairly fairly tight.
That served us well.
And sort of what we said was in the quarter. We grew those numbers by 20%. So we could certainly it could've been there's much more demand and that we can grow much faster, but we really again manage for who are the really high quality of partners that deliver great customer experience.
Something unique.
And reaching our incremental customer basis.
And when we strike those relationships you know, yes, we are quite disciplined at managing two level economics thresholds and target the maintaining consistency across our different channels and across our network in order to avoid any sort of channel conflict and so I you wouldn't.
Expect any material changes in.
Any of the you know of.
I cannot make sure of that going forward.
Okay. Thanks, Lynn and then I know, we've talked about the opportunity for a while now but just to be very clear our it sounds like near term, there's an opportunity to strike a deal with them maybe of utility or an auto company or somebody of that ilk or maybe a combination to perhaps.
Drive volumes for both solar and EV Chargers and at the point of sale of perhaps of the V. A.
Characterizing that correctly and then you talked about staying tuned.
Near term so any sense of any more color, perhaps that you can share on that would be a nice thanks.
I'm sorry for what was the last point more color on what.
Oh, it's just the if you could share any more color would be fantastic. Thank you. Okay. You know I think we're on the utility on the utility comment I think we have a we have a two pronged approach here for our go to market strategy. One is you know we go direct to customers and we believe we provide them.
Superior electricity service with cheaper electricity.
With clean electricity with a increasingly of battery for distribute the you know for resiliency and we try to make that of affordable as possible and just compete on a better value proposition in parallel we're trying to work with utilities in open markets to.
Enable those that home to be an energy asset that can plug into the park that didn't get another revenue stream you know benefit though.
Yeah.
However, those you know you have to build that out and you know like we said we've been working on these grid services programs and you know many of these you know the the income and industry can be quite slow to change on those things and so we're not waiting for that so we're you know, but we have the assets in place we're going to build the market.
The structure is to enable us to participate through the the.
The credit services and other programs and increasingly I think utilities another load serving entities recognize that okay. This is the place. This is the way to get you know the capacity that we need and so that's why you see through our programs with the Ccas in California at some of the other bilateral agreements with utilities.
So the those are building their you know their slow burn them, but it's a place where we have a head start and continuing to invest in I don't read a lot of benefits, we think in the decades.
Decades to come on the EV side, you are correct you know again, because it's such a natural time for amyris to adopt solar.
Cross selling relationship there is.
It's quite intuitive and accretive to all parties. So we are you know continuing to work those efforts from the business development standpoint.
Okay. Thanks, Lynn Congrats and thanks for all the results in the guidance that's great. Thank you.
Your next question comes from line of of Tristan Richardson with Truth Securities. Please proceed with your question.
Hi, Good afternoon, guys. Appreciate all the comments today, just one of my end storage.
The storage adoption.
Certainly there is a big and obvious value proposition of the customer I guess, though we've heard of one anecdotal instances, where an installer out there is in the instituting sort of of a mandatory bundling of solar plus storage almost as one product.
Seems a bit one off in nature, but do you see the installer market moving that direction at all.
Great Great question I do believe that over.
Over time, all effectively also or will be paired with storage because the battery prices will come down and it will be proven that aggregating. These batteries is.
You know the most effective way to reach them to deliver peaking.
Power and to really actually help smoothed out you know some of the intermittent see that's going to come from our big.
Renewable based system. So I do believe that those markets will develop and independent of what the consumer value prop is there will be enough value and those that battery capacity to them and delivering to the grid for that to be a large market in terms of tap of an hour.
The Smith I think.
Again I like the.
Charity of the announcement I think that is where the industry is growing however, the reality of today, it's not appropriate for.
Every customer to have the battery if you're in a place where you have a resilient grid and.
You know there isn't there's opportunity to monetize the battery vs. The with the virtual power plant. You know you may not it may not make sense right now and that is the case in many places and you know one of the realities of our business is that it does require a bit of customization at the home because just the physical nature of home.
<unk> are different and so one way we've differentiated why we've emerged as the market leader is that we can attack that customization with you know process with technology that we built over a decade plus to serve a more of the more customized need that of residential project.
And.
Makes a lot of sense. Thank you all very much appreciate it. Thank you.
Your next question comes from line of Colin Rusch with Oppenheimer. Please proceed with your question.
Thanks, So much guys could you speak to what the the key gating factors on growth right now it seems like there's an awful lot of opportunity.
In your building capacity, so I'm wondering what what's funny is out at this point.
Well, we think we're going for any path I think you know the.
One we're a physical business and there. It's just the reality of that I think the you know one of the ways. We can really even I'm not happy about the of concern is to continue to expand the channel partner business as well. So I think that's pretty unique about us is that we're building the <unk>.
Operating infrastructure and our own sales force and avenues to market and we're also you know.
Of the partner business, where we can get some scale efficiencies there in an increased reach and really a market that is the way under penetrated and so that's been our strategy there, but youre right. I think you know the growth is an acceleration this year.
Sad for many years that this industry can deliver of 10% compounded annual growth rate for a decade without reaching with you know what's the reasonable penetration and there's no reason why that shouldn't be faster and you know, particularly with the electrification of I've discussed in the home needing to end.
Two times and more of electricity in the unit value for increasing that much more too so at the.
It's not only just additional units in capacity, but it's also just the home you know the.
Wallet share of the.
The energy footprint. So I think there's opportunities on both of those dimensions and you stop at the sustainably in and remember that of course this is the physical.
Physical businesses.
You know kind of a software business, yeah I understood.
And thanks for the color on the utility scale of partners could you guys speak the internal targets around ROA.
And how that's evolving as you as you look at the potential for partnering with the utilities that are really looking for additional resiliency.
Non of deployment partners around distributed assets.
So our returns on those type of programs with your question.
Is it changing how you think about you know targeting your targeted ROE is the move forward into the incremental programs over the next few years.
Well, so you know and.
You can chime in here, but you know right now we have an infinite the ROE because we're you know we're actually calling you know more cash out it's really pulled the more cash net of systems Inc.
And that's it.
You know that's one of the.
Really financial highlights of our business.
Alright, I'll take it off line guys. Thanks, so much okay.
Your next question comes from the line of Sophie Karp with Keybanc. Please proceed with your question.
Hi, good afternoon, congrats on the quarter and thank you for squeezing me in here.
Just a question on cash flow if I may you guys highlighted to recurring revenue metric.
Would it make sense to also of bridge that to the current cash flows and I'm sort of use the ads on the go forward basis and maybe if you could also in this context discuss how you think about the capital structure moving forward now that your scale is growing.
Rapidly in the with the addition of dividends from such thinking.
Hey, Sophie it's Ed So that's a great question I think one of the reason.
Tom has been talking about the recurring revenue.
But it's of a clean.
Growing a metric that doesn't vary significantly quarter to quarter.
A number of our credit facilities as you know either mature inside of.
The customer contract life.
Or will refinance from them.
<unk>.
Inside of their maturity proactively due to declining capital costs and so the.
Cash flow forecast from existing assets.
Various from year to year and depends significantly on the timeline on which we execute those transactions. So.
We do expect significant cash flows for.
From our existing assets and distributions.
From those assets and.
Refinancing proceeds from those assets.
But it's not a simple clean Lynn.
Linear growth over time.
On the development side of the business.
You know with increasing margins over time, and the increasing volumes, we will expect to see a nice steady growth from there as well and again exactly how much of that cash flow we realized in the first period when we installed the asset.
The later over time.
Is a.
Analysis of review that we're going through now to see if we have the right balance there.
But either way as Lynn just mentioned, we do expect all of our systems on average when they go into service.
We're receiving proceeds from non recourse financing exceed.
The cost to install the company because of the customers and also pay all of our G&A.
So I think we'll hopefully be able to talk more about cash flow soon particularly once for.
The more buttoned up on the projects that I described.
But probably how we will be able to do that is more.
Giving multi year cash flow views, you know rather than sort of periodic quarterly number the compounds cleanly at a certain rate over a long period of time.
Okay. That's super helpful color. Thank you and the last one real quick if I may.
Do you anticipate that the virtual power plant business will grow to the sizable enough to merit the kind of a separate line item on the P&L or a separate segments, maybe any time soon.
The Great question, you know not I would say not anytime soon for you again, you look at the the value that the value we have under the contracts that are booked or you know near near near book, It's about 75 million. So again I think these bell they take while to the.
All up.
But it's not anytime soon it's it'll be meaningful enough to break it out.
I think the other jumped the the other benefit of the the other benefit of the grit San Francis the relationship independent of what the financial contribution, maybe you know, which which right now it's looking like about $2000 per customer of incremental volume. The other value of it is it really just differentiates you too the custom.
And again provide.
You know it moves the market more two of winter.
The most market with with companies that have the technical capabilities of doing that of the network effects. So that in many cases will be a bigger financial driver than the actual revenues that come off the program in the in.
In the near term.
Perfect. Thank you so much I appreciate the company thinks of it.
Ladies and gentlemen, we have reached the end of the question and answer session and this does conclude today's conference you may disconnect. Your lines at this time. Thank you all for your participation.
Thank you very robust discussion I appreciate it.
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