Q2 2021 Sunnova Energy International Inc Earnings Call
Work.
We began the quarter on a high note with the timely closing of the Sun Street acquisition and finished the quarter by placing more solar systems into service during the month of June than any other month in the company's history.
As a result, our customer growth continues to accelerate with just over 46000 customers.
In the second quarter of 2021 with 3 months of sundry integration behind us the rapid growth of our dealer network and the expected launch of several new services later this year.
We are increasing our expected year over year organic customer growth rate for 2022 from 40% to 50%.
The comp.
Combination of continued operational improvements and advantage from our increasing scale is setting up for a strong 2022.
We saw the continued instability of regional power grids increasingly push homeowners to seek out more reliable and resilient energy services.
This resulted in a continued increase.
<unk> in our battery attachment rate on origination.
Which went from 23% in Q1, 2021% to 28% in Q2.2021, even when accounting for the <unk> new homes customers we acquired.
On the subject of supply chain constraints in batteries, we have seen continued improvement availability as expected.
Much of this variability is being driven by increased competition amongst battery suppliers.
However.
The dramatic increase in consumer demand for reliability in their power service.
We are not certain if all constraints and batteries will be eliminated by late this year or if the relief comes early next year.
Our success continues to be made possible. Thanks to the dedication of our 621 dealers in sub dealers.
And new home installers across a rapidly expanding service territory.
Over the last year, we added nearly 400 dealers in sub dealers and new home installers, and we anticipate this count to be at or near.
<unk> 1000 by the end of 2022.
Our brand visibility and value continues to grow which over time will greatly contribute to both decreasing our customer acquisition costs and increasing our customer base, giving us further confidence in our future growth estimates.
For the latter point.
On growth, we have increased our lead generation to our dealers by over 350% compared to last year.
Lastly on this slide we've updated our information on customer contract life and expected cash inflows as.
As of June 32021, the weighted average contract life remaining on.
Our customer contracts equal 22.4 years.
While the cash inflows, we expect to receive over the next 12 months increased from $266 million in the previous quarter to $297 million.
Turning to slide 4 we provide a summary of our Q2.
2021 financial results.
These strong results are expected to strengthen even further in the coming quarters.
The growth in adjusted EBITDA, and the P&I from our solar loans trend higher than customer growth.
Especially once knee replacement spend ends and growth investment subsides.
We believe.
Our focus on service as well as the Upselling of hardware and the growth of aggregation services, such as grid services and micro grids will result in an 80% increase in the value per customer.
As measured by adjusted EBITDA together with the principal and interest we receive on solar loans by 2025.
As expected our cash flow results improved materially from the prior quarter.
Rob will discuss cash in greater detail later in the call, but it's worth noting that we continue to anticipate very large year over year growth in adjusted operating cash flow from <unk>.
Full year 2021.
And we expect to achieve a breakeven.
<unk> mid point on a recurring operating cash flow this year.
Turning to slide 5 it is clear that customers are now expecting a long term energy service offering that is fast and intelligence.
To meet this need we are building out our end to end software platform, which contains capability.
Such as quoting tools for dealers.
<unk> service analytics for customers and grid services software per aggregation.
We are seeing significant opportunities in grid services today.
To date, we have 7 grid service programs in place.
With an estimated value of it.
Leased $45 million over the net.
20 years in our pipeline with the potential for an additional $450 million in value.
It should be noted that Sonoma has the contractual rights and obligations to the customer for both the service to the customer and any grid services and all of our contracts.
Therefore.
So nova retains the ownership of the relationship with the customer for years to come.
Our dedicated field service technicians and customer care team are increasingly providing higher quality service at a quicker pace to our growing customer base.
The Sonoma employed service team is focused on delivering unpacks.
Unparallel energy service quickly.
Currently and predictably as new technologies, such as batteries.
Load managers electric vehicle Chargers and secondary generation enter the market.
Services, becoming a crucial differentiator in the residential energy industry and Sonoma continues.
Continues to position itself as the industry leader for service.
I will now turn the call over to Rob.
Thank you John.
Turning to slide 7 you will see the continued improvement in our second quarter results over the past few years Q2, 2021 revenues are up over 90% from Q2.2019.
While over the same period, adjusted EBITA and the principal and interest received from solar loans increased by 121% and 199% respectively.
As John noted earlier Q2, adjusted and recurring operating cash flows improved materially from the first quarter of this year, although they declined year over year.
As further detailed in our 10-Q this was because of an acceleration of certain cash expenses into the second quarter that were made in the second half of the year in 2020.
On balance, we expect <unk> to be stronger for the second half of the year than originally forecasted because of lower interest expense due.
The record low cost financings, we have executed this year.
Higher than budgeted principal payments on loans and the strong results from Sun Street.
We also expect <unk> to be positive for the balance of the year end to end the year at breakeven a significant milestone for an industry that has yet to see a cash cost.
Power growth.
On slide 8 you'll 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 a conservative discount rate of 4% in CCD increased from $1.
On June 30 of 2020 to $1.7 billion on June 32021.
Furthermore, in addition to increasing on an absolute basis <unk> also increased on a per share and per customer basis over the same timeframe, excluding the acquired Sun Street customers.
Overall, we expect our in CCD to increase over the balance of the year.
As a reminder, both our <unk> and in CCD metrics exclude any value for growth renewals are up sales as they only represent our existing contracted cash flow base.
While these excluded items are.
Not reflected in our contracted customer values. They do have significant value and will become more meaningful over time as the number of services sold per customer growth.
Slide 9 summarizes our recent financing activity and cash position.
The 2021 financing transactions completed to date include.
Securitizations net achieved a weighted average blended yield of just over 2.5%.
Our 2 most recent transactions represent a pivot in our financing strategy and that we elected not to issue high yield tranches of our Securitizations.
This allows us to take the cash flows that would otherwise be subject.
3 highly punitive amortization and better align the debt service of the underlying assets with the cash flow as they generate thereby allowing those cash flows to move from our nonrecourse Spv's corporate company level in short more cash to the equity.
Our June securitization of leases and.
<unk> was particularly unique and that it was the solar sectors first ever securitization refinancing collateral from our preexisting securitization.
July loan securitization represented another first for US as we were able to split our securitization and to both an a minus rated tranche and our first.
<unk> of double a minus rated tranche, which drove our weighted average spread to treasuries to an industry record 100 basis points.
We are especially grateful to our debt investors several of whom have participated in our programs since our inaugural securitization in 2017 for recognizing the high credit quality.
The decreasing default and delinquency rates and the reliability of our cash flows.
Other financing activity included a loan warehouse restructuring of $350 million and $375 million in closed tax equity funds, both of which saw improving terms.
We also issued 570.
Every million dollars of convertible debt that enabled us to fund our growth for at least the next 18 months, while giving US a bridge to a corporate level bullet maturity bonds.
As investors are aware, we used a portion of the proceeds of the convertible debt to purchase a capped call that effectively makes the conversion price of $60 per share.
These transactions are important milestones and synovus transformation of its capital structure as we believe they will accelerate the strengthening of our corporate balance sheet and lead to greatly improve recurring operating cash flow.
Our total cash balance as of June 32021 was $469.1 million up from 1.
<unk> $4.4 million at June 32020, and up from $263.5 million at March 31.2021.
The sizable increase was driven by recent debt raises undertaken to ensure the company has the working capital it needs to take full advantage of the growth.
<unk> hundred entity in front of us and to provide the company with the balance sheet flexibility needed to complete our long term capitalization strategy.
Given available unencumbered assets as of June 32021, we have the ability to borrow or otherwise draw down an additional $160 million of cash from our warehouse.
Debt and tax equity.
And that we have $600 million of additional capacity on warehouses from tax equity subject to available collateral, giving us tremendous runway to fund our growth.
Those who have known synovus since our days as a private company no debt recurring operating cash flow has always been our primary focus.
We use the recent convertible debt offering to pre fund the balance sheet. So we can avoid the future issuance of high yield tranches in our securitizations and to ensure that we have enough working capital for growth as we believe we currently have enough working capital for an annualized run rate of $3 billion of new investments.
Turning to slide.
Slide 10, we have shared our sources and uses of cash for the past 3 years as well as our forecasted sources and uses through 2023.
As investors have no doubt already verified this presentation accounts for every dollar in our GAAP statement of cash flows on a historical basis.
Recall from past conference calls that in our.
Cash and of our RCM, we've attempted to reclassify cash flows that are investing or financing per GAAP, but we consider more operational into rcs.
While excluding other cash flow from operations, we consider more investing or financing in nature.
Here, we complete the picture.
All CF.
As we have mentioned before is the cash flows from our existing operations investments in new systems includes all investing cash flows regardless of GAAP classification and at the same cash flow as we consider in our fully burdened unlevered returns.
Finally, we break out our financing cash flows into net proceeds from tax equity.
Net proceeds from asset level debt, which includes our warehouses securitization and other nonrecourse debt and the net proceeds from our corporate capital in any potential asset sales.
We also separate out items, primarily acquisition and integration costs that are truly onetime in nature.
So what is the.
Take away 3 items of note first all CF is expected to grow higher than most analysts have previously predicted as a result of our capital market pivot and the execution of our long term capitalization strategy.
Second given our projected investment expectations as we stated when we launched the convertible debt offering we.
I believe we won't need any additional corporate capital through at least the end of 2022 and third our options for additional corporate capital in 2023 are numerous.
These include issuing another bullet maturity bond service retained asset sales now that we have the critical mass of cash flows and assets have appreciated.
We do not issuing additional investment grade tranches of our Securitizations.
On slide 11, we provide additional color on unit economics as you will see our fully burdened unlevered return on new origination was at 9.4% as of June 32021, based on a trailing 12 months, while a similarly calculated.
<unk> weighted average cost of debt was 2.9%.
This resulted in a trailing 12 months implied spread of 6.5% as of June 32021 above the 5.8% spread for the trailing 12 months as of March 31.2021.
In other words, we are seeing an improvement in single.
Single customer margins, leading to stronger than expected operating leverage and cash flows.
On Slide 13, you will see our guidance ranges.
Given the especially strong performance of our loan origination and prepayments we are increasing our expected principal payments received from solar loans to 62 to 68 billion.
Yes.
This together with the expected decrease in cash interest expense from both the refinancing of 2017 dash, 1 and the utilization of convert proceeds in lieu of warehouse debt as well as the strong performance of Sun Street has allowed us to increase <unk> guidance to 35% to 45 million.
We are holding adjusted EBITDA and our ocs unchanged as we pull forward some of the planned 2022 meter replacements and make further investments in our software platform that we believe will accelerate our ability to lower per unit operating costs and further enhance the dealer and customer experience in the second half.
Of 2021 and beyond.
As we forecasted the sunscreen acquisition closed on April 1 and we continue to anticipate 9000 customers added in 2021 through our new homes business. Additionally.
Additionally, as of June 32021, we have spent approximately $5.5 million of the anticipated.
At $30 million in integration and transaction costs, we expect to spend over the next few years associated with Sun Street.
As of June 32021 over 95 percentage of the midpoint of our 2021 targeted revenue and solar loans P&I are already contracted through the existing customers as of that same day.
We are maintaining our estimated year over year increase in 2022, adjusted EBITDA and principal interest we receive on solar loans from 80% and as John noted earlier, we are increasing our 2022 estimated year over year organic customer growth from 40% to 50%.
I will now turn.
Call back over to John.
Thanks, Rob since <unk> founding we have been focused on doing what is right for the long term.
Our conservative capitalization strategy is predicated on accumulating enough customers and cash flows to build a firm foundation with a high amount of Optionality.
Turn that enable to do by building a company that has billions of dollars of future cash flows locked in for many years.
In our early days, we've made a crucial bet that our underlying assets and the cash flow they will generate with proved to be far more valuable than the market appreciated at the time.
This is.
Clearly paid off as we now have a formidable balance sheet to drive our cost of capital, even lower and pursue having the lowest cost of capital in the industry.
In addition, we are now at a point, where operating leverage can be increased dramatically over the next several years.
1 can already see this happening by the.
Fact that adjusted EBITDA together with the principal and interest on solar loans.
<unk> and <unk> or.
We are increasing at a rate faster than our customer growth.
In fact.
We are already generating cash and long term contracted cash flows at amounts greater than some of our competitors with larger customer basis.
Thanks to our capitalization strategy and business model.
This equates to is that we have successfully built a long term incredibly strong cash generation machine.
On this firm Foundation, we will continue to build out a new energy service company focused on delivering a better energy service at a bed.
Better price.
Our employees are concentrated on serving the customer increasing the speed at which they are able to respond to their questions concerns and issues in the field.
Faq, we improved our service duration by 15% from Q1 to Q2.
And expect a further 20% improvement by the end of the year.
The technology platform, we are building.
Will enable us to provide a service that is not only fast.
But also intelligent reliable.
Addictive.
At the same technology platform will enable us to aggregate, our customers and drive even more value creation, which will deliver tremendous financial.
Value for both ourselves and our customers.
Service is a real business.
Financing is a key enabler.
We are again thinking long term and building an energy service that is reliable quick and enables consumers to power their own energy independence.
At the end of the day.
Service is the crucial differentiator in our industry and we will continue to lead in providing the best energy service.
With that operator, please open the line for questions.
Ladies and gentlemen, if you would like to ask a question at this time please.
Price sorry, followed by the number 1 on your telephone keypad again it is star 1.
During the Q&A session. Please limit yourself to 1 question and 1 follow up we'll pause for just a moment.
Your first question.
Question comes from the line of Brian Lee with Goldman Sachs <unk> Company.
Yeah.
Hey, guys. Thanks for taking the questions kudos on a solid quarter here.
Maybe just to start off I know theres been a lot of questions around the growth targets.
For 2020.
1 you've got obviously, a strong Q1, and then an even better Q2.
To start the year on that metric and then you're raising the view for 2022 from 40 to 50 so.
Whats maybe getting lost in translation why not a guidance range here for 'twenty, 1 anything happening in the back half.
That we should be aware of and then maybe just related to that what was the actual organic customer growth additions for Sun Street and in the second quarter for you I know you said 9000 still the target for the year, but what did you see in the country per ticket.
Hey, Brian This is John Thanks.
First on the on the cost.
21 back half of the year as the raws prepared remarks stated.
AT&T moved up.
So lessons.
<unk>.
And we then are looking at moving some of them made a replacement spend from 'twenty 2 into 'twenty..1 so thats. The first thing. So it's really just a shifting all of this.
Sorry for that spending and then some of the software we're seeing a lot of the.
Opportunities on the services side of things, whether it's a <unk>.
E V charging generators load managers et cetera, and we're trying to pull those up as well as new geographies.
This year from from next year.
And so it's really just a shifting of spending a little bit is it a little conservative probably so on top of that but.
That should explain any sort of shift as adjusted EBITDA plus P&I little conservative for next year relative to some of the growth in Greece.
Probably so.
But we felt like we gave enough forward guidance at this point in time for next year and we will of course do what we've done historically and issue our guidance formal guidance for next year on our.
Our Q3 call in October.
And then just as a reminder.
So far ahead of anybody else in the industry. So we felt like that was enough if you will.
And in terms of.
The other question part of the question around Washington.
I mean, we did about 2000.
Free customers and homebuilder customers in the quarter.
Redo that could pretty ratable business.
That went about is as we can.
Expected Brian.
Okay. That's helpful. Maybe John just to rephrase my question and maybe.
Misinterpreting your answer but are you, saying the cost shifts are.
Keeping your customer growth target range unchanged for this year, that's happening impact or or did I Miss something that I was just wondering why you see better growth relative to original targets.
<unk> targets for 2022, but right now for 'twenty, 1 youre keeping things unchanged from the on the growth side.
Yeah, sorry, I thought you were referring to adjusted EBITDA both P&I.
On the customer side of things again in the remarks.
On the supply chain, specifically, we see really not no material issues with regards to modules or inverters.
Certainly been on the battery side.
Are things as we've been talking about per well.
Almost a year, we're actually has been a year.
And we continue to see improvement over this past quarter over this past last 30 day, including and has a lot to do with more and more competition in this.
In this space more in phases coming on very strong.
Long as Bobby went through in his call.
Jen rack as Aaron went through in his call is doing a very good job got celebrates coming up and then of course Tesla continues to ramp up as well as well as many others out there so.
There is a lot of supply that's coming but then you look back at our storage attachment rates.
Ray because of a lot of the events that are going on Biopiracy hurricane season, just a huge and you've heard this from other companies in this space, including the last 2 that I mentioned is that.
There's a lot of focus from consumers on reliability and resiliency.
We're seeing demand pickup.
Materially on the storage side of things and then so as we continue to see the improvement we thought we would see on storage, but the demand is materially higher so we're not entirely sure. If we think we can get everything that we want.
Even including the higher demand by the end of the year, but if it doesn't it may spill a bit into bid.
Next year.
So that's.
That's why it caused a little bit.
The increased guidance, whether it's customer growth. This year next year. It was fairly easy for us just given the trend of growth rates that we're seeing very strong again, we will give formal guidance in October but.
That thing.
Was it.
A fairly easy lift for us to raise the growth for next year.
That answer your question.
Okay.
Absolutely makes sense I appreciate the additional color and maybe if I could just squeeze.
A quick 2 follow ups in year 1 on the.
The capital.
And we're the <unk> charge.
That's helpful. Appreciate you.
Sharing that with us.
It didn't sound like you threw in equity when you were walking through some of the pieces that you'd be considering credit $500 million in 2023 does that imply it's fairly low down the list of <unk>.
Options for capital raises out in 'twenty 3.
And then secondly.
More of a housekeeping question when I look at the deck here.
Have the.
And I might have missed this in your prepared remarks, but the growth customer value per cap growth.
Total customer value.
And contracted customer value per customer.
Down quite a bit from.
Q wanted to Q2 reported numbers is that a mix issue is that Sun Street, what what sort of happening with that number and how should we think about it for future quarters here, we haven't seen it down that you know $21.25000 per customer for for awhile here.
Yeah. So I think it on a per customer base, what you're really saying there is his son Street and it's really true to effects..1 we picked up about 34000 customers that we don't have in 2 C. V. On we have it they're pretty much zero cash in and out.
Right now because.
Because we will pay the servicing fee and then the service to customers. So we have the service obligation, it's fully covered but they but there's not additional revenue attach with them. So that's really what you're seeing there is that is that denominator.
Creating that issue.
And going back to your first question on the corporate capital I.
It's it's an option it is not it wouldn't be an option to day stock prices certainly and there's so many other things we can do on that gap.
That we went over in the call and and and again happy to reiterate them, but.
More corporate that we actually had the opportunity to go a little bit deeper on the investment grade tranche on our Securitisations and of course asset sales.
We look at that as you know if the doctor quack and feed them I mean, the market right now screaming on asset valuations.
And with the equity down below.
Where we believe the true value is.
We would certainly go to assets before we go to equity, especially given the opportunities we're seeing out there in this market that again key to that is service retain.
We want to continue to have the customer the contract service in that relationship and that's always been key to our growth in the past and it certainly has been paying dividends in the last several quarters.
And Brian just John Glen.
Glen Force a rub that is often times in this sector every once in a while ago he'll get uhm worthy asset values disconnect completely from the corporate equity values and here we are again.
As witnessed by her a b S.
You know offerings, which we did 2 of them more and listen PPA and 1 lone as you know get really recently and then looking at there you know the corporate equity price and it's not just us, but obviously there appears as well and there is a divorce from those valuations and it's pretty extreme at this point and.
Time so.
<unk> South of 60, a share certainly looks very very compelling costs relative to the asset values at this point in time and so we have no intention of issuing the equity we.
We don't need it anytime soon and and frankly at this point in time, we wouldn't do it made a number of options, including solving some of the assets off at some of these prices were exploring that and that may be something that we go ahead and start putting in place that gives us another avenue of liquidity and it gives us another option. If you will on the corporate capital side of things.
So.
I think it's this is what we're doing with the corporate debt side or Rob's doing is giving us the most amount of flexibility and financing saw that anybody has in our space and it's.
It gives us a lot of optionality away from doing anything on the corporate equity side.
Hi, guys I appreciate it thank you.
Your next question comes from the line of Mark Strauss with J P. Morgan.
Good morning, Thank you very much for taking our questions just a follow up to Brian's question on the on the targets for next year. So you took up the the growth targets, but you left EBITDA growth on.
Changed is that just a mix of of loans. That's not obviously included in a metric and that's why it's not going up or is there something else there.
M R. John Yeah, it could be room were saying loans push toward to 60% level and we think the market is actually probably closer to 80 at this point in time, the best estimate of ours, but you know continues to move in that direction.
And so we wanted to have a few more weeks months of of Ganker them. If you will before we formally give me all our 2022 guidance and like I said it. It was also some degree of conservatism as well so we thought that given the growth rate, obviously, it's significantly above.
The customer growth rate.
And that's the way so comfortable about creating value on a per customer basis of adjusted EBITDA plus or a principal in the interest of 80% from now through 2025 on a per customer basis. So it is likely that that will that will move up at least for certain on maybe adjusted EBITDA Force P&I, but we wanted to.
You know make make that formal call on the on the next door and his call for next year.
Okay makes sense [laughter] and then he outside.
Mr. Straw this line has disconnected.
Your next question comes from the line of Philippine but the wrath of cats no partner.
Hi, everyone. Thanks for taking my questions.
With the recent securitizations, including the first refinancing I'm sure those assets behind you can you talk about what's next in terms of Green bond.
Yeah, Bill Thanks for asking.
Bottom line here were locked and loaded random blocks from you take take your analogy that you want we would suggest it folks keep checking our I R page hitting refresh.
Make sure you're signed up for an investor emerged follow us on Twitter or whatever it is 4 yard line.
[laughter].
You, probably remember before we get into the green, but we needed to complete a few other steps in advance right.
So the convertible debt that was setting us up giving us the room ready to be able to move we had the launch the green financing framework I get get that taken care of to your point refinancing 2017 Dash 1 we close on 2 securitisations both of which for.
Went the the high yield tranches of our securitization order to open up the cash flow and and allow us to move it up to the equity.
We said we do on all these things we've delivered clearly you know today we.
From out with with the earnings which is you know you want to make sure that you can come out clean now look.
I went over just ahead of time the lawyers have told me in no uncertain terms that I need to emphasize that this is no formal announcement of of an offering but I think with the filing of our of this Q.
You should expect to see it from the market very soon.
Great antibiotics, but you don't have.
Got it from.
I said, that's all they will allow me to say.
Got it Okay, and Uhm you talked about.
And your your a B S.
Spreads well.
Given recent 2 transactions are spread to come down nicely I think the most recent loan atheist was 100 basis points spread over base rates and heading.
Heading into 2021.
You know we check in with some Navy S investors and they share with us that spreads over time could get to as low as 80 basis points.
What do you see in the next 6 to 12 months, how how much longer can the spreads over day started to care for your your refund on assets. Thanks.
Yeah, I mean, we've certainly seen them come in we believe that day can continue to come in 1 of the great things about it is that I would say 2 and a half or it's not true and I went and a half years ago. When I was at maybe ask conference I was told that we were the most disconnected asset class day.
There was so much value still to be had a day to your point, Virginia to to that point, where we are getting back a lot closer what true value is I don't want to prognosticate as far as where those spreads to go. We do think of course, there is room for them to come back in especially given the incredibly strong performance that we've had.
You know I I would I would love to see them come in more we are not doing or planning based on them coming in more but when you see if it gets interest rates and the base rates continue to be flat or continuing to rise that's actually gonna give us a little bit more room to squeeze those margins too.
So we're going to continue to follow that I think it's a very virtuous cycle, either we'll see interest rates go down and we may not get spread compression, but we will get the absolute base rate compression or you'll see the base rates I'd be flattered go up and then there's more opportunity for us to have spread compression there.
And Rob I think that build on that we've got roughly about 4 securitisations that we could refinances. We did back in June on that first 1 which is the industry's obviously the industry's first refinancing the securitization and that's probably got somewhere between 200.275 basis points today of spread.
That we could bring in on the <unk> on those securitization now those will happen over the next 3 years or so.
It makes sense from the market side of things versus and your medical payments et cetera, but it's quite why why does come in quite a lot and I think we're in Ah.
We're obviously in a great position to take our previous securitization and pick up pretty significant cash flow and value on those assets because we kept.
Great. Thanks, 1 last 1 here in terms of unit Economics, you know we were seeing that improve and then John you talked about how you think the market could be 80 per cent alone versus lease at 20 per cent and maybe you're at 60 per cent can you talk a little bit the echo.
Omics for you the unit economics.
For loans and specifically you know where you were seeing prepayment levels. You know how are you seeing that trend come down for example are are you at now.
Yeah. So is that coming lowers you could you see the prepayment levels, extending and and from a unit basis. You know you have that spread from the whole company, but if you were to look at it from you know from alone for some <unk> perspective.
How much does that change.
Yeah. That's a great question no. We're seeing really good returns on the loans as well and just remind everybody. We do puts our service to their customer plus grade services and are alone So where again finance agnostic I think we've done a very good job of.
Effectively.
Putting on parity rawnsley ppas, what's ever truly best for the customers, what we do and we keep our service you know consistent and the same all the way through grade services. So that's made as to where we were ignostic about it but we are seeing prepayment rates continue to go up further than we thought.
And plan that that is giving us even further cash flow that was apart of some of the cash flow is that robs book around his prepared remarks, increasing far more than we had planned it and got it too and we continue to see that increasing as we move forward in time, we also have a few.
You know things that we're putting in place programs are putting in place that further augment that pay down if you will so we do expect quite a bit of a rapid pay down on.
On the on the desk, particularly I'm alone side as we move forward in finding we have been saying that so far this year.
Cause thanks, guys.
Your next question comes from the line I've been Callow with bird.
A good boy and thanks for taking my questions..3 first could you could you give us an update on that Iraq.
Right from the Burger about offering jog, but I'll, just the partnership and pen Pals progressed.
Yeah I've been.
It continues to be.
Fairly fairly strong we were gonna find you know we're we're obviously if you look at our dealer growth.
It was well ahead of what we expected I think you know when you look out at a thousand dealers you know at the end of next year in our forecast we gave last quarter.
We're clearly pretty far ahead of that pace and so part of that is working with folks like you know Aaron and his team over a <unk> to find the right dealers and and really get the you know the products moving and so we've had some success there I I expect a lot more success from the back after this year in the next year.
And particularly as the number of products is not late the errand to to go through and I knew he went through it and I just called yesterday that they were launching out with the coming you know call. It.
Ah several quarters so.
Those I think we can always do we wanted to do more and more business with them and they have great products that are great company well running things.
Things are things are pretty well done a fantastic job Clinton.
My next question to go along those lines about the dealer growth.
How do you recruit them.
Sorry about this as a as an average but a victory a big saved me a Lady doubtless National Championship rings, but like how do you get the the dealers versus your competitors.
That yeah that hurt [laughter]. This.
This wait until this year right, we'll see what happens with Ada football.
Yeah.
I think that what we're seeing is it continued trend to the.
The strategy of the company is is working and you can see others moving at adopting that strategy, particularly over the last several months of this year and you know what when you can come in and get a really you know we just wanted to another improvement pretty dramatic premature quote tool for instance, and they're commissioning at.
We launched out a couple of months ago from her.
Constantly equivalent of software applications and pieces and services that we're offering you can always do more and we're we're intent on on really focusing on the service side and pushing and making sure. We're getting the right services to the dealers and then also really just you know service is the crucial Differentiators I said my remarks to customers and we see that being.
Something that we can clearly outpace really anybody in the field and really focused on the service to the customer and that matters to the dealers as well because of referrals et cetera, and so once we've got all the products. They want through any financing plugged into the platform will totally focused on them. We don't have we're not trying to take their deals.
And so forth with our own on and originators installers. So there's no channel conflict and we are.
Adding more and more tools to improve customer service to increase referrals and then on top of that as I mentioned again in my prepared remarks, we have a 350 per cent year over year increase in leads to our dealers as well we want to continue to push that so continue to push the branding.
Overall, all this basket if you will.
The efforts and capabilities is really getting a lot of traction out there in the marketplace for dealers. We don't pay up we're just we're not gonna do that I know others will but others have but we're not gonna do that but outside that we really believes strongly that will clearly providing the best value for the.
<unk>, we're really focused on the long term of growing our businesses over the long term.
Great and then just turned new liquidity slides too.
2 questions or so but actually for a lot of questions. The the first 1 dog just going back to the you know the the way that you can access capital you talked about Sars system and get it but.
But 1 of the things that we've always talked about.
You guys both jumped sizes.
Current cash flow and does it that way.
You have to ask a sale versus.
And being that returned cash flow.
Yeah, I mean I take it what we would work at is.
What is going to have the best total equity return for for the Investor and so when we've gone through this process.
We assume that there that there obviously it could be more opportunity day. If there is an asset sales where you get proceeds from an asset sale, we'd probably consider that will can share that got at the bottom. It's like it's not recurring cash tried if you sell and assets. Yes. It's cash it is not recurring cat say it is a 1 time cash Bennett.
<unk> for that specific transaction. So that's why we're that's Robert throwing it down at the bottom and not considering it as a part of R. O T S.
Got it and then finally.
Making this investment new system of $3 billion per 23, I think that's implying guidance tell me if I'm wrong. If I just stay in twenty-five does our system. Some people get batteries that day. So I can do the math, that's 100000 system surplus.
23.
I I I take it you're Directionally correct, you know, obviously I take it.
The 2 factors are going in there is 1 that you're going to have more than might be bigger tickets.
From a lot of investors B add more and more battery EBIT and homebuilder, where we expect a smaller ticket we're starting to see a lot more interest in demand to be adding things like battery storage and then of course, obviously make an attempt to enter microgrids as well.
Around that time frame.
But you know it.
At the same time, you know I I don't Wanna get over my skis and tried to do it a specific number of customer ads on on guidance.
For that and I think I think that's.
And there have been wanting to wanting to increase could I think day.
If your point is yeah, it looks a little conservative yeah, maybe it could be conservative certainly there when you think about the growth opportunities in front of us, especially as you know, we're well on our way to that target of having a thousand dealers in Serbia is by the end of 22.
Great. Thank you guys.
Your next question comes from the line of my heat manually with credit Suisse.
Hey, you're good money, thanks for taking my questions.
1 question, John just from the high levels for the 2020.
100 injuries do guidance are you seeing any impact from labor shortages, either impacting some of those demand coming in on the.
I don't know.
This project.
Hi, <unk> no I mean, we're we're clearly seeing the unit economics move and.
Stayed ah very strong Ah.
And our cost of capital has dropped further than and faster than we thought it would.
And at the same time or another returns so their cash on cash from our our customers have stayed much stronger.
You know does that trend going to continue so far it is but.
You know, it's it's maintained and a lot of strength.
Sure because of our model our dealers are the ones that manage the labor expenses and therefore, you know some some of their margins may come in a little bit at least on a temporary basis that also is the true the case with equipment. So with modules go up a little bit which they have.
They they.
Manage that if you will so all in all we have not seen any sort of the true labor.
Cost issue really impact us materially and don't expect it to.
Got it got it and then maybe just like 1 small housekeeping so the cash saved aside from 6.9 million.
That'd be ascertain but you're referring to in the receive side or or does that some stranger littered because that might be some cash sales on Sun Street, just wanted to understand that and what's the margin or even talk contribution from that cash now.
Yeah, No I great. Great question. So that is actually when we had the homebuilders and there's some definitely accounting nuances.
New line items here, so I don't Wanna get too deep into the wheat, but on the homebuilders section.
We account board slightly differently, because we're building from that we don't know up until the point of the home sales if the customer's going to enter into the P. P. A which is what the majority vast majority of customers do or if they want to purchase a system out right and just roll it into their mortgage. So what you are saying there is a significant portion.
1 of them I R.
Or actually purchasing the system outright we're already a day for your mortgage we're still providing service to them, but it's it's just been going in and out from an accounting standpoint, it started out selling the assets, but it is being customer purchasing the assets just think of it like your purchase any assets paying off from 1 immediately as how we're.
Doing it internally, but it's still gets accounted for as a as a sale of runs through wrench into P&L as far as the exact a way that it is being accounted for I would tell you that you know we waterfalls served notice yes, we had a beat on the revenue and then our operating expenses were also a little.
Higher in general and the vast majority of that of that D. A relative to where analysts said and had this before was attributable to those cash sales.
So I know the tanks on a clarification, maybe it's the same 1 last time to have a cushion from me. So don't you spoke about more.
Finding according to our services and you tend to the service offering. So maybe if you can expand what that solution could looks like for dinner. Then as you expand these offerings does it move so no towards a kind of a branded marketplace, which connect discuss some of them he doesn't from.
Lack of a better word kinda figured expedia of soda.
Yeah. Thank you Ah no I I don't think I would characterize it that way I characterize it as you know there are equipment manufacturers and their service providers and then of course, then you know there are highly value dealers that do the work in the field origination in installation art.
Our employees as we've laid out are the ones that do the service.
Whether that's you know taking calls in in solving customers problems wherever those problems may day.
Or rolling a truck and into the home and and making sure. It gets fixed, particularly when we've had some events. Even this over the last few months, where there's been events, where we had to make sure that the batteries were all online and things have worked very very well by the way, but we do need a royal trucks there.
On a moment's notice to make sure of anything goes wrong is taken care of so this is really the point is is that we're we're a wireless power company or service provider.
And been saying that since I founded the company is that is what with the the industry needs is to have a service provider a truly somebody to integrate all the pieces of equipment, regardless of manufacturer, which were seen an exponential rise.
And the number and the pieces of equipment, specifically instead of just going solar only with him and Burger you've got now DSS, you're getting load managers out there generators EV charging.
Maiden fuel cells were being as we're involved in that as well, but there's a number of things that you can stay focused on the power side and bring it all of that and okay integration of those pieces of hardware together through an app of apps. If you will some day.
Customer as a single portal to go to us for service and someone for service 1.1 person or 1 throat to choke if you will.
Versus trying to track her body down that's the purpose of this company is to provide service excellent service to the customer and that's materially different than any sort of Expedia I don't think that model works from the space and and never has and I don't think I ever will but a large scale service provider.
As as we are in our competitors.
Is definitely necessary and frankly, a lot you know, there's a lot of value their owning that customer.
And making sure that customers taken care of for years to come.
Right now it's not necessarily helpful. Thanks, a lot for your questions.
Thank you. Our next question comes from the line of Sophie card with Keybanc.
Hi, Good morning. Thank you for taking my question and not congrats on a great corner.
Okay. So.
I wanted to ask on a high level of a question and that's something you guys just alluded to in answering the question, maybe a little bit, but I'm trying to speak and it seems that more and more companies in the space getting not staying in Nataline, if you will and just trying to.
<unk> products that historically has not been within their.
Core competency EM, [noise], and Amos and presuming that some of them I guess suppliers as well so at what point does it kind of collaborate information should become competitive and how do you see the competitive landscape involving an effect in your position in economics kind of moving forward given this dynamic.
Yes that is a is a good question.
That can happen instead of focusing on a business day, we've seen that before and it's been a really an infliction of this industry historically.
There's so much exciting things to do right and certainly that now more true than ever and so we have a lot of folks that are.
Out there looking for other things to get involved with plus there's been an immense amount of capital that's moved into the space or the last year and a half or so and so.
So what I would say is is that you know those those you know we're gonna stick to our knitting, where a service provider.
With.
<unk> founded the company on that business model, we're gonna state, we're gonna stick with it.
There are some overlap <unk>, yeah, we see with some of the equipment providers in some of the pieces of like an app or a software peace or something like that but we've been able so far to be able to work that out and and there are a lot of options.
Options out there on the equipment side of things, whether whatever that that piece of equipment may day, and maybe in the future and so you know so far we've been very fortunate.
To continue to have rate you know strong relationships with the all of our equipment suppliers and we can expect that to continue.
But yeah. There is every once in a little bit of an overlap, but we're gonna stick to her knitting, we're not going to get into the equipment manufacturing business I know that there's something that oftentimes comes up to be up there, we're not going to do that we're gonna stick to being a service provider and taken care of the customer and that is definitely something that needs to be done and I would all.
So remind again I said this in my prepared remarks.
Nobody else has a contract with a customer except us.
Okay. We on the customer is very clear, it's in black and white and when we are looking to upsell the customer battery or load manager or anything else and take care of the customer. It's our employees are rolling the trucks and getting the customer taken care of so at the end of the day, There's no question who owns it.
Yeah.
I think and it's a lot but for me on owning the customer right as you see potentially share of long customize increasing.
I don't know alone customer versus the P. T. A at least customer kind of lessons that bond in any way or.
You know or if it doesn't diminish your ability to include those customary swollen customers into a D. R offerings.
It is a great question again, what I would say is that going back to the previous.
Is.
That we get what we have done is we've put on a level playing field lonely speed the day.
So we don't care it does not diminish our relationship with the customer does not diminish our obligations either in service to the customer grade services. So that's something I think the entire industry is gonna trend towards fairly quickly, where we're seeing hearing that out there.
I think that at the end of the day truly giving the customer the option of whether they want to take the tax credit themselves under a lone construct 4 patties monetize it because they cannot under at least in P. P. E. I think is is is the right direction of the industry in terms of getting the customer the true true choice of what they want to do from there on.
Our relationship with service Ingrid services were agnostic. So we truly are agnostic as far as whether a customer wants to choose alone or or at least or a P. P E.
Terrific. Thank you until I had.
Thank you.
Your next question comes from 9 at Hotmail market now with Raymond James.
[noise], taking a question.
If we think about kind of a long term adoption curve of rooftop solar in the U S.
Part of the story expansion beyond the coastal market the high power price market.
In your kind of postal in our model or you know the C E.
Mainstreaming of demand in.
Outside the traditional coastal market Tonight, you know include Puerto Rico and that.
Mhm.
Yes, we are you can probably see it relaunching new states may have more to go and a and a balance of this year.
We're seeing in it and I made a comment about this from last earnings call. You know I was actually surprised.
That we're seeing such strong interest from consumers and the interior part of United States.
Which traditionally has you know has.
Relatively low power rates as opposed to the coast coastal.
States and not and not necessarily exposed to at least like hurricanes and some other.
Whether it induced a dance fires, unfortunately or something that's in nature, particularly the western states.
As we've seen with Arizona, Colorado, and others, but you know.
We are seeing pretty strong pickup and I do I do anticipate that will be yeah, probably pretty close if not it's not there in all 50 by next year.
And we certainly are looking towards the international expansion as well, but.
We are definitely seeing a broadening of of of interest from consumers and solar the other thing that surprised me.
George too.
So we're seeing that across from the interior.
States as well so it's a it's a very compelling as far as growth prospects on a 4 basis.
For the industry.
Yeah.
Follow up with kind of classic washing type question.
In the bipartisan infrastructure and all that went.
Went through the center.
I'm an early yesterday there is no.
Extension of any.
Any tax credits.
It included what's your expectations for the.
The prospect of another ITC extension in some other package.
Maybe between now and the end of the year.
I think it's pretty close to 100 per cent, we didn't expect that to be and that bill and.
We expected that if it is a true bipartisan, which it looks like it's going to do which is is a.
A citizen of the country I'm very pleased to see that we can find some way to at least get some of the folks to get on board and duty American People's work that we were not going to be included in that.
Mainly because you can be included in the in the tax extenders or budget or something of that nature, that's gonna come.
Later this year, whether that's you know in.
September timeframe and instead of a continuing resolution or that's in the December timeframe, we rather suspect it'll be in December just because that's been the trend of the last.
Several years right and so that's our current that's been our expectation that remains our current expectation, but there's no higher priority.
Then as the administration's laid out on the climate change.
It changes obviously, the top priority for them, but but also when the climate change there's no highest priority than the extension. The ITC. So we feel extremely comfortable with that and it would love to just get it done and move on right, but you know I think that.
It'll get done by the end of the year and.
For us obviously as an industry doesn't matter whether it gets done this month or December.
Right.
Right.
Thanks.
We have time for 1 more question.
Our final question comes from the lineup Shaun Morgan with Evercore.
Thanks, guys for taking my question.
So in terms of the business net mix I assume most of the other the the increase in other categories is attributed to some street in earlier you talked about not.
Not always knowing whether.
Whether the customer can elect for a cash lawler, a cash purchase or a P. P. A so.
Some of that 30000, plus new customers and some of the unsold Halloween.
Inventory is that all fully sold and you're just not getting it versus long recent P. C. A and and just how does that next shift work going forward.
Yeah. So I don't know that we would consider to be.
Not a customer clearly, but 34000 give or take those are he acquired from customers.
The others are the customers that we sell surf while my contract through which day are a fairly significant for free to do as you can see and then there are some of the cash per cent.
Well that don't fit neatly into the other 3 buckets.
Okay.
Yeah.
I'll just follow up later with my other questions. So thanks a lot.
Okay, great. Thank you.
There are no additional questions at this time I'll turn the call back over to you and Mister John Burger for closing remarks.
Thank you ever.
Thank you all for joining us for our queue to 20th 1 call very pleased that the company has continued to execute.
We have a.
Experienced strong margin strolling cats play from growth and we continue to see that in a forward basis.
We've endeavored to lay out in great detail than a 4 basis.
All of our cash.
Cash flow of expectation the company is in a.
Very in illegal spot in the industry and from.
Absolutely the the equity and we continue to see a lot of strength in our business model and look forward to having.
8 the operating our customers better service more services and.
Or anything or cash flow to the equity reported seeing you on the feel free call. Thank you.
Ladies and gentlemen, this does conclude today's conference you may now disconnect everyone have a great day.