Q2 2021 Sunrun Inc Earnings Call

[music].

Greetings and welcome to the Sunrun second quarter 2021earnings 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. Please note. This conference is being recorded I will now turn the call over to your host Patrick Jobin. Please go ahead.

Ed.

Thank you Stacy before we begin please note that certain remarks, we will make on this 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 to differ from projections.

Power for over 10 years makes her and ideal leader for settlements next chapter of growth as we help this country build a reliable and clean grid with electrified and networked households.

In addition, Mary has a deep understanding of Sunrun people business and strategy, having served as a member of our board for the last 3 years.

I've gotten to know Mary well and it was a driving force to recur recruit hurt et cetera, and I can personally attached to our passion for people the planet and for the company's success and with that I'll hand, it over to marry and to introduce yourself Mary No. Thank you Lynn is such a pleasure to have the opportunity to speak with all of you today and share why I am so.

Excited to lead this company I've been and the energy industry for over 2 decades, and I know the landscape well Sunrun has always stood out as an innovator in the future of day electric grid, it's clear the team cares deeply about transforming the lives of customers by providing a more resilient and affordable energy experience my appreciation for Sunrun.

Cream of recurring cash flows we are increasing our full year growth guidance to 30% year over year.

More importantly, during the quarter the dire need for our service offering has been made even more apparent.

Extreme weather caused by climate change has resulted in record setting wildfire season, and more power outages accelerating cost of utility power and increased pollution.

The need to address the climate crisis continues to Mount and Sunrun is positioned to help transition our country away from carbon emitting fuels to power homes and cars and reduce the need for expensive and vulnerable centralized infrastructure.

We ended Q2 with nearly 600000 customers, reflecting 19% year over year growth.

Our installation volumes included records and our new homes business, our channel partner business and our direct business we.

We also set records again with the highest battery installations more than doubling year over year and the second quarter.

We continue to advance our lead on batteries and virtual power plants to bring clean and resilient energy into more communities.

More than 23000 and families are benefiting from our solar and battery systems to power through blackouts.

On a daily basis, these batteries optimize when Paris purchase or supply to the grid, helping manage energy constraints during peak times.

Battery attachment rates increased again from last quarter and are at record levels across the business.

We network these batteries together to form virtual power plants, providing incremental recurring revenue and offering and enhanced customer value proposition.

This further differentiates sunrun from companies that lack the scale network density and technical capabilities to serve this market.

We continue to expect more than 100% growth and battery installations. This year, even as we work through the supply constraints.

And as more manufacturers expand battery offerings, we do expect cost to improve further, allowing us to meet pent up demand and accelerate adoption even faster.

Sunrun is actively exploring ways to help consumers and the grid manage the transition to electric vehicles, we know the country and let's make the switch to evs to further reduce carbon and we believe sunrun will be a key enabler of this transition.

Homes with Evs consume approximately double the amount of electricity home solar and batteries are needed to meet this increased strength on the electric system and Sunrun is a leading provider of these services given our expertise in managing and installing at home energy infrastructure and our national footprint.

Electric vehicles create positive flywheel effects.

<unk> need larger solar systems to support the increased electricity consumption. These large systems come at high incremental margin since the cost to increase the size is relatively low.

And evs can be integrated into a comprehensive home energy management system to maximize the economic benefits and resiliency for families.

These compounding benefits will accelerate the transition to a distributed grid with home solar batteries and evs, even faster than most realize.

To this and in May we announced the partnership with Ford to be the preferred installer for Ford's charge station pro and intelligent backup power system.

This debuts with the all electric F 150 lightning.

Part of my life.

Over to you at.

Thanks Lynn.

First and I wanted to share my excitement that Mary is joining us fulltime.

Her passion for our customers.

Her intuition for people matters and.

And our focus on operational efficiency need her a driving force for years on our board of directors and.

Can't wait for someone to get all of our time going forward Lynn.

Lynn and I have been a team for 14 years and I'm pleased she is going to be joining me as co executive chair, where her contributions to Sunrun will continue I know I was invigorated by the opportunities provided by my transition from CEO to executive Chairman <unk>.

Completed about 7 years ago, now and and I'm sure Lynn will feel similarly.

Now moving into the details.

Turning to slide 8.

We've concluded our capital structure reveal.

We've decided principally to pursue a strategy that will drive near term cash generation using non recourse debt.

Under the strategy, we expect to achieve cash proceeds equal to 95% to 100 per cent of contracted subscriber value measured at a 5% discount rate.

Or about 30000 and.

$31500 per subscriber based on queue to subscriber values.

Because of this strategy employers that that we can ultimately call and refinance will be maintaining full ability to upsell additional products and retaining refinancing upside for our common shareholders.

Upfront cash proceeds of 95 to 100 per cent of contracted subscriber value as well in excess and there are fully bird and costs and so we do not need to execute equity or equity linked financings to fund our strong ongoing growth.

While our capital costs and steadily falling since inception, and the last year, we've seen and acceleration and these improvements which had been most pronounced and our nonrecourse subordinated debt costs.

Today. This market is pricing 175 to 350 basis points below where we've placed comparable loans over the last several years.

We largely credit or continued asset performance scale and consistently strong collection, including through Covid and the 2090 financial crisis.

With discontinued capital cost decline.

Well, our large scale afford this access to the lowest cost capital and the industry. The same large ticket sizes that afford us. This advantage also make our free cash flow generation a little lumpy.

We have developed a backlog of transactions to close and we expect to be busy clearing this transaction for the balance of the year and into 2022.

Over the near term cash flow generation may also be non linear due to investments and working capital.

However, under this financing strategy over several quarters, and especially next year the cash flow generation of the business should be substantial.

We may also selectively employ structures that grow our recurring cash flows from our asset base, while pursuing this strategy of generating upfront cash.

Normalized for increases and working capital, we expect to see steady quarterly gains and net earning assets.

As we head into next year will update the market on our cash flow target and capital allocation strategy to maximize shareholder returns.

We continue to maintain a robust project finance runway as of August 5th closed transaction and executed term sheets provide us expected tax equity and project that capacity to fund over 430 megawatts for subscribers beyond what was deployed through the second quarter.

And with that I'll turn the call over to them.

Thanks, Ed the strong momentum and we saw and the first quarter has continued further into 2021, our team again and delivered and exceptional quarter with strong year over year and sequential volume growth. We're proud of what the team accomplished, especially as we meet the significant ongoing demands of integrating vivants solar into our operations and as we navigate our dynamics supply chain environment.

Turning first of all items and the second quarter customer additions, where approximately 26100, including and approximately 21900 subscriber additions so.

Solar energy capacity installed was 186 megawatts and the second quarter of 2021, and 11 per cent increase from the first quarter of this year and a 53% increase from the second quarter of last year pro forma to include driven solar.

Our network solar energy capacity was 4.2 Gigawatts at the end of Q2 and increase of 19% compared to the prior year.

We ended Q2 with approximately 600000 customers and nearly 521000 subscribers are subscribers generate significant recurring revenue with most under 20 or 25 year contracts for the clean energy we provide.

At the end of Q to our annual recurring revenue or <unk> stood at $747 million with an average contract life remaining and 17 years, representing well over $10 billion and revenue visibility just from existing customers.

And Q2 subscriber value was approximately 34000 and $500 and creation cost was approximately $28900 delivering a net subscriber value of approximately 5000 and $600 pro forma for growth timing effects on cost recognition and it would be approximately $8000.

Total value generated which is the net subscriber value multiplied by the number of subscriber additions and the period was $122 million and the second quarter.

On a pro forma basis for the adjustment related to accelerating growth total value generated would be approximately $176 million.

As we noted and our outlook during last quarter's call net subscriber margins, where sequentially lower and Q2, oh into our accelerating growth trends and synergy realisation timing, while our subscriber values were down slightly quarter over quarter due to changes and ITC mix and our G&A and platform services saw solid sequential improvements the accelerating growth and our business creates and near term drag.

Installed growth to be 30 per cent for the full year and increase from the prior guidance range of 25 to 30 per cent.

Total value generated is now expected to be and a range of 700 and $750 million for the full year, which has been revised to include the effects of accelerating growth and to a lesser extent the dynamics supply chain environment.

This range includes the drag highlighted earlier and does not reflect the pro forma adjustment of $54 million for Q2.2021.

We forecast net subscriber values will be significantly higher and the second half of the year, then Q too as the gap between sales activities and installation activities normalizes and as we realize more synergies from the Vin solar acquisition.

We continue to estimate cost synergies derived from the acquisition of and solar to be approximately $120 million and run right synergies exited and this year.

While we are still very focused on the integration and the near term, we expect to see strong sequential quarterly growth and solar energy capacity installed and Q3 with growth of approximately 15% sequentially from cute too.

The mandate for a modern energy infrastructure with consumers at the center continues to grow and we believe our products and capabilities have positioned us well to respond to the opportunity and the quarters and years ahead and.

And with that let's open the line for questions. Please.

Thank you and we will now be conducting a question and answer session. If you would like to ask a question. Please press star 1 and your telephone keypad, a confirmation telling and will indicate your line is and the question can you give.

And you May Crestar too if you would like to drink will be a question from the queue for participants using speaker resubmit and may be necessary to pick up your handset before pressing the star keys.

Your first question comes from Steven Bird with Morgan Stanley.

Hi, good afternoon, congratulations on the management changes.

Thank you.

You have a defense yet somewhat like the television.

These changes.

And learn more looking forward to work with you and your new role but.

And I wanted to talk about the timing and.

That sort of growth adjustment.

Sure, making and.

And if you continue to grow and get larger how should we think about the.

What that number may look like conceptually I've been trying to kind of think about how that will look given that you have a incredibly high growth rate.

Might that sort of trend over time.

Yeah. So the the effective growth on margins and this quarter, we viewed as largely 1 time here, we expect some level of this as.

As we continue to grow and take several quarters for this to reverse out, but and any period, where our sales growth and installation growth diverged as much as we saw this quarter, there's going to be more of a misalignment between costs and volumes and period.

Obviously.

We're still at a 700 and $750 million range and total value generated for the full year, which at the 30 per cent growth right now shows strong unit margins and the second half and and exit and the ear in particular is synergies are realized fully.

Understood and you gave a lot of American.

They're good commentary on your financing outlook and it looks like the the debt markets are very very receptive.

To your asset class to be to value or creating could you just maybe talk a little bit more about.

What that opportunity might mean in terms of just some of your legacy that that is more expense that you kind of talked about that the magnitude of the the differential between some of your older cat and and where the market and today could you just talk a little bit more about what that might mean in terms of financing activity going forward refinancing activity.

It's just how you think about tapping into that over time.

Sure that's and a great question. So definitely you are correct.

Asset performance and collection and data that we've continued to print our capital costs continue to decline.

And so the credit facilities that we would close today against newly placed and service assets.

Are cheaper and higher and advance than those that we historically placed.

It is also the case that a good chunk of our of our debt and we place it and subject to lender call protection for 3.

3 to 5 years, some transactions as much as 5 to 7 or 8 years.

And so we won't be able to recap the entire balance sheet and my 1 fell swoop over the next 12 months, but certainly over the coming years as we begin to refinance our existing transactions. There is a significant unlock available there as the capital becomes less expenses.

That's very clear and then last for me just on and storage.

Obviously, it sounds like customer demand and continues to be strong could you just talk longer term about actual availability of equipment and ability to source the level of storage that.

<unk> and your customers would like to have over time.

Mhm, Yeah and <unk>.

Tailwind and the business for us because I do think that this opportunity will unlock you know.

And over the next over the next year over the next day 18 months and so what you're seeing right now and still phenomenal growth with doubling of the battery and saw but we are even we are that's not with that wholehearted sales and France, and there's still some restraint and.

Here. So we do expect a number of suppliers have be coming in.

Early next year and west much bigger volume.

And then I'll have that will have a 2 full benefit really the first benefit is that obviously and we will be able to just.

Just have that consistent and reliable supply that the market demands, but it's also put pricing pressure still and the battery. So your scene right now we're delivering these strong margin but.

Still that the cost of the of the batteries have not declined and.

The cost of the inputs. So I think you're going to also see that additional benefit that the value proposition is going to get stronger so as we said and the path and in many markets now it is.

The vast vast majority of customers are choosing to add a battery and bay area. It's.

100% and and I think as.

Some of the changes and California around rates and things and it will be even more encouragement for batteries and Texas, we went with the storms and from.

Minority to a majority, adding the battery so I think it could happen quite quickly that the majority of Solaris paired with the batteries and and I believe the supply chain and we'll get there. It will take a few more quarters, but I believe the supply chain and we'll get there.

That's really helpful. Thank you very much.

Thank you.

Next question, Brian Lane with Goldman Sachs.

Hey, everyone and thanks for taking the questions and obviously congratulation Lynn on the transition here and.

It's been great to see you go the company here from the pre IPO day, So kudos to you and the team here.

And then I guess.

First question I had was just kind of a clarification, Tom you mentioned or if I do the math the total value generated for 2021 based on the guidance is going to be 7500.

$8000 per customer up for the year that that would imply it further down take and the second half you said it should be up substantially from the second quarter. So are we talking up from the pro forma levels are are you talking about being above $8000 per subscriber uhm throughout the.

A balance of the second half just want to make sure I have that metric correct.

Yeah. So the the range you got to theirs Directionally right and as you assume something on the system size and at least mix it and they'll get you and and sort of $70.508000 range. We're obviously around 8200 and Q1.

The 5500 dollar level here and Q too and.

This is all on a non pro forma basis, so not at the $8000 level and Q too. So I think the Matthew might be doing there is.

Okay. We had 8200 and Q1.8000, and Q2, therefore would be lower and the second half and.

If you if you use the the non pro forma number and.

For Q2, it'll it'll show a trend and higher sequentially throughout the year.

Okay fair enough so on a reported basis Uhm that's helpful and.

And then I guess, just uhm a follow up to that on some of the cost.

Factors here that you're talking about being pulled forward.

And when I look at the creation costs and the quarter. It seemed like installation, which you you did talk to a bit here the installation costs with a major driver of the cost uptake from 1 Q can you may be break that down a bit more you see higher so plates supply chain call us is it installation labor being more expensive and I know you've talked to.

<unk> also offer I mean, these additional opportunities or some of the things that I'm really excited to be more aggressively helping the company on I just feel that.

Like we said we got to go faster on climate and I think the government is starting to realize that and some of these some of these more aggressive programs, we're putting in place and for those that don't know what James is referring to this is would be rebates for customers to get electric appliances to switchover things like upgrade their electric panel and switch over things like their HVAC and things.

Yes. So if you look at just the additional electricity needs to if you fully confirm convert some of these like key machine.

Machines, and the house, namely the HVAC, which would be the biggest 1.

As well as cooking washer and dryer things like that.

And then youre going to get that incremental system size benefit. So it's not quite as large as the as the EBIT, but just I think you can probably find some external third party research on this but it probably like ticks up the energy usage by the electricity usage by 30 ish additional kind of percent there and I.

I think the more but again the more.

And piece of all of this stuff is I always go back to.

Everybody wants our products.

Save money and they are better and better service. It just why do I do it now it's like there is an urgency issue and I feel like Thats whats starting to really propel. This business is theres now a whole new set of urgency around and I do need that battery for resilience Oh, there is a rebate available here that I can take advantage of for these devices.

And with these EV mandates that are coming out I mean, that's just an incredible unlock for this business as well when you look at the stats that EV owners and 40% of them I think are installing solar right now so.

And I think it's really what's what's changing and the businesses the technology is improving and getting cheaper, but it's this okay. Now is the time to do it.

Urgent C drive that.

I think we will create a lot of value to come.

That's great color.

Bill equipment, both solar and I know you.

And as early champions.

And it's been deployed and some areas or are we out of the development fees and the testing phase and just now.

And I've asked it should get some of the soft call sales system.

It is yes in fact it is.

A live App, and we're and process of adding storage to it as licensing so I think that's the answer.

And the more complete picture here and.

It's we're really encouraged by the department of Energy's focus on this theres money directly to it and California. There is $20 million of funds directed to helping encourage <unk> to switch over to the solar up so.

It does have to be a little bit of.

Bottoms up each day by HCA with a little bit of a top down encouragement and pressure.

So we do believe that it will have a very big impact, but it will there'll be a learning curve and I think it will it's not going to be it's only going to be a single digit percentage of our age shape through the end of this year that will be on the app.

But again I think it's 1 of these things that can really.

Snowball once people get confident that it works and they see their neighboring cities adopting and and there is a financial incentive for them to do it so.

It is 1 of the easiest unlocks for value for this business and our estimates are that it will save between can save multiple thousands of dollars per <unk>.

Per project.

So this again. This is also 1 of the things and I want to work on more and my new capacity is helping helping institute some of these.

Some of these programs.

Alright, Thanks Lynn.

<unk>.

Next question Joseph Osha with JMP Securities.

Hi, there congratulations when its Guggenheim down by the way and now Lynn I know youre really going to Miss doing non deal roadshows with sell side analysts, we'll miss you.

And I always like to IV and with you for sure that was.

And just negotiating point.

Yeah.

Well I'm sure and Mary Mary Mary You don't know what your in force.

And.

Thanks.

Good day.

Thank you duly noted.

Yes.

2 questions just on page 8 looking at this upfront cash utilization, we've seen this dynamic where pre and post flip assets.

And to price pretty different way do you think that is going to continue to be the case that we're going to get kind of year, 1 and then post flip require or does that maybe evolve over time.

Great question, Joe and I think the answer is that that is for now we're going to continue to see.

And that effect play out I think the key.

Difference in the marketplace today between post flip assets and pre flip assets is actually a little bit less.

Related to the fact that their post flip assets and more related to the fact that they've been aged out 5 or 6 years.

The ratings agencies still take these.

Draconian draconian sizing cases, where they assume.

<unk> mass defaults every 5 years people and negotiate renegotiate and your contract and stuff. That's never happened in 2014 years of operating data and so once you've gotten that first 5 year.

Haircuts behind you magically.

And your debt advance rate goes up significantly.

Just because lo and behold the ratings agency stress case didn't materialize.

And so for that reason I think we'll continue to see these post flip transactions.

Where you are effectively substituting subordinated debt for very significantly cheaper senior debt.

Which lowers your capital cost and increases the proceeds from the from the financing.

That makes sense. Thank you.

And then just the second question I mean, there's still a lot of chatter about tax equity investor IRR.

They're kind of in this world and appropriately high and.

And I'm just wondering.

As you look out to your tax equity partners and sort of think about your conversations with them what are your thoughts about.

Your cost of tax equity and how that might evolve.

I think all of the capital we face as an appropriately expenses.

Oh really.

[laughter].

No, but seriously answered your question.

<unk> equity has this unusual dynamic where the tax equity investor really needs to realize a inflationary pretax rate of return.

Fit into the safe harbors.

No.

For the IRS safe harbors and the structure.

And and so there are pre tax returns are commonly and the.

And 1% to 2% range.

Does have the depreciation benefit that can cause the after tax returns to be like 8% to 10%, which does feel extremely high.

But it's really a regulatory construct that drive that and.

The pre tax capital cost still is similarly priced or maybe a little cheaper than senior debt. So as we and our common shareholders experienced and its actually still quite cheap capital.

Okay. Thank you.

Your next question Mark Strauss with J P. Morgan.

Yes, thanks for taking our questions and I'll add my congrats to lynam area as well.

Just in light of President and buttons.

<unk> targets that he laid out yesterday regarding electric vehicles. This decade, you've touched on the partnership with forward can you just remind us is that exclusive to the lightning F 150.

Or are there potential to expand within and forward and.

Can you just talk about any discussions that you might be having with other auto Oems.

To expand this and the future.

Thanks, Yeah, we're pretty excited about that that mandate and the partnership with <unk> and so we asked the current partnership with Ford.

Just with the.

But.

150, lightning, but and you can imagine that you know where we.

The company with a nationwide footprint are able to navigate some of these trickier things around your electric upgrades and operating our electric service when you adopt the car, making that easy for people and also 1 of the things. We're excited about with Ford as we co develop the bidirectional inverter and Thats the piece of that.

Equipment that enables the truck <unk> and the backup power for.

For the house and so Thats also.

A piece that we're pretty excited about our contributions enabled us to be able to provide that service. So.

This will be a segment of ours that we will aggressively pursue.

And Ford is that the.

First.

The first part and we're pretty excited about I think the other thing that we the other thing.

And unlocks and a lot of ways as well as I think it gives you an opportunity and also.

Build out a little more of an e-commerce experience as well because it's going to help also enable.

And theres going to be a buying flow for that person.

And to reserve the car do they want to upgrade the charge or do they want the bidirectional and bread or do they want the solar so that'll be a really strong online experience and I think as we build out those capabilities will be well positioned to be the partner for all of the auto Oems.

Okay, great and I'll take the rest offline. Thank you Lynn.

Next question Moses Sutton with Barclays.

Congrats on the leadership change and thanks for taking my questions.

First on the cash generation the capitalization strategy, it's quite clear.

Sort of back to basics, our ABS issuance is still going to play the leading crucial role or are you looking at other debt strategies to new forms of subordinate debt financing and so on.

Great question I expect we will be a very significant issuer of ABS debt.

And we've always kept our toe and the water and many different markets.

Pricing can change over time.

And there are other markets developing even people who are now interested in Uni tranche and they'll do the senior and subordinated.

<unk> and.

And our blended cost of capital.

So I think it's just the.

And what we're seeing is just a vast deepening of the market kind of from all directions, but yes, I do think we will be a significant ABS issuer as part of that overall strategy.

Got it got it and are we going to start seeing the ABS issuances measured against a 5% calculated a day.

Phoebe.

It's interesting that you're you're saying 95 to 100 per cent of 5% discounted not 6% that seems to be.

And incremental positive how do you get there.

Yes.

As the capital costs gets lower.

And what used to be interest expense becomes principal amortization.

And so the advance rate goes up and people.

Are increasingly more confident as we always have been about the performance of the assets over a long period of time and the collection performance as well.

We obviously don't set the ratings agency cases, you could still benchmark it against the 6%.

Capital cost and you might start seeing things like advance rates over 100.

So its.

Kind of a theoretical construct.

But definitely the capital costs and a weighted average basis.

Our assets, particularly on the contracted side are now well below 5%.

So we continue to think that's the correct correct number.

Alright, that's very helpful and and then shifting to the sales and installation growth timing sort of decoupling.

Can you give an increase in customer install lead times is it is it pushing visibility further out or is that not really the right way to think about it and it is california, proving and outsized role and the growth year or is it more broad based across geographies.

Great question, so sorry.

<unk>.

<unk>.

And California, and then you'll have to remind me of your first question and because it's been a world win of a day, but Pascal and California.

It's not it's pretty broad based so I wouldn't say that there's any specific geo that's driving that what's your first question.

Cycle times, yeah, Okay.

Yeah, Yeah, yeah. So it does give us more visibility certainly and 2 Qs 3 and Q4 and I think we're doing a nice job catching up so you can see that quarter over quarter guidance at 15% quarter over quarter for installs versus 11%. This quarter. So that is accelerating.

We do think that there is still very much and a healthy spot and and.

We'll exit the year and a healthy spot, but it does give us more credibility around that.

Confidence around the back half.

Great Great and last 1 have you started using any other battery vendor other than Tesla and LG or its still not yet.

I think you know.

Those are our primary vendors and we're constantly evaluating new ones and I know you guys all know how to find that data.

[laughter] ultimately will take the rest offline. Thank you.

Next question Julien Smith Bank of America. Please go ahead.

Hey, good afternoon, everyone, congratulations and very excited to work with you and see where you take the business Lynn Likewise excited and.

Finally.

And even too.

And maybe growth here, so all around and I'm not a lot of developments on your side here.

Yes.

Wow.

Congratulations on your engagement Julien.

Go for it.

Thank you.

Oh.

Maybe just to kick it off here, what's your expectation on when and what exactly youre going to provide in terms of the cash flow. Obviously your peer here provided a multiyear view on.

And so called corporate cash what's your sense as far as what you guys would come up with in terms of sort of additional disclosure.

Great Great question.

Julien I think what we're hoping to roll out on this call was the view of the proceeds side. That's the 30 to $31.5000 per unit.

As we turn our contracts out in the financial markets.

We expect we can realize I think.

Over the course of the coming quarters as we start talking about next year will be and a good position to roll out more information about cash flow generation.

And what we'll do with the cash we don't we don't want to steal <unk> Thunder.

So stay tune.

And and hopefully this is a good interim update and we can get more prescriptive on and shortly.

Great.

You may have just box to be out and my next question and part but my point is.

Because if you if you look at what that 95% to 100% does.

Through the course of this model and you've kind of alluded to it I mean, that's a pretty sizable uptick in and available cash if you can lever up at the project level debt expense.

Can you give us any sort of order of magnitude and how to think about it.

The models are pretty clear and what they would deliver and it.

It's pretty sizable and then maybe the point here is.

How do we think about what you're actually going to do with this cash right I mean, let's put repurchases and as such the size I mean strategically and.

This is Lynn very question is like what exactly do you want to do differently and that's a fair question here.

Great questions. So first.

Sure.

Acknowledge your comment which is correct, yes, if you if you compare.

That amount of upfront proceeds to our fully burden cost and it does at our scale.

You do get a quite significant cash flow result, obviously, we do also have working capital investments like the investments and CIP that we made this quarter.

Potentially for the near term over and and fleet in inventory as well and.

And often to achieve these sorts of.

Advance rates, we have to package things up so they might sit on our balance sheet for 9 months. So.

Working through all of that and building the plan for next year and.

Working it through with.

The new and large team.

And we'll be in a better position to provide that.

That additional layer, which is which is a critical layer.

And in the coming quarter or 2.

Got it so if I'm hearing you right. It sounds like it may be somewhat lumpy, but clearly nonetheless, the underlying trend is substantively greater cash flow than previously anticipated at the corporate level.

Well I leave anticipation to you.

But we do think it's significant and we're excited about it.

Got it excellent well best of luck to you all.

Good.

Thanks, Joe and Thanks, Joe and Inc.

Next question Mohit <unk> with credit Suisse.

Hey, good afternoon, and congratulations Lynn and Mary look forward to working with cash.

Thank you.

Maybe just 1 question on the higher costs in Q2, just maybe wondering and sand how much of that is related to in house cost and most of your investments and your channel partners and then maybe a follow up to that just how do we think about the competition for channel partners over here, especially given all the labor shortages.

Seeing out there in the market.

Yeah.

Yes, so on the Q2 margin.

As Lynn noted earlier, we saw.

Our record growth and a lot of parts of our business, we saw great growth and channel and direct and so there is.

There are elements, there and the CIP growth.

And that flow through both of them, obviously, some of the growth and sales and marketing expenses just given the way those are recorded as purely reflective of our direct business.

And all of the channel partner payments show up and installation.

But definitely growth in both I think on the channel partner.

On the channel partner side, I think we believe we're continuing to take share there and as I mentioned record growth I think people see that we're differentiate it around.

Our brand the financial products, we bring people the.

And the sales and platform experienced the operational experience to help take care of the customers and so.

And that business is thriving and growing and we felt very well positioned there.

Got it and then.

Second question here from me and <unk>.

If your opportunity with Florida, and potentially other Oems and new ways also kind of finding another channel partner for you guys, but apart from that like how should we think about.

The immediate revenue opportunity like either selling the EBIT charges, so by deduction and waters.

And it's upfront to these customers.

Yes.

I think we will be.

I think Ford is still working on their specific launch plans and I think well be and touch on that in future quarters, but.

And we.

We expect that it is quite margin accretive, particularly around the solar given that these are larger systems and bigger ticket item.

So we're excited about what that can do to that customer our customer values.

Alright, that's it for me thank you.

Next question, Kathy Harrison with Piper Sandler.

Good afternoon, and thank you for taking my questions and congrats to both Linden and Mary.

So my first my question excuse me is guidance related.

Tom picking or 15% quarter over growth rate into Q3 implies 213 megawatts full year guidance is 30% so that implies call. It $2.17 entering Q4.

Wondering if that's conservatism on your and or if there's another reason why the growth would be flooding into Q4, and then if you could just help us think through about think through the long term implications of all of these of the hirings on though on the growth rate and entering 2022, just relative to the historical 15 medium term.

And 15% medium term growth rate, you've talked about in the past and.

That's it for me thank you.

Yeah. So first we were excited to increase our outlook for the year up to 30% for the full year.

Reflecting the growth we've seen more recently Q3 Q4, often have a level of seasonality and there as we get deeper and the year were dealing with things like weather and sitting crews and having to navigate a few of those.

And so right now the view that we're confident and as the 30% increase.

And numbers you backed into there are spot on.

Aten and Youll see some shift between those quarters I also think the dynamic supply chain environment, and just keeping our eye on that and it's been an area. We've had to manage very closely over the last couple of quarters, 1 and make sure that we continue to have good visibility there and.

And so.

And with the full year outlook I think as we head into next year.

Our goal is going to be to continue to gain share and grow it at above.

Market rates and <unk>.

Our leadership position.

And so as Ed mentioned and.

Subsequent calls will get a little deeper on some of the operational elements of the outlook for that period of time, but we definitely expect to.

Use our brand our technology, our omni channel presence to reach more customers and picture over the medium term.

Okay.

Our next question comes from Tristan Richardson with share list.

Hey, good evening guys.

A quick 1 for me and the new home business and some interesting stats and you talked about an on market share and growth there and just not as that business is seeing a lot more scale for you can you talk about how or if it affects the mix at all either just on the creation and site creation cost side, given perhaps some.

And he's a master planning, but also average system size is different et cetera.

Maybe as that continues to outpace the overall growth of the business.

How it might affect things from a mix perspective.

Yeah, It has grown really nicely and and we've.

Gone from pretty limited share there because we werent focused on net to a pretty significant share very quickly, which I think again underscores that.

And our reputation.

It's still a small enough business and it that it's not going to move the needle on any of the overall numbers I think.

<unk>.

Market size, if that was something around 100 megawatts or some things sort of annually and so again you look at the scale and we're sort of operating and the overall business that even sort of even a healthy market share there isn't going to completely move the needle or make a big difference and sort of the unit level.

So the thing we're really excited about around that mandate is what it does and more of that creates comfort with solar and more normalization that you get a housekeeper solana and <unk>.

And where I think consumers will be very quickly.

So we feel like that the bigger strategic.

Benefit from that mandate versus what it does from a financial performance as part of the overall picture.

No I appreciate it thank you guys very much.

Next question, Colin Rusch with Oppenheimer.

Thanks, So much can you talk a little bit about the progress you've made in terms of upselling and existing customer base and energy storage or EV charging and how that's impacting your overall cycle time with the sales process.

Yes, we really haven't even scratched the surface around that so.

All forward opportunity for us.

Given that supply shortage and and the batteries and the fact that it's much more.

Economical for people to prepare the solar and storage at the same time right now with where that technology is and where the hardware and so we've really been focusing on that market.

And the sort of next cycle of batteries that are coming out will be really.

Attractive for those retrofit opportunities.

And so that'll be another upside.

For us for us going forward.

As of right now.

We have not.

Uh huh.

Had.

Big contributions from sort of upselling or additional sales to people, but I think that will definitely definitely that will definitely come.

Thanks, so much and the.

Follow up is really and it maybe early on this but are there discussions around.

Being able to capture any value for avoided cost and infrastructure or additional capacity that utilities would have to build out our grid operators would have to go out to service. Some of these communities I'm not sure.

It's something you guys can actually monetize all those answers and ancillary services market or directly with customers.

That's a great question I mean, obviously, there's a lot of value add that we can provide there.

And depending on the market and the partner there are different methods to do that.

And different Counterparties, with whom we can do that I think part of what we're.

Hoping to do in the.

Virtual power plant business over the coming years is to really demonstrate that we're just a low cost provider for doing for doing the sort of stuff and that it's a lot cheaper to install storage than it is to underground power lines out to the middle of nowhere.

And ultimately.

This whole exercise of creating a.

A reliable grid is so expensive.

And just bearing inefficient.

Rubber stamping and efficient solutions is just can't be the way forward anymore. So I'm optimistic that it will.

I'll take a little bit of time, but I'm optimistic we'll play a really significant role there.

And I would just offer this is 1 of the reasons why we're so confident Marriott the leader for the next.

Phase of the company I mean, she she pioneered the first virtual power plant and her utility and.

In 2015.

And so she brings real credibility around and and she lowered her <unk> sales for our customers. So she brings real credibility around this is not a rooftop first says and utility scale that says hey, we need way more.

And power on the system and distributed as the fastest and most efficient way to do it so let's take advantage of it.

Great. Thanks, so much guys.

And.

Next question is Philip Shen with Roth capital partners.

Hi, everyone. Thanks for taking my questions.

As it relates to your channel partners and in Q1, you grew them by 20%.

I think Q2, you were up 15% over Q1, what kind of pace do you expect and Q3 and and how long do you think this pace of share gain and with the network partners can continue.

Yes.

We are really pleased with the growth and but we also don't.

Forecast channel by channel I mean, what we really look at is how do we get market share and and geography, and what are the most attractive path to market to reach them as consumers and sometimes that can be direct and sometimes that can be channel.

As I always say not all channel partners are created equal in terms of the.

And the quality of the reputation and so where we are.

And we're.

We're really pleased with the share gains I think we believe we're going to continue to take overall share and I think we are at the most attractive partner for the really high quality channel partners.

Great. Thanks, Lynn and then in terms of your <unk>.

Financing strategy.

Gave us.

And some perspective, there and it seems like you're focused on non recourse debt.

1 of your peers is.

And out there with the green bonds and so I was wondering if you might be able to comment on your views of.

Recourse debt options.

And green bonds, specifically would you ever tap into them and if so.

And what kind of timing could we see.

Good question, Phil I mean every bond we issue as a green bond.

Yes.

Given the nature of our business and.

And I think that's been relatively understood by the financial markets for years.

I think that we.

We're obviously and the business of delivering the lowest overall capital cost that we can for our common shareholders.

And.

Given the work that we did this year we think.

Over the foreseeable future the right way to achieve.

Achieve that goal is through nonrecourse financing.

Yes.

Does that mean that.

We might not might we have a diversity of financing structures and consider other things over time sure.

And.

Might there be benefits to being a rated credit over a period of time, yes.

But I think that.

Our overall general strategy is set and we tend to lean very heavily into that strategy. Once we once we've established as our core strategy.

Great. Okay. Thank you both and pass it on.

Next question Sophie Karp with Keybanc.

And good afternoon, and thank you.

And so.

Congratulations congratulations to Mary and leaned on the transition.

So.

A lot of those and discourse.

Maybe if you could give us.

An update on the great service opportunities in terms of current loans and what you're seeing there and.

And you guys talked about something like 75 million and expect its revenue.

Tinnitus awarded and late stage last time and so.

And number changed and what you've seen any acceleration.

Yes so.

Absolutely I think as we mentioned the 12.

Programs that we've announced.

Cover about 10% of our geographies or kind of a beachhead there, but the pipeline would be more like 50%. So yes, we absolutely.

See continued interest.

These are.

Oftentimes, it's pretty slow moving counterparties as you might imagine and so.

These are some enhancements that will play out over the next couple of years is that we've been in these discussions for the past 2 and 3 years because thats.

Unfortunately, how long would it take which again is why our assets are so important because we're solving the climate crisis right now and quickly.

Also we're also not.

Super aggressive on and media programs again, because of that battery supply and that sort of issue, but I think that will ease and you'll again see this to be a big differentiator for US you will not you will not see revenue line associated with that.

And break out anytime soon and I think.

Again, we said that we believe it will add about $2000 ish and incremental.

Margin to our customers, but it's still at this stage of the maturity of it and sell a vast minority of our projects that.

We will have that.

Got it.

And then what.

And you conceptually.

You clearly moving forward will be very it could be initiatives and charges the purpose or the battery cell and battery.

Solar.

And what makes sense Inc.

Move more towards the ESL space and maybe.

And maybe trying to capture more of the customers' share of customer wallet.

These services.

Yeah.

And that's core to our strategy I think we are the dominate market share.

Leader, and yes, and residential EPS asked and I see no reason, why we wouldn't sustain that position and really accelerate the whole growth of it so.

Absolutely core.

And to us and something we believe will be a competitive advantage.

Any particular product.

And this need to cope with that was mentioned.

Okay.

Yes, we believe that.

We are.

Energy creates and 90% of emissions and 42% of those are in the home and there are some key bank devices and the home that create those carbon emissions the heating.

Heating and ventilation.

And the water heater.

<unk>.

Cooking.

And and others and and so if we're going to add.

As a society, we have to replace those fossil and burning machines with electric.

She is powered by renewable and we absolutely see that its our role and the industry to affect that change and households, and make it easy for people to fully switch it over electric network, those and make them into assets for the grid and thats very much the vision and many of those initiatives are some of the things that get me really excited too far.

All I can help support the company and Mary again, what the early pioneer and that vision.

So I do expect that.

A key part of the company's.

Company's future.

Thank you that's all from me I'll pass along great.

Thank you. We have concluded we have concluded the time for the question and answer session I will now turn the floor over to Lynn for closing remarks.

Well, thanks, everybody and this is my 25th earnings call, it's pretty it's a good 1 to you Tim.

To finish as CEO, but as I said.

I'm not going anywhere and really excited for Murray to lead. This next chapter so.

Stay tuned and we will talk to you guys after the call.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.

Okay.

[music].