Q3 2021 Sunnova Energy International Inc Earnings Call

Call is being recorded.

Alex here, an hour for prepared remarks and question and answer.

At this time, if you would like I would now like to turn the conference over to Brian Mcmahon Vice President of Investor Relations. Please go ahead Sir.

Thank you operator before we begin please note during today's call. We will make forward looking statements that are subject to various risks and uncertainties that are described in our slide presentation earnings press release, and our 2020 Form 10-K. Please see those documents for additional information regarding those factors that may affect these forward looking statements.

Also we will reference certain non-GAAP measures during today's call. Please refer to the appendix of our presentation as well as the earnings press release for the appropriate GAAP to non-GAAP reconciliations and cautionary disclosures on the call today are John Berger, <unk>, Chairman and Chief Executive Officer, and Robert Lane, Executive Vice President and Chief Financial Office.

I will now turn the call over to John.

Good morning, and thank you for joining us today I'm pleased to report another quarter of strong results to reaffirm our 2021 guidance and to officially initiate our 2022 guidance.

Slide three summarizes the growth in synovus customers battery attachment and dealer network.

In the third quarter, we added over 14000 customers doubled the number added in the same quarter last year. This growth is notable not just for its magnitude for the optionality. It creates each new customer Sonoma adds presents the opportunity for additional revenues in the future as we continue to broaden our service offerings.

So nobody's battery attachment rate on origination now stands at 30% up.

<unk> from 19% in the fourth quarter of 2020 and.

Improved equipment availability has contributed to the steady improvement in our battery attachment rate.

We are encouraged by the progress our equipment partners have made in delivering energy storage systems over the past several weeks and months, which has helped to alleviate supply chain constraints.

Great news for the ever increasing number of homeowners seeking reliable power service.

Our growth remains powered by over 700 dealers sub dealers and new homes installers strategically located across the 33 U S States and territories are dealer growth is driven by the strength of <unk> business model are best in class technology platform, and our brands growing ability to deliver strong regeneron.

<unk> to our dealers.

Lastly on this slide we have updated our information on customer contract life and expected cash inflows as of September 32021, the weighted average contract life remaining on our customer's contracts equaled 22, four years and expected cash inflows in the next 12 months is increased to 330 million.

On slide four we provide a summary of our Q3 2021 financial results.

Adjusted EBITDA, the principal and interest we collect on solar loans, adjusted operating cash flow and recurring operating cash flow.

Our financial results have shown strong growth over the past three years and as I will discuss later in the call we expect that trend to continue.

Slide five outlines our unique and unparalleled service commitment to customers.

<unk> first in select key markets.

We've established a go well beyond that of any other residential energy service provider to provide service within 72 hours for our solar only customers and within 24 hours for our solar plus storage customers. This responsiveness when combined with the resilience of our storage product offering amounts to a superior energy experience for customers.

Who are frustrated with the increasing cost and decreasing reliability they experienced with a monopoly power provider. We will accomplish this goal by accelerating the build out of our software platform continuing to build up our highly experienced and professionally managed service team and continuously improve our logistics capabilities.

This unprecedented service commitment will allow us to provide our customers with the power to live life uninterrupted and.

In time it is our goal for the Sonoma name to be synonymous with the best Energy service in the World.

Slide six illustrates our expansive customer centric vision for the future the Sonoma adapt at home.

With the adaptive home our customers will have the option when it comes to staying connected to the centralized grid or not and often many are already seeking in the wake of increased power outages and the rising cost of centralized power. We are working to achieve a service offering above what a traditional utility can provide a service offering to integrate solar power battery storage.

Possible secondary generation electric vehicle charging and energy control and management technologies, which will give consumers unparalleled energy reliability and capabilities for their homes, while further differentiates Nova will be our ability to integrate multiple technologies from multiple manufacturers into a single software.

Service interface, our vision for increased customer touch points and engagement impacts our forward looking outlook, which.

Which is increasingly more constructive on growth.

Slide seven updates expected growth in both net contracted customer value or NCB and services provided on a per customer basis. Currently we provide an average of three five services per customer, which equates to approximately $10000 of NCB generated per customer.

We anticipate both metrics to increase over time as it is only natural the number of services per customer in the N. <unk> from those services increases as the technology and cost continue to improve.

We estimate by 2025, we will be providing an average of seven services per customer. This in turn should increase the amount of <unk> per customer into the range of 18000 to $20000 in CCD last quarter. We noted we are seeing significant opportunities in grid services to date, we have 10 grid.

Service programs in place with an estimated value of at least $67 million over the next 20 years and a pipeline with the potential for an additional $445 million in value.

Turning to slide eight we are unveiling our intermediate term major metric growth plan. We have done this the triple double Triple plan. This plan consists of the following.

A doubling of our estimated year end 2021 customer count by year end 2023, a doubling of our estimated year end 2021 <unk> per share by year end 2023 at.

A doubling of our estimated year end 2021 services sulfur customer by year end 2025, and a tripling of our estimated 2021 full year adjusted EBITDA together with our principal and interest we collect on solar loans for full year 2023, our expectation is that our plan will assist shareholders and.

Gaining how management anticipates, creating value for shareholders over the coming quarters, I will now hand, the call over to Raul.

Thank you John turning to Slide 10, you will see the continued improvement in our third quarter results over the past few years Q3, 2021 revenues are up 88% from Q3 2019, while over the same period adjusted EBITA and the principal and interest received on solar loans increased by 58%.

And over 200% respectively.

Slide 11 contains both our gross contracted customer value or <unk> and in CTV discounted at 4% as the slide reflects we are experiencing significant increases to these metrics in just three years time in CCD went from $892 million as of September <unk>.

<unk> 2018 to $1 8 billion as of September 32021, overall, we deemed and 4% are conservative cost of capital as we continued to incur an incremental fully burden cost of capital of two 8% or less for our growth given our operations are generating flat to positive recurring.

Cash flow inclusive of our legacy Securitizations and they're heavy debt amortization profile. It is clear that our <unk> per share as measured by a 4% discount should naturally increase over time, even if our treasury bill referenced rates increase slide 12 summarizes our recent financing activity.

Liquidity position just this week, we closed our fourth securitization of the year. This loan securitization was our third loan securitization of 2021 and like the three issuances to preceded it with structure to include only investment grade tranches of debt as a reminder, investment grade only securitizations are less pure.

And the amortization then does it include high yield tranches. This approach to generating long lived recurring cash flows gives us strong visibility into our expected financial performance over the next several years as capitalization strategy also gives us an advantage in the cost of capital in our industry, which AIDS us in capturing the full <unk>.

Spread resulting in Sonoma generating some of the highest margins in the industry.

Our total liquidity as of September 32021 was $951 million up from $629 million on June 32021, and up from $212 million on September 32020 included in these numbers, our both our restricted and unrestricted cash as well as the available collateral.

<unk> liquidity, we could draw upon from our tax equity and warehouse credit facilities given available unencumbered assets as of September 32021. This available collateralized liquidity equal to $431 million on September 32021 beyond that subject to available collateral we have five.

$178 million of additional capacity in our warehouses and open tax equity funds that represents over one $5 billion of liquidity available exclusive of any additional tax equity funds or securitization closures.

Turning to slide 13, we have updated our forecasted sources and uses of cash for 2021 through 2023. In addition to the takeaways from last quarter Kenai and investors will note that while our capital commitments have increased somewhat so has our expected debt utilization, which is reflective of the strong reception we have received.

On the ABS markets and our most recent transactions. This in turn has decreased our expected corporate capital requirements for 2023 again, our options for 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 of <unk>.

<unk> refinancing of older Securitizations and incremental thickening of investment grade tranches of our Securitizations on slide 14, you will see our fully burdened unlevered return on new origination remained at nine 4% as of September 32021, based on a trailing 12 months, while our weighted average.

Cost of debt was two 8%. This resulted in a trailing 12 months, implying spread at six 6% as of September 32021 on Slide 16, you will see our guidance ranges remain unchanged for 2021, and then on Slide 17, you will find our guidance ranges for 2022, which are <unk>.

Customer additions of 83 to 87000, adjusted EBITDA of $117 million to $137 million.

Principal payments received on solar loans net of amounts recorded in revenue of $134 million to $154 million interest received from solar loans of $45 million to $55 million adjusted operating cash flows of $143 million to $153 million.

Recurring operating cash flow of 39% to $59 million. Please note that the mid points of adjusted EBITDA together with the interest and principal we collect on solar loans and customer additions are in line with how we have guided investors in previous earnings calls. This includes a forecasted year over year increase of 80% in.

Full year adjusted EBITDA together with the interest and principal we collect on solar loans and a year over year increase of approximately 50% and organic customer additions.

I should also note that we expect to have at least 75% at the midpoint of our 2022 targeted revenue and principal and interest collected from solar loans locked into existing customers as of December 31, 2021, I will now turn the call back over to John.

Thanks, Rob this could not be more opportune time for our industry, especially for service providers like Sonoma.

What was once often seen as installing forget product sale dealing only in solar panels in a single inverter has now become an evolving energy service offering that contains an increasing number of pieces of equipment made by growing number of manufacturers over time this increasingly complex energy system.

We will demand a level of service that is well beyond what our nascent industry currently provides especially when juxtaposed with an ever increasing consumer demand for higher energy reliability financing and software are enablers for this new energy service and we now have enough financial and operational scale.

Areas to drive forward, our long term vision for service.

Our service response goals are ambitious, but we see what the future of service must be for our industry to truly flourish and we are well on our way to delivering on these goals.

So Nova we are here to provide our customers with an energy service, unlike anything they've experienced with traditional or new energy providers and with the climate crisis on our front door steps, we're proud to be able to provide our customers with an energy solution that not only provides them with the ability to live life uninterrupted but to also.

It will be a part of solving the biggest crisis facing our world today climate change with that operator. Please open the line for questions.

If you would like to ask a question. Please press star one on your telephone keypad again, Thats star one to ask an audio question.

Your first question comes from the line of Philip Shen with Roth Capital Partners.

Hi, everyone. Thank you for taking my questions.

On your unit economics slide.

I was wondering what your thought on how you thought the unit economics might trend ahead.

We're hearing about resi module pricing already reaching mid 50 Watt for January delivery for example in contracts, having structured based on an index too.

Input costs like loss.

Aluminum.

Poly and freight and so as just the friction and everything continues to increase.

How do you expect that $6 six implied spread to trend.

Through 2022.

Hey, Phil This is John Thank you.

We've.

Robin I have constantly said that.

The Unlevered returns were very very strong and the spread of nearing 700 basis points as a.

A bit a bit high and we expect that to compress over time.

To date and currently as we sit here today that has not happened.

And obviously, that's good news I do think it is a lot I know it has a lot to do with the fact that because we have a balance sheet because we've taken our capitalization strategy that's much more.

Much different than anybody else out there.

That we compete with.

Our cost of capital is very low I mean, it's pretty clear when you look at all the numbers in comparative so right now we're seeing that spread.

Maintained.

You'll notice that the Q3 Unlevered returns of about $9, three obviously, a 0.1 or even something double that or triple that it doesn't really matter in the grand scheme of things but.

We continue to see quite strong spreads.

The cost of capital, we do expect to drift downwards.

Yes.

You can we've got some pretty good visibility and that just recently closed and that securitization. We think the investment great attachment point is going to continue to rise, we think that our cost of corporate debt.

Definitely traded up right after our issuance, it's only been a couple of months, we continue to see that that's going to come down.

Quite substantially and then we see our cost scaling.

In terms of dropping our overall cost stack because remember these are fully burdened.

Numbers, so I think that.

Quite likely to see this spread relatively maintained as you move forward into 2022, and indeed as we sell more services a lot of these services such as.

Service only and so forth.

80% gross margins and so they're quite profitable for us some are more profitable than others, but.

We expect.

The spread to hang in here, if you will as we move into 2022.

That's great John Thank you.

You talked about your cost of capital going down and the potential for that to get onto more than on the previous slide the liquidity forecast slide.

We see.

Some changes in 'twenty three that went in your favor.

Notably the amount of borrowings have.

Gone up or the.

$2 5 billion and then.

I think the cost in the new system is also went up a touch from three five to $3 6 billion until you see it there is no change in cash go down.

Is there a scenario where.

We could see that.

Go from negative to positive in 2023 as your cost of capital goes down and can you talk us through why some of those lines, especially of three five to $3 6 billion in new systems went up thanks.

Yes. This is rob so a lot of why that is going up is one.

We're seeing customers opt in for more and more services as you know, we just released yesterday, our partnership with charge point.

And.

We've seen a lot more a big increase in battery attachment I think the new home market, which was a market that we were probably expecting not to adopt batteries as fast as it's been a great deal of interest there as well so I think what you're really seeing there Phil is the average ticket rise it's not that the.

Cost the unitary cost and sales are rising.

But then on the on the funding side.

<unk> been able to go a little deeper into the investment grade part of the securitization stack picking up.

Anywhere from about 2% to 5% more.

<unk> is actually even maybe a little bit more we haven't really tried.

It's going to happen on the Tpa side, yet, but on the on the loan side, we've been able to pick up more advance even as we have been.

Going with lower APR is on our loans. So it's been moving actually in the opposite direction that we had initially anticipated, but as we mentioned in the prepared remarks are also a number of other things are tools that we have at our disposal.

To be able to postpone the use of any corporate.

Capital.

And again.

As we continue to drive.

Those efforts were actually seeing a lot of potential daylight on the sea fads number which would mean that we first turned towards new corporate debt. When we're looking at that financing aspect, but I think that it's probably going to be prudent to continue to look at new corporate debt shifted our need and the time.

<unk> of our need is continues to be pushed out.

Great. Thanks for that detail and then one last thing as it relates to your 2022 guide.

You mentioned in your prepared remarks that you might hit 75% of your 'twenty two guide as of December.

When do you think you'd hit 100% of your guide.

Probably see it in Q1, maybe Q2.

At the latest next year.

Historically.

The trend has been very consistent.

The higher the growth that you project into next year, it's just a lot of those numbers.

Right so but.

We might get as high as 80% going into the year of our projected cash inflows.

I would say that youre right probably by early Q3, we should be nearing 100% I mean, there'll be something like 90, 899% would be my guess based on past history, but.

Things are very very predictable the only thing that we manage is the rate of growth, which right now is pretty.

Pretty heavy in fact, I would say that.

As we look into 2022.

There were a number of partnerships.

Rob made mention of the partnership which we're very excited about the charge point.

Go on there we could talk about that later.

Theres more coming on the partnership side, and they're imminent and they are big and.

I would say that we're very very constructive on growth but.

We're also the only ones that give guidance.

This early and as you know most give it in March of next year. So we will have that opportunity to have a few more months here and get those partnerships underneath this and execute and look to see where our growth.

Comes out after that but I do I do expect to beat.

This growth profile that we laid out and it's already very very aggressive so.

I would expect as you move forward in 'twenty, three we will see even bigger increases in cash flow and adjusted EBITDA plus P&I.

Great well look forward to that thanks, very much I'll pass it on.

Thanks. Your next question comes from the line of Ben <unk> with Baird.

Hey, good morning.

Congrats.

Just maybe.

<unk>.

So talking about partnerships.

The home depot deal charge point.

Talked about home depot.

We used to think about the core of the highest cost customer acquisition.

How has that changed.

Good.

Charles.

Two follow ups.

Yes sure Ben.

Youre right. The retail stores are your typically your highest customer acquisition channel.

The way that we do our business, though is that we're focused on our dealers our partners and.

We're working with them and when you look at the way that we've constructed this as those returns are actually fairly easy.

Even with our other origination. So this is mostly I think that the dealers decides that they want the additional growth in and candidly they are paying a little bit more to acquire those the acquired those leads that we generate for them with home depot. So.

It's pretty well down the fairway. This is the right way to do it in my mind. It was early days in my first solar company with the home depot and now we're back.

And it really excited and feel really fortunate to be with them. So we've got to execute on that but the returns are quite nice.

Charge point I think this is really.

It's very interesting we've got what we feel is a excellent partner, they're they've got I think a great business model in a space that has a lot of charging companies in solutions as you know.

Neither.

He has an exclusivity on one or the other I think that's the right way to.

Do things here, especially in the <unk> industry, but it is not only equipment and I think a lot of folks focus on that we're putting a charter in for homeowners who are increasingly demanding that that's a given we're going to do that and they have really good equipment.

But really what we're also looking for is is selling more the service solar service storage and so forth so more equipment and that generates a bigger returns for us, but the really interesting thing is we're going to plug into our network into charge points and we're going to be able to provide energy to our customers when they travel away from home.

And so this is going to be <unk> is going to be your power provider energy provider <unk>.

Not only at your home, but away from home and I think it's going to be this really fascinating.

When we are able to put all the pieces together here and get this launched out next year, it's going to be really something special for our customer base and we think it will actually drive more and more customers disinhibit as well so.

We're very excited about this partnership.

I think in.

Your remarks.

Services comes up quite a bit.

But more of a dozen times and so.

I don't know if theres, a way to help us understand what.

Different types.

Types of services are and how important this is but it seems it's pretty important.

Highlighting.

Yes.

Good eye on that yes, I mean, we see ourselves as from the founding of the company as a service provider.

And we see financing as an enabler receive software as enabler, we're big in both obviously.

Great money on the financing side, but.

We're all about providing that service and having that customer for four.

Effectively is like but for the most part 25 plus years.

And as we add batteries and we knew this because we're early days in places like Puerto Rico, and other island markets in the Pacific.

You can easily see where people will start to go this is very complex.

Power that it need to have on no matter, what happens and you need to have a totally different experience not unlike what.

It has to be the same or better than what you experienced with your monopoly power provider right. When the power goes down do you expect them to be out five minutes ago.

And.

That's something that we've been working towards for a long time, we finally have.

Will television cellular et cetera, so we're on the forefront of this.

We're driving towards that point in the meantime, the.

The number of services you've heard on some of the equipment manufacturers calls and you will hear.

The ones coming up that there is a tremendous amount of new pieces of equipment more energy storage systems more load managers that UV charger the.

Case in point that charge point relationship.

Generators et cetera, there is a lot tabby added here with services and Upselling customers and so we've we've laid that out quite clearly roughly about $10000, which is inclusive of all of our century customers that income with cash flows of NCB, which is a PV for we're borrowing capital fully loaded at 2.8.

And we feel very strongly there was a lot of value to be added there and we shot it down the fairway instead, if we doubled from $3 said $3 five services to seven services by 2025, which received doable that we should pick up about another $9000 per customer.

On a midpoint, so somewhere between 18 and $20000 by that timeframe and so.

It's another way to value in the company's equity if you will and looking at the breakup value of NCB per share of that and adding that option value of the number of times. The number of customers. We have and then expect to hold us accountable for executing against that option value are we up selling batteries are we up selling EV charges are we up selling generators load managers et cetera, and I think.

I'm confident what you'll see as we go into 2022, we're gonna be doing all that and then some so a lot of value out there in the services and a lot of value in being responsive to.

To the customer service.

Thank you for that and my last one to call.

The total going up I think poor customer kicked I'll just look over the last two quarters.

But the one shall we.

Kick back up.

All the stuff.

Google.

Again, it is coming a cash flows.

Mainly on tax equity, but also in some of the other fund flows and I'll, let Rob comment on that just a just a second.

I think the right way to look at NCB per share because obviously investors are buying shares, but we do expect to see <unk>.

Per customer tick up over the next few quarters, particularly as we get into 2022.

If it does not then that means the customer additions are smoking the projections for us and they're more on the sink.

Single services and some of the other services that we're launching out that we have yet to announce.

But we do expect that NCB customer to per customer to be taking up or what I just laid out, particularly as we have cell batteries. So one thing I want to make it very clear as we have not uphold our existing customers very many batteries and this year and that is simply because of a lack of battery availability that is materially changing now I mean materially.

So we're already starting to engage in upsell, our existing customers batteries and we'll be celebrating that tremendously as we go into 2022, expanding that the new home business, where we have not sold upsold a single battery yet so it it's definitely going to move up on a per customer basis, as we upsell batteries all other things being.

Equal Rob you want to talk about.

Yeah, and I think John sort of really hit on a on a number of points there.

Rehash too much of it but.

Remember that the last few quarters, where the first two quarters, we added the century customers and so those customers did bring down the average ticket size.

On a <unk> for customer basis.

Mostly because they are just smaller systems and as John said fewer services because just everything there is.

It's just the solar.

But to John's point, we're making the turn right there as well to get those systems.

Larger to add more services to those systems. So that's one big catalyst, but the second one and without getting too much into the sausage, making it just really the timing of our width pile. So the way that we're showing the TCG is that as we put our assets in the construction of the progress we're carrying those costs as soon as we put them in the service we.

Get the uplift the actual value of the system itself.

And given our trajectory would expect that to be a significant uplift.

In the fourth quarter and it mainly has to do with the fact of the supply chain on the batteries unlocking we're putting in those really high value systems in the service in the fourth quarter and at the same time or leasing.

The remaining tax equity on those systems, which really I'll just sort of.

Is accretive to cash because we've been carrying at this entire time.

Thanks, guys.

Thanks Man.

Your next question comes from the line of Brian Lee with Goldman Sachs.

Hey, guys. Good morning, Thanks for taking the lessons.

I appreciate all of the.

<unk> color hair.

Be thinking longer term.

And this.

Double framework, which is new.

I think you are going to end the year at 200000 customers so to double that you're implying about 35% to 40% more growth in customers and twenty-three. After 2000 to guide you just gave so.

Quite robust growth even in the out here, but then you are talking about tripling the EBITDA plus P&I. So that's implying the metric grows.

80% and 22 based on the guidance and then another 70 and 23. So I think this has to do with NCB, but can you kind of bridge the gap a little bit as to where some of that additional leverages coming in even in the out here.

You are talking about $10000 today, where does that number to get too in the interim and what kind of pieces in the next 12 to 24 months. I know you are talking about 19, K midpoint by 25, but what are you sort of embedding in the 23 numbers.

Yeah, Brian.

Yes.

What we're saying is an increased amount of operating leverage. Despite the fact that we're obviously investing spending money to launch out new grid services, new lines of business spring on new partnerships in an overall not only increase our growth rate in terms of the number of customers, but the number of services sold per customer right.

These are all heavy lifting at the same time, delivering a better service experience, which has been baked into our cost structure. So.

That that shows you quite simply as I've always said is what you want to see.

You want to see adjusted EBITDA, plus P&I grow faster than your then your growth rate of your customer base eventually so.

Our challenge has been in the near term is is that growing off a small base.

And not having as much operating leverage by by definition, but having a high growth rate we've been challenged in that a little bit we've been close to basically breakeven a little south of that as we get bigger and move forward.

Then again the law of math start to help us and loved numbers, rather and so we can.

Gain a tremendous amount of operating leverage and that's what we're highlighting for free all it is is that we're seeing it we know we're going to experience. It and this is exactly what you should expect it out of us.

So if we.

Grow at a less of a right on adjusted EBITDA plus P&I, then you should expect to see a heck of a lot more and profitable growth and number of customers and services soap our customer, but right now it's pretty heady growth again, if there is any bias, it's definitely to the upside on that growth rate, but we feel we feel very good about the the adjusted David.

Plus P&I growing faster than the customer base and quite frankly.

We are seeing the growth that we have going back to the unit economics, and so forth is extremely profitable.

Growth and.

Again reflected in the adjusted EBITDA plus P&I.

I guess to dig into that a little bit.

More granularly, though if if you were talking about the unit economics, having leverage over the next couple of years.

I know that the target model after 2025 is pretty well laid out but.

The $10000 a year at today on <unk>, if I, if I look at some of the.

The bridges you provided to get to the 19 K over time.

Let's say half of your customers are doing storage and energy management by the time you get to 23 that that would imply two K more per customer. So you're at 12 K right off the bat, but any just sort of color as to where you think you'll be able to see the the most amount of sort of.

Ah I guess materialized nation of some of these bridges to get to the 19 K by the time you're out in 2000 and you just is a 10-K going and going in 14 before we get to the 19 is trying to get a sense for how quickly you think you'll start to see some of these.

Move into the customer and economics over the next one to two years.

Yeah, I think it's fairly linear, but there's a lot of variables to it. So if we can launch out some of these other services and b as in the more successful.

And some of these technologies rather than early days right like load manager then I think that we can have a little bit more of a higher slope on that that.

Galatian towards that upper upper number, but the storage side I would say looking at internally, we think that by 2025 are storage attachment and penetration rate will move up by a factor of six so 660% or so.

We see strong uptake on the storage side of things. So I think obviously, that's first and foremost is how do you execute on upselling customers storage I think another one that's pretty interesting as we're seeing a lot of demand for EV charging that's not a big needle mover, but the service that we talked about in a way I think that could be.

Pretty interesting margin wise, and therefore, NCB certainly recurring cash flow and then some of these others like generators and so forth, we see how strong demand for the for the generators too so.

And an additional upsell of more panels more inverters et cetera is particularly as people do get avs, we're seeing that accelerate so and more fuel to fill up the battery. If you will for backup power. We're seeing that so there's a lot in here, but I think that if you were to draw a gradual linear line from this period to the <unk>.

And a 25 I think that's not a bad assumption.

And remember as we move forward in time, you're discounting at a 4%, but our cost of capital is really two eight and we're paying the debt off at a fairly rapid rate. So that's something else to remember is is that we.

Will be naturally accretive as we move forward in time and recognize that delta and between the discount rate and the actual cost of capital falls out in cash flow right in cold hard cash to the equity. So that's another thing and.

And so and Rob's prepared remarks, he talked about that is naturally you should expect NCB per share too and therefore per customer.

Large part as well to increase over time, even if we did nothing.

Alright fair enough I appreciate all of that.

Color at.

Last one for me and I'll pass it on them.

I'm kind of surprised on the third caller and more talking about supply chain.

This late into the call.

Maybe because John you started off the call talking about the supply chain being better for you.

Can you maybe get into a bit more detail it sounded like batteries, you're feeling better about what what's what's happening there that's giving you more confidence and then.

Maybe also just your status on Inverters and separately on solar panels, how much of that 2022 growth.

From a supply perspective, I know from a demand perspective, you see high visibility, but from a supply perspective.

How much of that is derisk, how far out do you have supply visibility.

And then obviously a lot of focus around where you're getting panels. These days just given all the different geopolitics out there. So can you kind of level set us as to how much of your panel supply is not coming from southeast Asia today, and then how much higher you think that makes.

Could go overtime thanks, guys.

Yeah sure Yeah and.

New supply chain was going to be big topics. So thanks, Brian.

I'll divide things up.

Panels, Inverters and Essas.

And when you look first and foremost at the panel there is obviously a lot of.

Shall we say political intervention here, our government intervention, everyone phrase it that's causing a lot of chaos and pushing up prices artificially.

In the United States.

We have been moving as our storage attachment rates been moved up we're continuing to see more and more customers want the higher wattage panels, which typically don't come out of China or southeast Asia, and so are the dominant number or members of the family we buy from panels from.

Are non Chinese if not if.

We buy any from China at this point in time, which I don't think it's bad to be clear about it but that is a fact, just given the the <unk> the countervailing duty issue the two O one et cetera.

So you are increasingly looking pretty good going.

Now, it's starting to look into words Q2 on that front, we feel pretty confident we've got some like I said panel secured just in case, our dealers footfault on some of the deliveries that they were expecting or should have procured we're making we're on top of our dealers working with them and helping them to secure those panels. So we feel pretty good about the panel sitch.

<unk>, it's clearly tight we're meeting just meeting demand as an industry, but given the political intervention, but we feel pretty good about where we set.

On the Inverters side, we continue to see.

More and more.

Real.

Strongly well managed firms.

Come and compete.

And with.

We've got a number of providers that we're going to be providing.

Essas's with their own inverters in it and.

And that's going to have a dynamic impact on the <unk> market by definition and so.

The last one you go into the energy storage systems, and we're seeing an increasing amount of availability.

It's literally been every two weeks we're seeing.

More deliveries hit our warehouses and hit our dealers warehouses and we continue to see a significant improvement in those delivery schedules as we move forward I do think that will be normalized.

Increasing it looks like it will happen in Q1.

At the latest I think Q2, barring any sort of significant unforeseen supply chain issues, which you would have to be really significant given how messed up things are globally, but we see a rapidly improving dill.

Deliverability on energy storage, particularly the big player in the big in a couple of the biggest players.

It goes far to say.

That we are seeing those equipment providers, who increased cost or tried to raise price currently.

They will start to lose market share.

So there is not a huge amount of stickiness on price, there's there's more and more availability there is more.

Followed by competitors that we're looking for.

To buy their inverters their essas's. So there is a a loosening up in the equipment side that I think is pretty significant particularly as we get into Q1 and Q2 of next year.

Alright, Thanks, a lot guys.

Thanks for our next question. Your next question comes from the line of Julian <unk> Smith with Bank of America Merrill Lynch.

[noise] Hey, good morning team. Thanks, so much for the time.

Congratulations on all the continued progress really really nicely gotten on the follow up through here on forward looking guidance.

Perhaps just kick things off real quickly here can you elaborate a little bit on the.

The pipeline as you say of opportunities on services can you elaborate a little bit more granularly of what those are that that's sort of comprised that 400 billion plus that you talked about a second ago.

Are you talking about the grid services Julien.

Yes exactly.

Well, we can't break those programs out that's competitive intelligence, we are bidding on so we're trying to give visibility to you and everyone else about hey, what what's the what are we working on right. So what can you expect.

I got to say I'm pleasantly surprised in a big way of how much progress. We've made on grid services empty contracts is locked up I mean 67 million I think is up there, especially the number of contracts at 10, I never thought we'd be in the spot and then I'm looking ahead more and more programs are coming our way and we are so.

Seeing a lot more.

Profitability as far as the the dollars that are associated with these programs. So.

Break them out and for competitive reasons, but I'm trying to do everything I can to give you a window into what we're working on and what kind of monies associated with that.

And hopefully we'll have the big wins.

Indeed, John maybe maybe an idea to ask it this way what percent of your customers does that represent I E is that fully monetizing our customers or what portion do you think at this point does that represent ie how much of a further upside is there to more fully maximize that opportunity.

Oh, I see I would say, that's probably representative of roughly about 50% or so maybe 60% of our customer base.

I would also point out that most of these are our capacity.

Services and so we have the ability to upsell ancillary services and in some cases energy as well. So I think that there is more grid services on top of this and then we start looking into micro grids and getting that moving which I don't expect to have material.

Movement there.

Next year, but the following year I think that will have some something more to add their on the micro grid front, but I think that's my best estimate I can give you right now Julian is probably 50, 60% is covered by what we've already done and then what we have in the backlog.

Got it and just to clarify that's a little bit on what you're implying for fourth quarter customer relations off this 14 K. It it almost seems like you're implying something like 20000 customers in the fourth quarter. If a night stop I've added a new office to what's driving the big quarter on quarter dynamic and then if you can just specify I know there's a few different.

Small nuances what does that specific baseline for the.

The customer account here going into 23, if you will.

Yeah, it's about 20500 and.

The last question I'll go and answer that I think it's just a little south of 200000, I think of 197500 somewhere in there 198.

So that's that's what we we expect look at first to say it is yes. It is one heck of a climb and we got we got our work cut out for US now we're seeing good visibility and that we have the customers. We have a backlog will take into next year right now we have.

Just south of $1.1 billion of contracts and the backlog.

At cost so we've got the contracts, what's held us up as a couple of things mainly the batteries, which we're seeing accelerated delivery schedule already we expect to see more of that delivery schedule accelerate and <unk> and so that's going to a source of customers that we didn't have in Q2 and Q3. The other is is.

That the new homes business I think.

People are underestimating and it's because we talked about having roughly about 12000, a year that business continues to grow so it's a little bit more than a thousand a month.

In some cases moving towards 1500, a month to expectations and the new homes business has been challenged by all the supply chain issues as far as Closeouts of the new homes and you can't book those customers until those homes are closed out and sold to the customer. So that's been a delay from Q3 into queue for as well. So we got the reasons and.

We got that we feel like we're in pretty good shape on both of those in terms of improvement given the supply chain improvements, but will be will be working all the way up to December 31 to the hit that number in but.

Working hard at it we've got the contracts, we got the supply chain, where we want it now we've just got to get the work done and get it through the utility system to get the permission to operate and register the customer.

I wish you the best of luck speak again soon.

Thanks Julie.

Your next question comes from the line of the heat and <unk> with credit Suisse.

Hey, good morning, and thanks for taking my questions here congressional progress as well.

John maybe just talking about the 2023 guidance. So if you kind of look at the customer growth.

Kind of implies probably around 20, 25% increase in new customer adds in 2023 versus 2022. So just wanted to understand what's driving that growth then.

Is your expectation.

Market somewhat similar in line with that growth then.

How should we think about the mix of loans and leases gotcha. Thanks.

And so I think the implied growth rates, a little bit higher than that.

The heat for twenty-three, obviously, that's a little little ways out there, but let me give you some more color.

As you look at what we've been originating for the last couple of quarters and then you look at my answer on this Q4 in this quarter to Julians question just prior.

You basically have multiple items for you get a pretty close to our range right if not in the range exactly that we've laid out for growth for next year. So as we're looking forward and we're seeing a number of these partnerships. The home depot charge point, we got more coming Thats emanate.

And just the general growth or improvement in our technology platform or picking up more dealers the number of services sold for customer and so forth.

I think we've done a pretty good job of being fairly conservative moving off of growth the number of customers from 22 to 23.

Simply put that's not in nominal terms a huge increase in number of customers.

From 22 23 so.

Again, if there is any bias and there is it would be to the upside of these growth projections on both the number of customers and the services so per customer.

Got it got fed to say, it's more in line with your expectations for the market at this time.

Markets.

Slower than that.

No I think I think it's in line I think we've telegraphed.

Think quite nicely was laid out even sources and uses of cash two years out, which I don't think anybody I know nobody else does and so we're trying to get more visibility out to to everybody on what we're seeing out there.

Look again at our references earlier in the heat is no one else Gibbs guidance for 22. This early.

And it really is early you know going across the year. So this is our where we feel comfortable at this point in time candidly right now the stock is in our opinion. If you look at if you double NCB per share mesh measured on a P. D. Four within two years and I've already got the next two quarters.

And by the end of the year booked up.

In terms of contract backflow are back sorry with.

Going into 22 that means that we're really just kind of looking at about roughly 18, 18 months or so of growth and so we've.

Got a high degree of predictability and what I, what I would say is is that right now we felt like.

Hey look this their share prices needs to start reflecting that we can.

Move something into the cone of low to mid thirties of essentially breakup value within the next 24 months, we think that's pretty cheap.

But that's for the market to decide but.

Right now this is where we sit and this is where we had laid out for folks and we'll update on the on the queue for call and the.

The bias is definitely to the upside.

On your loan question, where continue to see consumers to take more loans.

We'd see that to be roughly volatility continues to move up once a volatile on a week by week day by day basis.

<unk>.

We can we.

As you look forward to the policy, which.

I hadn't had a question yet there's a possibility given the refund ability. We think is a high degree of chance of getting done and the reconciliation bill there's a possibility that could move more leases and ppas.

I know, there's a there's a good argument on the other side of that but.

That's something to pay attention and watch.

And and what I would also point out is that on page 33 of the deck. We've laid out for the first time and no. One else does this again what are discount is on the loans that we get so for those of you don't want to just to look at principal and say that's a return of capital no. We've been clear about it it's return of capital in return on.

Capital and it's pretty sizable so it's about $213 million a margin not revenue margin that's booked as of 930 21 and roughly about 21%.

Of our standing face value of the note. So these loans are quite profitable we've laid out and if you just wanted to take the.

And the interest on the loans instead of taking the principal and interest you can now do that obviously, that's pure profit margin.

So hopefully that gives you a little bit more comfort as far as getting you're getting your hands around modeling the loan versus lease mix.

Perfect I appreciate it thanks.

Your next question comes from the line of March stress with J P. Morgan.

Good morning, Thank you very much for taking our questions.

Just wanted to ask the 30% storage attach rates in three Q.

What would that have been.

Supply constraints it was trying to think about.

Well it looks like.

The storm kind of clears here.

Yeah, So it may markham's John.

Up.

I think that first of all that's on all customers. So we would have had if it was just in the dealer channel that would have been closer to 35, a little over 35% storage attachment raised which would have been a new record for us.

Don't want to play games I don't play games on metrics. So we added all the customers and even though we don't have the capability just yet we're just getting into that will buy up selling batteries to a new home customers and we will start to see that attachment right.

Would say, probably Q2 or Q3 of next year start to materialize, so that suppresses that number.

The primary drivers the new homes customers that have no battery upsells at this point in time.

We've had some many weeks of 40 plus.

Percent attachment rates on the dealer only channels. So it's it's something that is clearly moving up and you just get a modicum of selling batteries to new homes customers that that storage attachment rate's going to Zip up.

We continue to see a lot of interest in from consumers and growing amount of interest and battery. So we were becoming even more constructive on the on the storage attachment raised move forward in the next few quarters.

Okay and.

And then John I know, you're a you're a football fan so I want to ask you a question about your supply chain kind of as an analogy to college football right. So we've got we've got four four teams that make the the playoffs every year.

But.

Ranked number five ranked number six are obviously good teams as well.

Thinking about that as your supply chain you mean in the past you selected suppliers.

But there's been a company on the on the costs. That's been left out just given given everything that's happened over the past year. How do you change that approach do you potentially look to die.

Diversify your supply chain by adding more and how do you weigh that against a potentially kind of inferior products that you hadn't choose chosen in the past.

Okay I'll try to answer that I don't know if I can wrap it into the football analogy, but.

Yeah.

I would say.

We're seeing more.

Really strong and this is on a global basis equipment provider show up with and murders.

With energy storage systems, and even some that haven't been in the panel manufacturing business get into that and and start to rent that up as well.

I would say that our primary relationships on the Esfs side with Tesla with Jen rack with Solaredge and then.

Lastly, enphase are well intact I would say that some are doing better than others on the supply chain side of things and I think it's pretty clear that.

Elon in Tesla are doing very well as you can see by their numbers that they reported and again I'll, let them talk to their own business, but.

With microchip deliveries and therefore, you would expect to see that flow into their esfs business entity. That's been the case and continues to be the case, but rapidly improving supply chain.

And then some others have struggled a bit of late and contain this quarter, but I do expect that to to get ironed out.

We are eagerly anticipating ramping up very strongly with solaredge in particular that got some really nice products out and we know that there are some dealers that want to start selling that immediately.

And but it will <unk> got a lot of new products coming out very close with that company.

Company as well.

I think that they are they are doing a great job and we will continue to increase our purchases quite substantially as we move into 22. They obviously have a microinverter coming out we're very interested in that as well.

And so all of these companies are very well managed companies, they're obviously very well financed companies in terms of financial capability and balance sheet. So we don't see any problems with the equipment.

Amongst these and even some others that are fairly large companies themselves in Asia and Europe. So.

We feel comfortable that we're getting and they have to go through a rigorous process to get on our ABL are available equipment list, where we feel very comfortable that we're seeing more and more highly qualified good equipment manufacturers, making great equipment that we can buy and so that's that's definitely a change from the past few years and it's it's obviously a great news for.

Increasingly lower prices to consumers and and frankly, those lower prices against juxtaposed against higher utility rates, which we expect to increase in the next few years quite substantially give.

Given gas prices and other cost pressures that will have this business in this industry overall in terms of solar and storage et cetera grow much more substantially than I think a lot of people are thinking at this point in time. So we need all those that equipment is what I'm, saying and then some but we think part of that will also be some.

Some decreases and equipment pricing to incent more and more consumer demand.

Got it thank you very much.

Thanks Mark.

Your next question comes in the line of Stuffy car with Keybanc.

Hi, Good morning can you guys hear me.

Sophie can good morning.

Thank you. Thanks for taking my question just a couple of questions here that I have.

Can you talk a little bit about whether you're experiencing lone interconnect times in any of your markets out.

The utility and how that might be impacting European outlook instead of an issue for you at this point anywhere.

And so it's a good question.

A little bit here and there.

There is a utility in the southeast has been dragging their feet a little bit on some interconnections.

There is.

One out in California company, one or two up in the northeast.

But some others have sped up.

The issuance of PTO.

We're talking about days two three weeks.

That could matter grant you that and so we're watching it closely but.

And we're putting a lot of pressure on those utilities as well as others in the industry such as our dealers et cetera are doing to close those gaps we can do a little better job and are into of of being more quick on the operational side too.

To apply for those Ptos and then also to convert a PTO into and service and flip the flip the system on so we've got a number of initiatives to do an improvement in our side and dropped that at that time, if you will but we have seen a little bit but not a huge amount of change if anything some.

Some of the there's been quite a bit of improvement in the second and third quarter over the first and fourth quarters and certainly the.

Last year that were heavily impacted by the pandemic.

Got it. Thank you and then you mentioned the mayor of the question was in the equipment.

Landscape.

You mentioned that there is a growing number of suppliers of various pieces of equipment that you use could you talk a little bit about your sort of barriers to switch if you will how hard is it to.

Qualifying new supplier for you once they.

Allowed their product and is your bias to kind of stay with the existing lines went to price shop around if there is an offer and it seems comparable and cheaper maybe than what you have currently can you can you talk a little bit about your thought process here.

Yeah.

So we.

We've had a strategy of having basically being an open platform service provider I know there is a strategy, where if you wanted to be an equipment provider getting into service business that basically you close your world off right and it's just your equipment and your service.

Typically in other industries that are very similar to ours.

That has led to frankly, much lower growth inability to scale and a disaster ultimately and so we think that the best way to go about this particularly as more and more capital is flowing into this industry is to keep an open mind and new technology, new firms that crop up.

Around the world and it is a global business.

That said some of those traditional partners have you seen.

Acquire those new upstart and firms and then integrate that technology into what they are doing obviously the most recent example of that is what <unk> is doing with the microinverter side of things.

And so in some cases, where we're certainly very well open to new technologies and some of these are new technologies like.

Electronic or digital J box for load management, and so forth. Those are those are different companies out there, but the traditional ones are also coming out with roads unmet load manager solutions as well and so I think it's keeping an open mind and looking to see when we become comfortable will go through rigorous testing we have engineers on staff here that do that.

For us and so once we become comfortable with both the equipment quality and their financial capability. Then we will start to look at how do we launched their product out.

Charge points a good example of that that's a new piece of equipment right soapy that we've and service and plugging into their software platform with our software platform note that we're launching out but I think it's primarily going to be that we're going to stick with.

Our core group of partners on the equipment side of things that may narrow bit depending upon what strategic decisions those equipment partners make.

If it is not favorable.

Try to get into our business, then we'll stop buying equipment, there and that can be a fairly very rapid change in the dealer network with us so.

Switching capability is actually decently.

Decently quick.

If something goes awry so to speak.

Thank you so very helpful. So I have.

Thank you.

Your next question comes from the line of Papo much enough with Raymond James.

Thank you for taking my question.

So we are supposedly.

24, maybe 48 hours away from learning what happens with the Reconsolidation packaging Congress and therefore, among other things the.

[noise] ITC for solar.

Depending on what that tax credit extension looks like and particularly the duration of the extension would that have any impact on let's say the urgency of.

Installation in 22 or 23 for you directly and across the industry.

Hey.

I think.

We just spent some time actually a few days in Washington last week and my sense of this in our since as a company is is that there.

There is definitely a deal that's going to get done here.

I read some reports as recently as a few hours ago. There are some naysayers there.

Just think the Democrats need to do something over the next 60 days and clearly trying to do something between Christmas and new years is going to be really challenging is always so I think it's less than 60 days and I think it's very clear by the way that even on both sides of the aisle that the investment tax credit is strongly supported.

And we see 10 year ITC at 30% plus.

Plus refund ability plus storage ITC plus a few other things were also strong supporters of a domestic manufacturers.

Manufacturing.

Initiative and suggestions of.

Subsidies to locate these different parts of particularly the module manufacturing supply chain in the United States and so we strongly support center gossips proposals.

As part of the reconciliation and I think some of that is going to get if not all of that gets into the bill it's probably going to be some so I think that there's going to be very little pressure for accelerating pull forward. If you will demand from the federal Langill I think we're going to have is actually a fairly long runway, which is fantastic for the industry.

Never had that before as you know we need it to grow the business in the right way and to grow the industry in the right way and and deal with climate change and I think I think we're on the customer finally getting that does that answer your question fully or no.

Right. So I guess your guidance for 22.

Assumes what scenario the kind of the urgency scenario.

The law as it currently stands or an extension scenario.

An extension scenario.

So if we were surprised that you are right the growth would be tremendously higher than than what we've laid out for 22.

But again I feel pretty comfortable we're going to get a very long runway on the on the ITC.

Finally.

Okay.

Stood one more question on the supply chain you alluded to.

Some of the geopolitical complications earlier.

Have any.

Suppliers modules or otherwise that you directly work with.

Have they had any.

<unk> into the United States block or confiscated at the border because of forced labor issues.

No there.

There are now.

Okay clean.

Clear enough. Thank you day.

Thank you.

Your next question comes from the line of Shine Morgan with Evercore ISI.

Hey, guys.

You for taking my question. So my first question is probably Rob but of the three tranches on that secure physician you guys. Just did obviously great interest rates achieved there.

There was three different credit ratings on the three sub charges, but I guess my question is is that mainly a function of the high FICO scores the customers.

The portfolios largest you guys have this gonna ask that obviously be some kind of workout.

Or distress.

Customers in that portfolio. So is there like a support tranche that you guys are effectively retaining on your balance sheet to support those three investment grade tranches.

Yeah, absolutely we are retaining a significant portion of the face value of those loans on our on our balance sheet, that's really what's driving the arrow C F.

One of the things, it's allowed us to be competitive within that marketplace and securitization marketplace has been the incredible.

<unk>, we've had on collections.

Not only keeping customers from becoming delinquent, but when they do become delinquent.

Or go and we default the customers who do earlier than anyone else. The industry would you that 120 days.

We actually get more than half those defaults recovered.

Which is which is also a pretty unique in that information that they've taken into account as well when they look at those securitization.

So we.

We've actually had a very good track record there at and while we do have very strong psychos.

We find that that's been probably a little bit less of an advantage in the industry. There are some that it will hold out their lower FICO to try to get a higher FICO score what we've really just been doing is coming back with the receipts.

Of what our default and delinquency data is which is which.

As for an asset class it is already very strong.

We are among the strongest if not the strongest within the industry and naturally the feedback we're getting with our loan product and it all goes back to really what the theme is in this whole conference call on the prepared remarks, which is service.

Focus on service and making sure that we have.

The systems up and we make sure they are producing power we make sure the customers happy we make sure. It's a customer has a moral obligation to pay all of that.

Is is very virtuous for our ability to continue to squeeze.

The margins and.

Think did it.

I did actually helps our competitors as well the squeezed error margins because it's beneficial to the whole asset class, but that's great. We think we think that's a that's a positive thing.

And continues to drive more interest in more investors.

Into the asset class.

Okay. Thanks.

Then next question I guess, probably more for for John and it goes back to this solar adoptive homes on slide six and I think the prepared remarks, you said that the homeowners should have the option to either stay connected to the central is greater or not is that something that customers are asking for or do they look at grid connectivity even despite the.

It'll charges that they would incur as sort of a almost.

Almost like a second battery if they were to do solar and storage and they want I guess redundancy that the grid offers despite the costs and also would that impact strengths our strengths and.

And.

And net metering charges like what would they be forgoing all of that and would you said in states like Florida, where maybe not be during isn't quite as strong.

Yeah Shaun.

Good question it would be clear.

We think the best solution for everybody here is to integrate the centralized system with the decentralized resources and again, our vision of the power industry.

Satan in other countries.

Starting to look sort of the same in terms of the business models, and so forth and where we think things are settling out as far as the transformation of the energy business.

Is basically that.

There is going to be a hybrid approach between centralized and decentralized now with that said.

There there are.

The demands to be able to run off the centralized system in those demands are increasing and not in a linear fashion why is that because more and more of the centralized power services failing more and more of the times.

I think that is primarily due to climate change, but it is also due to the fact is is that consumer demand and behavior has materially changed where there are no longer tolerant of a few hours of outage certainly.

Become intolerant of even a few seconds of outages because everything is more digital basically does work from home and the <unk> and pandemic.

Has accelerated this change in consumer behaviour, and tastes and you've heard about that.

Aaron a Virgin Iraq calls the home as a sanctuary right.

And we see the same thing and it is a material change in consumer behaviour and trend and that consumer change in behavior has nothing to do with climate change.

And D carbonization, except for the fact that climate change is causing some of that consumer behavior change so.

Simply put this home needs to be able to run off the grid because the grid is more often than not.

As we move forward in time, not there for whatever reason so.

The last piece of this is quite a home continuously run off the grid, if the utilities got egregious and some some in for some strange reason a public utility commission allowed them to just.

Ungodly number of profits.

And have really high fixed charges on folks and break punitive to consumers.

I don't think that's going to happen I'll hold out.

A very recent example of Arizona last night, the Arizona Corporation Commission reversed reversed a demand charge on solar only customers that's never been done before so I hope.

Everybody talks about we talk a lot about Californian M and some other issues, but gosh look at that victory for our industry, that's tremendous and we applaud the leadership of the ACC and.

Look forward to the the lack of need for consumers to really cut the cord. So to speak with that said technology is improving you heard a lot of good things from Enphase in binary yesterday about how he's going to be able to have new technology coming out the gate that enables homes to run off grid.

We've got that which interact you got that with Tassler, you've got that with the Solaredge and others out there. So don't underestimate technology as strange as it may sound to be able to have consumers cut the cord and you're going to need a service provider like us obviously.

And so we're going to we're going to hole, we're going to have some examples of that of the homes being able to run off grid continuously on the not too distant future and we may even put an analyst day around that but that's not what we see as a dominant norway bedding and any sort of forecast for guidance or growth.

Initiatives on that type of of customer if you will but we certainly see the technological capability and we expect that that would keep the utilities and check and have us all play nice together and have a more integrated centralized and decentralized power service that serves all customers in the country the best.

Okay, great food more of.

And offset any risks that utilities I guess, taking actions that are that are sort of anti solar consumer at the residential level, but not really a.

A trend right now at this point.

I think that's fair that's very helpful.

All right. Thanks, Sean.

Thanks.

Your next question comes down the line of David Peters.

Research.

Hey, good morning us.

Just.

Again on slide six the some.

That sounds great to sort of be the brains of home energy management with.

With great services and like if you will but I think some of your peers and even some of your suppliers of trying to do similar things.

So can you may be just kind of talk to what your edges here and kind of confidence in being able to execute.

In this arena to effectively double the services that you are currently providing today by the 2025 target.

Yes, certainly so first and foremost.

As you add more complexity here and we've seen this with the battery additions consumers naturally go wait a minute I need a service provider just like I have with my cellular.

Service or satellite cable television or.

Security or even the current centralised power provider, which is typically a monopoly it's not always a monopoly right. So.

What we're seeing is is that consumers are coming to and wanting.

One growth to choke so to speak in service of all these different pieces of equipment and the reality is that I know some if not all equipment manufacturers every piece of equipment to be there is right and if I was running one of those companies that's exactly what I do the reality is going to be quite a bit different than that from what we're seeing so.

Our job is to go in and assemble different manufacturer pieces of equipment into one seamless interface of software.

It will be it will be an app.

For consumers to enter and also to have a single software interface to deal with us on surface. So if you have a service problem a billing.

Question.

Got a production problem, maybe look at your production estimates and so forth, it's going to be very highly interactive and it's going to be something that consumers are going to be.

Able to understand very easily and so we've.

We've got we think an advantage over trying to have a single.

Manufacturer have one single interface of the customers. The last one is that in terms of the advantage is again, just a reminder, and Rob made mention of it earlier, even on our loan contracts. In this is unique to us, but I don't think it will remain so we.

We have the service to the customer built ins loan contract.

We also have the grit services Milton alone contract. So we've truly made ourselves agnostic to lease PPA and loan and we truly see the financing as an enabler of our relationship with the customer. So basically we're the only one in the value chain has a contract and the customer that's it and so that gives us a huge leg up as we are going back to the customer and asked.

Hey would you like to add on a battery would you like to add on an EV charging plus the recharging service and away from all these different things, we feel like having an enormous enormous leg up on anybody out there but you.

That way you have.

You catch the question, we don't I don't disagree with it we just have a significant advantage over others and it's our job to continue to execute and demonstrate that advantage of our customers.

Great. Thank you guys.

Your next question comes down the line of Joseph O'shea, Let's Guggenheim partners.

Hi, there John just to return to the policy issue a little bit.

I would think that.

We're going to have cash pay would tend to drive our customers to trying to monetize that value on their own.

As opposed to third party ownership changed just wondering if you can.

Amplifier comments, a little bit on why you think cash pay might might like third party ownership.

Our.

Yeah Joe.

Well, there's two different types I think the most likely cash pay refund ability. If you will is going to come in the so-called commercial ownership or this would be the least PPA.

And that would go to providers like ourselves. Obviously this is more maybe it's not obvious but it's more geared towards the utility scale folks that.

Don't have access to the tax equity or the tax equity simply just isn't enough and so that's mainly what I was referring to there is a another.

Ask out there to have.

Consumers be able to get direct refund ability that is a different ask that is a different part of the code.

I think based on.

Again this may I may have too many years on me, but the.

The.

There was a lot of problems with the grant period from the.

Oh, nine and 10 and 11 period of time.

Including.

Fraud, including very much slow payments from the Treasury and the Treasury was in the service was much better staffed relative to their the job back then than they are now I think we've all experienced I certainly personally experienced that this year.

And so there's a lot of problems with that there is a tremendous amount of problems, sending a check out from the service from the treasury to an individual and making sure that's above board and making sure that that is done on a timely basis. So it doesn't create a working capital problem for that individual or a contractor. So I don't think it's a good idea for that reason.

I think it's better better done.

And the current constructive where we think things are going to go with the refund ability and least PPA.

But we'll see what happens, but regardless, whether somebody is going to get at 30% of a.

A check directly.

You're going to need to have that balance financed and you're going to and more importantly need that service. So we feel comfortable about.

No matter, what happens it's going to benefit us.

But.

Think it's more likely to see that will have refund ability on the lease BPA side, if anything versus a full cash refund if you will on loans.

Okay. Thank you and then just still form of policy from seems like we're going to get some stronger prevailing wage for begins.

W seems to have done pretty well this time Rob.

Curious as to how you think about that and the impact on your business.

There is an exclusion underneath one megawatt, which obviously covers everything we do by a large amount so.

That's the answer.

And you think that one megawatt exclusion finish your bar.

Yes, I think it's.

Very much impractical, you don't see a lot of unions in the residential market. There's a lot of reasons for that just point out that we pay very strong wages as an industry. We are very interested in making sure people have a living wage and then some.

So our industry has been very good about that and so I don't feel like any any sort of.

Demand or law to increase wages is needed it's quite clear that we pay way above most other industries pay so but.

But I think that that will stand in terms of the one megawatt cargo.

Okay. Thank you.

Thanks.

Your next question comes from the lineup Elvira Scotto with RBC capital markets.

Hey, good morning, everyone and thanks for taking that the question the slate.

So just just a quick ones for me thanks for providing the intermediate.

Harm major <unk> plan.

Can you provide a little detail like.

Within that plan, thanks for the detailed but.

Is that dependent on any certain outcome of net metering three play now in California, and then maybe if you can provide us any of your latest thinking around that and then finally my last question I'm glad you brought up Arizona I thought that was great news last night for the industry chest diet your thoughts on how you see that.

That.

Driving this top solid growth in Arizona.

With that and.

Announcement yesterday.

Certainly.

We we have a good portion I'd say call at roughly 30%. Some some months is a little bit higher.

Of our origination in California is are all of our origination some months is lower than that.

Overall, it's mid to high twenties on our customer base basis.

I would say that that's quite a bit lower than anybody else that we compete within the space.

I would say probably less than half.

As far as the waiting than others have so we have much less of exposure if you will.

Let me be very clear I think that that California is going to do the right thing here and there is such a groundswell support for solar I think.

If you look at our average customer income.

Moderate income customer because they do care about the savings, particularly in California with some of the highest.

Utility monopoly rates in the country.

And it would be a complete disenfranchisement of consumers to do anything that's anywhere close with utilities have asked for so I think I think the commission is going to do the right thing and I've been very clear about it I think the offset rate will go down and.

And so more money will flow utilities, you can call it a win to the utilities.

And I think that's appropriate, but it's not going to be something that severely hurts us or even crimps the growth of the industry in our opinion as best as we can tell right now.

With that said, we're going to continue to diversify point out that.

We will probably not be in all 50 states and on top of that all the territories.

Within the next 12 months or less and so we've continued to diversifier geography quite substantially so.

I think that we're in a great position and even if something came down as a as a little worse than what we were expecting on Nin three point out in California, I think we'd still be able to be fine with the growth that we've laid out because again.

If anything if there is a new year is a definite bias to the upside in terms of the number of customers on a growth.

The trajectory in the services so poor customer.

In the next couple of years, Arizona, I mean at the bottom line again applaud the commission for what they did.

This is pro consumer.

And it's going to have more growth.

Bottom line is I don't know how much more growth, but it's it's either incremental or it could be quite a bit but yeah. That's retarded some of the growth in Arizona. There's no question about that and now that burden has been lifted off the folks people of Arizona and I think that we're going to see higher growth. There. So it was it was a very much a.

A surprise and obviously a very good one and I think a lot of other commissions need to look at very seriously include in California about the experience.

When you put something punitive on people.

Basically disenfranchised gives them less choice and their energy, particularly given the technology changes that we're seeing I think what you're seeing is when those bad choices are made their rolled back you had Nevada and Arizona. There's other examples out there. So I think that folks ought to be looking more to the positive side of things is for.

Regards to policy rather than dwelling on some of the potential negatives that we we don't see happening.

Great. Thank you very much.

Thank you.

Your final question comes from the line of chest in Richardson with chest.

Hi, good morning, guys.

Really appreciate all the comments on 2025 and.

The services and <unk> implications.

Just looking at that slimy, assuming we we get that double and services per customer can you talk about maybe some of the biggest drivers between the 18 and 20 K of potential <unk> outcomes.

Is that in that mix of seven is it simply a higher storage attach right over the forecast period versus say a higher mix of.

Some of the smaller ticket items would drive the range of potential outcomes.

Yeah. So.

Instead of just a little bit earlier, but.

What I would see the first one is that say roughly 60% penetration rate of storage on the base by the end of 25, So that's a big driver.

C. A lot in grade services to the question that Julian asked a few minutes ago I think that's a big driver I think anything on the generator side could be pretty interesting load management.

Ivy charging in service may not be a huge NCB for customer increase but it certainly we will provide a lot of high margin recurring cashflow for us and so it certainly can be helpful. In that regard and then again to reiterate the point that as we move forward in time, and we rapidly pay off our debt. So the the negative on that.

<unk> is obviously that right.

That is going to naturally improve on a per share basis in a per customer basis. If we did not none of those so there is a rising natural rising floor. If you will on the <unk> per share, which is really where accounts right, but also in a poor customer basis.

That's going to come with US we just move forward in time and pay our debt often a much more rapid fashion like we have been doing I think that paydown. This year, Rob roughly he's going to be north of.

Call it $110 million or so yeah, it's strong and it's really driven by the fact that we've been able to increase.

The principal payments and really increase the alone.

Payments and the irony are is that we are issuing less of a hyper amortizing get that we'd had before and yet we're still able to bring down and naturally delever the company faster regardless.

That's helpful. Thank you and then just maybe the quick follow up there on your your last comment about 60.

60% penetration.

Presumably that does include sort of going back to the.

Existing base in and sort of tapping the retrofit.

Opportunity can you bring that up in terms of maybe.

How much how much retrofit penetration.

You need to get to that 60%.

Yes, I think.

It's all it's a combination of math on your on your forward attachment right on origination rights of the higher that goes up then that means you need less of the existing base to to to buy right storage service.

But.

We clearly see a lot of demand some of our markets are 100% attachment right on a forward origination basis and have been for years and so we're seeing a lot of demand from existing customers that frankly, we just haven't even booked into contracts were going out going back in there and upselling them now that we have.

A very goods signaling an actual delivery is esos systems and so we see that next year could be a big uplift in terms of of selling upselling storage per customer.

One thing is I'll point out is that is not a part of our customer account. So this would be part of the NCD per customer per share increase but it is not picked up in our customer account because.

We just count customers that and we list out services sulfur customer.

Track that so.

That's something in terms of upsell opportunity, we see a lot of pent up demand for so we're pretty excited and started started to.

Go back in and ramp that effort up if you will and I see a significant amount of growth in terms of up selling our existing customers as we move forward in next year and a lot of that has not necessarily been baked into into what we've laid out today. So as we get further into the year.

Next earnings call will be able to hopefully get a good update on that front, but.

I strongly suspect we're going to see a lot of uptake on it as far as upsells and storage of existing customer base.

All very helpful. Thank you guys very much.

Thank you.

I would now like to turn the call back to Mister Burger for any additional are closing remarks.

Thank you operator, thanks for everybody for joining us on the call and I. Appreciate all the patients that calls are getting longer as we have more and more interest in the industry and obviously in particular in Sonoma.

Next time will be joining you all it will be a new year and I want to point out a couple of things that we're seeing as far as the overall industry.

Attractiveness, we strongly believe that our industry and and particularly the service providers like some of it is it's a real opportune time and why is that we expect very strong monopoly retail power rate increases over the next few years sitting in Houston.

We have a front row seat to what's going on in the natural gas and oil side of things and we see a very very constructive pricing environment. Obviously, it's not good for consumers, but we see strong retail power rate increases.

So consumers are going to be looking for more options against that we see a low rate of cost of capital even with the rise anticipated ryzen risk free rates, we have laid that out with the executed on that quite nicely. This year, we see that continuing as far as the risk premium continuing to compress even a little bit and we see supplying competition for a key equipment inquiry.

<unk>, so we're going to get past this issue with the energy storage systems being not available and we're already seeing a tremendous insight and visibility into that and we see a lot more equipment and therefore, a lot more services.

Poor customer increasing but overall consumers are turning to service they need to have one interface. One service provider that's going to be there in a timely fashion and I am proud to say that <unk> has laid out a very strong vision for what the future of the industry is going to be in the not too distant future and we've laid out and well on.

Our way of executing on that plan. So thank you for joining us and look forward to seeing you again in the new year.

Thank you for participating in today's conference call. You May now disconnect your lines at this time.