Q4 2021 Sunrun Inc Earnings Call
[music].
Yeah.
Greetings and welcome to Sunrun.
<unk> 21 earnings calls.
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A question and answer session will follow the formal presentation.
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I'd now like to turn the conference over to your host Patrick Jobin, Senior Vice President Finance and Investor Relations Sunrun.
Please go ahead.
Thank you Vikram before we begin please note that certain remarks, we will make on this conference call constitute forward looking statements. Although we believe these statements reflect our best judgment based on factors currently known to US actual results may differ materially and adversely please refer to the company's filings with the SEC for a more inclusive discussion of risks and other factors that may cause our actual results.
To differ from projections made in any forward looking statements. Please also note. These statements are being made as of today and we disclaim any obligation to update or revise them on the call today are Mary Powell Sunrun CEO , Tom upon what power Sunrun, CFO and Ed Fenster <unk> co founder and co executive chair following their prepared remarks, we are.
We'll conduct a question and answer session and now let me turn the call to Mary Thank.
Thank you Patrick Hi, it's wonderful to connect with all of you.
Looking forward to talking about what Sunrun has been up to in the last quarter I think closing on six months as CEO I am so pleased to be able to share our financial and operating results with you I am encouraged and excited about the progress we're making as the nation's later in a critically important industry with climate related events, becoming more urgent daily never have.
We felt more passionate and optimistic about our purpose.
Headline is that the Sunrun team delivered record volumes in 2021, having added over 110000 customers in the year, representing 31% growth in new installations, while bringing two large companies together and navigating a dynamic operating environment during COVID-19 .
We are entering 2022 with a growing deep backlog of customers, who are excited to become more energy independent and secure in their own homes at the same time as we drove a surge in our business. The surge in omicron created some late Q4 and early Q1 challenges that already seem to be behind us.
Along those lines. There are four key highlights I wanted to discuss with you before I turn the call over to Tom and Ed for their quarterly updates.
First clearly we continue to see tremendous growth in our business.
We closed out 2021, adding over a 110000 customers representing 31% growth in solar energy capacity installed exceeding our guidance and marking the highest growth rate for sunrun in five years and to put our customer additions in context. This is two times our near.
This competitor we did this all at an operating scale nearly three times larger than we were just five years ago, we are seeing customer demand accelerating significantly and our talented team is capturing this interest generating orders far in excess of installations, resulting in more than a 57% growth in our direct business.
Log I believe we fundamentally have achieved a tipping point, whereby our product and services are something customers increasingly see as essential for affordable reliable clean energy that puts them in control something they simply cannot get from utility power Ed will touch on this later, but we also.
I believe the inflationary pressure in the economy combined with rapidly rising utility rates and chromatic events will continue to turbocharge this customer demand.
Second.
During 2021, we closed out significant portions of our massive transformational integration with wind and solar today, we are operating as one team while some might see this as routine something easily put together in a spreadsheet. This was a tremendous accomplishment.
Late in the year. We also brought together large operating groups and combined the leadership teams to build the strongest best go forward team in the business you may have seen some of our recent appointments, including Paul Dixon, who is our new Chief revenue officer, along with chance already who is our chief sales officer, both experienced leaders from them.
Solar team together, along with high powered members of the existing Sunrun team, we are leveraging the best of both organizations and accelerating the impacts we will have on the market the planet and for our customers. I'm also proud to report today that we exceeded our acquisition related synergy target of 100.
$20 million exiting 2021.
Third we continued to advance our strategic efforts to accelerate home electrification in transportation. We now have over 32000 residential battery systems deployed far more than any other energy company and are increasingly networking needs together to form valuable energy resources for the grid something I am.
Vince will pay significant dividends in the years to come as grid operators continue to see they fundamentally need our growing fleet of resources. We are also making tremendous progress with our partnership with Ford, where we are the preferred installer of a bidirectional inverter nationwide that we co developed with Ford we expect meaningful.
Flywheel effects from this partnership and the widespread adoption of electric vehicles consumers want to charge their cars with clean affordable energy and often consider a solar and battery system when they make the switch to an EV. It also provides.
Provides us the opportunity to install larger solar systems, which can carry high incremental margins and bring even more value to our customers. Our partnership with Ford is already driving increased brand awareness for Sunrun in all 50 States Sunrun is not just the company who can provide solar systems, but the company who can deliver an electrified future.
Sure you'll hear a lot from me over the next few quarters on virtual power plants, our electrification efforts and steps forward on providing innovative advanced product and pricing solutions for customers. Importantly, these initiatives not only deliver increased value to customers. They prove how important distributed resources will be to the grid of the future.
Sure.
I believe sunrun is positioned to lead in this new category, given our growing brand strength technical capabilities operating scale broad multichannel customer reach and increasing solar and battery system network density.
Fourth as noted in my opening comment while we did exceed our volume guidance, we experienced significant effects from the national Omicron search.
On our installation organization limiting our ability to quickly fulfill customer orders hindering labor productivity and requiring us to pursue higher cost fulfillment options in certain circumstances, the health and safety of our crews is paramount and our operating procedures reflect that some of these capacity productivity and cost pressures persisted into early.
<unk> 2022, Tom will discuss these impacts in more detail, but the brutal fact in terms of this quarter is that our strong sales growth combined with the pressures from the omicron surge late in the quarter led to in period margins that were below the target we shared with you in early November .
Good news is that the backlog growth provides us great visibility into 2022 and as we see the omicron wave abate this should lessen the effects on our installation team.
Last but certainly not least before I turn the call over to Tom and Ed.
Want to thank our team for their hard work disrupting a multi trillion dollar industry. While also integrating two massive operating companies. During a pandemic is a big challenge and Sun hunters deserve a lot of credit for their dedication to our mission and these strong results in 2021 I also want to express my gratitude for our customers.
Who are transforming our country's energy system and helping to solve climate change one home at a time at a very rapid pace over to you Tom.
Thanks Mary.
Entering 2022 in a strong position with strong order momentum record backlog and a healthy balance sheet, we're growing faster at scale exceeding our prior volume guidance and continue to be excited by the consumer demand trends in our business.
Turning first to volumes in the fourth quarter customer additions were approximately 30000, including approximately 22000 subscriber additions for the full year customer additions were over 110000, including nearly 89000 subscriber additions.
<unk> energy capacity installed was 220 megawatts in the fourth quarter of 2021 of 28% increase from the same quarter last year pro forma to include driven solar.
For the full year 2021 solar energy capacity installed was 792 megawatts, representing 31% growth compared to the prior year.
This growth rate exceeded our prior guidance and represents the highest annual growth rate of new solar energy capacity installed that Sunrun is reported in five years and at nearly three times the operating scale.
We've continued to experience strong customer demand for our products and services in Q4, continuing the trend we've seen throughout 2021.
Over the course of the full year, while installs grew 31% our backlog grew by 57% due to strong demand and sales productivity. While this sets up a strong 2022, the mismatch between sales and installation activities in 2021 creates a drag on financial financial performance in the year as we first highlighted on our Q2 results call.
We closed out the year installing a record number of batteries representing over 100% year over year growth in 2021, while battery availability.
<unk> continue resulting in fewer battery projects than we initially forecast at the beginning of the year. The supply situation is improving and we expect to ramp battery installations considerably in the quarters to come.
We qualified a third battery supplier in Q3 that met our pricing performance criteria and expect to introduce more battery suppliers in the next few quarters to meet the strong consumer interest.
We ended Q4 with over 660000 customers and nearly 568000 subscribers representing four seven gigawatts of networked at solar energy capacity, an increase of 20% compared to the prior year.
Our subscribers generate significant recurring revenue with most under 20 or 25 year contracts for the clean energy we provide at the end of Q4, our annual recurring revenue or <unk> stood at $851 million with an average contract life remaining of over 17 years.
In Q4 subscriber value was approximately $37000 and creation cost was approximately $29900 delivering a net subscriber value of approximately $7100.
Total value generated which is the net subscriber value multiplied by the number of subscriber additions in the period was $156 million in the fourth quarter total value generated was $631 million for the full year.
This result was lower than our guidance driven primarily by the effects of omicron on reduced installation capacity knock on effects and faster than anticipated growth in orders.
Additionally, as crew availability in each geography moved around during the omicron surge and battery availability remained tight in the quarter. The specific product mix. It was ultimately installed from our backlog in Q4 was slightly less advantageous than anticipated put simply we were caught with significant omicron related installation on productivity and cost challenges.
But we continued to execute above our expectations on customer orders.
As you can see on slide seven we estimate these pressures impacted total value generated by approximately $107 million in 2021, the excess growth in backlog during the year resulted in stranded margin of more than $75 million, which we expect to harvest in 2022.
Additionally, in Q4, the omicron related labor productivity impacts and resulting product mix changes delivered a $31 million headwind.
If you remove these headwinds total value generated would have been above $737 million in 2021.
We believe in our ability to ultimately fulfill the strong consumer demand, we're facing as we move throughout 2022 and in Q4 made no efforts to throttle sales activities in the face of short term operational challenges.
As a result, we continued to incur the sales related and initial project development costs as we built a large backlog of orders pressuring our reported net subscriber margin and therefore total day generated we made this decision with a long term perspective, we want to build the largest base of high value customers and know that trying to solve for single period reported results by throttling.
Sales won't drive the most long term value for the company.
You can see that on an absolute basis, our product mix and pricing remains strong with the highest subscriber value of the year in Q4, and only off 1% from Q4 2020, despite flowing through a significant reduction in the ITC level. In fact, the current backdrop of rapidly escalate in utility rates and inflation provides meaningful opportunities for us to increase pricing in many mark.
Again, and we intend to execute these changes over the coming months.
Turning now to gross and net earning assets on our balance sheet gross earning assets were $6 7 billion at the end of the fourth quarter gross earning assets as the measure of cash flows we expect to receive from customers over time net of distributions to tax equity partners and partnership flip structures project equity financing partners and operating and maintenance expenses disc.
Countered at a 5% unlevered cost of capital.
Net earning assets were $4 6 billion at the end of the fourth quarter, an increase of over $55 million from the third quarter and $434 million from the prior year.
Net earning assets is gross earning assets plus cash less all that we.
We ended the year with $850 million in total cash.
Turning now to our outlook, we are forecasting solar energy capacity installed growth of 20% or more for the full year 2022.
Several factors, including California, net metering various proposals in Congress to extend <unk> increased the investment tax credit and a volatile interest rate and inflation environment limit our ability to provide precise guidance on total value generated and cash generation. At this time, we believe however, the trajectory for cash generation remains robust, especially over the longer term the.
<unk> to build a large california backlog or further changes to interest rates and the resulting timing of project finance activities could result in meaningful swings in these metrics in either direction.
We currently believe however, total value generated for the full year 2022 will grow faster than volumes.
And that margins will increase sequentially throughout the year.
For the first quarter, we expect solar energy capacity installed to be in a range of 195 million to 200 megawatts.
As noted previously many of the omicron related effects on margins and product mix continued into Q1, and we expect Q1 margins to be comparable to Q4, but increasing in subsequent quarters now I'll turn it over to Ed.
Thanks, Tom.
Today, I will discuss the impacts of increased inflation and interest rates on the company and also touch on California, net metering and our new corporate credit facility.
<unk> is well positioned for increasing interest rates, especially those driven by escalating inflation as we were able to raise prices to new customers as necessary behind the large utility price increases that are underway.
In addition, our existing capital structure is well hedged through a mix of interest rate swaps and fixed coupon long dated debt securities.
Utilities famous for ensuring customer rates escalate faster than overall inflation are wasting no time exercising their monopoly powers to raise prices in.
In January inflation in electricity services was 10, 7% year over year.
We've seen a handful of utilities in our largest markets file for even larger increases.
Pacific gas and electric and Con Edison have filed for rate increases of 18% and 11% respectively on the backs of a capital expenditure Bonanza as well as higher labor fuel and capital costs.
Last quarter, Florida power and light was granted a 12% increase in.
In 2021, central and implemented modest price increases that offset the reduction in realized ITC percentage across the year.
In 2022, we have a more significant pricing opportunity, which we can execute against while still expanding the wedge between incumbent utility costs in our customer offering this will allow us to drive significant value for customers, even as we pass through higher costs.
Our existing portfolio is well hedged through interest rate swaps and long term fixed rate debt.
As we deploy systems, we use interest rate swaps to programmatically fix the cost of debt for about 20 years.
The vast majority of our $2 6 billion in floating rate debt is fixed as a result, our current portfolio of long dated amortizing interest rate swaps has an average final maturity extending nearly 16 years.
Of our $3 9 billion in fixed rate debt, including recourse debt only.
Only 7% has a maturity or anticipated repayment date before December 31, 2025, and only 5% has an actual maturity in this period.
Despite the recent increase in interest rates, we still expect to achieve an advance rate on our upcoming long term financing in the range of 95% to 100% of contracted subscriber value at a 5% discount rate.
In December the California Public Utilities Commission published a proposal to materially reduce the value of power that residential solar customers export to the grid.
The tax power, both generated and consumed onsite through a fee and to reduce the grandfathering period of existing customers by five years.
As described in my statement posted to our website in December the proposal is contrary to the state's objectives of addressing climate change and eliminating fruit blackouts as well as contrary to what Californians say they want.
The proposal met with Swift and significant pushback from National and International electric rate design experts national and state politicians community groups.
Environmental Justice groups environmental groups, Influencers and at least 125000 individual petition signers.
On January 10th Governor Newsome said, there is work to do on the proposal on.
On January 21, the one major environmental group that had supported the proposal walked back its position.
On February 3rd the Commission said it was pausing the proceeding until further notice to consider revisions.
The CPUC also likely need more time because of the head of the energy Division and the two commissioners most involved in the proceeding have all left the commission, causing the matter to be reassigned.
The response of environmental and solar groups broadly has been that the grandfathering period should be maintained.
The reduction in export prices be phased in over time to permit battery manufacturing capacity to increase.
And the tax on power, both produced and consumed onsite be eliminated.
That tax alone at about 14 cents, a kilowatt hour would be higher than the full retail cost of electricity in 42 states.
Despite the outpouring of concern over the proposal. It is too early to know how significant the revisions to the proposal may be or how long achieving a final outcome may take.
However, we are hopeful of more even handed policy, which also encourages solar customers to support the grid with peak period exports will be adopted.
Californians demand and deserve resiliency control over their energy costs in the future and faster progress against global warming we.
We hope to answer these needs with products that benefit all californians, whether or not they are sunrun customers, but we're confident that in time, we and the industry will innovate to meet this overwhelming customer desire regardless.
Due to the delay in the proceeding.
The size of our existing installation backlog and our expectation that we will build an even larger backlog of California systems prior to the enactment of any new policy.
We may not deploy a material number of customers under our new policy until late 2022.
However, 2022 financial results, especially quarterly results are likely to be impacted by strong demand from californians eager to sign up before rates change.
We will refine our go to market strategy and forecast as clarity emerges from the CPUC.
In January we retired our $250 million recourse lending facility and arranged a larger $425 million facility at enhanced terms and with a longer tenor.
The cost of the new facility was unchanged, while the asset borrowing base was expanded financing terms for inventory and project backlogs were improved and the discount rate applied to existing assets was updated from 6% to 5%.
These changes will support the scale growth and backlog of the combined company.
We continue to maintain a robust project finance runway.
As of today closed transactions and executed term sheets provide us expected tax equity and project debt capacity to fund over 375 megawatts for subscribers beyond what was deployed through the fourth quarter and with that I'll turn it back over to Mike. Thanks, Ed.
I am so excited about this year and what this team can accomplish I know rapid growth distort some of our metrics, but the underlying fundamentals are enviable to be the nation's leader in a fast growing space with unprecedented customer demand provides a tremendous opportunity for value creation.
I'm still encouraged and excited about the work we have done delivering record volumes in 2021 with climate change accelerating in the utility rates rising around us. The time is now to fulfill our aspirations are working with customers all over the country to self generate store energy electrify their homes adopt leading EV technology.
<unk> and together create a more affordable and resilient future and a plan that run by this time with that operator, let's open the line for questions. Please.
Thank you very much at.
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One moment, please while we poll for questions.
Okay.
Your first question from the line up.
James West.
With Evercore ISI. Please go ahead.
Hey, good afternoon everybody.
Good afternoon.
This relationship with Ford that you guys have I think it's a huge positive on both sides, but certainly helping out your brand in the home integration system, which we learned about recently I think is that through unique.
Proposition and creates a nice moat I'd love to hear if you if you've already started to see people.
Inquiries about you installing solar because they want to do that ahead of their life.
Lightning deliveries and if there's any other OEM relationships.
That youre working on that May come to fruition this year.
Thank you and we Couldnt agree more.
We are really excited about this partnership.
And really optimistic that it is going to really fundamentally move the needle as you may or may not know the cars launching late spring.
<unk> already doubled production target to 150000, and yes to your point from a brand perspective, we are already seeing like tremendous uplift.
And again with our announcement and again as I think so many of US noticed even with the Super Bowl right. There is so much focus on the adoption of Evs right now and so much incredible excitement around the Ford.
So again, we're seeing just incredible customer demand overall.
Candidly I can't say, we're tracking specifically if this customer inquiry came relative to their excitement about then bringing on their forward, but what I can tell you is we're creating a lot of buzz in all 50 states both in terms of forward and Sunrun.
It's really going to be a big game changer.
Great and I'm sure. It is just one follow up for me on pricing.
You'd mentioned.
Talked a bit about what.
Electricity prices has been doing nationally and in California, and other places is.
Is it fair to say I think you also said that you wanted to keep that wedge between you and the utilities.
So your price increases would be below kind of the national increase or am I thinking about that the wrong way.
I, it's a great question I think what we're trying to underscore is we obviously want to provide the best possible product for our customers as we can.
Like many businesses, we are facing some increases in our operating and capital costs, we have plans to combat that but some of those are reality.
And I think as necessary.
Feel like we have ample room to recover those.
From customers over time, given the competing product utility electricity.
Is escalating at its fastest rate in many many many years.
Okay got it.
These guys.
Thank you.
Yeah.
Thank you.
We have a next question from the line of Mark Strouse with Jpmorgan. Please go ahead.
Yes. Good afternoon, thanks, very much for taking our questions.
So it sounds like you might be experiencing some some pull forward in California because of NIM <unk> just curious in the outlook for this year, the 20% plus volume growth you're expecting.
How significant is that pull forward that you are kind of baking into that number.
Yeah.
Hey, Mark So I think in the Q4 results. If you think about the timing of that NIM decision coming out. It was very late in Q4, I think the general growth in demand. We're seeing is from underlying consumer interest in the value prop and product that we deliver.
I think as as that proposal has gotten a bit more airtime certainly there is some customers that are thinking about okay. A change in rate structures may incentivize us to buy earlier and Thats certainly a tactic that depending upon where the exact proposal or changes in net metering land.
We see as a very large opportunity I think there is a potential.
<unk> lands in a very draconian state, where every customer would naturally be incentivize to get an order and in an interconnection permit on file well in advance of that cutover and so we're expecting.
Some amount of growth in backlog.
Through the first half of the year or at least I think right. Now we are in this moment, where we're still waiting on real clarity on where the proposal is going to land when will it be implemented what's the timeline for that and Theres a lot of uncertainty around that right now so it's a little tougher to give you a precise answer on backlog growth I think.
More than 20%.
Installed volume growth is a range that we feel comfortable in.
Being able to grow our own fulfillment and external fulfillment capabilities as well as manage that backlog, but it's entirely possible that you actually grow backlog throughout the year well in excess of that if the proposal lands in a particularly bad spot.
Okay. Thanks, Tom and then just a quick follow up maybe for you the inventory level continues to build.
How should we expect that to trend over the coming quarters as the supply chain improving enough, where do you think that can start to decline over time.
So there are spots that we definitely see it improving I think the batteries situation that was notably tight all throughout.
Throughout 2021 is an area that we definitely expect to alleviate here a bit over the balance of the year.
The the uncertainty on the ITC is another element as we think about inventory levels. This year, if it continues to step down.
Back into a safe harboring program, if it's held flat or steps up our dynamics there might change.
And then I think.
On overall trade and industry demand I think we definitely put capital to work to put ourselves in a strong position in terms of.
In terms of availability of materials in 2021 and are at abnormal levels.
Well in excess of triple digit days and so.
Naturally draw that down as we get more comfort with the overall picture.
Makes sense. Thank you.
Thank you we have next question from the line of Brian Lee with Goldman Sachs. Please go ahead.
Hey, everyone. Good afternoon, thanks for taking the questions.
I've got two I'll, just ask them all at once.
First just clarification on the total value generation target growing above capacity installations. This year is that on a base of 631 as reported or is it versus the base of $737 million.
Adjusted and then second question just around labor and productivity. It sounds like clearly youre seeing a ton of demand trying to keep up with the demand is an issue. How do you think about that heading into 2022, what are some of the puts and takes made immediate mitigation strategies for having those pressures.
Not repeat this year and being able to kind of fulfill that more closer to <unk>.
Backlog growth is versus what you're able to actually do on the installation side. Thanks guys.
Yeah. Thanks, Brian So on the total value generated guy that's on the basis of the reported 631 level.
And yes, we expect that to grow in excess of our volume growth as we get back to a more normalized margins in some of the margin expansion opportunities that we get excited about.
The one notable item there that can move around quite a bit as I mentioned in one of the earlier questions is the impact of sales.
Sales expenses well in advance of installs and so the California situation is one that we're watching very closely.
On.
On installation capability.
Really excited with what we did deliver this year, 31% at.
Three times the scale, we're at five years ago installing twice as many customers as our next closest competitor.
And so we're.
We're working hard to fill that but Mary I think a few things to add on how we think about.
Similar I mean again really the thanks for the question that the result, so much now was driven a lot by what happened with <unk>.
We have already seen that surge abating, we have seen that our crews are back at work and feeling better and we also as a team have of course been working on our overall strategy to ensure we have a lot of capacity to keep up with demand I mean, the wildcard of course as we talked about is what we'll have.
<unk> with California, and then what is going to be the surge I mean, we are going to continue to want to.
Take advantage of all of the customer demand Thats out there. So again, we feel like we have a really good plan.
We told you what we're expecting to see from a growth perspective, but again there are factors that could say, we could see an even higher surge in demand.
And then obviously you would have to figure out how to meet that next level of demand.
I appreciate the color I'll pass it on thank you.
Thank you we have next question from the line of Julien Dumoulin Smith with Bank of America. Please go ahead.
Hi team. Thank you for the time.
Afternoon.
Actually let me just picking up where you left it off actually.
Let's talk a little bit more about the cadence of customer value creation through the year. You just said yourself fourth quarter was impacted was it fairly discrete items right labor omni chronic cetera, but you also at the same time described some of these factors.
Is abating here and describing also fairly flattish per customer metrics.
In the current quarter, obviously, there's some seasonality, but how should we kind of frame that against the backdrop of growth is growth effectively going to continue to depress customer value creation metrics through the remainder of the year or what's the shape of that rather if you will.
Okay.
Yeah. So on the Q4 effects. If you think about really the timing of the omicron surgeon, where that hit us on labor productivity and capacity.
Really the last boom.
Half of the quarter, so and we saw that continue well into January beginning of February here.
Feeling good coming out of that but a similar effect on a whole quarter basis to have a portion of Q1 that was affected by some of those.
As we come out of that we definitely expect that margins will improve over the balance of the year.
Potential for growth pressure on on margins, especially on the sales and marketing side of things, but the operational cost elements. We expect wood would turn back out and then.
As we take some of the pricing actions that Ed and I have both mentioned as <unk>.
Supply chains continue to normalize we expect to see benefits there on costs that will drive higher margins over the balance of the year.
I guess, Julie I also would just add to that this is Mary.
I mean again back to that point.
Tom hit it really well and appropriate but I would also just add when you look even at the customer margin that we produced in Q4, I mean that is still like the highest reported margins in our business. So again, we expect those to go even higher we want to harvest all the growth that's available to us and again Thats why.
I'd say were in an enviable position.
From a market position and a growth position going forward, but again I just wanted to make that point on Q4 margins and Julian It's Ed just quickly on.
On California.
We could start to receive more clarity on that.
In a few weeks or maybe more likely in several months, depending on what that timeline looks like the shape of the curve in terms of sales and installations will vary and so I think part of the uncertainty Youre hearing with US is we don't know if that process is going to come to a head next month or in June and so and so it's hard to make it.
Point production.
Right.
Let me just bring a bit more strategic points of follow up on that I mean, you said in your prepared remarks.
Total value generating your cash generation guidance might be a little bit impeded on the margin.
Can you talk a little bit about how you think strategically with the stock where it is about.
Producing and targeting cash generation to do something.
Like a share buyback or something or Conversely to monetize assets to demonstrate to the market the underlying value of your assets.
<unk>.
Cash guidance or asset sales et cetera.
Yes.
Hi, Julien it's Ed So first I think as to the value of the assets. We have consistently been achieving just that advance rate on the assets in excess of 95% of the contracted value.
I shared on the call that the upcoming transaction in the next one that we do we're still expecting to be in that 95 to 100 range.
So hopefully we've got quite a few data points on that.
In the marketplace.
As to a buyback look obviously at these sorts of share prices.
There is a compelling argument for that.
At the same time, we are in the middle of a major regulatory proceeding.
And do also see.
There are other investment opportunities.
And so our sort of proceeding through this period with some caution.
But it certainly is a topic that has been discussed at the board and we're thinking about and as you know.
<unk> periods in the past we have done.
Buyback before.
Yes.
Right.
Alright, guys. Thank you.
Thank you we have next question from the lineup Mohit <unk> with credit Suisse. Please go ahead.
Hey, good evening and thanks for taking our questions.
Maybe just one question on the value generation can you just talk about like the growth how much how to think about the different buckets how.
It's just coming from the leasing mix increasing in the year versus just in net subscriber value.
Through the year.
Yes, so I think there's a few items there one is as we've seen throughout this year continued improvements in product mix driving higher battery attach larger system sizes, we expect those trends to continue throughout 2022.
No.
Q4 effects here on labor productivity and product mix coming out of our backlog I would view as temporary so you can think about those as really reversing out.
As we get past Q1 here in 2022.
And then.
And then I think the big question. The one that we've touched on a couple of times here is this question of just how.
How well match sales and install capacity are throughout the year.
We definitely grew backlog at a pretty astronomical rate. This past year, if you think about 31% installed growth and 57% backlog growth.
That's a dynamic that.
We're working hard to open up.
Incremental fulfillment capabilities and options.
We mentioned in Q4 flex in a bit more into into slightly more expensive fulfillment options as well and so.
We will continue to work to get capacity, well aligned and that drag will go away, but then I think the general ongoing trends of finding ways to improve cost and improve customer experience and make the whole end to end journey.
Much simpler and a much better customer value prop will be positive for us.
Got it got it and then maybe.
The customer experience.
Question on the phone.
50 partnership and it's still too early but how should we think about the attach rates.
Expectations for either the <unk> or for the home backup systems.
Yes, so we haven't we haven't broken out any specific items to think about there. Obviously we are the nationwide.
Installation partner here for the bidirectional inverter and charger. So we'll have some customers who are just getting just getting that set of hardware initially and our first consultation with them our conversation with them will be the moment, where maybe they consider going solar.
<unk>.
They may choose to align these two as the vehicle goes into production and they are finalizing the order and say Hey, I don't want to get solar and my charter at the same time and so we're working on bringing those discrete customer offers to market and I think as we as we get into.
Actual delivery and deployment here it'll be easier for us to give you a little more color on the nature of that relationship and some of the metrics there.
Got it and I look forward to that.
Thanks for that answer.
Right.
Thank you we have next question from the line of Joseph Osha.
Guggenheim Partners. Please go ahead.
Yeah.
Hello, everybody.
Two questions for you first following up a little bit.
You were saying that you know in the past we have communicated about cash generation relative to the.
The pace of new.
New capacity additions I understand this year is a little disrupted over the longer term how should we think about the relationship between either new business generation or value added if you prefer to talk about it that way relative to cash generation.
Hey, Joe It's a great question, we continue over a long longer term meet even medium term to be confident that cash generation can grow faster than megawatts deployed just some of the special factors in <unk> of this year make the production a little bit more challenging.
Okay, but thats, a reasonable still a reasonable way to think long term.
Helpful. Thanks, and then secondly, you alluded to this in your comments out about do you see sort of crossing the Rubicon in terms of messing with existing assets.
I'm wondering if you've seen any impact in terms of the way existing assets are trading or accessing debt or securitization markets has there been any expansion of <unk>.
Spreads based on our reaction to the Cpuc's proposal there.
Good questions to ask so first in terms of customers that obviously, we think honoring promises made to customers. In written cases is important and we would hope that that is.
We hope we'd hope that that occurs.
It happened a couple of times.
Good good.
It has happened a couple of times in the company's history, where changes in rate structures have put customers underwater. It happened once in Nevada as Youre, probably aware also once in California. After the restructuring of the tiered rates, we did not see any noticeable changes in collections or payment.
Performance R R.
Other than maybe some.
Aggravated views about the utility in those instances.
Don't anticipate.
Even if there were a negative effect there necessarily.
And financial impact on US obviously, it's an.
Upset customers potentially other people.
I think as to the debt markets, we are not seeing any impact from that some people ask questions and just because it's something that's important to do.
We haven't seen any noticeable reduction in interest at this point I think people also think that this will probably work to a reasonable perspective.
The securitization in the industry yesterday my understanding is this was not a topic of discussion.
Amongst the lenders in that transaction, either so I'm optimistic.
People hear perceive that this will be worked out in a reasonable place and that there is not reason for concern.
Okay. Thank you.
Thank you we have next question from the line of Tristan Richardson with Twist Securities. Please go ahead.
Hi, Good afternoon, guys I really appreciate the overview on margins this year and all the puts and takes there.
Historically, you guys have talked about all the dynamics that could really expand margins whether it be.
Greater battery attach rates EV adoption dictating larger system sizes.
Additional services per household.
I guess thinking long term, maybe just outside of two.
2022 guidance.
Does the business support some of that expansion towards that subscriber values that runs put up in the past.
Potentially.
Something with an eight handle on it or a nine handle on it longer term.
Labor productivity issues subside and you have and you have pricing power or pricing flexibility.
Yes. This is Mary I, 100%, we absolutely see it the same way.
Again, Thats why I made the point of.
Even with some of those challenges we outlined we delivered a really strong best reported margin right. So so when youre starting there and then you are looking to the future and Youre looking at the partnership we're doing with Ford Youre looking at really us being the leader in terms of battery attachment rate et cetera, and the <unk>.
Entre there just become more and more opportunities to add value to customers is lives and help them transform their relationship with energy and to do it in a way that yes is additive from a margin perspective.
I appreciate it thank you very much.
Thank you we have next question from the line up Andrew Petco Cole with Morgan Stanley . Please go ahead.
Great. Thanks for taking my question Tonight.
Just one on battery availability just wondering if you could talk through maybe timeline of <unk>.
When you maybe add a fourth.
Supplier and maybe an outlook for how quickly you can you would expect to grow in your battery business. This year.
Yes, so certainly battery attach we expect to grow quite meaningfully here in two.
<unk> 2022, I would assess the overall supply picture as better than it was in for 2021 overall.
Especially the second half of the year.
As we mentioned, we deployed more than 100% year over year growth in batteries this year.
This past year and I expect that to continue to grow we quantified the third supplier at the end of Q3.
And while we had some supply chain and availability challenges throughout Q4, we expect those to abate here in early early 2022, adding another one where as we mentioned before we're constantly evaluating all of the different products that are coming to market looking at.
Performance criteria price points, whether it meets the real customer need and then working through the challenges of availability and who we want to partner with but certainly would.
Would be in bounds for us to think about adding some here.
Faster rather than slower but.
Nothing nothing more concrete to share on that today.
Great. That's super helpful and just one other question for me Mary you talked about some additional potential product offerings.
Any timeline on that or maybe a sneak preview as to what that might look like.
No sneak preview, but we do we do have a number of things that we're working on for sure and in another value proposition as I know we've talked about in the past is really again. This aggregation we're doing of so many distributed devices.
Lola Battery network that we're that we're building and sorted for law not even long term, but longer term view there is nothing but upside.
From the perspective of the owner and operator of so many of those those assets to leverage from our great value perspective.
Great. Thank you I'll leave it there.
Thank you.
Thank you we have next question from the lineup Amit.
With BMO capital markets. Please go ahead.
Hi, Thanks for taking my questions.
Just real quick on the $18 million kind of headwind.
I'm, sorry, if I missed it but was that really kind of reflective of perhaps like less.
Battery sales or is that kind of a mix between subscribers and kind of cash purchases at one quick follow up.
Yeah, no batteries the primary item there. So as you think about what transpired for us in Q4 in the quarter were generating new business. We are entering with a chunk of backlog and then just given omicron related impacts on crew and labor availability in given markets, the resulting portion of that backlog that was install.
<unk> was a little different than we had anticipated at the start of the quarter. So.
Just a different subset of our customer base that was installed in the slightly less advantageous but.
On the battery front that being one of the primary items there if you will.
Our installations are done in crews of perhaps five people not everyone is battery qualified and managing through the absenteeism as a challenge and required.
Heavier staffing on jobs and different sorts of jobs and that was part of what you saw in the quarter.
Great. Thanks for that color and then just thinking back to the third quarter call I think Mary had talked about potentially kind of.
Radical collaboration kind of be needed with the with the utility industry.
I think it's fair to say that the NIM proceedings have been fairly.
Acrimonious and then we kind of looked at Florida in the states kind of incumbent utility it's kind of.
I guess supported some legislation that is again kind of a little bit less favorable for residential solar.
Wondering if you can any kind of thoughts as you kind of expand on kind of how you see that radical collaboration maybe kind of starting to kind of take shape or form.
Well I think it's great question and yes, Im as bullish on radical collaboration as I was.
In the fall last year, the year before and because it is just so essential for the long term health of an energy grid system, our ability to build an energy grid system of the future that can serve society in the most cost effective resilient way so yeah.
So, while we have California, and Florida going on we also you may have seen this wonderful news and example of radical collaboration coming out of Hawaii, just last week. So.
What youll see in the sort of evolution in radical collaboration is many times. It comes out of the pain of failed attempts at looking at things from a very traditional perspective, and I think that that's very much what we have going on here is the pains of looking at things from a very traditional perspective.
Versus a very forward looking perspective.
On how to create value not just for society not just for customers not just for the planet, but for the grid overall through radical collaborations so.
So yes, so I'm very encouraged by what we saw.
Come out of Hawaii, we were a big part of that effort working with FICO and it was very impressive.
What they did and what we all accomplish so I still have that same drive and optimism and.
Energy.
For pushing it forward to the future.
Thank you.
Thank you we have next question from the line up.
<unk> had a chat with Susquehanna. Please go ahead.
Hi, Thanks for taking my question.
One more on battery availability.
Can you.
Wouldn't you expect to start taking deliveries from the third supplier.
And can you also talk about opportunity to <unk>.
Kris supplies from your two existing vendors.
Do you have to sort of relax yoga.
Pricing criteria to get more supplies from them.
Yes.
Yes, so I'll take the second one first just on general availability here remember that over the last couple of years, we've seen rapidly escalating consumer demand that is simply outpaced manufacturing capacity and many of the suppliers across the industry. The ones, we worked with and otherwise have been working hard to ramp that so getting our hands on more batteries from existing suppliers.
Yeah.
In part is just largely been a function of us working hand in hand with them as they ramp their supply chain and I think we're confident in the outlook. We have now from our suppliers and other perspective suppliers on.
Availability over the course of the year that doesn't necessarily require concessions on our part in order to get access to product I think our position as the largest player in the industry now puts us in a strong position to.
To get preferred access to supply on.
On terms that work for both us and them and I think we're.
We're happy with that on the third supplier, we have begun receiving product.
And again, our ramping that and we'll continue to look to add others here as we move throughout 2022 minutes that I might just add if we if we take the projections from the manufacturers at face value you would actually be very encouraged as to the battery available in 'twenty. Two obviously, we do have a recent history of occasional negative surprises in the supply chain.
Upstream of our manufacturers that are.
Deliveries so.
Taking a little bit of a hedge to that as we think through what will it be able to accomplish but it.
The good news is the mood at the manufacturers is upbeat.
A follow up to that.
It seemed like the attach rate is around mid teens in fourth quarter.
As you sort of.
Proceed through the year.
Additional supplies what do you think you can get to say by the end of this year any thoughts around that.
Nothing concrete that we'd say yet I think.
As we've noted a few times is another area, where the California decision will have a material impact. The initial proposal would dramatically incentivize the adoption of batteries and.
For customers to store surplus power onsite and not export to the grid and so that would be a meaningful mover and I think we need to see exactly where that lands, but the the multiyear trend that we've seen I think is continuing and accelerating in many respects given where utility reliability has trended over the last few years.
And customers want more affordable more reliable power and this is one of the best ways for them to get it 100%. This is Matt I would just add to that.
We are seeing definitely has increased.
<unk> demand and to Toms point as we are seeing more climatic events.
And we're seeing more particularly in California, where you have the utilities.
Forcing outages because of fire risk.
We do expect that attach rate to really ramp up as supply loosens up in the market.
Okay. That's helpful. Thank you.
Thank you we have next question from the line of Philip Shen with Roth Capital Partners. Please go ahead.
Hi, Thanks for taking my questions.
Just had a follow up on the subscriber value.
Was wondering if you could give a sense for where you expect that subscriber value the trend in Q1 and two versus the 7000 from Q4. Thanks.
Yes, so as we noted many of the.
Labor related effects of Omicron continued in early Q1 and as a result, we expect Q1 net subscriber values to look comparable to Q4.
And as we move throughout the year, obviously expect that to improve from there quite meaningfully full year total value generated growth exceeding our growth rate in volumes as we expand margins and get back to more normalized levels of some of these events subside.
Thanks, Tom.
Also in terms of Q4, the mix of customers purchasing systems it looks like it increased to 26%.
Versus the historical average of about 15.
What's driving that do you expect that to sustain as we get through 'twenty two.
What's your latest thinking on solar loans would you ever consider putting loans on balance sheet.
Yes, so a.
A few things there normally you do see mix.
Mix of higher loans in Q4 as customers look to push.
For a tax credit for their annual tax filings.
We've made some improvements in our loan offering as well as you think about overall product mix that was installed in the quarter as I mentioned earlier. This is one of the spots where the specific shakeout of what came out of our backlog given managing crews and availability in different different regions at different moments in time shifted a little further from from the historical trend I'd say leases remained.
Our core service offering and most customers continue to favor that.
Due to the strong value prop there no upfront costs no impact on personal credit and balance sheets general alignment of interests around performance guarantees and ongoing service. So we continue to be really really bullish and optimistic on the lease but also continuing to provide a suite of financial services available to customers.
And maybe just to answer your last question and I'll tell this is Ed I think we continue to think that the.
The Aro <unk> of holding loans on balance sheet, particularly in an increasing interest rate environment.
Arent necessarily meeting our corporate return thresholds. So it's generally been our perspective that while we're super happy to sell a cash system or alone to any customer who wants one.
Just as our business philosophy has been at this point that we'd likely dispose of that loan to a third party.
And I would just add on to that and most important I think customers from.
From a customer perspective, the lease product is just so incredibly powerful and in fact recent data would suggest a shift back towards that product in our in our mix right now.
Great. Thanks, Barry one last one if I may in terms of.
Im sorry to interrupt.
Sorry, you might come back in the question queue.
Sure. Thanks.
Thank you we have next question from the line of Sophie Karp with Keybanc. Please go ahead.
Hi, good afternoon, and thank you for squeezing me in here.
A lot has been discussed already.
Was wondering if you could.
You bet.
On the current situation.
Is that better.
Appears to be.
That's for now, but any chance for environmental legislation.
Coming out of that could be.
Incrementally positive for you guys.
Hi, Sophie it's Ed.
I think that the climate provisions that were in build back better.
Have broad support.
And have a reasonable chance that path thing theyre going to be probably two opportunities for that.
One would be in March after the return from the.
To the Senate.
From New Mexico, who is currently out sick.
And the other one would probably be as part of tax extenders at the end of the year.
And I think there's a chance that the build back better climate provisions would.
Path.
As written or they could be slightly scaled back, but I do think there is interest.
<unk> bipartisan interest frankly in trying to get something done there.
Possible.
Got it. Thank you and then maybe it's a little bit of a qualitative discussion, but you identified multiple factors.
The.
The reasons for that being challenging to quantify.
Value creation this year.
California was one of them, but also I think you mentioned interest rates and some other factors I guess how much.
How much of that is California versus all of the other noise that's what happened.
Our backdrop.
The decision on the California, let's say within two months would you be able to.
Quantify the value creation potential for in 'twenty, two and beyond and give us some guidance or would that still be clouded by others.
That's one.
Yes, I'd say on the total value generated guidance, it's disproportionately, California things like the ITC or things that would have an impact on safe harboring and cash consumption interest rate environment might have an impact on timing of project finance deals, which would hit the cash generation side of it but on total value generated California's the disproportionate effect.
Okay.
California that result, you would have potentially more clarity.
Could you give us.
Yes, certainly.
Okay. Thank you.
That's all for me.
Thank you.
Last question from the line of Colin Rusch with Oppenheimer <unk> co. Please go ahead.
Thanks, So much guys can you talk about how many markets you're being into now in the ancillary services side of things.
Then just a quick question around how much growth you're seeing outside of California, what's the growth rate it looks like.
Got it.
I'm sorry can you just confirm that was the second question the growth rate outside of California for 2022, we didn't hear you.
Yes, that's correct.
Yeah.
Yes, we haven't broken out our results state by state, but we obviously have a number of markets that continue to grow quite nicely outside of California.
Frankly, even more mature markets like Hawaii continued to grow at a really nice clip.
Continuing to see strong growth, we're in 22 states and.
Puerto Rico and continue to be happy with the footprint, we have theres a lot of untapped market potential in those.
Yes, and again, we're in 22 states and we went back to your question on ancillary services I mean again.
Our partnership with Ford in all 50 states. So that gives us an entre to 28 additional states for services.
Okay, Great I'll follow up offline thanks, guys.
Okay.
Thank you ladies and gentlemen, this concludes today's conference.
You may now disconnect your lines.
For your participation.