Q4 2021 Sunnova Energy International Inc Earnings Call
Okay.
Good morning, and welcome to Synovus fourth quarter full year 2021 earnings conference call. Today's call is being recorded and we have allocated an hour for the pad remarks, a question and answer.
At this time I would like to turn the conference over to Rodney Mcmahan, Vice President of Investor Relations at Sun Eva. Thank you. Please go ahead.
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 in our 2021 Form 10-K .
We 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 Officer, I will now turn the call over to John .
Good morning, and thank you for joining us today I'm pleased to report we closed out the year with strong financial results, a summary of which can be found on slide three we.
We exceeded the top end of our 2021 guidance range for adjusted EBITDA and adjusted operating cash flow met our objectives for the principal and interest we collect on solar loans and achieved positive recurring operating cash flow.
Our ability to deliver on these metrics. Despite numerous challenges that impacted the economy as a whole is a testament to the strength of our business model our focus on increasing our operating leverage our strong partnerships and the importance of retaining long term contracted cash flows not even a pandemic and its various surge.
It could derail our ability to hit our financial numbers over the last two years.
We are also reaffirming our intermediate term major metric growth plan.
Triple double Triple plan, which we announced in the third quarter of 2021.
Turning to slide four you will see this plan now consists of the following.
An increase in customer count to approximately 400000 by year end 2023.
An increase in net contracted customer value per share to approximately $37 by year end 2023.
An increase in services sold per customer to approximately seven by year end 2025.
And an increase in adjusted EBITDA together with the principal and interest we collect on solar loans to approximately $530 million for full year 2023.
Despite current and anticipated macroeconomic headwinds we remain confident in our ability to accomplish the triple double Triple plan driving this confidence is the following our track record of executing consistently even through market uncertainty our ability to grow the number of services, we offer to homeowners, which includes but is not limited to.
Energy storage systems electric vehicle Chargers generators and load managers.
Our cost disciplined approach.
Which consist of not just limiting spending in periods of high growth, but also plans to invest more in software and automation.
Further reduce cost reduce the need for more head count and increase our operating leverage.
Our continued expansion of strategic partnerships, such as those recently announced with <unk> charge point home depot and brakes.
These strategic partnerships are the key to not only being able to offer more services to new customers, but to also upsell our existing customer base and finally.
The earnings visibility of our business model demonstrated by the fact that 67%.
The midpoint of our 2023 targeted revenue and principal and interest from solar loans with a locked in through existing customers as of January 31 2022.
Slide five summarizes the growth in those customers' battery penetration and dealer network.
In the fourth quarter, we added over 18400 customers.
While this was an all time high for organic customer adds in a quarter. It did fall short of our expectations as our Q4 customer additions were negatively impacted by the late December uptick and the omicron variant of Covid.
This uptick affected our dealers' ability to fill their installation crews and slow down utilities granting permission to operate as a result, our organic customer additions for the year ended December 31, 2021 was just under 54500, which is approximately 500 customer shy at the bottom end of our guidance range.
However.
These delayed customer additions, which equaled approximately 2000 customers had since been interconnected.
As such we are increasing our 2022 guidance for customer additions by 2000 customers to a range of 85 to 89000 or.
Our battery attachment rate on origination for the fourth quarter of 2021 was 22%.
Up from 19% in the fourth quarter of 2020, but down from 30% the prior quarter.
This recent decline was primarily driven by the regional mix of customer originations in the fourth quarter of 2021.
Specifically in the fourth quarter, we had higher origination levels in markets with low battery penetration such as those in the northeast and lower origination in markets with high battery penetration such as our island markets.
However, we have seen our battery attachment rate and our Levered returns bounce up so far this quarter at the regional mix has normalized.
Much more importantly.
Our battery penetration rate continues to grow and reached 11% on a customer base of nearly 200000 as of December 31 2021.
Also we have performed over 600 battery retrofit life's to date, a number we expect to double by the end of 2022.
When it comes to dealer growth, we're focused on dealers of all business models and sizes from tier one to tier five from the south all the way through the long tail.
As such over the past 12 months, we've been able to add 379 dealers sub dealers and new homes and sellers from all tiers, which brought our total dealer count to 814 as of December 31, 2021, with the recent surge in dealer growth. We now expect to exceed our target of 1000 dealers by the end of this year.
This growth remains powered by the attractiveness of Synovus business model or.
Our best in class technology platform.
Partnerships with the best equipment manufacturers in the industry, a broad suite of product offerings with all financing types and.
And our brands growing ability to deliver strong lead generation to our dealers.
Finally on slide five we have updated our information on customer contract life and expected cash inflows as.
As of December 31, 2021, the weighted average contract life remaining on our customer contracts equaled 22, four years and expected cash inflows over the next 12 months is increased to $384 million.
Slide six lists out our recently launched service goals, which will provide our customers the level of service unparalleled in the industry and one that is a must for the Sonoma adapt at home.
First in select key markets, we've established a goal to provide service within 72 hours for our solar only customers and within 24 hours for our solar plus storage customers.
In addition to these service goals earlier this week, we launched an over repair services, which aims for 50% gross margins and expands our best in class service beyond our current customer base to homeowners in desperate need of repairs to their solar systems, but who do not have a service provider response at 24 hours.
This new and improving hardware technologies to provide both energy supplies and manage energy demands and the synovus software platform will bring about a superior energy experience for homeowners, who are frustrated with the increasing costs and decreasing reliability of the grid power provider.
We will accomplish the goal of this Nova adaptive home by accelerating the build out of our software platform continuing to build up our highly experienced and professionally managed service team and improving our logistics capabilities.
Slide seven illustrates this vision for the future the Sonoma adaptive home.
Which will integrate a large suite of energy services to make clean energy, even more affordable reliable and resilient.
With the right mix of technologies from multiple equipment manufacturers integrated into a single Synovus software interface, our customers will have the option when it comes to staying connected to the centralized grid or not.
It is this option that an increasing number of homeowners are seeking in the wake of bad regulatory policies increased power outages and the rising cost of centralized power.
By giving our customers the freedom to use very little utility power or even cut the cord.
They can eliminate the need for net metering and avoid solar taxes in the form of high fees from centralized power monopolies.
To make this a reality, we will rollout additional key strategic partnerships and continue to invest heavily in both our software platform and redefining service to our customers all of which can be accomplished while achieving our triple double Triple plan. As these investments are included in our forecast.
Before turning the call over to Rob.
To briefly point out slide eight.
Over the past several weeks and months.
These have been among the top areas of Investor concern, we have summarized our positions with and responses to these challenges.
We'd be happy to discuss any of these in further detail during Q&A.
I'll now hand, the call over to Rob.
Thank you John .
Turning to slide 10, you will see the continued improvement in our results over the past few years 2021 revenues are up 84% from 2019, while over the same period adjusted EBITDA increased 78% and the principal and interest we collect on our solar loans nearly tripled.
Thanks to the strong financial results, we were able to continue to produce industry, leading operating leverage in 2021 alone we reduced our adjusted operating expense per customer by 15%.
We expect to further increase our customer margins through a combination of additional cost declined and increase cash flow per customer.
Slide 11 contains both our gross contracted customer value or <unk>, and net contracted customer value or <unk>.
As the slide reflects we are experiencing significant increases in these metrics, we think of <unk> as our blow down or rollout value as it only includes locked in contracted cash flows on customer contracts with a weighted average life of 22, four years and excludes any value for growth renewals.
Sales state or national incentive appreciation or other upsides are <unk> represents what we could conservatively achieve in cash flows given we have locked in our debt terms over the course of the next 22 years the.
Another way to think about it is in <unk> represents a discount of $8 billion to $9 billion in customer payments absent any upside less debt and tax equity payments. This is been discounted by locked in interest expense a conservative estimate of service costs.
Value loss estimate for defaults.
We continued to deem 4% discount rate for our <unk> and <unk> as conservative as our weighted average cost of debt for 2021, which represents approximately 100% of our fully burdened cost with each new customer equal to 7%.
Additionally, the existing long term cash inflows that make up our in CCD calculation are locked in invest not impacted by rising interest rates.
In just three years time in CCD went from $957 million as of December 31, 2018 to $2 1 billion as of December 31 2021 the.
The amount of <unk> at the end of 2021 equates to approximately $10800 per customer and $18 56 per share with cash on the balance sheet, making up $3 46 of the per share amount.
Slide 12 summarizes our recent financing activity and liquidity position in.
In 2021, <unk> raised over $2 5 billion highlight.
Highlights by $876 million in new and refinanced securitization <unk> $437 million of new tax equity funds, a restructured loan warehouse facility of $350 million $575 million in convertible debt and a $400 million Greenbrier a first for the <unk>.
<unk> solar industry.
Additionally, while we have been raising capital to grow the business. We have also been paying down previously issued debt to the tune of approximately $121 million in principal in 2021.
Turning to this year, we've already raised $150 million in tax equity funds and priced our first securitization of 2022, just last week. This latest securitization was size of $298 million and despite recent concerns over rising interest rates was able to achieve a three 1% blended.
Coupons again below our PV for discount rate for MCC EV as a reminder, our capitalization strategy locks in our asset level debt and there are no maturities on our corporate level debt until 2026.
Our total liquidity as of December 31, 2021 was $831 million down from $951 million as at September 32021, and up from $386 million as of December 31, 2020.
This recent decline in total liquidity was driven by an increase in working capital during the fourth quarter of 2021 to support our growth plan.
Included in these numbers, our book, our restricted and unrestricted cash as well as the available collateralized liquidity, we could draw upon from our tax equity and warehouse credit facilities.
Given the available unencumbered assets as of December 31, 2021, this available collateralized liquidity equaled $439 million as of December 31, 2021.
Beyond that subject to available collateral, we had $381 million of additional capacity in our warehouses and open tax equity funds.
That represents over $1 $2 billion of liquidity available exclusive of any additional tax equity funds securitization closures, a warehouse expansions, including transactions closed in 2022.
Turning to slide 13, we have updated our sources and uses of cash for 2021 actuals reaffirmed the previous 2022 forecasts and made minor adjustments to our 2023 expectations to reflect our current forecast.
2021, actuals came in mostly as expected with the exception of lower than anticipated investments in new systems. This variance was due to actual EPC costs being lower than anticipated, which reflects higher than expected unlevered returns and a delay in battery and other upsells.
On Slide 14, you will see for full year 2021 are fully burdened unlevered return on new origination was nine 1%, while our weighted average cost of debt over the same period was two 7%, resulting in an implied spread of six 4%.
The slight dip in our fully burdened unlevered returns compared to the prior quarter was driven by the same regional mix that impacted our battery attachment rate since battery enabled systems generate a higher fully burdened unlevered return any decrease in attachment will put downward pressure on our return for that given quarter as John mentioned.
Earlier, we have seen stronger battery attachment rates and returns so far this year on slide 16, you will find our 2020 to guidance as noted earlier, we are raising our 2022 customer addition guidance range by 2000 customers to bring our targeted additions for this year to between 85%.
89000.
We are keeping our financial targets unchanged from where they were set in our last earnings call.
We expect to capture 12% of our 2022 adjusted EBITDA together with the principal and interest we collect on solar loans in the first quarter.
Increasing to 25% in Q2, 32% in Q3 and 31% in Q4, we expect our customer additions to occur more evenly with approximately 45% of our forecasted additions happening during the first half of the year.
As of January 31, 2022, 81% at the midpoint of our 2022 targeted revenue and principal and interest we expect to collect on solar loans was locked in through existing customers as of that same day.
I will now turn the call back over to John .
Thanks, Rob.
In 2021, we achieved scale and origination and captured very healthy margins, we delivered strong financial and operational results and grew our business by expanding into new service territories.
Increasing our product mix and offering more services to our customers for.
For 2022, we expect to see continuing improvement in our overall supply chain, especially batteries and that will allow us to clear our battery backlog no later than April of this year.
Our focus on investing in our software platform and automating our operations will further improve our operating leverage and drive additional cost reductions.
Our centralized utilities rapidly increase their rates, we will be able to provide homeowners significant savings, while providing an energy service that is more reliable more resilient and more environmentally sustainable.
As of January 2022, our.
Our customers are saving an estimated 23% to the respective utility rates.
And we estimate that percentage of savings to increase even further as utility rates are expected to rise and an additional 6% or more over the remainder of this year.
We also could see a scenario where dramatically higher hydrocarbon prices could push some utility rates higher by 40% or more this year alone.
These rising utility rates are further stimulating our growth is even more homeowners look for a better energy service at a better price.
More importantly.
There is a relationship between how much consumers are saving relative to the utility rate and the default rate of our contracts. It should be noted that because of the default rate affects the value of our customer contracts, but never the debt balance.
A relatively small movement down in the default rate were materially improved total cash flows to Sonoma.
Even with the annual price escalators embedded in many of our PPA and lease contracts, which provides us with a significant increase in our expected revenue over time, we're still well below the anticipated and realized utility rate increases as.
As Rob mentioned earlier, we priced our first securitization of the year last week, the pricing, which puts the implied spread between our fully burdened unlevered return and our cost of capital somewhere in the low to mid 500 basis points range.
Which we previously indicated is more in line with our long term targets and internal budgeting.
With that said given that we believe we have the lowest cost of capital. Thanks to our strong balance sheet and we have been and will continue to instruct our dealers to increase pricing to customers in response to the rapidly rising utility rates I mentioned earlier, we feel strongly are implied spread will be back in the 600 basis points range in the coming weeks and months.
Despite our position as the industry leader in growth, we remain focused on optimizing margins and volume in order to maximize cash flow and <unk> <unk> per share value creation.
Finally.
Even with a potential recession on the horizon, we are still confident in our ability to achieve the objectives under the triple double Triple plan.
Remember we are an energy company that provides an essential service to high credit quality residential customers a service that is needed in any economic environment and one that will get even more valuable against the backdrop of rapidly rising energy and utility prices with that.
Operator, please open the line for questions.
Thank you if you would like to register to ask a question you can do so by pressing star followed by one on your telephone keypad. If you change your mind you can press star two.
Last question comes from Philip Shen of Roth capital.
Please go ahead.
Everyone. Thanks for taking my questions first one is on your margin outlook ahead.
You had an NPV per customer of $10800 in Q4 up from Q3, how do you expect the <unk> per customer to trend by quarter in 2022.
Hey, Phil this is John .
Yes.
We expect that as we've said in the past that the <unk> will be a little bit tough to predict quarter over quarter, but we have given a very clear.
Predicting projection in terms of the end of 2023, obviously, a good chunk of that is going to accrete this year.
And we do see a pretty solid movement up in that value creation as you move forward in time on a per customer basis that depends on the mix of the types of contracts and so forth, but we continue to see that the long term projection of moving on a per customer basis by the end of 2025.
For around the 10000 that it was.
Now 10800, which is a pretty good job as you pointed out quarter over quarter up to that 18 to 20000 range by then.
We obviously took a big step forward on that this past quarter, and we continue to see that to be the.
The trajectory of the <unk> per customer so.
Investors buy shares not customers and so we focus more on the shares and we're pretty confident obviously.
And in the <unk> <unk> per share and have laid that out.
We're definitely at an inflection point, we pass through that last year, we've got enough scale, we generate a tremendous amount of margins cash flow all.
All the way to our first recurring operating cash flow positive year, and we see that moving up substantially as we've laid out both in 'twenty, two and 'twenty three and obviously beyond so the power of the model is is really starting to inflect upwards in terms of value creation on a per share and per customer basis.
Great. Thanks, Sean.
You highlighted reaching a thousand dealers by year end.
This year.
Some of your loan peers seem to be growing substantially off of there.
Large bases and appear to be winning a.
The number of dealers.
Can you share your thoughts on the competition around winning dealers I know you recently unveiled a bunch of new software and <unk>.
Services for dealers at your recent dealer conference.
But can you comment on the overall competitive landscape on that front and then.
Related but separate can you also comment on the mix of lease versus loan that you see ahead.
For your business in 'twenty, two and then how you expect that landscape to shift as well. Thanks.
Certainly so yes.
The competition is.
We've been separating ourselves from the competition for quite some time I will say this that we we needed some improvements done in our processes and our software.
And so like as I've said previously I'll I'll take that.
Hit if you will on that.
But obviously, we've been doing quite well right on the on the growth rates, we continue to accelerate.
It even a large base.
But there's a lot that we're doing there's a lot that we've already put out in the marketplace for our dealers and Theres a lot more coming I mean, a ton more coming.
In both the software automation process change products and so forth. This market really in this industry is really transition and into something that's a much more service oriented and you start adding all of these things that we've now become commonplace that were in the first one is if not the first one to really talk about this in Nova adaptive home and and.
What that met the inclusion of batteries and load managers and generators and EV charging and so forth. All of this it's accelerating and then in the macro backdrop of $100 oil I think going higher natural gas rates, moving well north of $5 and then I think going much higher utility.
Rates going up by multiples now.
In terms of multiple rate increases even in within a single quarter as we started to see.
And in all of these things are going to continue to trend towards having the full package. If you will as as each customer wants more and more to be away from and shielded from these dramatic economic shocks of energy.
And looking for more certainty and reliability as well so as we move forward in time service is going to become more and more important we've laid that out and we're seeing that real time in the marketplace. So that's a key differentiator for for US and you saw that earlier. This week launched out repair sent over repair service. So that we can take.
On all of those folks that were abandoned by others and competitors in our space, we're going to take them on we're going to make sure that they're taken care of and that's obviously additional recurring cash flow for us that we'll be able to avail ourselves of as well and that's again part of our long term plan. So.
Back to the dealer side look clearly, we're going to achieve that thousand dealer target well ahead of plan and so I don't see us slowing down at all we're seeing more dealers enter the space.
Witness.
What's happening with the generator type dealers and some of the other EV charging and so forth. There is a lot of growth in dealer and the dealer base just period in the industry. So I think there's multiple winners are going to happen in here up said that from day, one and so we're not.
Putting ourselves out to be the only winner I think that's crazy.
And I think theres more than enough out.
Out there for all of us to get.
But we clearly are separating ourselves from the pack and we will continue to do to focus on what dealers need and make sure that we do a good job for them.
Great. Thanks, So one more if I may here John .
I know you had a recent ABS price I think the pricing was very much in line with what was going on with other.
A b S is in the marketplace and I know, it's up versus your fall deal but.
It's the overall macro risks that I understand is.
The reason why price to 35 basis points higher.
Ah contract, but in the face of the horizon of rising rates, what's your view on your ability to maintain.
PV forehead.
I'll turn that over to Rob to explain exactly what we see is <unk> <unk> per share of PV for Rob.
Thanks, Phil and I think you may have.
Good point about just sort of.
When we take a look at our margins and how we price we were always looking at how the interest rates are moving and have the ABS markets moving.
The fortunate thing for us with everything does seem to move together interest rates utility rates all of that.
<unk> is moving all in the same direction, which gives us room to increase our pricing increase are.
Increase our fully burdened unlevered returns to help make up for the rising interest rates that John was talking about but really when we look at the <unk> at the end of the day, we're discounting locked in cash flows at the end of it and what I mean by that is that we talked about having about $384 million over.
Cash inflows over the next 12 months and that that's recurring cash flow stream over the next 22 and a half years. If you look at that that ends up being somewhere between eight and $9 billion.
Nominal cash flows you put that against.
Three and a quarter billion dollars of debt give or take and about a $1 billion of interest and tax equity payments over time.
And after that what Youre really left with is a number that's two years or three X. What we've listed as are in <unk>. So then what are the other components there.
There is a service costs embedded in there we think that's somewhere around half a billion dollars of service costs and then you have really our default risk and what ends up happening with that which is another.
Maybe you called out a $1 billion of.
Of default risk.
That is a number we have been able to bring down steadily over time.
Before we had this huge spike in utility rates that is up in really going up into the right incredibly sharply.
Really it is.
The one who is.
Using our system is saving significantly more money by using our system. There is no economic rationale for them not to pay or bill.
And by keeping all of our Dunning processes in house, we've been able to really get that number down overtime by itself just anecdotally folks had asked us on latest ABS can we please breakout our Puerto Rico default and delinquency and recoveries, we said absolutely love those numbers, they're just getting better and better.
Every year and so at the end of the day, you wind up with a number that makes sense ECB looking credibly conservative at PV for and Youre right that securitization that was a little bit higher but that was still all in including the portion that we allocate towards the high yield bond, we still under 4% comfortably under four.
4%.
So the way that we're looking at all of our capital is being covered all of our capital spend is being covered by less than 4% cost of capital. So the PV four remains in our view a very conservative view in a very punitive view of how we look at our asset base and by just applying cash flows.
That our nominal against nominal cash flows you would still look at a number that's much much higher overtime.
And Thats just for what we have.
Customers in service.
Thanks, Rob I'll pass it on thank you.
Yes.
The next question comes from Julien Dumoulin Smith Bank of America Julien. Please go ahead.
Okay.
Hey, good morning team, thanks for the time and the opportunity and congratulations on your continued success here.
Perhaps if I may just coming back to the cash cash deployment expectations. Obviously, you all have been very vocal about your views on the stock, but more importantly.
Evaluating actively corporate finance decisions can you talk a little bit about the $300 million that you still have outstanding because it was 23 <unk>.
<unk> any other proactive steps you might take.
So we're cognizant of the backdrop here.
Yeah.
Julien the way, we're looking at that right now is that the way that we viewed our high yield debt is that we have plenty of room.
To increase that level, even even today, we would look at 2023 is probably that that that will be another good opportunity.
To look at the high yield debt markets first that is one option that we have.
<unk>.
We continue to have folks who continue to approach us about.
Are some of our loans and looking at other opportunities there.
One thing that we've seen is that John talked about the synovus services really something where we see a lot of opportunity, we very conservatively forecasted that but that's a very high margin business that could reduce that capital need over time.
When we look at our corporate forecasting the goal is to get to a point, where we're not using any more corporate capital at all.
And as we look forward on our in our corporate forecasting really with the increase in recurring operating cash flow and even with our very high growth rates, we're really reaching that inflection point here over the next few years.
Where we will be able to grow without any additional corporate capital my goal and sort of one of the reasons why we left that number where it was is for that hopefully it would be the last opportunity.
Last time that we go to the market for corporate capital.
At all and there are many things that we can do before we get there that might decrease that including all the way down to zero for.
For right now, we don't want to get out over our skis and where the market is we have got a lot of really great initiatives.
That we're working on that we think are going to create a lot of value by value I mean cash.
And so we think that that need to be mitigated.
But at the same time, we want to remain responsible with the balance sheet and make sure we remain.
The best capitalized company here.
In our industry.
Got it excellent so it sounds like a lot of non equity options on the table to that corporate.
Raise eventually.
<unk>.
Excellent. Thank you for clarifying that.
Maybe just on the current year, you've discussed if I understand the two separate updates in the latest quarter not only do you have you elaborated on this repairs effort, but you've got this general partnership as well.
Doesn't that in theory add to your 'twenty two prospects can you talk about sort of the mix shift in 'twenty. Two I mean, obviously you've kept intact a lot of your targets here can you elaborate a little bit those both seem like positive incremental business opportunities by contrast, obviously attach rates here moves a little bit lower so how are we or perhaps.
Another angle is the NIM pull forward can you talk about the composition of guidance expectations within 'twenty two as you reaffirmed here.
Yeah Julien.
First of all and I think I didn't answer it.
Sales of other question previously I think alone lease slash PPA mix.
<unk> is basically about where it has been for the last couple of quarters.
Maybe trending more towards a little bit more towards lease and PPA and we do think that that could trend a little bit back towards lease PPA over a period of time.
You pointed out our partnerships and I would also add into that the backdrop of rapidly rising utility rates I mean, I don't think.
The emphasis at all has been placed on what's happening out there to consumers as far as our utility rate increases those that have already happened and those that are coming but they're shocking.
Absolutely stunning numbers some of them are seeing right now is 21% already this year probably more coming.
There could be as high as 40%.
I think that to your point are.
Are we being conservative in our growth. The answer is yes. These partnerships are going to generate a lot more customers.
But in terms of where we want to see how these partnerships really get going and moving.
Over the next few weeks and months and then whether those customers fall into this year or next year.
But youre right. There is there's a there's definitely some upside there and then the overall <unk>.
Energy backdrop is providing much more upside I mean, I'll say this I'll take higher utility rates, especially these has higher there is their roofing up over any day over any sort of NIM or ITC or anything I mean that just helps us tremendously across the financial Ah <unk>.
<unk> that we had and really gets customers focus potential customers focused on the service that we offer so you're right. It's a fundamental set out for.
Even greater growth.
Right. So basically let these businesses develop and we'll hear from you accordingly.
Correct correct I think at this point in time that you know given the share price I mean, we've gone from crazy to the absurd raise.
We're raising guidance on growth and earnings more is just what does it really get you and they think that it really goes down to looking at the equity valuation and what what kind of.
Actions can we take two.
Try to get the equity valuation more back up when we thought clearly the board and I thought that the.
The equity valuation was cheap in the in the <unk> and <unk>.
Certainly where it is sitting now as just as absurd.
Excellent. Thank you will keep in touch here good luck.
The next question comes from Joseph Osha Guggenheim Partners. Joseph Please go ahead.
Oh good morning, Thanks for your comments.
Two completely unrelated questions.
First your comments on a post <unk> world. There are interesting I'm wondering as you look about how you allocate your owners sources and how you engage dealers and so forth.
Are you looking to maybe.
Shifts some of your efforts away from your high NIM in volatile markets towards towards other markets.
<unk> your strategy at all.
Hey, Joe.
No it doesn't when I founded the company now bordering on a decade ago I always wanted to have an ability in the vision is is that you would be able to run off the utility system. Whether you you know hopefully we have a good local policy, where you don't need to do that but I felt very strongly.
The technology, mainly surrounding solar and batteries with some software and some other hardware pieces to manage both the supply and the demand.
Felt like we'd be able to get there over the course of a few years and I and I feel more strongly about that again as rates rise and reliability drops there is more and more financial reasons for consumers to push to push ahead and move in that direction.
What that could mean as is just using very little utility power to not needing.
Pushing back power at all under the grid, all the way to having to operate off grid, which more and more consumers are saying they at least have to be able to do for a few hours in a few days.
And that's that spreading.
But our geographic reach as energy prices rise again.
We're seeing some moves and some of these markets and we will continue to see him on utility rates that pop up from its not really that interesting to us because the utility rate was so low to.
Becoming something that's really interesting, Texas is a great example.
There are other rate movements that are going to be happening across the multiple number of states that have really not been that big markets for us. So we're seeing we're going to see a mushrooming of geographies that make a lot more sense for our industry.
And even having the battery costly laid in there. So this is a long term strategy.
Everything that's happening with the debates on NIM and so forth in California and other states.
That is something we are entirely anticipated.
Okay. Okay. Thank you.
Then the second question I'm hearing a lot of words like inflection point and rising cash generation then the war coming to the market for corporate capital and stuff like that wondering if you can update everyone on what sort of the longer term path is towards a return of capital to shareholders.
Yeah. Good question.
I'll answer it two as direct as I can as always Joe.
Look the board.
I recognize that our equity valuation substantially undervalued relative to our fundamentals, especially with regards to our contracted cash roll up value as Rob mentioned.
As we have consistently met or exceeded our financial performance over the years and we expect to continue to do so as we've laid out in a triple double Triple plan.
Which is a priority for us in terms of maintaining that execution and we're well on our way to do so witnessed the 67% of 2023 locked.
Locked in that I mentioned in the prepared remarks.
We have had.
And continue to have discussions as a board around our options to create long term value for shareholders and those options that are being discussed include but are not limited to share buybacks and the establishment of a long term dividend.
Our strong cash flow right now as Rob laid out.
Just dig down into the numbers and look at this in a very.
Objective way.
Cash flow is strong enough to support these kind of endeavors and once we complete the triple double Triple plan and certainly anytime between now and then we certainly have enough of the pretty very very substantial cash flows to be able to do some things like this in terms of returning capital to shareholders. So we're on it we're focused on it.
Okay. Thanks, very much I'll leave it there.
Thank you Joe.
The next question comes from safety at Keybanc.
Stacy Please go ahead.
Hi, Good morning, and thank you for taking my question modulations on that possibly move outs here.
Could you maybe.
It took a little bit about.
Second for our customer.
That's a cool concept.
What I mean by that.
No.
At least.
So maybe just I'll go with my wife hospitals look to.
But how much more of your customers look to you when you start adding all of those other components.
What are the incremental about.
Charger Award.
All the other components that you outlined on this slide where you kind of plan to integrate into the.
Susan.
Thanks Sophie.
What we've laid out.
For over a year you know I guess, a couple of years now and and re iterate it it in our last call back in late October is.
Looking at the <unk> per customer.
Again, moving from 10000 to 10800, and we see that moving up to the 18 to 20000 and embedded in that a large part of that.
Is is are these additional opportunities.
So EV charging.
And both the hardware and some service away from the home.
As discussed in the past the generators.
Additional batteries that were.
More more Upselling and then in addition to that Theres a lot more than I anticipated of additional panels inverters and so forth adhesive systems expand as people get electric vehicles, they need more power.
As you have heard some commentary from some others in the industry to this and I can.
Confirm that I'm actually surprised at how much that is happening in our existing base, which is obviously tremendously positive. So if anything I think we've been conservative in this per customer world.
How much more value, we can get out I don't want to go into because it does vary quite a bit about how much value can go in from each of these pieces I think I have made some comments in the past that I think are somewhere between a third and a half of that value is going to be the batteries.
And then obviously generators provide a lot of value to us as well and then when you look into some of the EV charging that's going to be less value right. But then you start adding in more panels and you've got load managers in there that that can add a pretty good chunk that frankly, I hadn't really contemplated to be as much of a part of that so.
Again, the numeric sard removed this up from 10000 to 18 to 20000 over the next four years or so and we took a big step.
Last quarter, moving that up to just shy of 11000 customer.
Got it. Thank you and then also along continuing I guess, along the same lines right you talk about eliminating the need for a net neutral.
Positive considering what's been happening with net metering.
But I haven't pushed it a little bit further and say.
Are there any markets in the U S. We agreed deflection is actually a viable choice right now for our customers given the technologies available right now in the market and if so what are those markets.
Well I think what youre going to see I know, what youre going to see because we already seen it in some of our markets. So anytime you have oil fired generation in the market, So like Hawaii does pretty well without without them.
We also have some other island markets out there that done quite well with the whether they choose to avail themselves of NIM or not.
Basically they don't really.
Use it that much because they were using so much batteries because the grids in such bad shape.
But I will tell you that I think in terms of markets like in.
California, and the northeast and really growing in the south as well when you start seeing the utility rate move up so much that starts to buy you a lot of batteries and so look I think that over the long term. This is where we're going with NIM and that's our approach.
Right way to view. This is I think for instance on the California 3.0, we need a few years as an industry to get there and we need a glide path and that's where the industry has been from day, one right and what we're laying out here is is that glide paths real so as long as we can have good policy not the policy that came out in the proposed decision, but good policy in California.
Then I think everything syncs up and we start getting a higher storage attachment rate much higher.
We start getting in some of these other new technologies on load management, and so forth and we're not going to NIM will not exist in the way that we know it today several years down the road. So this is it'll vary by market Sophia in it but it.
It will also vary by the utility prices. So if you told me that utility prices are going to be $23, 40% higher which is kind of looking like where it's going at this point at the end of the year and those may be sustainable given the geopolitical situation that's there.
We're involved now and.
In the Globe, then I think that that time, where youre not needing a NIM as we know it is going to write as much sooner than everybody anticipates.
Thank you I appreciate performance I'll go backwards.
Thank you.
The next question comes from Brian Lee from Goldman Sachs. Brian . Please go ahead.
Hey, guys. Good morning, Thanks for taking the questions I had a few I guess more modeling and.
In financial related ones.
First off if I look at Q4, it looks like the.
Purchases of property and equipment spiked.
Spiked a bit after being pretty stable through the first three quarters of the year and then cash burn.
Correspondingly increased a decent amount in the quarter. So did you guys build any inventory into year end and just kind of how should we think about.
The cash balance specifically here in the near term should we see that swing back more positive.
As you dip into some of the available liquidity I E.
Does the tax equity in the securitization proceeds do we see those in Q1 numbers and so cash kind of bounce back up here.
I think what youre going to see for.
For a little while as sort of continued.
Moderation in the cash if you look at Q1, that's traditionally been from an operating cash flow thats been on lower operating cash flow quarter, what you saw happen though.
The assets themselves is that a lot of assets put into service in a lot of assets were installed and we generally make our stage payments.
To our to our dealers when assets go.
When assets are fully installed and when assets go into service and there was a huge push at the end of the year to get assets, both installed and in services as we talked about in the prepared comments, we missed really because you had.
We are having we have a bunch of installed assets that weren't yet put in service. So a lot of folks was given the payments usually it's about 80% of their cost in the fourth quarter and then if they were actually able to put the asset into service.
Maybe a 100% of their costs.
In that quarter. So it really has to do with the timing of the installation. So anytime you see us put a whole bunch of assets into service. It should really follow that we have.
In that same quarter.
A much higher purchases of.
Property plant and equipment when you see that in how we classify that in our balance sheet at the same thing youre going to see the customer notes receivable that's on a slightly different timetable because we don't actually purchase the note.
Receivable until the asset goes into service. So I think you should expect to see that number sort of go up a little bit.
But it didn't go up as much because the assets were installed but not yet put into service. So.
It's.
It gets a little wonky in bounces around a little bit.
We will expect to see the cash flow I would say moderate throughout the year I don't expect it necessarily the cash flow liquidity to go up that is why we are looking at 2023 is an opportunity to add some additional.
Corporate cash in <unk>.
High yield debt in lieu of.
Other financing sources, but that's really when we sort of reached that inflection point.
Where the amount of the amount of.
Recurring operating cash flow that we're bringing in starts to moderate.
The growth of our working capital.
The last thing I'll say is it's a triple double triple has a very aggressive growth plan and a very achievable growth plan, but growth is going to be something that causes a slight delay in working capital right now.
We originate assets profitably.
Creating recurring operating cash flow the only thing that is really <unk>.
Using cash at this point.
As our growth it is the timing of working capital. So the timing of when we can fully securitized and receive payments and get our full tax equity payments.
For projects versus how we're making our stage payments to our dealers for those projects to help bring them into service.
No.
The incredible growth we had last year, you would expect that that would have been a drag on on cash flow, but it catches up.
And that's part of the reason why we look forward to the opportunity to go back to the question that Joe was asking earlier about how do we then try to get some of this capital back to investors, we had that opportunity here, we believe in the coming years.
One other thing I'll add to that Brian is that is another aspect of this is we did have a surge of battery deliveries that we then installed per what Rob, saying and so that there is there is a reflection of that so that that's probably a next question Youll ask us.
Then when you look at so far in Q1, and the battery deliveries what's that trend look like because this has been a big concern right of everybody's and it's much better than even in Q4. So we're seeing you know I laid out in the prepared remarks, we will have our backlog cleared by April we feel we feel pretty confident on that so that's part of this is catching up with all.
These batteries and that's obviously a tremendously good positive story.
Alright. Thanks, that's super helpful context, I guess that kind of leads into my second question, John and Rob around.
Liquidity and.
The need for corporate capital.
Do you I guess the simple question is do you need to pull that forward in at all because what I'm hearing you say is.
In the near term.
Cash cash flows are going to be moderate it sounds like theres still a little bit of burn.
The last time, you guys youre at $240 million on the cash balance last time I think you guys are in the mid hundreds earlier in 'twenty. One you did the converts in the Green bond to give you some breathing room.
In terms of the balance sheet and so.
Couple of more quarters at burn maybe you get back there and then if I look at the slide 13.
You lay out your liquidity forecast I know you still have the 300 million.
Capital in 2023.
But you do have another $100 million of burn relative to what you laid out in the last quarter. When you gave us. This update so just kind of putting all that into context does that need to pull forward at all I'm just trying to think about all the moving pieces here with cash where it's at and slight more burn in 'twenty three.
Per your updated forecast.
Just kind of how youre thinking about.
Maybe needing to pull that forward a bit.
No.
It's an emphatic no I mean, we we do not feel the need at all part of the reason in part of the sizing of why we did.
The corporate capital that we did last year was.
Lets give ourselves as you said that breathing so were not having.
These questions needs debates in in 'twenty two that.
And that's that's really how that was sized now if you take a look at 'twenty, three and yes, youre going to see some movement there, but it really has to do with the timing.
How we are doing our securitization and the sizing of our Securitizations basically the way that our corporate model works is that once we reach critical mass to do a securitization it triggers a securitization so.
This has to do with.
How many securitizations, we were planning to do in 'twenty three versus how we're planning to do those securitizations in 'twenty four and you can also see is that there was a little change in the.
And implied change based on the net proceeds from tax equity and what we anticipate the loan growth to be relative to the GPO growth and so thats also going to affect when do we actually do the timing of the securitizations.
And that one is.
It's just now a delayed one of the securitization that we were anticipating to do in 'twenty. Three now we think we ended up doing in 'twenty four.
Alright, thanks, guys for all the color.
Sure. Thanks.
I'd just like to remind participants again is done before like my one to ask a question.
The next question comes from Mohit <unk>.
At Credit Suisse. Please go ahead.
Hey.
Thanks for taking our questions.
Just following up on Brian's question on the customer creation cost.
The cost fell below 22 clubs in Q4 was 30000 in the last few quarters. So is that related to the timing thing from which we're talking about or.
Anything else and.
For 2023 year old so we saw some of that.
Capex needs.
So are you expecting higher cost reductions in 2003 as well.
It does have to do with that but again, that's as you know that's not really a metric. We're focused on we're focused on the returns. We're trying you know for US. It's a question of if we spend a dollar we would need to make sure that we're making a heck of a lot more than a dollar.
When we do that so to your point, if we have the delays in the battery installs that's going to have an impact there.
But ironically enough. So we'll battery only customers. So a lot of these customers will come back in and we do retrofits for them, that's going to end up being lower I think that youre going to see is a lot of these partnerships ended up coming up here as we do a lot more with our friends at <unk> and elsewhere.
We.
Had the opportunity to one off our generator sales or to just do a single upgrades to folks who have.
Who may have started their solar system with someone else, but now they need an EV charger and that's going to require more than a few more panels in the battery that's going to be a lower per customer creation cost as well because we've already got a solar system. They had it without service now they get service as well, but all of those are going to sort of come into effect. When we're sort of we're building on.
Our model, we're taking all of that into account but.
But at the end of the day.
Goodbye the returns much more than we are on what are we actually spending per customer.
And Hey, this is John what I would say is that's why we've consistently said that you need to look at the value creation per share.
Keep us honest on stock issuance for whatever purpose.
And look at are we creating value per share if youre, creating an NPV per customer and it doesn't show up on the bottom bottom line something is not right.
Alright, and ours is creating a lot of value on a per share basis.
Got it.
And then just the last one for me.
In terms of the growth guidance I know you talked about all these new partnerships not being baked into your guidance here, but just in terms of.
California can you just talk about remind us how much are you expecting how much of that incremental.
And to see your per share growth is coming from California in 'twenty two 'twenty three.
Yeah.
Right now it looks like that three point O decision is.
There's going to be pushed off indefinitely I don't know how many months, but it is being measured in months from what it was being set out there.
Obviously, they need to spend some time and I think we'll get this get this right.
When you look at it our percentage of growth coming from California has been staying consistent it probably does go down a bit over time as we add these new geographies, it's just math.
But we continue to see growth in the overall.
California origination so were much lower than everybody else in that regard.
But what I would also say is as we sit here today.
When you look at 2023, if you look at roughly about 195000 customers moving towards in the Triple double Triple plan that we will execute on and we have plenty of capital to do so as Rob laid out when you look at this we need about 205000 customers right to hit that plan. We have we have about a quarter of that today either.
In service installed or under contract so and we laid out that we have 67% of our cash inflows for 2023 already locked into so.
If you were thinking that we're pretty far down the.
Path of achieving that plan, regardless of whatever happens in California right.
So look the job here is to execute regardless of what happens.
That could be COVID-19 , it could be anything else, our slight miss in customer count I own that we.
We didn't try to do anything to it.
And saying this is what we.
We were shooting for the mid point, everybody knows that and we slightly missed it now the point here is is it does not affect our EBITDA and our cash flow as you can see we exceeded those and thats because of the conservative nature of both counting customers and a recurring cash flows. That's why this capitalization strategy is the strongest one is the right path.
And so when you look at here about any sort of issues with California, NIM and so forth, we're going to navigate that are navigating it and we're well ahead of plan, even when you look at the triple double Triple and looking towards the 2023 time frame we're in good shape.
Got it thanks, a lot for the answers.
The next question comes from Mark Strouse at J P. Morgan Mark. Please go ahead.
Yeah. Good morning, Thanks for taking our questions I know, we're running overtime here, so I'll just I'll stick to one.
Just want to make sure that I'm clear on your pricing strategy, when you're talking about new contracts.
And when you mentioned getting back to your 600 basis points return is that dependent upon you increasing pricing kind of the same magnitude as what your local utility retail rates are increasing.
Are you able to get back to that spread with an increase thats lower than the utility rates and therefore that.
I think you said, 23% customer savings on average that number could actually go higher.
Yeah Mark.
Bottom line is we've assumed multiples as everybody else has clearly multiple fed rate increases, although given the events of last night.
And I.
I'm not so sure what ends up really happening here.
More and more economic stress is occurring right and as I ended with my comments.
I have for a while as I'm sure you're aware viewed that we're heading into a more economically challenging environment too.
If the outright recession.
And brought on a pilot by high energy prices and maybe some overreaction on the part of the Federal Reserve.
And so with that said, we built and the higher rates.
And when you look at the utility rates, they're going to go up much much more.
Then any sort of interest rate increases by definition and so we've already been pushing our dealers to raise rates in consumer. So if you want to know who's going to pay more it's going to be the consumers whether you look at all the equipment manufacturers raising price who's going to pay that the consumers now they can pay it and an increasingly you don't.
Have to even get close to the utility rate increases to make up that differential right and so we're doing encouraging our dealers to do that have been we've already started to raise some price it's going to we're going to raise more price as we move forward in time.
And who's who's going to pay more as the consumer now the the discount I think gross so I think that there is a an ability to pay and this is the part that it appears the equity markets are totally completely missing is is that.
The utility rates will go up much further and faster than the interest rates on your look ahead and the consumer has a higher willingness to pay.
And we'll even end up with I think a better deal than what they have now on top of having to pay more just given the utility rate increases. So we're already doing it we're going to expand those margins back and.
We're gonna make you know make sure that.
<unk>, they're still taken care of and Theyre going to have a pretty healthy discount to say the least I mean, some of our a lot of our customers are growing number of our customers our customer base are starting to pay half half of what the utility is charging me it's unbelievable.
Wow, Okay very clear thank you.
The next question comes from Sean Morgan Ethical Shawn. Please go ahead.
Hey, guys. Thanks for taking my question.
Wanted to drill down a little bit on the attach rate so.
Pretty market drop off from <unk> to <unk>, it's still I think decent at 22%, but just wondering you said in the prepared remarks was a geographic mix issue with the northeast and maybe the territorial island is doing a little bit better in terms of.
The attach rates and I'm wondering is that strength.
Those regions or is this really a reflection of uncertainty in California with consumers deciding that they don't know what NIM will look like and effectively delaying decisions on the capital outlays for storage because they're concerned about the rules.
Hey, Sean.
No.
Not at all we're actually seeing a as I mentioned in the comments and Rob mentioned, a higher uptick in take a take rate on storage as we've been able to go back to our dealers and our existing customers and say hey, we add batteries now and more more and more are coming and.
And it's a fairly it's a very dramatic increase in availability on the storage side as well so absolutely that's not the issue. What happened was is that candidly some markets that have a 100% attachment rate like our island markets had a blowout year and at the end of the fourth quarter a lot of those folks are basically you got to that.
Enjoy the holiday a little bit and didn't increase near as much as the in particular the northeast we saw just a massive surge in volume in the fourth quarter, there and that attachment rate is very low and we're working on it and we're pushing the dealers to go out there and get the storage, we're giving them confidence that we have the supply as I've laid out and so we see.
That ticking up.
As well, but.
It was simply just one region just went way up in the quarter and one region just kind of stayed flat to go went down relative to third quarter, but again, we see that normalized already here in this quarter. What I would also say is that we keep pointing to the penetration rate for precisely. This reason it is to volte.
It'll we're the only ones that give out the quarterly originally.
On origination basis, the attachment rate I'm not going to pull it back on you guys, but.
It will be volatile I've said that over and over look at the penetration rate and that's been.
Much more consistent over time, and yes, I still think that storage attachment over the next four to five years will go north of 50% as I've laid out.
Okay. Thanks.
And then I think in the prepared remarks, you said that you had the opportunity to safe Harbor, some inventory related to ITC, but then I guess of course, if the ITC goes through then.
You'll be buying equipment and advanced that.
Would risk of obsolescence, so how how aggressive would you be in sort of procuring.
Some inventory ahead of time with balancing the expectation that the ITC should hopefully get extended at some point.
Yeah, we're not acquiring equipment for safe Harbor purposes, right now so that was a misunderstanding.
What we're doing and we could do that and we certainly have enough available capital to be able to do that but I I look I'm quite confident that something is going to get done here.
Look we're in a we're in a full blown global energy crisis.
We've shifted over from looking and talking about dealing with the calamity that is climate change. We now have a full blown energy crisis here.
And it's global and so I think something is going to happen here, where there is much more even maybe even some bipartisanship.
That's put in place in an energy Bill gets through Congress at some point sometime this year now there is not those are the early days and that kind of idea of forming but it's shocking to see what happened last night crude trading $100.
I think that the.
The realization that we're in a full blown energy crisis is starting to rapidly creep in to members of Congress from both sides of the aisle and I think we're going to get something done whether it gets done sooner rather than later, obviously that would be.
Best for Us and best for everybody frankly in the country.
E voters, but but even if it takes at the end of the year will be fine. So I do think and my confidence in that ITC extension has gone up because of the energy crisis and so I don't think we're going to need to do safe Harbor, but if we if we needed to we got that covered.
Alright, Thanks, that's an interesting perspective, and I think you'll probably preaching to the choir on that one thanks. Thanks, Sean.
Okay.
Thanks, Joe.
The next question comes from Kashi Harrison Piper Sander Kashi. Please go ahead.
Good morning, all and thanks for taking the questions.
Hey, John .
You mentioned.
Youre going to clear the storage backlog by April I was wondering if you could just maybe give us more specifics on what you have in backlog and I know you just literally just mentioned that you expect the attachment rates.
Originations to be volatile throughout the year, but just directionally. If you could maybe give us some help on how youre thinking about that in 'twenty, two and 23 that would be great.
Yeah, I think as you move forward in time cachet is the utility rates are going to basically give you the ability as a consumer to afford storage and again, we see more of the ability of storage coming both companies more companies showing up with good product and then more product being produced I mean, a lot more product being produced.
And so I think the trend over time through the year is going to be up I mean, we're already seeing that I don't know, where it's going to land and I think that would be foolish of me to try to predict that.
But we do see that broadening and the ability to pay from consumer and the willingness to pay is going up and up markedly.
In terms of what I was saying to clear the backlog at any point in time, we should have a number of thousands of contracts.
That need batteries that consumers have purchased right as a part of their service and so what I'm, saying is is that that needs to be on a normalized basis versus where we've been in the last.
Previous to the last quarter, which is you've got quarters and quarters of backlog and so you should be able to have like two or two quarters at the most.
Backlog out there because that's about what are the whip duration is for US a work in progress and so we will have that narrowed down to about a couple of quarters here by the April timeframe, that's what we're seeing as far as the delivery schedules, what we've already been delivered.
We're going to.
That's going to be a good sign because we think what that does we know what that does it gives dealers confidence go out there and sell more batteries and so.
Again going back to that point about we see the battery attachment rate going up.
Got it got it and my just my second question here.
So.
Just following up on the discussion on on on net metering. Just wondering if you guys have done some work on.
The required utility rate on a per kilowatt basis for solar and storage to be attractive to our customer assuming net metering doesn't exist within that given area is that 15 cents a kilowatt hours of 'twenty, where do you think that threshold is for solar and storage.
Attractive if there is no net metering in place.
Yes, I think anything that you get is 'twenty sensor hires is going to be pretty attractive across markets. But you also can see that and remember a lot of the storage is going to be about reliability. So there's a willingness to pay that's even even above the grid right right and that goes to generators is.
Well and you can see that in some markets as low in that 15 range. However, you got to be respective of the cost structure and in the utility structure. So for instance in a place like California.
Higher.
And in a place like that.
It's lower cost in a place like Texas or so forth that may be.
It ended up being lower so.
The unfortunate answer as the answer varies based on the economics of the locale, but.
Look I think we're pretty.
What I'm interested in and this is what I've always thought would happen and it's starting to happen in real time is rapidly rising utility rates are going to Incent people to go ahead, and say look I can afford that battery and maybe more than that with load management EV charging it look right now if you've got an EV.
Your loving life, I mean, you're saving a ton of money at the gas pump and it looks like it just keeps getting more money that you are saving so that's a part of our business as well so everything that we sell is going to go up we're an energy company. Some people looking like all your financing we're not a finance company know more than you know everything that's capital intensive and the industry at Exxon and other companies out there.
They have a lot of financing activity, we're an energy company energy prices are way way up and going higher we're going to make more money bottom line, we're going to sell more customers more customers and get adopt theyre going to buy more batteries load management Evs.
That and at the end or our cash flow is going to follow it up as we've laid out over the next two years and so again, we feel very very confident in the triple double triple and we're well on our way to making that plant actually a realization.
I appreciate the thoughts there.
Okay.
The next question comes from Pavel <unk> at Raymond James Pavel. Please go ahead.
Thank you very much.
Decision by.
Biden administration to extend.
<unk> 201 tariff.
I imagine you're no one in the solar installation world is terribly happy about it.
The.
Our policy as it stands with the Upsized import quota does that create a reasonable basis for at least stabilizing and maybe moderating the level of module prices in the United States.
Well.
Yeah, you're right I don't like it.
We certainly felt like you know the.
The market needs to be free and open and.
And you know we're supporter of domestic manufacturing we continue to see.
And more interest in manufacturing or whatever it is modules of different parts of the supply chain, there and then batteries et cetera here in the United States.
We are we are supporters of the domestic manufacturing subsidy or credit.
Both in the obviously in the semiconductor world, but our world has the cousin if you will of semiconductors. So we're supportive of that and have been and probably given the geopolitical situation, which you know quite well.
That probably has just increased in terms of probability of happening and in my opinion, just the political calculus here.
I would say that.
You look at panel availability and so forth, it's not it's not been a problem for us.
It's been a real problem for the utility scale industry. So some of these these tariffs hit them very very hard and we've been right there with them, even though frankly, we compete with them and in many cases to say that.
The tariffs are not something that is conducive to anything.
To deal with climate change and then now anything to deal with the global energy crisis that we find ourselves in so.
I think it will be fine I think it's probably a moderating to your point in the panel pricing thing. The only thing I'll say is is that the higher the alternative I E utility rates go your willingness to pay as we as I've laid out and increasing our margin and so forth goes up too so the demand for those panels and equipment and so forth.
Go up accordingly, so that's the that's the only a mitigate to that comment about modulating.
Panel prices.
Okay, Let me follow up on the interest rate environment.
Again setting aside the.
The geopolitics and how it relates to the yield curve, we have seen an uptick two 2% on the 10 year Treasury.
And there is a perception in the market that too.
2% at the end of the world for rooftop solar.
If we zoom out historically can you maybe deep bump.
That perception by explaining a little bit about the history of the industry at higher interest rates.
Yeah, I'll I'll say, and then turn it over to Rob to answer it we have securitization that are locked in there are producing very nice cash flow for us at an all in fully burdened cost structure of.
Your cost of capital of North of 5%.
And we've got those on schedule, we've refinanced one last year, probably refinance one this year and we've refinanced more in the future.
But we had lower utility rates way lower than when we did those deals way back win as well and we're going to have the exact opposite is we had been talking about repeatedly on this call. So are our ability to move our rates up the unlevered returns to match any movement up in the interest rate and a risk free.
<unk> is absolutely there and then some as we move forward in time again I think it was more of the energy company. So no youre right, though it is not the end of the world. We've been there before and quite frankly, we've been at a higher rate and this probably just what two years ago.
Is that so.
It's a it's a ridiculous notion and we will continue to execute and improve that notion completely wrong.
Rob do you have any more comments I think I think John really hit the the answer we are still not at where interest rates were when we were in the pre COVID-19 period.
And the spreads which had tightened dramatically and it come.
Become a little looser are still inside where they were back then as well so.
And as far as what we're seeing right now is that we're still in a very strong environment.
And we still think that.
Hi.
And we even said this before and if interest rates went up 100 100 points, we'd still be under 100 bps, we'd still be fine.
And we think they could they could go up further and we would still be in a very strong environment.
With regard to our ability to price into those markets.
And our ability to create significant value to the agenda John says.
Implied spread of 600 bps within those markets.
So really at the end of the day, it's about.
Some of our Unlevered returns came down to reflect the lowering of the interest rates are going to go up to reflect the rising of the interest rates at the end of the day. It's are we making a spread are we making money.
Of our cash flows and.
And so the rising interest rate is just something we will continue to watch.
But not not something that we think is to your point the end of the world for resi storage just part of the market.
Well one thing I will add on there is rob laid out in the earlier question.
The value of the contracts roughly about <unk> that of what we pay for it. That's just been a 10 year historical average, we still see that and when you see the.
The capital loss rate, which if its values about two X or what you deploy so if we have a 20 basis points and falling capital annual capital loss rate, which is where we are and that's about a 40 basis point loss of value right.
As that drops because rates are moving up and you can see it in real time, the delinquency and default rates plummet as the utility rates move up so they're already small, but theyre getting much smaller even a small move in that value loss rate is dwarfs that of any sort of bigger move to the order of two to three X because your debt balances.
About roughly a third of that of your value.
And that's inclusive all that corporate and so you have about a three to one ratio. There. So hopefully that helps us yet you're much right yet as energy prices rise the value is.
Is going to increase because your default rate your philosophy values going to drop considerably and that dwarfs anything that you would have as far as an interest rate increase on a forward basis of course of the existing base, we've locked those those rates in.
I appreciate the color guys. Thank you for the clarification.
Thank you.
Yeah.
The next question comes from Amit to call at BMO Capital markets. Please go ahead.
Thanks for squeezing me in I know, we're in over time, so I'm just going to ask one quick one.
No I think Rob mentioned that you guys did some tax equity financing.
You guys have plenty.
Plenty of questions on kind of on the ABS side, but I was just wondering in terms of kind of the cost of capital on that tax equity financing was it fairly consistent with what you guys have had kind of seen late last year.
Yes.
I'd say that the downside of tax equity was it really didn't follow the interest rates down the upside is really hasnt followed the interest rates up.
So generally speaking.
Tax equity is still about the same.
Right.
It had been.
Again sort of pre COVID-19 tax equity rates.
And the tax equity providers are still making.
A lot of money off of it.
Off that tax equity, we're very happy for their participation.
And it really hasnt affected our economics I think that it is potentially one of the catalysts. When you have rising interest rates that the fact that the tax equity has not moved that much that in combination.
With sort of ITC fears.
Could.
Could start to have more.
And ppas relative to loans.
Alright.
Were really prepared for any and all environments.
And that's probably a good time to say, yes, we've got plenty of tax equity.
And are very happy with the partners that we're working with right now.
Thank you.
We have no further questions. So I'll hand, the call back to Jon Barker for any closing remarks.
Thank you.
We expected that tough times were.
We're coming as we had our last quarterly call.
Including war in Europe , Exacerbating, a full blown global energy crisis.
And we have been diligently preparing the company to be that shelter in the storm.
We are quite confident in our liquidity our forward growth guidance, our earnings power and generation of more earnings and more cash flow and we will look to take advantage of the of any situation to continue to focus on generating long term very positive shareholder.
Our returns focus on the cash focus on execution, and we will get through whatever storm come our way.
Thank you for your time and looking forward to our next quarterly call.
This concludes today's call. Thank you for joining you may now disconnect your lines.
Okay.
Yeah.