Q2 2022 Sunrun Inc Earnings Call
Greetings and welcome to Sunrun second quarter 2022 earnings Conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Once you require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference call is being recorded I would now like to turn the conference over to your host Mr. Patrick Jobin. Thank you you may begin.
Thank you operator 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 that 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 , Danny Biogen Sunrun CFO Ed.
Ed Fenster <unk> co founder and co executive Chair is also on the call today and will be participating in the Q&A session that follows the prepared remarks, and now let me turn the call over to Matt.
Thank you, Patrick well, well well so much to talk about since our last quarter frankly, I was already looking forward to speaking with all of you. This week to talk about the exciting developments and how strong we are delivering on the fundamentals and then we received the good news coming out of Washington on climate legislation as a company providing customers with the ability to have a more affordable.
Portable innovative resilient and recession proof future it truly feels like the Sun is shining on our work.
That said in the spirit of you make your own luck. The Sunrun team has been laser focused on crushing the fundamentals and I am excited to talk about the work we've been doing and some of the luck. We have created we delivered above guidance volumes in the quarter growing new installations by 33% from the same period last year and have continued to see.
Credibly strong momentum breaking sales records again, just last month and growing customer orders, 28% compared to last year, we are delivering on improving net subscriber values through our continued actions to be faster better and stronger and to see those benefits continuing to build and flow through the pipeline, which underpins our.
Guidance of continued margin expansion into Q3.
Looking beyond the quarter I am very excited about building the future. We are running two we are a clean energy technology company and we believe the ultimate way to feel life is through the natural abundance of the Sun, we aimed to put control simplicity and possibility in the hands of every customer connect with the cleanest energy on Earth for.
Powering their homes their transportation and their lives we are running to provide a more affordable resilient and energy independent future for America.
Now is the time for Americans and the world to embrace clean energy to help solve some of our greatest problems and to create greater socio economic prosperity by providing more resilient and affordable clean energy to all the.
The crippling heat waves across the country devastating wildfires in areas facing record breaking droughts and geopolitical tensions highlighting the vulnerabilities of finite fossil fuel sources, all underscore the need to accelerate to clean affordable decentralized energy sources, they put customers at the center and provide them what they.
Need and want to run their lives.
This summer we celebrated our 15th anniversary as a company, marking 15 years of continuous and rapid growth and putting us in the enviable position of leading the industry forward. Today, we are operating at a scale that is twice as large as our nearest competitor.
And we have more than five gigawatts of network solar energy capacity, making us the second largest owner of solar assets in the U S across all segments of the industry as the nation's leader in deployed personal storage, we sit on the capability to deploy over 150 megawatts of clean store.
Energy when called upon our track record and sets US apart we have navigated repeated policy uncertainties, various economic cycles and dynamic supply chain before and I'm proud of the team we have in place today that its executing so well in the current environment.
Sunrun is positioned incredibly well for periods of high inflation or even a recession, because fundamentally we offer customers security price stability and control over our basic human necessity.
My focus since assuming the CEO role has been to make sunrun, even faster better and stronger building on the solid foundation that has been built over the last 15 years to accelerate what we can accomplish for our customers and stakeholders and I am proud to share that sun runners are embracing the opportunity and running to the future where we are the go.
Two provider for whole home energy services across the country, we are making great progress against these goals first we are delivering rapid growth. We grew new installations by 33% this quarter the confluence of a growing understanding about the virtues of powering your home with solar energy and storage compounded by rapid use.
<unk> rate inflation across the country is driving record levels of demand following on the price actions. We took in late March and early April rapidly escalating utility rates sustained a very strong customer value proposition as many of you know utility rate inflation was over 13% across the country and the latest CPI data.
And it is running even higher than many of our large markets and is poised to remain elevated for the foreseeable future.
Second we are also continuing to innovate and expand our offerings, we are benefiting from and helping enable the transition to electric vehicles by providing our customers the ability to run their vehicles unclean independently generated energy customers.
Customers, who drive electric vehicles need larger systems, these solar and battery and EV resources are incredibly valuable for homeowners and the energy system alike.
Our partnership with Ford has officially kicked off and there's tremendous exciting hundreds of orders have already been placed and we have started conversations with over a thousand additional potential customers as they approach delivery of their Ford F. 150 lightning approximately two thirds of customers, placing orders are opting for the advanced by directional.
Power flow and home backup capabilities from the charge station pro along with the home integration system based on initial numbers, we are seeing over 10% uptake of bundling solar at the same time as the installation of a home integration system Sunrun has already installed several systems and expects to install thousands more in the coming months.
We have also just launched our new level to electric vehicle charger to complement the company's home energy management solutions. This allows customers to achieve even greater benefits independence and stability by powering their vehicles at home tapping into the most abundant and affordable clean energy source on the planet.
The offering will be available later this month in California, and New Jersey, and Vermont and will be rolled out to all southern markets as an optional add on by year end.
We are also the leader in deploying batteries with solar systems today, installing more than any other solar company with more than 42000 and battery systems installed. Thus far we can provide a critical service by discharging electricity to the grid during the times, it's most needed as more severe and frequent heatwaves continue to stress our nation's grid. This summer.
We strongly encourage grid operators utilities and policymakers alike to leverage this amazing source of solar energy not only do our solar customers take load off the grid or batteries export during times of peak demand, which reduces the overall stress on the grid.
We expect as battery availability improves we will see even faster adoption by customers choosing to add batteries alongside solar systems and as electric vehicle adoption increases we will have tremendous opportunity to innovate even further with our service offerings and grid service capabilities, yes.
Yesterday, Sunrun announced an exclusive agreement with span, making the company is smart home electric paddle available to residents in Puerto Rico. The offering is available exclusively exclusively through starting run and Sunrun as partners in Puerto Rico further differentiating our offering still recovering from the devastating effects of Hurricane Maria.
Puerto Rico's fragile electric grid remains prone to unplanned power outages and protracted blackouts with this partnership and state of the art innovation customers will be able to shift home solar and battery power supply to different uses throughout the home during an outage controlling where and how backup powers used just.
Technology also provides sunrun with an even more sophisticated ability to control and dispatch energy back to the grid if called upon by the grid operators.
Ron entered Puerto Rico in 2018 and has quickly become one of the islands largest providers of residential solar energy and battery systems Sunrun will start offering this incredible next innovation to customers. This month.
We are accomplishing all of this with a laser focus on efficiency.
Tremendous growth opportunities and innovation initiatives can pressure organizations to de prioritize efficiency. We are focused on delivering growth innovation and efficiency together as an example of our combined focus sunrun delivered 16% sequential growth in new solar installations in Q2.
Well head count remained materially unchanged in the organization, we are driving cost efficiency. While also remaining committed to delivering a great experience to forge enduring decades long relationships with our beloved customers.
Shifting gears just on external items.
We were delighted that Senator Joe mention came back to the table on climate legislation and there seems to be a highly likely passage of a meaningful commitment to clean energy. It is clear that by providing incentives to invest in clean energy, we can actually combat inflation and provide customers what they need clean affordable energy.
Insulating them from skyrocketing utility bills, we also see tremendous opportunity in the latest legislation to build on our success of providing clean affordable energy is a path to building greater socioeconomic impact through our work with multifamily housing and to first time homebuyers and those in communities most in need of any.
<unk> security stability independents and cost savings.
It has also been a busy period for trade policy. We were encouraged that the administration took steps to block the anti circumvention tariffs for two years. However, the care the current bureaucratic process from the customs and border patrol is causing delays to the timely release of football fields worth of modules currently sitting at the <unk>.
For us and many in the industry. This results in unnecessary friction costs, such as customer system. Redesigns. We are called upon the customs and border patrol to follow guidelines respond to consumer demand and quickly released so solar modules that are demonstrated to be in compliance with the latest requirements.
And we have seen some recent progress.
These delays are slowing the deployment of what Americans need and want clean affordable solar energy.
With that before I turn the call over to Danny I wanted to share a few words of appreciation for the amazing employees that sunrun and most of all to our customers who we're privileged to serve our team is doing tremendous work to deliver on rapid growth accelerate innovation and drive a customer obsessed culture at Sunrun, we are running a marathon to help combat.
Climate change and provide customers control over their energy future. We appreciate all of our customers and Sun renters, who are part of this journey with us.
With that over to you Danny thank.
Thank you Mary Hi, everyone I'm pleased to be joining marionette today on my first quarterly call as CFO .
I will cover our operating and financial performance in the quarter, along with an update on our capital markets activities and outlook.
Turning first to the results for the quarter.
In the second quarter customer additions were approximately 34400, including more than 25000 subscriber additions are subscriber additions were nearly 74% of our total customer additions in the period.
Up from nearly 72% in Q1.
Solar energy capacity installed was over 246 megawatts in the second quarter of 2022.
33% increase from the same quarter last year and exceeding the high end of our guidance range.
We saw strong customer demand for our products and services in Q2 customer orders increased by 28% in the quarter compared to the prior year.
While we are still adding customers to our pipeline the increased pace of installations is allowing us to gradually worked down our pipeline.
Our current pipeline is closer to one quarter at this point.
We have now installed over 42000 batteries, we expect battery installations to grow rapidly in the quarters ahead.
Current battery supply conditions and longer install cycle times have resulted in lower battery attachment expectations in the near future, but we expect that as we introduce additional battery suppliers and work through our pipeline attachment attachment rates will increase meaningfully.
Today, we are prioritizing allocation of batteries in key markets, where they are needed for the most for grid reliability concerns.
We ended Q2 with approximately 724000 customers and more than 614000 subscribers, representing 5.1 Gigawatts of network solar energy capacity, an increase of 21% compared to the prior year.
Our subscribers generate significant recurring revenue with most under 20 or 25 year contract for the Green energy we provide.
At the end of Q2, our annual recurring revenue or <unk> stood at $917 million with an average contract life remaining of over 17 years.
In Q2 subscriber value was approximately $38700 and creation costs was approximately $30800 delivering a net subscriber value of approximately $7900.
Total value generated which is the net subscriber value multiplied by the number of subscriber additions in the period was $200 million in the second quarter.
The adjustments, we made to pricing and home upgrades policies in late March and early April or are starting to partially flow through our installations in Q2 and will be more fully reflected in Q3 deployments.
We are optimizing overall sales activities and revising our policies on pricing and product mix and certain markets. These moves are already producing positive results in Q2, and we will continue to evaluate our customer offering based on incumbent utility rate trends in the capital markets environment.
Yeah.
Turning now to gross and net earning assets and our balance sheet gross earning assets were $10 $8 billion at the end of the second quarter.
Gross earning assets as the measure of cash flows we expect to receive from customers over time net of operating and maintenance costs distributions for tax equity partnerships partners in partnership flip structures and distributions to project equity financing partners discounted at a 5% Unlevered capital costs.
Net earning assets were $4 $6 billion at the end of the second quarter, an increase of over $130 million from the prior year and $145 million compared to the first quarter.
Net earning assets is gross earning assets plus cash less all debt.
We ended the quarter with $863 million in total cash.
We continue to maintain a robust project finance runway as of today close transactions and executed term sheets provide us with expected tax equity and project debt capacity to fund all of our 360 megawatts for subscribers beyond what was deployed through the second quarter.
Turning now to our outlook.
The current solar module import disruption as Mary mentioned create some uncertainty around volumes during the second half of 2022 but the strong consumer demand. We see are further improving operational efficiencies in fulfillment capacity and the visibility of our robust pipeline gives us confidence to confirm our full year guidance of over 20.
5% year over year growth in solar energy capacity installed.
We now expect total value generate it to be substantially greater than $900 million for the full year confirming our prior guidance that total value generated will grow meaningfully faster than volumes.
We continue to expect net subscriber value above $10000 in Q3 and Q4.
Our forecast, we do not assume any increase to the federal investment tax credit that May result from the passage of the inflation reduction Act of 2022.
And increasingly the investment tax credit pending, California, net metering policy and any impact to volumes from supply chain disruptions could obviously result in variations in total value generated in either direction.
For the third quarter, we expect solar energy capacity installed to be in a range of 250 to 260 megawatts.
Since the April pricing of our half billion dollar senior notes securitization capital availability has remained strong in both the securitization and bank markets. Apart from a brief period in June market interest rates have remained in a narrow range, our borrowing costs, which are indexed to long term interest rates have been.
Fitted from downward pressure recently as expectations for economic growth have softened.
We continue to expect advance rates on our deployed portfolios to be between 85% to 95% of contracted subscriber values, which are discounted at a 5% rate.
We believe the wide range is appropriate given the potential volatility in debt capital markets.
As a reminder, that the numerator in advance rate includes proceeds received net of fees from all sources rebates tax equity customer prepayments senior and subordinated debt and swap terminations as we've shared before we frequently enter into interest rate swaps to hedge capital costs on out.
Newly installed customers our existing capital structure is also well hedged through a mix of interest rate swaps and fixed coupon long dated debt securities.
We currently observe our capital cost is between five and 6%.
As you may recall separately several years ago, we used to report subscriber value in gross earning assets figures using a 6% discount rate and didn't update it to 5% until we saw capital costs below 4%.
While we actively monitor our capital costs, we don't plan to update the discount rate for minor fluctuations around 5%.
As mentioned, we implemented meaningful price increases earlier this year behind large electric utility price inflation and high interest rates.
Since then utility price inflation has remained persistently in the double digits as utilities pass through their higher labor fuel and capital cost to customers.
This provides ample headroom to continue to evaluate market and pricing opportunities, while still delivering customers an incredibly attractive value proposition.
With that let me turn it back to Mary.
Thanks Danny.
It is such a powerful time in our nation's history to be working in clean energy shoulder to shoulder with thousands of Sunrun is every day working hard to deliver to Americans, what they want and need clean affordable independent energy to power their lives and to give them a greater sense of comfort and security we sit on the precipice of perhaps the most.
Impactful climate and inflation reduction legislation the U S has ever seen it is so exciting to think about the measures and how they could dramatically accelerate our work and maximize our impact all while addressing ramp and energy inflation, which is squeezing households, all across the country.
That said no matter, what the world throws at us at Sunrun, we stay focused on making our own luck growing faster better and stronger and delivering on our obsession with our customers with the employees, who serve them and delivering strong results for our investors before opening the line for questions I want to again Express my deep.
Appreciation for the big hearted ambitious team of employees at Sunrun. The customers, we are blessed to serve and the many partners who work with US every single day to deliver on creating a planet run by the Sun with that operator, let's open the line for questions. Thank you at this time, we'll be conducting a question and answer.
Session, if you'd like to ask a question. Please press star one on your telephone keypad as.
As a reminder, we ask that you please limit to one question and one follow up.
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Okay.
Our first question comes from Julien Dumoulin Smith with Bank of America. Please proceed with your question.
Hey, Tim Good afternoon, and thank you and kudos for holding in on that 10000.
Or that we've all been feared fixating on here if I can just the people.
Indeed, if I can just to keep running with that if if you don't mind I'd love to hear a little bit more about how you're thinking about future further rate increases rate for example, how do your rates compare with utilities today. After the increases that you've implemented and considering that typically the cadence of rate increases.
This is fixated around January 1st can we expect a further step up and expand that 10000 going into 'twenty three or at least the <unk> 'twenty two or 'twenty three.
Hey, Julien it's Mary Thank so much for the question and for the the enthusiasm [laughter] for our maintaining our focus on net subscriber value, but that said yeah. Your question you know I'll hit it first at the broad level and then see if Dan he has any additional comments, but we have a lot of headroom I mean, the the bar.
Line as we have a lot of headroom. We you know we basically are providing customers all across America, but you know, particularly in some markets with you know really really significant savings value proposition. We're also at the same time, Julien, we're seeing more and more customers.
Candidly that are so motivated by other factors and again more and more customers are also going solar to power their electric vehicles and so when you also think about the opportunity to power an electric vehicle with your own independent solar versus the prices the volatile prices at the pump that.
Also as a part of what we see is continuing to drive demand. So I would say at the highest level again, where we're being you know very opportunistic at the same time as we're very very focused on making sure that we're delivering a significant value proposition to the customers, we serve and what would that data.
If you wanted to hit any or not not much to add Julian. Thanks for the question I have as we discussed last period and as we've shown this period you know, we're making progress towards getting the realization of the pricing actions, we've made them and as you as you'll notice.
The guidance for Q3 and Q4 at this time, indicating you know we also obviously have gained confidence that the pricing actions. We've taken will stick you know beyond that that you know we're not guiding anything at the moment you know Mary has kind of given you a sense for how we're thinking about things and I think.
We're confident in what we've said regarding Q3 and Q4 at this time.
And Julien Lastly, also as you know the other adoption that's happening whether it's electric vehicles heat pumps. Other types of electrification is just then driving up the demand for larger systems as well.
Totally excellent. Thank you and just a quick follow up here considering I array, obviously is an existing ITC, but to the extent to which you could get an additional bump up on the ITC with some of these additional hours what portion of the your prospective origination could qualify for some of these additional ITC adders here.
How nimble could your business be to pivot towards those kind of higher ITC opportunities as best you see it today.
Hi, Julien It's Ed you know, we have a fantastic opportunity here.
I'm I'm, a little cautious to share exact numbers because the regulations on each of the adders will be promulgated by treasury and haven't been issued yet but.
But our preliminary analysis is on the low income at or approximately a third of our existing customers that we originate would qualify based on census track data and obviously with our direct marketing sales team in particular.
It would be possible for us to.
Seek additional business in those geographic areas are on the American made component.
The opportunity obviously will depend on the per cent requirements are that are promulgated but again, we think there's probably a good opportunity there and.
And then on the energy communities are there's a significant opportunity there for instance, I suspect like most of Houston would qualify based on the work force. Although we've got additional work to do there. So I think we feel like there's a significant opportunity even on the run rate business.
We have a lot of flexibility and targeting a two to.
To achieve higher you know sort of attachment rates of those matters.
And then obviously I should I should mentioned again, you know that those hours are only available under the section 48 tax credit, which is the one available to lessors.
Yes, indeed excellent. Thank you guys.
Okay.
Our next question is from Andrew per Coco with Morgan Stanley . Please proceed with your question.
So just my first question is just more on the cost side I mean, I totally understand you have pricing power to offset some of the near term pricing headwinds, but just curious if you have any thoughts on when we might start seeing you know the actual accretion cost start to drift down more towards that 5% decline per annum that we saw.
Historically.
Yeah, Yeah. So yeah, we we've talked a lot about some of the cost pressures I think we as Mary mentioned, you know one of the positives on that dimension over the quarter was you know we were able to achieve the sequential growth with our head count virtually unchanged or not materially up as as we described it.
At and Ah, It's speaking to the improving efficiency of the business. You know there are our equipment cost pressures or other kind of pressures around us.
And we continue to kind of work.
It worked through those things by delivering greater efficiency through the business as we continue to scale up the up the volumes.
In addition, as you know.
Driving towards a higher margin product via battery attach rates like we commented about a battery attach.
That is a product that kind of is as momentarily had a debit or a lack of further increasing the attachment rate, which we think is going to resume them as that supply.
He says and certainly the consumer demand is there. So like you know margin expansion opportunities coupled with just grinding out.
Day by day further efficiency in the business to compensate the inflation pressures, we know are all around us.
Got it Super helpful and there's one more on the funding strategy for me, it's been a big component of your funding strategy in the past and I think Ed last call you alluded to the fact that there was no noticeable difference between the credit spreads in the Aps markets and what you're seeing from some depository capital just curious you know.
What are your cost of capital is today and how that funding strategy might change if at all going forward.
Yep Yep. So so you know it it it's it's quite habitual for us to be looking at them you know the broad access to the capital markets, we have and continuing to evaluate those cost of capital difference, we see between markets and I think we've played that quite favorably over different cycles and periods of time.
And we're certainly are in one of those where we think there is a cost of capital difference between the markets, but we also understand that that cost of capital difference can often be fleeting in and we are.
Strategically designed as you know in our approach to the capital markets to be able to access both in you know pivot back and forth quickly as needed. So today, yeah. We have said and continue to believe that the commercial bank market is a little bit ahead or more favorable than the a b S.
Market on a pricing basis.
That pricing difference is relatively narrow, but it exists and we continue to look at that and <unk> to your question about our cost of capital. We continue to see cost of capital, which is the blended cost of capital with our senior and subordinated debt all in run in that 5% to 6%.
Range. It has varied through the quarter as we've seen credit spreads move around a little bit.
You've seen base rates move around a little bit more but I think as we mentioned in the opening remarks have tapered off recently to a much more favorable spot so our cost.
Cost of capital recently trending positive still up from late last year and as we've discussed we've taken a lot of action to kind of work through that and those dynamics broadly.
Great. Thanks, so much I'll leave it there.
Thank you.
Yeah.
Our next question is from Brian Lee with Goldman Sachs. Please proceed with your question.
Okay.
Kind of related to the model.
First on the growth guidance, you know, you're implying 3% sequential growth for <unk> and then maybe mid to high single digits growth in <unk> to hit the full year target.
That that's you know a little bit slower than what you just saw on <unk>, which was robust and above the high end of the guide. So just question would be was there any sort of pull forward ahead of your pricing increases or maybe you can just talk us through the cadence of growth you're seeing in bookings activity versus prior quarters right now and and then if there's been any notable shifts in customer.
Trends you're seeing between.
The different offerings P. P eight leases loans et cetera, and then I had a follow up.
Yep. Thank you for the question so on on sequential growth in volumes.
I think I think we've had as we've discussed previously.
Major increase in new customer orders at the beginning part of the year, even late last year and heading into this year on the last call, we guided to a backlog or a pipeline are encroaching on nearly two quarters as the sequential growth in the business has picked up.
That has reduced to closer to one quarter.
And as we look at the next couple of quarters and even the next few quarters.
That has also.
Obviously, there are some challenges on the cost side, we've talked about with a growing pipeline, but the ability to bring it in and continue to work that down on a measured pace I think is valuable.
To the business that is a deliberate focus.
As we see some of these uncertainties in the macro picture.
Growing the physical footprint of the business in a measured deliberate pace has been has been a focus and you know and in the guidance.
We provide we are comfortable with.
As far as the product mix that the lease versus loan.
We've seen a little bit of a shift we've seen a relative pickup of the lease product where last quarter that was 72% and this quarter that had increased to 74%.
Okay.
Okay, that's awesome.
And then on net subscriber value expansion kudos on on hitting the targets here and reiterating our the second half just wondering can you sort of bridge the $2000 plus step up from two <unk> how much of that is pricing reading out you know versus other drivers like mix and so forth and then.
As we think about the model longer term here whats the normalized target for net subscriber value I know you had talked about kind of reaching 10 to $12000 per customer in the past, obviously, you're kind of already there. So wondering if there's an update to that and what some of the step up drivers from here would be if you can quantify thank you.
Yep. Thank you we have we have you know still still room to run on the realization of.
B the pricing increases so that those are late March early April couple.
Coupling that with the backlog, which you said again encroaching upon two quarters means you know wonder about one quarter is past and we've got a little bit more room to run here for those pricing actions to kind of take hold.
The metric.
So realization of those you know through the through the quarter and that's also what's.
As we continue to deliver a scale are we get some operating cost leverage as well, which we'll see on the on the cost side in the back half of the year.
And you know we continue to see margin improvement.
Within our creation cost we have platform services margin, we expect some margin improvement there as well through the through the balance of the year are all contributing to that positive direction in the metric.
Okay.
Alright fair enough I'll pass it on.
Our next question is from James West with Evercore. Please proceed with your question.
Hey, good afternoon guys.
Hey.
So.
You've had some some back and forth with no notable short seller here recently or at least Theres been.
Some.
Massachusetts made against some of them some of the accounting and of course.
Lots to do another response from them I'm curious if you wanted to comment or to take this opportunity to put the microphone Jeb right now on your conference call to.
To respond to them.
Sure Yeah actually James I, you know from a high level I think as you know we went to lengths to sort of go you know sort of point by point and just make sure that that folks were so clear that you know from from our perspective muddy waters. As you know has it wrong you know I thought actually it would be great for Danny.
CFO given his tenure with the company I would just I would actually love to have you Danny share your thoughts and sort of how do we look at it you know we certainly welcome any and all you know dialogue as we as we always have as a company. So yeah, Danny I thought it'd be great. If you could hit yeah, I just lay around those internally prepared.
<unk> that we posted on our website, where kind of you know at our fingertips. If you will given the long history here.
Delivering I'm, just just very high quality and.
And reputation from a due diligence standpoint over the course of 15 years My 12 years here.
With probably close to about $20 billion raised.
Much of which was you know.
Under private situations private deals where investors really have the opportunity to come in even some for like spanning multiple days to act to have asked us questions and we've answered them some over a decade ago. So.
We felt quite good about the response I don't think we plan to elaborate further here on those point by point responses I think that record speaks for itself on our website, but again, it's it's a culture of awesome reputation with our investors that comes from the transparency and humility with which we've treated or.
Lot of the due diligence we'd have to go through to to raise all the capital we've raised and I think you know as as far as like anybody you could reach in the market to ask them about our reputation in those situations I think they would speak very highly they've certainly set those things to us and.
And we definitely appreciate that level of rigor, we already get from a lot of these private investors are aware, we do have to kind of open up the hood, a bit and get really get into these very specific issues, which we've done. So many times, which is why again you saw a pretty robust response a go go on.
The website that the team kind of you know.
Very quickly prepared here.
And you know I think that that's kind of basically out on the on the matter and you know we're excited about them all of the execution.
There's a dynamic macro environment, but we're excited about the execution of this team and we're excited about the trajectory of the business.
Okay fair enough I'll leave it there thanks Amy.
Our next question is from Mohit My law with Credit Suisse. Please proceed with your question.
Hey, good evening, thanks for taking our questions.
First just on the gross over here in terms of you know.
You're targeting kind of a 275 plus megawatts in Q4 could you kind of talk about the sensitivity to that growth.
California was the NIM 3.2 proceedings over the.
Yeah.
Oh, Yeah, that's not I mean, if there was a question on the on the timing. So there is some timing uncertainty there.
At the moment.
The base assumption is.
Any impact given its unknown at the impact of any action would deliver kind of more into next year and and you know we obviously have to see what comes out of it [noise] measure those impacts and more clearly guide to them, but at the moment. We don't believe there is a high impact.
To the to the volumes that we've guided to a J.
In Q3, and what's implied for Q4 with the annual guidance.
Gotcha.
And just two more from me one on the IRS does the tax credit transfer ability to startle for tax equity and for the EV Chargers who's the OEM supply or is it skewed Jamie thanks.
Sure. So this is Ed.
So a couple of questions. So first again on the <unk> potential.
Potential for tax credit transfer.
In the current I R a draft.
That is something again, where treasury will have to promulgate rules and I'm you know Doe.
Don't want to speak in advance of those rules I think my high level of suspicion is that a sort of traditional tax equity capital will continue to be cheaper.
But that that will certainly expand the market and be helpful and potentially you know for more off the run products or something like that.
So we continue to monitor that and chat more about it but I think that you know the traditional structure, which you know monetize this depreciation as well ought to give us a better financial outcome.
Most likely.
As to the EV charger, a that is a product that we're sourcing separately, although we're not manufacturing it ourselves and it continues to be that you know, we expect to be well I should say that the the SK with JV will be talking more about itself sometime during the calendar year.
Okay.
Got you thanks for taking my questions.
Our next question is from Mark Strouse with J P. Morgan. Please proceed with your question.
Yeah. Good afternoon. Thank you very much for taking our questions just had one kind of two part question on inventory.
Going back to the comments about U S. L. P a creating some kind of delays in the market.
Is that having a tangible impact on your ability to meet demand here and three Q or are you kind of leaning into your inventory. During this period and then kind of the second part of that question is yes, assuming.
Assuming that U S. L. P. A kind of gets cleared up over the next quarter or two kind of what your strategy on inventory would be if that becomes kind of a working capital tailwind.
Thank you.
Hey, Mark Thanks for calling in and I didn't know if you ever done with the question and I don't want to talk over you yeah.
Great questions on the inventory AR balance itself, given those dynamics with U S. L. P. A yeah. We we if you look at our financials.
You'll still see inventory balance for the year.
You kind of compare June 30th at 12 31, you'll also notice that it's slightly down about $9 million quarter over quarter. So we did a dip into the inventory a little bit through the period. We're still overall are up obviously some of that is being driven by increased volume in the business. Some of it is being driven.
By keeping that days of supply at high are you know we did guide last time that we were carrying a balance of days in excess of 100 now with both the volumes increasing and some of our product getting detained that has dipped below 100 days, but I think we've.
Land around it in a way, where we feel comfortable for the for the balance of the year. Although it remains a risk we feel comfortable given all the procurement activity.
We've done very tightly around the situation.
Okay. Thank you Dan.
Our next question is from Philip Shen with Roth Capital. Please proceed with your question.
Everybody. Thanks for taking my questions as a follow up on the U F. L. P. A situation Mary I think you referenced.
Some of the CVP challenges.
Can you provide some additional color on how the U F. L. P. A M may have impacted your business you know how much redesigning did you guys actually have to do.
Well it was one of the car module vendors that you had contracted with possibly impacted thanks.
Yeah. So Ed you know at a high level I mean again, we're crushing it on the fundamentals. So you know and as we reported like yes. We had some you know flexing we have to do in the organization is and again, we have we work with a number of suppliers. So.
Make no mistake, there's always some flexing we've had to do in the business. So it's just highlighting that risk and that you know that.
That's where it shows up is in the context of the friction that causes in the business and the amount of redesigning that you might have to do for customers. If you're if you're finding that you have one set of you know vendor panels versus another you know the the good news is we're in an enviable position we work with really good vendors, we've had long standing relationships.
We've been a leader in having standards for who we operate with making sure that they meet all of their requirements. So it's really been around you know just working very directly you know most recently with customs and border patrol to make sure they're aware of that to really put the pressure on ensuring that.
We get product or at least as quickly as possible that's sitting at the port them, but you know what we as Danny said you know we are still sitting on a good amount of supply we have great vendor relationships, we've been a leader in making sure that folks to meet requirements and so you know really ultimately I see it largely is.
As you know just being something we've really got to keep our eye on and keep pushing on them in this quarter.
Great. Thanks, Mary as a follow up to that subscriber value wanted to see if we can hit the potential view on 2023 again, specifically you know what do you expect a net subscriber adds value to them to be flat in 'twenty three as we get through the year maybe potential for.
For now even more expansion thanks.
Yeah, Yeah, yeah. So so far you know we.
We've we haven't you know we haven't guided to 2023.
In the remarks, we noted some of the swinging variables around net subscriber value total value generated and those come into play more so in 'twenty to 'twenty three than they do for the balance of the year. You know that includes impacts from what happens in California, the ITC stepping up to 30%.
The interest rate environment, so with enough of those uncertainties.
And you know I think our focus on closing.
Closing out the year strong and having those pricing increases stick them and I think we've kind of stayed away at the moment from getting deep into 2020 three on the on the guidance.
Okay fair enough thanks very much.
Okay.
Our next question is from David Peters with Wolfe Research.
Please proceed with your question.
Yeah, Hey, good afternoon, everybody I'm, just curious with respect to the IRA I think.
In the past you've said the industry could grow you know anywhere from 10% to 15% annually over the next several years and.
And you made the comment in the release about I think the incentives turbocharging. Your growth do you have any sense in magnitude at this point or just any thoughts.
How much bigger the Tam would get from day, one just in new markets that you could enter where you know it wasn't quite economic enough before thanks.
So I. This is Ed so I mean, the if assuming if the IRA were to pass, which we expect it well I think you know Tam could increase from quite a quite a few areas right mm Theres, obviously the base increase in the tax credit. There also tax credits now available for things, where there would be like main panel electric upgrades, which.
Also we'll make storage more affordable for more people.
There are the adders that we discussed earlier on the call you know, particularly for lower income Americans, but also for other situations and then also it's also very as a long term extension of the credit which is also helpful. So with those elements and obviously against the backdrop of just rapidly escalating commodity in electricity prices.
So we think that the opportunity for robustly quicker growth is significant and we obviously havent, we havent quantified that yet and obviously or.
We want to build a path and the regulation there.
Yeah, but it's a very it would be yeah. So nice acceleration, yeah and Ed. Thank you so much and just to put a point on that so again I mean, we're sitting at a place of like really strong growth surging customer demand right and then you know where they where they where they are you know potential passage of a bill that is.
Knowing to encourage more Americans to move faster towards electrification, which means more Americans are going to also want to move faster and not just to the other kinds of electric electrification products, we can help them with but with the ability to generate their own energy that is way more affordable reliable and you know and energy independence. So.
You know, we really believe you know as I said that we're on the precipice of really some monumental and impactful climate legislation that again is gonna be felt not just in like the Tam not just in sort of these very practical ways, but but seismic waves in terms of the drive towards electrification.
And and the surging demand that's going to turbocharge around you know.
The need for for solar energy.
Right No I appreciate those thoughts.
One other one just back to the net subscriber value I guess, you guys are kind of guiding to exit.
You're around that 10000 level, but just how quick can we see that step up just from the higher ICC alone again, assuming the bill passes just you know understanding that the value of tax equity would be marked up in that calculation right with it.
Through pretty fast or just how should we think about that.
Yeah, Yeah. It depends on obviously the legislation in its current form.
It is data to January 1st so that there would be an immediate flow them on future installations, and then there would be some additional value pick up on the systems, you've already placed in service for the year and that that would show.
As a.
As an impact through our investment funds as well as we kind of calculate the you know the tax equity returns with the 26 versus the 30 I think it will factor in there and have some positive.
You know financing and working capital benefits as well, but should be pretty immediate.
And apply to systems across the year.
That's right. Thank you appreciate it.
Our next question is from Colin Rusch with Oppenheimer. Please proceed with your question.
Thanks, So much I'm just curious about a couple elements on the cycle time. So can you talk a little bit about changes in the sales cycle and then also in terms of recruiting and training new installation stuff.
Okay.
Yeah, Yeah can you get the what what specifically was the question on the sales cycle and just if you can elaborate on that first one yes. It you just do the directionality of it are you able to shorten up here with some of the elements that you've been working on with permitting you know our customers getting them to a point, where they're educated enough where they make faster decisions.
We go out and install the system quicker.
Yeah, 100% sure.
Gotcha, yeah. So so in that context again I was I was really pleased with the progress we made in this last quarter with really tightening on the cycle time, you know you know candidly, it's not so much in the sales process. It's actually you know again with a lot of the COVID-19 related challenges over the last couple of years it was more.
You know the the cycle time, we really focused on was shortening the time from you know customer signature to installation and that's where we have again made some in in this last quarter. We've made some real nice headway.
But yes, we're seeing as again you know as <unk>.
We've talked about before that we've you know in my in my view, we've really already hit. This you know consumer tipping point, where again I'm you know solar is really becoming a way more mainstream to be thinking about and talking about so in the context of the work that our sales teams are doing you know it is it has been really funded.
Mentally dealing with really incredible customer demand and that part of the process is moving very slow slow in the context of also I think you mentioned training you know again as you would expect we definitely have robust training that we havent new employees go through them, but one of the things I've also been really impressed with from.
Our labor perspective at Sunrun is we just we continue to remain a highly attractive employer. So we also just seem to have a relatively straightforward a time in the context of recruiting and bringing on a lot of our new enthusiastic sun runners where and when we need them. So we're in a really good.
<unk> from labor from the productivity metrics that we're seeing and what we're driving towards in terms of the installation cycles.
Fantastic and then a second question is just a conversion rate of the referrals, we're getting from four it used to be.
How many or what percentage of those referrals are actually turning into sales for you guys.
Well, it's you know again, it's we're early in the process I think as I described you know when I. When I opened a you know we are talking to literally thousands of customers and what I also described as I think right now again, it's it's super early but we're at like 10% of the of the currently.
Scheduled customers for the bi directional charging or are you now have have also decided they wanted to go solar at the same time, which is which is super powerful and you know and not surprising to us because there's such an incredible correlation between those between electric vehicle drivers and those who want to go solar so we're.
We're expecting to see great continued uptake.
Perfect. Thanks, a lot you guys.
Our next question is from Kashi Harrison with Piper Sandler. Please proceed with your question.
Good afternoon, everyone and thank you for taking the question.
So I noticed that you disclosed the value or the value generation target of around 900 million I think there was some also some dimension to it in the prepared remarks, you indicated that is way up relative to 'twenty 'twenty. One however, corporate cash not a recourse debt is down about $2 15 that up the evergreen investment from Q.
And so I'm just wondering if you'd help us think through the corporate cash trajectory as you as you look into the second half of the year and I have a follow up.
Yep.
Yeah the corporate.
The corporate cash dynamic for the I think we might have talked on the I forgot exactly what we said on the last call but.
But I I think B b.
Be enormous growth over the first half of the year was such that it was it was cash consuming on the working capital side as we.
I have increased sequentially by large numbers quarter over quarter getting that installation footprint increased and catching up to the demand that you know we have also mentioned the increase the increasing inventory balances we've had to carry over the supply chain situations.
There's just been general working capital consumption through the year, and Ah I think quarter over quarter.
The movement was was was less significant.
This is Ed I think the one other thing we did mentioned on the prior call with you know continue to be the case is that you know from a cash flow performance. The systems that we originated prior to the quick run up in interest rates.
That we have now placed in service during the period of higher interest rates, you know don't meet our kind of long term desires for cash generation, but as we now transition back to the projects to installing the projects that we originated after we increased pricing you know that is very helpful to the the cost trajectory as well.
That's helpful context, Thanks, and then.
As my follow up as you you know as you contemplate strategies to maximize customer economics, not just in second half of the year, but really long term I was wondering if you could maybe talk a little bit about customer acquisition cost because that is something that you do have to deal with the ability to control them like them and ITC.
You know looking at where our customer acquisition costs are now relative to the prior to the living deal.
Those numbers are up a bunch and so I'm, just wondering is that somewhere where with a downturn coming in there on the economy. You can you can maybe bring those down and rapidly increase improved customer economics rapidly improve a levered cash generation for 2023.
Yep Yep.
No.
Definitely the.
Dynamics in the economy.
Clearly as the economy softens.
I think that that could generally be a K.
Oh into the business on the cost side, and I think that would apply whether you're talking about equipment, you're talking about input labor on the install side or you're talking about our labor on the sales side, you know that that could certainly be a factor that that would be beneficial over time.
We've also seen them just the record demand for the product I think the benefits as we see those tailwind just from just consumer awareness adoption.
You know there their wallets being parents with rising utility rates and everything else I think that those are generally favorable dynamics to customer acquisition costs that we.
We did see.
The sales and marketing and our creation cost metric go up quarter over quarter and that is reflecting that because of the way we realize that oh upon the install to the dynamic I'd mentioned earlier you are also seeing in our metric.
Some of the sales and marketing costs get realized upon install from systems. We originated in Q1 prior to those pricing changes, which should have a beneficial impact over the next period or two.
Yeah, and I would just add to that you know, yes from a big picture perspective back to your you know your fundamental question. We are 100% focused in like as we're getting faster better stronger in you know driving down the cost stack like in every.
Area right and you know and at the same time, you know really again dramatically driving up customer experience. So we're doing a lot of things around simplifying process and our other activities that should continue to improve the overall profile.
Yeah.
Thank you.
Our next question is from Sophie Karp with Keybanc. Please proceed with your question.
Hi.
Good afternoon, and thank you for taking my question here, it's been a long discussion.
[laughter]. Okay. So first I was curious looking at the net subscriber.
Net earning asset value right and how the trajectory of that metric tracks in the last call. It 12 months.
<unk> been growing in low single digits, especially if you look at it as a pershare basis pretty much always glad right. So.
Do you expect to.
Targets that growth in that metric as one of your core targets at some point or.
Would you just prefer to focus on I guess customer value.
What I'm trying to say is like how.
How should we think about increase in customer value translating into ultimate dream crazier than it already has it and is this the right way of who can at the economics of the business.
Yeah.
Thanks for the question Yeah.
Again going back to one of my responses of the prior questions in in the last couple of quarters and again, echoing what Ed mentioned that there was that period of time, where we had that major increase in volumes that major increase in interest rates are where.
We did write a lot of business that <unk>.
It had had impacts to their ultimate unit economics from the financing environment as well as the working capital environment, which we're still kind of working through them as we.
Raise up to the higher volume level over the course of the year. So you you also see the related impacts through the metric. The metric is also burdened by B B S. K investment we've.
We've also talked about.
So eventually we should see that metric to kind of recover to a more robust level of growth.
Yeah, so yeah.
Yeah, we have we have seen you know.
A modest pick up between Q1 and Q2. So you end up in the most recent period are there hasn't been a resumption of growth in the metric.
Yeah, Okay, and then I have a cold.
Hum.
So we talked about utility rate inflation, and such right and we all know the energy of course.
Here's my question so easily the most recent spike in the tutoring.
C N is to a large degree driven by the spike in energy and fuel prices right.
Let's say, if we are they come and the softness in the energy prices moderate.
We will presumably see a corresponding decline or moderation that we used to need to go right.
Is there any risk that some of your most recently Android customers could actually E negative things versus their utility rate if that happened.
Yes.
Sorry could you repeat the last part of your question.
Your tutor rates come down because energy prices, let's say crashing yourself when the economy is it possible that some of your most recent customers would see a negative savings or no savings, so maybe paying a bit more with the solar installations versus the utility rate because they were underwritten in the high energy costs.
Yeah, Hi, Sophie it's Mary Yeah.
No [laughter].
I think that's my short answer you know again as a former utility executive for 20 years, you know fundamentally the fundamental cost drivers of what you're seeing from a utility rate perspective, like yes, you're right fuel costs were a big part of the driver of.
A lot of the recent uptake, but what you're also seeing is fundamentally you know just really billions of dollars of rate base investment that needs to make its way through.
The process of being absorbed in rates. You also are seeing you know in like as I think about different major markets. We're in are like California, you know you're seeing you know the effects of climate change and fires and droughts, creating you know again unprecedented.
Levels of utility spending both from a distribution and a transmission perspective, you're also seeing you know much higher labor costs, you're seeing so many fundamentals that are that really take years like you know even if some of those fundamentals change.
<unk>, which I'm, having a hard time seeing what would be driving that change in the short term. If you know you're literally talking about like things that take sort of a decade to work their way through the system. So even if you add other countervailing positive trends. It would just take you know an incredibly long time for that to feed through.
I mean, where do you see the you know where you see fuel prices affect utility rates positively or negatively more quickly. It's just empower adjusters right. So in certain parts of the country or in certain states or regions, where there is the the pass throughs right then youre going to see those really huge upticks that.
May may be proportionate as being temporary but you know the reality is they shake customers to their core in the context of price stability. So again, that's a big part of what our customers want it is honestly just the savings as much as it is about the stability, it's about really knowing.
What the cost is going to be of this really important a central service and knowing what that's gonna be right for a given period of time. So I think there's a lot of dynamics I know and I don't know if you want.
Add something to that yeah. There were a few things I wanted to add so in the background as Mary mentioned there is this capex extravaganza.
<unk> nationwide are incurring two and a half times as much capex as depreciation. This is why for instance in Arizona you know over the last half decade, even before the recent rise in energy costs wholesale power costs fell in half while retail power cost doubled.
In addition, retail power costs kind of go up with made off like efficiency because even if there is a savings on the fuel side, usually someone finds a capex experiment to plug the hole that said a lot of the operating cost increases that utilities have already experienced.
I have not yet been able to pass through because they get approved in rate cases, so increases in operating costs increases in capital costs and long term you know and increases in long term fuel procurement you havent seen actually in rate increases.
<unk> only really seen in the last six months is the impact from the small portion of energy that utilities kind of buy on the spot market and so there is this you know you.
You know giant.
Animal that the snakes they'll have to digest in terms of price increases and then you've also got happening in the background. This huge capex increase so I think that the best increase the best projections for retail rate increases are that they will continue to be you know double digit or close to double digit for years, even if you saw a hole.
Sale prices moderate or declines only.
Yeah.
And it's one of the many reasons why we've talked a lot and this company has done so much work on radical collaboration around you know really having our assets become a valuable part of how we operate the grid going forward because you know fundamentally the work. We do you know in the work we're doing around you know, particularly like with Ford.
With the bi directional charger with solar with storage you know we.
We are in essence, creating an opportunity for utilities to have access to smart controllable load. So as we electrify more of of our.
Devices and transportation around the country, we could play a really really critical role in helping utilities and grid operators operate the grid much more cost effectively.
Operator, I think we were going to try to squeeze in two more quick questions. If we can maybe we we have folks just do one question.
And then I think we are at a time.
Yeah.
Okay.
Our next question comes from David neighborhood with curator Fun. Please proceed with your question.
Hi, guys. Thanks for taking my question.
Very quick question.
The the the value proposition to customers has expanded rapidly from just being solar to being solar plus storage plus backup power.
Plus E V and a bi directional and I guess, a whole home energy storage energy service application.
You have a very large installed customer base have you given thought or how should we think about.
The potential to upsell existing customers on the expanded offering.
And what would that mean for customer acquisition costs.
And something akin to a refinancing or renewing a contract that captures renewal value.
So it was somewhat amorphous previously.
I hope that question yeah here.
Yeah. Thank.
Thank you I I, it's a great question and actually one we're very focused on because again, you're right, where we're really well positioned we are already in for many customers you know acting as their their clean energy company that can help them with the transformation of you know their their electric vehicle as well and 100% I mean.
We've actually already seen that and in some cases, right, where a customer you know already needs to make their system larger we definitely see increased opportunity around our system sizes, we absolutely see opportunity to bring you know to existing customers new products and technologies that we're bringing to <unk>.
The market. So again, we see not just rapid growth in the number of customers that we serve but also the opportunity to continue to.
Deepen and enrich our relationship.
You know with our existing customers and it's also interesting to think about the fact that you know a lot of customers stay in their home on what on average seven years. So in many cases, we're already seen cases, where we've picked up a new customer because they bought the home of an existing customer who then becomes a new customer again with their new home. So it really the.
The expansion opportunities of the relationship and you know our endless limitless in our minds and you know again, that's why I talk a lot about customer obsession and being that beloved trusted partner for our customers all across America in helping them get to that more affordable clean independent smarter and.
G future and the only thing I would add to that you know we tested the interest, particularly in retrofit storage is enormous.
We are while we support that for our customers we haven't marketed it yet given some of the constraints in battery supply, but as those constraints relieve you know we would expect to market that and think there's a really enormous opportunity there 100%.
Yeah.
Okay.
Our final question comes from Joseph Osha with Guggenheim. Please proceed with your question.
Hi, This is actually Hilary on for Joe and Thanks for squeezing me in here and I just wanted to touch real quickly on storage and if you could just give us a better sense for where kind of attach rates are and particularly as you work through but you can download and install side.
Called times kind of what has to happen and how quickly we might see that stronger adoption rate. Thank you.
Yeah.
Yep.
Thanks for the question Yeah. So so we did.
If we look at the demand for storage I think it far outpaces the supply that we have of batteries. So that we look at the the volume growth rate in our storage customers that has been a robust like far outpacing the overall growth in the business.
I think if we look at the attach rate I don't have the number the exact number in front of me, it's somewhere in the teens, but also our volumes have been increasing for overall installations.
Add up at a pretty robust pace relative to the amount of battery supply available and so that's been putting downward pressure on the attach rate, but the physical units and the number of customers have been growing at a pretty robust pace. Yeah. As we said, we have 42000 customers with storage and again, one one of the largest provider.
I think actually the largest provider in the country you know no doubt in my mind that again you know the there are so many customers that wanted to go with storage as Ed highlighted already you know, there's just incredible opportunity to go back to customers existing customers with storage capabilities as we.
Again see the tightening in the tightening that's happened in the market sort of loosen up and free up so tremendous upside opportunity for us.
This concludes today's Q&A session.
And also this concludes our conference you may disconnect. Your lines at this time and we thank you for your participation everyone else has left the call.
Yeah.