Q4 2022 Sunnova Energy International Inc Earnings Call

Good morning, and welcome to Tonight is fourth quarter and full year 'twenty to 'twenty two earnings conference call. Today's call is being recorded and we've allocated and I want the prepared remarks and question and answer.

At this time I would like to turn the conference I vote, Chipotle Mcmann, Vice President of Investor Relations. 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 our 2022 Form 10-K. Please see those documents for additional information regarding those factors that may affect these forward looking statements.

Also we will reference certain non-GAAP measures during today's call. Please refer to the appendix of our presentation as well as the earnings press release for the appropriate GAAP to non-GAAP reconciliations and cautionary disclosures.

On the call today are John Berger, <unk>, Chairman and Chief Executive Officer, and Robert Lane, Executive Vice President and Chief Financial Officer, I will now turn the call over to John Good morning, and thank you for joining us.

But it is in the best position, we've ever been in thanks to our energy as a service business model and strong balance sheet well.

While others have cautioned about slowdowns and growth demand for our energy services has never been stronger so no visibility to provide customers with lower energy cost higher reliability and energy independence, all while offering a wide array of service offerings and unparalleled customer service has allowed.

<unk> us to actively take market share and expand our total addressable market.

On slide three is a summary of our financial metrics for full year 2022.

Both adjusted EBITDA and the principal and interest we collect from solar loans fell within our most recent full year guidance ranges.

Slide four showcases the continued growth in some of its customers battery penetration and dealer network.

During the fourth quarter, we placed a record 33000 customers into service, which brought our total customer additions in 2022 to 87000 and brought our total solar power generation under management to one eight gigawatts.

These full year customer additions represented a 62% customer growth rate year over year and equaled the midpoint of our guidance.

Included in our fourth quarter customer additions were approximately 6900 high margin service only customers while most in the industry are ignored existing solar customers in need of repairs, we see great value in these orphan customers as they require little to no capital create opportunities for future Upsells leverage art.

Census service footprint and are immediately additive and highly accretive to our adjusted EBITDA we.

We expect continued strong growth in this customer class as those non scrubber systems that were sold without a service agreement age across the country.

We have seen a strong demand for our energy services carry into the new year as customer originations last month were approximately 125% higher than in January of last year, a trend that continues.

Investors may be concerned that growing macroeconomic challenges could weaken residential solar growth our business model has enabled us to navigate those challenges while also increasing our market share and total addressable market through our so Nova adaptive home and so Nova adaptive business offerings.

Additionally, our battery penetration rate continues to grow and reached 15, 2% as of December 31, 2022 inclusive of over 2500 battery Retrofits, we had performed life to date.

In the fourth quarter, we further eclipsed our year end target of dealers sub dealers and new homes installers, ending the year with well in excess of 1000 dealers find.

Finally, we have updated our customer contract life and expected cash inflows.

As of December 31, 2022, the weighted average contract life remaining on our customer contracts equaled 22, three years and expected cash inflows from those customers over the next 12 months increased to have a $1 billion an increase of 30% from December 31 2021.

Our ability to deliver on these metrics despite various macroeconomic headwinds and significant growth investments is a testament to the strength of our energy as a service business model and our unwavering focus on long term contracted cash flows I will now hand, the call over to Rob who will walk you through our financial highlights.

Thank you John .

Starting on slide six you will see the continuous improvement in our financial results over the past several years. Our 2022 revenue was over five times greater than our 2018 revenue while over the same period adjusted EBITDA nearly tripled in the principal and interest we collected from solar loans increased by more than a factor of 10.

Slide seven summarizes our 2022 financing activity and current liquidity position.

Financing transactions completed in 2022 included $552 million in tax equity funds $1 $1 billion in asset backed securitizations $600 million of convertible debt.

$575 million loan warehouse restructuring and a 690 million dollar warehouse restructuring for our leases and power purchase agreements.

While our November 2022 securitization priced at a yield above prior securitizations, our weighted average cost of debt issuance remains in the 400 basis points range at four 5%. Additionally.

Additionally, more recent data points indicate that the cost of capital is potentially stabilizing for our industry. While monopoly utility rates have continued to increase giving us and our dealers headroom to expand our unlevered returns.

Included in our $664 million of liquidity as of December 31, 2022 are both 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.

Given the available unencumbered assets as of December 31, 2022, this available collateralized liquidity equaled $118 million beyond that subject to available collateral we had $316 million of additional capacity in our warehouses and open tax equity funds at year end combined.

As amounts represent nearly $1 billion of liquidity available exclusive of any additional tax equity funds securitization closures in the money interest rate hedges or further warehouse expansions in 2023.

On slide eight you will see our fully burdened unlevered return on new origination increased to 10% as of December 31, 2022 based on the trailing 12 months.

On a quarter to date basis. This return equaled 11% as of December 31, 2022, an increase of 230 basis points since December 31 2021.

The implied spread for the trailing 12 months remain unchanged from the prior quarter as the increase in our fully burdened Unlevered return was offset by a higher weighted average cost of debt, primarily driven by our November 2022 securitization.

Our current view of the capital markets suggest that the implied spread today has increased back to above 500 basis points and we expect this spread to approach 600 basis points in the coming months.

Slide nine reflects the strong growth we have seen in our gross contracted customer value and net contracted customer value or <unk>.

At a 4% discount rate where in we originated our triple double Triple plan in GCB was $2 9 billion, an increase of 37% compared to December 31 2021.

Our December 31, 2022 in CTV at this discount rate equates to approximately $10300 per customer and $25 <unk> per share.

As of December 31, 2022, and <unk> was $2 $3 billion discounted at 6% an increase of 42% compared to December 31 2021.

Our December 31, 2022, and TCP at this discount rate equates to approximately $8200 per customer and $20 one per share.

Our commitment to service allows us to benefit from low default and delinquency rates. This is not a new or unintentional phenomenon rather it is the foundation of our business model.

Currently we are seeing approximately 25 basis points in value loss from net defaults, while the market assumes this loss rate to be closer to 120 basis points.

This disconnect between reality and market assumptions directly benefits us as we have elected to retain the underlying contracted cash flows meaning that the NCC V. We actually realize in cash is above the discounted value, especially at higher discount rates.

In the 10 plus years, so Nova has been in business. Our total capital loss for all systems is only $100 million, which represents less than 2% of cumulative capital deployed over those 10 years. This compares quite favorably to the recent KBR a listed average of one 4% for solar loans, which would have translated to a 14th.

<unk> cumulative capital loss for our peers taken as a whole over the same period.

On Slide 10, you will see our <unk> per share as of our IPO date, and each subsequent year and compared to <unk> share price as at the same day.

While our <unk> per share has approximately doubled since our IPO with over half of this value creation coming in 2022, our equity has not responded.

In fact, even though our business model and has created significant operating leverage of long term contracted cash flows shares from Sanofi recently have been trading and continue to trade well below our <unk> per share.

This means our equity value is reflected negative value for growth our platform and the customer option value we retain.

On slide 11, we have taken a different approach to our evaluation by referencing our stock price as a multiple of adjusted EBITDA plus principal and interest from solar loans, even though our key financial metrics have grown significantly our valuation clearly has not followed suit as at the end of 2022 shares of some of what we're trading at a multiple lower than at the <unk>.

And have any of the previous years post IPO. This is all despite solid execution as a public company rapid growth and the passage of the inflation reduction Act <unk>.

Slides 13 through 15 provide our detailed 2023 guidance and liquidity forecast issue during synovus analyst day, and our major metric growth plan the triple double triple.

Given the strong demand we continue to see for our energy services are accompanied by a robust backlog and the insight we have into our future financial results from attaining our long term contracted cash flows we can confidently reaffirm our full year 2023 guidance as well as our triple double Triple plan.

We expect to capture 10% of our 2023 adjusted EBITDA together with the principal and interest we collect from solar loans in the first quarter, increasing to 20% in Q2, 30% in Q3 and 40% in Q4, we.

We expect our 2023 customer additions to occur more evenly with 45% of additions occurring during the first half of the year.

I will now turn the call back over to John .

Thanks, Rob consumer.

Consumer energy service demands have quickly evolved over the last few years and we've seen what used to be a simple solar sale shift in the consumers' mind from that of a product purchase of panels on the roof to a more sophisticated technology enabled service purchase.

We continue to bring new technologies, such as batteries load managers electric vehicle Chargers quiet generators and other hardware from various manufacturers together.

We are integrating these technologies from various manufacturers in a way that delivers a superior energy service for the stationary and transportation energy needs of homeowners and businesses.

We are increasingly seeing more home and business owners acknowledged the inherent value of the energy services that <unk> provides resulting in continued strong demand.

Illustrated on Slide 17, Synovus energy as a service business model, which encompasses our adaptive home business and community platforms, our large network of dealers and our access to best in class equipment manufacturers is allowing us to scale and in an increasing rate.

By supplying consumers with best in market solutions that are supported by our Synovus software platform and up to 25 years of Sonoma protect service, we continue to pick up additional market share from single product and service constrained companies and expand our total addressable market.

On Slide 18, you will see some numbers U S residential market coverage. We currently offer services in 54 U S States and territories. So nobody has an extensive and growing footprint and we are confident in our ability to reach comprehensive national coverage by 2024 with the broadest energy as a service portfolio in the industry.

We believe that energy technologies should be integrated together through software and prompt service response to deliver a more reliable power service at a better price.

So nova offer solutions that complement the energy sale and create additional pathways to value creation, allowing us to deepen our service relationships overtime, while increasing our share of wallet and overall NCB per customer.

This extends to our <unk> protect and repair services and aggregation sales and is supported by our open approach to all forms of contractors and financing.

<unk> portfolio is comprehensive and growing and you should expect to see additional innovation from us in the months ahead.

Turning to slide 19, Synovus commercial business continues to see significant market expansion and project pipeline growth, including demand for micro grids electric vehicle charging and resiliency solutions.

Escalating utility rates, a further increase demand for synovus adaptive business offerings as business owners increasingly seek greater savings on operating expenses and a high interest rate environment.

We will continue to expand synovus business markets to mirror, our residential markets coverage.

Indeed, so nova continues to execute across the board on our energy as a service business model, we continue to take market share and increase our total addressable market. Thus we are confident in our ability to meet or exceed our 2023 guidance targets with that operator. Please open the line for.

Questions.

Of course it doesn't.

A reminder, if you'd like to ask a question today. Please press star followed by one on your telephone keypad now from the parents ask a question. Please ensure your headsets fully booked in an unmetered likely Thats star one to ask a question.

And our first question today comes from Philip Shen from Roth Capital Phillip. Please go ahead. Your line is open.

Everyone. Thanks for taking my questions.

John You said originations were up 125% year over year in January .

You highlighted that this trend continues.

You also maintained your twenty-three customer growth guide how much upside do you think there could be to that 35% year over year growth, where are you seeing that strength, which states in any states with weakness and then ultimately with the lease loan mix and the originations what are you seeing there and do you expect that mix.

The shift in 'twenty three.

What do you think this ends up.

In Q4 of this year.

Hey, Phil this is John .

Lots of questions. There, so let's see if I catch them all.

First yes, the growth is extremely strong.

No doubt about that and what I would say is is that we did have a I would say a vigorous debate about raising guidance on growth and decided to.

To wait for at least the next.

<unk>.

Our Q1 call. It gives us another 60 days or so if this does continue then we'll readdress guidance at that point in time.

But the growth is very very heavy.

In terms of.

Where are we seeing it I would say it's fair to say the northeast mid Atlantic is on fire.

In the sense of demand.

<unk> been very very heavy and it's not a recent phenomenon it's been over the last four or five months.

But we're also seeing some pretty good growth in Florida.

Texas and <unk>.

Cross the mid part mid continent of the country as well.

We've never had a big presence in California.

And frankly, that's not been a place where we picked up any incremental.

Other than in terms of the overall growth rate of the company is obviously very high. So we continue to grow share out there and we do expect to pick more up.

Especially after NIM three point I was put in place just given our <unk>.

Energy as a service model versus a product sale industry, that's dominated out there.

In terms of the lease and loan we've definitely seen on our.

Solar if you will transactions that don't include some of the other pieces of the energy as a service model we have generators batteries.

And many load management, EV Chargers et cetera.

We have seen a decided shift toward lease I would say in that kind of core part of the business.

With solar a 60 40 split so we feel like that'll move $65 75 lease PPA to alone. However, I want to strongly caution that the other parts of our business that make up an energy service to the customer are typically dominated by loans. It can be for instance batteries.

And generators and other services and products would management EV charging et cetera, So and we're seeing explosive growth in those areas is a lot of customers don't have those technologies. They are buying Evs for instance, and so we are we do want to caution that we think that there's still good growth in the loan side of the business as well.

But overall its a its impressive growth I think it's a very clear why we're experiencing the growth of the business has changed the industry has changed and.

The NIM three point out it was actually a benefit to the service providers I think everybody has heard that now I think our voice would be the loudest as we're the most focused in the biggest as an energy service company.

And when you look at.

The sale of a service it's a lot more complex, it's not a product sale and that's something that goes to exactly what we are and there was a lot of equipment out there I think it's fair to say, we're swimming in equipment as an industry at this point in time.

And as you pointed out and I.

Ratified it as others have the the loan to lease and Theres not many lease PPA providers out there they have the capability and balance sheet and financing capability to execute on that so we're in a very good spot a really good spot and as I said in my opening remarks, we've never been in a stronger position.

Great. Thanks, John .

Great color there Mike.

My follow up here is.

On new dealers.

We've been tracking the need for and want to dealers to shift over to Elyse platform over the past few months can you talk about your ability to onboard these new dealers and 23, how many more could you add.

How.

Or have you inbounds from these new dealers accelerated in the past few months.

What are your approval rates for these dealers and could they be a source of upside to 2023 that people may not be thinking about you know how much more upside could there be to customer additions from these dealers.

Yes, there's no question that we're seeing a huge influx of dealers I would also say there's other industries such as I guess, a broad description would be home automation with the load management. They have a lot of contractors that want to come in and provide the entire energy as a service model a generator.

Contractors, obviously, they've got free freed up capacity here over the last few months and they are very interested in selling the entire bundle.

In services <unk> provides so theres a lot more sourcing of different types of labor out there and we're plugging and we built a software platform and continue to do so I would say that software is really a weapon and it's something that you all will be increasingly focused on the service providers is what is your software capabilities Hell.

Can you include and incorporate all of the different types of contractors that exist out there because there's many many different models.

They all have their niches and work in their own way.

And we're seeing I'll give you a specific example, we had our our dealer summit and as as a founder I got to tell you I was blown away and this was about four weeks or so ago, but just the sheer attendance was over four X what we had last year.

There was a lot of good news that you and maybe others have picked up on that and everybody was quite impressed with what we have we have a lot of work to do but were.

Seeing a lot of interest in what we have to provide so I think there's tremendous upside and in the dealer growth number and that will continue to provide an additional lift on our growth.

Great. Thanks, Sean I'll pass it on.

Thank you.

The next question comes from Julian to Marine Smith from Bank of America. Julien. Please go ahead. Your line is open.

Hey, guys. Thank you so much I appreciate the time and the opportunity to connect.

Nicely done again.

So first off.

Service customer mix can you guys talk a little bit about how you're expecting that to trend through the course of this year can you talk a little bit about what the economics of those customers sort of I E. Like what does it various sources.

Of these service customers if you will.

Little bit of the backdrop, there and then altogether also a little bit of the mix of your customer origination.

Regionally as well if you can comment given your growth expectations.

Hey, Julien this is John Yeah, we're not going to break out the different types of services. We offer the contract is more than we've done in the which I think there is a lot that may be too much in the back of the appendix in our in our slides what I would say is is that we continue to see.

Lots of growth in the service only business there.

There is a aging fleet out there there's some equipment that needs to be replaced I think that's something that's not discussed a lot that there's.

And it doesn't mean, it's bad equipment is just means that there's failure rates out there and nobody is focused on it the entire industry has been built on the new customer I mean, the entire industry the equipment.

All of the other competitors, we have the loan only providers the contractors everybody.

We're seeing a huge demand for customers as those power rates go up from the utilities to have their system online 8760 hours in a year.

It's really not difficult the power rate is a lot higher than the monopoly so and it keeps getting higher so customers want that service on from Synovus.

Or are there other providers are there other product providers, if you will and so they call us to get it repaired in terms of the profitability, we are targeting that 50%.

Gross margin to adjusted EBITDA per transaction.

I wouldn't say, we get all of it there, but that is where we're targeting and we do get quite a bit there. So they are pretty profitable customers and we still see a tremendous amount of demand and growth and we'll continue to build out our software capability.

Our logistics capability, both in supply chain and the actual.

Our technicians that go out there and get things fixed for customers getting back online.

Or they can have a better energy service at a better price.

Got it but you don't have a specific expectation on a you know out of the 120 for this year you know we're Gonna do act the Mt.

Of service arrangements versus more traditional type of customer contracts at this point you don't want to set that expectation and maybe the other one is it related one would be gain on sale type.

Composition within your 23 guide what would you would share at this point on expectations.

Yes, I'll turn that over to Rob.

As you know we hit our OCI positive back in 2021, which meant that the cash flow from the operating assets was more than covering the debt service and operating costs at that point.

So.

At the past two years, we've been using gain on sale and accelerated payments to complement our recurring cash flows you've seen this in our inventory sales you've seen this in our we have some of the new homes customers, who opt to go straight into a purchase of a system.

So if we look ahead to 'twenty three.

And we're looking at.

Looking at the customer cash flows.

From the.

<unk> and your line is iPhone. Please go ahead.

Hey, guys. Good morning, Thanks for taking the questions I guess on the the guidance here appreciate some of the seasonality and the cadence but had a question. Just if you look historically you had more like 30% of EBITDA P&I showing up in four Q of each year.

Guiding them much more seasonal on the higher 40% for 2023 kind of walk us through that maybe the puts and takes in.

Does that create more risk versus prior years, given given the higher back and waiting just wondering how you have.

The visibility here into the later half of the year, especially for Q given the the high rating there and then I had to follow up.

Yeah, Brian This John I'll I'll answer the part of the question and then turn it over to Rob to answer the remaining part.

One of the first point out that the additions customer additions or more evenly weighted this year and that's directly attributable to that we've got either in service customers. At this point, which were well ahead of the quarter of plan, so far and expect that trend to continue or in the back.

Aw well over 50% of the customers that we expect in our guidance that our mid point all ready for this year. So I think that that front end loading of the customers that we expect for guidance plan as part of the answer of this is that those cash flows will eventually catch up in the back half, but there are some other moving pieces as well or.

He says.

Rob address those yeah.

Some stuff that were frontloading, a little bit of some of our investments and some of the stuff that we're working on for the full year into the first quarter.

And traditionally we've sort of spread those add a little bit more but we felt it was important to try to get some stuff done in the first quarter that we're gonna have to expense just for.

From an operating it just falls down to the operating expense.

Second one is that some of the gain on sale pieces that we've already got in place are going to actually occur in the second half of the year.

And so that's got a little bit of that skew.

But generally speaking I would say that a lot of what we've seen is an increase also in the pace of our prepayments those have been accelerating and so we actually did some of that late last year.

But as we've seen that start to accelerate and as we have been continuing to originate higher interest rate loans, the shaping of those CPR curves.

The prepayment rates on those curves shifts some of it into the second half of the year as well. So it's a combination of a lot of different things.

I appreciate that color that's super helpful. And then maybe just to stay on the guidance topic for a moment and and again kind of a math related question. If if you.

Look at the the 45 55 split you're talking about I think it's by design, what your alluding to in terms of the customer additions, but when you look at the the year on your composite means youre doing about 65% growth in the first half.

20% growth in the second half and then if my math is right just given how strong your four Q that just reported for and a 22. It it seems like on a year on year basis, you may not even been growing in four Q on customer additions exiting this year I followed this math.

It is correct. So maybe what am I missing there it seems like a lot of your backlog as getting drawn down here in the first half.

Going to have a fairly modest growth rate exiting the year just any early thoughts on 24, I guess given that that cadence your sort of implying based on the guidance thinks that.

Yeah, I I would say Brian go it goes back to Phil's question is <unk>.

Maybe like.

In terms of when you look at the plan and I think it's conservative.

And I would tell you that there is no way that we don't grow in Q4.

Alright fair enough I'll take it offline.

The next question is from Mark stripes from J P. Morgan Mark. Please go ahead. Your line is open.

Yeah. Good morning, Thanks for taking our questions raw, but I wanted to go back to your comments about the the spreads you're saying that you think today that that can be over 500 basis points getting two 600 bases for approaching 600 basis points, maybe over the coming months, just what provides the confidence in putting that state.

Went out there and how much of that is driven by the the unlevered returns increasing versus the cost of capital decreasing.

Yeah, I mean, the first couple of prints that we saw this year in the capital markets were decidedly better than what we had seen at the end of last year. So part of that is is a tightening of the spreads even with a slight increase in the base rates.

But most of it's really the targeted fully burden I'm never returned there's just so much headroom that utilities are providing us we've been able to take advantage of some of that.

Pardon me with the dealers part of it also is a combination of the product suite as we're adding more and more services, we're able to generally get higher margins based on a broader service offering.

We are providing to the customer. So that's also helping increase to fully burden on lever returned and I you know as we look at the fully burden November return one of the things. That's that's sort of endemic in it is that you spread across that burden across the capital deployment base of the law.

Larger the amount of capital that you're actually deploying over a period.

The generally speaking the less burdensome that full burden is becoming and just given the the high rate of acceleration that we're still finding in our sales and then the types in sales that we're making that continues to go up one thing that's what he gets buried a little bit in the customer count is all the <unk>.

Sales that we're getting from customers in the up sales of some of our most profitable sales, but we're not counting that customer again, so when we go and say hey, here's a customer they were maybe a generator customer that becoming a now they're becoming a solar customer, but not having to reacquire that customer which is really the most expensive part of the actual.

Sorta denominator, if you will of the fully burden I'll never return so a lot of what we're seeing with continuing to build on an AD on customers that's been adding to that fully burden I'm never return as we go along and I would say it was the last thing is that even though we're here in the first quarter.

And when we look at sort of the seasonality of are fully burden will never return.

We're still seeing that fully liver fully burden level of return entering the year really about the sort of the stream same strength levels without seeing.

Seeing some of the things that add onto that fully burden on them returned some of the market segments tend to be a little bit more seasonal haven't even started kicking in yet really in earnest, but they're starting to pick up. So we have a lot of faith in that fully burden on the return continuing to push up and to grow.

Certainly we expect that to be you know, we'd love to see that get into it's awkward adolescence and teenage years, if we possibly could.

But we're seeing really a lot of strength in the fully burn the never return and that more so than the stabilization of the capital markets is is where we're seeing that opportunity for the spread.

Okay I'm Gonna Mark this John just to highlight.

We have done price increases already in the last few weeks, we will do more in the coming days and more after that is what I anticipate so.

We're continuing to seeing.

Exercising pricing power.

Got it okay. Thank you both.

A real quick modeling question ROM the inventory sales numbers ticked up this quarter.

How should we think about the what's embedded in your guidance for twenty-three.

The inventory sales and I'm thinking that for the fourth quarter is pretty endemic of what we what we were expecting more or less for the year pretty much at that pace. The inventory sales tend to be a little bit more seasonal as well, mostly because a lot of it follows the installations in.

And are more battery rich areas and sort of if you could see the the battery penetration readers that continues to grow and the acceleration of the battery penetration rate that is going to reflect the sales of that equipment because the dealers one it and it just in time basis, they're not looking to hold a whole bunch of.

Inventory and so.

I think that's the way to sort of think about the shaping with the magnitude the fourth quarters pretty pretty representative I would say, if where we expect to be on a full year basis and it's not as you know it's not it's a profitable piece of our business, it's not really where we're seeing the margin being driven necessarily as much as we are in.

Other areas just a nice little complement to begin on sale.

Okay. Thank you very much.

Sure.

The next question comes from Corinne Blanchard from Deutsche Bank Karina alone is now I can please go ahead.

And the money.

Just maybe she can come angel provided email quota on the battery attachment trade in ways he'd come in maybe I'll have an extra quarter.

Yeah, Corinne is John they're they're seasonality and some of our markets.

Typically on the islands, Puerto Rico's included in that we do see a quite a bit of seasonality with.

The holiday vacation schedule shall we say and that definitely does provide as those mark is that market continues to grow.

As everybody knows we've been in Puerto Rico, now for 10 years, and really the first and by far.

The largest player.

Service provider in the island of deep commitment.

To that island.

Community and that does provide some seasonality and a storage attachment right I do think the <unk> three point O in California will start to pick up a battery attachment rape quite significantly here later this year.

And candidly I think that the price declines in that.

That we see that will happen in the Essas products will certainly help incent demand before.

Before you ask it I do see that any equipment and this is certainly our assumption if it doesn't happen.

Then that's upside, but we're assuming that all the equipment price declines that we're we're seeing and expect to see across the board.

Will and nerve to the benefit of of our dealers.

So that I think well whether they choose to pass some of that along to the customers I would suspect so but that.

That will incent more storage demand.

As well.

Alright, Thank you and my other question would be can could you include a meal the eye on the I T. T. I N teal guidance or is it something that you're waiting to get a phone from the department on that.

Yeah, we're we're actually waiting to get more clarity I would say, especially when it comes to the the LMI Adders, we really were really not expecting any of that to come in into 2000 twenty-three. We're looking at it as much more of a 2024 phenomenon based on the recent guidance that was put out which.

We felt was unfortunately, not very friendly to consumers.

I guess consumers LMI consumers will just have to wait another year, we do have a little bit on the domestic content. It's in there, but most of it's really just based on the 30% ITC. So obviously there there is upside and as we get more guidance will plan for that upside and it goes back a little bit even more to Mark's question I think that we could see.

If we get more guidance, we can certainly see even more uplift in our expectations for the for the burden I've ever returns.

Alright, thank you.

The next question comes with <unk> from credit Suisse, but he'd be alone is now I can please go ahead.

Hey, <unk>.

<unk> questions.

Just a question on the unlimited.

<unk>, but how should you need to think about the kittens. So the rest of the 423.

Especially looks like from the guidance two one sequentially, you're almost as cute clothes. So can you explain.

Production done and eventually after that 600 pieces point, you just put it to talk about.

Yeah I hate this John I would say that we continue to seize strength here and Rob Rayner reference to it some of our markets that are a little more seasonal that we're just now starting to see impact or a little more profitable and.

We expect that that will start to continue or put some upwards pressure on the on the young Levered return.

Here over the next few weeks, how much of that falls into Q1 versus key to and beyond.

Don't know the price increases that we have done this quarter late last year and we'll do this quarter will definitely have a.

Material impact on the level of returns. So I would say that we are continuing to see movement upwards I don't have.

A lot of visibility as far as right now is about how much upwards, but we we do expect to see that the unlevered returns with continued to move upwards from from that 11%.

Chris.

Sort of a <unk>.

Did you talk about your service only customer mix for the phone to you embedded into kind of insulin.

Yeah. We did it was a previous question and he was Julians question, where we're not going to break that out I think we've got enough.

Data back there too much I think most people and investors think but what I will tell you is regardless of the type of customer or what we sell to that customer whether it's in upsell, whether it's a solar solar storage generator.

Battery only and you name it where energy is a service provider and the metric that I look at and make sure that we're.

Keeping ourselves honest as far as value creation is NCB per share an M. P. C V per customers. Another metric, that's obviously very much related to that and as long as NCB per share is going up it would ever discount rate you pick we're creating value and we're creating a large amount of value and I would.

I think it would be a good exercise for analysts and investors to go take a look at that.

The contract a cash at whatever discount rate they want to use divided by the number of shares out there it'd be an interesting insightful comparison amongst us and some of our peers, you'll find that we dominate on the contract to cash on a per share basis, and poor customer basis, and so that's including all types of customers all types and we don't.

Duplicate the customer wants is Rob just mentioned.

Once we sell your unique customary as we continue up so we do not count those as additional customers because that is obviously a single customer so NCB per share.

Focus on that that's the value creation, and then adjusted EBITDA plus P&I. It gives you a very good sense and investors sense of the operating leverage you are creating.

Got it.

I appreciate that and take their cell phone. Thanks.

Thanks.

Thanks.

The next question comes from been calling from bed and New line as I can please go ahead.

Hi, Thanks for taking my question good morning.

So.

And the liquidity forecasts for 23, you have that proceeds with tax equity of $900 million and I was.

Just wanted to move to lease P. P a very Rob.

How much progress made on the the number and if there's any interest rates are low.

Yeah, we closed five tax equity funds in the fourth quarter. So we feel pretty good we're working on two extensions sorry expansions of existing funds right. Now we have a number of of term sheets in front of us.

Have a number of other discussions.

For additional tax equity, we have folks who do perpetual funds that we've already got lined up one thing. That's been interesting has been on the transfer ability that there continues to be a lot of Ah Ah new folks who want to express some interest in coming in and doing some stuff on the transfer ability.

A side, what's been very heartening to me is that there are a number of folks who do have significant tax capacity out there who were who have been very happy with us and you know maybe a toe dip fund maybe 50 million in a prior year, who want to come back and do much larger funds this year.

I.

And we've tried to make sure that we have a diverse amount of.

Capital providers in there coming into our funds that's really in your to our benefit.

My my accounting folks really they don't love having to do all the a bunch of different hltv accounting, but.

But that's the price you can pay and my hat's always off to those guys.

So.

We're going to feel very good about that about that position about the tax equity availability and probably I would say, we probably never been in a stronger position.

As far as as far as tax equity availability I think that in an environment like the one that we're in right now with the I R. A and with the expansion you really increase interest in folks who might otherwise not have entered the market, but at the same time.

<unk> they want to go with established players in this space and there's really only a few of us that they can really get that comfort around that have all the engineering that did have the controls in place that have the reporting capabilities.

So that folks feel very comfortable that what they're getting is a legitimate tax credit.

That they can monetize and won't have to worry about recapture.

Thank you.

And the weeds here, but the customer acquisition costs ticked up in the core could you just talk talk through the.

Yeah, I mean, that's one of the many legacy metrics that are out there.

Pardon me in part because you really just used to have one or two markets and everybody was a peavey only customer and back then it was probably a pretty good market as we are adding more and more services per customer and we are doing.

More where we're doing the sales to existing customers, but not really adding on.

Another customer into the denominator you could gimme continue to see that take up so if we're just talking about someone put in 6K W of.

Panels up on their roof.

In a cookie cutter fashion, that's certainly going to help the number come down that's not our typical customer we're seeing bigger systems. We're seeing batteries were seeing as we add more and more services as John mentioned EV Chargers main panel upgrades folks actually need to get in a lot of cases, when they add on solar in storage folks who want to add a generator for bell.

And suspenders wherever it is we're just seeing the average ticket price grow up and then that's actually driving is back to the earlier comments a second amount fully burden will ever return that is you have more committed capital you're spreading across that sort of the same cost base that helps to push up the fully burden on level of return as well so.

We would expect to see that actually continued to rise.

And I would I would call it an antiquated metric, but I would say, it's actually indicating something different this time around which is the health of the industry and and really the health and the benefit of having multiple services that we can provide to a single customer.

The last one.

On page 19.

Go to market.

It says.

Could we pursuing.

Excuse me large opportunities.

Could you just walk us through that.

You're thinking about there are no you've got.

Partnerships.

Acquisition or two.

What that means.

This is addressing the business markets division that we have and that we we've seen a lot a tremendous amount of traction there.

Closed on some <unk>.

Customers and we have a very healthy and growing pipeline. The returns are quite nice.

When we look at as far as other.

Other partnerships in ways to go to market. There's a number of partnerships that we have in the works right now I.

I think you saw that recent.

USAA announcement from Us <unk>.

Expect more of these types of announcements and I guess.

I'm going to.

Assume that buried into that question is something about international yes, we are going to go international.

We're gonna do this in a methodical fashion, but we will fulfill our name as Nova Energy International we will do it.

Thank you.

The next question comes from me to to come from BMO capital markets that meets your line is iPhone. Please go ahead.

Hi, Good morning, guys. Thanks for taking my question.

Rob I was just wondering the $2.4 billion a.

Non recourse that borrowings for the year and should we kind of assume sort of the same proportion of securitization Navy S market. He did in 2022 is part of the $1.7 billion then you've got done.

Yeah, that's the right way to think about it.

Okay.

I'll just back to the guidance on the customer account growth I was just wondering if you could kind of give us a little bit of sense on the.

The proportion of of that growth that's kind of on a on a same store basis from your your existing dealer network versus an expansion of the dealer network.

[laughter].

Yeah, Yeah that that's.

Not something we're gonna break out this John by the way, but you know I I'd say that <unk>.

Fisting dealers continue to grow at a at a pace that surprises me and but I would say that a good shock at our new dealers now some of these dealers in most cases, they take a while to really ramp up so a lot of the that we already had and we're ramping them up maybe.

Maybe as far back as Q2 of last year are really starting to hit his stride.

Q1.

Obviously, if this year. So if I gave you a number of just eight guests I'm not gonna do that we only get numbers out there were certain about so.

I.

I'm not answering your question, but I would say that it is definitely we're still seeing a lot of surprising growth out of our existing.

Dealers, one thing I will add to try to give you something is is that we are continuing to sign up the exclusivity agreements at a blistering pace that is something that a lot more of our partners want and they want that certainty they want the broadest product portfolio in the entire industry by far and that the biggest geographic.

[noise] footprint in the industry by far.

And they can also now get an access into the business markets. If they want to do that and they can't get that anywhere else as well. So we've got a lot to offer the software and can use to be something that is.

Becoming more and more powerful and whether it's a loan lease or a P. P. A or all the other products. We have we have it for you so.

<unk> you to come over if you're great contractor treat our customers.

Fairly and do Great service, we Wanna, we Wanna be partnered with Ya.

Thank you.

The next question.

<unk> from ethical Trona alone is iPhone. Please go ahead.

Hey, Thanks, guys.

So I mean, we can talk to a little bit on Puerto Rico before any John we talked.

About how sometimes prep.

Maybe not not the most consistent services been kind of solar ambassador for you in real soon as of strength for for <unk>. So I'm curious.

This public private partnership with another U S. Public company do you think that's gonna have any impact on on sort of the sale strength, you've had historically in Puerto Rico or or you can kind of do this is just gonna be continuation of year strong book of business down there.

Maybe some minor modifications.

Yeah Shaun.

Yeah, but I would say is is that.

Inherent in our service is that we match generation to the load on site. There is no way <unk>.

Physically.

For any centralized power provider to beat that reliability, and so we feel quite comfortable that reliability as a whole and a and a and macro trend is going to continue and certainly continue their in Puerto Rico I think the company, referring to I think it's very <unk>.

Well run company I think they'll do a great job, we look forward to working with them and provide better energy service to the island into the community Puerto Rico. So any way we can help we're certainly here to do that.

I would also offer up that as recently as over the last few days there are many other states outside the territory of Puerto Rico, which is obviously a part of the United States.

That have power reliability problems that are pretty extreme and.

The same sort and one of those is here in Texas as well. So you know I would say that our demand is not for our services certainly not limited to Puerto Rico or any other island.

And we see that demand trends not only continuing for better energy service at a better price, but accelerating.

Okay, Thanks, John and excellent probably maybe best suited to Rob, but it's it's sort of an accounting matching question on the I T C and I know I know.

Still waiting for Treasury guidance on some of this but when you start recognizing systems with the ITC attached is because that because it if there's a tech sort of implication to or do you book. It in the following tax year or will you be booking ITC credits sort of in real time as your it is you're recognizing revenue ones.

Systems.

So we've always booked it [noise] pardon me.

In real time, and remember, we're consolidating onto our books as well and then and then <unk> and then we're deconsolidating the partnership side of it through NCI. So if somebody's receiving the tax credit in that tax year. It gets sort of taken in and then take it back out through the through.

<unk>, but it's always recognize in the year in which the acid is placed into service.

Now we've also have historical times, where in the past we had not been using tax equity back several years ago, we built up significant.

I T C credits that we still have as a company and those are actually good for never next several years.

But the the credit gets recognized in the year in which the system is placed into service.

Okay. Thanks same same as it would be for the homeowner by the way and alone. So it's the year that their system is place and the service is the year that they get their tax credit.

And in the cash I guess would be recognized win win pardon.

Me from the homeowner's perspective of the cash while their taxes right.

Correct, but we have for us it depends on the tax equity fund so some tax equity funds allow us to fund.

Fund at different stages.

Along the way and then there are ours make it calculated based on that when that gets put in when we actually bring the cash and oftentimes the cash.

Getting really wonky here, so my apologies nearby on the call, but some of that cash goes into restricted cash where it gets held until it reaches the next stage they have to fund at a certain point anyone who's investing in a tax equity fund and once the tax credit has to be an investor.

At a certain percentage prior to the date the acid itself goes into services. They can't just say and they can't just be an I O U. They actually add to put cash up often times that gets put into <unk> into restricted cash and then ends up getting released when the asset.

Is is placed into service.

So if you look at the different types of flip structures that we have I would say generally speaking.

You will find that the yields slip structures are more willing to fund earlier.

And some of the calendar flip structures will tend to some of them will fund earlier some of them will fund only a a percentage like say 20% prior.

Two two the acid going into service and the rest immediately upon the asset going into service.

The next question comes from <unk> from Raymond James probably alone as I've been please go ahead.

Thanks for taking the question.

John You mentioned.

I'm quoting we are winning in components in hardware.

That's quite a big change versus a year ago, what do you attribute that to.

Every cycle or every market has a cycle.

And there's there's equipment cycles, we dealt with that an industry I think a lot of investors and others.

Have not experienced and.

And equipment cycle and.

It's pretty normal just like an interest rate cycle, where a lot of us that have been awhile I've never experienced interest rates going up as much as they have right. So I think it's just normal and there'll.

There'll be overtime winners and losers and the equipment side, but the the number of manufacturers of high quality gear is is tremendously.

Increased.

We greatly value our partners and I'll leave it to them to make commentary as far as if there.

Individually, taking market share or not but.

Look do some rudimentary.

Calling around I think some of this is a big part of the fear of demand in the industry.

Every contractor has a chock full of warehouse of of equipment of all type we do have.

Our warehouses all the equipment is sold by the way, but we have it as well, we're seeing it and distributors and it's across the board and Morris coming right with the I R. R. A incentives you have to reproduce here in the United States No matter, what the supply demand picture is for that whether it's a panel and Burger USS So it's just a state.

The facts nothing about the facts is there's a lot of equipment out there more is coming and I think that's obviously very good for consumers very good for demand for us and our service peers and is a big reason why I think people.

A lot of investors some analysts flat missed it as far as.

If you look at the demand.

The service providers like US are two peers are saying that they are seeing out there. That's a big reason for the mess you're looking at the wrong data point.

Let me follow up on the commercial.

Market.

Historically has given guidance as customer additions.

And if some of these new commercial customers are hand, 5100 times, what a residential system would be in scale, how is that going to change the way you. The way you guide.

Right now we it it's not going to change we don't anticipate a change and we continue to see that our our residential business, particularly with our models energy is a service with all the different services and products that we can offer.

It's going to continue to be a very large portion of our our business and and certainly isn't our guidance. So right now it's not a material.

If that changes over the next couple of years or so we'll revisit that but right now we don't see it changing the way that we guide.

Okay. Thanks very much.

Thank you.

The next question is from <unk> from Northern capsule you.

No I can please go ahead.

Yeah, Hi, Thanks for squeezing me and just one quick you talked about the tax equity you know funding.

<unk>, how big of the projects that I can make a loss could be funded by a doctor could be available to you that you have right now.

Yeah.

What we have right now will probably find most of what we have during the year and what we have preterm sheets and everything else will will fund at least the rest and into 2024.

Huh.

And Saint position, we were in last year.

Okay.

And quickly on any comment on the <unk>, how do you see that <unk> a couple of years.

I'm sorry, the G&A progression.

Yes, Sir.

So like the Opex.

We're we're going to expect to see that on a on a per customer basis.

Go and have a little bit of fluctuation. If you go back to sort of the first I think it was under.

Brian question, he was asking about the shaping and why do we expect to have a little bit more a little bit more adjusted EBITDA in the latter half of the year and a little bit less in the first half of the year and I said part of it with some some stuff that we are going to be doing it has to be expense in the first quarter.

But generally speaking as we go onto the later in the year would expect the G&A to to come down relative to the size of the to the size of the adjusted EBITDA.

Together with the P&I, but.

We we are a rapidly growing company, we are investing in service offerings and.

That takes people that tastes equipment.

And while we expect to continue to create operating leverage and we expect to continue to create.

Customer.

Sorry.

I'm sorry.

Sorry, sorry customer value.

We will expect that we will have an increase of G&A, but not an acceleration of G&A, we will continue to decelerate.

Sure. Thank you that's all I have.

The next question is from Brian Levonne from City, Brian Yolanda's No. Please go ahead.

Thank you for taking my question.

Mmm can follow up on Puerto Rico appreciate the car on the proper agreement, but can you speak to the companies pursuing any of the <unk>, Puerto Rico energy resilience relief package from the daily or how that could impact the outlook for the company.

I would I would think that anything of that sorts, given our strong position in market share and just part of the community for that number of years over 10 years.

Is something that we would certainly be involved in I don't think it's appropriate for us to comment on any sort of transactions or potential transactions or discussions that we may or may not be in.

Okay I appreciate the color and then just lastly in terms of the.

Kind of distributed generation connection issues that are.

Just in terms of Apple customer electricity friend retail customers are you seeing any impact for delays from the utilities and does that impacting your how can any of your jurisdiction journey Arrow your locations for growth for for your resources.

Yeah. That's a great question, certainly we would've grown even more last year had it not been for anti competitive behavior and anti consumer behavior by a number of these utilities, we are addressing them with the respect that public utility Commission as we find more and more of this type of behavior.

Think at some point in time, maybe the federal government would be interested in the anti competitive and anti consumer behavior that these.

Companies are.

Showing and doing.

So we've seen a pickup in some of these areas is that those public utility commissioners have done a great job of intervening on behalf of consumers and changing that behavior.

But it's it's gonna be an ongoing war I mean, it just to make them do the right thing is something we spend a lotta time on and I'm proud to say our government affairs team is the best in the industry and is doing a really good job of highlighting this for the commissioners across the country and we'll get it done we'll figure it out.

How to get the the utilities do the consumer friendly, but it is it is an effort each and every day.

You should get the caller. Thank you.

We have no further questions at this time, so high on the call back to Joan bug concluding remarks.

The industry has changed consumers by a better energy service at a better price not a product.

We have and we will continue to expand our addressable market and take market share. Thank you for joining us.

This concludes today's cool. Thank you very much for your attendance you may now disconnect your lines.

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