Q4 2022 Sunrun Inc Earnings Call
A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host Patrick Jobin Investor Relations. Thank you Sir you may begin.
Thank you Maria 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 , Ed Fenster sudden runs cofounder and co executive chair and Danny Abadgaran, Sunrun CFO and now let me turn it over to Mary.
Patrick I have really been looking forward to this call to share our strong fourth quarter and full year results with you as well as to talk about our outlook and priorities for 2023, we ended 2022, delivering an even modestly exceeding our guidance growing new installations by over 25% and delivering greatly increased.
Subscriber values, we exited 2022 with nearly 800000 customers five seven Gigawatts of network solar energy capacity and $5 6 billion in net earning assets I am confident 20 twenty-three will build on this strong momentum is the strength of our subscription model.
Provides market share gains the year is off to a great start we are seeing early funnel sales growth in January of over 30% across our entire direct business and even faster growth in California part of this is expected acceleration ahead of the changes in California, but it is also indicative of the broader utility rate trends, which.
Continue to rise and the growing consumer awareness of our offering our strong traction is also a result of our ability to attract the best sales talent in the industry that is eager to work with the nation's leading clean energy provider, especially one that is leading on storage and innovation.
Sunrun is the clean the clear leader, providing energy as a subscription service with over 60% share of new subscriptions across the industry recent trends in financing costs for loans, the growing need for advanced systems with storage awareness of the value of service and performance guarantees along with the uncertain economic.
Climate have all contributed to the growing relative advantages of our subscription offering.
We are already seeing a shift in our sales activities towards the subscription offering and expect it will flow through in a meaningful way in our installation activities in the coming quarters.
The customer value proposition is swinging even further towards the subscription model as the ITC and other potential adders are only available to homeowners in this model, making solar and storage even more accessible to more customers.
Sunrun is significantly advantaged as the leader in storage deployments, we have installed more than 53000 residential solar and storage systems across the country more than any other company. We have developed considerable skills and capabilities communicating the value proposition of storage systems with customers. In addition to gaining.
Various inefficiently designing permitting and installing these more advanced projects. We believe we are also leading in procuring storage hardware, given our strong relationships with multiple suppliers and our large scale.
Well storage supply was a constraint to growth as recently as last year supply conditions have improved considerably for us and we are well positioned to dramatically increase the attachment rate of storage storage solutions are not only a significant competitive advantage for sunrun and differentiator in the eyes of customers and salespeople in the industry.
They are meaningfully accretive to our margins.
At Sunrun, we are continuing to further differentiate our offering to customers and increase our competitive advantages. Just this month, we announced a collaboration with P. G any to form a 30 megawatt virtual power plant. This summer helping to provide critical baseload in a repeatable way when it is needed most this bill.
On the 17 megawatt virtual power plant, we announced in Puerto Rico, just a few months ago with 14 advanced virtual power plant opportunities now forged across the country, we are leading the industry and showing utilities and regulators the possibilities of leveraging our network of distributed home solar and storage systems, while generating.
<unk> revenue streams and driving increased customer value.
In the fourth quarter, we demonstrated continued progress on making son runs faster better and stronger in all dimensions of the fundamentals you can see the results of this through our record setting net subscriber value of over 16000, which is Danny will discuss helped us offset so many of the interest.
Rate pressures, we faced last year, we achieve this through hard work focused on the fundamentals of cost efficiency and performance approve improvements along with continued price optimization, while ensuring a strong customer value proposition, even as we invest in innovation and differentiation.
Throughout the year, we worked on streamlining our operations leading to improved customer experience throughout the process and better productivity. We grew new installations over 25% in 2022, well only growing head count at one third of that rate. This was achieved through a strong focus on streamlining operations, while delivering customer.
It's a great experience and value the average hours spent on an installation by our crews improved 23% in Q4 compared to the prior year driven in part by a reduction of the average crew size by 12% as we found ways to be more productive and efficient while maintaining our high safety and quality standards. We also maintained.
<unk> overhead cost discipline with G&A expenses declining more than 12% compared to last year, and reaching 1100 per new customer by Q4, a 29% improvement year over year, showing the benefits of our scale and our disciplined approach to sustainable profitable growth.
I am tremendously proud of what our team is doing in the field each and every day for our customers and I know, we will continue to drive even more efficiency, while delighting our customers in 'twenty two 'twenty three.
Shifting gears to policy updates the biggest developments since our last call is the finalization of the NIM three point O proceeding in California, where regulators approved an updated net billing tariffs. The final language was dramatically improved from the initial draft as the regulators dropped a proposed discriminatory fixed fee answer.
All of our customers.
The new proposal will introduce variable pricing with significant reductions of the value of energy exported back to the grid during the day dramatically increasing the value proposition of storage as I noted earlier sunrun as the leader in storage solutions and is well positioned for this transition to more solar plus storage installations.
In addition to our solar offering and solar with storage offerings for home backup we will launch a new offering in California that incorporate storage to optimize the economics of energy produced by the solar system, reducing low value exports and increasing self consumption for our customers' benefit this system will be eased.
And quicker to install we believe this new offering delivers a strong value proposition for our customers and net subscriber value for sunrun.
In the interim prior to the new structure, becoming effective in mid April we are already working hard to help customers sign up under the current rate structure in California to lock in even greater savings potential.
We are seeing record breaking demand in California with early funnel sales activity in January growing more than 30% compared to last year.
Lower sales activity is expected immediately following implementation of the new tariffs, but we also expect that the combination of the pull forward of demand into Q1, and the anticipated strong customer response to our innovative offering will result in strong growth over the long term in this market.
Bind with the strong sales driven backlog in California, and strong demand across the country, we expect to deliver smooth and sequentially growing installations throughout 2023.
Another policy matters, we are excited by the increased opportunities created by the inflation reduction Act.
Investing to help disadvantaged low income communities, providing economic benefits to areas with high unemployment or that have high exposure to fossil fuel based economies and helping encourage domestic production of advanced clean technologies are all things that sunrun is well positioned to do.
As we have discussed before the inflation reduction Act established three investment tax credit adders to accomplish these objectives, we along with so many across the industry. We're disappointed to see that so many low and moderate income Americans and those in multifamily dwellings will now have to wait to benefit from the L. L. M I address.
The initial Treasury guidance released last week appears in opposition to the administration's broad go to encourage as much solar in low income communities as fast as possible as many in the industry have already noted the proposed drawn out in long mechanism to allocate the available capacity likely delays many projects delaying and.
Actually risking delivering benefits to low income communities.
These are the communities that need the benefits of solar energy the most and Sunrun is particularly well positioned to help these communities gain access to affordable clean and predictably priced energy at a critical time when utility rates are escalating so quickly and household budgets are being squeezed, we will continue to work with others in the industry and with policy.
Makers to make sure these communities benefit in the way the I R. A legislation intended.
While we are waiting guidance from the treasury on the other two I T C adders for energy commodities and domestic content. We are proactively taking steps today to ensure we can act quickly. Once clarity is obtained for example, we've already entered into agreements for nearly 200 megawatts of module supply from a leading domestic.
In addition to meaningful supply arrangements for storage solutions produced in the U S, which should in our opinion allow a significant portion of our volume to qualify for the domestic content adder, but obviously, we will have to wait until official guidance from treasury is obtained.
In summary, Sunrun continued our focus of crushing it on the fundamentals and we have the right strategy and high energy focused and experienced team in place to continue to successfully navigate these uncertain times the value proposition for customers continues to increase as utility rates escalate rapidly and consumers demand.
Affordable clean and predictably priced energy.
Well 2022 brought its set of challenges and we will certainly have our share of things to overcome in 2023 I am proud of our team's quick actions last year to adapt to the rapidly changing macro environment around us.
Sunrun, we see adversity as a way to help shape ourselves and make a stronger company for the long run we have more work to do so we won't be sitting idle and I am confident that our team is up to the challenge before I hit one final item I want to express my sincere appreciation for all of a sudden one employees working so hard to.
Create a company that is faster better and stronger for our customers and our communities building the best company in helping turbocharged. This consumer led revolution and energy is only possible with the talented and committed team who is ready to lead the charge every single day.
Last but certainly not least I also want to update you on a management change we announced today after over 15 years and a full time leadership capacity, Ed Fenster, who has been on parental leave since August decided the timing was right to transition to a role where he can spend more time with his young family.
Well, Ed will cease having direct reports that the company. He will remain very active and strategic matters and won't be quite as visible day to day, but his trusted counsel will be omnipresent, and we certainly know that he won't hesitate digging deep on topics with our team as needed.
To state the obvious Ed has played an invaluable role in making sunrun the market leader and he will continue to play an invaluable role going going forward, you'll continue to hear from him and you'll continue and he'll continue providing his wisdom insight and leadership throughout the company in so many ways.
Thank you so much Ed and with that I turn it over to you.
Thank you Mary I am so thankful for and impressed by the team leading some months back.
It's been a great honor to have had the privilege of working day in and day out.
Long side, the many talented people.
Who helps them grow and flourish from a small company right out of my attic into.
Into the nation's leading provider of solar and storage.
Well being on parental leave over the last several months I concluded that I want to spend more time with my children. During these important formative years before they're in school.
I also plan to travel with them for a few months over the summer.
The company and the leadership team are both in a fantastic position.
Frankly don't believe my full time day to day participation is any longer key to our success and I remain as committed as ever to that success.
I will continue to be involved in key decisions participate in management and strategy meetings and meet very extensively with our capital providers are not taking on other work.
I just believe the time is right for me to focus my Sunrun time, and the highest value areas and to recover the balance to spend with my family.
Company leadership is in fantastic hands, Sunrun has deep bench strength and tremendous experience across all aspects of the business over the last few quarters. The company has been more operationally efficient and enjoyed significant gains in net promoter score, while increasing volumes and pricing.
The operating results corroborated my intuition that it's in.
It's an appropriate time for me to make this transition.
I'm grateful for all your support and I look forward to remaining part of this great company as we move forward speaking of which I'd like to turn the call over to Danny to show the financial update. Thank you. So much at working with you so closely and receiving your Mentorship has been a real privilege I appreciate that your counsel to our team as always are called away.
Today, I will cover our operating and financial performance in the quarter, along with an update on our capital markets activities and outlook turning first the results for the quarter.
In the fourth quarter customer additions were approximately 37400, including approximately 27500 subscriber additions are subscriber additions were 72% of our total customer additions in the period, a small increase from last quarter.
Our recent sales activities and the benefits from the tax credit hours in the inflation reduction Act, which are only available to the solar subscription model indicate the mix of customer additions is likely to shift towards subscribers more significantly in the quarters ahead.
Solar energy capacity installed was approximately 275 megawatts in the fourth quarter of 2022 greater than 25% increase from the same quarter last year.
Full year 2022 solar energy capacity installed was nearly one gigawatt at 991 megawatts or 25, 2% increase from the prior year modestly exceeding our guidance our installation teams and partners performed incredibly well in the fourth quarter driving strong efficiency and productivity metrics.
Also remaining committed to safety and high quality installations.
The increased pace of installations is allowing us to gradually worked down our pipeline, which is approximately one quarter at the end of Q4, we aim to manage sales and installation activities to maintain a pipeline that optimizes, our resource planning and customer experience. Although we do expect our pipeline to increase in the first half of beer.
We have now installed over 53000 solar and storage systems, we expect storage installations will grow rapidly in the quarters ahead and attachment rates will increase meaningfully.
Storage solutions, not only provides customers increased value for an energy rate optimization and backup power capabilities, but they carry higher margins typically by several thousand dollars per customer.
Barry highlighted our ability to satisfy demand for storage installations with superior operational fulfillment is a clear differentiator for sunrun in the marketplace.
We ended Q4 with approximately 797000 customers and 667000 subscribers, representing five seven 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 contracts, where the green energy we provide.
At the end of Q4, our annual recurring revenue or a R. R stood at over 1 billion with an average contract life remaining of over 17 years.
During 2022, we successfully demonstrated our adaptability and financial resiliency in the face of persistently high inflation historic speed of interest rate increases a dynamic supply chain and a large installation backlog, we implemented significant pricing increases throughout the year behind double digit utility price inflation.
As utilities pass their own increases in labor fuel and capital costs through to their customers.
Because the trajectory of a utility price increases were similar to our price increases for new customers, we maintained an attractive value proposition proposition and sustained high demand we.
Found in created ways to offset rising input costs with improved operational efficiency.
In Q4 subscriber value was approximately $46300 and creation costs was approximately 29800, delivering a net subscriber value of $16569 a healthy increase from 13259 in the prior quarter.
Total value generated which is not too which is the net subscriber value multiplied by the number of subscriber additions in the period was 456 million in the fourth quarter.
From Q4, 2021 to Q4 2022, our subscriber value increased by over $9000 or approximately 25%, while our creation costs remained approximately flat despite sharply higher equipment prices and general inflation.
Our net subscriber value more than doubled from approximately $7000 year over year.
As a reminder, starting in Q3, our subscriber value reflected the benefit of a 30% tax credit as opposed to 26% provided by the passage of the inflation reduction Act in August .
Each quarter, we provide ranges for advance rate measured as a percentage of contracted subscriber value that reflect current capital costs, we finance our systems upon installation with tax equity and project level nonrecourse debt, which monetize a portion of our subscriber value.
Our advance rate ranges, allowing investors to approximate approximate approximate proceeds from all sources net of fees and games you obtainable net cash unit margins on deployments from Q4, 2021 to Q4 2022, our advance rates fell substantially from a range of 95% to 100% to 75 to 80.
5%, however, because we also increased our contracted subscriber value by over $8200 over the same period, our estimated proceeds per customer increased by $700 using the midpoint of these two ranges.
Given today's higher cost of capital environment commencing with 2023 reporting we anticipate increasing our discount rate assumption from 5%, which we used in our reporting throughout 'twenty 'twenty. Two just 6% as you can see on slide 12, adjusting the discount rate higher by 1% with lowered the total subscriber value.
And that's net subscriber value by approximately 330 $600 in Q4.
Because proceeds per customer are already based on market rates, our advanced rate in Q4, as a percentage of contracted subscriber value would increase to approximately 80% to 90%.
Turning now to gross and net earning assets and our balance sheet gross earning assets were $12 $4 billion at the end of the fourth quarter gross earning assets as a measure of cash flows we expect to receive from customers over time net of operating and maintenance costs distribution as a tax equity partner partners in partnership flip structures and distributions.
Project equity financing partners discounted at a 5% Unlevered capital costs.
Net earning assets were nearly $5 $6 billion at the end of the fourth quarter, an increase of 487 million or 10% from the prior quarter.
Net earning assets is gross earning assets plus cash less all debt.
Yeah.
We also anticipate adjusting the discount rate used to calculate gross earning assets from 5% to 6% to be consistent with the changes in how subscriber values calculated on slide 11, we provide gross earning assets and net earning assets pro forma using a 6% discount rate.
We ended the quarter with $953 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 capacity to fund over 400 megawatts of projects for subscribers beyond what was deployed through the fourth quarter Sunrun also had.
$837 million in unused commitments available and its $1.8 billion nonrecourse senior revolving warehouse loan at the end of the quarter just signed over 320 megawatts of projects where subscribers. This strong capital runway allows us to be selective and timing of our capital markets activity.
Turning now to our outlook, we expect growth in solar energy capacity installed to be between 10 and 15% for the full year 2023, which we believe will result in market share gains we currency currently see more upside opportunity than downside risk and achieving growth in this range, but feel it is best to air on the car.
[noise] scenario side early on in the year.
Even with the tremendous sales activities. We are currently seeing our conservative stance is influenced by the mid April transition to the new net billing tariff in California extended cycle times with higher storage mix timing uncertainty with the implementation of ITC adders, and our ongoing pricing adjustments and go to market optimization efforts.
We expect our storage attachment rate will increase significantly in 'twenty to 'twenty three from approximately 15% in 2020 to the.
The strong sales growth, we are seeing coupled with the increasing mix of storage is likely to extend the cycle times and increased working capital needs, but we will remain focused on prudently managing our backlog and working capital without forgoing the tremendous opportunity to extend some runs lead in 2023 in Q1, we expect solar energy capacity instead.
<unk> to be in a range of 215 225 megawatts. The first quarter is typically seasonally lower than the fourth quarter. As you can see from nearly all of our historic results over the years due to lower selling activities exiting the prior year and more weather related installation limitations and shorter days entering the new year.
We expect net subscriber value to be approximately $10000 in Q1, using a 6% discount rate and to increase sequentially throughout 2023 for comparability using a 5% discount rate that subscriber value would be over $13000 in Q1.
Our focus is on delivering profitable growth, especially in operations and strong unit margins, while navigating a fluctuating interest rate environment.
Our discipline has served us well for the last 15 years, and we believe will serve the company and our stakeholders well in the current economic paradigm.
Turning briefly to our capital markets activities and outlook as we've shared before we regularly enter into interest rate swaps to hedge the capital costs on our newly installed customers were principally exposed to interest rate fluctuations between customer origination through shortly after installation around the time of installation or systems or finance.
With project level nonrecourse debt.
Nearly all of this financing is insulated from near term interest rate fluctuations as our debt is either fixed coupon long dated securities or floating rate debt that has been hedged with interest rate swaps.
At the end of 2022, Sunrun executed an $835 million term out financing consisting of a 600 million nonrecourse syndicated bank facility and a 235 million subordinated debt facility supporting a 335 megawatt portfolio of systems. The team executed this transaction, particularly well delivering.
Senior loan pricing at an initial credit spread 100 basis points below recent solar loan securitization transactions observed in the sector at that time and a cumulative advance rate exceeding the high end of our guidance range of <unk> 85 per cent.
Because of the advanced rate on this portfolio benefited from previously placed in the money interest rate hedges, we expect the advance rate in our next term out transaction, which does not carry such benefit to be slightly lower cost.
Cost of capital has trended favorably over the last few months as credit markets have improved we continue to observe our capital costs in the mid six to mid 7% area consistent with this cost of capital raise we expect advanced rates on our newly deployed portfolios to still be between 75, and 85% of contracted subscriber value calculated user.
A 5% discount rate or 80, or 90% against contracted subscriber value calculated using the new 6% discount rate.
The long standing relationships, we have cultivated with many capital providers in multiple markets our reputation as a high quality sponsor and the consistently strong performance trends of payment performance trends of our customers through multiple economic cycles affords us ready access to capital and allows us to be selective with our transactions.
Our next term out transaction will likely be in the securitization market as opposed to the bank market during a much improved conditions in that market to start the new year.
With that let me turn it back to Mary.
Thanks, Danny I am so appreciative of our hard working team, whose adaptability and commitment to our purpose helped deliver an amazing year of transformation for Sunrun in 2022 I am confident that our momentum will continue into 2020 three as we focus on the fundamentals to make us faster better and stronger for the benefit of our beloved.
Customers are amazing employees, the hundreds of communities, we operate in across the country and our financial partners with that operator, let's open the line for questions.
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Our first question comes from Julien Dumoulin Smith with Bank of America. Please proceed with your question.
Hey, good afternoon. Congratulations at thank you guys for the time nicely done I would say and more specifically here are the look for 10% to 15% on 'twenty three is impressive.
I said in your prepared remarks that youre looking for share of market share gains can you guys elaborate a little bit on the depth of that market share gain considering some of the commentary on the loan side.
What are you seeing in terms of your ability to kind of capture some of that shift if you will.
Yeah, Hey, great Julian it's nice to hear from you. This is Mary Ah Yeah. So.
Really you know it's based on the fact that again you know we're seeing really good signs at the beginning of the year in terms of Ah you know consumer demand. We believe that we are really well positioned with a subscription model for this year, which clearly has a more valuable customer proposition.
Because of you know basically its ability to monetize the value of the ITC adders for customers and you know and and then again, we expect to gain market share because again, you have folks like wood Mackenzie expecting sort of flattish to 6% and we're looking at you know, we're feeling like 10% to 15% as you know we're very very far.
On sustainable profitable growth. So again, you know, we're looking at that 10% to 15% as being a reasonable and conservative so given that and given wood Mackenzie. We we believe we will probably pick up some market share and also you know, it's really what we call the year of storage and Sunrun as the leader in storage and we.
We feel like we're really well positioned in California, which will be you know always is and will continue to be a really important market for our products, because frankly californians need our product because the utility power is just not as reliable and is very highly priced so we feel like we're in a good position right Julian that the one thing that I would.
Just add as a reminder, on the because we do expect a big increase in storage installations. This calendar year, you know a storage installation can take you know 50% more labor hours the solar only one and can take as many as 50 or more days to get installation and.
And so you know as you significantly increased the storage attachment rate you have many more projects in the development pipeline.
And when we're talking about the annual growth rate, we're actually obviously talking about the projects that are entering or exiting the pipeline that are entering the pipeline and.
And so that's a factor in there as well.
Yeah, that's actually perhaps the follow up here I mean, the funnel as you guys talk about 30% plus you're only a 10% to 15% I mean, what does that say for 'twenty four and I know it might be a little early and then related to that you know.
16, K plus in and their per customer here, it's pretty it's pretty solid print how do you see the cadence of course of the year as you say too.
Yeah. So we're actually Julian to build on Ed's responds like again, you know one of the things to think about right. When we talk about growth is you know how we've classically talked about it is installed capacity, but again, it's we're becoming more and more of a clean energy storage company as well you know that really is.
Very accretive to the value so really looking at growth in the context of you know the additional value. We can create through storage is really really important as we look to the year.
Danny and on the on the net subscriber value just allow me to do the work is as I said in the in the prepared remarks Ah Yeah. We we did achieve greater than 16000 in Q4, and we guided to greater than or approximately $10000. In Q1 are in there.
There is the switch from 5% to 6% discount rate.
And if if we went on a like for like basis at a 5% discount rate are the guide would have been over $13000 per customer in Q1.
And between Q4 and Q1, obviously there is a sequential decline in installation volume due to some seasonality that's normal in the business.
And as we kind.
Kind of see that volume dropped over that period of time, there's a reduced operating cost leverage coming through in the period, but then the outlook would be for us to.
So that number sequentially throughout the year as we grow volumes and shift the mix towards higher value projects.
Our next question comes from James West with Evercore ISI. Please proceed with your question.
Thanks, and good afternoon everybody.
I will do.
Maybe I just wanted to follow up quickly on kind of where Julian was going with his his questions around your expected installation grew.
Versus the inquiries you're seeing early this year I guess as you transition to more of as you mentioned you saw a storage company rather than just pure.
The residential solar the correlation between kind of the top line and what you guys see as installation growth I would assume that that starts to break down so boarder baby revenue outgrows installations to let up there.
Yeah.
Yeah, I mean, there's a yeah there there's a a greater disconnect between the top line growth and the installation volume growth again as we shift from.
Yeah more complex to install jobs that take a few more hours and as we see the you know the ramp up in our installation capability against that volume growth. So there's just generally a lagging effect and an expectation that the size of our pipeline will resume growth after.
For a few quarters of contracting.
Okay. Okay. It makes sense and then maybe just a quick follow up for me.
Notice. So obviously you had some commentary in your prepared remarks about your <unk> business.
And I saw some commentary in the press release around lunar and moving into the grid sphere software on your current BT piece I was wondering how that process is going it is are you finding it to be a higher quality product will you switch to that on on all your biggest musicals order maybe other parts of Europe .
Business.
Yeah. Thank you for noting that we are so excited about our work in the virtual power plant space and as we noted in my remarks, you know again the P. G. Any announcement following the Puerto Rico announcement, we just see this as an area that strategically is so important as we look to the future, particularly as we look to a future with.
So much more storage paired with solar and so I think as I've often talked about when I talk about radical collaboration that you know we're going to get to the day I think in the not too distant future, where you know we we literally have a regulators and utilities started banging down the tourists.
Wanting to have more access to our to our capacity. So a long winded way transition into your question on lunar we are really excited about their capabilities. So that is going incredibly well I'm not only are they working you know on this you know next generation storage a capability that will have access to.
In 'twenty three but you know through there there are work with this grid share.
Program, we just yeah, we find it really a highly sophisticated great performance and we're really excited to be working with them.
Our next question comes from Brian Lee with Goldman Sachs. Please proceed with your question.
Hey, everyone. Good afternoon, thanks for taking the questions Hey, Brian maybe just hey, how's it going maybe going back to the market share game, that's super interesting and encouraging I guess, how how much of that is you know coming from specific states that you would highlight as areas.
Where are you you know.
Double down efforts invested more than your peers and then how much of that is just coming from this broader you know loan to lease mix shifts that you know everyone's obviously acknowledging at this point and then maybe related to that just what are you embedding for California, non California growth in general for for your outlook here for the year.
I had a follow up.
Yeah.
Yeah, I would say you know at a high level, Brian as we've talked about you know when we've met you know where our focus again has been faster better stronger. So we've like one of the areas I'm. So impressed with the team in 2022 and that we're going to continue in 'twenty to 'twenty. Three is like always looked like looking at data every week every market every G.
Ill, making decisions around you know our position and and how to leverage the best customer value proposition in that area. So we're we're going to continue to do that I mean from a broader perspective, though we're definitely seeing in all the market like all the markets that we're in we're seeing great interest for what what we <unk>.
Have to offer to consumers you know we also are feeling really good about our position in California because of our innovating around a product that we really feel well will really help customers monetize the value of the new the new tariff in California, So with that I would toss it to Danny do you want to give more specific grows.
Level comments, yeah, I think Mary covered it well in the in the leading as well where she said that you know 30% early funnel sales growth nationally and are higher than that in California.
And that's at the moment and I think the expectation that we have to see it play out but the expectation is a you know post April mid April market transition in California.
Thank the value problems there'll be great for customers in the market and the growth rate there will trend more towards a what we've seen ex California.
Okay fair enough I appreciate that additional color and maybe another one for you Dan a year or maybe Ed as well just high level thoughts you know on this transition from P. V. Five P. V. Six I think you know some investors were maybe expecting to go all the way to even PV seven. So just you know about some T V.
Six versus P V. Seven and then a general cost of capital trends in 'twenty three and then what you expect in a b S financing costs and volume this year. Thank.
Yeah. Thanks for the question Yeah. So so I think we.
And as we've as we've said we want to have a discount rate in the metric that doesn't that we think is good for the you know reasonably long term it doesn't fluctuate every quarter and as you saw in the remarks as well.
Over at corridor fluctuations also generate the need to.
Explain lots of pro forma suicide just for period over period comparability are the thought was to select something that allows us to keep it in place for a year and Ah we were thoughtful about that looking at them you know where rates have kind of moved around in the recent past looking at long term rate expectation.
<unk> and fell six was was it good mark to approximate the system value add but we're also continuing to give the constant guidance on where advance rates are fluctuating at any moment in time relative to market interest rates.
And we'll continue to give that clarity.
On how much of that contracted subscriber value, we are able to monetize into cash proceeds at the point of install them. So that number you know today looking at Mark yesterday, we've mentioned, the 75% to 85%, which will be 80 to 90, 90% using the new discount rate and that's fair.
For equivalent proceeds are we still maintain that range excuse me, we still maintain that range going into Q1.
You know given where rates are today, probably with an expectation that we'd be around the midpoint or the top half of that range, so somewhere between seven and seven and a half are.
Given where we've observed markets in the last couple of weeks. So from an advance rate standpoint that would put us in the bottom half of the advance rate guidance range.
You know based on where things were trending at the moment.
Our next question comes from Phil Shen with Roth. Please proceed with your question.
Hey, guys. Thanks for taking the questions I know a lot has been asked.
On the 20th regarding the outlook I wanted to hit it from a different angle.
You know Mary I think you've talked about the guidance being reasonable and conservative and was wondering if another area of conservatism might be around the onboarding of new dealers. So I'm imagining you know there's a fair amount of dealers wanted to jump on your platform at this point to what degree could that serve as yet another lever up.
Sorry, as my my sense would be that.
So maybe that 10% to 15% growth.
I guess, maybe more organic with your existing base of dealers you know what's been the interest and activity of new inquiries as well. Thanks.
Yeah, I would say you know relatively more.
Organic you are definitely seeing the flywheel effects as we've.
Put the you know the sunrun embedded businesses together now with a two year operating period and track record I'm definitely are being seen and also as a as an attractive place to sell directly.
So I'd say its more direct driven than dealer driven and to the extent it becomes dealer driven we would view that as relatively more upside to the model yep.
Great and can you guys comment on whether or not you are seeing a.
High level flow in activity from those dealers externally.
Yeah.
Our work with is the question like work with us on our platform.
Yeah are you seeing a greater than like are you getting inbounds from dealers that you historically have not worked with us.
Because you know what.
And so.
As you would guess I mean, I think the way to answer it is like yes, like again, where the nation's leader. We also like again back to how I described our whole go to market strategy and how we worked it in 2020 two as you know, we're very selective and we're very disciplined so again, our focus is on sustainable profitable growth.
And so yes, you you know that there are definitely different ways, we could see a path to creating more upside, but again, we're really super focused on being selective and disciplined to ensure that we get to sustainable profitable growth.
Great. Thanks, Mary in terms of my follow up I saw in them through in California, You'll remember we talked about this new offering in California, you know it sounds like it was a strong value proposition and <unk>.
Contributes walden that subscriber value most are expecting a decline.
In California wants them to installations are done, but can you talk about this new offering and possibly how it can serve your customers and potentially a.
Results in a situation where could you guys actually grow.
California volumes year over year.
We're in many of your competitors are actually losing or decreasing year over year.
Yeah, I mean, I think that I think the most powerful thing for Sunrun as we go into this year in California is that we just we have deep bench strength around storage. So again, we you know we're the nation's leader in providing storage in customers' homes. We have 53000 customers that already have storage. So yes. This product again, we've come up with something.
That is you know quicker and easier to install and you know really provides great savings proposition for customers and so we think it'll be very powerful, but yeah, I think definitely our our history and our leadership on storage is going to be very very helpful and as a part of differentiating us for sure from from some of the.
I mean, one of the reasons, we really were agitating with regulators and policymakers last year for a longer ramp time was we saw that for the rest of the industry you know, particularly the long tail that may not have the experience in storage that it it's gonna be much harder to quickly adopt to.
This new tariff, which really relies on capabilities around storage. So we're feeling we're feeling like we're in good shape as we go into the year and to just underscore or maybe highlight something that I believe Mary mentioned on the call. You know we are expecting a on an installation basis sequential growth in installations across all the quarters of this year.
Yes.
[laughter].
Our next question comes from Kashi Harrison with Piper Sandler. Please proceed with your question.
Good afternoon, and thanks for taking the questions and congrats Ed.
So just the first one first one for me just one quick follow up question on the 2023 guide how.
How are you thinking about your lease loan mix Ah in 2023.
Yeah.
We are sitting on the call.
71 went to 72% and the outlook there is closer to the 80% area.
And if you look historically.
Prior to last year, we were generally in an 80, 80% to 85% range I think will.
Trend more towards the kind of the historical.
Normally selling the business.
Yeah.
Got it and then.
That's helpful and then for my follow up question.
You you are based on your slide that you have with the advance rates you indicated that you can generate a roughly $3600 per customer.
How are you thinking about the changes in working capital during 2022, it looks like it's been about four to 500 million. These past few years and so I'm just curious how you're thinking about a 2023.
Yeah. So the working capital is I would say mainly associated with.
The the run up in sales, right, which which results in a lot of the cost structure of our sales organization being occurred incurred ahead of the realization of proceeds.
And then as we ramp.
You know the operational capacity.
Some fixed investment there to grow the footprint.
As well as yeah in particular this year with a meaningful growth in the battery attach rate.
And just general growth continued growth in supply chain spend and inventory balance and you'll see a pretty substantial move in the inventory balance on the balance sheet kind of in line with that are already occurring in the in the period in Q4.
Sorry, just to clarify are you, saying that your changes in working capital in 'twenty three will be lower than 22 is that about what you were getting out.
Yeah, I don't have the exact comparison, but.
I would say the.
So the amount of the amount of installation growth.
Last year being 25, this year being 10 to 15 would suggest lower.
But the amount of offsetting that would be the amount of equipment cost per installation with the higher attach rate would also be higher.
Right, so that the value of equipment per job is going up but the number of installs were ramping up into <unk>.
You know relatively year over year, its a its a lower growth rate. Obviously, so they are probably offsetting factors out there.
Yeah, I would say the other thing I would add to that is just again in the in the vein of faster better stronger you know our team is actually very confident that we still also have again.
More operational improvements and efficiencies to harvest that all you know help us, particularly as we look at like moving the backlog through them that will help us definitely sequentially, you're going to continue to see improvements in that regard.
Okay.
Our next question comes from Joseph Osha with Guggenheim Partners. Please proceed with your question.
Oh, hi, Thank you add we're going to Miss you man.
I'm gonna be on the column, you'll see only up here for you Joe.
Okay.
You may not see them.
[laughter], Oh, I feel better now [laughter].
And in terms of this transition obvious in California, obviously, the deadlines April 14th or whatever it is but you know I've heard you referred in installed backlog, how how much and how how much installed backlog do you think you could get could we'd be installing them and them to point out the system safe.
Temporary so I'm trying to get a sense of that I mean, well you know what we're aiming towards is likely months not quarters of backlog. So again you go back to what I was speaking to in the answer to the last question. You know we still see you know this team is like very focused on faster better stronger and we still see like you know sequentially.
Improvements were going to continue to make that are going to allow us to.
Digests that backlog, you know or that pipeline, let's see shall we say you know we're building a healthy pipeline and we're trying to resist having as many customers as possible become backlogged. So we're very focused on on moving that through I would say you know last year as the track record for that right. If you if you track through the quarters.
At the peak, we were at about two quarters of of backlog and we brought that down throughout the year.
And you know it was through tough work on finding the efficiency gains in the business and as we transition more towards battery installations.
We're kind of bullish on our ability to find those efficiency gains there as well.
Okay got.
Got it. Thank you and then my other question given the talk about working capital you know if I look at 2022.
You guys did manage to put around the $100 million sort of cash on the balance sheet.
Should we perhaps not expect to see that level of cash generation. This year, given what I'm hearing.
Yes, I think the.
You know the the unit level I think we did the unit level.
Cash walk, which moved by about $700 per customer so like a lot of the margin gain was also upsetting the interest rate increases.
So we're starting the year, a little bit better off on a cash unit margin perspective.
You know certainly you know.
We just talked about I think you know the inventory kind of the the preparation.
For the you know run up in volume will be consumptive from a working capital perspective.
As we travel through the year and you know transition and realize more higher value projects. You know, we do expect the sequential growth.
And in the unit margins, yeah, but we will see offsets from from working capital through the year.
Okay, Alright, thank you very much.
Yeah.
Our next question comes from Heath Mandalay with Credit Suisse. Please proceed with your question.
Hey, good.
Good evening, thanks for taking our questions here.
Just one question on the NPV per customer and their subscribers value talked about a sequential decline in Q1 versus Q4.
Ramping up through the year, but could we expect it to ramp up back to the 16000 on a like to like Christmas.
Q4, and also just wanted to understand the the variables going to run into what are you, assuming the 30% ITC or any of the others for Oh your customer right.
Yeah, Yeah, that's a good observation on the on the last question on the last piece.
Now that the 10000 dollar guide.
With the new 6% discount rate does not assume the realization of any I T theatres in Q1.
To the extent, obviously that the low income would be the most material piece of that and we did address the kind of the timing of concerns around that.
But that would generate upside to the to the number as those get realized energy community is another at or that is not assumed to we're waiting them. You know more specific guidance on what will qualify but we have you know reasonable reasonably.
Reasonably high confidence on the portion of our business, we're already doing that when it installs and get a realization of those hours that we would also see further upside to the metric from that source domestic content similarly, not assumed and.
As we talked about we have a you know almost a couple of hundred megawatts of supply there.
Yeah to the extent the guidance comes out and we install those in a way that qualify and then confirm that that's further upside.
And then the rest of the sequential growth will be related to a higher pricing realization.
In general but also.
The shift towards higher value projects as we increase the battery mixed throughout the year all of those are contributing factors, but again. The 10000 doesn't include the upside from the adders and.
And we expect the sequential growth.
Also as we see the decline in installation volume and as we report the metric on an installation basis largely.
On the creation cost stack are you know you will see some of the reduced.
Operating leverage on operating costs in Q1, and you'll also see relatively fewer on the topline for subscriber value relatively fewer subscribers getting realized into that metric. So so there's some operating leverage considerations and in the Q4 to Q1 block as well.
This is Ed I would just add also you know more sales activity in Q1 than Q4.
And because the metric is just looking at the number of installed customers and then all the cash costs in the period as he moved from Q4 to Q1 as Danny said, we have yet we have fewer installations and more sales activity both of which create a headwind in the metric that does reverse over time.
Okay.
Got it thanks, and then maybe just one question on Oh, it's probably been asked different ways around cash generation, but maybe just a question on the focus from a metrics point of view should we expect the focus on this and PV or so even the subscriber value per customer or are you.
Looking forward, we need new metrics to kind of help.
Our investors, but I appreciate the story here.
Yeah, well, we'll continue to focus on the primary metrics.
Yeah, obviously, one of the things.
If if we you know there's creation there's value creation from subscribers. There's also headline megawatts you know one of the dynamics also to keep in mind is the you know the the value per megawatt is also appreciating considerably again because of higher VAT.
You installations throughout the year.
You know ultimately.
The GAAP financials are also a place where.
You know, there's there's probably opportunity to simplify them, although that's something we continue to evaluate on an ongoing basis.
And then ultimately.
The objective is to grow unit margins and continue that March forward as we did throughout last year that as we get into a stable interest rate environment and we continue to grow our unit margins like cash flow generation ultimately is the priority.
But we're also kind of being cautious.
Given the amount of growth you know we've been seeing it is also a consumptive from a working capital standpoint is as we.
Previously discussed.
Our next question comes from Beech, you pairing channel with Susquehanna. Please proceed with your question.
Okay.
Yeah.
Hi, Thanks for taking my question, putting back to 'twenty three guidance.
Great.
Growth in the first quarter being sort of.
3% or so too.
Yeah.
Uh huh.
All right.
Market share gains in this.
So more to your systems or is there some other factors there as well.
Yeah. The Q the Q1, so we typically see.
Decline in.
Q1 from Q4, if you look across years.
<unk> declined.
You know can fluctuate a bit again, if you look at past periods.
The year over year comparisons.
Can look a little bit irregular quarter over quarter year over year comparisons.
Can become a little bit irregular so so that definitely are again expecting the sequential growth.
And did that get that to get realized that a temporary 10% to 15% annualized rate where we.
I think there's more upside opportunity than downside risk to that range and the opportunity again comes from you know the extra volume, we're seeing them, but more.
More specifically the ability to fulfill all of that extra volume we're seeing.
In the period as we grow our build capacity.
Well there.
Our normal impact in that first quarter number from.
Or anything else.
Yeah.
Not not unusual.
A little bit of weather.
Whether a little bit of you know, obviously like delivering that strong.
Against the like the strong growth against our guidance and you know we did accelerate a lot of our pipeline.
But nothing nothing unusual yeah, no. There's a lot of seasonality that just shows up.
Our next question comes from Steve Fleishman with Wolfe Research. Please proceed with your question.
Yeah. Thank you good afternoon questions on the I R. A owners so the.
I guess first thing is just if you phone later on that you would qualify for a low income out of.
Or energy community.
For someone that you added in Q1 or Q2 could you go back and capture in theater.
Right or wrong.
As currently set on the low income piece as currently set forth. The answer Unfortunately is no.
And.
That does read a little inconsistent with the legislation, which we thought was January 1st so but as soon as that kicks.
Kicks in.
And it will be upside we have not planned for here on the energy communities I think the read is stronger that that would be January 1st, but the particulars of the exact geographic Ah qualifications and how big is the interim.
As the map, which work orders are picked up you know those sorts of things you know are more.
Nuanced and required the guidance the same thing with the domestic AD yeah, yeah and from a funding perspective, certainly our investors would be happy with the tax equity investors will be happy to them you know.
I realize that a tax credit value provided they have the appetite and pay for it in the advance.
Right. So I think just to clarify your question right. There that the constraints is it available by law and if it's available by law can we monetize it right. What we're working on is it available by law, we're pretty confident that the we can monetize it if it's available by law as a check box.
Okay and then my other question is just.
As you think about the owner's availability.
Later in the year or next year.
How much how much of that do you think you can retain are you how much is it.
The risk of kind of being competed away to get customers are.
Or is it.
Like leave it you can retain a good amount of geez, it's likely we can retain a good a good amount of it yeah. I mean, we're feeling like the size of the you know the size of the opportunity. We're feeling is you know one that we will absolutely be able to take advantage of the on the low and moderate income at or it's more an issue of.
Uh huh of like when its going to kick in on and the other two or more and they like final definition of the energy communities and you know what exactly were you know like applies to the domestic content adder, but as I said in my remarks, like we feel like we're really well positioned against what we think is a likely outcome on the domestic cant.
Around adders, we already are doing business in what we think are likely areas of energy communities and again, the low and moderate income Adders, you know will kick in we know for sure by the end of 'twenty three going into 'twenty four.
And you know and who knows could end up being sooner given you know the different dialogues going on about those adders and the timing.
Our next question comes from Christine Cho with Barclays. Please proceed with your question.
Okay.
Thank you for taking my question I just wanted to start off when we think about the cadence of the installations that will take place throughout the year in California. You mentioned that you know you expect that it'll take a couple of months, but I would assume that someone wants to be grandfathered under named 2.0, They arent really looking for a battery so she.
We think that you know.
Those 2.0 applications will be prioritized over solar plus storage installations, especially if it takes 50% longer to do those.
And so by that logic should we think that the solar plus storage installations will be more back end loaded this year.
I mean definitely to your point you know, we're seeing a lot yeah, we're seeing a pull forward of demand.
You know, yes to your point I think it's absolutely logical to believe that there will be a higher attach rate once we get past April 15th for sure you know in terms of how we manage our pipeline now and how we sat customer expectations. You know, we're being really clear with customers now that are trying to get in before that.
Cut over that you know of like the time required to get them to installation as as that pipeline builds. So we're you know we're of course very very focused on making sure. It's an amazing customer experience for those customers in the pipeline and that we're meeting all the requirements. So that they technically can count for having made that cut off date.
So that's also a really important part of it but in terms of prioritizing and you know we very much will be moving customers along in the order in which they came into our pipeline.
Okay, and then like I don't know how easy it is to answer. This question, but is there anything you can provide around.
The difference in subscriber value for our solar customer of our system plus storage customer in California.
Just as we kind of think about you know a customary installations might be down, but there is an offset because the subscriber value for a solar plus storage customers higher.
Yeah, 100%.
With back up it's in the low single digits out like thousands per customer.
Would be the incremental margin for our customer.
Getting the battery in a backup in a backup product of course are that that will vary depending on the size of the number of batteries. They have the number of loads. They want to back up so that that's more of an average number but.
But probably with a big range.
Our next question comes from Chris Blanchard with Deutsche Bank. Please proceed with your question.
Hey, good afternoon, and thank you for taking my question I'm just one follow up also on pricing do you have any of them for pricing power I mean, you're not increasing pricing over the next couple of months.
Yeah, we we continuously monitor the macro environment with respect to interest rates on the one hand and utility rates on the other hand.
So that's something we've we've continuously done them as we as we talked about last year, you know pricing was a.
More of the you know more of an event that we had to talk about them. You know last year as we were exiting a declining rate environment and transition I think the whole industry transitioning into a rising rate environment and how dynamic it gets as to pricing and today. It is fully dynamic and we're constantly looking at those two.
Factors as well as our own volume and optimizing on an unprofitable I would say there is.
You know opportunity, but we're kind of looking at all of those factors and being deliberate and and more specific from a geographic perspective as opposed to thinking about it you know kind of as a national thing.
Yeah that makes sense.
And then the next question I had and maybe I missed it I don't know I'll call them, well, but can you provide more color on should we expect further increase the next thing I know some of your P off Comanche Bank hazy in thinking Oh, two simple, California of course is that what you intend to do over the next few weeks up to them.
Tom.
I think that the cost increases that you'll see.
<unk> will be related to again higher cost equipment.
Or you know higher ticket price equipment going into jobs, which was the battery.
So you'll see a general creation cost increase against that.
But if you look at last year, we're just kind of in a more stable period on the attachment rate.
You saw costs generally remained flat, but over that period of time, you also saw our equipment prices going up.
You know equipment prices going up but offsetting that from a efficiency gains on the installation side.
We expect to continue to grind for that dynamic throughout this year and see the net subscriber value of the bottom line continued to increase.
Our next question comes from <unk> Sinha with Northland Financial. Please proceed with your question.
Yeah, Hi, Thanks for taking my question.
I just wanted to if you could share something on Puerto Rico, you progress from Puerto Rico, I mean, where there's been market share and what it does though what.
What are you expecting next three to five years the impact of Lehman's, It's bad.
Anything on those lines.
And also like when a compelling and V P.
What you have in Puerto Rico versus wants to be unique customers I mean, I think Puerto Rico, you said about $2000 for the substance.
While U N P. B is that something of that what are you going to be I'm, just trying to understand the compare and contrast, the two b B P plans, Puerto Rico with the speed you need here.
Yeah. Thank you so Alicia I actually just spent some time in Puerto Rico with our partners down there and with you know all the folks that are so important from a virtual power plant perspective, I mean, Puerto Rico to your point is an incredibly important market for us and you know its one as I as I like to say a lot to folks I speak to it.
Puerto Rico is one of our postcards from the future in the context of you know how you know they have a really incredible high storage attach rate you know they we've also been deploying the span panel in Puerto Rico. So we've really been utilizing Puerto Rico's you know forward leaning need and desire.
Here for a clean energy technology transformation.
You know to really leverage the strength of Sunrun in the context of the innovation that we've been doing in bringing their so we are very very bullish on the opportunity in Puerto Rico were very glad that we work with so many incredible channel partners in Puerto Rico, and that we're able to leverage what we bring from a perspective of.
Storage capacity span panel capacity and to your point, you know really helping to leverage all of that from a grade perspective, and one of the meetings I was so excited to have when I was there with the governor and his team about how do we have to stand. So how do we take the work we've already done and really transform our.
You know the system. So that we can be leveraging more and more solar plus storage systems going online to help you know really rethink.
How the greatest managed managed in Puerto Rico, So yeah, it's a very important market for us.
Any comment that you put out in terms of market share you have now versus what you might expect in two five years.
I mean, we expect it to continue to go up you know.
Our next question comes from Colin Rusch with Oppenheimer. Please proceed with your question. Thanks. So much you know Ed and Danny This one's for you just around this last financing could you talk a little bit about where you were able to push our you know the cost of capital a little bit lower and how durable those.
Or is it around.
Things like construction underwriting assumptions your performance of the systems on the field just trying to get a better understanding of what's happening with the portfolio that is helping enable that cost scaffold match.
Yeah, I think that's the last one was execution strategy.
We had been signaling for a while that.
You know when when markets move.
Especially in a credit and a rising credit spread environment as markets move the debt capital markets can be faster to move than the commercial bank markets and that kind of goes in both directions and the fact that we have.
Very deep multi year relationships that we've built and sustained for almost a decade.
You know, it's really valuable to us in those periods of time and if we obviously appreciate.
That relationship capital as well, so I would say that that was kind of the key.
Driver and and we're today.
Spreads have quickly in the ABS market moved to where it was to a similar spot to where we executed that banks transaction, just underscoring that markets can fluctuate more on the ADR side and on the bank side, where we have access to both at our scale.
It allows us to be nimble.
And you know shift back and forth as we balance our deals throughout our multiple deals throughout the period of the calendar year.
As Danny pointed out understanding what's happening in all the markets and setting a strategy in accordance with that and then having strong relationships you know when the.
The market is tightening.
Being a respected leader with a long term relationship you know pay it's probably more dividends frankly than in a fantastic market and I think we benefited a little bit from that as well.
That's a problem and then on the V. P. T technology side, you know obviously, there's a multiple layers of control and software until you guys are working with but I am curious about any real meaningful innovation or you know hardware specifically that are that you guys are seeing is emerging as really meaningfully contributing to the functionality and granular.
No control that you need to really manage those assets or if it's still really at the system level for you guys to really capture the value out of that system.
Yeah, I mean, the V. P. P software that you know lunar houses I hit like it's you know we find it very strong I mean, you know make no mistake, we have been doing someone's been doing you know virtual power plant work for years and when I was the executive of a utility we launched a virtual power plant like seven years ago like the.
Technology has existed for a long time, it's a war the culture of the utilities, that's been the bigger challenge to be quite honest with you, but you know, yes, the technology is improving and advancing and I'm I'm really bullish on what Ah lunar you know can do a in this in this space and in this context.
So you know we're really excited about it because again you know I see no direction, but you know increased demand for these kinds of distributed assets to be used to help the grid if the future.
Yeah.
We have reached the end of our question and answer session. This concludes today's conference. Thank you for your participation you may disconnect your lines at this time.
Everyone else has left the call.
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