Q2 2023 Sunnova Energy International Inc Earnings Call
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Good morning, and welcome to Synovus second quarter 'twenty to 'twenty three earnings conference call.
This call is being recorded and will have an allocated an hour for prepared remarks and questions and answers.
At this time I would like to turn the conference over to Rodney Mcmahan, Vice President Investor Relations at sniper.
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.
<unk> achieved record growth in customer additions in the second quarter. This outstanding performance can be attributed to the strong demand for our comprehensive suite of services. The continued growth of our dealer base and the expansion of our addressable market and market share.
What sets <unk> apart and fuels our growth is our unique business model exemplified by an unwavering commitment to delivering responsive and reliable service.
While solar forms the foundation of our existing customer base, we have observed a growing trend among newer consumers, we see homeowners seeking a broader range of services that go beyond panels on the roof to.
To meet this evolving demand we've introduced innovative solutions such as the Sunoco adapt at home and the Synovia adaptive business, which combine advanced technologies to optimize energy usage for homeowners and businesses as well as some of our repair services to ensure the uninterrupted performance of solar systems.
Without service.
Underpinning our commitment to providing exceptional customer service.
Is our 24 hour response time for our customers currently in four markets.
We have plans to expand to seven markets by the end of this year.
Which is expected to cover 70% of our customer base.
This rapid expansion of our 24 hour response time will help us to solidify our position as the fastest service delivery leader, while expanding our Sunoco repair service business.
Our ability to navigate macroeconomic financial conditions regulatory changes and market trends all the while focusing on the customer is unmatched in our industry.
One market trend. We are actively involved in is the current deflationary environment for equipment.
And the current equipment cycle falling prices, coupled with our open equipment platform and our strong relationships with best in class manufacturers has empowered us to access top quality equipment at favorable pricing, thereby enhancing our scalability and market competitiveness.
To get a sense of how drastic price declines have been so far this year at the end of 2022, the average equipment stack consisting of panels inverters and batteries for an eight kilowatt system in one of our major markets priced around $15100.
Now that same composition of equipment can be purchased for approximately 9500, a reduction of 37%.
This notable price shift translate to the equivalent of a 330 basis points decrease in the cost of capital, which will inure to the benefit of both the consumer and the form of lower pricing as the majority of the cost savings will be passed through to them and service providers like <unk> in the form of consumer demand upside as long as it <unk>.
This provider has managed their inventory properly and operate and open equipment platform.
Slide three showcases our continued growth and synovus customers solar power generation and energy storage under management battery attachment rate on origination and expected cash inflow over the next 12 months.
During the second quarter, we placed over 39000 customers into service, which brought our total customer count as of June 32023 to 348600 and brought our megawatt hours under management to 869, and total solar power generation under management to two.
One gigawatts.
As a reminder, we will count at customer only after they have been placed into service and we have an ongoing economic relationship with the customer.
If the economic relationship ends we will remove from our customer count. Additionally.
Additionally, we will count a customer only once regardless of the number of services, we provide to them.
Our growth is fueled by our dedicated dealers in the second quarter. We added another 216 dealers, bringing the total count to 1592 as of June 32023.
Our strong customer additions during the first half of the year, our continued robust originations and our conservative customer count methodology gives us the visibility and confidence to increase our customer additions guidance for 2023 by 10000 customers at the midpoint and.
An issue preliminary 2020 for customer growth guidance of 40% over 2023.
Given the timing of when these customers go into service, we expect the bulk of the financial benefit of the customer additions to accrue to Sonoma in 2024 and beyond.
We are furthering our growth by Upselling, our existing customers additional services and are tracking this growth effort through our services per customer metric, which stands at three five as of June 32023.
We continue to target seven services per customer by the end of 2025. Additionally.
Additionally, our battery attachment rate on origination was 32% in the second quarter.
And as of June 32023, re reached 3173 battery retrofits life to date.
Finally, we have updated our customer contract life and expected cash inflows as of June 32023, the weighted average contract life remaining on our customer contracts equal 22, two years and expected cash inflows from those customers over the next 12 months increased to 597 million.
By focusing on being an energy as a service company. We are successfully differentiated ourselves and we are building a reputation for reliable and responsive service.
Detailed on slide four <unk> growth strategy is built around the following key opportunities.
In the U S. We estimate there are approximately 108 million homes that could become Sonoma adaptive homes with only at 4% solar market penetration rate.
There is significant untapped growth potential for sonoco.
Aggressively expanding our operations, we are determined to establish our presence in all 55 U S markets by the end of 2024 to take full advantage of this untapped opportunity.
Our larger footprint will also lower our concentration risk and reduce our exposure to region specific concerns such as the recent change in the net metering tariff in California.
Of the roughly 4 million homes that have solar in the U S. Approximately $2 5 million of them lack a service provider.
<unk> additional market opportunity for <unk> through our Synovia repair service business.
On our analysis, we have determined that these systems typically require at least one truck roll every three years, resulting in a substantial revenue potential of approximately $1 billion per year, when considering an average ticket price of approximately $1100.
While our current focus is on providing repair services to residential systems. There are opportunities to expand this capability to our synovia adaptive business customers and future European customers.
The Sonoma adaptive business market opportunity is vast encompassing approximately $2 6 million businesses that could benefit from our solutions.
Our goal is to expand our presence into all 55 U S markets by the end of 2024 positioning <unk> as a leading provider of energy as a service for businesses across the country.
And finally.
With an average EU energy cost of $1 six one euros per watt and approximately 66 million potential Sonoma adaptive homes, and an estimated solar revenue opportunity at 462 billion euros.
European market presents a substantial opportunity for <unk> as we look beyond the U S and its territories and.
Additionally, our move internationally, we will further reduce our exposure to U S specific challenges and open sooner.
To more regulatory and consumer choice friendly markets, we will be nimble and opportunistic.
Capitalizing our growth opportunities overseas and we intend to be methodical in our approach as of now our 2024 customer projections do not include Europe .
In addition, we have determined that the rapidly growing <unk> customer base, particularly the storage and load management assets possess substantial untapped financial potential as it pertains to existing accessible wholesale markets and emerging opportunities in other wholesale markets.
As highlighted in slide five our expanding optimization and monetization expertise extends into wholesale power grid services and retail energy provider services collectively known as energy services.
Leveraging our synovus sentient platform and employing realistic addressable market and attachment rates scenarios. We project that the energy services has the capability to generate cumulative revenues of $1 billion by 2030.
With our primary focus on delivering outstanding value to our customers and shareholders. We continue to drive revenue growth provide great service to minimize capital loss and strengthen our brand our unique model serves as the foundation for these goals, allowing us to meet our customers' expectations regarding power reliability and affordability.
<unk>.
As we move forward, we are committed to investing in innovative technologies operational efficiencies and logistical capabilities to enhance the quality and responsiveness of our services.
I will now hand, the call over to Rob who will walk you through our financial highlights.
Thank you John .
Starting on slide seven you will see our second quarter financial results, we captured 17% of our expected annual adjusted EBITDA together with the principal and interest we collect on solar loans in the second quarter slightly below our guide of 20%, but keeping us in line with our 30% projection for the first half of 2023.
The second quarter results came in below our initial guide primarily due to a lower than expected contribution from inventory sales to our dealers.
Materially better credit terms from several vendors and a concerted effort to collect accounts receivable and lower inventory orders rationalize our working capital position and we fully expect increased inventory gain on sale contributions in the third and fourth quarters. Additionally.
Additionally, in the second quarter, we recorded a $15 $7 million impairment.
Portion is due to the purchase of a product that was ultimately found to be impractical to the vast majority of residential rooftops and the manufacturer is no longer on our approved under listing.
We will responsibly recycle what equipment, we cannot donate to charities.
On slide eight you can see the steps <unk> recently took to strengthen its access to capital.
Thus far in 2023, we have added $255 million in additional tax equity funds as the tax equity market remains healthy we continue to utilize tax equity partnerships. However, we are engaged in several potential transactions to sell tax credits in the current quarter and in the fourth quarter in order to diversify.
Our funding sources.
Also during the year, we have expanded our warehouse capacity by $535 million, while securing amendments to keep pace with evolving origination.
Entered into $611 million in asset backed securitizations entered into a $50 million secured revolving credit facility to support selling inventory to dealers and announced the conditional commitment by the U S Department of energy loan programs office.
Included in our $510 million of liquidity as of June 32023 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 the available unencumbered assets as of June 32023, this available collateralized liquidity equaled $104 million beyond that subject to available collateral we had $215 million of additional capacity in our warehouses and open tax equity funds.
Combined these amounts represent $725 million of liquidity available exclusive of any additional tax equity funds securitization closures in the money interest rate hedges further warehouse expansions or other sources of liquidity during the year.
In addition, we expect to close at least four more amendments extensions and new capital sources in the next 30 days exclusive of any publicly announced transactions.
On slide nine you will see our fully burdened unlevered return on new origination increased 10, 9% as of June 32023, based on a trailing 12 months.
On a quarter to date basis. This return equaled 11, 1%. We are forecasting further increases to our fully burdened unlevered return over the remainder of the year as we have seen positive trends as this return equaled 11, 6% over the last 30 days.
This more recent increase is partially driven by the addition of a limited amount of IRI <unk>, leaving room for further gains as adder guidance improves and equipment manufacturers established manufacturing capabilities in the United States.
Additionally, we anticipate a slightly lower tax equity cost of capital in the upcoming quarters and we have recently implemented several price increases with additional price increases going into effect next month.
With these combined factors we are closing in on our target, 12% fully burdened unlevered return.
The implied spread for the trailing 12 months decreased to four 5% as our weighted average cost of debt over the past 12 months increase as older Securitizations have fallen away, even though our marginal cost of debt has decreased relative to the fourth quarter of 2022.
Given the impending impact of our department of energy loan guarantee with a continued extremely low capital loss rate and market signals are falling inflation and slowing growth, we anticipate that our marginal weighted average cost of debt is more likely to fall as we approach 2024.
Slide 10 reflects the strong growth we have seen in our net contracted customer value or in CCD.
At a 6% discount rate in CCD was $265 billion, an increase of 39% compared to June 32022.
Our June 32023, and <unk> at this discount rate equates to approximately $7600 per customer and $22 76 per share.
As higher fully burdened Unlevered returned assets start going into service. We expect this to be very accretive to <unk> in the second half of the year.
Slides 12 through 14 provide our 2023 guidance and liquidity forecast as well as our major metric growth plan the triple double triple.
As John noted earlier, our sustained robust growth and ongoing demand have prompted us to update our customer additions guidance once again for 2023.
There is no change to a full year 2023 adjusted EBITDA.
Or principal and interest from solar loans guidance.
As of June 30th 2023, 98% of the mid point of our total 2000 twenty-three targeted customer revenue in principal and interest we expect to go luck on solo loans was locked into existing customers as of that same day.
Due to our growth exceeding expectations were updating on liquidity forecast, which can be found on slide 13 to include a $500 million corporate capital raised by the end of this year primarily to fuel the outsized origination. We are currently experiencing and which is driving our customer count expectations for 2024 are.
Our current expectation is 85% of the potential $500 million of corporate capital expected to be raised by year end will be dead in the form of a high yield bond and 15% of the $500 million of corporate capital will be common equity.
However, this may change due to market conditions as we expect this market growth trend to continue into 2020 442025, we felt it prudent to now plan for another potential $500 million corporate capital raised in 2024 again subject to realize growth over the next year and market conditions. We.
We currently expect that raised to take advantage of the expected significant growth of Levered cash flows to the equity to support an additional bond issuance.
As a reminder, R capital strategy is to use a combination of corporate capital, which is primarily corporate debt supported by our contracted cash flows and asset level that rates of the institutional asset backed securitization market.
This structure gives us the lowest cost of capital with the least amount of risk. This is especially true over the past few quarters as the spreads between different credit attachment points and the avs market are significantly wider than those observed in the corporate debt markets.
As we are refreshing are expiring S. Three security shelf, we will also be papering, an ATM program to allow us opportunistic and low cost access to equity capital with maximum flexibility over a multi year period.
In addition to the potential to utilize the ATM on an as needed basis to fund opportunistic smaller acquisitions, including potential opportunities in Europe . We may also use the program for poor customer growth. However.
However, the program is used will be clear and transparent with the market on its potential utilization.
Over the years, we've elected to primarily retain our assets in cash flows which has benefited us in the form of default in delinquencies coming and well below market expectations.
It has also given us the ability to receive a corporate rating, allowing us to issue a corporate bond and a further issue more corporate bonds as we just mentioned.
Due to these benefits we have not sold any assets out of our securitization of practice that will only become more accretive once or doa loan guarantee as active.
As such it currently appears issuing a small portion of equity and a second corporate bond by year end is the most efficient cost of capital approach to fund or rapid growth.
Furthermore, scaling our operations plays a pivotal role in enhancing our operating leverage although we have observed increases in operating expenses over recent quarters. We anticipate the rate of increases of expenditures will reach its peak by year end result in improved operating leverage beginning in 2024 the.
The revenue and margin growth is following this spending which was and is primarily directed towards initiatives such as software development to enhance customer and dealer experience and energy services.
Investments were also made to bring our service response times from multiple weeks and in some cases months to 24 hours in most cases for at least 70% of our customer base. These investments are coming to an end as we expect to be at a desired service levels by year in.
Before turning the call back over to John I wanted to get more visibility on some of us in the CCP metric and the embedded levered cash flow profile over the next several years.
For our analysis, we expect to generate $100 million per year of Levered cash flows for the next 10 years increase you can do a $170 million per year beginning into your 11th this is inclusive of our current capital loss rate and servicing our corporate in convertible bonds, but does not include assets currently not in securitization it.
Access to re loans service revenues and other gain on sale activities or expenses we.
We expect that this will cut our existing ABS debt in half by 2031, two scheduled amortization payments and continuation of our capital loss rate.
Generate sufficient cash to the equity to allow even further pay down some dead above the scheduled payments or issue a dividend.
Expand our levered cash flow profile to follow Directionally with the rapid increase of our asset base, which is currently expected to triple by the first quarter of 2025 provide the option to monetize board cash flows to pay down debt faster and assist in bringing our debt to asset ratio back down to our targeted 55% to 60%.
Over time.
I will now turn the call back over to John .
Thanks, Rob as we celebrate our fourth IPO anniversary. This week, we reflect on the remarkable growth. Our team is achieved since becoming a public company.
Driven by our commitment to enabling energy independence, their clean affordable and reliable energy services.
Is steadfast in his pursuit of financial and operational excellence are.
Dedicated team is comprised of individuals who possess extensive knowledge of the renewable energy landscape and who share a profound passion for creating a positive impact both globally and on our bottom line.
Embracing a collective entrepreneurial mindset, we capitalize on opportunities expand to new markets and adapt swiftly to the evolving dynamics of our industry.
Our growth has been remarkably strong.
Outstripping our original expectations for.
For example are originated capital for June of 2023 compared to June of 2019, the month prior to IPO with 700% higher <unk>.
The customer growth during the same time period with 800% higher.
This month alone every 72 hours, we've been originating the same amount of value that we originated during the entire month of June of 2019.
Are critical advantage as an energy is a service leader is supported by service scale and the retention of longterm contract the cash flows sooner.
So none of us growth is propelled by multiple factors across various key areas.
In terms of geography.
We have a goal of being in all 55 U S States and territories for both residential and business markets by the end of 2024 <unk>.
Additionally, international expansion further positions us for substantial geographic risk mitigation and growth opportunities.
Is it leading energy as a service provider.
Offers a comprehensive sustainable and streamline approach to energy services for homes and businesses.
We simplify and increasingly complex and multifaceted service offering.
With our approach customers no longer need to worry about the upfront costs maintenance, our technical intricacies of how they power their homes and businesses instead, they can rely on to Nova at their trusted energy partner, gaining access to reliable affordable and sustainable energy solutions.
Sunovia adoptive home, we are pioneering innovative services that integrate solar power battery storage energy control and management technologies electric vehicle charging generators and more for the consumer this comprehensive approach not only makes clean energy more affordable, but also enhances reliability in Brazil.
<unk>, enabling us to meet the evolving needs of our customers.
By providing exceptional service and addressing our customers unique needs, we have distinguished ourselves as a leader in the market and are fostering lasting customer loyalty and sustainable revenue streams.
This customer centric approach not only fuels the growth and prosperity of our company, but also bolsters our long term cash flows by minimizing R capital loss rate and increasing our cash flow for sure.
Moreover, our ability to deliver this level of service that scale and an industry that has historically overlooked service issues further drives profitable growth that is capitalized and highly scalable.
Finally are.
<unk> financing strategy contribute significantly to our growth trajectory.
Adopting an agnostic approach to lease loan or PPA contracts, we provide diverse financing options to our customers.
Moreover, our software supported systems facilitate seamless transition between different contract types empowering our dealers to adapt swiftly to market demands and drive solar adoption throughout our market coverage.
Our growth engines are firing on all cylinders are discharging on all batteries to modernize the same with that operator. Please open the lines for questions.
Thank you.
Wonder if you'd like to ask a question you compress stung by one on your telephone keypad.
And can lead to remove your question you may <unk>, so I would like to please.
Police and show your Unmated lately when asking you a question.
Our first question for say comes from Andrew <unk> from Morgan Stanley .
<unk>. Please go ahead.
[noise] great. Thanks, so much for taking my question and congrats on another strong quarter here I just wanted to hone in on slide 13.
And just the the funding needs for 2023 and 2024, it looks like based on that slide year, roughly $700 million or so the funding hall.
Bind in 2023, and 2024 and you're outlining roughly 1 billion of corporate capital from here can you just maybe explain what the delta and that $300 million will be used towards that the prefund Europe growth. If you could just maybe talk to that and this is a quick follow up to that you guys are talking a lot about price declines hardware cost declines.
And passing laws that along to the end customer can you maybe just explain that rationale why not maybe absorb some of that yourselves in securitize more of this cashless to reduce corporate capital needs. Thanks.
Yes. This is Rob I can go ahead and sort of covered I think maybe both of those you know the the idea behind using the high yield bond to fund those those deeper credit attachment point with a much lower cost of capital as to both utilize that lower cost of capital and to unlock the.
Cash flows and let them go to the to the to the corporate just up from the trust.
If we use the deeper deeper credit attachment points not only is the cost of capital much much higher we're talking about the delta of as much as 10 points or 1000 dips.
Between what you can find in the corporate market versus what is potentially available in the ABS market at a double b or single B theoretical attachment point. So it's a much more efficient use of the cost of capital.
To use.
To use the corporate do you use the corporate bond and even a little bit of the equity that we're looking at that is two fold one it.
It helps enhance the credit value to the rating agencies.
That high yield bond and helps to maintain our credit rating.
To just like we've talked about it.
Just good hygiene for us to be able to have that there, but the biggest thing about what's the delta why why do you show 700 versus a thousand member most of that high yield bond is going to be able to fund that delta that we would otherwise do with a double b attachment point within the securitization.
But that's also feeding into 2025, so whenever we do a corporate capital rage, it's not too it's.
It is not to fill a hole for a specific year. It is to provide growth for the stub of that year and well into the next year.
Great. Thank you.
Makes sense.
Thank you.
Next question what state comes from Julian do Moonen Smith from Bank of America.
<unk> is now open that please go ahead.
Hey, guys, it's Alex.
Julian today to get as well on the secondary raised here just when we think about where the growth is coming from this year. Obviously, you know you guys not only thing it seems like a lot of <unk> your legacy segments, but also new verticals.
I'm curious if you can just sort of expand on what you're seeing it saw the breakdown of service for the first time it looks like we're seeing a lot of assess the loan limits as well just curious as far as I mean, where are you seeing growth what's driving at an outlet informing your view.
<unk> 24, and the need for additional capital to fund all of those vehicles before I guess, considering you're up on top of that.
Alex is John .
They think they are pretty strong across the board I would say with the possible exception of California and.
Running a little.
North of 20% down for us.
But the offset there is the attachment rate is zoomed much higher thing, 42% or so.
For the quarter with some of that quarter, having named 2.0. So I think most days were pushing well past, 50% to 60% attachment right to the overall capital deployed is not down as much because you deploy more value of capital poor customer.
The service businesses, while we broke it out is is just killing it there is so much demand out there. There's a lot of broken systems, everybody that just took a loan from a provider.
<unk> service and so were cleaning up a lot of messes, there's a lot of broken systems.
Systems Power's not flowing out there were assisting some of our other partners as well. So there's a lot of business out there for the scale operation you have to be really big logistics supply chain.
And the technicians.
To the Labor force plus all the software that you need to be able to operate something like this is huge and.
And definitely we're seeing is pretty nice pick up there.
In terms of et cetera <unk>.
Generators and he'd be chargers and load managers, there's a ton of demand from our existing customer base.
Which will will hit on more and more as we move into 2024 in terms of Upselling as these new products coming to market as we have time to plug those new products and the data into our overall software platform.
And we're also seeing a tremendous.
The amount of <unk>.
Growth in areas that we didn't expect for instance, new homes were very bearish on new homes going into this year that was wrong things have gone very well and and including on bookings that we will not see until 2024, the durations for new homes is quite a bit longer than the retrofit.
The.
The other growth channels are more states more geography. So this.
Powers of services is is growing and it's spreading into the middle part of the country and.
In other states in the southeast is very very strong the southwest as strong for us and if you look at two one of the top reasons why it's the movement from loan to lease and PBA. It is just we were dominating in the southern parts of the United States.
Puerto Rico is doing very well the northeast is doing well in fact is picking up steam and and even parts of the west. If you. However, you consider Arizona considered southwest, but that's done well as well. So there's a there's a lot of growth and a lot of areas business markets little bit slower than we expected, but still received some.
Growth there. So again as you said discharging and all batteries were really we're hitting stride.
At the end of the day, you've got a lot of growth it's profitable growth. We continue to raise our unlevered returns they were fully burden.
We see.
The cash flows that are coming out with our levered cash flows needs more capital mostly on the debt side some of the corporate debt side some of the asset level that side little bit maybe on the equity will see depends on what market conditions are in the corporate debt market and so forth but.
I think all in all a huge amount of growth huge ups guidance upside for this year for next year.
It's pretty much smashes anybody's expectations of growth out there and a little bit of capital that we need to go out there and raise that we didn't already have.
Forecasted so pretty darn good trade.
[noise], Yeah fair enough just wasn't follow up but it just on the surface segment, specifically noticed that the revenue stepped up quite a lot. After you guys added I think over 6000 customers.
Fourth quarter.
Sort of.
Think we should be thinking about moving forward I mean.
It's about $20 million revenue in Q Q pretty impressive.
I guess, how should we just sort of think about revenue conversion off of that mix our customers being at it. Thanks.
I think we can give you a little more detail later on but yeah, we do see that business as I said earlier growing quite strongly and I don't want to confuse that with the overall energy services is weak determinant or VP or grid service aggregation services. It goes by many different names right. We have the largest book of business in that area.
And we see just an enormous amount of opportunity there, especially with the batteries. So it really more focus on the megawatt hours under management and the megawatts megawatts kind of basically just think about it as fuel for the for the tank that is the battery so batteries more critical and key and unlocking the overall energy services and realize.
And the integration between the behind the meter in front of the meter. So we will do a little bit as we get billed that business up rapidly as we talked about we expect to have about $1 billion cumulative by the end of the decade will do a little more of an effort to break that out for you as well.
Got it I appreciate it take care of that one.
Thank you next question comes from <unk>, <unk> <unk> <unk> <unk>.
<unk>. Please go ahead.
Hey, guys. Thanks for taking my questions first one's on pricing power.
About raising prices in your remarks.
How much longer do you think you can increase prices.
Power prices peeking, what are your expectations for raising prices and 24.
It's still this John .
I do think that.
That.
Power rates are peaking with utilities.
Will point out, though that there is a growing recognition and I think.
Regulators are a little miffed, but the utilities are not lowering rates really pretty much across the board. In fact, many are going in for rate increases.
Which has a lot of people's head scratching, but really shouldn't be scratching. Your head utilities are very inefficient. They didn't raise rates as much as the fuel costs went up last year and so abide by definition they are going to flow through those and increases in costs.
Over a multiyear period so.
They didn't go up as much as as the natural gas and coal and such went went up last year, but they are not going to go down as much as natural gas and coal. So there's really I think a large misunderstanding of how the U S regulated.
How're industry actually works and so we could see some and we expect to see some marginal increases as we go into the back part of this year in the next year.
Overall, I would say that it has never occurred where you.
Have falling energy prices and rapidly rising overall inflation. This of that would be the first time in history. So I guess anything can happen, but it doesn't make any logical sense, either so that would mean that the overall inflation rate would trend off if the overall energy prices hydrocarbon prices and.
Particular state state.
Very low.
Now there is another phenomenon that could occur which is the energy spit.
Specifically oil natural gas as those inventories tighten up some more as we've seen those price exactly rise as the economy declines due to the pressures from the global Central banks and you could actually have a situation where the.
How're rates start to move up more than we think and.
Cost of capital drops due to the overall economy moving into recession. So.
In terms of what we're planning for we're not planning for any additional rate hike.
Price hikes, but we are expecting to see a lot more of the ITC adders coming and play <unk>.
Include including the domestic content in fact, we have more confidence in that even over the last 48 hours and we had before so we see the ability to continue to move up <unk> quite nicely.
Fairly burden Unlimber return and we make it a little more price increases I didn't expect to be able to do some of this next month, but it's possible that we could see some more but I would count on we'd probably have seen the peak at this point in time in the cycle.
Got it thanks, John <unk>.
Couple of follow ups here.
Why was your N C. C V flat when G. C. C V went up by $600 million is.
Or is it just the timing issue and then can you talk about the number of accessory loans direct sales in the quarter. Thanks.
Yeah I'll cover the MCC V part of that was that the GCB did go up but a couple of other things did go down you'll notice that the net inventory came down a little bit and then part of it was that the some of the timing of the tax equity.
So the tax equity is going to be used as a source of funding, but it doesn't count against the M. C. C V. It gets it gets incorporated into the G. C. C V. When it happens and then there's also the timing of how and when things go into service and what goes into service. When so we had a lot of sort of the the last of the legacy loans.
That we had originated last year go.
Go into service a lot of those had been stuck in it.
In certain parts of our queue as far as the getting actually commission. We did a really great effort that started late in the quarter of getting a lot of those getting a lot of those commission moved into the in service block.
But some of those were some of the lower food like the 10% for Uber type of asset to seize 11, and 11.5% <unk> acid start going into service, you're going to see a much bigger pick up there in.
In the MCC V and that's all contemplated in our projections and how reviewing the triple double Triple and I'll, let John handle the other one.
Fill in the accessories as price declines have been pretty significant and batteries and we can expect that to continue we're seeing a lot more consumer demand come in which shouldn't be surprising and then were lining up new products.
A lot of manufacturers around the world that have come up with new innovative products.
There is a it appears that.
There is a lot of companies, making a lot of batteries now it doesn't mean that everybody makes a great battery, but there are certainly a ton of firms in manufacturing a.
Gargantuan amount of batteries around the world.
And and then also on the solar module side and <unk> side. There is a lot more players. If you will that are pretty strong and they're also coming to play forward like load management, EV charging and so forth. So.
You should continue to see pretty rapid growth in the accessories, both in selling the existing base and then on a <unk> basis. So.
We again see that as a high growth area part of our snow of adoptive homes and have adapted business and.
I think I'll I'll think I'll just leave it at that.
Great. Thanks, guys.
Thanks.
Thank you.
Next question comes from Brian Lee of Goldman Sachs. Brian Yolanda is now open. Please go ahead.
Hey, guys. Good morning, Thanks for taking the questions.
The first one.
It was just around some of the guidance metrics I guess this is the second quarter in a row, where you guys have.
Raise the the growth targets for this year.
But you're EBITDA and and some of the other metrics are changing so I know, there's a lot of moving parts here your customer mixes changing that loans Lee service et cetera can you kind of walk us through the.
The EBIT implications of different types of customers and then I guess the simple question why.
Having 20000 more customers potentially doesn't move the needle this year on any of those metrics than a follow up.
Yeah, Brian this John .
The same as it always been we don't counter customer until they're in service and then we recognize the revenue or the P&I. If it's if it's a loan customer over over several years 25 years, mostly right. So it's pretty simple.
Closer you get to the end of the of the calendar year by definition and get very little revenue out of that customer that you you added to the guidance, but you will pick up the full amount of that.
Annual revenue or P&I in the in the next year and that's what we expect and we will sit out very clearly in the script. So.
Nothing nothing more than it has been for years, it's the same dynamic.
In terms of.
Some of the other pieces of revenue gain on sale that we've.
Planned in there and we upfront during the year said in.
In about the mid 20th 24% or so.
That's gonna be Lumpier, we laid out very clearly was the ITC sales, we have either term sheets or and deepen negotiations on it.
At least three transactions to not more than.
That will get us if we did all of those plus maybe some others may be one or more other that would probably give us all the way through I think next year, even on ITC sales.
Lone sales and not as attractive to us because of hestia.
And so we're getting very close there by the way getting that getting that to where we can start using it.
Nothing's done complete to be very clear about it but.
We're getting very close and so that switched our gears a little bit to moving towards the ITC sales and more gain on sale and this can be heavily weighted to third and fourth quarter by definition because of the treasury guidance again was that in the script. The last one I would say in the inventory sales look we've been talking about a.
Yeah, everybody was running around screaming Allen about supply chain problems and all this last year and there's like Hey look it's about to really change and boy will be right. We're more right than we thought and we started destocking and telling her in the fourth quarter. We told our dealers early in the first quarter start really <unk>.
Ensure you're selling a lot and don't carry as much inventory, we dramatically took our inventory carriage for ourselves and multiple months to to two weeks and I would say, it's even maybe less than that now and we basically just hit the brakes and they flew right by the rest of the market and that caused a hick.
Up here in the in the second quarter, but will pick it right back up our growth is obviously blowing the doors off particularly look at the storage attachment rate and we sell a lot of the equipment. There. So we can pick it up fairly easily and the third and fourth quarter.
Sorry about the second quarter, we did hit the adjusted EBITDA plus P&I to be laid out the beginning of the year 30 per cent in the first half. So we said what we do we hit that I know a lot of people had a little bit higher, but we'll pick that up in the third third and fourth quarter.
And you'll get just one more thing to add I mean keep in mind.
There's just one more quick thing to keep in mind that as we are increasing both the customers and for this year and the customers for next year, there's a creation of those customers and that is creating a slightly higher <unk>.
Sales Opex sales G&A and that is counterbalancing some of the pickup that we are in fact getting from the higher customer count. This year. So we are picking up something as John sang a part of that is being countered by the fact that we're also doing so well in the customer growth and yet there is a burden that's the fully burn.
<unk> part of that Unlevered return, but that's generally felt upfront and that's counterbalancing slightly and.
And so that's why we're not really move in the metrics.
Okay I I appreciate you, bringing that up Rob I I think that's kind of the second question I had because one of the things that seems to be weighing on investor sentiment. As you know you guys are clearly outperforming on growth and <unk> flawlessly on that front, but when we look at.
Liquidity walk in the capital raised four cats and you run through some of the numbers. It seems like especially if you look at slide 13, you've got 60 per cent customer growth in 23 40 per cent target and 24.
But the cash walk on slide 13 is much more negative.
Next year, even in this year on the slightly slower growth. Although 40 per cent is quite robust. So is this a function of the business getting more expensive to fund.
Both just bringing in less clash slowly.
Customers less attractive in this environment than they were the last couple of years I think there's a question as to how much are you having to to fund here to to keep this growth rate going as part of the investor sort of debate if you will.
Yeah Yeah.
Yeah, It's John .
Yes, most of that cash usage, there and next year on the corporate.
Capital side is what Rob answered earlier at these get anything else to add to.
For answering the operating leverage question.
Can add to it but basically that capital is going into fund.
Pieces of the securitization and just as we laid out in our long-term capital strategy. So that you shouldn't look at that as bomb.
And in fact, if you look at operating leverage we continued to actually improve the amount of burden. If you look on a per customer bases. So.
So far this year pretty rapidly compared to history.
When you look at an adjusted EBITDA basis, though it doesn't look that way one what I would say is is that we've been preparing as Rob just mentioned.
A ton of growth opportunities, we've been funding those specifically on the software side of things for these different businesses, but also setting up these different businesses like service for instance, and then taking service where you had a service level that was out weeks or months and taking that down to 24 hours, we're not going to have the maytag repairman sitting around waiting for a customer to have.
A problem. So we're not going to have a burn issue there with the with the service business, but you are going to have a one time.
Expenditure to get that service, where it should be in our opinion, which is industry, leading at that 24 hours and then you won't pay that again, so it's a way of thinking about us to catch up.
But we are very fixated as the script said.
On operating leverage I get it I see the the the investment.
The spending and it will the operating <unk> will improve as you go into 2024 that will happen, where now reaping the benefits of these investments that shareholders. A blouse to made we will get that money back and then some.
This will <unk>.
There are growth and no we're not burning a bunch of cash or anything else and the customers that we have today are actually better return customers and we've had over the last couple of years or so so these customers are more profitable and then when you look at the storage attachment and what we can do an energy services lights out more profitable. So this is a very.
Increasingly more lucrative business that I think most people think about putting some panels on a roof net meter to argue about whether your financial with alone or at least those days are over we're moving into the power industry I'll add one more thing, which is just a bit of a timing issue with loans you can as long as you have a critical mass of loans you can just packets those up and put.
The mountain two of securitization and certainly we see some a lot of promise that has to be we may be putting a little too much gray sky on our estimates of what the Hell.
Securitization stack is going to look like but.
We did we want to be a little bit conservative there as we look into 2024, but with you look at it at a lease or PPA securitization. Those are a lot lumpy or you have to get all your tax equity funds closed because of a lot more movement into.
The Leafs in the P. P a effects a little bit of the timing of when we do the full securitization, which we expect to be a slight pickup and our ability to use that as well.
So some of that is just the timing of the difference between the warehouse dead and the securitization that but it's the minimum I mean, that's that's maybe 10% of it just the timing there and then when we talk about that is.
That's the piece of the working capital is supposed to be funding.
Great I appreciate all the details guys. Thanks.
Thank you next.
Question comes from Joseph Osha from gig and Hunt partners.
Joseph Yolanda open. Please go ahead.
Oh. Thanks, Good morning, I have two questions. The first kind of following up on what Brian was just discussing.
You talked about and your <unk> your prepared remarks, you 100 million a year of.
Levered cash flow I'm trying to understand what that means is it your assertion that following.
This next two years corporate capital raises that you'll have a business that can generate 100 million of.
Net cash flow or you're going to 170 or what exactly does that mean in the context of this of these corporate capital raises. Thank you and then I have a follow up.
Hey, Joe John Yeah. So what we're trying to do is get more visibility, which I think you and others have asked for in the NCB So think about.
The way we looked at it was what's the profile of NCB.
So if you have the cash inflows of the company. They are under contract which are not the gain on sale. So this does not include the gain on sale businesses that we've talked about service the inventory the.
The other <unk>.
New home sales and so forth does not include the gain on sale and that's really important.
When you look at the profile that NCB basically after you service all your debt regenerating today on the existing base was about five $5 billion it cost about $100 million.
Of cash a year and then that moves up in the year 11 and beyond to about 170, that's all due to the tax equity flips and the way that some of the <unk> work and.
Some of the way the loans and such and so there are some ins and outs there, but basically that is where we sit today, so where are we going.
We're going to triple the capital base by the Q1 hundred 25, we've got about $1.8 billion ready to securitize in our backlog right now so it's all in service throwing cash.
Is not included in that and that 100 million number by the way and we have about another $2 billion under construction.
So we're well on our way to moving towards that 15 to 16 $5 billion of assets at cost and so when we look at where we are going to be by then you would say that you'd probably triple that I mean, there are some ins and outs, but looking at towards a 300 million dollar a year free cash coming out to to fund the expenses.
So you look at how do you fund the expense of the service and then the burden of the growth is picked up in the securitization with the corporate.
That funding it so that that growth burden is paid for.
He didn't want to after we moved to that 300 ish level and by 25, we Wanna Delever down to 50, 560% as we've talked about our long term leverage ratio, mainly using the gain on sale businesses and cash generation from those businesses versus selling assets that becomes a.
A bit of a spiral downwards in cash flow. If you will we can pay down some more that that way, which will further <unk>.
Increase the leopard cash flows obviously and then if we slow growth at any point in time, whether it's the market or us we need less cash for the working capital. So that's some of that corporate capital will probably about 30% of of working capital corporate capital comes back upwards and then from there we looked at it and we will look to see if we pay a dividend.
So this is this is cold hard cash coming out of of on a per year basis today.
So not to put too fine a point on it that are you telling us that after 2024, you're done raising corporate capital <unk>.
Is that what I'm hearing.
No I'm not going to make that commitment because I didn't see this kind of growth.
And especially when we went public if you'd have told me would have been done this even though as the entrepreneur the founder I would've said, that's crazy and here we are.
So look there is a big world out there and we're changing the entire global energy business, not just station or a bit transportation. So we will do what makes sense, but if there is a way to.
To not to.
To increase the leverage of the company or to not to ability to pay down debt, we're going to do it for sure, but I'm not going to close this off because I have no idea how big this company can end up being it's certainly massive now and it's going to get a lot bigger.
I can just add one thing to that real quick is that.
The goal is to have the best cost of capital for our assets and right now corporate capital is providing us a better cost of capital than the deeper parts of the ABS stack. If we can get back to how things were at the beginning of 2021 with a spread between the double a and the <unk> and the.
Double B was less than 100 bps will go all the way back to that market that is perfect right. There that's not where the market is today.
[noise] pardon me so what we want to make sure that we do is to finance our growth and the most capital efficient way possible, regardless of how we are going to label it.
Okay. Thank you and then just quickly my follow up and unless I Miss something Alright, I don't think I've heard anything about the <unk> credit wrap around facility I'm. Just wondering if you can update us on how how 'bout Goin' and where we might see that turn up in some of your securitization activity. Thanks.
Yeah, I, just mentioned that to Brian actually, but I think fair to say, Rob very very close.
We are we are.
Imminently and going to be entering into the 30 day review process.
With the theater departmental review process and then we expect to close concurrent with the issuance of the first hestia securitization sometime shortly thereafter so it's.
We are pretty much looking forward to it yeah.
Alright, alright. Thanks.
Thanks, Sir.
Thank you next question comes from <unk> from those followed by your.
The lines not lengthen. Please go ahead.
Thanks. Good morning, good morning, maybe on the on the AD or as you mentioned you have the most confidence on the domestic content at or can you maybe elaborate on it I guess when you expect to book that benefit I would imagine that it's it's a few years away, but do you see any near term opportunities.
Yeah, we actually had the most confidence in the energy communities at her and so we see that.
Working on getting that added into.
Our tax equity funds now.
And then we had confidence around one particular manufacturer.
Particular piece of equipment that.
We feel pretty good about as well have been very conservative and our estimates there's definitely some more upside as I alluded to and we're going to be working with our tax equity investors to add those and now as well so we see that now.
Got it and then maybe if I could follow up on your California comments, you mentioned down around 20%.
I guess, where do you see that tracking over the balance of the year and into 24. When when do you think you could see originations in California under under <unk> turned positive again.
And then I think he gave and attach rate in California, but it was kind of a blended in them too and then three.
Specifically for them three customers do you have a sense of what the attach right looks like currently.
Yeah.
In terms of by the way, our California quarter over quarter. It sorry, a year over year, there's actually a little bit higher we grew it but we.
We have I would I would give these questions about California over to my competitors they seem to be heavily invested there and so I think there are a better litmus test for the market quite candidly than us.
As I mentioned earlier, we are going to stick to our guns with the best service in providing these at.
Actually hold on backup or partial home backup when the power goes out because of wildfires and such we want to make sure those customers when they have a battery they have the power.
If you have solar batteries or in your house he comment windows utility. It goes down yet again, you kind of expect the power to be there we know that from our experience. So we're going to stick to that.
And if that means less.
<unk> sales well heck, we don't we're already crushing on growth anyway, So I don't really need that.
Just going to do the right thing for the customers.
And making sure they've got what they think they got.
In terms of the attachment right for us as I mentioned it was about 40 low 40% for the entire quarter Q too and we see most days or around the 50, 60% attachment right on the storage side of things so.
Quite strong and again decent market for us but.
Nothing that were waded into as compared to other side I kept more of the detailed questions back over to to those firms.
Got it thank you.
Thank you next.
Next question comes from <unk> of J P Morgan Monkey.
Caroline is now open. Please go ahead.
Yeah. Good morning. Thank you very much for taking my questions kind of sticking with the state specific questions here. So understand what you said earlier about kind of Texas and Florida.
Knowing significantly year over year, just looking at the the appendix, though they they did decline quarter over quarter I'm just curious what your your guidance for the rest of the year implies for for those two states in particular I I totally get your your increasing your guidance. So it's being off that in other areas.
Maybe but just kind of more color on what you're saying in those two mortgages.
Yeah, Mark this John this goes down to the road the Hell's paid with good intentions right breaking all these states out and keep getting questions like this.
Just a reminder that those are in service customers and so those customers were originated two to three quarters ago.
So when we talk about origination you're not going to see that flow through and the numbers for another.
Probably another quarter.
Maybe two quarters.
It's that much of a lag so.
I think the straight answer to your question there.
Okay, Okay fair enough.
I wanted to follow up on the inventory sales as well I mean, just just given.
Given what is seemingly easier to to import panels now you mentioned the cough deflation an across the value chain.
How we should think about inventory sales going going forward to the extent that it is now I would think easier for your dealer partners to get that inventory themselves.
We're just we're bulk purchasing we're using our purchasing power to get a better deal and.
Ultimately ends up we buy everything anyways right loan lease or PPA. So it's it's a part of what we.
A service, where we work with our with our dealers on and storage as in particular, very and the and the load management side is it particularly strategic important asset as it relates to the energy services side. So look the I think the revenues will certainly falls the equipment prices continues to fall, but we're.
We're selling a lot more so I think overall, we're still pretty pretty confident in that in that line of business.
And we don't make that much money on it but.
Certainly is worth doing for the amount of making a few million dollars on that but again, we manage the working capital that was more important than the inventory, making sure reading it stuck with $1 billion or more of inventory like referred a lot of folks out there and have a big breakdown and so.
I think we've managed that.
Okay I'll take the rest off line came from.
Thanks.
And keep our next question comes from Steve Fleischman of Wolf Research.
Your line is now open. Please go ahead.
Yeah. Thanks, good morning.
G U.
You mentioned, you're going to be filing an ATM shell.
<unk> I think soon so just I know the 15%.
Equity I guess for this year of the $500 million that'd be about.
About $75 million, but I assume you might want to have more flexibility than that so just what should we expect the size of that to be.
Steve This John .
We are going to be very clear and transparent.
No one else gives this kind of liquidity forecasts and sources of uses of cash measured in years by the way than us I think nobody discloses it at all and so what we're trying to do is be open transparent.
Let the market no what we're seeing even even two years ahead, which has a lot to ask for it and given the pace of growth is industry is you know.
And we will update accordingly with that said this is what we see now we see the match your math is obviously correct, it's $75 million.
Do we need to do this now we're going to do this now probably not.
He said by the end of the year will do the bond and we might do the equity if the bond comes in better maybe we don't do the equity.
I don't see that we do a lot more equity.
In terms of the $500 million.
But if we were to use the ATM for more than what we said on this car about 15% to 75 will let you know we're not saying, we're saying that this is a tool we're not say anything more than $75 million I wouldn't jump to the conclusion that some portion of the $500 million. We've laid out next year's equity we actually.
Think it's going to be born given the tripling of the asset base and delivered cash flows. So we will be very clear I think we've we've earned that and saying when things change like a lot more growth we've laid out where that what we think is going to happen and at the time and so I would not assume anything above the 75.
Five whether we use the ATM or we do.
Do it in a single overnight.
Okay. That's.
Yeah I wonder if the question just add in terms of Great Britain.
I agree with that yeah.
Yeah.
Okay and then just.
The just strategically.
You're really ramping up growth and customer growth in geography.
<unk> kind of accelerating that.
Just.
Makes a lotta sense from the standpoint of opportunity, but it's also a relatively.
More expensive cost of capital environment and it's been.
Just strategically.
Strategically do you just see this is like now's the time.
The opportunities there, we got to grab it and get ahead of people.
And that's that's why we're doing this or just maybe a little more thought process on.
You know.
Balancing acceleration of growth versus.
Just the cost of capital and getting the organization ramped up and all those things.
Yeah, certainly what I would say is is that you look at the return profile capital has gotten more expensive.
Some would say a lot more expensive I think I would agree with that.
But also if you look at the fully burden on level of returns that we've laid out and what we're saying we've been able to raise prices because utilities, but jacked up prices and.
Or keeping them, they're not moving a little bit higher overall, and then we have the ITC out.
So we have the I R, a which seems like everybody's kind of forgotten unless I guess the last few weeks, but it's here.
Now starting to show itself. So we see the returns there to to grow the business and we kept all our cash flows again going back to that $100 million a year levered cashless nobody else has that so.
So we prepared for this.
Is it a deliberate strategy to grow through a downturn to what I see as a recession, yes. It is.
It has been it is if you look at others are going to have to pull back on their platform investment their software investments and so forth. We are not we moved ahead and we're putting.
A lot more software in a place to to fire off these different growth.
Engines, if you will or batteries as I said to modernize the sank with that said everything I said earlier to answer a question about operating leverage increase in us we invested the money I want to see the money plus come back.
<unk> for next year.
His stance. So we've made up a lot of investment I see a slowdown in that spending.
In terms of the right.
In some cases like service technicians, and so forth need to keep up with the the growth of the business, particularly as a service only business is really booming but.
In terms of more and more heads on the software development side, we don't see it so again operating Leverages and focus we've made the investments now I want to I want to read the returns.
Alright, thank you.
Thank you.
The next question comes from my <unk> from Raymond James.
It's now open. Please go ahead.
Thanks for taking the question can we get an update on the commercial initiative I think it's now what about an ear in.
What's the status.
<unk> this John .
It's doing it's doing okay. I think this year will be about what we expected in terms of a small investment.
South of $4 million or so in a net burn.
And then moving to into profitability next year, probably more likely in the queue for this year timeframe.
So I think it's.
Largely on track of I would like to add a little bit more of a deal closure in the second quarter here.
But.
We feel pretty good about where the pipeline stands for Q3 Q for again, it's not a needle mover necessarily but it certainly is a growth area and certainly helpful and will be more so as you move into 2024 and beyond.
Question might Europe , you last quarter talked about having some initial dialogue with prospective partners in Germany.
Or is the kind of evolution of the European market <unk>.
Looking better worse or about as expected given wide.
We've seen.
A lot of cooling off and kind of natural gas prices et cetera.
Yeah from my perspective, it looks better I need something that's more stable not going to the moon and when you're looking at particularly for different acquisition opportunities, we need to find something that makes financial sense and we're not going to do a done deal I think we've proven that before is that we're very disciplined on the acquisition.
Side, so we see a number of potential partners out there.
Nothing is too large because there is for.
For what we do is a service provider.
There is a pretty big hole.
When you look at the overall market in a regulatory structure.
It does differ.
Bit by by country of course, but overall, it's more progressive more capitalistic believe it or not then the U S market and what I mean by that is the integration of behind the meter in front of the meter and providing a single electric.
Electricity Bill to a customer.
With all of the solar and the batteries EEV charging the load management and the grid power together you can do that in a lot of those markets. That's very very interesting it looks a lot like the ozzy's. The Australians there as you as you I know you know they are far have everybody in the U S is really behind on that and let's let's hope that we can.
Get some regulatory overhaul and get those consumers freed up and be able to choose their provider.
We hit it.
Thanks.
Thank you Uhm next question comes <unk> ethical shown your lines now <unk>. Please go ahead.
Hey, guys. Thanks, So in terms of the the growth that you saw obviously, it's it's a little higher than send somebody up here. So I was wondering how much of that is sort of if you'd measured this way sort of organic growth off of the existing dealer based on how much would you attribute disorders new dealers.
And over the last few quarters sort of like.
<unk> original.
[noise] Yeah sure on this John I would say a large part of the new dealers as of now.
Some of our bigger dealers have been.
Up years, but nothing really huge and nothing like what we're seeing here on this kind of growth. So it's largely for new dealers.
With that said I know a couple of the big deal.
Big dealers really have a lot of plans up forward growth.
As they move forward over the next 12 months or so so that probably be more felt in 24 quite candidly because we're going to the peak of the of the selling season of the entire year right now as you as you are aware of.
So I would say that probably balances out more to the growth of the existing base as we move into 24, but.
The interest by contractors, and then coming a dealer has been.
Pretty pretty massive I was about to say significant but it's massive and it continues to be so who knows and as we pick up more verticals training generator contractors to be able to install solar and storage et cetera, that's a big area for us as well as some home security H back and such so there is a <unk>.
Lot going on in terms of bringing new dealers up to speed and getting them to where they can make more money.
And becoming a partner so I think it will largely right now, it's new dealers, but we see some growth expectations of some of the big ones, but we still see a lot of huge demand for new dealers.
Coming in and providing that more growth. So it may continue to be wedded to the new dealers.
Great. Thanks, John that's it for me.
Thank you.
Thank you next question comes from Kashi Harrison bypass Angela.
It's not like please go ahead.
Good morning, gentlemen, and thanks for taking the questions.
So first one for me John you're looking at roughly 200, K customers next year, which as you mentioned as well above expectations.
Can you help us think through how many customers may be tied to more of the core solar or corcell storage business versus the accessory offerings and then and then maybe a follow up question for Rob just what's the financing project financing strategy for some of these accessory offerings how do.
The Unlevered returns <unk>.
Compared to the core stoller and sort the storage business.
It is John I'll answer the first one.
So I think it's pretty.
Interesting that you made reference to the core solar plus storage business.
Remember when that was a hot debate not too long ago about that will that ever even work and it certainly is not 100% attachment right or anything close to it right for the country. So we got a long ways to go there.
So all of its assessors is the way to look at it. The answer is I don't know and the only thing I really care about is I wanted to sell more storage.
And that gives us the ability to have the optionality. So I'm more focused on megawatt hours then the megawatts of capacity and I also wanted to see the demand management. So that gives me a lot more capability and the energy services side as well. So we got the market looking at the wrong things. It's all history megawatts this and that that's fine thats fuel.
But at the end of the day I just care about selling power service the best power service of the customers what makes that up.
At the end of the day I can value the physical optionality like in the case of storage and demand side management, but.
I don't really care.
But we will certainly.
As we move forward with the budget for next year try to give some a little bit more guidance if that's desired.
I'll try to answer what is actually very complicated question as simply as possible, which you said when you take a look at these customers a lot of customers or service only customers that we're bringing yeah and we don't have to finance those customers at all so their return is significant but if you'll notice when we did our disclosure we sort of did this change in <unk>.
Service only customers this time, because some of those services only customers come in and it's it's you know we have them for maybe 18 months, because we're putting on service and giving them a workmanship warranty and then others are in fact converting into lease or PPA or loan customers because of dissatisfaction with the service they are actually becoming much more.
Bigger snover customers and those have very high return. So we didn't really have to acquire those customers. We didn't pay the acquisition costs there as far as how we're going to be financing some of the loans and what are the returns that we're looking for on the loans would have to do with accessories very similar to how we're using.
Pardon me to how we're using the loans for.
The solar plus storage customers.
And if you take a look out there in the market some of our competitors. They actually package all those loans up together into a single securitization. So while we don't expect to see those loans fallen to the Hestia program necessarily we would certainly expect to see those fall into a regular way securitization program.
Uhm that's helpful. Thank thanks for the responses and then just my my second question I wanted to revisit maybe maybe an earlier question I'm the Q&A session.
John you talked about the 330 basis points for an improvement that you're seeing for lower equipment cause.
You know given that your growth has already significantly above market at current pricing I'm just I'm just wondering.
What the strategic rationale behind passing on passing the savings onto the customer versus just keeping it to yourself until you see some sort of impact to growth relative to others.
Yeah, I think it's a.
Look there's a moment in time here as I said, we hit the brakes and the market flew right by.
We have we have a competitive advantage, we don't have a ton of inventory at a really high cost and.
And so we're going to make a web sunshine's, where everybody else is in trouble.
And I think it makes perfect strategic sense, if our dealers want to take some of that and help offset some of the price increases that we have done and continue to do.
That works for us if they want to pass, which we expect and that's what we're saying the majority over to the customers to try to get this.
Demand drop that everybody is running around screaming about in this industry. The Sky's falling then then that makes a lotta sense to us. So at the end of the day I'm going to keep our pricing and our <unk> our cost of capital plus our cats are gain on sale businesses the service et cetera.
We're keeping our pricing nice our margins are good.
Look we're not going to be as they say it takes get fat hog get slaughtered and so we need to share some of the benefits that's going on with the both the customer and our valued dealers.
Thank you.
Thank you next.
Next question comes from our Davis Sunderland of Bad Davis is not open to please go ahead.
A good morning, guys. Thanks to squeeze me in here at the end.
Quick one for me just circling back to the I R. A and looking at the second half EBITDA guidance.
Any of the <unk> baked into this and if not maybe is there any upside that we could see from them materializing and then any other commentary on seeing these materialized to returns over time would be helpful. Thank you.
Yeah, so for the Irag guidance.
To the extent that we have some of those adders in the ITC sales, maybe you can see some of it materialize there, but we expect most of it to materialize and are fully burden unlevered return and I think that really sort of captures both.
Both the questions that that really is where we expect to see it happen.
And because Johns just talked about the following equipment pricing is giving both the dealer on the customer plan to chew on right now.
That's helpful. Thank goodness.
Thank you.
Next question comes from <unk> from Nelson capital market.
It's now open. Please go ahead.
Yeah, Hi, Thanks for choosing me in here.
If I look at the average kilowatt big why our customer that has been falling since last three quarters. Like you know so I was just trying to get any color that you can provide them wide that should not vehicles. So.
Yeah, a lot of that comes from the fact that we're just dividing it by the total number of customers a lot of those customers have accessory loans, where they may just be getting a battery right, they're new customers to us they're just getting a battery maybe they are getting some of the other solar related.
Similar related phonetically if you go back to even the first calls that we did you know here.
We are four years anniversary from our from our IPO, but if you go back to our very first conference calls that we did right. After the IPO, we were talking about the fact that megawatts deployed as a very false metric in the age when you're trying to understand what the battery.
Battery of storage attachment right and how do you apply that.
Our offerings continue to expand main panel upgrades EV.
EV Chargers.
Things like that generators, those do not get measured and megawatt hours and decided megawatts on the roof. So it really is just a testament to the expansion of what's happening with with our entire customer base at the same time I can tell you that.
There are different dynamics coming always where we see folks with smaller homes wanting to get full systems.
And adding a battery and that increases the amount of solar that they put on the roof and and us moving in the newer markets, especially at higher latitudes. Those are actually larger systems with more megawatts on the road. So to US. It's really a question of what is a fully burden on leather returned one of the returns that we're going to get for the dollars deployed.
And what's the net returns we're going to get after our current cost of capital.
I would add ons page slide 28.
You can see the long term trend in the solar deployed in the solar those customers that have the solar deployed has been moving up.
It's all listed out there.
I think I don't think anybody else does that by the way.
Alright.
Same thing.
One last thing if I can follow up when.
When you talk about preventing them off to the right off wallets inquiries should speak by the Red. So I'm just trying to see here like you see you are increasing joke with residents and whatnot internationally.
Simply that base is growing and so the rate has ready to repeat that or something.
<unk> change operation that would contain <unk>. Please.
Well I expect it you you can spend the money as long as you bring that money plus.
I'm in.
The door right and so what I'm, saying is is that I expect to see that and if.
We will see that when you look at for instance, the business markets business markets are going to make money.
They don't make money they all know when we're not doing anymore, but I expected.
Very optimistic about where we stand service only makes money today and.
And it's going to make a lot more money and so as we build a business up we're going to generate more of the of the.
EBITDA.
EBITDA negative it doesn't it doesn't last very long hair.
Alright. Thank you thanks guys.
Okay.
Thank you.
Next question comes from like Chris Chris Southern of being wrong Securities Press. Your lines now. Please go ahead.
Hey, guys I appreciate all the color on the corporate capital moving pieces in the growth driving that can you can you just maybe provide is there a base of growth we should assume beyond next year, where we would or wouldn't need any small corporate capital assuming that you're seeing on the stubs. So don't change here.
And we laid out and I think we went way out there right in terms of 40%. The good news is because of our very conservative.
Customer accounting methodology.
Which I would.
I think everybody ought to publish their definitions of what the customer count is that they use.
So where we use in service right I think everybody else uses installation so what that gives us as a at least a two quarter visibility. So we're booking into 24 right now with our sales which burned by the way pretty strong as we move into the end of July really strong.
So we felt very comfortable given the trajectory.
Of giving a 40%.
In terms of anything beyond that I don't think we would feel comfort nor is anybody else getting even going to venture out to say what they are going to grow out at the end of the year. So I think we've gone above and beyond we plan for 40%. That's what we laid out in the corporate capital if it moves slightly upwards or downwards will continue to update you as we always have been doing.
<unk> or at least the last couple of years.
So in the quarterly update that's why that slides there that's why that's why it will stay there.
Okay I appreciate that and then.
The junk dealers is pretty significant and it seems like that and strong.
Growth within county dealer.
Is also driving the growth here.
Give that kind of regional customer edition breakdown and now they're 17 different things can territory's in there, but the other group.
It is up pretty significantly do more than 20 per cent of the total <unk> can you give any color on within that other group there.
Other states.
Not to be flip but.
I'm not going to have I got so much disclosure and pages here I made.
I think it is it a lot.
Too much frankly, so I think this is enough to build off and at the end of the day I love a customer whether they come from Puerto Rico, They come from Texas.
But I.
I don't really care what state. It is now may start to care more it will start to care more with the energy services, we want more densification and such at that helps us there but outside of that this this number by state thing is is frankly, just down for a <unk> for you all I don't really care what state customers' lives in.
Got it okay. Thanks.
Thank you next question comes from that be too <unk> Goodbye.
It's not open. Please go ahead.
Good morning, Thank for US This man.
Just a couple of quick questions are obviously.
<unk> new deal alright disciplines have picked up quite a bit. This here can you just give us some details on what the or have the dealer acquisition costs have offended.
Is it easier to add dealers and the correct.
Current environment.
Yes is the answer.
It's a lot easier.
The ability to go from lease PPA and loan and then all the other products that go with it storage only.
And we are we have the best product set in the entire industry by far there is no one even close to us. So that's that's that's obviously very compelling and then the service that we provide across the.
Whether it's alone laser PBA I was visiting with the homebuilder CEO just a couple of days ago.
That's compelling nobody else offers that so we've got a fantastic product separate never happy we're always going to introduce some new products and keep ahead of the marketplace. We've got we've got a couple of others. One in particular, new products will be launching here in the next few days were pretty excited about.
There is there's a lot of reason to sign up as a <unk> of a dealer and joining the family so to speak and.
I wouldn't say to.
The account managers at work very very hard.
And so I don't want to take anything away from them. They have to go out there and make it make the effort and then some and then they got a Karen and take care of the dealers and they do a great job.
With that with all of that qualified.
I would say that it's the inbounds are pretty heavy and continue to be so we're taking orders on dealers as far as like who who we can bring on board.
It's a nice position to begin I know it doesn't last forever, but it's a great position to be in and there's a lot of contractors out there that are in different areas like generators HVAC as I mentioned earlier home security and so forth that want to come in and start selling the folson of adaptive home and and we'd love to talk with them.
So.
Can you comment on like the acquisition costs. If you look at maybe in a solar.
Dealers.
It's pretty low it's.
It is very low.
We don't we don't spend a lot of money to acquire a dealer.
Okay got it thank you.
Thank you final question for state comes from like Karina blend of Deutsche Bank.
It's now open. Please go ahead.
And the main Guy then thank you for taking my question.
Yeah, but I know.
Nine Q you put <unk> on outside of the U as business owner.
Could you give anytime tomorrow he didn't say anything she can maybe on timeline.
<unk> <unk> <unk> <unk>.
<unk> someone did knock anything for the 24 25 number and you should have any idea how much calling to complain to the business.
Great. This John .
No, we're not going to give any more I try to give as much visibility and I've learned that over the last four years being the CEO public company I think.
More visibility when you can get it you got to remind the rules rate is always best and so what we're doing is saying hey, we're going to do this we're going to do this we're going to be methodical about it.
Talked about looking at potential acquisition, so forth, we talked about moving ahead very.
Carefully.
So at this point in time, I'm, just communicating and saying Hey, This is where we're going we're not going to spend a lot of money and and the 2004 count growth that we laid out does not include Europe .
And I think we just leave it there.
Alright, Thank you <unk>.
Thank you. Thank you we have no further questions for Tonight. So I went back to Joan Becker for any further remarks.
This industry has changed rapidly.
For a variety of macro and micro reasons.
Not all apparently similar companies <unk>.
Have the same business models I think we all see that now.
We are moving from simple panels on a roof.
With a nimbed construct to selling integrated distributed and centralized power service.
From a product sale to a service sale.
We are not a finance company, we are not an installer. We are an energy is a service company.
And we are focused on delivering the best energy services to customers around the world. Thank you for joining us.
Thank you for joining size cool you may now disconnect your lines.
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