Q2 2023 Sunrun Inc Earnings Call

Good afternoon, and welcome to someone's second quarter 2023 earnings conference call. All participants have been placed on mute. Please note. This call is being recorded and that one hour has been allocated for the call, including the Q&A session to join the Q&A session. After our prepared remarks. Please press star one at any time.

We ask participants to limit themselves to one question and one follow up question.

I'll now turn the call over to Patrick Jobin Someone's Senior Vice President of Investor Relations. Please go ahead.

Thank you Kevin before we begin please note that certain remarks, we will make on this 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.

Our results to differ from projections made in any forward looking statements. Please also note. 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 and Danny a badge in Sunrun CFO .

Paul Dixon Sunrun as Chief revenue Officer is also on the call for a Q&A session.

The presentation is available on Sunrise Investor Relations website, along with supplemental materials and the audio replay of today's call along with a copy of today's prepared remarks, and transcript, including Q&A will be posted to Sunrise Investor Relations website. Shortly after the call and now let me turn the call over to Mary. Thank you Patrick.

The team delivered a strong quarter, our disciplined margin focused growth strategy continues to position the company well for long term success and generating cash.

This quarter, we beat by a large margin our volume guidance for solar energy capacity installed, but more importantly, we are rapidly accelerating storage adoption growing our lead as Americas clean energy company, one that delivers a superior value proposition to customers and creates multiple value streams for our shareholders.

We installed more than 100 megawatt hours of storage capacity in Q2 growing 35% compared to the prior year and we now have more than 900 megawatt hours of storage capacity installed across the country. We are accelerating our pace our storage offerings provide customers.

Hence to value and generates significantly higher margins for sunrun today, while providing a foundation for considerable monetization in the years to come.

Our strong attachment rate was nearly 18% of our installations across the country in the second quarter and we expect this percentage to continue to increase rapidly.

In the second quarter, we grew our customer base to nearly 870000 customers, which represents 6.2 gigawatts of installed solar capacity. We added approximately 40000 customers. This quarter 7000 with storage with an improving net subscriber value of over 12000.

Resulting in total value generated of nearly 400 million.

A rapidly accelerating storage attachment rate because that is a powerful opportunity to grow our clean energy generation business by providing at scale power plant capabilities across America. This quarter, we again set the all time industry record for installed solar energy capacity this scale combined with.

A rapidly increasing storage attachment rate presents a powerful utility scale generation solution.

We grew net earning assets by over $400 million and increased our total cash position by $78 million compared to the first quarter.

These strong financial and operating results are possible because of our experienced committed team who is executing on our disciplined margin focused growth strategy.

Okay, turning to the topic I know, it's on everyone's mind, California.

Most important news is that we are smashing our expectations for increasing the adoption of higher margin storage offerings in California and nationally.

In California, we have increased our battery attachment rate are both backup batteries and our shift product to over 80%.

All of our battery products store solar energy, when it's generated and dispatch it when it's most valuable over a third of our newly sold battery system. It's also performed home backup a doubling since the start of the year. The remaining two thirds of new battery customers represent our shift product in California, which offers a strong value.

Proposition for our savings focused customers, let me be perfectly clear.

Storage products battery backup and shift provides superior value just starting on that it's only been solar only customers. Good prior to the California policy transition.

Nationally, we are seeing storage attachment rates for new sales in excess of 30%.

Our leading position in providing a backup storage offering to customers generate superior and expanding margins and market share gain opportunity.

This higher mix of storage sale flows through to installations over the next two quarters. We expect strong increases in net subscriber values and total value generated that will offset offset impacts from lower near term, California volume.

Training sales representatives to sell under the new policy construct has taken time, we are seeing significant increases in sales recently as sales representatives become proficient explaining the new product opportunities and selling a bundle with up to 80% higher customer value than before because of this learning process and.

We are rapidly increasing our mix of storage, which takes longer to permit an install Q3 is a transition period. We are still growing at a strong pace Q3 installations will still be up year over year with a more profitable mix and our outlook for the second half is growing 9% year over year in volume with even higher.

Growth in value generated I am confident we will look back at this moment as another proof point of how we strengthen our market position by remaining customer focused disciplined and methodical when the broader market is faced with a challenge.

With California's market massively Underpenetrated, we expect sales will accelerate further as our teams continue to optimize how they sell our offerings in the new environment and demand continues to build following the dramatic pull forward. We saw earlier in the year, leading up to the transition.

Despite slower than anticipated sales in May sales in June and July ramped at strong month over month rates in our direct business. We are down about a third compared to last year in July with our direct business performing significantly better and are seeing strong week over week improvements exiting the month.

As consumers adjust to the new regulatory environment and understand the value proposition that we are able to offer I am confident this trend will continue and we are on track for strong year over year growth in California.

California gets lots of attention it's important to note the benefits of running a diversified business, which operates in many markets sales activities outside of California had been robust growing by 25% in Q2 compared to the prior year and this growth rate has been maintained through June and July .

The bottom line is demand remains robust outside of California, California is improving and we are offsetting the near term volume dip in California, with a mix of much higher margin offerings, our growth and value creation story is on track.

Shifting to an update on our other strategic priorities. Our goal is to meet customers, where they are on their clean energy independence journey and provide solutions to improve their lives. Our strategy is to integrate the best and most differentiated offerings available and as appropriate either develop these offerings alongside our partners are building.

Capabilities to fulfill them directly in house.

So it runs leading work to aggregate residential batteries inform valuable distributed power plants continues to advance.

Our exclusive partnership with P journey called peak power of rewards is the largest residential distributed power plant of its kind in the United States.

Over the last quarter, we grew that program further by adding a thousand customers. We now have 8500 customers participating with up to 34 megawatts available for dispatch starting yesterday are participating fleet of home batteries has been supporting the grid by dispatching during critical peak times.

The value of enrolling in the program both for our customers and for so long is compelling both on a per customer basis, and as a meaningful source of additional recurring revenue.

As part of their enrollment in this program customers receive $750, which is entirely found money and additional and meaningful value above their initial expectations when subscribing with sunrun.

Together with our customers N. P journey, we are proving the value of our rapidly growing fleet of dispatch will energy assets.

As previously announced we secured an exclusive contract with Puerto Rico's utility company proper to deliver 17 megawatts of Baseload daily Daily cycling power separately working through the policy and regulatory process over the last five years, we have helped develop a rapid emergency.

Our response program that will be the first of its kind in the U S providing localized power when blackouts, our impending sunrun stands ready to provide our distributed power plant services from thousands of customer rooftops as soon as the program is finalized in the coming months.

These programs are still important expanding the value proposition for customers and providing incremental recurring revenue streams to sunrun, which are largely not reflected in our metrics today.

Our growing experience with grid services increases our conviction that we can realize $2000 or more in per customer NPV from these assets and the need for these programs will only increase as the grid ages and climatic events further strained its capabilities.

Of our nearly 870000 customers.

65000 have batteries today, representing 7% of our fleet, we expect to launch storage offerings for the remaining 93% of our customers in 2024 with a retrofit offering while simultaneously increasing our attachment rate of batteries for new customers.

We also plan to launch a storage only offering to meet the demand from customers looking for resiliency, but whose home might not be ideal for solar many look at sunrun as a solar company, but we are now in a unique position to build a massive nimble controllable energy generation company that can also provide air.

Energy storage advanced energy control technologies.

<unk> panels from span EV charging and enable mobile backup storage from electric vehicles, such as our partnership with Ford or.

Our dedicated experienced sales teams to provide a strategic advantage for sunrun to lead in commercializing these opportunities.

Lunar energy the vendor we invested in alongside SK group unveil details of their first product engine. We are so excited to work with lunar as a key partner to accelerate home electrification. We expect the lunar initial storage offering to be available in the coming quarters and their advanced grid services platform is a key differentiator.

Shatter for us as we built massive distributed energy plants across America.

Nothing Iraq, the independent solar racking technology company, we own also continues to innovate with leading solutions, including fast the Rex to deck mounting options for rooftop solar system called top speed, it's not been Rex products are so broadly to the industry and leveraged by our teams as they dramatically.

If we increase installation efficiency.

We are focused on maximizing value for our shareholders by delivering strong margins, which will support meaningful cash generation.

Margins are expected to expand significantly in the coming quarters from pricing product mix and go to market decisions. Our continued focus on operating efficiency and tailwind from ITC adders hardware cost improvements and a general easing of inflationary pressures.

We continue to make meaningful advances in our operational efficiency metrics.

Rowing installation volumes, while maintaining or reducing staffing levels throughout the organization. While there are numerous initiatives underway. A few noteworthy ones include our national rollout of our ship to job site delivery of equipment, which enables job site reporting for our installation crews we are seeing strong improvements in labor.

For efficiency employee satisfaction and safety metrics from this process change. We also recently made a meaningful investment in our artificial intelligence, it's too early to quantify potential benefits, but we believe it presents a unique opportunity to drive increased cost efficiency reduce cycle times.

An improved customer experience.

As an example of our efforts to prioritize margins and balanced growth. We recently optimized our strategy to encourage stronger uptake of storage across the country. We also reduced our direct operations footprint in Arizona shifting to an affiliate partner led go to market approach, we are committed to driving meaningful.

Cash generation in this business, we are targeting annual run rate recurring cash generation of $200 million to $500 million or higher in future quarters. As further margin improvements are realized Danny will expand upon this in his section.

That's the only one we are focused on managing both margins and volumes to maximize cash generation as the ultimate and most clear value. We can create for our shareholders importantly, we underwrite our new original originations with a hurdle rate in excess of current capital cost.

One is operated through a variety of cycles over a 16 year history and has proven time and again to be the prudent operator that can drive sustainable value generating growth.

Last but certainly not least I want to celebrate our teams across the country in the field and offices, who are helping accelerate this customer led revolution in energy and practicing our strong culture of doing it safely and efficiently.

I am so thank you for the contributions from each and every Sun runner, who is helping drive this transformation this quarter I would like to recognize outstanding performance from our Las Vegas branch, which are which is our top ranking team in the country as measured by our safety productivity and customer satisfaction metrics.

Chris I also want to recognize our entire team for driving a world class net promoter score of 68 at the time of install comparable to the top brands in the country. I also want to thank our California sales teams, who have continued to outperform our peers drive a higher margin mix, while providing a great <unk>.

Customer experience crushing it on all of these operating fundamentals of our business is critical to driving long term value. We are proud of your contributions and your leadership at Sunrun.

That let me turn the call over to Danny for our financial update.

Thank you married 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 to the results for the quarter on slide 10.

In the second quarter customer additions were approximately 39800, including approximately 32400 subscriber additions.

Our subscription mix represented 83% of our deployments in the period, a meaningful increase from 78% last quarter and the highest level in two years.

Our recent sales activities and the forthcoming benefits from the tax credit hours in the inflation reduction Act, which are only available to the solar subscription models indicate the mix of customer additions is likely to continue to shift more towards subscribers in the quarters ahead.

Solar energy capacity installed was approximately 297 megawatts in the second quarter of 2023 are greater than 20% increase from the same quarter last year and significantly exceeding our guidance of 270 to 290 megawatts.

Our installation teams executed well in the quarter.

And our affiliates partner channel outperformed significantly in Q2 as the strength of our subscription model captured increased share among dealers in the industry.

We have now installed over 65000 solar and storage systems, we expect storage installations will grow rapidly in the quarters ahead and attachment rates will increase meaningfully as our recent sales are well in excess of 30% nationally for reasons Mary mentioned earlier on the call.

Our backup battery offerings carry higher margins typically by several thousand dollars per customer. We also expect our shift offering to achieve margins that are higher than prior solar only margins received in California under any of them too.

We ended Q2 with approximately 869000 customers and 725000 subscribers representing six two gigawatts of networks. So network's solar energy capacity, an increase of 21% year over year.

Our subscribers generate significant recurring revenue with most under 20 or 25 year contracts for the clean energy we provide at the end of Q2, our annual recurring revenue or <unk> stood at over $1 1 billion up 20 over 25% over the same period last year, we had an average contract life remaining of nearly 18.

Years.

Turning to slide 12 in Q2 with subscriber value was approximately 44700 and creation costs. It was approximately 32004 hundred delivering a net subscriber value of $12321 in line with our guidance of a sequential increase to the 12000 dollar figure in Q1.

Our Q2 subscriber value and that's net subscriber value both continue to assume a 30% investment tax credits and thus exclude any margin upside associated with the tax credit hours.

Although the ITC adder for energy communities will apply retroactively to January one 2023, we again did not reflect this value in our net subscriber value for Q2, as we work through the implementation with our systems and complete all necessary steps with our capital providers, but expect to begin doing so in Q3.

Million dollars in the second quarter.

Represented almost doubling compared to the prior year, even without adjusting for the less favorable discount rate use this year.

Our present value based metrics are presented using a 6% discount rate, which we last updated from 5% to 6% last quarter as.

As a reminder, we generally prefer not to update the discount rate frequently to enable ease of comparison across periods. Instead, we provide advanced rate ranges that reflect current interest rates, enabling investors to calculate the obtainable net cash unit margins on our deployments.

In addition to providing this heuristic this quarter for direct clarity, we have added a pro forma net subscriber value using the capital cost observed for the quarter and.

And Q2 hour average capital cost was approximately 7.25%, which on a pro forma basis result in net subscriber value of $8104 and that's total value generated of $262 million, which is up 31% compared to Q2 of last year, which was present.

Again, using a 5% discount rate.

As Mary mentioned, our financial underwriting already takes into account a cost of capital well in excess of 6%.

Turning now to gross and net earning assets and our balance sheet on slide 13.

Grocery being assets were 12.6 billion at the end of the second quarter gross hurting assets is the measure of cash flows we expect to receive from subscribers overtime net of operating and maintenance costs distributions to tax equity partners and partnership flip structures and distributions to project equity financing partners all discounted at a six per.

<unk> on leveraged capital cost net earning assets were over 4.4 billion at the end of the second quarter net earning assets is gross earning assets plus cash less all that <unk>.

Net earning assets increased by over $400 million this quarter, driven by strong net subscriber values and more favorable working capital dynamics compared to the prior period as we reduced inventory.

The value creation upside from future grit services opportunities and selling additional high value electrification products and services to our long term customer base are not reflected in these metrics as we've shared before we irregularly enter into interest rate swaps to hedge capital costs on our newly installed customers we are principally exposed.

The interest rate fluctuations between customer origination through shortly after installation.

Around the time of installation our systems are financed with project level nonrecourse that nearly all of this financing is insulated from near term interest rate fluctuations as our that is either fixed coupon long dated securities or floating rate loans that have been hedged with interest rate swaps.

As such we do not adjust the discount rate used in net earning assets to match current capital costs for new installations.

We ended the quarter with $921 million in total cash an increase of $78 million compared to the prior quarter.

Turning briefly to our capital markets activities and outlook on slide 16.

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 330 megawatts of projects for subscribers beyond what was deployed through the second quarter.

Following transactions after the quarter closed southern has $400 million, an unused commitments available and it's $1.8 billion nonrecourse senior revolving warehouse alone to fund approximately 150 megawatts of projects for subscribers fifth strong capital runway allows us to be selective and timing are capital markets.

Activity.

Given the increase scale of our business, we plan to upsize and extend our nonrecourse warehouse alone in the coming few quarters as we have done several times before.

We're also actively evaluating various options to expand routes to efficiently monetize tax credits, including the substantial amount of tax credit adders, we expect by leveraging the new tax credit transferability provisions from the inflation reduction Act.

We currently see project level of capital costs at approximately 7.25%, which is a weighted average of our nonrecourse senior and subordinated debt.

Our cost of capital indications are informed by both realized terms on our transactions as well as observable market data such as longer term treasury yields as a proxy for our base rate and credit spreads across numerous transactions completed by us and our peers, but.

The deep relationships, we have cultivated with many capital providers in multiple markets our recognition as a high quality sponsor and the strong performance trends of our customers affords us access to attractively priced capital.

Demonstrating this access last week, we closed the portfolio term out involving a private senior securitization and a subordinated loan.

Together with these financings year to date, we have closed almost $2 billion in project level of capital commitments.

Turning now to our outlook on slide 17.

We continue to guide 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 <unk>.

Last quarter, we noted we might be around the high end of this range, but we now feel comfortable reiterating this range as we plan for a persistently higher interest rate environment.

Our decision to exit certain lower margin markets increased install cycle times from growth in storage attachment rates and a slower than expected recovery in California. We continue to believe the market is very underpenetrated and can sustain long term growth rates of 15% in.

<unk> strong long term demand backdrop, our priority is to generate cash by continuing to increase customer values through growing storage adoption, among higher value products and services and growing our scale inefficiency further.

In Q3, we expect solar energy capacity installed to be in a range of 255 and 275 megawatts. This will decrease from the second quarter's level. This decrease from the second quarter's level reflects the decline in California order volumes, and Q2, which will impact installs in Q3.

Our success in achieving substantially higher storage attachment rates on our sales nationally also results in longer install cycle times, which creates near term lags to the right of installation completions at storage attach rates migrate upward.

We expect net subscriber values to be materially higher in the second half of the year compared to the first half driven in large part by the much higher net subscriber values for backup battery systems factoring into our mix, particularly in queue for when we expect to see the strongest net subscriber value of the year.

We anticipate including the energy community ITC adders, starting in Q3.

While we expected domestic content in low income outers are most likely to benefit of starting in 2024.

Although their benefit could materialize sooner.

Setting these games will be less favorable fixed cost absorption in Q3, resulting from lower volume and potential near term headwinds in our equipment distribution business.

Recent interest rate increases inflationary pressures and working capital needs to have prevented us from generating meaningful cash.

We responded to headwinds decisively with higher pricing and operating efficiency improvements.

Since the start of 2022, the increases in cost of capital reduced realizable proceeds by greater than $1 billion, and we faced higher input costs and a dynamic supply chain environment, which resulted in a higher inventory balance.

Given our actions we are now targeting annual run rate recurring cash generation of $200 million to $500 million or higher and future quarters as further margin improvements are realized.

As we have described in the past because we finance our growth using tax equity in non recourse project that we measured cash generation as the change in our cash balance excluding any changes to our parents level that equity and equity like financings as we highlight on slide 15.

Project finance timing can be lumpy cash generation can also be lumpy quarter to quarter, we expect to provide more details details on cash generation, including more specific guidance on timing in the quarters in the coming quarters, but want to be clear that this is the financial outcome, we plan to deliver with that let me turn it back to.

Mary.

Thanks, Danny I am so appreciative of our hard working team who's incredible passion for the work, we do and commitment to our purpose help deliver another strong quarter resolve our team is laser focused on accelerating the strong momentum embracing this massive shift and extending our lead as America's clean energy company driving.

Continued efficiencies across the business and generating more value for our shareholders are partners and our customers operator, let's open a line for questions.

Certainly we would all be conducting your question and answer session. As a reminder, please ask one question and one follow up if you like to be placed in the question queue. Please press star one at this time.

Like to remove yourself from the queue. Please press star two one moment. Please while we pull for questions. Our first question is coming from James West Evercore ISI your lines in my life.

Hey, good afternoon does.

Hi.

Hey, Mary and congratulations on the the message pick up in a battery attachments right. So very impressed with it.

Two questions around that.

First on the what you said earlier around <unk> that the <unk> the batteries come into the Hunter margins little offsetting some lower.

Volumes is it just an all set or is actually more than all setting, though somewhat temporary lower bulletins.

Yeah, I mean again like we are as I said, so thrilled as well with it the work of our team and the appetite of our customers I mean, the reality is our customers want storage and where the company to deliver it. So we're really excited by that and we're excited about the momentum we see going forward and yes, they produce much.

Higher value.

You know every customer because in essence were selling to vary significantly priced products now instead of one every customer is worth a lot more you know, but you know make no mistake you know again, we see that the momentum is building on the sales side and we expect to see you know again hit our our.

Our target for the year hit our target range.

Okay got it and then on grid services, which looks.

It looks like a huge huge opportunity for you guys. How do you see the evolution you want just one is that accurate to how do you see the evolution of that put you know and I know you have P. G. N E. Working with you know do you think of other utilities will be working with you soon.

Yeah 100 per cent I think as I've described before you know principally as a former utility C. E O for so long Yeah. Let me we just we're building a significant scale.

Powerplant capabilities all across America at the exact same time as your seeing James where the grid is actually showing real stress and strain under you know increase cheat different climatic events. So yes, we absolutely expect to continue to see an uptick it's Y you know again as I as I mentioned, where.

You know, we're looking at sort of a minimum of 2000 N.

N T V per customer from Madrid services perspective, but seeing a lot more potential as we look to the future.

Okay got it.

Thank you next question today is coming from Brian Lee from Goldman Sachs from <unk>.

Hey, everyone. Good afternoon. Thanks for taking the questions. Maybe first one just follow up on on James's question about the the high battery attach right in the margin accretion potentially I think in the past you all have talked about you know.

Maybe a couple of thousand dollars of incremental subscriber value for a battery plus some of the customer as.

As opposed to just a silver or only I'm not sure if that math still holds true, but can you maybe give us a sense of of what the incremental subscriber value accretion is and then maybe the different between backup battery customer versus a shift battery customer and then I.

To follow up.

Yeah, Hey, Brian This is Danny speaking it yeah, it could be a few thousand dollars per customer.

As we blend to the mix. So we said on the call greater than 30 per cent back up and that's not just in California, That's a national event, that's occurring so as we.

Get that through our pipeline and deliver it to install and as we've noted like battery installations do take a little white longer so over the coming couple of quarters, we could see a few thousand dollars per customer magnitude of pick up.

Is what we're planning for.

Okay, that's great and obviously that would feed into that substantially higher subscribed rebellions, you're sort of uhm Guy D. Two here in the second half fair enough second question I had was around this you know the 200 to 500 million dollar run rate annual recurring cash generation you know it it's a fairly wide ray.

<unk> I know, it's lumpy as you said, but can you maybe just.

Give us a sense of you know, what's driving that wide range, how it impacts your financing strategy if at all and I just feel like we've seen this metric introduced in the past, but it's been tougher to get a sense of how consistent and and maybe even the practical implications of what this metric is gonna mean for you going forward and I know in the past.

S. A recent past it it's gone.

Kind of in a negative direction. So just trying to get a sense for how how you're thinking about this implications wise as well as how consistently you think you can maintain.

Cash generation go for it thank you.

Yeah. Thank you for the question you know I I would start by saying strategically.

Strategically that is the target that's what we're driving towards that's where we're working towards and and part of the commentary. We did also highlight the interest rate increases in some of the events of the last year that took us off that path frankly, and it wasn't just the magnitude of the interest rate increases but it.

The speed with which it happened and then a coupling that with the dramatic rise we had an inventory balance managing to supply chain. Those were prohibitive to cast Jen, although we have been increasing pricing and margins and cost efficiency in the business that sounds we charged out.

You know our future.

Kind of where we are now and some of the assumptions, we'll make on volume.

Backup battery mix ITC Adders, you know the general environment around cost of capital, where again as Mary said and I reiterated we do plan to business now for our current cost of capital. So we have recuperated the effective interest rate increases and is that.

Has kind of maintained and arrange we look at that and a few other factors that'd be like what's happening in the external environment on equipment cost and as we put all that together from a micro level $200 million to $500 million becomes the target in from a macro level as we think about kind of the overall.

Alright, I appreciate the call and I'll pass it all thank you.

Thank you next question today is coming from Julie Smith for Bank of America or your line was in my life.

Good morning, good afternoon.

<unk> 90 down here Uhm, let's following up on that last question on the two to 500 billion range you're of a castle required to me can you talk a little bit more specifically about how lumpy that could be I I know you've explained in the remarks here that you're not reflecting anything better than the 30 per cent tax credit transferability.

Monetization remains influx, but how much of a step function change, who we see next year as messy content, and especially attached with a higher Katherine <unk> really starts to impact number.

<unk> over the next few quarters is this really just waiting to get that clarity on the tax when it does it does.

Does that sound okay.

Yeah. So I I think you know I highlighted some of the factors like backup battery mix, we observe in our sales and that's a matter of putting that through a timing model and seeing the ramp on installed. So that is not I would say in the basket of things that would cause the lumpiness I T theaters are.

Obviously, as we mentioned energy communities are about to be up and running kind of formally in the system. If you will and we'll talk more about that uhm as we get that starting to get realized in the in the margins and then low income domestic content. Those will stage then over time we.

You think low income will be a single event.

And domestic content, what faith in overtime, and we do have a little bit of uncertainty on the exact timing, but as we get more and more of that clarity wheelchairs.

Yep. The Lumpiness comment is more around the fact that we do have several turn out events into the capital markets a year as we scale up deals you'll have them ready with fully installed pools of assets and turn the amount of the capital markets.

And sometimes you might have a transaction that could be November December or January .

And you might get the cash event hitting in a in a slightly different periods. So you know that's not a quarterly target that's an annualized target. That's why we're speaking on an annual number but I think the point was more to remind folks that you know we should look at it over many quarters as opposed to any one individual <unk>.

Right certainly sounds like it will filter up over the next <unk> in particular, just the digging and what are the silos here, let me think about the delta between inventory number you provided.

<unk> current market prices of equipment and <unk>.

<unk> and what he said Delta when you think about it like especially when you get to that point would you recognize the current market price it.

Yeah, So I'll I'll hit that one again, the and we have we have detailed the guidance on that timing I would say using an <unk>. An example system more directionally, but you could see him again on flight 11, the decrease happened over the <unk>.

Balance of the year, and it's probably more heavily noticed and president in Q1 and that just recycle elevated inventory levels. We are giving you know those numbers as reflecting current purchasing activity in the business. So we have line of sight to the achievement that we show in Q1.

<unk> with equipment prices get getting substantially lower that just because we record the equipment costs on the install.

And there's a time lag with the elevated inventory levels. So it's a couple of quarters to see that come through.

Got it seven and a quarter why that number.

It's you know math we.

We we look at our longer term capital costs are driven by seven year base rate right. We I look at that several times a day more than I should and then you know credit credit spreads are you know a function of the market like we're not observing the you know the data points everyday but they're.

Several deals in the residential solar market up.

Very big scale that get done I think there was a loan transaction that price today that had a spread compression of over 50 basis points from its last transaction silver, reflecting all of these things as we you know getting constantly evaluate the you know the capital markets environment.

Excellent. Thank you congrats again.

Thanks.

Alright can next question today is coming from Andrew <unk> from Morgan Stanley . Your line is my life.

Great. Thanks, so much for the time just wanted to say at circle in on the net subscriber value got into the back half of the year is there any way you can provide some kind of book ends in terms of how we should be thinking about it looking back to this time last year, you did see a pretty noticeable uptick in three Q should we think about order of magnitude relatively similar to.

What was seen in three Q of 2022, and and maybe slightly differently. How should we think about gross in total value generated in the back half of the year when you come on it with your your customer growth. Thanks.

Yeah, I mean, you know what you're saying is you know as we described you know a really different like customer profile moving forward. So we are we are selling too much higher margin customer. So a big part of how we see value creation is in the context of the product mix that we're <unk>.

Selling and that increasing storage attachment rate and again you know what we're seeing from from just a sales perspective final perspective, you know, we're feeling really strong about the whole you know the second half of the year and consistent with our guidance Danny do you want to hit them more specific.

Question on Yeah, how happy to give you a little bit of bridging here, which I think is helpful. In the context of the value creation per subscriber going up but also the discount rate changing in that period of time. So if you look at Q2 2022 is the number you referenced that's 79 7910 per customer.

And as we talked about if we had just R. P V. Six metric two a P V seven and a quarter, we get to 8100, which is a couple of hundred dollars higher year over year. Despite interest rates are increasing significantly over that period of time and then if you look at the the total value of January .

<unk> and you do the same compare and you you know you take the the current periods total total value generated and adjusted for discount rate and compare that year over year that number is up 31%. So you know substantial pick up your over a year and then as far.

The outlook again reiterate you know the potential here with the battery attached lift as a few thousand dollars per customer and then well.

As we get more clarity on the <unk> and other things will will talk more about that as well.

Got it that's that's helpful and maybe you just want to follow up question on the virtual Powerplant opportunity. So you've made some interesting announcements over the last few days in this space and I'm just curious of the 900 megawatt hours or so of batteries that you have on the field what percentage of that is already included in virtual powerplant.

Agreements.

It does sound like you have a decent amount of retrofitting storage gross going forward, which is obviously an opportunity in itself, but just curious about the untapped potential in your existing customer base.

Oh, the uncapped potentially significant you know and again you know one of the things that it's been a really strong value proposition that someone has been strong in the space of you know grade services and figuring out how to leverage these assets from a great perspective for many years and we're really starting to see the <unk>.

Oration, all of that and really and seen the acceleration of the appreciation of what these distributed power plants can do from a great perspective. So you know really right now it says it's a relatively small percentage in terms of the total available megawatt hours we have.

You know control of and that's one of the things that is so exciting when we think about the potential ahead. It's it's a huge part of why we also are really looking forward to launching retrofits for our existing customer base. We already have a significant list of customers that have let us know that they want to be you know.

They didn't want it storage device and then we also we're gonna be doing storage only solutions for customers as well.

Got it Super helpful. Thanks, so much.

Thank you next question is coming from Joseph Osha from Guggenheim Partners. Your line is not alive.

Thank you and Hello every one of two completely unrelated questions that the the first.

Can I read into your comments that you're boring extraordinary circumstances, you are not gonna be raising <unk> to fund growth has that kind of what I'm hearing is the decor, where did this commitment to generate cash.

Yeah, that's what you're hearing.

Great very unequivocal, thank you and the second question related to lunar.

Just so that I understand is it the case that we send some installations you can use the <unk> to drive a panel strength uhm I'm trying to understand what exactly that product is.

Paul do you want to speak to <unk> you know of course, so we're really excited about the lunar product the install efficiencies appearing being burger with the battery create a lot of opportunity to speed up our installations and actually deploy full battery backup and more consumer situations. So we're excited to be operational efficiency as well as the ability to.

<unk> more situations.

But that just to clarify or is it is it the case that I can use that in Burger to drive us a string of panels, if if I want to.

Yes.

Okay. Thank you very much.

Of course.

Thank you next question today is coming from Kashi Harrison from Piper Sandwich of your lines in my life.

Good afternoon, and thank you for taking the question.

So first one for me you know there was there was a very helpful color around equipment cost and I wanted a brought to the discussion through customer acquisition crossing California.

You know you've indicated sales are down maybe a third year over year and swollen or installers, you know you're up for me smaller installers posed to them and so I'm wondering if this creates an opportunity for the industry and run to maybe solve for improved economics by reducing customer acquisition costs, just given the where we are cycle and we're not mix are in California.

Or is about maybe not necessarily possible because there's still enough you know alternative opportunities for sales team. So it's ago Commission dollars comes out.

Yeah, No I think we continue to see people recognizing the value of selling it sunrun, we've seen a six five and a half six per cent decrease in <unk> over the last six quarter. So sequentially conoco swollen every quarter of the <unk> trailing six quarters.

Aren't enough subscriber value is increasing so you're seeing that kind of translation take place actively uhm, historically, and we forecast that taken place going forward as well.

Thank you and then and then maybe just for my for my follow up just up and apologize if I'm missing the initial prepared commentary, but just looking at the guidance I think it implies a pretty big sequential uptick at the mid point to maybe just over 310 Meg of.

[noise] lost by the fourth quarter.

Can you maybe walk us through what drives the confidence and that's a question <unk> <unk>.

Wonderful improvement and perhaps how much of the outlook is currently the risk by signed agreements.

Yeah, so outside of California, we've been seen twenty-five percent growth year over year installs activity and so we're seeing really strong growth outside of California speaking, specifically inside California, we saw a strong <unk> growth quarter over quarter throughout the period and entering into the water weeks of.

The end of the quarter and the first few days of this quarter Racine would categorize as explosive sells activity from our teams there bolstering our confidence in the number.

Thank you.

That your next question today is coming from calling rush from Oppenheimer. Your line is not alive.

Oh. Thanks, so much guys you know within the sales process can you talk a little bit about the trends on the conversion right. So you're getting in front in terms of lead to convert it into actual sales and then also on system size, particularly in California as you transition 3.0.

Yeah. So a lot of competitors inside California are downsizing systems, because they don't have a ship solutions. So the way to preserve customer savings given the time of use rate situation is through size down on systems are portfolio is not experienced that as we were deploying nearly a little in excess of 80%.

<unk> suddenly we want to continue and are very focused on and driving up conversions and customer experience the constant focus for us.

Thanks, So much and then as you look at monetizing the the virtual powerplant at and and those assets you know I guess.

It's still relatively Nathan can you talk a little bit about the pricing dynamics and the the potential to increase the functionality of the portfolio and monetize those assets at a higher level on a go forward basis.

Well as we said you know right now we look at it as you know a value of $2000 and P V per customer with the opportunity to just throw that going forward to your point. So you know again anything that's that's new takes time in the <unk>.

Energy generation space, and you know I I feel very heartened by the fact that you know have you know one of the largest utilities in America partnering on a substantive project that is very high profile. It is leading to many other conversation. So again, we see it as is now.

Thing, but continued upside you know not just for Sunrun and our shareholders, but for customers. You know again back to that California program that I talked about with P. G and E. You know customers, who went ahead and went with us for solar and storage for all sorts of financial and resiliency reasons, you know <unk>.

<unk> basically a few months access to their storage you know they have $750 a found money, which you know dramatically impact the value proposition in the way customers see it. So again I see this is really a strong growing opportunity for sunrun and our customers and our shareholders.

Alright, thanks, so much for us.

Thank you next question is from Christian Richardson from Scotiabank per lines in my life.

Hey, good afternoon, maybe just kind of curious.

You talked about prioritizing some markets and the strength, you're singing direct channel business and obviously, the longterm strategy to grow the direct channel business.

If you could touch on on the partner channel and just kind of what you're seeing there you know what we've heard from big box retailers et cetera, and foot traffic just maybe curious on outside the direct channel.

Yeah. So we had to do some really strong performance from our affiliate partners as we call them and our business. This last quarter, we continue to see strong demand to get onto our platform, but have one hell of a kind of a strategy around biasing towards scale versus driving towards the <unk>.

The smaller long tell players we have a really heavy focus on customer experience as well as installation quality and so while demand remains in I would say with this transition of the <unk> growing demand growing demand for viewers to join our platform holding those standards kind of throttles that volume and as soon as we are able to maintain.

<unk> installation quality customer experience that we require.

Helpful. Thank you <unk> just on the the 2000 and P. D. On the battery side I mean should we think of that is is this is a high level number that incorporate some of the cost savings you're seeing in the hypothetical example, you gave or should we think that there could be upside to the 2000 over.

Over some medium term period of time.

And are you are you referring to the the grid services number or was it the backup attach.

Backup attach sorry.

Yeah. So yeah on the on the back up it's <unk>.

I I think it's a weighted impact of a few thousand dollars per customer as we get the attach right up overall in the business, but if you are actually walking one system from solar I'll need a backup it could be a little more meaningful than that.

Yeah, it's helpful.

Thanks, you guys.

Thank you.

Thank you next question is coming from <unk> from Roth I'm Kim Your line is in my life.

Everyone. Thanks for taking my questions once.

I want to explore the guidance cadence a bit more so over the past five years. Your Q3 installations are typically up on average 18% quarter.

But your garden Q3, installs to be down 11 per cent quarter over quarter.

And then for Q4 historically over the past five years, Kansas.

Or.

But then the plot Super installs are now up 18% I know you've talked about a little bit already but was wondering if you could talk bigger picture about that cadence no what's driving the week or two three god on a historical basis and celebration for 246.

Yeah, just to be clear for Q3, we're gonna be up year over year is what we're guiding too and up year over year for the for the entire you're obviously as well that said I think we hit pretty clearly like what we're seeing is that we had this you know dip and it happened at the.

The same time that were selling much higher value multiple product system to customers. So that also impact sort of the installation in cycle time timing. So that's why I hit V. C Q3 is solid, but really a transition quarter as <unk>.

Giving into again multiple products for a very strong percentage of our overall customers.

Great. Thanks Mary.

Then just shifting over to 2024 and California. So I I know you don't have gone it's out and you won't have gone and since I'm not asking for guidance.

But.

Lupin in California here.

Our work suggests you guys are doing really well and.

California with nine three originations.

You guys talked about today.

And.

We have a sense that maybe you guys can breaky you asked me flat your growth on originations.

Maybe in Q3 or maybe in Q4.

I was wondering if you could talk through that at all a little bit and then to the degree that you know you are a flat year over year on that grows right you know.

Three and four of last year.

Long periods.

That is a leading indicator for what 2024 could be for you guys. So I was wondering.

You know we currently have this 10 to 15 per cent growth for this year.

For next year do you think there's an opportunity for you guys to celebrate.

2024, or or do you think this 10 to 15 per cent.

Growth pace feels like the right level. Thanks.

Yeah, So as long as I mentioned I mean, you know when we look at California, We look at what's happening outside California, you know again, I think we hit that pretty hard we're seeing really significant growth outside California, and we're seeing falling in California, we're seeing it uptick in we see that California's actually massively underpass.

Penetrated, particularly when you think about the opportunity to again bring multiple products to California customer. So you know again, we guided were rock solid on our 10 to 15 per cent guide that we gave for this year and we don't see any reason to believe that you know again consumer.

Interest is is very active for what we're selling and we continue to see you know again tremendous opportunity in California, and the rest of the country looking forward.

Great. Thanks Mary.

Mmm.

Thank you next question is coming from Jordan Levy from true of security to a line does not live.

Oh.

<unk>.

Okay.

Pardon me Jordan I can assure you would you mind raising your volume speaking into a microphone.

Can you can you hear me.

Yes.

Thanks.

Just wanted to get your thoughts you pointed out the affiliates journal is kind of a <unk> for install and you also mentioned the changes you've made in Arizona just wanted to get your updated thoughts.

Further opportunities there to lean more heavily on the affiliate total until the <unk>.

Yeah, I think we see a lot of opportunities for the affiliate business, We've got phenomenal partners that create and generate 25% to 30% of our business and I was I stayed really receive strong demand for partners to join our platform and are constantly working on.

Adding partners to that platform, who meet our criteria around customer experience and installation quality, but it's a piece of our business that we have.

<unk> held and are very excited about continuing to focus on and grow.

And was that kind of one of the key drivers behind the sequential decrease in a sales and marketing per customer.

Yeah. So in our affiliate business that sells cost is recognized outside of cats and as far as the installation cost, but neutralized without kind of a one time event, which caused this deeper decline this quarter as previously reference we've seen six sequential quarters of cat over Netflix over subscriber value of declining.

Thanks, so much for taking my questions.

Thank you.

Thank you next question is coming from a Miss Becker from BMO capital markets per line is in my life.

Hi, Thanks for speaking in just coming back to the $200 million to $500 million cash generation, you know appreciating that it'll come in and kind of different times and forms and fashion, but.

All of that cash gonna be available to you kind of unencumbered or will they'll be kind of cash traps associated with that et cetera.

Yeah, we we view that as the kind of the non-restricted amount of cash. So we do have a growing restricted balances we reserve in our project finance deals.

But we weren't thinking about that cash really the non-restricted as you called it the unencumbered amount.

Okay, and then just real quick you guys have mentioned a couple of times about other states and regions that it's kind of accelerated in terms is kind of your sales through is there I was wondering if you could kind of share which states had kind of been <unk>, most impactful a relative to prior periods.

Thank you.

Yeah, sorry can you repeat that question that you're asking which states that we're seeing strong <unk> or future, yes states that were not offer it again.

Which states are you seeing strong growth in now.

Yeah, so outside of California, we've seen that 25 per cent blended growth or northeastern states, our weeding out pulling those averages up so we have really robust activities in in Massachusetts in Illinois, specifically.

Thank you.

Thank you that.

That concludes the time, we have allocated for Q&A you may now disconnect. We do thank you for your participation today.

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