Q3 2023 Sunnova Energy International Inc Earnings Call

Okay.

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Hello, everyone and thank you for standing by.

Synovus third quarter 2023 earnings conference calls will be beginning in just 10 minutes time, we thank you for your patience and we will begin shortly.

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Good morning, and welcome to know the third quarter of 2023 earnings Conference call. Today's call is being recorded and we have allocated an hour for prepared remarks and question and answer.

At this time I would like to turn the conference over to Rodney Mcmahan, Vice President Investor Relations at so neither thank you. Please go ahead. Thank you operator before we begin. Please note during today's call. We will make forward looking statements that are subject to various risks and uncertainties that are described in our slide presentation press release and our 2022.

Form 10-K, please see those documents for additional information regarding those factors that may affect any forward looking statement.

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 reconciliation and cautionary disclosure.

Operator: Hello everyone and thank you for standing by. Sunova's third quarter, 2023 earnings conference call, we are beginning in just two minutes time. We thank you for your patience and we will begin shortly.

On the call today are John Berger, 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.

Another remains resilient despite the challenging market dynamic marked by higher interest rates and concerns about overall residential solar growth.

Our commitment to develop a sustainable profitable platform.

Predicting never for long term fixed out.

The significant macroeconomic challenges as evidenced by increases to our fully burdened unlevered return as we continue to add new customers.

Through our adaptive energy platform, we continue to provide our customers with a better energy service at a better price.

And bearing system performance and optimize power generation that economics.

Steady robust demand broadly we at energy services offerings, coupled with our dealer network and our increasing market share had been instrumental in exceeding the performance.

It's focused on liquidity profitability and cash flow. We continue to act on the focus area by raising price, reducing working capital needs and reducing operating expenses.

R.

Our focus on profitability it pushed up our recurrent did ballpark that for the third quarter allowed.

Allowing us to achieve a healthy implied bread, even in a higher interest rate environment, and we are expecting to push past, 13% during the fourth quarter.

And that was the ability to continually increase prices, while maintaining its growth is a testament to the value we bring to our customers and the strength of our offerings.

By methodically raising prices, we aim to encourage a recurrent garner alignment with the current cost of capital.

This move is not only a booth for profitability, but also underscores our commitment to enhancing shareholder value.

Second.

We are committed to reducing working capital both used and outstanding through our valued dealers and equipment manufacturing partners.

This has enabled us to reduce the required amount of corporate capital for 2024 and to further reduce our operating expenses through cutting working capital interest expense.

Operator: Good morning and welcome to Sunova's third quarter, 2023 earnings conference call. Today's call is being recorded and we have allocated an hour for prepared remarks and question and answer.

De Novo also continues to execute on its capital light businesses.

Repair services is that three loans and.

Selling customer batteries are among these time periods.

Rodney McMahan: At this time I would like to turn the conference over to Rodney McMahan, vice president in both your relations at Sunova. Thank you. Please go ahead. Thank you operator. Before we begin, please note during today's call, we will make forward-looking statements that are subject to various risks and uncertainties that are described in our slide presentations, earnings press release in our 2022 form 10K. We see those documents for additional information regarding those factors that may affect these forward-looking statements. Also, we will reference certain non-gap measures during today's call. Please refer to the appendix of our presentation, as well as the earnings press release for the appropriate gap. The non-gap reconciliation and cost-nearing disclosure.

Our commitment to capital growth.

Additionally, our expansion of energy management services, including virtual power plant is a key approach and our strategy to maximize return and boost cash generation from our existing asset and customer base.

These initiatives represent a central component of our multifaceted approach is.

Sustainability and profitability.

With less reliance on capital markets.

Last.

And our continuous pursuit of operational excellence.

We are aggressively cutting our operating expenses by harnessing the power of cutting edge software and artificial intelligence.

Don Burger: On the call today are Don Burger, Sunova's chairman and Chief Executive Officer and Robert Lane, Executive Vice President and Chief Financial Officer.

These technologies enable us to optimize processes reduce the head count needed and drive greater efficiency throughout our operation.

Don Burger: I will now turn the call over to Don. Good morning and thank you for joining us. Sinova remains resilient despite the challenging market dynamics marked by higher interest rates and concerns about overall residential solar growth. Our commitment to develop a sustainable, profitable platform has positioned Sinova for long term success in the face of significant macroeconomic challenges as evidenced by increases to our fully burdened unlever return as we continue to add new customers.

This strategic move is not just about cost savings.

But also about positioning as an industry leader in innovation and operational effectiveness.

Adjusted operating expense per customer is expected to decline by 10% over the course of 'twenty 'twenty four and we expect this trend to accelerate as we progress through next year into 2025.

Slide three showcases the continued strong performance in customer count.

Don Burger: Through our adaptive energy platform, we continue to provide our customers with a better energy service at a better price, ensuring system performance and optimize power generation and economics. The steady robust demand for our distinct suite of energy service offerings coupled with our dealer network and our increasing market share has been instrumental in achieving this performance. Sinova is focused on liquidity, profitability, and cash flow. We continue to act on these focused areas by raising price, reducing working capital needs, and reducing operating expenses.

Power generation and energy storage undramatic than.

Battery attachment rate on origination and expected cash inflow over the next 12 months.

During the third quarter, we placed over 37000 customers and foodservice.

Which brought our total customer count.

As of September 30th 2023 to over 386000 customers and brought our megawatt hours under management, the 981 and total solar power generation under management to two three gigawatt.

Don Burger: First, our focus on profitability has pushed up our return to 12% for the third quarter, allowing us to achieve a healthy implied spread, even in the entire interest rate environment, and we are expecting to push past 13% during the fourth quarter. Sinova's ability to continually increase prices while maintaining its growth is a testament to the value we bring to our customers and the strength of our offerings. By methodically raising prices, we aim to ensure that our return during alignment with the current cost to capital.

Rob will discuss our customer and capital expenditure expectations for 2024 later in the call, but our core residential dealer channel has been running at a comfortable pace for the last few months and we intend to hold this pace setting the.

The operating leverage of scale gives us the economic and strategic advantages.

One of these key advantages is our large and growing amount of Levered cash flows and we will discuss these estimates for 2024 and beyond later in the call as well.

Don Burger: This move is not only a boost for profitability, but also underscores our commitment to enhancing shareholder value. Second, we are committed to reducing working capital, both using outstanding to our value dealers and equipment manufacturing partners. This has enabled us to reduce the required amount of corporate capital for 2024, and to further reduce our operating expenses through cutting, working capital into six cents. Sinova also continues to execute on its capital-wide businesses, Sinova repair services, accessory loans, and upselling customer batteries are among these sensors, showcasing our commitment to capital-fishing growth.

Finally.

We have updated our customer contract life and expected cash inflows.

As of September 30th 2023, the weighted average contract life remaining on our customer contracts equaled 22 years.

And expected cash inflows from those customers over the next 12 months increased to $645 million.

Our estimated contracted nominal cumulative cash flows totaled $14 7 billion as of September 32023.

We have taken decisive action to bolster our liquidity and maintain our strong balance sheet.

We have raised significant and multiple types of capital, including corporate capital in a timely fashion.

Don Burger: Additionally, our expansion of energy management services, including virtual power plants, is a key approach in our strategy to maximize return and boost cast generation from our existing asset and customer base. These initiatives represent an essential component of our multifaceted approach to sustainability and profitability with less reliance on capital markets. Last, in our continuous pursuit of operational excellence, we are aggressively cutting our operating expenses by harnessing the power of cutting edge software and artificial intelligence.

And we anticipate additional closings at the asset level capital in the near future.

We are proud of our current achievements.

We have numerous growth opportunities on the horizon.

However.

These opportunities will be pursued thoughtfully.

At the right time, and when the market conditions are more favorable.

Don Burger: These technologies enable us to optimize processes, reduce the headcount needed, and drive greater efficiency throughout our operations. This strategic move is not just about cost savings, but also about positioning Sinova as an industry leader in innovation and operational. Activeness. Adjusted operating expense for customer is expected to decline by 10% of the course of 2024, and we expect this trend to accelerate as we progress through next year into 2025.

I will now hand, the call over to Rob.

Who will walk you through our financial highlights.

Thank you John.

Starting on slide five you will see our adjusted EBITDA together with the principal and interest we collect on solar loans equaled $108 million in the third quarter, which included a $14 4 million dollar contribution to adjusted EBITDA from our first ever investment tax credit or ITC sale.

Just prior to the end of the third quarter, we entered into a $145 billion of ITC transfer transaction included the sale of ITC to a third party corporate buyer.

Under this agreement, we sold 14 $4 million worth of <unk> as of September 32023, and anticipate at least another $100 million of ICT sale in the fourth quarter.

Don Burger: Slide three showcases a continued strong performance in customer count, solar power generation, and energy storage under management. Battery attachment rate on origination and expected cash inflow over the next 12 months. During the third quarter we placed over 37,000 customers into service, which brought our total customer count as of September 30th, 2023 to over 386,000 customers and brought our megawatt hours under management to 981 and total solar power generation under management to 2.3 gigawatts.

When the inflation reduction act introduced ITT transferability.

Give us the ability to further diversify our funding sources and then produced another source of liquidity and adjusted EBITDA.

While we will continue to focus on growing our long term reoccurring contracted cash flow.

We have reached the stage, where we can better balance our cash inflows from long term contracted customer contracts with those from activities such as the IV detail that can generate material cash and adjusted EBITA in a short period of time.

Slide six highlights our continued ability to efficiently access the capital markets.

Don Burger: Rob will discuss our customer and capital expenditure expectations for 2024 later in the call, but our core presidential dealer channel has been running at a comfortable pace for the last few months, and we intend to hold this pace steady. The operating leverage of scale gives us economic and strategic advantages. One of these key advantages is our large and growing amount of leverage cash flows. And we will discuss these estimates for 2024 and beyond later in the call as well.

October 2015, this year, we have added nearly half a billion.

No tax equity fund.

Ill stomach indicated difficulty in securing tax equity, we see a market that continues to experience strong interest from investors, but with a strong bias for quality sponsors.

No.

Going forward the best benefit from the taxable attribute of our <unk> system.

We expect to employ a hybrid approach additional tax equity and ITC transit partnerships.

Don Burger: Finally, we have updated our customer contract life and expected cash inflows. As of September 30th, 2023, the weighted average contract life remaining on our customer contracts equal 22 years and expected cash inflows from those customers over the next 12 months increased to $645 million. Our estimated contracted nominal cumulative cash flows total 14.7 billion as of September 30th, 2023. We have taken decisive action to bolster our liquidity and maintain our strong balance.

Since the beginning of the year, we have expanded our warehouse capacity by $734 million, while securing amendments to keep pace with our evolving origination.

We also entered into over $1 billion in asset backed securitization.

With a $50 million secured revolving credit facility to support selling inventory to dealers close to $55 million accessory loan facility and just due to our second green bond, which together with a modest equity offering brought in $466 million and they didn't know capital after fees and expenses.

Included in our more than $1 billion of asset backed securitization is our doa guaranteed loan securitization, which priced last week and then very strong demand earth residential solar triple a securitization.

Don Burger: We have raised significant sums and multiple types of capital, including corporate capital in a timely fashion. And we anticipate additional closings of asset level capital in the near future. We are proud of our current achievements and we have numerous growth opportunities on the horizon.

This program is expected to provide disadvantaged homeowner and communities with increased access to clean flexible power by indirectly and parkway guaranteeing the cash flows associated with consumer loans.

Don Burger: However, these opportunities will be pursued softly at the right time and when the market conditions are more capable.

When we announced the assay program, we expected it would allow us at over to realize issuance spreads commensurate with the expected credit uplift that come with a government guarantee.

Robert Lane: I will now hand the call over to Rob who will walk you through our financial highlights. Thank you, John. Starting on slide five, you will see our adjusted EBITDA together with the principal interest to collect on solar loan equals $108 million in the third quarter, which included a 14.4 million dollar contribution to adjusted EBITDA from our first ever investment tax credit or ITC sale. Just prior to the end of the third quarter, we entered into a $145 million ITC transfer transactions that included the sale of ITCs to a third party corporate buyer.

We sought to attract investors with appetite for our long life low risk cash flows.

Robert Lane: Under this agreement, we sold 14.4 million dollars worth of ITCs as of September 30th, 20. 23, and Anticipate at least another $100 million of IPC sales in the fourth quarter. When the Inflation Reduction Act introduced IPC transferability, it gave us the ability to further diversify our funding forces and introduce another source of liquidity and adjusted Ubisoft. While we will continue to focus on growing our long-term reoccurring contracted cash flow, we have reached the stage where we can better balance our cash inflows from long-term contracted customer contracts, with those from activities such as the IPC sales to generate material tax and adjusted EBITDA in a short period of time.

Lastly, pricing in Brookfield exceeded our expectation.

The blended spread on our first project has to be a securitization with only a 197 basis points over the risk free rate the double B credit attachment point with eight five times oversubscribed and introduced 20, new investors to our business.

We estimate the securitization priced as much as 150 basis points and kind of similar pulls back loan securitization without a guarantee.

Going forward, we plan to make the SBA scandal, all primary alone Avs panel, but expect to do legacy non Doa guaranteed loan issuances where applicable.

T P O channel will continue on impact it as planned.

In our $759 million of liquidity as of September 30th 2023 are both our restricted and unrestricted cash as long as the available collateralized liquidity, we could draw upon from our tax equity and warehouse credit facilities.

We did in our cash our hedge breakage proceeds which exceeded $45 million year to date.

Subject to available collateral, we had $450 million of additional capacity in our warehouses and open tax equity funds.

Robert Lane: Slide 6 highlights and others' continued ability to efficiently access the capital market. To October 25 this year, we have added nearly half a billion dollars in additional tax equity funds. While some have indicated difficulty in securing tax equity, we see a market to continue to screen strong interest in investors, but with a strong bias of quality sponsors such as Sunnova. Going forward, to best benefit from the taxable attributes of our TPO system, we expect to employ a hybrid approach of conditional tax equity and IPC transfer partnership.

Buying these amounts represent $1 $2 billion of liquidity available exclusive of any additional tax equity fund securitization closures in the money interest rate hedges further warehouse expansion or other sources of liquidity during the year.

In addition, we expect to close half a dozen more amendments extensions and new capital sources by the end of the year.

On slide seven you'll see our fully burdened unlevered return on new origination increased to 11, 6% as of September 32023 based on the trailing 12 months for.

Robert Lane: Since the beginning of the year, we have expanded our warehouse capacity by $734 million, while securing amendments to keep pace with our evolving origination. We also entered into over $1 billion in asset-backed securitization, close to $15 million secured revolving credit facility to support selling inventory to dealers, close to $55 million accessory loan facility, and issued our second green bond, which, together with a modest equity offering, brought in $466 million in additional capital after fees and expenses.

For the quarter, just return equaled 12%.

These increases are primarily driven by our continued implementation of price increases and to a lesser extent benefit from IR, a adders, which will only grow as we move into 2024 with.

With these factors, we expect our fully burdened unlevered return to push past, 13% on current originations by the end of the year.

Our weighted average cost of debt also increased slightly to six 6% as of September 30th point in 'twenty three based on the trailing 12 months.

On current origination, including the impact of the recently issued Green bond, we estimate the marginal cost of debt on new origination to be approximately seven 7%.

Robert Lane: Included in our more than $1 billion of asset-backed securitization, is our first DOE guarantee loan securitization, which priced lastly commits very strong demand to first residential solar triple-A securitization. This program is expected to provide disadvantaged homeowners and communities with increased access to clean, flexible power by indirectly and partly guaranteeing the cash flows associated with consumers loans. When we announced the SQ program, we expected it would allow some over-to-realize issuant spreads, commence through it with the expected credit uplift that comes with a government guarantee.

While interest rates declined materially over the past several quarters, our weighted average cost of debt stands at five 2% as of September 30th 'twenty two 'twenty three based on current balances and our yield industry.

We measure our cost of capital on a yield issue basis, rather than an interest rate basis and this is more fairly captures the effect of any discounts.

In fact call purposes.

Our cost of capital is calculated on the full burden of the assets created based on our current pricing and the current ABS pricing, we expect to fund well over 90% of the fully burdened capital. So the investment grade portion of the a b S.

Robert Lane: We sought to attract investors with appetite for our long-lifed low-risk cash flows. Lastly, pricing and book build exceeded our expectations. The blended spread on our first project test-deaf securitization was only 197 basis points over the risk-free rate in the double-deaf credit attachment point, with 8.5 times over-subscribed, and introduced 20 new investments for our business. We estimate the securitization price as much as 150 basis points in time to similar full-stack loan securitization without a DOE guarantee.

We also have the flexibility to utilize a combination of corporate capital high yielding non rated tranches of the securitization market and the monetization of legacy warehouse hedges.

As our legacy Securitizations continue to perform we expect to pay down at least $300 million of existing securitization debt next year.

The implied spread the trailing 12 months equaled 5% as of September 32043, which is in line with our long term targets.

Robert Lane: Going forward, we plan to make the SDS panel a primary loan ABS panel, but expect to do legacy non-DOE guarantee loan issuances were applicable. Our TPO channel will continue unimpacted as planned. In our $759 million of liquidity as 23, are both restricted and unrestricted tasks as well as the available collateralized liquidity we can draw upon from our tax equity and warehouse credit facilities included in our cash our head-breaking proceeds which exceeded $45 million a year today.

This was a 50 basis point increase compared to the previous quarter as we increased our fully burdened return was greater than the increase to our weighted average cost of debt.

Comparing our current targeted fully burdened unlevered return of 13% to our average cost of marginal new debt of seven 7%, we expect to be able to maintain a spread in the 500 basis point range and we will continue to adjust our fully burdened unlevered return to maintain it.

Slide nine reflects the strong growth we have seen in our net contracted customer value or in PCB.

Robert Lane: So, to our available collateral, we had $450 million of additional capacity in our warehouses and open tax equity funds combined these amounts represent $1.2 billion of liquidity available exclusive of any additional tax equity funds that your decision closures in the money interest trade hedges further warehouse expansion or other sources of liquidity during the year. In addition, he expects to close half a dozen more amendments extensions and new capital courses by the end of the year.

At a 6% discount rate in PCB with $3 billion and.

An increase of nearly 50% compared to September 32022.

Our September 32023, NPV at this discount rate equates to approximately $7800 per customer and $24 46 per share.

Within our in CTV is approximately $14 $7 billion in cumulative locked in contracted nominal cash flows as of September 32023.

Robert Lane: On slide 7, you will see our fully burdened on lever return on new origination increase to 11.6% as of September 30th 2023 based on the trailing softwares. So the quarter just return equal 12%. These increases are primarily driven by our continued implementation of price increases and to a lesser extent benefits from IRA adders which will only grow as removed into 2024. With these factors, we expect our fully burdened on lever return to push past 13% on current originations by the end of the year.

Remember in <unk> remains a punitive way to view, our blowdown value as the nominal cash flows I referenced exclude anything for renewals upsells of powering Pedro national incentive appreciating or other non contracted upside.

Slides 11 through 13 provide our 'twenty to 'twenty three guidance, but he 44 guidance and liquidity forecast.

Given the visibility into our backlog, we expect to arrive at the higher end of our guidance range for 2023 customer additions of 135000 to 145000 <unk>.

Robert Lane: Our weighted average cost of debt also increased slightly to 6.6% as of September 30th 2023 based on the trailing 12 months. On current origination, including the impact of the recently issued green bond, we estimate the marginal cost of debt on new originations to be approximately 7.7%. While interest rates apply materially over the past of a quarter, our weighted average cost of debt stands at 5.2% as of September 30th 2023 based on current balances and our yield initially.

Additionally, due to the $145 million of IDC transferred transaction, we entered in the third quarter and the progress we have made on that Didnt want ITC sales in the fourth quarter. We are confident we will generate the adjusted EBITA necessary to fall within our financial guidance ranges.

On Slide 12, you will find our guidance ranges for 2020 for which our customer additions between 185000 and 195000.

EBITDA between $350 million and $450 million.

Proceeds from customer notes receivable and proceeds from investments in solar receivables between $210 million and $250 million.

Robert Lane: We measure our cost of capital on a yielded issue basis rather than an interest rate basis as this more fairly captures the effect of any discount fees and past call purchases. Our cost of capital is calculated on the full burden of the assets creation based on our current pricing and the current ABS pricing. We expect to fund well over 90% of the fully burdened capital to the investment grade portion of the ABS.

And interest income from customer notes receivable between $150 million and $190 million.

As of September 30th 2023, nearly 100% and 75% at the midpoint of our total 2023, and 2024 targeted customer revenue and principal and interest we expect to collect funds bullet alone was locked in through existing customers as of that same day, respectively.

Robert Lane: We also have the flexibility to utilize the combination of corporate capital, I yield the non-rated tranches of the securitization market and the monetization of legacy warehouse edges. As our legacy securitization continues to perform, we expect to pay down at least $300 million of existing securitization debt next year. The implied spread for the trailing 12 months equal 5% as of September 30th 2023, which is in line with our long term target. This was a 50 basis point increase compared to the previous quarter as the increase to our fully burdened return was greater than the increase to our weighted average cost of debt.

We have also updated our liquidity forecast for 2024, which can be found on slide 13.

On our previous earnings call. We included in our forecast an estimated rate of $500 million corporate capital in 2024 subject to the needs and market conditions as John mentioned, we have taken several steps to temper this need including further raising our prices and fully burdened unlevered returns reducing investments in new systems.

As a result of the pricing moves proactively reducing working capital and reducing our adjusted operating expenses were.

Robert Lane: Comparing our current targeted fully burden on level return of 13%, so our average cost of marginal new debt of 7.7%. We expect to be able to maintain a spread in the 500 basis point range and will continue to adjust our fully burden on level return to maintain. Relatives.

We're also taking advantage of additional funding, including the double B tranche on our recent FDA transact as a result, we have reduced our forecasted 2020 for corporate capital proceeds by $500 billion.

Zero.

As John noted earlier, we are focused on reducing operating expense on a per customer basis. We are doing this through improved operating leverage scale and reducing operating expenses by being more efficient as we automate several processes through various improvements.

Robert Lane: Slide 9 reflects the strong growth we have seen on our net contractor customer value or NCCD. At a 6% discount rate, NCCD was $3 billion, an increase of nearly 50% compared to September 30th, 2022. Our September 30th, 2023 NCCD at the 6th discount rate equates to approximately $7,800 per customer and $24.46 per share. Within our NCCD is approximately $14.7 billion in cumulative locked in contracted nominal cash flows as of September 30th, 2023. Remember NCCD ravines a punitive way to view our blowdown value as the nominal cash flows, I reference, excludes anything to renewals, upsells, uppowering, state or national incentive of pre-stations or other non-contracted upside.

While we have successfully reduced our cost in certain areas when path, where we have maintained investment if our collections department are well staffed collection team is central for safe guarding against potential economic downturn and ensuring we maintain our per annum low capital loss rate, which currently stands at 25 basis points.

We are also updating our estimated embedded levered cash flow. We now expect our leveraged cash flows from our existing asset base to be approximately $125 million per year for the next 10 years and approximately $185 million for the following nine plus here.

We have allocated some of our corporate capital to the Levered cash flow to reflect its investments into asset.

Robert Lane: Slide 11213 provides our 2023 guidance for 24 guidance and liquidity forecast. Given the visibility into our backlog, we expect to arrive at the higher end of our guidance range for 2023 customer additions of $135,000 to $145,000. Additionally, due to the $145 million IDC transfer transaction, we entered in the third quarter, and the progress we have made on additional IDC sales in the fourth quarter, we are confident we will generate the adjusted EBITDA necessary to fall within our financial guidance ranges.

As before this is inclusive of our current capital loss rate and servicing our corporate and convertible bonds, but does not include assets currently not in securitization.

That's pretty loan service revenues and other gain on sale activity or expenses.

I will now turn the call back over to John.

Thanks, Rob.

They know that its unwavering commitment to its stakeholders remains at the forefront of our strategy.

Our pursuit of liquidity profitability and the steady increase in cash flow is not just the corporate agenda.

Robert Lane: On 512, we will find our guidance ranges for 2024, which are customer additions between $185,000 and $195,000. Adjust the EBITDA between $350,000,000 and $450,000,000. Principle proceeds from customer notes receivable and proceeds from investments and solar receivable between $210,000,000 and $250,000,000, and interest income from customer notes receivable between $150,000,000 and $190,000. As of September 30, 2023, nearly 100% and 75% to the midpoint of our total 2023 and 2024 targeted customer revenue and principal and interest week, so we expect to collect on solar loans with locked in to existing customers as of that same day, respectively.

To our investors employees and customers.

We strategically implemented actions that underscore this commitment by.

By increasing prices, we ensure that the value we provide is reflected in our financial returns.

At the same time, our diligent approach to working capital reduction coupled with the optimization of operational expenses.

Exemplifies our financial responsibility.

Our scale and cutting edge AI and it investments have enabled us to achieve unmatched efficiency and to deliver on our commitment to generate robust returns.

As we have discussed in previous calls.

It's crucial to see.

He is the distinct opportunity presented by the combination of decreasing solar equipment prices.

Robert Lane: We have also updated our liquidity forecast for 2024, which can be found on slide 13. On our previous earnings fall, we included in our forecast an estimated raise of $500 million corporate capital in 2024, subject to the needs and market conditions. As John mentioned, we have taken several steps to temper this need, including further raising our prices and fully burden on the return, reducing investments in new systems as a result of the pricing moves, for actively reducing working capital, and reducing our adjusted operating expenses.

And the consistent rise in utility rates.

Contrary to expectations of a decline.

We have observed a notable increase in utility rate hike requests across various regions of the country.

Such as a 16, 5% increase in Puerto Rico.

A 26% increase in California.

And a nearly 30% increase in Wyoming just to name a few.

As we confront a market characterized by higher interest rates and uncertainty.

Robert Lane: We are also taking advantage of additional funding, including the double B-trance on our recent SDA transactions. As a result, we have reduced our forecast in 2024, corporate capital proceeds by $500 million to zero. As John noted earlier, we are focused on reducing operating expense on a per customer basis. We are doing this to include operating leverage, scale, and reducing operating expenses by being more efficient as we automate civil processes to various IT.

Our resilience and adaptability sky.

Despite these challenges.

We've continued to experience strong demand.

And we remain committed to profitable expansion.

Our continued successful increase in return showcases our dedication to providing value not just through our customers, but also to our investors.

Moreover, <unk>.

Even after our corporate capital raise our marginal cost of debt has remained impressively competitive at just below 8%.

Robert Lane: Improvement. While we've successfully reduced our cost in certain areas, one fact that where we have maintained investment is our collection department. Our well-safed collection team is essential for starting against potential economic downturn and ensuring we maintain our per annum low capital law rate, which currently stands at 25 basis points.

The relentless pursuit of profitability and prudent financial management remains central to our strategy.

We look forward to charting a path of sustained success.

We remain focused on liquidity.

Robert Lane: We are also updating our estimated embedded leverage cash flow. We now expect our leverage cash flows from our existing asset base to be approximately $125 million per year for the next 10 years, and approximately $185 million for the following nine plus years. We have allocated some of our corporate capital to the leverage cash flows to reflect its investment into asset. As before, this is inclusive of our current capital law rate and servicing our corporate and convertible bonds, which does not include assets currently not in securitization, access three loans, service revenues, and other hand on sale extra activity or expenses.

<unk> ability.

And the continued enhancement of cash flow through strategic pricing.

Working capital management and streamlined operations.

The path ahead for Nova is eliminated by the actions, we are taking to enhance profitability and efficiency.

<unk> financial strength and operational excellence positions us to lead in the ever evolving energy landscape.

As we progressed through the end of the year, our unwavering commitment to sustained profitability remains the cornerstone of our strategy with that operator. Please open the line for questions.

Thank you if you would like to ask a question today. Please do so now by pressing star followed by the number one on your kind of think he patch. If you change your mind I would like to be removed from the case that it stopped for my taste.

Don Burger: I will now turn the call back over to John. Thanks Rob. The Nova's unwavering commitment to its stakeholders remains at the forefront of our strategy. Our pursuit of liquidity, profitability, and the steady increasing cash flow is not just a corporate agenda. It's a promise to our investors, employees, and customers. We strategically implemented actions that underscore this commitment. By increasing prices, we ensure that the value we provide is reflected in our financial return.

Paint you ask a question. Please ensure that your device is unmatched you'd like me.

Our first question comes from the line of Kenneth Shen with Roth and Pam that.

Please go ahead. Your line is now open.

Hey, guys. Thanks for taking my questions first one is about Opex and you talked about John aggressively cutting Opex can you give us some more color on how you are reducing the expenses I think you touched on a software head count greater efficiency.

Don Burger: At the same time, our diligent approach to working capital reduction coupled with the optimization of operational expenses exemplifies our financial responsibility. Our scale and cutting-edge AI and IT advancements have enabled us to achieve unmatched efficiency and to deliver on our commitment to generate robust returns. As we have discussed in previous calls, it's crucial to seize the distinct opportunity presented by the combination of decreasing solar equipment prices and the consistent rise and utility rates.

Operations can you quantify any of that in any way. Thanks.

Hey, Phil Thanks for the question.

We quantified it by saying that on a per customer basis, we see negative 10% next year and then accelerating towards 2025 so.

We're looking for more than 10, and I think we'll get it but.

How are we going to get it.

We have a sufficient scale at this point in time I think we're running at a pace that's very comfortable.

Don Burger: Contrary to expectations of a decline, we have deserved a notable increase in utility rate high requests across various regions of the country, such as a 16.5% increase in Puerto Rico, a 26% increase in California, and a nearly 30% increase in Wyoming, just to name a few. As we confront a market characterized by higher interest rates and uncertainty, our resilience and adaptability shines. Despite these challenges, we continue to experience strong demand and we remain committed to profitable expansion.

And having enough scale has always been important I would say that we're probably in one of those two leaders there and the scale size of things and so we like where we are.

So the first one scale second is software we have a lot of these initiatives that are automating, including AI and machine learning to use some buzzwords, but.

It's real and we're able to do.

A lot more with a lot less and so we're putting those pieces of software into play some of which are already in place from which much of which is going in Q4 and Q1.

And then beyond so we feel that.

Don Burger: Our continued successful increase in returns showcases our dedication to providing value, not just to our customers, but also to our investors. Moreover, even after our corporate capital rates, our marginal cost of debt has remained impressively competitive at just below 8%. The relentless pursuit of profitability and prudent financial management remains central to our strategy.

Those investments, which have been quite significant in software and continue to be into next year.

I have two and we're going to pay some real dividends as far as operating expense and operating leverage increase and then there is always better processes.

Youre selling more to per customer so that's operating leverage but by itself.

And just general.

Labor market is significantly looser and continues that trend and so that's helpful as well versus an extremely tight labor market that was highly inflated.

Don Burger: We look forward to starting a path of sustained success, as we remain focused on liquidity, profitability, and the continued enhancement of cash flow through strategic pricing, food and working capital management, and string-bind operations. The path ahead for Sonova is eliminated by the actions we are taking to enhance profitability and efficiency. Our commitment to financial strength and operational excellence positions us to lead in the ever-evolving energy land key. As we progress to the end of the year, our unwavering commitment to sustained profitability remains the cornerstone of our strategy.

Say a couple of years ago. So a lot of these savings are starting to bear fruit and come forth and we expect a continuing to push that into increase the operating leverage.

I might add as we promised in.

In the Q2 call.

Great. Thanks, John.

Or through your first tax credit sale congrats.

At the beginning for a lot more to come.

I was wondering if you might be able to share some of the economics and the outlook here as well.

What kind of buyer was your first part.

Operator: With that, operator, please open the line for questions. Thank you. If you would like to ask a question today, please see so now by pressing start, followed by the number one on your telephone keypad. If you change your mind and would like to be removed from the key, that is start followed by two. I'm preparing to ask your question. Please ensure that your device is unneeded locally.

Or how many more borrowers are there housekeepers the marshes.

From an economic standpoint, you know for every dollar of tax credit value. How much are you guys netting what's the buyer discounts that's 5% to 10% you know how much you guys paying for insurance transaction fees. My guess is youre netting about around 80 588 cents a dollar.

Philip Shen: Our first question comes from the line of Philip Shen with Rott and KM. Philip, please go ahead. Your line is now open. Hey guys, thanks for taking my questions. First one is about OptX and you talked about John aggressively cutting OptX. Can you give us some more color on how you are reducing the expenses? I think you touched on software, headcount, greater efficiency and operations. Can you quantify any of that in any way?

And then as you think about 'twenty four.

And your GPO business, how much could come from tax equity versus the tax credit transfer market.

<unk>.

Phil I'll take that one I think if I've got 85 to 88, John would have my head. So now we're actually doing better than that we're quite pleased with our economics.

The partners that we have are we've got a number of different partners both.

On this first fund as well as on others. So.

There.

Most of our corporates.

Philip Shen: Thanks. Hey Phil, thanks for the question. We quantified it by saying that on a per customer basis we see a negative 10% next year and then accelerating towards 2025. So we're looking for more than 10 and I think we'll get it. But how are we going to get it? One, we have a sufficient scale at this point in time. I think we're running at a pace that's very comfortable and having enough scales always been important.

And folks that we've been having conversations with for a long time and it's nice to match them up with some of our tax equity folks as well. So it's been a it's been a market that we've had a long time to develop and it's just coming together I would say I would say at a really opportune time.

As far as the amount that we could have here within that would be ITC transfer funds versus tax equity funds.

Philip Shen: I would say that we're probably in one of the two leaders there in the scale size of things. And so we like where we are. So the first one is scale. Second is software. We have a lot of these initiatives that are automating, including AI and machine learning to use some buzzwords. But it's real and we're able to do a lot more with a lot less. And so we're putting those pieces of software into place, some of which have already been placed, some of which is going in Q4 and Q1 and then beyond.

We havent really fully quantified that I think that the majority of what we'll be doing the rest of the year will be ITC transfer and that just has to do with the timing of the funds themselves.

But for next year I fully expect it to be a fairly good combination.

And you sort of made an interesting point there about.

Insurance I mean, this has to work not not only for both parties and tax equity has to work for the buyer has to work for insurance. It has to work for back leverage it really takes a lot.

To make this work.

We're really proud of the work that we've done that our that our tax team has done that our treasury team has done a legal team has done.

Philip Shen: So we feel that those investments, which have been quite significant in software and continue to be in the next year, I have to ever going to pay some real dividends as far as operating expense and operating leverage increase. And then there's always better processes. You're selling more to pro customers of that's operating leverage by itself. And just general, the labor market is significantly looser and continues that trend. And so that's helpful as well versus an extremely tight labor market that was highly inflated, say a couple of years ago.

Together with some of our outside parties in order to make sure that we had something that successful equals sustainable.

And.

It just I think just given the landscape of the IRA This is going to become more regular way for us and for others, who are in this space.

And Phil I would add I think Rob and his team have done a fantastic job and we planned a day planned well ahead of time to do a mix of regular way tax equity and ITC sales. So I think it's fair to say, we're pretty covered up and tax equity.

Philip Shen: So a lot of these savings are starting to bear fruit and come forth and we expect to commune to push that and to increase the operating leverage. I might add as we promised in the Q2 call. Great, thanks, John. You guys worked through your first tax credit sale, congrats. I know it's the beginning for a lot more to come. I was wondering if you might be able to share some of the economics and the outlook here as well.

To the point, where we're going to have great details some folks.

Wait till later.

So they've done a fantastic job of planning and really thinking ahead, and we have ample amounts of capital there.

Yeah.

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

Okay.

Our next question comes from the line of Julian demand Smith with Bank of America. Please go ahead Julien Your line is now open.

Philip Shen: What kind of buyer was your first partner? How many more buyers are there? How deep is the market? Additionally, from an economic standpoint, for every dollar of tax credit value, how much are you guys netting? What's the buyer discount? That's 10%. How much are you guys paying for insurance and transaction fees? My guess is you're netting around $85-88 cents. And then as you think about $24 in your PPO business, how much could come from tax equity versus the tax credit transfer money?

Hey, guys its Alex on for Julien Congrats on the strong results here.

If I may just to kind of kick off.

John you alluded to you like listen there's a lot of growth opportunity out there for you guys.

Youre looking at it but now may not be the right time.

And it sounds like if I'm hearing you, Rob that that might be more in sort of the loan book as far as how you want to finance.

That obviously is sort of a bias towards past VA going forward I'm curious if you can talk about how that impacts your spread looking forward.

Philip Shen: Thanks. Phil, I'll take that one. I think if I got $85-88, John would have my head. We're actually doing better than that. We're quite pleased with our economics. The partners that we have, we've got a number of different partners, both on this first fund as well as on others. So they're, most are corporates and folks that we've been having conversations with for a long time and it's nice to match them up and with some of our tax equity folks as well.

Obviously has to be a very oversubscribed spread very very narrow sort of extra room on the low end of the badge.

How do you think about that moving forward and I guess can you just confirm that.

That's sort of where youre high grading the growth opportunity. If you will looking forward given the rates environment. Thanks.

Alex This is John I'll answer part of it and then turn it over to Rob to finish it out.

Philip Shen: So it's been a market that we've had a long time to develop and it's just coming together, I would say, I would say, at a really opportune time. As far as the amount that we could have here within, there would be ITC transfer funds versus tax equity funds. We haven't really fully quantified that. I think that the majority of what we'll be doing the rest of the year will be ITC transfer and that just has to do with the timing of the funds themselves.

I think that was more of we have a lot of opportunities and.

Micro grids mobility Europe, we've talked about that and those are all still there and we will still work.

On those in the backdrop, if you will but we don't need them right now to do any anything close to what we've laid out to be fairly conservative guidance for next year or so.

Those are those times will wait I mean to be quite candid.

Philip Shen: But for next year, I fully expect it to be a fairly good combination. And you know, you sort of made an interesting point in there about insurance. I mean, this has to work not not only for both parties and tax equity has to work for the buyer. It has to work for insurance. It has to work for back leverage. It really takes a lot to make this work. We're really proud of the work that we've done that our tax team has done that our treasury team has done.

Share prices is factoring in negative growth and.

And a lot of value is being left on the table. So so what's the point.

So, let's just we'll push pause on that I think this industry is remains if you look at the value edge, where utilities are jacking up rates, even with low gas prices wait till gas prices start moving again, who knows when that is but it's probably sooner rather than later and you've got a following equipment.

Philip Shen: Our legal team has done together with some of our outside parties in order to make sure that we had something that's successful with able to stand up. And, you know, I think just given the landscape of the IRA, this is going to become more regular way for us and for others who are in this space. And Phil, I would add, I think Rob and his team have done a fantastic job and we planned they planned well ahead of time to do a mix of regular way tax equity and ITC sales.

Rice's Theres, a value, which I mean, it's pretty straightforward. So the opportunities there despite increased cost of capital because that value, which is growing faster than the than the cost of capital is increasing.

For the most part in what is clearly been a historic bear bear market in bonds.

I think overall, what we're saying is we'll keep the mix we've got a nice set of weapons that nobody else has.

Have a number of channels that we can grab a origination from intake and we're looking to high grade all of it. So there is nothing that we're going to pick on.

Philip Shen: So I think it's fair to say we're pretty covered up in tax equity to the point where we're going to have to maybe tell some folks, you know, wait till later. So they've done a fantastic job of planning and really thinking ahead and we have ample amounts of capital there. Great. Thanks, guys.

We've got a nice program here with the department of energy with Sto and the loans we have.

A nice amount of accessory and service only business that is capital light to zero capital.

Philip Shen: I'll pass it on.

And yes, I like zero capital I'd liked it so for those of you didn't.

Julian DeMoon: Our next question comes from the line of Julian DeMoon, Smith, the Bank of America. Please go ahead. Julian, your line is open. Hey guys, it's Alex on for Julian. I can grasp some of the strong results here. If I may just, you know, to kind of kick off, you know, John, you alluded to, like listen, there's a lot of growth opportunity out there for you guys. You're looking at it, but now may not be the right time.

I don't care, it's the right thing to do it's high margin net margin business and cash and the other side as a lease and PPA, which is the dominant portion of our business. So our core ROTC dealer and Thats <unk>.

<unk>, 75% to 80% of our flow.

It has been all year and more and more ITC adders or showing up there. So we'll have more and more cash.

Overall, I think we're just going to need as we start moving forward, we're going to continue to push up the.

Julian DeMoon: And it sounds like if I'm hearing you rob that that might be more in sort of the loan book as far as how you want to finance that obviously sort of a bias towards Pestia going forward. Curious if you can talk about, you know, how that impacts your spread looking forward. Obviously, Pestia very oversubscribed, spread very, very narrow, sort of extra room on the low end of the bench. You know, how do you think about that moving forward?

The Unlevered returns and we're going to look to cut costs to further push the unlevered returns up and.

At some point in time, the cost of capital has stopped going up who.

Who knows when that is who knows what point and the spread will be no matter. What we continue to be very healthy and if we need to make further choices about what to what to cut as far as channels and products and so forth. We'll do it in the next year. This is the capital expenditure budget that we've laid out we're going to stick to it we like the rate and.

Julian DeMoon: And I guess can you just confirm that, you know, that's sort of where you're you're high grading the growth opportunity, if you will, looking forward, given the rates environment. Thanks. Alex, this is John. I'll answer part of it and then turn over to Rob to finish it out. You know, I think that was more of we have a lot of opportunities in micro grids, mobility, Europe. We've talked about that. And those are all still there.

We will keep we will keep high grading as far as pushing up margins.

Two were.

Shareholders expect them to be Rob you got anything to add yeah. The only other thing I would add is that just everything that we look at from a from a standpoint, John is talking about the returns and where we are pushing those returns up but we also need to make sure that we financed fully to the stack of the available capital we're not looking to do something where it's done on a <unk>.

Julian DeMoon: And we'll still work on those in the backdrop, if you will. But we don't need them right now to do anything close to what we've laid out to be fairly conservative guidance for. Next year. So, you know, those those times will wait. I mean, to be quite candid share prices is factoring in negative growth. No, you know, and a lot of value is being left on the table. So, so what's the point?

<unk>, let's just see if it works or not then we will address.

We will address financing later anything that we do has to be fully financed really from day one.

And.

And that means that some newer stuff some exciting stuff, we will continue to develop but we're not going to pull the trigger on it unless we know its something thats going to be core.

Julian DeMoon: So, let's just, we'll push pause on that. I think the industry is your remains. If you look at the value wedge, where utilities are jacking up rates, even with low gas prices, wait till gas prices start moving again, who knows when that is, but it's probably sooner rather than later. And you got following equipment prices. There's a value wedge. I mean, it's pretty straightforward. So the opportunities there despite increased cost of capital, because that value wedge is growing faster than the cost of capital is increasing, you know, for the most part in, in what is, you know, clearly been a historic bear bear market in bonds.

Corporate capital accretive.

Two to Sunoco.

That's really the guiding principle.

Got it Super clear guys and if I may just theres been a lot of concern out there.

To your to your point, John I mean, you guys are pricing and no growth or negative growth you could end up in various.

Permutations of that.

If we look at the bonds out in 'twenty six 'twenty eight.

Clearly, it's trading at almost a fire sale prices I'm curious, where you sit today I understand that's a lovely off.

Julian DeMoon: So, I overall what we're saying is we'll keep the mix. We've got a nice set of weapons that nobody else has. We have a number of channels that we can grab origination from and we're looking to high grade all of it. So, there's nothing that we're going to pick on. We've got a nice program here with the Department of Energy with Hestio in the loans. We have a nice amount of accessory and service only business that's capital like to zero capital.

You're sort of thinking about addressing that obviously theres. Some comparability, there where you could take down quite a bit of notional value that you chose but just curious how you think about the sort of holdco maturity wall. If you will out in those years, given where they're trading currently thanks.

Yeah, I think first of all to your point, Alex it's pretty far out there and so I think thats first and foremost, but with that said.

We've always got the ability to do asset sales and indeed, I think that we will do some of those next year is our anticipation.

Julian DeMoon: And yes, I like zero capital. I've liked it. So, for those of you who didn't, I don't care. It's the right thing to do. It's high margin, net margin business and cash. And the other side is leased in PPA, which is the dominant portion of our business or core resident dealer. And that's, you know, definitely 75, 80% of our flow and has been all year. And more and more ITC adders are showing up there.

And thats going to bring to Rob just said focusing on corporate liquidity right.

Pulling more cash into the company. So we have that weapon, we have our levered cash flows off our base, which is going to continue to grow.

Quite quite nicely and so we will be able to.

To pile up cash and then be able to take a part of those facilities down at the right time and yes. They are trading deeply discounted.

Julian DeMoon: So we'll have more and more cash. And so overall, I think we're just going to need as we start moving forward. We're going to continue to push up the unlovered returns and we're going to look to cut costs to further push the unlovered returns up. And, you know, at some point in time, the cost of capital will stop going up. Who knows when that is, who knows what, what point. And this spread will be no matter what the continue to be very healthy.

Note that I'll leave it at that.

And where there is a number of strategies, we couldn't employ we can refinance but we have a $14 $7 billion of notional cash flow, we pile more on every single day.

We have a number of financial weapons, whether people want to see them or not we have it and we will take care of that maturity, probably well ahead of time and to underline the point noted where they are trading its quite appealing.

Julian DeMoon: And if we need to make further choices about what to cut as far as channels and products and so forth, we'll do it. And the next year, this is the capital expenditure budget that we laid out. We're going to stick to it. We like the rate. And we'll keep, we'll keep hydrating as far as pushing up margins to where, you know, our shareholders expect them to be. Rob, you got anything to add?

Yes, the only other thing I'd say is stake.

We'd rather build up the resources or execute on it.

In a normal course, I mean, most folks when they have when they see a maturity date theyre executing a year or so.

Julian DeMoon: Yeah, the only thing I would add is that just everything that we look at from a from a standpoint, John's talking about the returns and we're we are pushing those returns up. But we also need to make sure that we finance fully through the stack of the available capital. We're not looking to do something where it's done on the flyer. Let's just see if it works or not, then we'll address we'll address financing later.

Before that maturity date, they're not executing three years before especially when the rate on our 2006 as our 25 bps on the converts and $5 875 on the high yield I mean, those are still really attractive.

Cost of capital that we had locked in.

Julian DeMoon: Anything that we do has to be fully financed really from day one. And, and that means it's some newer stuff, some exciting stuff. We'll continue to develop, but we're not going to pull a trigger on it unless we know it's something that's going to be corporate capital accreted to to Sonoma. So that's that's really the guiding print. I think that's understandable. Got it, super clear guys. And if I may just, you know, listen, there's been a lot of concern out there, you know, to your, to your point, John, I mean, you guys are pricing in, you know, no growth or negative growth, you can end up in various, I guess, sort of, permutations of that.

Four five years.

And we're not really in a hurry to go and explain and replace that with more expensive capital today.

But we're in a hurry to make sure that we have the resources and everything in place to do so in an efficient manner.

At the appropriate time.

Thanks, a ton of sense, presumably levered scf is a much bigger number by the time, you're one year out.

Thanks, again, guys Congrats I'll take the restaurant line.

Absolutely. Thanks, Thanks, Doug.

Our next question comes from James West with Evercore ISI.

Please go ahead. Your line is now open.

Great. Thanks, Good morning, guys.

Good morning, So maybe just start off with John.

Good morning, John.

Julian DeMoon: You know, you're sort of thinking about addressing that, obviously, there's some callability there where you could take down quite a bit of national value to chose. But just curious, how do you think about the sort of hold co maturity wall, if you will, out in those years, given where they're trading currently. Thanks. Yeah, I think, you know, first of all, to your point, Alex, it's pretty far out there. And so, you know, I think that's first and foremost, but with that said, you know, we've always got the ability to do asset sales.

How are you thinking about the <unk> or your virtual power plants for <unk> as part of your strategy going forward here given that it's begun.

Abundantly clear to everybody in the energy business that we're going to go distributed and utilities are not keeping up and so how much is that.

Driving kind of your.

Any change or any shift or just part of your overall strategy.

Yes, Jamie.

Julian DeMoon: And indeed, I think that we will, you know, do some of those next years are anticipation. And that's going to bring to what Rob just said, focusing on corporate liquidity, right, pulling more cash into the company. So we have that weapon. We have our lever cash flows off our base, which is going to continue to grow quite, quite nicely. And so we'll be able to pile up cash and then be able to take a part of those facilities down at the right time.

It's key and it's frankly, it's why I got into this business years ago is I saw that the.

New energy system. The power system is an industry was going to look more like the internet with a instead of a 100% centralize some combination of decentralized.

And centralized and different fuels as well, yes, natural gas will be a part of that particularly in the centralized side of things, but solar and batteries really are very decentralized technologies in very key to essentially provide more resiliency reliability at a much cheaper cost.

Julian DeMoon: And yes, they are trading deeply discounted. And we note that. I'll leave that that. And there's a number of strategies we couldn't employ. We can refinance. But we have a 14.7 billion dollars of national cash flow. We pile more on every single day. We have a number of financial weapons, whether people want to see them or not. We have it. And we'll take care of that maturity probably well ahead of time.

Say, the least and a lot less friction to say at least as far as getting permitting and installation with regards to transmission distribution line upgrades and all the other stuff so.

This is inevitable to your point and we're already executing more and more of what we call energy services others call. It <unk>.

Julian DeMoon: And to underline the point noted where they're trading. It's quite appealing. Yeah, the other thing I'd say is that, you know, we'd rather build up the resources for execute on it in a normal course. I mean, most folks when they have a, when they see a maturity date, they're executing a year or so. Before that maturity date, they're not executing three years before, especially when the rate on our 26s are 25 bits on the converts and 5.875 on the high yield.

We see this as a key part of the strategy and frankly Nick.

<unk> a lot of the net metering concerns and so forth. So we'll take an open market. That's transparent open consumer choice basically it was bringing capitalism and consumer choice into play here.

Open and let's see let's see who wins and we're seeing more of these type of deals we didn't announce anything.

Right now, but you'll see those over the coming days and weeks.

Where we're able to essentially aggregate connect all our customers over our sentient software platform and be able to sell into the wholesale system and give some more value back to our customers case in point, if you're a customer and Houston Dallas. This.

Julian DeMoon: I mean, those are still really attractive costs of capital that we had locked in for five years. And we're not really in a hurry to go and explain and replace that with more expensive capital today. But we're in a hurry to make sure that we have the resource and everything in place to do so in an efficient manner at the appropriate time. Thanks a ton of stats, presumably levered up. The app is a much bigger number by the time you're one, you're up. But thanks again, guys, congrats. I'll take a rest off one. Absolutely. Thanks.

Past summer, which the summer seem to last longer than usual rate.

There's a lot of our customers that not only wiped out the remaining power bill they have at the retail electric provider.

But they also wiped out our bill and then took him some money. So just think about that so that's the way Australia works, Japan works Europe versus UK works, we got to get the we got to get moving here.

Hall and update the power regulations of this country. So we can move this country forward instead of having monopolies Jack rates up like we talked about in our prepared comments at a ridiculous pace, which is obviously continuing so huge amount of value here huge amount of value, we talked about $1 billion over the next.

James West: Our next question comes from James West with Evercore IS. Hi, James, please go ahead. Your line is now open. Great. Thanks. Good morning, guys. Good morning. So, maybe to start off with John.

A few years into the 2000 thirty's cumulative basis.

And.

Standby that theres a lot of opportunity here that we can squeeze more out of our asset and customer base and we're doing it.

James West: John, well, how are you thinking about the VVPs or your virtual power plants for our belt line as part of your strategy going forward here, given that it's going to be abundantly cleared. Everybody in the energy business that we're going to go distributed and utilities are not keeping up. And so how much is that driving kind of your any change or any shift or just part of your overall strategy. Yeah, James, it's key.

Yes.

Alright, right totally agree there and then maybe a quick.

Follow up a little bit of unrelated, but I don't know that you said.

Made some comments in the press release.

Our capital needs, but.

Either John or Rob and it can be literally a one word answer but it seems to me you don't need to access the capital markets next year.

At all to fund the growth that you that you outlined is that fair.

James West: It's frankly, it's why I got into this business years ago is I saw that the new energy system, the power system in industry was going to look more like the Internet with a instead of 100% centralized some combination of decentralized and centralized and different fuels as well. Yeah, natural gas will be a part of it, particularly on the centralized side of things. But solar and batteries really are very decentralized technologies and very key to essentially provide more resiliency reliability and a much cheaper cost to say the least and a lot less friction to say the least as far as getting permitting and installation with regards to transmission distribution line upgrades and all the other stuff.

That's fair yes.

Got it alright, great. Thanks, guys.

Thanks.

Yes.

Our next question comes from Ben <unk> with Baird.

Please go ahead. Your line is now open.

Hey, good morning, guys congrats.

Maybe following up on <unk>.

Yes.

Last question.

Just to be clear I know you guys.

So who will close but.

Moving to $500 million.

<unk> core for capital funding for <unk> 44.

Is it.

Because there is good growth growth that was going to be soft used bike where cisco.

James West: So this is inevitable to your point. And we're already executing more and more of what we call energy services. There's called BPPs. We see this as a key part of the strategy. And frankly, negates a lot of the net metering concerns and so forth. So we'll take an open market that's transparent, open consumer choice. Basically, let's bring capitalism and consumer choice and to play here and blow it wide open. And let's see who wins.

Through the growth that you've outlined here or are there other factors.

We're moving forward.

Last quarter.

Well I'll answer first and then turn it over to Rob to give a little more detail.

Look at.

One it was a forecast pretty far out really far out nobody else does that nobody else is going to give 24 guidance at any part of the value chain in this industry other than us on these round of Q3 earnings calls.

And so things can change in terms of a forecast that far out and what we looked at was the market enabled by its tightening tightening up and I've talked about our pricing power.

James West: And we're seeing more of these type of deals. We didn't announce anything right now, but you'll see those over the coming days and weeks where we're able to essentially aggregate, connect all our customers over our sentient software platform and be able to sell into the wholesale system and get some more value back to our customers. Case in point, if you're a customer in Houston, Dallas this past summer, which the summers seem to have lasted longer than usual, right?

Never had more pricing power in the company's history.

And we're exercising that so that's a part of it raising prices reducing working capital.

Working capital has got expensive to nonexistent.

Industry, and we're working with our dealers and reducing that and our OEM.

James West: There's a lot of our customers that not only wiped out the remaining power bill, they have it to retail electric provider, but they also wiped out our bill and then took home some money. So just think about that. So that's the way Australia works, Japan works, Europe works, UK works. We got to get move in here. Let's overhaul and update the power regulations of this country so we can move this country forward instead of having monopoly jack rates up like we talked about in a prepared comments at a ridiculous pace, which is obviously continuing.

Partners and we are reducing operating expenses and we can the labor market's moving in our favor. The overall economy is moving in our favor in that regard we tend to do better in downturns in the economy than Upturns go look at the stock price go look at the business you can tell and part of that is we're more like.

Long term.

How're company or quasi utility if you will.

So we see we saw a lot of opportunity to take advantage of raising price, reducing working capital and reducing operating expenses and when you're running a large company that we've become very large.

James West: So huge amount of value here, huge amount of value. We talked about a billion dollars over the next few years in the 2030s and cumulative basis. And I stand by that. There's a lot of opportunity here that we can squeeze more out of our asset and customer base and we're doing it. Right, right. Totally agree there.

<unk> you.

Shave a little bit here, you shave a little bit there suddenly.

It adds up to real money. So this is we feel comfortable we're going to continue to execute I would like to see us even out do that and continue to pile cash up and those in panel delivered cash flows or grow them over a period of time next few years like we have been doing and we see ample opportunity to be able to do that so we're focused on the liquid.

James West: And there may be a quick follow up a little bit on related, but I don't know, you said the basic comments and press release about capital needs, but either John Robb and it can be literally a one word answer, but it seems to me you don't need to access the capital markets next year at all to fund the growth that you that you've outlined. Is that fair? That's fair. Yeah. That's all right.

Profitability and cash flow to close the gap and then some of them and we've done that already and more is to come Rob anything you want to add.

That covers it.

Okay.

Thank you that's great answer.

Ben Kallo: Great. Thanks.

Utility.

Just on the ITC sales versus tax equity.

Rob maybe you could just go into that.

Susan.

Ben Kallo: Our next question comes from Ben Kallo with bed. Ben, please go ahead. Your line is now open. Hey, good morning, guys, congrats. Maybe following up on the last question. Just to be clear, and I know you guys probably said it a couple times, but removing the $500 million corporate capital funding for 24 is it because there's enough growth. That you know, but that was going to be, you know, stuff you'd like to have versus stuff you need to have for the growth that you've outlined here, or there are other factors in removing that $500 million. The last quarter.

Yes.

So if you do the ITC sales versus traditional.

Traditional route with tax equity.

How do you make the decision.

All of them.

Yes, yes.

There's a bit of a misconception here that.

If one just sells and ITC credit.

There's probably some value being given up you're not able to take full advantage of all the tax attributes.

T C.

If a tax equity fund sales the ITC credit than you really are getting just about all of the advantages, there's very little friction and thats. The route we've chosen to take so we're.

We're always going to generate a few tax credits directly.

Ben Kallo: Well, I'll answer first and turn over Rob to give them more detail. Look at, you know, one, it was a forecast pretty far out, really far out. Nobody else does that. Nobody else is going to give 24 guidance at any part of the value chain in this industry, other than us on these round of Q3 earnings calls. And so things can change in terms of a forecast that far out. And what we looked at was the market enabled that is tightening up.

Pardon me directly into our our balance sheet, just because maybe we have some assets that don't fully qualify for some of our tax equity funds.

And that just because of concentration limits or whatever that is.

A number that's very small it's less than one half of 1% of our total <unk> assets.

But the nice thing about about the agreement is that we now have a home for that as well.

Instead of just filing that onto the balance sheet, but.

The vast vast majority over 99% of what we're going to be doing that is.

Ben Kallo: And I've talked about our pricing power. We've never had more pricing power in the company's history. And we're exercising that. So that's a part of it raising prices, reducing working capital. Working capital has got expensive, non-existent in the industry. And we're working with our dealers and reducing that in our OEM partners. And we're reducing operating expenses. And we can deliver markets moving in our favor, the overall economy is moving in our favor in that regard.

Those are credits that can be sold out of the tax equity funds. So there's very very little friction there.

With regards to.

With regards to <unk>.

Overall liquidity and in fact as it becomes an accretive on the P&L.

Got it and then just maybe John just on working capital efficiency.

Ben Kallo: We tend to do better in downturns in the economy than upturns. Go look at the stock price, go look at the business you can tell. And part of that is we're more like, you know, a long term power company or you know, quasi utility, if you will. And so we see we saw a lot of opportunity to take advantage of raising price, reducing working capital, reducing operating expenses. And when you're running a large company that we've become very large and you shave a little bit here, you shave a little bit there.

As it relates to your dealers.

The impact to relationship with your dealers and then maybe if you could just talk about the health of dealers was because of the overall recovery. Thank you.

Yes, sure event, well look I think that a lot of our dealers run very good shops and businesses and some of those businesses are quite large and all of them or that I can think of are entrepreneurs that started the business.

So.

They know what they're doing and they can run.

Ben Kallo: Suddenly, you know, it adds up to real money. So this is, we feel comfortable. We're going to continue to execute. I'd like to see us even out do that and continue to pile cash up and those and pile those delivered cash flows or grow them over a period of time next few years, like we have been doing. And we see ample opportunity to be able to do that. So we're focused on the liquidity profitability and cash flow to close the gap and then some and we've done that already and more is to come. Probably anything you want to add that covers it. Thank you, that's a great answer, detail answer.

Our business through this environment and we're certainly in this together and then I want to stress that.

They need something will be there, we need something there'll be there for us.

Is that everybody.

No.

But our core.

Dealer base is certainly of that of that ilk.

I would say look in terms of payment terms being reduced and so forth.

You can certainly navigate it and frankly you need to.

Cost of money is really high and it is what it is we can certainly push pricing up which is another thing that obviously, they're not waiting by the phone like Oh I'm. So glad you called you're pushing price up again.

Ben Kallo: Now, just on the IPC sales versus your tax equity on a lot maybe, if you could just go into the decision, you know, if there's, you know, if there's like, you're giving it up to something, if you do, you know, IPC sales versus, you know, going to the traditional route to tax equity and how you make that decision that I had just work all over. Yeah, yeah, because I think there's a bit of a misconception here, that you, if one just sells an IPC credit, there's probably some value being given up, you're not able to take full advantage of all the tax attributes.

I said well call Chairman Powell.

I've got a line into them as well as like.

Stop the spending reckless spending from the federal government to push inflation up.

That was begun by Trumping in Kantar.

And invited ministration, so we need there's a lot of things that we all can complain about but we're here and what are we going to do well thankfully. We got these utilities monopolies that just want to push up price no matter, what the fuel input costs are and.

So we've got a nice.

The price to sell against and that continues to rise at a faster clip than I think a lot of people really understand frankly, and then the other side, we're getting a lot more scale globally and the technology is improving in both efficiency and obviously and cost and so the east falling a bit so all.

Ben Kallo: If an IPC, if a tax equity fund sells the IPC credit, then you really are getting just about all the advantages. There's very little friction, and that's the route we've chosen to take. So we're, we're always going to generate a few tax credits directly, pardon me, directly into our, our balance sheet just because maybe we have some assets that don't fully qualify for some of our tax equity funds, and that just because of concentration limits or whatever, that's a number that's, that's very small, it's less than one half of 1% of our total TPO assets.

All of our dealers can navigate that this some do better than others.

We lose a few dealers sure.

So that happens, but we're nobody is better at making sure that we've been kept toll and manage that risk than us frankly, a lot of the industry has adopted the guidelines that we set forth and put in place years ago. So we feel very comfortable about all of our liquidity.

The exposure, there and credit exposure really sorry.

Ben Kallo: But the nice thing about about the agreements is that we now have a home for that as well. Instead of just filing that onto the balance sheet, but the vast, vast majority over 99% of what we're going to be doing, that is those are credits that can be sold out of the tax equity fund. So there's very, very little friction there with regards to with regards to overall liquidity. And in fact, it becomes an accretive on the PNL. Got it.

And lastly, I would say that.

My feeling is that we are probably approaching a Q1.

Trough as far as equipment.

Sales pricing.

It won't be this quarter and it probably will be next quarter and then I think we can firm things up will it always be a more challenging environment on the equipment side globally, just given the amount of competition that's come to fore.

Yes, who is going to come out of that I have some ideas no I'm not going to say them publicly but I do think that at some point here.

Ben Kallo: And then just maybe John just on working capital efficiency. It, you know, is it related to your dealers? Does it impact a relationship with, with your dealers? And then maybe if you can just talk about the health of dealers, it's because of the overall economy. Thank you. Yeah, sure, Ben. Well, you know, look, I think that a lot of our dealers run very good shops and businesses, and some of those businesses are quite large, and all of them are that I can think of are entrepreneurs that started the business.

I said in my Best guess is in the Q1 timeframe, we do see somewhat of a trough Inc. And it may stay at that point for a while as far as equipment goes, but I think the volume in terms of pricing, but I think the volume of the equipment.

It just starts to move up at that point in time, So I don't think its just.

Like it doesn't grow to the Sky this is not going to.

Ben Kallo: So they know what they're doing, and they can run, you know, a business through this environment, and we're certainly in this together. And then I want to stress that they need something. We'll be there. We need something. They'll be there for us. Is that everybody? No, but our core dealer base is certainly of that, of that ilk. I would say, look, in terms of payment terms being reduced and so forth, you know, you can certainly navigate it.

Fall through the floor as far as the equipment part of the market and that's I think going to take some folks by surprise. There is a lot of value to be had for consumers both in price and reliability and I keep pointing to that wedge and the value is there for the taking.

Yeah.

Thank you guys.

Yeah.

Okay.

Our next question comes from Pavel <unk> with Raymond James. Please go ahead. Your line is now open.

Thanks for taking the question you talked a lot about the cost of capital maybe tougher.

Talk a little bit about equipment.

We look at benchmark kind of module pricing down 30% in the last six months lithium ion batteries down.

Ben Kallo: And frankly, you need to. I mean, the cost of money is really high. And it is what it is. We can certainly push pricing up, which is another thing that obviously they're not waiting by the phone. Like, oh, I'm so glad you called. You're pushing price up again. You know, I said, well, you know, call Chairman Powell. You know, I've got to line into them as well as like, you know, stop the spending, reckless spending from the federal government to push inflation up that was begun by Trump and continued in the Biden administration.

Sharply.

In your specific supplier relationships are you observing the same.

Kind of rate of decline as the benchmark.

Probably more.

But as I just answered a question.

I think that probably trough somewhere in the Q1 timeframe would be my best guess, but it's possible uncertainties components like <unk>.

Ben Kallo: So, you know, we need, there's a lot of things that we all can complain about, but we're here. And what are we going to do? Well, thankfully, we got these utilities and monopolies that just want to push up price on no matter what the fuel input costs are. And so, you know, we've got a nice, you know, price to sell against. And that keeps you used to rise at a faster clip than I think a lot of people really understand, frankly.

For instance, batteries and inverters rather than panels.

I think we will start to firm up, particularly in some of the larger and more better technology players.

And in terms of pricing it probably stays where it's falling at some point right. So I think the pricing troughs at some point in the Q1 Q2 timeframe and I think volume my best expectation starts crossing where you start to move up volumes in the Q1 time frame one thing Thats interesting is a lot of people.

Ben Kallo: And then the other side, you know, we're getting a lot more scale globally and the technology is improving in both efficiency and obviously, and cost. And so these falling and closed. So, all of our dealers can navigate that this and they some do better than others. Will we lose a few dealers? Sure. So, that happens, but we're nobody's better at making sure that we've been kept whole and manage that risk than us, frankly. A lot of the industry has adopted the guidelines that we set forth and put in place years ago. So, we feel very comfortable about all of our liquidity exposure there and credit exposure, really sorry.

We are starting to look at in terms of investors with trepidation to the election I think all Americans look at with trepidation to the election next year.

I certainly do one thing I would put out there for people to ponder is.

It's not going to get any better in terms of tax credits and the IRA credits.

It is now certainly in Q1, when we get the final guidance out of domestic content, hopefully body and before the end of the year.

Ben Kallo: And lastly, I would say that, you know, my feeling is that we are probably approaching a Q1 a trough as far as equipment, you know, sales pricing point. It won't be this quarter. It probably will be next quarter. And then I think we can firm things up. Will it always be a more challenging environment on the equipment side globally, just given the amount of competition that's come to four. Yes, who's going to come out of that?

Treasury.

Make a decision on batteries lets go but.

Wouldn't it be make more sense is that people start to book and contract ahead of the election. So that why what are you waiting on the only thing could happen is it gets somewhat maybe a little bit tiny worse I don't think the Ara is going to get repealed or anything like that for the reasons, we've talked about but I do think that you would see some at least incremental pull forward in demand.

Ben Kallo: I have some ideas. No, I'm not going to say them publicly. But I do think that at some point here, like I said, my best guess is in the Q1 timeframe, we do see somewhat of a trough thing and it may stay at that point for a while as far as equipment goes, but I think the volume in terms of pricing, but I think the volume of the equipment purchase starts to move up at that point in time.

Because what are you waiting on.

Okay.

Okay.

Can we get an update on.

Where things stand with your commercial opportunity.

Yes that continues to move forward, we've signed a number of deals some with some high profile companies I don't think any of which we've made public but it's a nice business.

Ben Kallo: So, I don't think it's not, just like it doesn't go to the sky. This is not going to, you know, fall through the floor as far as the equipment part of the market. And that's, I think, going to take some folks by surprise. There's a lot of value to be had for consumers, both in price and reliability. And I keep pointing to that wedge and the value is there for the take. Thank you.

Ben Kallo: Thank you guys.

It will throw off cash net next year and so again it falls in the side of we're not going to grow at really Crazy, where there is an ample amount of opportunity. There there is more opportunity than what we're going to take advantage of frankly.

That's okay. It's a part of our capital expenditure budget that we've laid out.

And I want to make that point there is in this industry from now on the customer count as one budget and forecast and the capital expenditure budget is another are they related yes, but they're not going to be one for one and I think we need to start talking about in terms of capital expenditure budgets.

Pavel Molchanov: Our next question comes from Pavel Molchanov with Raymond James. Please go ahead, your line is now open. Thanks for taking the question. You've talked a lot about the cost of capital, maybe talk a little bit about equipment. We look at benchmark, kind of module pricing, down 30% in the last six months with the Amine batteries down, you know, about a sharply in your specific supply relationships. Are you observing the same kind of rate of decline as the benchmarks?

And the business markets as a part of that capital expenditure budget that we've laid out for you all for next year.

Okay.

Got it thanks very much.

Thank you.

Our next question comes from the line of Stacy <unk> with Keybanc.

Please go ahead. Your line is now open.

Okay.

Pavel Molchanov: Probably more, but is that just answered a question, Pavel? I think that probably drops somewhere in the key one time for me to be my best guest, but it's possible in certain these components like, for instance, batteries and inverters rather than panels, you know, it I think we'll start to firm up particularly in some of the larger and more better technology players. And in terms of pricing, it probably stays where it's falling at some point, right?

Hey, good morning, guys.

A question on Green bond.

No.

What are your thoughts on using this type of financing going forward given where.

If pricing of that turned out to be when you first time first time.

Yes, so I'll answer that and then turn it over to Rob.

This was a continuation in terms of our issuance of that bond.

Which was very timely I would add clearly.

Pavel Molchanov: So I think the pricing drops at some point in the Q1, Q2 time frame. And I think volume, my best expectation starts dropping where you start to move up volumes in the key one time frame. You know, one thing that's interesting is a lot of people are starting to look at in terms of investors with trepidation to the election. I think all Americans look at with trepidation to the election next year.

A strategy we've had in place for over two and a half years and so having the ability to have here.

Your company rated has enjoyed only by us and the sector and so it gives us.

Another weapon another channel of liquidity there.

Others don't have and so what that also means is we have other opportunities we have other channels that other people have as well such as the.

Pavel Molchanov: I certainly do. One thing I put out there for people to ponder is it's not going to get any better. In terms of tax credits and the IRA credits as it is now, certainly in Q1, when we get the final guidance out of domestic content, hopefully by the end before the end of the year out of the treasury, get make a decision on batteries.

Non rated.

Pieces in the ABS marketplace. So we're always going to do a combination of these we like where we are right now I think that the corporate capital forecast is very clear and it stands where it is and so on.

Pavel Molchanov: Let's go. But, you know, wouldn't it be make more sense is that people start to book and contract ahead of the election so that, you know, why what are you waiting on? The only thing could happen is it gets somewhat maybe a little bit tiny worse. I don't think the IRA is going to get repealed or anything like that for the reasons we've talked about. But I do think that you would see some at least incremental pull forward in demand, because what are you waiting on? Right.

The rate that we paid is definitely lower than the radio pieces in the ABS market. So again it was a nice it was it was a nice price should we want to fix that we issued the first time, two and a half years ago, obviously so.

But theres a lot of things that we wish and our pricing was not near as high as it is now as a result, so we operate on a spread basis. So it.

It's something that someday down the road, but right now we're comfortable we'd rather be reducing leverage rather than increasing it no matter, whether it's asset level or corporate level.

Pavel Molchanov: Can we get enough data on worthings stand with your commercial opportunity? Yeah, that continues to move forward. We've signed a number of deals somewhat some high profile companies. I don't think any of which we've made public. But it's a nice business. It will throw off cash next year. And so, you know, again, it falls in the side of we're not going to grow it really crazy. There's an ample amount of opportunity there.

I think it's a nice part of the strategy clearly, but it's something that we're not going to be doing next year, Rob anything you want to add to that.

No I think.

Just to say or to reiterate what John said is that it.

Does a good and timely bond and.

We're very happy that we were able to execute as well as we did with some very strong and with a lot of long time investors coming in into that.

But.

We are.

Pavel Molchanov: There's more opportunity than what we're going to take advantage of, frankly. And that's okay. It's a part of our capital expenditure budget that we've laid out. And I want to make that point. There is in this industry from now on, the customer count is one budget. And in forecast. And the capital expenditure budget is another. Are they related? Yes. But they're not going to be one for one. And I think we need to start talking about in terms of capital expenditure budgets. And the business markets is a part of that capital expenditure budget that we've laid out for you all for next year.

That's it right right now and so we're looking to stay here within what we have created in the amount of corporate capital that we're carrying and we will look over time.

Pavel Molchanov: Thanks very much.

Sophie Karp: Thank you.

Through the cash flows that we're able to generate to be able to delever the corporate side of the balance sheet.

Got it. Thank you my other question was with.

With a bunch of programs right in the hole as a whole distributed model and that begins to take hold.

Are you do you are you envisioning that utilities might want.

Piece of this business and we will try to compete with you in the peoples.

Sophie Karp: Our next question comes from the line of Sophie Karp with Keybank. Sophie, please go ahead, your line is now open. I have a question on Green Bond. So, what are your thoughts on using this type of finance and going forward, given where relative pricing of that turned out to be when you first time. When you don't first time. Yeah, Sophie, I'll answer that and turn over to Rob. You know, this was a continuation in terms of our issuance of that bond, which was very timely, I would add, clearly.

People's homes and distributed.

Generation in virtual power plants et cetera is that is that that competitive set.

Yes.

I'd love to compete against them I think it's a great idea to have consumers have choice and an open market like we do in Houston, Dallas, Australia, Japan, Europe, and U K I think the rest of the country needs to get with it and update the regulations and let's let's see the best company compete for the consumers' business and see who wins.

So I think it's a great idea to blow open competition and provide consumers choices and I support it.

Sophie Karp: And of a strategy we've had in place for over two and a half years, and so having the ability to have your corporate, your company rated is enjoyed only by us in the sector. And so it gives us, again, another weapon, another channel of liquidity that others don't have. And so what that also means is we have other opportunities. We have other channels that other people have as well, such as the non-rated pieces in the ABS marketplace.

Alright.

Great. Thank you.

Our next question comes from Brian Lee with Goldman Sachs. Brian. Please go ahead. Your line is now open.

Hey, John Hey, Rob Thanks for taking the question. This is Chris on for Brian I guess first question just a follow up to previous questions on the liquidity forecast corporate capital need.

Sophie Karp: So, we're always going to do a combination of these. We like where we are right now. I think that the corporate capital forecast is very clear, and it stands where it is. And so, you know, the rate that we paid is definitely lower than the unrated pieces in the ABS market. So, again, it was a nice price. Would we want to fix that we issued the first time two and a half years ago?

You mentioned there are different levers that you can pull such as like increasing prices improving working capital reducing opex.

To help to help your 24 corporate capital need guaranteed zero from 500.

Just wondering if you can quantify those major levers and help US bridge the gap here a bit more and I have a follow up.

Hey, Greg This is John I think we've been very clear.

Sophie Karp: Obviously so. But there's a lot of things that we wish and our pricing was not near as high as it is now as a result. So, we operate on this bread basis. So, it's something that some day down the road, but right now we're comfortable. We'd rather be reducing leverage rather than increasing it, no matter whether it's asset level or corporate level.

And these are we've been giving our guidance forecast as far as liquidity, that's far out than anybody else has.

We've been very clear about the levers that we continue to pool.

0.2 things like look at the inventory line on our balance sheet, it dropped by 23% quarter over quarter.

Sophie Karp: And I think it's a nice part of the strategy clearly, but it's something that we're not going to be doing next year. Rob, anything you want to add to that? No, I think, I think just to say, or the reiterate where John said is that, you know, it was a good and timely bond. And we're very happy that we were able to execute as well as we did with some very strong and with a lot of longtime investors coming in into that bond.

So I think if you dig a little and just look at the numbers that we put out which frankly are huge volumes of data metrics and numbers that nobody else puts out I think you'll be able to put all the pieces together and it all makes sense to you.

Yes.

Okay.

I guess the second question on the EBITDA guide sorry, if I missed that how much of the ITC or embedded in your 2004 EBITDA number.

Sophie Karp: But we're, you know, we that's it right for right now. And so we're looking to stay here within what we have created in the amount of corporate capital that we're carrying. And we will look over time through the cash flows that we're able to generate to be able to deliver the corporate side of the balance sheet. Now, thank you.

We haven't quantified that but right now it looks like it's about.

15% to 20%.

Now that number could rise depending on how we move forward on the mix.

But.

And how some of our tax equity partners want to move forward on the mix, but right now it's a pretty modest part of the guide.

Don Burger: My question was with virtual power plants right in the whole as a whole distributed model and it begins to take hold. Are you, are you envisioning that utilities might want a piece of this business and I will try to compete with you in the kind of people's homes and distributed generation and virtual power plants, etc. Is that that competitive? I'd love to compete against them. I think it's a great idea to have consumers have choice in an open market like we do in Houston, Dallas, Australia, Japan, Europe, and UK.

Thank you.

Thanks.

Our next question comes from <unk> <unk> with Wells Fargo.

Please go ahead. Your line is now open.

Thanks, Good morning, I wanted to start by just clarifying one thing on the corporate capital. So recognizing it's zero for 'twenty four I guess I'm, just asking about the longer term strategy. There has there been kind of a shift in the strategy to basically.

Minimized corporate capital keep it close to zero focus on kind of higher margin customers or is this more.

Don Burger: I think the rest of the country needs to get with it and update the regulations and let's see the best company compete for the consumers business and see who wins. So I think it's a great idea to blow open competition and provide consumers choices and I support it. Great. Thank you.

Just the near term.

Event tied to lower.

Tied to operating cost savings.

I think I answered that question earlier.

We have the ability to go issue corporate capital.

And issuing corporate capital doesn't as an asset and the ability to do it as an asset that no one else has.

Brian Lee: Our next question comes from Brian Lee with Goldman Sachs. Brian, please go ahead. Your line is now open. Hey, John. Hey, Rob. Thanks for taking the question.

And when Im speaking as a corporate capital obviously, everybody can issue equity, but I'm speaking of the corporate debt side.

So it's easy to criticize something or to make it into something when you don't have the ability to do it.

Grace: This is Grace on for Brian. I guess first question, just to follow up to the previous questions on this. The liquidity forecast for corporate capital needs. You mentioned there are different levers that you can pull, such as like increasing prices, improving working capital, reducing up X to help to help your 24 corporate capital need down to zero from 500. Just wondering if you can quantify those major levers and help us bridge the gap here a bit more.

We have the ability to do it we retain that ability to do it we have this flexibility.

Know that.

We laid out a plan, we know what the resources and the sources of capital there.

Or at least cost where they are and we've again increasing price.

Are you seeing the working capital and reducing operating expenses, you're going to continue to do that our flexibility as far as what we can do in 2025 and beyond is pretty wide. We have a number of weapons. Both in channels, but also in sources of capital and liquidity and we're going to continue to build more and more of those case in point the ITC safe.

Grace: Thanks. And I have to follow. Hey, Grace, this John. I think we've been very clear and these are, you know, we've been giving a guidance forecast as far as liquidity that's far out that anybody else has. We've been very clear about the levers that we continue to pull point to things like look at the inventory line on our balance sheet. It dropped by 23% quarter to quarter. So I think if you dig and just look at the numbers that we put out, which, you know, frankly are huge volumes of data metrics and numbers that nobody else puts out, I think you'll be able to put all the pieces together and it all makes sense to you.

<unk> that we did the industry's first transaction on.

That's another great point, the Heska deal that that Rob has done is another.

Great point. An example, so we're going to continue to build those different channels and levers and opportunities to provide more and more liquidity and cheaper capital and nobody does it better than us.

Okay.

Makes sense and then I'm just curious if you could talk about the process that you went through to get the.

Grace: Okay, I guess the second question on the EBITDA guy. Sorry if I missed that. How much of the ITC sales are embedded in your 24 EBITDA number? We haven't quantified that, but it right now it looks like it's about 15 to 20%. Now that number could rise depending on how we move forward on the mix. But and how some of our tax equity partners want to move forward on the mix, but right now it's a pretty modest part of the guide. Thank you. Thanks.

ITC Transferability deal done since you guys were one of the first I guess how.

Onerous was this process as does the infrastructure.

Is it in place across the industry to kind of scaled its much higher in the coming years and I guess, how would you compare the complexity of this deal versus.

ITC transfers versus tax equity.

I want to say one comment because Rob won't do this is modest but we were the first there's only one first we were the first and he did it Rob do you want to finish answering the question it was heart and mind.

Get a lot of folks who come to the table a lot of folks to agree to the process I would say that.

We.

Praneeth Satish: Our next question comes from Prince Satish with Wells Fargo. Please go ahead. Your line is now open. Thanks. Good morning. I wanted to start by just clarifying one thing on the corporate capital. So recognizing it's zero for 24. I guess I'm just asking about the longer term strategy there. Has there been kind of a shift in the strategy to basically, you know, minimize corporate capital, keep it close to zero. Focus on kind of higher margin customers, or is this more just a near term event tied to, you know, lower tied to operating cost states.

The buyer, who we partner with though was a wonderful partner.

And.

Hi.

What you always end up doing is you end up having four or five law firms involved and every one of them is trying to protect their client and.

But not every one of them is familiar with with tax equity or with the IRS and so you end up with a lot of different folks trying to get out.

A lot of different points, but we had a great buyer and they had a really good counsel that was there.

They can see a clear path to the finish line and everything that was required.

That's not.

Think thats necessarily comment, but I think that what is what is good is that we now have the blueprint. We now have the model for exactly how it works and so being able to go to subsequent buyers with that same blueprint with that same model.

Don Burger: I think I answered that question earlier. We have the ability to go issue corporate capital and issuing corporate capital doesn't is an asset, and the ability to do it is an asset that no one else has. And when I'm speaking of the corporate capital, obviously everybody can issue equity but I'm speaking of the corporate debt side. So it's easy to criticize something or to make it into something when you don't have the ability to do it.

Is incredibly valuable it's just one more piece of corporate secret sauce. If you will that we intend to continue leveraging.

One thing I would add is that service is a key part and we've talked about this we are a service company and that is not prevalent outside maybe one one or two other competitors in our space. So that's something that somebody has got to really build that will be interesting that is a massive heavy lift that takes years.

Don Burger: We have the ability to do it. We retain that ability to do it. We have this flexibility. We know that, you know, we laid out a plan. We know what the resources and the sources of the capital that are at least cost where they are. And we've, again, increasing price, reducing the working capital and reducing operating expenses. We're going to continue to do that. Our flexibility as far as what we can do.

Lots of capital and lots of great talent, and so thats, another competitive edge and really.

Being able to offer leases ppas and so forth.

Don Burger: So in 2025 and beyond is pretty wide. We have a number of weapons both in channels, but also in sources of capital and liquidity. And we're going to continue to build more and more of those case in point. You know, the ITC sales that we did the industry's first transaction on. That's another great point. The hefty a deal that Rob has done is another great point and an example. So we're going to continue to build those different channels and levers and opportunities to provide more and more liquidity and cheaper capital. And nobody does it better than us.

It makes a lot of sense. Thank you.

Okay.

Thanks.

We have time for one more question. Your final question comes from the line of Jordan Levy with J Jill.

Please go ahead. Your line is now open.

Moving on I. Appreciate you squeezing me in here just wanted to touch briefly on the service segment for next year seems like sort of overall customer growth is kind of the main lever that you can move around here, but just curious after another good quarter in that segment. How are you thinking about that into 2024.

Robert Lane: Okay, now that makes sense. And then I'm just curious if you could talk about the process that you went through to get the, you know, that ITC transferability deal done since you guys were one of the first. I guess how onerous was this process is the infrastructure. Is it in place across the industry to kind of scale this much higher in the coming years? And I guess how would you compare the complexity of this deal versus of ITC transfers versus tax equity.

Yes, Jordan.

The opportunity there is immense.

This industry has not done what I feel is a good job of taking care of the customers I think that.

We can do a lot better.

And we can do a lot better as a company and we will improve continue to improve I promise you that.

But there is an enormous amount of opportunity because frankly really nobody else focused on it at all and again building out the operations and logistics and capabilities is a huge lift and this is not just installing this is this is a different animal altogether from just plain installation.

Don Burger: I'm going to say one comment because Rob won't do this. He's modest, but no, we were the first. There's only one first. We were the first and he did it. Rob, you want to finish answering the question? Yeah, it was hard. And like I said, you got to get a lot of folks to come to the table, a lot of folks to agree to the process. I said that, you know, we, the buyer who we partnered with, though, was a wonderful partner.

Not that the installation is easy.

Our valued dealers do a heck of a job on that particularly are our larger dealers.

And when you look at the.

The barrier to entry on a scale service operation across something as fast as well.

Don Burger: And what you always end up doing is you end up having four or five law firms involved. And every one of them is trying to protect their client. And not every one of them is familiar with tax equity or with the IRA. And so you end up with a lot of different folks trying to get a lot of different points in. But we had a great buyer and they had a really good council that was that they could, they could see the clear path of the finish line and everything that was required.

With Guam, Saipan, Hawaii, Puerto Rico, and all the way from Texas to Maine that if that is a I'm not aware of anybody else. That's even close so it's an enormous opportunity we see a lot of growth I think it's what may be approaching probably 3 million customers of opportunity and growing fast.

And again as people feel like they need to move over to lease PPA.

It's going to be even more of an opportunity is if somebody has got to do that work and service work. So we see a lot I think we've been very modest in all of our forecasting for 2024.

Don Burger: That's not, I don't think that's necessarily common, but I think that what is what is good is that we now have the blueprint. We now have the model for exactly how it works. And so being able to go to subsequent buyers with that same blueprint with that same model is incredibly valuable. It's just one more piece of corporate secret sauce, if you will, that we intend to continue leveraging.

And that is also a very modest forecast.

Thank you so much for them this quarter.

Thank you.

Thank you all the questions. We have time for today, So I'll turn the call back over to John for closing remarks.

We are focused on liquidity profitability and cash flow.

Don Burger: One thing I would add is that service is a key part and we've talked about this, we are a service company and that is not prevalent outside maybe one or two other competitors in our space. So that's something that somebody's got to really build, that'll be interesting, that it's a massive heavy lift that takes years, lots of capital and lots of great talent. And so that's another competitive edge in really being able to offer Lisa's PPAs and so forth. Makes a lot of sense, thank you. Thank you.

We're going to take <unk> to execute by raising prices, reducing working capital and reducing operating expenses.

We clearly see a growing value wedge driven by monopolies raising prices and falling equipment prices.

I look forward to speaking with you again in the new year. When we can further discuss our continued execution. Thank you.

Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.

Jordan Levy: We have time for one more question, so our final question comes from the line of Jordan Levy with Trist. Jordan, please go ahead, your line is now open. Morning all and I appreciate you squeezing me in here, just wanted to touch briefly on the service segment for next year seems like sort of overall customer growth is kind of the main lever that you can move around here, but just curious after another good quarter in that segment, how are you thinking about that into 2024?

Jordan Levy: Yeah, Jordan, the opportunity there is immense. You know, this industry is not done what I feel is a good job of taking care of the customers, I think that we can do a lot better, and we can do a lot better as a company and we will improve, continue to improve, I promise you that, but there is an enormous amount of opportunity because frankly, really nobody else focused on it at all.

Jordan Levy: And again, building out the operations on logistics and capabilities is a huge lift, and this is not just installing, this is a different animal altogether from just plain installation, not that the installation is easy. You know, our value dealers do a heck of a job on that, particularly our larger dealers, and when you look at the, the barrier to entry on a scale service operation across, you know, something is vast is, you know, with bombs, I pan, Hawaii on the Puerto Rico and all the way from Texas to Maine, that is a, I'm not aware of anybody else is even close.

Jordan Levy: So, it's an enormous opportunity, we see a lot of growth, I think it's what made approaching probably 3 million customers of opportunity and growing fast. And again, as people feel like they need to move over to least PPA, that's going to be even more of an opportunity, if somebody's got to do that work and the service work. So, we see a lot, I think we've been very modest in all of our forecasting for 2024, and that is also a very modest forecast.

Jordan Levy: Thanks so much for that, Ms. Kogor. Thank you.

Don Burger: Those are all the questions we have time for today, so I'll turn the call back over to John for closing remarks. We are focused on liquidity, profitability, and cash flow. We're going to take in you to execute by raising prices, reducing working capital, and reducing operating expenses. We clearly see a growing value wedge during Biden-Oppley's raising prices and falling equipment prices. I look forward to speaking with you again in the new year when we can further discuss our continued execution. Thank you. Thank you everyone for joining us today. This concludes our call and you may now disconnect your line.

Operator: Thank you for joining us today.