Q1 2024 Sunnova Energy International Inc Earnings Call
Operator: Thank you for your patience, everyone. The Sunnova's first quarter 2024 earnings conference call will begin shortly. During the presentation, you have the opportunity to ask a question by pressing the star followed by one on your telephone key. The call will begin shortly. Thank you. Good morning, and welcome to Sunnova's first quarter 2024 earnings conference call. Today's call is being recorded, and we have allocated an hour for prepared remarks and the question and answer portion of the call. At this time, I would like to turn the conference over to Rodney McMahan, Vice President of Investor Relations at Sunnova. Please go ahead. Thank you.
Thank you for your patience, everyone. That's enough as first quarter 'twenty 'twenty four earnings conference call will begin shortly during the presentation you have the opportunity to ask a question by pressing star followed by one on your telephone keypad.
The call will begin shortly.
Thanks.
[music].
Yeah.
Speaker Change: Good morning, and welcome to the Synovus first quarter 'twenty 'twenty four earnings conference call. Today's call is being recorded and we have allocated an hour for prepared remarks, and the question and answer portion obstacle at this time I would like to turn the conference over to.
Rodney McMahan: Rodney Mcmahan, Vice President of Investor Relations at Sanofi. 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 as described in our slide presentation earnings press release, and our 2023 Form 10-K, please see those documents.
Rodney McMahan: Thank you, Operator. Before we begin, please note that during today's call, we will make forward-looking statements that are subject to various risks and uncertainties as described in our slide presentation, earnings press release, and our 2023 Form 10-K. Please see those documents for additional information regarding those factors that may affect these forward-looking statements. Also, we will reference certain non-GAAP measures during today's call. Please refer to the appendix of our presentation as well as the earnings press release for the appropriate GAAP to non-GAAP reconciliations and cautionary disclosures. On the call today are John Berger, Sunnova's Chairman and Chief Executive Officer, and Rob Lane, Executive Vice President and Chief Financial Officer. I will now turn the call over to John.
Rodney McMahan: For additional information regarding those factors that may affect these forward looking statements also we will reference certain non-GAAP measures. During today's call. Please refer to the appendix of our presentation as well as the earnings press release for the appropriate GAAP to non-GAAP reconciliations and cautionary disclosures on the call today are John Berger, <unk>, Chairman and Chief Executive Officer, and Rob Lane.
William Jackson Berger: Executive Vice President and Chief Financial Officer, I will now turn the call over to John.
William Jackson Berger: Before we get started, I wanted to acknowledge Rob Lane, our Chief Financial Officer. As we stated in our 8K yesterday, Rob will be stepping down from his role as our Chief Financial Officer to pursue other opportunities. This is a decision we have arrived at together, recognizing this is a logical time for transition.
William Jackson Berger: Before we get started.
William Jackson Berger: I wanted to acknowledge Rob Lane, our Chief Financial Officer.
William Jackson Berger: As we stated in our 8-K yesterday.
Robert Lawrence Lane: I will be stepping down from his role as our chief financial officer to pursue other opportunities.
William Jackson Berger: This is a decision we have arrived at together.
Speaker Change: <unk>. This is a logical time for a transition.
William Jackson Berger: On behalf of the Sunnova team and the Board of Directors, I want to recognize and thank Rod for his many contributions, including helping the company execute its initial public offering, our acquisition of Sunstreet, and launching the industry's first corporate green bond. We want to express our sincere gratitude to Rob for all that he has done to support Sunnova's success during his tenure. Rob will serve as CFO through June 30, 2024, or until his successor is named, and will remain focused on supporting the key financing activities we will discuss later in the call.
Speaker Change: On behalf of the Snowbird team and the board of directors I want to recognize and thank Rob for his many contributions including helping the company execute its initial public offering our acquisition of Sun Street, and launching the industry's first corporate green bonds.
Speaker Change: We want to express our sincere gratitude to Rob for all that he has done to support <unk> success during his tenure.
Rob will serve as CFO through June 30 of 2024 or until his successor is named and we'll remain focused on supporting the key financing activities. We will discuss later in the call.
Speaker Change: This change presents an opportunity.
Speaker Change: For new perspectives as we position <unk> for continued success working with the board. We have retained an outside search firm to run a full search process, which is already well underway and we expect to share further details on his successor in the weeks ahead. Thank.
William Jackson Berger: This change presents an opportunity for new perspectives as we position Sunnova for continued success. Working with the board, we have retained an outside search firm to run a full search process, which is already well underway, and we expect to share further details on Rob's successor in the weeks ahead. Thank you, Rob. We will miss you.
Speaker Change: Thank you, Rob we will Miss you.
William Jackson Berger: Now, as we review our first quarter performance, I want to take a moment to remind everyone that our team at Sunnova remains focused on making clean energy more accessible, reliable, and affordable for both residential and commercial customers. As we will discuss shortly, we have an outstanding market opportunity in front of us, and Sunnova is positioned to capitalize on this opportunity so that we can deliver long-term value to all of our stakeholders as power demand continues to grow.
Speaker Change: Yeah, as we review our first quarter performance I want to take a moment to remind everyone that our team at <unk> remains focused on making clean energy more accessible reliable and affordable for both residential and commercial customers.
Speaker Change: As we will discuss shortly we have an outstanding market opportunity in front of us and Sonoma is positioned to capitalize on this opportunity. So that we can deliver long term value to all of our stakeholders as power demand continues to grow.
William Jackson Berger: On slide five, we see a multi-year tailwind, driven by tremendous load growth on aging electricity infrastructure. By 2028, it is expected that the demand for power in the U.S. will increase dramatically due to the continued electrification of the economy, onshoring of manufacturing, electric vehicle adoption, and increased demand from A.I., cryptocurrency, and data centers. But an aging power grid means less energy reliability.
Speaker Change: On slide five.
Speaker Change: We see a multiyear tailwind.
Speaker Change: Driven by a tremendous load growth on aging electricity infrastructure by 2028. It is expected that the demand for power in the U S will increase dramatically due to the continued electrification of the economy onshoring of manufacturing electric vehicle adoption and increased demand from AI crypto currency.
Speaker Change: And data centers.
Speaker Change: But in an aging power grid means less energy reliability.
William Jackson Berger: And with so much growth on the horizon, the energy services that Sunnova provides will be needed for decades to come. But at the same time, we're also seeing steady increases in utility rates, as the capital needed to support and replace this aging and frequently damaged infrastructure becomes more expensive in the current interest rate environment. Inflation has had a direct impact on the cost to maintain and upgrade grid infrastructure, and public utility regulators continue to approve higher and higher utility rates.
Speaker Change: And with so much growth on the horizon. The energy services that <unk> provides will be needed for decades to come.
Speaker Change: At the same time, we're also seeing steady increases in utility rates.
Speaker Change: As the capital needed to support and replace aging and frequently damaged infrastructure becomes more expensive in the current interest rate environment.
Speaker Change: Inflation has had a direct impact on the cost to maintain and upgrade grid infrastructure and public utility regulators continue to approve tire and higher utility rates.
William Jackson Berger: This scenario allows Sunnova to maintain a highly competitive and compelling energy offering. As evidenced on slide seven, a consistent and direct correlation exists between utility rates and the adoption of solar energy. On slide 8, we see these dynamics creating strong demand for our Sunnova Adaptive Energy offering. As a company, we view these macroeconomic trends as indicators of the many opportunities ahead. Through our innovative financing, servicing, and energy management offerings, we are proud to be helping our customers protect their homes, businesses, and families.
Speaker Change: This scenario allows <unk> to maintain a highly competitive and compelling energy offering.
Speaker Change: As evidenced on slide seven our consistent and direct correlation exists between utility rates and the adoption of solar energy.
On slide eight we see these dynamics creates strong demand for our Sonoma adaptive energy offerings.
Speaker Change: As a company we view these macroeconomic trends as indicators of the many opportunities ahead through our innovative financing servicing and energy management offerings, we're proud to be helping our customers protect their homes businesses and families.
William Jackson Berger: To date, Sunnova has provided energy services to over 438,000 customers, managing 2.6 gigawatts of power backed up by almost 1.2 gigawatt hours of energy storage. We have partnered with over 2,100 dealers and new home installers in over 50 U.S. states and territories.
Speaker Change: To date, so nobody has provided energy services to over 438000 customers managing two six gigawatts of power backed up by almost 1.2 gigawatt hours of energy storage solutions.
Speaker Change: We have partnered with over 2100 dealers and new homes installers and over 50 U S States and territories. We are doing this with industry, leading technology, both in hardware and software, which is backed by our service offerings and our entire team of dedicated employees, who support our customers day in day out.
William Jackson Berger: We are doing this with industry-leading technology, both in hardware and software, which is backed by our service offerings and our entire team of dedicated employees who support our customers day in, day out. We see the demand and recognize that as we continue to make improvements to the business, we remain committed to the core customer value proposition we centered our entire business around 12 years ago. As a leading adaptive energy services company, we are delivering a comprehensive, sustainable, and streamlined approach to energy services.
Speaker Change: We see the demand and recognize as we continue to make improvements to the business. We remain committed to the core customer value proposition, we centered our entire business around 12 years ago.
Speaker Change: As a leading adaptive energy services company, we are delivering a comprehensive sustainable and streamline approach to energy services with our platform. We are simplifying the increasingly nuance landscape of energy so that our customers do not have to worry about the upfront cost maintenance our technical complexities.
William Jackson Berger: With our platform, we are simplifying the increasingly nuanced landscape of energy so that our customers do not have to worry about the upfront costs, maintenance, or technical complexities of powering their homes and businesses. Instead, they rely on Sunnova as their trusted energy partner, accessing affordable, reliable, and sustainable energy solutions.
Speaker Change: Powering their homes and businesses instead, they rely on us to know about their trusted energy partner accessing affordable reliable and sustainable energy solutions we.
William Jackson Berger: We are more excited than ever to see what the future brings, and we will continue to innovate in our customer experience and work hard to support the growing energy needs of the country. Moving to our Q1 financial results on slide 11. Most notably, during the quarter, we generated $18.9 million in unrestricted cash, and our total cash balance remained relatively flat compared to the prior quarter, sitting at $487.5 million as of March 31, 2024. Additionally, we experienced an 11.6% decrease in adjusted operating expense per customer compared to the fourth quarter of last year.
Speaker Change: We are more excited than ever to see what the future brings and we will continue to innovate on our customer experience and work hard to support their growing energy needs of the country.
Speaker Change: Okay.
Speaker Change: Moving to our Q1 financial results on slide 11.
Speaker Change: Most notably during the quarter, we generated $18 9 million in unrestricted cash and our total cash balance remained relatively flat compared to the prior quarter sitting at $487 $5 million as of March 31, 2024. Additionally, we experienced an 11, 6%.
Speaker Change: Decrease in adjusted operating expense per customer compared to the fourth quarter of last year.
William Jackson Berger: This quarter, we delivered $46.4 million in adjusted EBITDA, $35.7 million in interest income, and $41.9 million in principal proceeds from customer notes receivable, which were all in line with the quarterly guidance we provided on our prior earnings call. We also continue to see steady year-over-year growth in our net contracted customer value, or NCCV. Assuming a 6% discount rate, NCCV was $3 billion, an increase of 15% compared to March 31, 2023. Our March 31, 2024 NCCV per share was $24.34, assuming the same discount rate.
Speaker Change: Proof that the initial steps we have taken over the last few months to reduce costs are starting to bear fruit.
Speaker Change: This quarter, we delivered $46 4 million and adjusted EBITDA $35 7 million in interest income and $41 9 million in principal proceeds from customer notes receivable, which were all in line with the quarterly guidance, we provided on our prior earnings call.
Speaker Change: We also continue to see steady year over year growth in our net contracted customer value or N C. C D <unk>.
Speaker Change: Assuming a 6% discount rate N C. C V was $3 billion, an increase of 15% compared to March 31, 2023 or.
Speaker Change: Our March 31, 2024, and <unk> per share was $24 34.
Speaker Change: Assuming the same discount rate.
William Jackson Berger: Over the last few months, we have also made several exciting strategic announcements. In January, we announced the opening of our Adaptive Technology Center in Houston. Equipped with cutting-edge energy testing and integration technologies, this center allows our engineering teams to innovate and integrate various technologies seamlessly. It also empowers our service technicians to troubleshoot field issues in a controlled environment, enhancing our service response times and visiting our customers' homes. In late March, after years of working with the Home Depot to empower customers with cost-effective energy solutions and ensure dependable and resilient power, we were thrilled to announce our strategic partnership, whereby we will now be the sole provider of solar and battery storage services in the Home Depot stores across the United States and its territories. This agreement provides consumers with access to the Sunnova Adaptive Home energy offerings in over 2,000 Home Depot stores. Lastly...
Speaker Change: Over the last few months, we have also made several exciting strategic announcements.
Speaker Change: In January we announced the opening of our adaptive technology Center in Houston.
Speaker Change: Quick with cutting edge energy testing and integration technologies. This center allows our engineering teams to innovate and integrate various technologies seamlessly.
Speaker Change: It also empowers our service technicians to troubleshoot filled issues in a controlled environment enhancing our service response times and visiting our customers homes.
Speaker Change: In late March after years of working with the home depot to empower customers with cost effective energy solutions, and ensuring dependable and resilient power. We were thrilled to announce our strategic partnership whereby we will now be the sole provider of solar and battery storage services in the home depot stores across the United States and it's Tara.
Speaker Change: Tories.
Speaker Change: This agreement provides consumers with access to the Sonoma adaptive home energy offerings and over 2000 home depot stores.
Speaker Change: Lastly.
William Jackson Berger: In early April, we announced the growth of our virtual power plant network, powered by our Sunnova Sentient technology platform. Our customer systems and the clean power produced continue to help offset the need for utilities to use heavily polluting fossil fuel power plants during peak demand periods, in return for their demand battery response and contribution. Our customers are compensated for the power supplied by their batteries in most programs, creating a win-win for the customer and the community.
Speaker Change: In early April we announced the growth of our virtual power plant network powered by our Synovus sentient technology platform, our customer systems and the clean power produce continues to help offset the need for utilities to use heavily polluting fossil fuel power plants during peak demand periods.
Speaker Change: In return for their demand battery response and contribution.
Speaker Change: Our customers are compensated for the power supplied by their batteries in most programs, creating a win win for the customer and the community.
William Jackson Berger: As our customer base continues to expand, we are at a pivotal moment in enrolling customers into these programs, and we look forward to sharing more details in future earnings calls. Recognizing the current state of the industry, our immediate focus remains on increasing cash generation and maintaining our margin. This has only sharpened our focus on maximizing asset-level capital, driving cost efficiencies, further leveraging ITC adders, and refocusing on our core adaptive energy customers, all of which we will discuss in greater detail in the subsequent slides. Turning to slide 14, you will see that our total unrestricted cash balance was up compared to the end of last year.
Speaker Change: As our customer base continues to expand we are at a pivotal moment in enrolling customers into these programs and we look forward to sharing more details in future earnings calls.
Speaker Change: Recognizing the current state of the industry, our immediate focus remains on increasing cash generation and maintaining our margins.
Speaker Change: This is only sharpened our focus on maximizing asset level capital driving cost efficiencies further leveraging ITC adders and refocusing on our core adaptive energy customers all of which we will discuss in greater detail in the subsequent slides.
Speaker Change: Turning to slide 14, you will see our total unrestricted cash balance was up compared to the end of last year.
William Jackson Berger: We have remained active in the asset-backed securitization market, with two issuances in February totaling $453 million, and our securitizations are trading well in the secondary market, which gives us confidence in a strong ABS environment for solar. We expect to continue to access the securitization market this quarter and throughout the year as investor appetite remains strong. We also continue to be active in the tax equity market with the closure of a new $195 million fund in February and increased funded commitments of $58 million throughout the quarter to previously established funds. Additionally, while our large TEP-8B fund closed in December, it was not funded until March of this year, providing us with significant liquidity in the first quarter.
Speaker Change: We have remained active in the asset backed securitization market with two issuances in February totaling $453 million and our securitization are trading well in the secondary market, which gives us confidence and a strong ABS environment for solar.
Speaker Change: We expect to continue to access the securitization market this quarter and throughout the year as investor appetite remains strong.
Speaker Change: We also continued to be active in the tax equity market with the closure of a new $195 million bond in February and increased funded commitments up $58 million throughout the quarter to previously established your bonds.
Speaker Change: Additionally, while our large T P. Eight the fund closed in December it was not funded until March of this year, providing us with significant liquidity in the first quarter.
William Jackson Berger: As the shift from loans to leases and PPAs continues, driven by macroeconomic conditions and ITC adders, we expect that tax equity will make up a larger component of our total finances. We are generating more proceeds from asset-level financing than we have in recent years. We believe there are three main dynamics at play that will support this.
Speaker Change: As the shift from loans to leases and Ppas continues driven by macroeconomic conditions and ITC adders, we expected tax equity will make up a larger component of our total financings.
Speaker Change: We are generating more proceeds from asset level financing that we have in recent years. We believe there are three main dynamics at play that will support. This the first is more asset backed securitizations per year and monetizing those securitizations beyond the investment grade credit attachment points the SEC.
William Jackson Berger: The first is more asset-backed securitizations per year and monetizing those securitizations beyond the investment grade credit attachment points. The second is increased utilization of tax equity driven by the shift from loan financing to leases and PPAs. And third, accelerating the overall pace of asset-level finance. First, on more securitizations. We have done four securitizations per year for the last three years, and we expect to complete at least six securitizations in 2024. Also, since Q4 2023, we resumed the practice of issuing beyond the investment grade credit attachment point by monetizing the Class C notes and our asset-backed securitizations in addition to the Class A and Class B notes.
Speaker Change: Increased utilization of tax equity driven by the shift from loan financing to lease in Ppas and third accelerating the overall pace of asset level financing.
Speaker Change: First a more securitizations, we've done four securitizations per year for the last three years and we expect to complete at least six securitizations in 2024.
Speaker Change: Also since Q4 2023, we resumed their practice of issuing beyond the investment grade credit attachment point by monetizing the class C notes in our asset backed Securitizations. In addition to the class a and class B notes.
William Jackson Berger: This change in our securitization approach allows us to increase our net proceeds. Second, our customer mix shifts towards more solar leases and PPAs. This is an advantage for us as leases and PPAs benefit from higher total advance rates than loans due to their ability to utilize tax equity recently enhanced by the ITC Adder. Lastly, we are focused on accelerating the pace of our asset-level financings by working with our dealers and internal resources to bring assets into service quickly. Closing securitizations at a faster pace allows us to take advantage of higher advance rates, net of hedge breakage, when we securitize.
Speaker Change: This change in our securitization approach allows us to increase our net proceeds.
Speaker Change: Second.
Speaker Change: Our customer mix shift towards more solar leases and Ppas. This isn't an advantage for us as leases and ppas benefit from higher total advance rates than loans due to their ability to utilize tax equity.
Speaker Change: Recently enhanced by the ITC adders.
Speaker Change: Lastly, we are focused on accelerating the pace of our asset level financings by working with our dealers and internal resources to bring assets into service quickly.
Speaker Change: Closing securitizations at a faster pace allows us to take advantage of higher advance rates net of hedge breakage when we securitize.
William Jackson Berger: Moving to slide 16, we detail that trend in our unit economics spanning across multiple different interest rate environments in only three years. Taking a step back, our value proposition is comprised of many things, including cleaner, safer, and more reliable energy, but one of the biggest advantages to our customers is savings. Given the increase in utility rates, we've been able to continue delivering savings to customers while at the same time increasing our prices.
Speaker Change: Moving to slide 16, we detail that trend in our unit economic spanning across multiple different interest rate environments in only three years.
Speaker Change: Taking a step back our value proposition is comprised of many things, including cleaner safer and more reliable energy, but one of the biggest advantages to our customers is savings.
Speaker Change: Given the increase in utility rates, we've been able to continue delivering savings to customers while at the same time, increasing our pricing.
William Jackson Berger: This has allowed us to achieve a healthy spread in a rising interest rate environment. This dynamic is illustrated by the trend of our implied spread over the last three years. We've always said that we target a 500 basis points spread long term. In 2021, in a lower rate environment, we delivered an implied spread of 6.4%. As interest rates rose into 2022 and 2023, so too did our cost of debt, doubling from 2021 to 2022. Though we dipped below our spread target in 2022, our pricing changes in 2023 allowed us to increase our fully burdened unlevered return and generate an implied spread of 5.6%. 60 basis points higher than our target.
Speaker Change: This has allowed us to achieve a healthy spread in a rising interest rate environment.
This dynamic is illustrated by the trend of our implied spreads over the last three years.
We've always said that we target a 500 basis points spread long term.
Speaker Change: In 2021, and a lower rate environment, we delivered an implied spread of six 4% as interest rates rose in 2022, and 2023, so too did our cost of debt doubling from 2021% to 2022.
Speaker Change: We dipped below our spread target in 2022, our pricing changes in 2023 allowed us to increase our fully burdened unlevered return and generate an implied spread of five 6%.
Speaker Change: 60 basis points higher than our target.
William Jackson Berger: Over the last three years, in a host of different rate environments, we've been able to average a 5.5% implied spread while still delivering savings for our customers. We believe that this is indicative of the sustainability of our business model. Additionally, in the first quarter of this year, even as our cost of debt increased, it was more than offset by an increase in our fully burdened unlevered return, and we saw an increase in our spread back above the 6% mark. However, we recognize that strong unit economics can only be part of the story.
Speaker Change: Over the last three years and a host of different rate environments, we've been able to average a five 5% implied spread while still delivering savings for our customers.
Speaker Change: We believe that this is indicative of the sustainability of our business model.
Speaker Change: Additionally, in the first quarter of this year, even as our cost of debt increased it was more than offset by an increase in our fully burdened unlevered return and we saw an increase in our spread back up above the 6% Mark.
Speaker Change: However, we recognize the strong unit economics can only be part of the story.
William Jackson Berger: Therefore, we are continuing to drive further cost efficiencies in the business. In the first quarter of 2024, our adjusted operating expenses declined roughly 6%, a quarter of a quarter, or $6.6 million. This decrease in total adjusted operating expenses was the first decrease in this metric since 2020 and was driven by our initial efforts to reduce costs and further drive efficiencies in our business.
Speaker Change: Therefore, we are continuing to drive further cost efficiencies in the business.
Speaker Change: In the first quarter of 2024, our adjusted operating expenses declined roughly 6% quarter over quarter or $6 6 million.
This decrease in total adjusted operating expense was the first decrease in this metric since 2020 and was driven by our initial efforts to reduce costs and to further drive efficiencies in our business.
William Jackson Berger: Moving forward, we will utilize our technology platform and scale to continue driving cost per customer down, as evidenced by the 11.6% reduction in the first quarter. Another dynamic we are monitoring is the monetization of the investment tax credit adders introduced in the Inflation Reduction Act. In addition to the base 30% tax credit, increasingly, we are seeing the ability to access the adders allocated to building and energy communities, providing services to low-income individuals, and a push for more domestic content and equipment. However, for 2023, we saw little uplift from these adders, as the year's weighted average ITC with adders was only 31.5%. This was due to limited implementation guidance on the adders from the U.S. Treasury last year.
Speaker Change: Moving forward, we will utilize our technology platform and scale to continue driving cost per customer down as evidenced by the 11, 6% reduction in the first quarter.
Speaker Change: Another dynamic we are monitoring is the monetization and the investment tax credit Adders introduced any inflation reduction Act.
Speaker Change: In addition to the base, 30% tax credit increasingly we are seeing the ability to access the adders allocated to building an energy communities, providing service to low income individuals and the push for more domestic content and equipment.
Speaker Change: For 2023, we saw a little uplift from these adders as the year's weighted average ITC without <unk> was only 31, 5%.
Speaker Change: This was due to limited implementation guidance on the <unk> from the U S Treasury last year.
William Jackson Berger: With the guidance we have received this year, and with more to come shortly, we expect we'll be able to increase our weighted average ITC to somewhere between 36 and 40 percent by the end of 2024. As you can see on slide 18, we estimate that a 1% increase in the weighted average ITC rate would generate at least $30 million in cash proceeds in 2024 based on the fair market value of the lease and PPA systems we expect to place into service this year. And lastly, we are refocusing on our core adaptive energy customers. The left side of slide 19 shows our customers deployed per year.
Speaker Change: With the guidance, we have received this year and with more to come shortly we expect we will be able to increase our weighted average ITC to somewhere between 36% and 40% by the end of 2024.
Speaker Change: As you can see here on slide 18, we estimate that a 1% increase in the weighted average ITC rate would generate at least an additional $30 million in cash proceeds in 2024 based on the fair market value of the lease and PPA systems, we expect to place into service this year.
Speaker Change: And lastly, we are refocusing on our core adaptive energy customers.
Speaker Change: The left side of slide 19 shows our customers deploy per year.
William Jackson Berger: While we expect flat growth in overall customer additions in 2024, we still expect the number of megawatts we deploy this year to increase. This is due to a shift in our expected customer mix in 2024 as we refocus our capital expenditure investment on core adaptive energy customers. Also, our solar additions in 2024 are expected to be much more heavily weighted towards lease and PPA customers, which, as I discussed, is advantageous for our cash generation, as well as our margin.
Speaker Change: While we expect flat growth in overall customer additions in 2024, we still expect the number of megawatts. We deploy this year to increase this is due to a shift in our expected customer mix in 2024, as we refocus our capital expenditure investment on core adaptive energy customers.
Speaker Change: Also our solar additions in 2024 are expected to be much more heavily weighted towards lease and PPA customers, which as I discussed is advantageous for our cash generation as well as our margins.
William Jackson Berger: This renewed focus on our core adaptive energy customer will help us to make progress against the priorities I previously mentioned, while also providing us with the adequate scale necessary to fund the business through asset-level finance. I also want to be clear; there is more than enough market demand despite economic challenges to continue to recognize the benefit that scale has for our business. With that said, let me now turn the call over to Rob.
Speaker Change: This renewed focus on our core adaptive energy customer will help us to make progress against the priorities I previously mentioned, while also providing us the adequate scale necessary to fund the business through asset level financing.
Speaker Change: Also wanted to be clear there is more than enough market demand. Despite economic challenges to continue to recognize the benefit that scale has for our business with that let me now turn the call over to Rob.
Robert Lawrence Lane: Thanks, John.
Robert Lawrence Lane: Turning to slide 21, you will see that we are tempering our outlook on customer additions for 2024 from the prior range of $185,000 to $195,000 down to $140,000 to $150,000. This reduction is in no way indicative of any lapse in demand for our offerings but is instead a proactive move we are taking to right-size our growth. As John mentioned earlier, scale is important to our business, but we are being much more intentional about the kinds of customers we are adding.
Robert Lawrence Lane: Turning to slide 21, you will see that we are tempering our outlook on customer additions for 2024 from the prior range of 185000 to 195000 down to 140 to 150000.
Robert Lawrence Lane: This reduction is in no way indicative of any lapsing demand for our offerings, but is instead a proactive move we are taking to rightsize our growth as John mentioned earlier scale is important to our business, but we are being much more intentional about the kinds of customers we're adding.
Robert Lawrence Lane: We believe this approach to customer addition, focused on our highest-value customers and offerings, while limiting growth in some areas of our business that do not provide the highest returns, will better position us to achieve our customer cost reduction and cash generation goal. Aside from our customer additions, we are reaffirming all of our 2024 guidance figures, including adjusted EBITDA, interest income, and principal proceeds. Turning to slide 22, in the first quarter, we generated $23 million in levered cash flows, which is comprised of residual cash flows from securitized customer contracts, all MSA fees, and proceeds from unpledged SRECs and grid services. The EPC costs that make up our investment in systems totaled $561 million.
Robert Lawrence Lane: We believe this approach to customer additions focused on our highest value customers and offerings, while limiting growth in some areas of our business that do not provide the highest returns will better position us to achieve our customer cost reduction and cash generation goals.
Robert Lawrence Lane: Aside from our customer additions, we are reaffirming all of our 2024 guidance figures, including adjusted EBITA interest income and principal proceeds.
Robert Lawrence Lane: Turning to slide 22 in the first quarter, we generated $23 million and Levered cash flows which is comprised of residual cash flows from securitized customer contracts, all MSA fees and proceeds from Unpledged <unk> and grid services.
Robert Lawrence Lane: The EPC cost that make up our investment in systems totaled $561 million.
Robert Lawrence Lane: We generated roughly $627 million in asset level financings and used $20 million of cash on corporate interest expense, leading us to a net increase of $19 million of unrestricted cash in the quarter.
Robert Lawrence Lane: We generated roughly $627 million in asset-level financings and used $20 million of cash on corporate interest expense, leading us to a net increase of $19 million of unrestricted cash in the quarter. Now, moving to our full year forecast for 2024 and beyond. The more focused approach to our customer additions impacts the guidance we set last quarter, reducing our levered cash flows, but also our investment in systems and the amount of proceeds from asset level financing.
Robert Lawrence Lane: Now moving to our full year forecast for 2024 and beyond.
Robert Lawrence Lane: The more focused approach to our customer additions impacts the guidance, we set last quarter, reducing our levered cash flows, but also our investment in systems and the amount of proceeds from asset level financing.
Robert Lawrence Lane: As we said last quarter, we still anticipate being cash neutral for 2024 and continue to expect strong cash generation in 2025 and beyond. And before I turn the call back over, John, I just want to say what an honor it has been to work beside you and the entire Sunnova team for the past five years. While I will remain a dedicated SNOVA customer and shareholder, I'm excited to close out my tenure as CFO and pass the torch in the coming months. I'll turn the call back over to John for closing remarks.
Robert Lawrence Lane: As we said last quarter, we still anticipate being cash neutral for 2024 and continue to expect strong cash generation in 2025 and beyond.
Speaker Change: And before I turn the call back over John I, just wanted to say what an honor. It has been to work beside you and the entire <unk> team for the past five years.
Speaker Change: I will remain a dedicated server customer and shareholder Im excited to close out my tenure as CFO and pass the torch in the coming months.
Speaker Change: I'll turn the call back over to John for closing remarks.
William Jackson Berger: Thanks, Rob.
William Jackson Berger: In closing, Sunnova is well-equipped to manage its balance sheet through the remainder of 2024, while also setting us up for increased cash generation moving forward. However, the elevated interest rates have made for a challenging short-term macro picture overall. There is more than enough demand to continue adding to our customer base in an economical and sustainable manner. As we look to the remainder of 2024, we are encouraged by the rapid progress we've made already in the first quarter and will continue to take steps to transform the energy landscape, challenge the status quo, and offer customers a better energy service at a better price to help meet society's ever-increasing energy demand, all the while maximizing shareholder value With that, Operator, please open the line for questions.
In closing.
William Jackson Berger: <unk> is well equipped to manage our balance sheet through the remainder of 2024, while also setting us up for increased cash generation moving forward.
Speaker Change: The elevated interest rates had made for a challenging short term macro picture overall.
Speaker Change: There is more than enough demand to continue adding to our customer base and an economic and sustainable manner.
Speaker Change: As we look to the remainder of 2024, we are encouraged by the rapid progress we've made already in the first quarter and will continue to take steps to transform the energy landscape challenge the status quo and offer customers a better energy service at a better price to help meet society's ever increasing energy demands.
Speaker Change: All the while maximizing shareholder value.
Speaker Change: With that operator, please open the line for questions.
Operator: Thank you, John. If you would like to ask a question, please press star followed by 1 on your telephone keypad now. If you change your mind, please press star followed by 2. When preparing to ask your question, please ensure your device is submitted locally. We'll pause here briefly as the question is being registered. We have the first question from Philip Shen with Ruff & Co. Your line is open.
Speaker Change: Thank you Jon if you would like to ask a question. Please press star followed by one on your telephone keypad.
Speaker Change: Have you changed your mind. Please press star followed by Keith when preparing to ask a question. Please ensure your devices.
Speaker Change: Luckily, let's pause here briefly ask a question maybe I missed that.
Speaker Change: We have the first question from.
Philip Shen with Roth.
Philip Shen: Your line is open.
Philip Shen: Hi, everyone. Thanks for taking my questions. Rob, it's been a pleasure working with you. Best wishes in your next endeavor. The first question is on... Yeah, best of luck and best wishes, Rob. The first question is on MOLUS. Ahead of your results yesterday, the stock was down 16% on this Bloomberg article about potentially you guys engaging MOLUS to explore balance sheet options. What can you share about your engagement with them? Can you confirm or deny that you have engaged them? and... Is there any timing on any potential outcomes that you might consider?
Philip Shen: Hi, everyone and thanks for taking my questions Rob.
Philip Shen: Rob it's been a pleasure working with you best wishes in your next endeavor.
Philip Shen: First question is on.
Philip Shen: Best of luck and best wishes Rob.
Philip Shen: First question is on Moelis.
Philip Shen: Ahead of your results yesterday.
Philip Shen: Stock was down 16%.
Philip Shen: On the Bloomberg article about.
Philip Shen: Essentially you guys engaging wellness to explore balance sheet options.
Philip Shen: What can you share about that engagement with them can you confirm or deny that you have engaged them.
Philip Shen: And.
Philip Shen: Is there any timing of any potential outcomes that you might be able to talk about.
William Jackson Berger: This is John. Thanks, Phil. What I would say is that it's very obvious to us, and I think to everybody how deeply discounted our corporate debt is trading. And that presents, we feel, some interesting opportunities, and we're going to evaluate those opportunities accordingly, as you would expect us to and as we always do.
Philip Shen: This is John Thanks, Phil.
Speaker Change: What I would say is is that it.
Speaker Change: It's very obvious to us and I think to everybody how deeply discounted our corporate debt is trading at.
Speaker Change: And that.
Speaker Change: That presents a.
Speaker Change: We feel some interesting opportunities.
Speaker Change: And we're going to evaluate those opportunities accordingly, as you would expect us to and and as we always do.
Philip Shen: Great. Okay. I appreciate that. Thank you.
Speaker Change: Great. Okay I appreciate that thank you.
Speaker Change: Shifting over to <unk>.
Speaker Change: The ITC adder as you've talked about a 1% increase.
Philip Shen: Shifting over to the ITC adders, you talked about a 1% increase that equates to about $30 million in cash per seed. So moving from the start of the year level of 31.5% to maybe a 38% ITC value level. That suggests you could generate nearly $200 million of cash possibly this year. Can you talk about some of the assumptions there and timing as to when you want and how the magnitude of the cash that you might be able to generate from the ITC this year in 24 as well as next year from these adders?
Speaker Change: Equates about $30 million in cash proceeds.
Speaker Change: So moving from your.
Speaker Change: The start of the year level of 31, 5%.
Speaker Change: Maybe a 38%.
Speaker Change: And ITC value.
Speaker Change: Level.
Speaker Change: That suggests you could generate.
Speaker Change: Nearly $200 million of cash.
Speaker Change: Possibly this year can you talk about.
Some of the assumptions there and in timing as to when you might be and then how the.
Speaker Change: The magnitude of.
Speaker Change: The cash that you might be able to generate from the ITC.
Speaker Change: This year in 'twenty four as.
Speaker Change: As well as next year from these others. Thank you John.
William Jackson Berger: Yeah, thanks, Phil. You know, I don't think this ITC Adder is very well understood. You know, we've actually been collecting on this Adder with the Energy Communities Adder for the last few months. There was additional guidance that, at the tail end of March, that the Treasury gave on the Energy Communities Adder that greatly expanded it, and we have since collected most of those monies, I would add.
William Jackson Berger: Yeah. Thanks, Phil.
Speaker Change: I don't think this ITC adder is very well understood.
Sure.
Speaker Change: We've actually been collecting on the on this at all.
Speaker Change: <unk> with the energy communities Adder.
Speaker Change: For.
Speaker Change: The last few months.
Speaker Change: There was an additional guidance that at the tail end of March the Treasury Gabe on the energy communities out or that greatly expanded it and we have since collected most of those monies I would add.
William Jackson Berger: So the cash generation on the ITC adders has surprised us, I would say, greatly. We expect the domestic content, as well as everybody else, to come out quite possibly in the next few weeks or so, and that will further increase.
So the cash generation on the ITC Adders has surprised us I would say greatly.
Speaker Change: We expect the domestic content as well as everybody else to come out.
Speaker Change: Possibly in the next few weeks or so.
Speaker Change: And that will further increase.
William Jackson Berger: So while we've been very conservative in our cash forecast, including on the liquidity forecast slide here and in our comments on this call for both 24 and beyond, we want to see everything come together. But what we're seeing in terms of the ITC adders on our origination mix and how we're able to change our origination to pick up more of those adders is quite startling in a positive way. So we like how the cash generation is coming together with the ITC adder.
Speaker Change: So while we've been very conservative.
Speaker Change: And our cash forecast, including on the on the.
Speaker Change: Liquidity forecast slide here and our comments on this call.
Speaker Change: For both 24 and beyond.
Speaker Change: We want to see everything come together, but what we're seeing in terms of the ITC adders on our origination mix and how we're able to change our origination to pick up more of those adders.
Speaker Change: It's quite startling in a positive way so.
Speaker Change: We like how.
Speaker Change: The cash generation is coming together with the ITC adder and further goes to a point about how lease.
William Jackson Berger: And that further goes to our point about how lease and PPA is gonna continue to grow share against loans quite substantially. So there's a lot of cash generation here to be had, and we're going after it.
Speaker Change: Lease and PPA is going to continue to grow share against loans quite substantially so theres a lot of cash generation here to be had and were and we're going after it.
Philip Shen: Great. Is there any way to quantify the potential impact of 24N5?
Speaker Change: Great is there any way to quantify the potential impact for 24 and five.
William Jackson Berger: I'd like to stick with what we have right now. Let's be conservative. Let's go out there and execute.
Speaker Change: I'd like to stick with what we have right now, let's be conservative, let's go out there and execute.
Philip Shen: Got it. Okay. Thanks very much. I'll pass it on.
Speaker Change: Got it okay.
Speaker Change: Thanks, very much I'll pass it on.
Speaker Change: Thanks.
Speaker Change: Thank you.
Brian K. Lee: The next question is from Brian Lee with Goldman Sachs. Your line is open.
Speaker Change: The next question is from Brian Lee with Goldman Sachs. Your line is open.
Brian K. Lee: Hey guys, good morning. Thanks for taking the questions. I'll echo Phil's sentiments as well. Rob, it was great working with you. Best of luck, and I hope our paths cross again.
Brian K. Lee: Hey, guys. Good morning, Thanks for taking the questions I'll Echo <unk> sentiments as well Rob great working with you best of luck.
Brian K. Lee: And I hope our path.
As cross again.
Brian K. Lee: With that in mind, I guess maybe just going straight to one of your slides, your favorite slides, slide 22, to follow up on Phil's question. So John, Rob, is it fair to assume, based on your comments you just made, none of those, you know, every 1% equals $30 million of incremental cash. None of that is actually reflected in slide 22 for the 2024 cash walk or liquidity walk?
Brian K. Lee: With that in mind, I guess, maybe just going straight to one of your slides your favorite slide slide 22.
Brian K. Lee: Follow up to Phil's question, So John Rob is it fair to assume based on your comments you just made.
Brian K. Lee: None of those.
Brian K. Lee: Every 1% equals $30 million of incremental cash none of that is actually reflected in slide 22 for the 2024 cash walk or liquidity to work.
William Jackson Berger: No, that wouldn't be fair. We do have the energy communities adder and a little bit of domestic content in the forward years adder. But I think the full extent of what we expect and how we can change up the origination profile to capture even more cash from those adders is quite possibly not reflected there. But again, this is a pretty good position to be in, and let's go out and execute and see what we can do to increase those adders and increase that ITC towards 40 percent, maybe beyond on an average basis.
John Rob: No that wouldn't be fair, we do have the energy communities that are in a little bit of domestic content and the forward years after.
John Rob: But I think the full extent of what we expect and how we can change at origination profile to capture even more cash from those adders is quite possibly not reflected there but again.
John Rob: This is a pretty good position to be in.
John Rob: Let's go out and execute and see what we can do.
John Rob: To increase those adders and increase at ITC towards 40%.
John Rob: Maybe beyond on an average basis.
Brian K. Lee: Okay, sounds good, fair enough. And then, you know, kind of sticking with the concept of trying to maximize cash flow, you had a lot of discussion here, focus, slide 15, around maximizing asset level capital, existing assets. You have this bullet point around potential additional options, but I don't think you went into a lot of detail around those. Can you kind of walk us through a little bit in terms of each of those potential options, maybe the amount you could potentially monetize, timing, and then what each one of those options would entail in terms of kind of going to market and being able to execute those transactions, maybe just a little bit of color around those opportunities.
John Rob: Okay.
Speaker Change: Good fair enough and then.
Speaker Change: On the.
Speaker Change: Kind of sticking with the <unk>.
Speaker Change: The concept of trying to maximize cash flow you had.
Speaker Change: A lot of discussion here focused slide 15 around maximizing kind of asset level capital existing assets.
Speaker Change: You have this bullet point around potential additional options I don't think <unk> got into a lot of detail around those can you.
Speaker Change: Kind of walk us through.
Speaker Change: A little bit in terms of each of those potential options may be.
Speaker Change: <unk>, you could potentially monetize timing and then what each one of those options would entail in terms of kind of go to market and being able to execute those transactions maybe.
Speaker Change: Just a little bit of color around around those those opportunities.
William Jackson Berger: What I would say is that there are multiple levers, given the assets that we have, and historically, we have underlevered them at the asset level, especially from the years 21 to 2023. And what we need to do is continue and step up our efforts to maximize the cash flow to the corporate parent, and whatever generates the most cash will do it. So if that's a sale of an asset, we'll do that. If that's a securitization all the way through, you know, securitizing or selling the residue of a securitization, we'll do that as well.
Speaker Change: What I would say is that there is multiple levers given the assets that we have and historically of under levered them at the asset level, especially from the year is 21 to 2020.
Speaker Change: Three.
Speaker Change: And.
Speaker Change: What we need to do is continue to.
Speaker Change: And step up our efforts to maximize the cash flow up to the corporate parent.
Speaker Change: And whatever generates the most cash we'll do it so thats a sale of an asset we will do that if that's a securitization all the way through so securitizing or selling the resilience of our securitization, we will do that as well.
William Jackson Berger: So I think the purpose here is just to lay out the multiple different options to generate cash that I don't think people have fully thought through in terms of the capability of generating and the optionality of generating cash for the corporate parent.
Speaker Change: So.
Speaker Change: I think the purpose here is just to lay out the multiple different options to generate cash that I don't think people fully thought through in terms of the capability of generating and the optionality of generating cash to the corporate parent.
Brian K. Lee: Alright, fair enough. Last one for me, and I'll pass it on.
Speaker Change: Alright fair enough last one for me and I'll pass it on.
Speaker Change: You did reduce the the customer additions forecast here for the year are you focusing on kind of the core customer base the adaptive solar customers.
Brian K. Lee: You did reduce the customer additions forecast here for the year. You're focusing on kind of the core customer base, the adaptive fellow customers. Why, I guess, is there no sort of impact on the P&L or cash flow or balance sheet just as we think about your forecasted KPI targets? I would have assumed taking down the growth forecast would have resulted in some savings in OPEX or O&M or maybe some incremental cash flow generation.
Speaker Change: Why I guess.
Speaker Change: Is there no sort of impact to the P&L or cash flow our balance sheet.
Speaker Change: As we think about it year forecasted.
Speaker Change: Kpis targets I would've assumed taking down the growth forecast would have.
Speaker Change: Resulted in some savings in opex or O&M or maybe some incremental cash flow generation and then any thoughts around kind of where that might show up and in what timeframe as you sort of tightened the belt around growth.
Speaker Change: Thanks, guys.
William Jackson Berger: Yes, certainly. Going back, having an asset base as large as ours, at this point in the year, I would say greater than 85%, probably greater than 90%, of those revenues and cash inflows from principal and interest on our loans are locked in. So, again, we have a very durable model as far as cash generation is concerned. Cost cuts have been quite a bit. They started to show up to some degree. Actually, on a per customer basis, quarter over quarter, 11.6% drop in adjusted operating expense.
Speaker Change: Yes, certainly going back having asset base as large as ours at this point in the year I would say greater than 85%, probably greater than 90% of those revenues and cash inflows from principal and interest from our loans is locked in.
Speaker Change: So again, we have a very durable model as far as cash generation.
Speaker Change: Cost cuts there have been quite a bit there is starting to show up some to some degree.
Speaker Change: Actually on a per customer basis quarter over quarter 11, 6% drop in adjusted operating expense, but more have happened since even the end of the first quarter and much more is going to happen as you move forward. So very much focused on opex getting these software and automation in place too.
Brian K. Lee: But more things have happened since even the end of the first quarter, and much more is gonna happen as you move forward. So, very much focused on OpEx, getting this software and automation in place to further cut the need for operating expenditures, people, et cetera. So, we're focused on doing more in the OpEx on a forward basis. And indeed, we've already had some that will show up in this quarter.
Speaker Change: To further cut.
Speaker Change: The need for.
Speaker Change: Operating expenditures.
Speaker Change: People et cetera. So we're focused on doing more in the opex on a forward basis and indeed, we are.
Speaker Change: Already have had some that will show up in this quarter.
Speaker Change: Thank you.
Mark Wesley Strouse: Thank you. The next question is from Mark Strouse with J.P. Morgan. Your line is open.
Speaker Change: The next question is from Mark Strouse with Jpmorgan. Your line is open.
Mark Wesley Strouse: Hey, good morning, guys. Thank you very much for taking our questions. And Rob, thank you very much for all of your help getting back to the IPO. I have a couple of questions; I'll just throw them both out at the same time on slide 15 as well. On the tax equity portion, can you talk about the latest that you're seeing within the transferability market, and on the traditional side, is there any impact from Basel III that you're seeing yet? And then on the Yes, actually, let's just start with that. Thank you.
Mark Wesley Strouse: Hey, good morning, guys. Thank you very much for taking my questions and Rob. Thank you very much for all of your help dating back to the IPO.
Mark Wesley Strouse: I have a couple of questions I'll just throw them both out same time on slide 15 as well.
Mark Wesley Strouse: On the on the tax equity portion.
Mark Wesley Strouse: Can you just talk about the latest that you're seeing.
Mark Wesley Strouse: Within the transferability markets.
Mark Wesley Strouse: And on the traditional side is there any impact from Basel III that youre seeing yet.
Mark Wesley Strouse: And then on the.
Mark Wesley Strouse: Okay.
Mark Wesley Strouse:
Speaker Change: Yes, it actually let's just start with that thank you.
Speaker Change: Yeah.
William Jackson Berger: Mark, this is John. The transferability of the ITC is gaining a lot of traction. More companies are coming into the market and willing to do that. It's a lot easier to get your head around as a CFO of a major company.
Mark Wesley Strouse: Hey, Mark this is John.
Mark Wesley Strouse: Yes.
Mark Wesley Strouse: Cell of the transferability of the ITC is gaining a lot of traction a lot more companies are coming into the market and willing to do that is a lot more quite a year get your head around as a CFO of a major company. So we've already executed on several of those as you pointed out and we see that market expanding rather.
William Jackson Berger: We've already executed on several of those, as you pointed out, and we see that market expanding rather significantly. We have not seen any impact yet on traditional tax equity from Basel III. So the tax equity market, I would say, is not only alive and well, but it's certainly growing significantly from what we can see.
Mark Wesley Strouse: Significantly.
Mark Wesley Strouse: We have not seen any impact yet on traditional tax equity from Basel III.
Mark Wesley Strouse: So the tax equity market.
Mark Wesley Strouse: I would say is not only alive and well, but it's certainly growing.
Mark Wesley Strouse: Significantly from what we can see.
William Jackson Berger: I can add one thing to that. So the transferability market remains strong. The execution of the ITC transfers has been something that we've led on, so we've already done a significant number of those transfers with the IRS. In the IRS portal, we were one of the first to do it. We've done tens of thousands of systems, and their associated ITCs, we have successfully processed. It's amazing how much back office is really required to make that work.
Speaker Change: If I can add one thing to that.
Speaker Change: Right.
Speaker Change: Starting with the transfer of all the market remains strong is the.
Speaker Change: Execution of the ITC transfers has been something that we've led on so we've already done a significant number of those transfers with the IRS and the IRS portal. We were one of the first to do what we've done tens of thousands of systems.
Speaker Change: And their associated Itc's, we have successfully processed it's amazing how much back office.
Speaker Change: Is really required to make that work.
William Jackson Berger: But that's something that we've been able to solve and get out ahead of as well, which has been a huge success in our ability to be able to speak to investors about not only just the price, which I think is where a lot of folks start, but the entire process and lifecycle.
Speaker Change: But that's something that we've been able to solve and get out ahead of as well, which has been a huge success our ability to be able to speak to investors.
Speaker Change: About not only just the price, which I think is where a lot of folks start, but the entire process and lifecycle as well.
Mark Wesley Strouse: Okay, okay. And then just a quick follow-up on the increased number of securitizations. So I understand the benefit of kind of getting cash in the door more frequently, sooner. But are there any potential kind of downsides that you would see to that as far as, you know, maybe increased transaction fees or anything else like that that you would call out?
Speaker Change: Okay. Okay, and then just a quick follow up on the.
Speaker Change: The increased number of Securitizations.
Speaker Change: I understand the the benefit of kind of getting cash in the door more frequently sooner.
Speaker Change: Are there any potential kind of.
Speaker Change: Yeah.
Speaker Change: <unk> side that you would see to that as far as you know maybe increased transaction fees or anything else like that that would that you would call out.
Speaker Change: No.
William Jackson Berger: In fact, there is a lot of our corporate capital that's trapped in the warehouses that need to be released on a more timely and more deliberate securitization schedule that we are now on. So we expect to have quite a bit of cash released as these securitizations are executed.
Speaker Change: In fact, there is a lot of our corporate capital that's trapped in the warehouses that need to be released on a more timely.
Speaker Change: And more deliberate securitization schedule that we are now on so we expect to have a quite a bit of cash released as the securitizations are executed.
Mark Wesley Strouse: Yeah, that makes sense. Okay. Thank you, guys.
Speaker Change: Yeah that makes sense, okay. Thank you guys.
Andrew Salvatore Percoco: Thank you. The next question is from Andrew Percoco with Morgan Stanley. Your line is open.
Speaker Change: Thank you. The next question is from Andrew Pike, Holdco with Morgan Stanley. Your line is open.
Andrew Salvatore Percoco: Great. Thanks so much for taking the question. And again, Rob, I echo everyone else's comments. It's been great working with you, and best of luck in your next endeavor.
Andrew Pike: Great. Thanks, so much for taking the question again, Rob Echo everyone else's comments, great working with you.
Andrew Pike: And best of luck in your next endeavor.
William Jackson Berger: So I guess I want to start with a question on asset-level performance. If we just look at the numbers in the 10-Q, it looks like customer loan delinquency rates continue to grind higher. I know service has been a kind of a big component of that historically, but can you just maybe give an update there in terms of what's driving that delinquency rate higher from here and expected trends going forward now that you've invested a little bit more in the service part of your business?
Andrew Pike: I guess I wanted to start with.
Andrew Pike: A question on asset level performance. If we just look at the numbers in the 10-Q, it looks like customer loan delinquency rates continue to grind higher I know a service has been a kind of a big component of that historically can you just maybe yet and it's given us an update there in terms of what's driving that delinquency rate higher from here.
Speaker Change: Becky trends going forward now that you've invested a little bit more on the service part of your business.
William Jackson Berger: Yeah, we are seeing some performance that's quite good there as far as service and, therefore, the response by customers on paying more timely. You rightly pointed out that the loan is an outlier. Two things.
Becky: Yes, we are seeing some performance that is quite quite good there as far as service and therefore, the response by customers on paying more timely you rightly pointed out that the loan is.
Becky: An outlier two things one we do take in and as part of the program Pestillo with the government low FICO customers and so those were priced accordingly to a higher default rate and delinquency rate and so.
William Jackson Berger: One, we do take, and as part of the program Hestia with the government, low FICO customers. And so those were priced accordingly to a higher default rate and delinquency rate. And so that's one aspect of the loans. And again, a reminder, Hestia is all loans. Secondly, our origination mix has continued to decidedly transform itself from a majority loan at one point in time to a significant majority of TPO or lease PPA. And so, therefore, you've got a lot of small numbers that's at play there as well. So those two aspects are causing the delinquency rate to be a little bit higher.
Becky: One aspect of the loans and again a reminder, <unk> is all loans.
Speaker Change: Secondly, our origination mix has continued to.
Speaker Change: Decidedly.
Speaker Change: <unk> form itself from a.
Speaker Change: Majority loan at one point in time too significant.
Speaker Change: Majority of of TBO or at least PPA and so therefore, you have got a law of small numbers. That's at play there as well so those two aspects.
Speaker Change: <unk> net delinquency rate to be a little bit higher.
Speaker Change: Yeah.
Andrew Salvatore Percoco: Understood. Okay. And then maybe just kind of coming back to a question on liability management, you know, any sense for when we might hear more on that front? Sounds like you're engaged with some advisors there, but anything you can provide in terms of potential timing, solutions, I know asset sales are kind of on the table. So any additional color would be helpful there. Thank you. No, I wouldn't.
Speaker Change: Understood. Okay, and then maybe just kind of coming back to.
Speaker Change: Question on liability management.
Speaker Change: Any sense for can you give us any sense for timing on when we might hear more on on that front. It sounds like youre engaged with some advisors there.
Speaker Change: And anything you can provide in terms of potential timing solutions I know asset sales are kind of on the table. So any additional color would be helpful. There. Thank you.
William Jackson Berger: No, I wouldn't. If I had more color, I wouldn't say it. It's not our place to say who we engage in doing business with in any way. What I would say, again, is that our corporate debt clearly is treated at very deep discounts, and we are, as you would expect, evaluating the opportunities that that presents itself.
Speaker Change: No I wouldn't if I had more color I wouldn't I wouldn't say, it's not our place to say, who we do engage in doing business with in any way.
Speaker Change: What I would say again is our corporate debt clearly it's trading at very deep discounts.
Speaker Change: We are as you would expect evaluating the opportunities that that presents itself.
Speaker Change: Okay.
Speaker Change: Yes.
Praneeth Satish: Thank you. The next question is from Praneeth Satish with Wells Fargo. Your line is open.
Speaker Change: Thank you. The next question is from <unk> Satish with Wells Fargo. Your line is open.
Praneeth Satish: Good morning. Let me also just echo my best wishes to Rob. Thanks for dealing with all of our questions.
Satish: Thanks. Good morning, Let me also just echo my best wishes to Rob. Thanks for thanks for dealing with all of our questions.
William Jackson Berger: You know, maybe going back to the liquidity table forecast, you touched on the ITC adders, but can you just review what advance rate you're assuming in the cash generation guidance? I think you've done the last few raises at the high 70s this year. So if you take that into the 80s, would that result in incremental cash versus this forecast? I think you said every 7% equals 200 million of cash, if I remember correctly. And then same thing on the frequency of ABS issuance. Does the guidance already assume six, or would this be incremental? Just trying to figure out what's baked into that guidance.
Satish: Maybe going back to the liquidity table forecast you touched on the ITC adders, but can.
Satish: Can you just review what advance rate youre, assuming in the in the cash generation guidance I think you've done the last few raises at.
Speaker Change: Hi, <unk>. This year. So if you take that into the Eighty's would that result in incremental cash versus this forecast I think you said every 7% equals $200 million of cash if I remember correctly and then same thing on the frequency of ABS issuance does the guidance already assume six or would this be incremental.
Speaker Change: Just trying to figure out what's baked into that guidance.
Praneeth Satish: The answer is that this table assumes what we have done or what we currently see in the market. So no improvement in pricing, no improvement in advance rates, and no significant improvement in the ITC adders. And so, therefore, if the advance rates in your example were increased, it would increase the cash generation, and so would additional operating expense cuts. So, again, I think this is a fairly conservative view of cash generation. And there are ample levers to go around and pull to generate even more cash.
Speaker Change: The answer is is that.
Speaker Change: This table is assuming what we have done or what we currently see in the market. So no improvement in pricing.
Speaker Change: Improvement in advance rates no significant improvement in the ITC adders and so therefore is the advance rates in your example increase that would increase the cash generation.
Speaker Change: And so would additional operating expense cuts.
Speaker Change: Increase the cash generation so.
Speaker Change: Again, I think this is a fairly conservative.
Speaker Change: View of cash generation and other ample levers to go and pull and generate even more cash.
William Jackson Berger: Got it. And I didn't see any mention of ATM issuance in the prepared remarks versus last quarter. So just wondering, you know, now that you've got some some levers here to increase the cash generation, is ATM off the table? Or is that still a lever that you'd consider as kind of a backstop in case some of these financing plans don't don't go to plan?
Speaker Change: Got it.
Speaker Change: And I didn't see any mention of ATM issuance.
Speaker Change: Prepared remarks versus last quarter. So just wondering now that you've got some some levers here to increase the cash generation is ATM off the table or is that still a lever that you would consider as kind of a backstop. If some of these financing plans don't don't go to plan.
Praneeth Satish: We have not used the ATM because there is no ATM. We've not filed it either.
Speaker Change: We have not used the ATM because there is no ATM.
Speaker Change: All of that.
Speaker Change: Okay.
William Jackson Berger: That's clear then. Thank you.
Speaker Change: Okay.
Speaker Change: Clear then thank you.
Speaker Change: Thanks.
Pavel S. Molchanov: Thank you. The next question is from Pavel Molchanov with Raymond James. Your line is open.
Speaker Change: Thank you. The next question is from powerful National Chris Raymond James Your line is open.
William Jackson Berger: Thanks for taking the question. When we look at the slides showing customer additions, it looks like solar customers will be up maybe 20%, non-solar will be down, you know 50%. Is the geographic mix of both of those categories the same, or are you sort of pivoting to one part of the country versus another?
Speaker Change: Yeah. Thanks for taking the question when we look at the slide showing customer additions it looks like solar customers will be up maybe 20% non solar will be down 50%.
Speaker Change: Is the geographic mix.
Speaker Change: Both of those categories. The same or are you sort of pivoting to one part of the country versus another.
Pavel S. Molchanov: Hey, Pavel. The mix is about the same. We're seeing more growth in the South United States than we have historically. We still have a very small market share in California, but that's picking up a little bit. And then the rest of our footprint is broadening out. Again, as utility rates move higher, equipment prices crash lower. The opportunity, even with the cost of capital where it is, has been increasing. That value edge to the customer has been increasing really everywhere. So we see a lot of opportunity in the marketplace and expect the market to, I think, surprise the upside in growth.
Speaker Change: Hey.
Speaker Change: If the mix is about the same.
Speaker Change: We're seeing more growth in the south United States, and then than we have historically.
Speaker Change: We still have a very small market share in California, but thats picking up a little bit and then the rest of our footprint is broadening out.
Speaker Change: Again as utility rates move higher the <unk>.
Speaker Change: Prices crash lower the opportunity even within.
Speaker Change: The cost of capital where it is has been increasing that valuation the customer has been increasing really everywhere. So.
Speaker Change: Do we see a lot of opportunity in the marketplace. We expect the market to I think to surprise the upside in growth.
William Jackson Berger: Okay. I did not see this in the slide. You may have mentioned it. What was the battery attachment rate, and just any commentary on the kind of trend in that metric?
Speaker Change: Okay I did not see this.
Speaker Change: In the slide you May have mentioned it what was the battery attachment rate and just any commentary on kind of the trend in that metric.
William Jackson Berger: Yeah, we...
William Jackson Berger: Yeah, we wanted to focus on some of the other aspects of the business, but, you know, the storage attachment rate continued to be strong and about what we've had historically. And as the pricing of batteries is dropping, in some cases quite significantly, we do expect the natural response from the marketplace is to increase purchases. And we've seen some of that.
Speaker Change: Yes.
Speaker Change: Wanted to focus on some of the other aspects of the business, but the storage attachment rate continued to have been strong and about what we've had historically.
Speaker Change: And as the pricing of batteries is dropping.
Speaker Change: In some cases quite significantly.
Speaker Change: We do expect natural a response from the marketplaces increased purchases and we've seen some of that we've seen a broadening of geographies wanting storage for instance, so.
William Jackson Berger: We've seen a broadening of geographies wanting storage, for instance. So storage is going to be really important, especially as you get into energy services, grid services, whatever you want to call them. We're seeing a lot of opportunity there to generate additional revenues for both ourselves and our customers and to be a part of stabilizing the overall centralized system in the local area.
Speaker Change: Storage is going to be really important, especially as you get into.
Speaker Change: Energy services grid services wherever you want to call them, we're seeing a lot of opportunity there to generate additional revenues for both ourselves and our customers and to be a part of.
Speaker Change: Stabilizing the overall centralized system and the local area.
Speaker Change: Alright, thanks very much.
Speaker Change: Thank you. Thank you.
Tristan Richardson: The next question is from Tristan Richardson with Scotiabank. Your line is open.
Speaker Change: The next question is from Tristan Richardson with Scotia Bank. Your line is open.
Tristan Richardson: Hey, good morning, guys. I appreciate all the comments.
Tristan Richardson: Hey, good morning, guys appreciate all the comments.
William Jackson Berger: Maybe just one follow-up on the liquidity side. I totally understand that the customer refocus takes your investment systems down quite a bit, but it did seem that your expectations for tax equity proceeds came up a little. And so I'm curious if that is purely a function of just seeing that weighted average tick up from adders, or if actually that core adaptive customer might see that growing a little bit more than you thought, maybe in previous slides.
Tristan Richardson: Maybe just one follow up on the liquidity side.
Tristan Richardson: Totally understand the customer refocus takes your.
Tristan Richardson: Investment systems down quite a bit but it did seem that your expectations for tax equity proceeds came up a little and so I'm curious if that is purely a function of just seeing that weighted average tick up from adders or if actually that core adaptive customer might see that growing a little bit more than you thought maybe.
Tristan Richardson: Previous slides.
William Jackson Berger: It's the adders, and it's the origination mix. We are doing more lease PPA, far more than we expected at the beginning of the year.
Tristan Richardson: Interest.
Tristan Richardson: It's the adders and as the origination mix.
Tristan Richardson: Our.
Tristan Richardson: Doing more lease PPA far more than we expected at the beginning of the year.
Tristan Richardson: Thank you, John, and maybe one more housekeeping question, but could you talk a little bit about the terminations we saw in the quarter? Is that largely a function of this refocus initiative, or was there something specifically going on that we saw that might be seasonal or anything to think about there?
Speaker Change: Its helpful. I appreciate it gentlemen, maybe one more housekeeping follow up.
Speaker Change: Could you talk a little bit about terminations, we saw in the quarter is that largely a function of this.
Speaker Change: Refocus initiative or was there something specifically going on that we saw that might be seasonal or anything to think about there.
William Jackson Berger: Yeah, there are terminations and payoffs. So we are seeing an increase in the constant prepayment rate, especially in some of our accessory type loans. And so that's welcome news, if you will, and unexpected, so we wanted to make sure as soon as a customer had their loan paid off with us, we did not owe them any more service, we wanted to properly reflect that and subtract the customer from our customer count, and so you're seeing that reflect here. It's basically our payoff rate is accelerating a bit.
Speaker Change: Yes, there are terminations and pay offs. So we are seeing an increase in the constant prepayment rate, especially on some of our accessory type loans and so that's.
Speaker Change: Welcome.
Speaker Change: <unk>, if you will and unexpected so we wanted to make sure as soon as the customer was.
Speaker Change: There are loan paid off with us and we did not owe them any more service that we are willing to property reflected surprise subtract the customer from our customer count and so youre seeing that reflect here, it's basically our payoff rate as is accelerating a bit.
Tristan Richardson: I appreciate it. Thank you all very much.
Speaker Change: Thank you all very much.
Speaker Change: Thank you.
Ameet Ishwar Thakkar: Thank you. The next question is from Ameet Thakkar with B&O Capital Markets. Your line is open.
Speaker Change: Thank you. The next question is from Amit <unk> with <unk>.
Amit: BMO capital markets. Your line is open.
Ameet Ishwar Thakkar: Hi, good morning, guys. Thanks. And I just want to echo everybody's sentiments and thank Rob for putting up with all of us over the last few years.
Amit: Hi, Good morning, guys. Thanks, and just wanted to again echo everybody's sentiments and thank Rob for putting up with all of US last few years.
William Jackson Berger: Just real quick, the dealer count went up, I think, like another 90 or 100 dealers. I was just kind of wondering, like, what are you guys seeing in terms of any kind of attrition within the dealers? I mean, you look like you're going to grow a little bit less than maybe we anticipated at the beginning of the year. Is the dealer count going to be fairly steady from here on out?
Amit: Just real quick on it looks like the dealer count went up I think like another 90 or 100.
Amit: Dealers I was just kind of wondering like what are you guys seeing in terms of kind of attrition.
Amit: Within the dealers.
Amit: You look like you're going to grow a little bit less than maybe we anticipated at the beginning of the year.
Amit: Dealer count going to be kind of a fairly steady from here on.
William Jackson Berger: I think that's probably pretty accurate. We're constantly managing the dealer network to make sure we have the best. And, you know, there are things that happen in our dealers' lives because they're obviously, you know, great entrepreneurs that are out there, trying to make their way in the world. Things happen in life, right, and sometimes positive, sometimes negative. So you want to have a constant influx of new dealers, and this is true whether it's in, you know, the power business, the solar business, whatever you want to call it, or home security or any other business that is heavily dependent upon great entrepreneurs and dealers.
Amit: I think that.
Speaker Change: Probably pretty accurate, we're constantly managing the dealer network to make sure we had the best.
Speaker Change: <unk>.
Speaker Change: There are things that happen in our dealers lives because they're obviously.
Speaker Change: Great entrepreneurs that are out there trying to make their way in the world and things happen in life right.
Speaker Change: Sometimes positive sometimes negative so you want to have a constant influx of new dealers and this is true whether it's in the.
Speaker Change: Our power business, the solar business wherever you want to call it or home security or any other business that is heavily dependent upon.
Speaker Change: Great.
Speaker Change: Maneuvers and dealers, so we're going to try to maintain.
William Jackson Berger: So we're going to try to maintain and bring in new blood, if you will, all the time because we'll have some others that need to be exited, but I think we're in a pretty good spot where we are with the size of our network. Maybe the trend's a little bit lower. Who knows?
Speaker Change: In new blood, if you will all the time, because we will have some others that need to be exited but.
Speaker Change: Think we're in a pretty good spot, where we are at the size of our network.
Speaker Change: Maybe maybe trends a little bit lower who knows.
Ameet Ishwar Thakkar: And then it looks like in your, just looking through your 10-Q, that you've added some additional risk kind of language around resource repay, the APA, PAP, EPH, and EVLP debt credit facilities. I was just wondering, like, was there something that kind of, like, triggered the additions of that language, or something your auditors kind of required you to do this quarter, or is that always really there? No, it's...
Speaker Change: And then it looks like in your and just looking through your 10-Q that you've added some additional risk kind of language around resource repay.
Speaker Change: He he eth in Ethiopia that credit facilities I was just wondering like was there something that kind of like triggered.
Speaker Change: Issues of that language or something Youre auditors kind of require you to do this quarter or is that always really there.
William Jackson Berger: No, there's no difference. We feel pretty good about refinancing that with our lenders, and I think it's just lawyers doing their job.
Speaker Change: No. There's no difference so we feel pretty good about refinancing that with the with our lenders and I think it's just lawyers doing their job.
Speaker Change: Alright, thank you.
Speaker Change: Okay.
Maheep Mandloi: Thank you. The next question is from Maheep Mandloi with Mitnoha. Your line is open.
Speaker Change: Thank you. The next question is from Rajeev <unk> with Mizuho. Your line is open.
William Jackson Berger: Yeah, thanks for taking questions. There's just one more question on the liquidity forecast here. Just to confirm, the reduction in levered cash flows is mainly because of the customer focus shift, right? And that is what's causing the reduction in overhead capital and the investment in EBC, right? And I'm trying to understand, like, the levered yield on that cash flow seems to be low, like, mid-single-digit yield on that business. So, can you even, like, advise how to think about the yields on the rest of the non-solar customers going forward? Thanks.
Rajeev: Yes, thanks for taking my question.
Rajeev: Just one more question on the liquidity forecast yet.
Rajeev: From the.
Rajeev: The reduction in Levered cash flows is mainly because of the customer focus shift right and that is what's causing the reduction in the capital.
Speaker Change: What we see right now.
Speaker Change: Trying to understand like delivered.
Speaker Change: That cash flow should be low to mid single digits on that business, so new even look like.
Speaker Change: How do you think that would be use on this one.
Speaker Change: The non solar customers going forward.
Maheep Mandloi: Yeah, it's small decreases, and this will fluctuate quarter to quarter. It could be that, you know, weather wasn't as great in some areas of the country that have high SRECs, for instance. It could also be that, you know, these accessory loans, which are the majority of them in this case, we don't expect to originate as much as we have in the past, or it could be asset sales of such loans and such to drive some of the revenue down. So I think you've got the right idea.
Speaker Change: Yes. It is.
Speaker Change: Small decreases.
Speaker Change: And this will fluctuate quarter to quarter it could be the weather wasn't as great in some areas of the country. The Pi <unk> for instance.
Speaker Change: It could also be that.
Speaker Change: <unk> loans, which is the majority of it in this case, we don't expect to originate as much as we had in the past or it could be asset sales of such loans and said to drive some of the revenue down.
Speaker Change: So I think you've got the threat idea.
William Jackson Berger: Thank you, and that's all for now.
Speaker Change: Okay. Thank you.
Speaker Change: That's all for now.
Chris Dandrinos: Thank you. The next question is from Chris Dandrinos with RBC Capital Markets. Your line is open.
Speaker Change: Thank you. The next question is from <unk> <unk> with RBC capital markets. Your line is open.
William Jackson Berger: Yeah, good morning. I wanted to focus a little bit more on the cost structure here. And notably, you made some progress in cutting that adjusted operating expense. But I guess just taking a step back and looking at how that cost structure compares against the underlying assumptions baked into your net contracted customer value calculation and the implied spreads, I think in the 10k, you all indicate that the assumptions like, you know, $20 per kilowatt per year escalating and then $81 not escalating for the battery.
Speaker Change: Yes, good morning, I wanted to focus a little bit more on the cost structure here and notably you made some progress in cutting that adjusted operating.
Speaker Change: But I guess, just taking a step back and looking at how that cost structure compares against the underlying assumptions baked into your net contracted customer value calculation relation in the implied spreads I think in the 10-K, you all indicate that the assumptions like $20 per kilowatt per year escalating and then $81.
Speaker Change: Escalating for the battery so.
William Jackson Berger: So I guess if I just think about that in the context of your customer service costs that you're operating at right now, which I think are multiple times higher than that, the first question is just, you know, how do we get comfortable underwriting your net contracted customer value if, you know, the operating cost assumptions that you're under right now are vastly different? And then second, what would be the net contracted customer value if we were to recast that forecast under the current operating cost structure?
Speaker Change: I guess, if I just think about that in the context of your customer service costs that you're you're operating at right now, which I think are multiple times higher than that.
Speaker Change: First question is just how do we get comfortable underwriting your net contracted customer value with.
Speaker Change: The operating cost assumptions that you are under right now are vastly different and then second is what would be the net contracted customer value. If we were to recast those that that forecast under the current operating cost structure.
Chris Dandrinos: Yeah, we've done a great job of improving customer service. And, in fact, we're at an all-time low, and decidedly so as far as our backlog of service tickets, if you will, on the customer base. We have started to redirect our service technicians, who do a fantastic job for us and our customers, over to the service only business.
Speaker Change: Yes, we've done a great job on improving customer service and in fact read an all time low.
Speaker Change: And decidedly so as far as our backlog of service tickets.
Speaker Change: If you will on the customer base.
Speaker Change: We have started to redirect decidedly so.
Speaker Change: The technicians, our service technicians, who do a fantastic job for us and our customers over to this service only business and so that will drive additional revenue and dropped the cost structure. So you will see our cost structure dropped this pretty significant we've already started to experience it.
William Jackson Berger: And so that'll drive additional revenue and drop the cost structure. So you will see a cost structure drop that's pretty significant. We've already started to experience it; you will start to see that over the coming quarters, it'll become very visible. So acknowledged on the GCCB, I just want to point out that that was set by industry standards long before even Sunnova was founded. And that's something that we've used to be consistent.
Speaker Change: You will start to see that over the coming quarters, it will become very visible.
Speaker Change: So.
Speaker Change: The knowledge on the <unk> I just want to point that out that that was set by the industry standards long before even some of it was founded.
Speaker Change: And that's something that we've used to be consistent.
Speaker Change: Our securitizations do contain some higher.
Speaker Change: Cost or MSA fees.
Speaker Change: Debt do code into our Levered cash flows I just want to point that out so.
Ameet Ishwar Thakkar: We feel very comfortable being able to drop the cost significantly, especially if we were absolutely had to in the kind of situation you were talking about.
William Jackson Berger: I wouldn't necessarily spend too much time trying to figure out what the.
Speaker Change: And increased spend would do.
Speaker Change: I think you can do some back of the envelope math and figure that out but.
William Jackson Berger: Our securitizations do contain some higher costs. But we're very, very focused on reducing that service cost and do believe we'll get down to something that's materially lower than what we have done over the last 12 to 18 months.
William Jackson Berger: We were very very focused on reducing that service cost and do you believe will get down to.
Something that's materially lower than what we have done over the past 12 to 18 months.
Chris Dandrinos: Okay, and then I guess just as a follow-up to confirm that, you know, the unlevered rate of return calculation that you all provide, is that assuming the same sort of cost structure as in the NCCV, or is that marked against kind of what you're sort of operating at right now? Thanks. That's what we're up to.
Speaker Change: Okay, and then I guess, just as a follow up to confirm that.
Speaker Change: Unlevered rate of return calculation that you all provide.
Speaker Change: Is that assuming the same sort of cost structure has been the NPV or is that marked against kind of what your what you're sort of operating at right.
Speaker Change: Right now thanks.
William Jackson Berger: It's what we're operating at right now. But to be clear, it's all service costs. It's all costs. It's all spent in the current year. So that's pretty burdensome when you're taking one marginal unit or one marginal customer and burdening it with the entire existing customer service base at the current cost structure. I think what we'll try to do in the coming quarters is, you know, look at a forward service cost estimate and then, you know, take out some of the initial upfront costs and have an alternative view of the return.
Chris Dandrinos: It's what we're operating at right now to be clear, it's all service costs all costs. It's all spend in the current year. So that's pretty burdensome when youre, taking one marginal unit or more than marginal customer and burdening with the entire existing customer service base at the current cost structure.
William Jackson Berger: I think.
William Jackson Berger: What we'll try to do in the coming quarters is.
William Jackson Berger: Look at a forward service cost estimate and then.
William Jackson Berger: Take out some of the initial upfront cost and have an alternative view on the return, but right now what we have is everybody all the money that we spend in the upfront we burden it and our unit economics.
William Jackson Berger: But right now, what we have is every money, all the money that we spend upfront, we burden it in our unit economics, and that fully burdened unlevered return. So in many ways, it's more punitive than it actually should be.
William Jackson Berger: <unk> and that fully burdened returns so.
William Jackson Berger: In many ways, it's more punitive than it actually should be.
Speaker Change: Got it thank you.
Chris Dandrinos: Thank you. The next question is from Ben Kallo with BED. Your line is open.
Speaker Change: Thank you. The next question is from Glenn Kellow respect your line is open.
Benjamin Joseph Kallo: Hi, good morning. Thank you, Rob, for everything. Maybe two quick ones, just on reducing expenses and really focusing on any direct sales. I know you guys do a little direct sales, but have you changed any thoughts around that, John? And then I have a follow up.
Speaker Change: Hi, Good morning, Thank you Rob for everything.
William Jackson Berger: Maybe two quick ones.
William Jackson Berger: Just on reducing expenses.
Benjamin Joseph Kallo: And really focusing on.
Benjamin Joseph Kallo: Direct sales I know you guys do a little truck sales.
Benjamin Joseph Kallo: Have you changed your thoughts around that.
Benjamin Joseph Kallo: Hello.
William Jackson Berger: No, I'm decidedly, I think, still on the dealer business model side of things. Look, the great entrepreneurs that we have in the dealers are, you know, they're unhirable, if you will, if that's a phrase by any word I can use with you, Ben. But we've been focused on that since I founded the company in terms of the dealer model, and we have not wavered. I know others have gone back and forth, but we have not wavered and will not.
John: No decidedly I think.
Benjamin Joseph Kallo: Still on the dealer business model side of things look great entrepreneurs that we have and the dealers are.
Speaker Change: They are on horrible if you will thats appraised by a word I can use with you Ben but.
William Jackson Berger: We've been focused on that since I founded the company in terms of the dealer model and we have not wavered.
William Jackson Berger: I know others have gone back and forth, but we have not wavered and we will not.
William Jackson Berger: We've got a little bit of direct sales as you pointed out, but that's really about finding areas, where we just havent had any dealer coverage and so that will continue to be a relatively small part of our business, but I expect it to generate.
William Jackson Berger: We've got a little bit of direct sales, as you pointed out, but that's really about finding areas where we just haven't had any dealer coverage, and so that will continue to be a relatively small part of our business, but I expect it to generate a good deal of cash.
William Jackson Berger: A good deal of.
William Jackson Berger: Of cash.
William Jackson Berger: Great.
Benjamin Joseph Kallo: And just on the balance sheet and, you know, different options, the SunStrom JB with SunPower and Hanon, is that something that, you know, we could possibly see with you guys, a structure like that?
William Jackson Berger: Just on the balance sheet.
William Jackson Berger: We will defer auctions.
William Jackson Berger: The Sun's strong J D.
William Jackson Berger: Yeah.
William Jackson Berger: Is that.
William Jackson Berger: We could possibly see with you guys.
William Jackson Berger: The structure.
William Jackson Berger: It's possible. We're definitely looking at and analyzing our options there, and The Hannon team is very strong, and they've done a lot of good things and run a good business, and so, of course, you know, we always want to talk to folks that run good businesses, so that's certainly possible.
Benjamin Joseph Kallo: It's possible, but we're definitely looking at.
Benjamin Joseph Kallo: Looking at our options there.
Benjamin Joseph Kallo: The Hampden team is very strong and they've done a lot of good things and run a good business and so.
Benjamin Joseph Kallo: Course.
Speaker Change: I always wanted to talk to folks that run good businesses. So that's certainly possible.
Benjamin Joseph Kallo: Great. Thank you. Thanks again, Rob. Thank you. The next question is from William Grippin with UBS. Your line is open.
Speaker Change: Great. Thank you.
Speaker Change: Good Rob.
William Spencer Grippin: Thank you. The next question is from William Grippin with UBS. Good morning.
William Jackson Berger: Thank you. The next question is from Gregg <unk> with UBS. Your line is open.
William Spencer Grippin: The first question was just how should we think about the impact of pulling forward some of these ABS transactions on future cash generation? And should we expect a lower level of security?
William Jackson Berger: Thanks. Good morning first question was just how should we think about the impact of pulling forward. Some of these ABS transactions on future cash generation and should we expect a lower level of securitization activity in 2025.
William Jackson Berger: Well, the way you should think about it is that as we pull forward the securitizations, we pull forward cash, and that cash is, we right now see that as significant. The way to look at 2025 is that we would be on a steady pace. And so what's the probability that we do more securitizations this year than we do in 2025? I haven't put a lot of thought into that, frankly.
William Spencer Grippin: Well the way you should think about it is as we pull forward the securitization that we pull forward cash and that cash is.
William Spencer Grippin: We we right now see that as significant.
William Spencer Grippin: The way to look at 2025 is that we would be.
William Jackson Berger: On a steady pace and so what's the probability that we would do more securitizations this year than we do in 'twenty five.
William Jackson Berger: Yes.
William Jackson Berger: Haven't put a lot of thought into that frankly.
William Jackson Berger: We just need to have a securitization schedule, that's disciplined and keeps US ahead of the markets, we take as little of the interest rate risk as we as we should and can and are in our backlog.
William Spencer Grippin: We just need to have a securitization schedule that's disciplined and keeps us ahead of the markets. We take as little of the interest rate risk as we should and can in our backlog. We haven't done that in the past couple of years or so, and that is changing as we speak this year. And so, as long as we're on a disciplined schedule where we're generating cash, I think how many securitizations we do or do not do, I don't think it really matters. But it is likely that we'll just be on more of a steady state that you're kind of seeing right now. Try to space out the securitizations accordingly, of course, but more of a steady state.
William Jackson Berger: We haven't done that in the past couple of years or so.
William Spencer Grippin: That is changing as we speak.
William Spencer Grippin: This year and so as long as we're on a disciplined schedule, where we're generating cash.
William Spencer Grippin: How many securitizations, we do or do not do I don't think it really matters.
William Spencer Grippin: But it is likely that will just be on a more of a steady state that you are kind of seeing right now.
William Spencer Grippin: Hi to space out the securitization accordingly of course, but more of a steady state.
Speaker Change: Got it and then just last one here have you seen any impact on your advance rates or your financing terms relative to what you maybe would have otherwise expected just given where the debt and stock had been trading and maybe some of the imply concerns there.
William Spencer Grippin: No.
Speaker Change: Alright, thanks very much.
William Spencer Grippin: Thanks.
Donovan Due Schafer: Thank you. The next question is from Donovan Schafer with Northland Capital Markets.
William Spencer Grippin: Thank you. The next question is from Jonathan Schaffer with Northland Capital markets. Your line is open.
Donovan Due Schafer: Hey guys, thanks for taking the questions. So I want to ask, I feel compelled to dig in a bit more deeply on the, you know, I guess it's, it's on slide 31, terminations, payoffs, and expirations. I know some of that's service-oriented, some of it, you know, not so much, there's, there's, you know, presumably a lot of kind of moving parts there and a lot of nuance. At the same time, collectively, it's a pretty big jump. You know, I think it was approximately 2,000 last quarter, and it jumped to almost 8,000, a sort of 8,000 deduction, if you will, for customer additions in this quarter.
Speaker Change: Hey, guys. Thanks for taking the questions. So I wanted to ask.
William Spencer Grippin: I feel compelled to.
Donovan Due Schafer: Dig in a bit more deeply on the.
Donovan Due Schafer: I guess, it's on slide 31, terminations payoffs and explorations I don't know some of that service oriented some of it not.
Donovan Due Schafer: Not theirs.
Donovan Due Schafer: Presumably a lot of kind of moving parts, there and a lot of nuance.
Donovan Due Schafer: At the same time collectively it's a pretty big jump I think it was approximately 2000 last quarter and it jumped to almost 8000.
Donovan Due Schafer: 8000 Ddos.
Donovan Due Schafer: Will the customer additions in this quarter so could.
William Jackson Berger: So, could you unpack that a bit more, maybe get at, like, specifically, what the cause is? I mean, I can imagine, you know, maybe in some cases that people are just worried about, um, day-to-day expenses or something some people with savings like retirees or whoever could just opt to buy out. There might be more basic things behind that, but just, you know, how do you expect this to trend? Like, what's the cause, all else equal?
Donovan Due Schafer: Could you unpack that a bit more and maybe get at like specifically what is the cause I mean I can imagine you know maybe in some cases that people are just worried about.
Donovan Due Schafer:
Donovan Due Schafer: <unk> expense is there something some people with savings like retirees or whoever could just ops to buyout.
William Jackson Berger: Leaves sort of alone I mean, there might be more basic things behind that.
William Jackson Berger: But just how do you expect this to trend like what's the.
William Jackson Berger: What's the cause all of equal do you do you want to see that come back down or do the economics, I know like with loans dealer fees, sometimes it can actually improve the economics.
Donovan Due Schafer: You know, do you want to see that come back down? Or do the economics, I know, like with loans and dealer fees, sometimes they can actually improve the economy. So, you know, do you want to see this trend up or not? Or maybe one of the lines, but not the other line. Anything you can do to kind of unpack that, that would be great.
William Jackson Berger: Do you want to see this trend up do you not or maybe one of the lines, but all the other line.
William Jackson Berger: But anything you can do to kind of unpack that that would be great. Thank you.
William Jackson Berger: Sure. The vast majority of payoffs. But do we want that to become more negative as we move forward in time to get our money back faster on the loans? Absolutely, 110%.
Speaker Change: Sure vast majority of payoffs.
Donovan Due Schafer: So do we want that to become more negative as you move forward in time to get our money back faster than the loans absolutely 110%.
Donovan Due Schafer: Okay, and I guess that gets you better economics because the dealer fee and then your financing partners, you know, maybe historically, the way people looked at mortgages or something you could have prepayment risk impacts the duration, interest rate sensitivity, and so forth. So, you know, is it something they will be happy with too, the dealer fee and such gets shared with them in a way where if it all just, you know, if all these prepayments came in the door, it'd just be everyone would be high-fiving, and it'd be fantastic.
Donovan Due Schafer: Okay, and I guess that gets you better economics, because the dealer. She then youre financing partners.
William Jackson Berger: Maybe historically the way people looked at mortgages or something you could have prepayment risk impacts.
Donovan Due Schafer: Duration interest rate sensitivity and so forth.
Donovan Due Schafer: No.
Donovan Due Schafer: Is it something that they will be happy with to the European such gets shared with them in a way where if at all just if all of these prepayments came in the door and just be everyone would be high fiving and that would be fantastic.
Donovan Due Schafer: Correct.
William Jackson Berger: You pay off debt, you don't have to refinance it.
Donovan Due Schafer: You pay off debt refinance that debt.
Donovan Due Schafer: Very helpful. I appreciate it. All right. Thank you guys. All my other questions have been asked. I'll take the rest of my questions.
Speaker Change: Uh-huh very helpful. I appreciate it alright. Thank you guys. All my other questions have been asked so I'll take the rest of my questions offline.
Speaker Change: Thank you.
Christine Trobe: Thank you. The next question is from Christine Trobe with Barclays. Your line is open.
Donovan Due Schafer: Thank you. The next question is from Christine Cho with Barclays. Your line is open.
Christine Trobe: Thank you for squeezing me in here. Maybe if I could just ask about the fully burdened unleveraged return. I know there are a lot of assumptions that go into here, and for the loan book, I think there are three main drivers, the dealer fee, the APR, and the CPR, and I would think that the dealer fee and APR move around in your assumptions as the loan APRs and dealer fees have changed. Just curious if the CPR assumptions have moved at all over to this time frame, or have they stayed relatively flat for consistency purposes to calculate this return number.
Speaker Change: Thank you for squeezing me in here.
Speaker Change: Maybe if I could just ask on the <unk>.
Donovan Due Schafer: Fully burdened Unlevered return.
Christine Trobe: I know there are a lot of assumptions that go in here and for the loan book I think our three main drivers the dealer fee the APR to CPR and I would think that the dealer fee and API.
Christine Trobe: API move around in your assumptions.
Christine Trobe: The loan Apr's Ngls These exchange, but just curious if that.
Christine Trobe: CPR assumptions have moved at all I would like at this timeframe or has it stayed relatively flat for state purposes to calculate this return number.
William Jackson Berger: We have moved the CPR down significantly to reflect the current market, so that would depress the number of returns.
Christine Trobe: We have moved the CPR down significantly to reflect the current market.
Christine Trobe: So that would depress the unlevered return.
Christine Trobe: Okay.
Christine Trobe: And then, you know, you previously talked about how funding the, or cost of capital, has been more expensive for the non-IG attachment points in the ABS market, and that's why you previously funded that portion other ways. Can you just talk a little more about what drove your decision to change the approach and securitize beyond the IG attachment points? And then in the levered cash flows from the liquidity file, or the liquidity slide, versus last quarter, you know, it being down, how much of this is driven by cash flows just coming in lower from your existing base versus your approach and your change in approach and securitizing through the stack for new originations here on out, and so they're being less residual?
Christine Trobe: Okay.
Christine Trobe: And then.
Christine Trobe: You previously talked about how funding the cost of capital has been more expensive for the non Iga attachment points in the ABS market and Thats why you previously funded that question. Other ways can you just talk a little more about what drove your decision to change the approach and securitize beyond that.
Christine Trobe: Attachment points and then in the Levered cash flows from the liquidity file.
Christine Trobe: On the liquidity side versus last quarter.
Christine Trobe: You know it being down how much of this is driven by cash flows just coming in more from your existing base approaching you or change in approach and securitizing Sackful Newman for any new origination shine out and so they're being less residuals.
William Jackson Berger: I'll answer the second one first. And so the vast majority of that slightly lowered leveraged cash flow is due to not as many accessory loans, looking at how do we sell some loans off. But it's much more about on the margin, some of the origination, not the existing base underperforming. In terms of the cost of capital between the asset level and corporate capital, I think it's pretty... I think it's really obvious that corporate debt is trading at a deep, deep discount.
Speaker Change: I'll answer the second one first and so.
Christine Trobe: The vast majority of that.
Christine Trobe: Look slightly lowered cash flow levered cash flow is due to.
Christine Trobe: Not as many accessory loans looking at how do we sell some loans off.
William Jackson Berger: But it's much more about on the margin some of the origination not the existing base underperforming.
William Jackson Berger: In terms of the cost of capital between the asset level and the corporate capital I think it's pretty.
William Jackson Berger: I think it's really obvious that the corporate debt is trading at deep discount I think it's also pretty obvious that the equity is trading at.
William Jackson Berger: I think it's also pretty obvious that the equity is trading at a very deep discount. And so I don't think that the cost of capital on the corporate side, I don't even think you need to run a model, it's quite a bit higher than anything we can do on the asset level. So it seems pretty straightforward why we've had to flip back to the asset level.
William Jackson Berger: Very deep discount and so I don't think that the cost of capital on the corporate side.
Speaker Change: I think you need to run a model.
William Jackson Berger: Quite a bit higher than anything we can do on the asset level side. So.
William Jackson Berger: It seems pretty straightforward about why we've had the flu.
William Jackson Berger: Back to the asset level side of things.
Speaker Change: Great. Thank you.
Christine Trobe: Great, thank you. Thank you. The last question on the call today is from Corinne Blanchard with Deutsche Bank. Your line is open. Okay, good morning.
Corinne Jeannine Blanchard: Thank you. The last question on the call today is Corinne Blanchard with Deutsche Bank. Your line is open. Hey, good morning. Thank you for taking my question.
William Jackson Berger: Thank you and then last question on the call today is Corinne luncheon with Deutsche Bank. Your line is open.
Speaker Change: Hey, good morning, and thank you for taking my question.
Speaker Change: Most have been answered so maybe I'm going to try something different can you maybe talk or anything to think about California.
Corinne Jeannine Blanchard: It has been yeah, let's take on their own.
Corinne Jeannine Blanchard: Less of a focus but maybe what are you seeing in channel demand to rebound as we go into the <unk>.
Corinne Jeannine Blanchard: Okay.
William Jackson Berger: Hey Corinne, again, we don't have a big presence in California. So I would leave it to my competitors, who I think have a very large portion of their origination in California. I think it's pretty clear that other states that are more consumer-friendly have done a better job over the past year than the state of California has with regard to consumers and the power industry. So I'll leave it at that. I think it's most unfortunate the direction that the state of California is going in.
Corinne Jeannine Blanchard: Hey, Greg.
Corinne Jeannine Blanchard: We don't have a big presence in California, So I would leave it to my competitors, who I think have a very large portion of the origination in California, I think it's pretty clear that other states.
Corinne Jeannine Blanchard: That are more consumer friendly.
William Jackson Berger: Have done a better job over the past year than the state of California has with regards to can.
William Jackson Berger: <unk> and the power industry.
William Jackson Berger: So I'll leave it at that I think it's most unfortunate the direction that the state of California is going and we're quite heartened to see other states take the exact opposite path and embrace.
William Jackson Berger: And we're quite heartened to see other states take the exact opposite path and embrace giving consumers value, particularly as power, as we all know, is in huge demand and it keeps going up in cost. Okay, thank you. And then maybe just quickly, so which are the states that you have seen the most potential for domain names, like maybe over the next 12 months? We do list that out, as you know, in the appendix by state. I don't think anybody else does that, so I would point you in that direction.
William Jackson Berger: Giving consumers value, particularly as the power as we all know is in huge demand and it keeps going up in cost.
William Jackson Berger: Okay. Thank you and then maybe just quickly so which I'll just say that you have seen the most potent <unk>.
William Jackson Berger: Over the next 12 months.
William Jackson Berger: We do list that out as you know in the appendix by state I don't think anybody else does that so I would point you in that direction, but again as I mentioned earlier, we're seeing a lot of growth in the southern United States and we're seeing some growth spread out.
Corinne Jeannine Blanchard: But again, as I mentioned earlier, we're seeing a lot of growth in the southern United States, and we're seeing some growth spread out just in general. So I think overall, as the weighted average cost of electricity from the utilities, the monopolies, continues to increase, we should expect to see consumers look for alternatives, and with equipment pricing, whether it's modules or batteries or inverters, really crashing in cost, that presents a really nice value wedge for consumers and their transactions.
William Jackson Berger: Just in general so.
William Jackson Berger: I think overall as the as the weighted average cost of electricity from the utilities. The monopolies continues to increase we should expect to see consumers look for alternatives and with equipment pricing, whether its modules or batteries or inverters that really crashing in cost.
Corinne Jeannine Blanchard: That presents a really nice value, which for consumers in and Theyre and Theyre transacting.
Corinne Jeannine Blanchard: Okay.
Speaker Change: Alright, thank you.
Corinne Jeannine Blanchard: Thanks.
William Jackson Berger: Thank you, everyone. These are all the questions we have time for today. I will now hand back over to John Berger for closing remarks.
Corinne Jeannine Blanchard: Thank you everyone. This is all the question you may have time for today I will now hand back over to John Berger for closing remarks.
William Jackson Berger: Thank you for joining our Q1 call. We remain focused on cutting operating expenses, increasing value from our service contracts, and closing our asset-level capital quicker, all to increase cash generation even more than we already have. I want to thank Rob for his service, and I look forward to seeing you all on the Q2 call.
Speaker Change: Thank you for joining our Q1 call.
Corinne Jeannine Blanchard: We remain focused on cutting operating expenses, increasing value from our service contracts and closing our asset level capital quicker also increase cash generation, even more than we already have.
Speaker Change: I wanted to thank Rob for his service and I look forward to seeing you all on the Q2 call. Thank you.
Operator: This concludes today's call. Thank you for joining us. You may now disconnect your line.
Speaker Change: This concludes today's call. Thank you for joining you may now disconnect your lines.
William Jackson Berger: [music].
William Jackson Berger: Yeah.
Operator: Yes.
Operator: Okay.
Operator: Yeah.
Operator: Okay.
Operator: Okay.