Q1 2024 Sunrun Inc Earnings Call
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Operator: Good afternoon, and welcome to Sunrun's first quarter 2024 earnings conference call. All participants have been placed on mute. Please note that this call is being recorded and that one hour has been allocated for the call, including the question and answer session. To join the Q&A session after prepared remarks, please press star one at this time. We ask participants to limit themselves to one question and one follow-up. I will now turn the call over to Patrick Jobin, Sunrun's Senior Vice President of Investor Relations. Please go ahead.
Good afternoon, and welcome to Sunrun first quarter 'twenty 'twenty four earnings conference call. All participants have been placed on mute. Please note that this call is being recorded and that one hour has been allocated for the call, including the question and answer session.
To join the <unk> session. After prepared remarks, Please press star one at this time.
We ask participants to limit themselves to one question and one follow up.
We'll now turn the call over to Patrick Jobin, Sunrun Senior Vice President Investor Relations. Please go ahead.
Patrick Jobin: Thank you operator.
Patrick Jobin: Before we begin, please note that certain remarks we will make on this call constitute forward-looking statements. Although we believe these statements reflect our best judgment based on factors currently known to us, actual results may differ materially and adversely. Please refer to the company's filings with the SEC for a more inclusive discussion of risks and other factors that may cause our actual results to differ from projections made in any forward-looking statements. Please also note that these statements are being made as of today, and we disclaim any obligation to update or revise them.
Patrick Jobin: Before we begin please note that certain remarks, we will make on this call constitute forward looking statements.
Patrick Jobin: Although we believe these statements reflect our best judgment based on factors currently known to US actual results may differ materially and adversely please refer to the company's filings with the SEC for a more inclusive discussion of risks and other factors that may cause our actual results to differ from projections made in any forward looking statements. Please also note that these statements are being made.
Patrick Jobin: As of today, and we disclaim any obligation to update or revise them.
Patrick Jobin: During today's call, we will be discussing certain non-GAAP financial measures, which we believe can provide meaningful supplemental information for investors regarding the performance of our business and facilitate a meaningful evaluation of current period performance on a comparable basis with prior periods. These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, superior to, or in isolation from, GAAP results.
Patrick Jobin: During today's call, we will be discussing certain non-GAAP financial measures, which.
Patrick Jobin: Which we believe can provide meaningful supplemental information for investors regarding the performance of our business and facilitate a meaningful evaluation of current period performance on a comparable basis with prior periods.
Patrick Jobin: These non-GAAP financial measures should be considered as a supplement to and not as a substitute for superior.
Patrick Jobin: Superior to or in isolation from GAAP results, you will find additional disclosures regarding the non-GAAP financial measures discussed on today's call in our press release issued this afternoon and our filings with the SEC each of which is posted on our website.
Patrick Jobin: You will find additional disclosures regarding the non-GAAP financial measures discussed on today's call in our press release issued this afternoon and in our filings with the SEC, each of which is posted on our website. Mary Powell, Sunrun's CEO, Danny Abajian, Sunrun's CFO, Ed Fenster, Sunrun's Co-Founder and Co-Executive Chair, along with Paul Dixon, Sunrun's President and Chief Revenue Officer A presentation is available on Sunrun's Investor Relations website, along with supplemental materials.
Patrick Jobin: On the call today are Mary Powell, Sunrun, CEO, Danny Apachean, Sunrun CFO, Ed Fenster, <unk> co founder and co executive Chair, along with Paul Dixon son runs President and Chief revenue Officer are also on the call with Q&A session.
Patrick Jobin: A presentation is available on Sunrise Investor Relations website, along with supplemental materials and the audio replay of today's call along with a copy of todays prepared remark and transcript <unk>.
Patrick Jobin: An audio replay of today's call, along with a copy of today's prepared remarks and transcript, including Q&A, will be posted to Sunrun's Investor Relations website shortly after the call. We have allocated 60 minutes for today's call, including the Q&A session. Now, let me turn the call over to Mary. Thank you, Patrick.
Patrick Jobin: Q&A will be posted to the sudden runs investor relations website shortly after the call.
Mary Grace Powell: Allocated 60 minutes for todays call, including the Q&A session and now let me turn the call over to Mary. Thank you Patrick and thank you all for joining US today, we are starting the year with solid momentum in the business as our storage first margin focused strategy is delivering strong results in the first quarter, we beat the high end of both our storage.
Mary Grace Powell: Thank you, Patrick, and thank you all for joining us today. We are starting the year with solid momentum in the business as our storage-first, margin-focused strategy is delivering strong results. In the first quarter, we beat the high end of both our storage and solar installation guidance, set new records for storage attachment rates, and delivered another quarter of strong net subscriber values. Our installation productivity and success driving a storage first strategy are delivering strong results. At the same time, sales activities in Q1 did grow slightly slower than initially expected, coming in at 13% sequential growth in our direct business.
Patrick Jobin: And solar installation guidance.
Mary Grace Powell: New records for Georgia catchment rates and delivered another quarter of strong net subscriber values, our installation productivity and success driving up storage first strategy is delivering strong results at.
Mary Grace Powell: At the same time sales activities in Q1 did grow slightly slower than initially expected coming in at 13% sequential growth in our direct business well less than initially anticipated. This level is still consistent with our historical seasonal norms, we continue to prioritize margins over volumes and we believe.
Mary Grace Powell: While less than initially anticipated, this level is still consistent with our historical seasonal norm. We continue to prioritize margins over volumes, and we believe this approach will result in the highest long-term value for our shareholders. We are reiterating our full-year storage capacity installation guidance, and we are reducing our full-year solar installation capacity outlook to down 15% to flat, from our prior guidance range of down 5% to up 5%. We expect 2024 will be a strong year in terms of total value generated, which will grow by over 10%. Most important, we are reiterating our cash generation guidance of a Q4 annualized level of $200 to $500 million.
Patrick Jobin: This approach will result in the highest long term value for our shareholders.
Patrick Jobin: We are reiterating our full year storage capacity installation guidance and we are reducing our full year solar installation capacity outlook to down 15% to flat from our prior guidance range of down 5% to up 5%. We expect 'twenty 'twenty four will be a strong year in terms of total.
Patrick Jobin: Value generated which will grow by over 10%. Most important we are reiterating our cash generation guidance, although Q4 annualized level of 200 to 500 million.
Mary Grace Powell: We are confident in achieving strong growth in installation activities through the year, as the fundamental demand drivers of our business continue to be robust. Utility rates continue to rise, while storage and solar equipment costs are declining, and our operating efficiency continues to improve. Customers remain eager for clean, affordable, and resilient energy to power their lives. At the beginning of 2023, we oriented the business to be storage first, which increases the customer value proposition and lays the foundation for future value creation from grid services. This strategy has also allowed us to capitalize on regulatory changes better than others in the industry.
Patrick Jobin: We are confident in achieving strong growth in installation activities through the year.
Patrick Jobin: Fundamental demand drivers of our business continued to be robust utility rates continue to rise while storage and solar equipment costs are declining and our operating efficiency continues to improve.
Mary Grace Powell: Customers remain eager for clean affordable and resilient energy to power their lives.
Patrick Jobin: In the beginning of 'twenty twenty-three, we've oriented the business to be storage first which increases the customer value proposition and lays the foundation for future value creation from great services.
Patrick Jobin: This strategy has also allowed us to capitalize on regulatory changes better than others in the industry.
Mary Grace Powell: In Q1, we installed storage on 50% of our new customers, up from a 15% attachment rate in the prior year. We installed 207 MWh of storage in Q1, almost triple the year-ago quarter. Storage systems provide increased customer value through enhanced resiliency and control, while providing higher margins for Sunrun. Our fleet of networked storage capacity has reached 1.5 gigawatt hours with 102,000 systems installed. Based on industry data, we represent about half of new storage installations in the United States and are gaining. In 2023, we were under 20% of residential storage deployments across the US.
Patrick Jobin: In Q1, we installed storage on 50% of our new customers up from a 15% attachment rate in the prior year, we installed 207 megawatt hours of storage in Q1, almost triple the year ago quarter.
Patrick Jobin: George systems provide increased customer value through enhanced resiliency and control, while providing higher margins for sunrun.
Patrick Jobin: Our fleet of networked storage capacity has reached 1.5 gigawatt hours with 102000 systems installed based on industry data, we represent about half of new storage installations in the United States and are gaining in.
Mary Grace Powell: And by Q4, we were approximately 45%. Our fleet is growing in significance and is already at a scale that could replace multiple polluting peaker power plants. For instance, these resources could power a city like San Francisco for multiple hours and do so daily as batteries are recharged from the sun. While still in the early stages of commercializing these resources, we just announced two new record-setting grid service programs. For the second year in a row, Sunrun will set a national record for the largest number of residential solar plus battery systems enrolled in a virtual power plant.
Patrick Jobin: In 2023, we were under 20% share of residential storage deployments across the U S and by Q4, we were approximately 45%.
Mary Grace Powell: Our fleet is growing insignificance and is already at the scale. They could replace multiple polluting peak or power plants. For instance, these resources can power a city like San Francisco for multiple hours and do so daily as batteries are recharged from the Sun well.
Patrick Jobin: While still in the early stages of commercializing. These resources, we just announced two new record setting grid services programs.
Patrick Jobin: For the second year in a row someone will set a national record for the largest number of residential solar plus battery systems enrolled in a virtual power plant.
Mary Grace Powell: Last year, we did a 30 megawatt program with PG&E. This year, we are launching a statewide demand-side grid support program that is about twice the size with more than 16,000 Sunrun customers. We have also enrolled nearly 1,800 customers in our Puerto Rico virtual power plant. Our resources have been dispatched nearly a dozen times, helping to prevent rolling blackouts and keeping the power on for all Puerto Ricans, not just our customers.
Patrick Jobin: Last year, we did a 30 megawatt program with P. Journey. This year, we are launching a statewide demand-side grid support program is about twice the size with more than 16000 sunrun customers.
Patrick Jobin: We also have now enrolled nearly 1800 customers in our Puerto Rico virtual power plant.
Patrick Jobin: Our resources have been dispatched nearly a dozen times, helping to prevent rolling blackouts and keeping the power on for all Puerto Rican not just our customers.
Mary Grace Powell: The fact that we are running these two successful programs shows that VPPs can rapidly scale all across the country. Last month, a Brattle Group study concluded that virtual power plants could save California consumers $550 million per year.
Patrick Jobin: The fact that we are running these two successful programs shows that V. P. Pes can rapidly scale all across the country.
Patrick Jobin: Last month, our Brattle group study concluded that virtual power plants could save California consumers $550 million per year.
Mary Grace Powell: We also continue to innovate with AI, enhanced customer experiences, new products, adding batteries to existing systems, EV charging, and, of course, our early renewal opportunities. The team is busy innovating to extend Sunrun's differentiation in the market even as we dial up our focus on efficiency and cash generation. We are making clean, affordable, and reliable energy accessible to families all across America with the most pro-consumer offerings and delivering the best customer experience and service in the industry. Being the chosen, trusted provider to deliver this clean energy future is critical. As a testament to our approach, our customer net promoter scores at the time of installation continue to increase, exceeding 75 points this quarter.
Patrick Jobin: We also continue to innovate with AI enhanced customer experiences new products, adding batteries to existing systems EV charging and of course, our early renewal opportunities.
Patrick Jobin: The team is busy innovating to extend sunrun is differentiation in the market, even as we dial up our focus on efficiency and cash generation.
Patrick Jobin: We are making clean affordable and reliable energy accessible to families. All across America with the most pro consumer offerings and delivering the best customer experience and service in the industry.
Patrick Jobin: Being the chosen trusted provider to deliver this clean energy future is critical.
Patrick Jobin: As a testament to our approach our customer net promoter scores at the time of installation continue to increase exceeding 75 points this quarter.
Mary Grace Powell: We are driving this great customer experience and investing in innovation while also dramatically increasing operating efficiencies. Our crew labor productivity has improved by 5% compared to the prior year, even as we have more than tripled our mix of more complex battery jobs. Our efficiency gains installing systems with batteries are particularly impressive, improving 30% year over year. Overall headcount in our installation organization is down five percentage points more than the change in volume.
Mary Grace Powell: We are driving this great customer experience and investing in innovation, while also dramatically increasing operating efficiencies.
Patrick Jobin: Our crew labor productivity has improved by 5% compared to the prior year, even as we more than tripled our mix of more complex battery jobs are efficiency gains installing systems with batteries are particularly impressive improving 30% year over year.
Patrick Jobin: Overall head count and our installation organization is down five percentage points more than the change in volumes. In addition, general and administrative costs have declined slightly year over year and continue to be a fraction of that of our peers, even as we accelerate the pace of innovation highlighting the tremendous scale.
Mary Grace Powell: In addition, general and administrative costs have declined slightly year over year and continue to be a fraction of that of our peers, even as we accelerate the pace of innovation, highlighting the tremendous scale advantages we derive and sizable barriers to entry in the space. We are also driving increased efficiency and improved quality throughout the organization by leveraging artificial intelligence. We have already started using AI to improve the speed and accuracy of system design, pipeline management, and material handling.
Patrick Jobin: <unk>, we derive and sizeable barriers to entry in this space.
Mary Grace Powell: We are also driving increased efficiency and improved quality throughout the organization from leveraging artificial intelligence.
Patrick Jobin: We have already started using AI to improve the speed and accuracy of system design pipeline management and material handling we are increasingly encouraged by how AI can improve our operating efficiency and customer experience even further.
Mary Grace Powell: We are increasingly encouraged by how AI can improve our operating efficiency and customer experience even further. Growth in AI and the voracious energy consumption that comes with it will drive an even greater need for Sunrun's fleet of solar and battery systems. The International Energy Agency forecasts power demand from data centers in the U.S. will increase 60 terawatt hours by 2026 to account for nearly 6% of total U.S. electricity demand. Electric grids will need to procure more power to meet this need, especially at peak times, and distributed, flexible, renewable resources will be one of the solutions. Much of this growth is also coming from companies who are eager to use clean energy to meet their environmental objectives.
Mary Grace Powell: Growth in AI and the voracious energy consumption that comes with it will drive even greater need for Sunrun fleet of solar and battery systems.
Mary Grace Powell: The International Energy agency forecast power demand from data centers in the U S will increase 60 terawatt hours by 2026, so account for nearly 6% of total U S electricity demand.
Patrick Jobin: Rectrix grids will need to procure more power to meet this need, especially at peak times and distributed flexible renewable resources will be one of the solutions. Much of this growth is also coming from companies who are eager to use clean energy to meet their environmental objectives.
Mary Grace Powell: Before handing the call over to Danny, I want to take a moment to celebrate some of our people who truly embrace the power of solar energy to make a real difference in our world. Thank you to our leading teams in Houston, Texas; our top-ranked installation crew, led by Jonathan, and direct-to-home sales team in the quarter based on safety, quality, battery attachment rates, and customer experiences. They were all in Texas this quarter. Thank you all for your contributions and leadership at Sunrun. With that, let me turn over the call to Danny for our financial update.
Speaker Change: Before handing the call over to Danny I wanted to take a moment to celebrate some of our people who truly embraced the power of solar energy to make a real difference in our world.
Danny Abajian: Thank you to our leading teams in Houston, Texas, Our top ranked installation crew led by Jonathan and direct to home sales team in the quarter based on safety quality battery attachment rates and customer experiences.
Speaker Change: We're all in Texas. This quarter. Thank you all for your contributions and leadership at Sunrun with that let me turn over the call to Danny for our financial update.
Danny Abajian: Thank you, Mary. Today, I will cover our operating and financial performance for the quarter, along with an update on our capital markets activities and outlays. Turning first to the results for the quarter, on slide nine, we have now installed over 102,000 solar and storage systems, with storage attachment rates reaching 50 percent of installations nationally during the first quarter of 2024. We expect storage attachment rates to remain around this level throughout the remainder of the year.
Danny: Thank you Mary today, I will cover our operating and financial performance in the quarter, along with an update on our capital markets activities and outlook there.
Danny Abajian: First with our results for the quarter on slide nine.
Danny Abajian: We have now installed over 102000 solar and storage systems with George attachment rates, reaching 50% of installations nationally during the first quarter of 2024.
Danny Abajian: We expect storage attachment rate to remain around this level throughout the remainder of the year.
Danny Abajian: This higher mix of storage has driven improvements to our net subscriber value as backup storage offerings carry higher. During the quarter, we installed 207 megawatt hours of storage capacity, well above the high end of our guidance and almost tripled the same quarter last year. Our total network storage capacity is now over one and a half gigawatt hours. In the first quarter, the solar energy capacity installed was approximately 177 megawatts, also above the high end of our guidance range of 165 to 175 megawatts.
Danny Abajian: This higher mix of storage has driven improvements to our net subscriber value as backup storage offerings carry higher margins.
Danny Abajian: During the quarter, we installed 207 megawatt hours of storage capacity well above the high end of our guidance and almost tripled the same quarter last year.
Danny Abajian: Total net worth.
Danny Abajian: The backlog is now over one gigawatt hours.
Danny Abajian: In the first quarter solar energy capacity installed was approximately 177 megawatts also above the high end of our guidance range of 165 to 175 megawatts.
Danny Abajian: Customer additions were approximately 24,000, including approximately 22,000 subscriber additions. Our subscription mix reached 93% of deployments in the period, an increase of 92% from 92% last quarter and the highest level ever. We end Q1 with approximately 957,000 customers and 803,000 subscribers representing 6.9 gigawatts of network solar energy capacity, a 16% increase year-over-year. Our subscribers generate significant recurring revenue, with most under 20 or 25 year contracts for the clean energy we provide.
Danny Abajian: Customer additions were approximately 24000, including approximately 22000 subscriber additions.
Danny Abajian: Our subscription mix reached 93% of deployments in the period, an increase of 92%.
Danny Abajian: That's up from 92% last quarter and the highest level in many years.
Danny Abajian: We ended Q1 with approximately 957000 customers and 803000 subscribers, representing six nine Gigawatts of network solar energy capacity.
Danny Abajian: 16% increase year over year.
Danny Abajian: Our subscribers generate significant recurring revenue with most under 20 or 25 year contract with the clean energy we provide at.
Danny Abajian: At the end of Q1, our annual recurring revenue, or ARR, stood at over $1.4 billion, up 30% over the same period last year. And we had an average contract life remaining of nearly 18 years. Turning to slide 10.
Danny Abajian: At the end of Q1, our annual recurring revenue or <unk> stood at over $1 4 billion up 30% over the same period last year we.
Danny Abajian: We had an average contract life remaining of nearly 18 years.
Danny Abajian: Turning to slide 10.
Danny Abajian: In Q1, subscriber value was approximately $50,800, and creation cost was approximately $38,900, delivering a net subscriber value of $11,891. This strong result was from increased efficiency and a beat on volume. Our Q1 subscriber value and net subscriber value now reflect a blended investment tax credit of over $35,000. This is due to expanded eligibility for the Energy Communities ITC Adder and the portion of our deployed systems eligible for the Low Income Act. Total value generated, which is the net subscriber value multiplied by the number of subscriber additions in the period, was $262 million in the first quarter.
Danny Abajian: In Q1 subscriber value was approximately 50800 and creation costs was approximately 38900 delivering in net subscriber value of $11891.
Danny Abajian: This strong result was from increased efficiency and a beat on volumes.
Danny Abajian: Our Q1 subscriber value and that's what describe your value now reflect our blended investment tax credit of over 35%.
Danny Abajian: Getting from expanded eligibility for the allergy community ITC adder and the portion of our deployed systems eligible for the low income matter.
Danny Abajian: Total value generated which is the net subscriber value multiplied by the number of subscriber additions and material was 262 million in the first quarter.
Danny Abajian: Our present value-based metrics are presented using a 6% discount rate, but our financial underwriting already accounts for our current cost of capital, which was in the 7.6% area in Q1. As a reminder, to enable ease of comparison across periods, we generally do not update the discount rate frequently.
Danny Abajian: Our present value based metrics are presented using a 6% discount rate, but our financial underwriting already accounts for our current cost of capital, which was in the seven 6% area in Q1 as a reminder to enable ease of comparison across periods. We generally do not update the discount rate frequently.
Danny Abajian: Instead, we provide advanced rate ranges that reflect current interest rates, enabling investors to calculate the obtainable net cash unit margins on our deployments. In addition, we provide a pro forma net subscriber value using the capital cost observed for the quarter. At a 7.6% discount rate, net subscriber value was $6,593, and total value generated was $145,000. We expect additional tailwinds to net subscriber value in future periods from the following variety of factors, including more favorable business, increased realization of ITC adders, and lower costs from hardware price reductions, labor efficiency, and operating leverage from strong sequential volume.
Danny Abajian: Instead, we provided death rate ranges that reflect.
Danny Abajian: First rate, enabling investors to calculate the obtainable Nat gas unit margins on our deployment.
Danny Abajian: In addition, we provide a pro forma net subscriber value using the capital cost observed for the quarter.
Danny Abajian: 7.6% discount rate, that's subscriber value was $6593 and total value generated was $145 million.
Danny Abajian: We expect additional tailwind when that subscriber value in future periods from the following variety of factors more favorable business mix and increased realization of reorders and lower costs from hardware price reductions labor efficiency and operating leverage from strong sequential volume growth.
Danny Abajian: On slide 11, we detail the tailwinds from ITC adders and hardware. In Q1, we recognized a weighted average ITC of approximately 35%, the equivalent of approximately half of our systems qualifying for the energy communities or low-income average. During the quarter, the government expanded the qualification criteria for the energy communities at Earth.
Danny Abajian: On slide 11, we detail the tailwind from Ikea theaters and hardware costs.
Danny Abajian: In Q1, you recognize the weighted average ITC of approximately 35% the equivalent of approximately half of our system qualifying for the energy communities or low income adder.
Danny Abajian: During the quarter the government expanded the qualification criteria for the energy communities Adder.
Danny Abajian: Approximately 35% of our current installations now qualify, compared to 13% before the expansion. While the energy community adder expansion was favorable, our expectation for the portion of our systems that qualify for the low-income adder going forward has been lowered from 26% to 18% given the current inefficiencies in the program design and implementation. While we continue to receive proceeds from the Energy Community's adders, proceeds from the awarded low-income adders are delayed given the slow government process.
Danny Abajian: <unk> 35 per cent by certain installations now qualify compared to 13% before the expansion.
Danny Abajian: While the energy community at or expansion was favorable our expectation for the portion of our systems that qualify for the low income matter going forward has been lowered from 26% to 18% given the current inefficiencies in the program design and implementation.
Danny Abajian: While we continue to receive proceeds from the energy communities Adders Brocade suddenly awarded low income matters are delayed given the slow government process.
Danny Abajian: Proceeds from domestic content adders are expected to be realized in the coming quarter; guidance on what will qualify for the domestic content adder has been, but we are still awaiting further clarity from additional rulemaking processes sometime this year. Combined, these adders could represent up to $450 million or more in additional annual run rate cash proceeds. We continue to see decreasing prices for key hardware components, which are gradually flowing through our reported costs as we finish consuming our higher-cost inventory.
Danny Abajian: Proceeds from domestic content adders are expected to be realized in the coming quarters.
Danny Abajian: Guidance on what will qualify for the domestic content out or had been issued.
Danny Abajian: But we are still awaiting further clarity from additional rule, making processes sometime this year.
Danny Abajian: Combined these adders to represent up to 450 million or more in additional annual run rate cash proceeds we.
Danny Abajian: We continue to see a decreasing prices Ricky hardware components, which are gradually flowing through our reported costs as we finished consuming our higher cost inventory.
Danny Abajian: On a like-for-like basis for a seven and a half kilowatt solar system with backup battery system, by the end of this year, hardware costs are expected to decline by over 18% or nearly $2,500 per system from their peak in the second quarter of 2023.
Danny Abajian: On a like for like basis for 75 kilowatt solar with backup battery system by the end of this year hardware costs are expected to decline by over 18% or nearly $2500 per system.
Danny Abajian: From their peak in the second quarter of 2023.
Danny Abajian: These beneficial trends may be obscured by an increasing mix of storage, which carries higher net margins but will increase hardware and install costs, and therefore increase creation. Additionally, we are monitoring recent developments with certain U.S. manufacturers petitioning for new tariffs. Modules, however, represent less than 10% of our total creation costs, and the history of various trade disputes has demonstrated the impact has been manageable as the global supply chain is dynamic over time.
Danny Abajian: These beneficial trends, maybe ex that scared by an increasing mix of storage, which carries higher net margins, but will increase hardware and install costs and therefore increase creation cost.
Danny Abajian: Additionally, we are monitoring recent developments with certain U S manufacturers petition anchor new tariffs modules, however represent less than 10% of our total creation costs and the history at various trade disputes have demonstrated the impact had been manageable as global supply chain is dynamic over time.
Danny Abajian: Turning now to gross and net earning assets and our balance sheet on slide 13. Gross earning assets were $15 billion at the end of the first quarter. Gross earning assets is the measure of cash flows we expect to receive from subscribers over time, net of operating and maintenance costs, distributions to tax equity partners and partnership flip structures, and distributions to project equity financing partners, all discounted at a 6% unlevered capital rate. Net earning assets were $5.2 billion at the end of the first quarter, an increase of approximately 200 million from the prior. Net earning assets is gross earning assets plus cash, less all day.
Danny Abajian: Turning now to gross and net earning assets and our balance sheet on slide 13.
Danny Abajian: Gross earning assets were $15 billion at the end of the first quarter gross earning assets is the measure of cash flow, we expect to receive from subscribers over time net of operating and maintenance costs distributions with tax equity partners and partnership flip structures and.
Danny Abajian: And distributions to project equity financing partners, all discounted at a 6% Unlevered capital costs.
Danny Abajian: Net earning assets were $5 2 billion at the end of the first quarter.
Danny Abajian: Approximately 200 million from the prior quarter net earning assets, if gross earning assets plus cash less all debt.
Danny Abajian: The net earning assets don't include inventory or other construction and progress assets or net derivative assets related to our interest rate swaps, all of which represent additional value. The value creation upside we expect from future grid services opportunities and selling additional electrification products and services to our customer base, including our storage retrofit offering, is not reflected in these metrics. We programmatically enter into interest rate hedges to insulate our capital costs from adverse near-term fluctuations.
Danny Abajian: Net earning out that doesn't include inventory or other construction in progress assets or net derivative assets related to our interest rate swaps all of which represent additional value.
Danny Abajian: The value creation upside, we expect from future grid services opportunities and selling additional electrification products and services to our customer base, including our storage retrofit offering are not reflected in these metrics.
Danny Abajian: We programmatically enter into interest rate hedges insulate our capital costs from adverse near term fluctuations. The vast majority of our debt is either fixed coupon long dated securities or floating rate loans that had been hedged with interest rate swaps.
Danny Abajian: The vast majority of our debt is either fixed coupon, long-dated securities, or floating rate loans that have been hedged with interest rate swaps. As such, we do not adjust the discount rate used in net earning assets to match current capital costs for new installations.
Danny Abajian: As such we do not adjust the discount rate used in net earning assets to match current capital cost for new installations.
Danny Abajian: We ended the quarter with $783 million in total cash, a decrease of $205 million compared to the prior quarter. Q1, which is typically the weakest quarter for cash generation due to volume seasonality, was further impacted by one-time costs from financing activities we completed in the quarter, as we discussed on last quarter's call, as well as delayed timing of incentive monetization. Cash generation was negative $311 million in Q1, which included approximately $317 million of one-time costs and timing-related items, as we have outlined on slide 14. Excluding these items, adjusted cash generation was positive $6 million in the quarter.
Danny Abajian: We ended the quarter with $783 million in total cash a decrease of $205 million compared to the prior quarter.
Danny Abajian: Q1, which is typically the weakest quarter for cash generation due to volume seasonality was further impacted by one time costs from financing activities, we completed in the quarter.
Danny Abajian: As we discussed on last quarter's call as well as the late timing of incentive monetization.
Danny Abajian: Cash generation was negative $311 million in Q1, which included approximately $317 million of one time costs and timing related items that we have outlined on slide 14.
Danny Abajian: Excluding these items adjusted cash generation was positive 6 million in the quarter.
Danny Abajian: The financing activities we opted to pursue in Q1 resulted in $107 million of one-time cash. These included fees paid for the 2030 convertible debt issuance and purchase of the capital to mitigate dilution, fees paid on the extension of our recourse working capital facility, and fees paid on the extension of our non-recourse warehouse facility, and an associated reduction to the facility's advance rate. In Q1, we made a significant transition from traditional tax equity, where all cash is typically provided at or just before installation, to tax credit transfer, where funds for tax credits often come quarterly in a refund. This transition was primarily responsible for a reduction in Q1 tax equity proceeds of approximately $181 million.
Danny Abajian: The financing activities, we opted to pursue in Q1 resulted in 107 million one time cash impacts. These included fees paid for the 2030 convertible debt issuance and purchase of the capped calls to mitigate dilution.
Danny Abajian: He's paid on the extension of our recourse working capital facility and fees paid on the extension of our nonrecourse warehouse facility and an associated reduction to the facilities advance rate.
Danny Abajian: In Q1, we made a significant transition from traditional tax equity were all cash is typically provided at or just before installation you tax credit transfer where funds were tax credits often come quarterly in arrears.
Danny Abajian: This transition was primarily responsible for a reduction in Q1 tax equity proceeds of approximately $181 million.
Danny Abajian: We are working to close new funding that will resolve the working capital issue, All of which we expect to close before the end of the quarter. With these closings, we will fully recover the working capital investment that we made in Q1. In Q1, we deployed systems that are expected to contribute $30 million in cash generation from the low-income ITC adders. However, while many systems have met all conditions, monetization remains delayed given the timing of government processes.
Danny Abajian: We are working to close new funding that will resolve their working capital headwind all of which we expect to close before the end of the quarter.
Danny Abajian: With these closings, we will fully recover the working capital investment that we made in Q1.
Danny Abajian: In Q1, we deployed systems that are expected to contribute $30 million in cash generation from the low income ITC adder.
Danny Abajian: While many systems I've met all conditions monetization remains delayed given the timing of government processes.
Danny Abajian: Later this quarter, we are expecting to monetize the receipt of delayed ITC adders through a combination of additional tax equity funding and debt processing. Turning to our capital markets activities, as we discussed on our last call, we were very active in Q1 arranging capital to support our growth and further optimize our balance sheet by extending maturity. It is prudent to extend facilities early to navigate potential and unexpected macroeconomic conditions and volatility.
Danny Abajian: Later this quarter, we are expecting to monetize the receipt of delayed ITC adders through a combination of additional tax equity funding and debt proceeds.
Danny Abajian: Turning to our capital markets activities as we discussed last call. We were very active in Q1 are raising capital to support our growth and further optimize our balance sheet by extending maturities.
Danny Abajian: It is prudent to extend facilities early to navigate potential and unexpected macro economic conditions and volatility.
Danny Abajian: In February, we successfully extended and upsized our non-recourse revolving senior warehouse facility to support our scale. This facility funds assets temporarily before we raise long-term financing, principally in the asset-backed securitization market. We increased the size by $550 million, from $1.8 billion to $2.35 billion, and extended the maturity by approximately three years from April 2025 to February 2028. The effective credit spread increase of 50 basis points was commensurate with recent movements in the securitization market for term out transactions with similar advance rates. The facility continues to have a diversified set of nine relationship lenders.
Danny Abajian: In February we successfully extended and Upsized, our nonrecourse revolving senior warehouse facility to support our scale.
Danny Abajian: This facility funds asset temporarily before we raise long term financing principally in the asset backed securitization market, we increased the size by $550 million up.
Danny Abajian: From $1 8 billion to 2.35 billion and extended the maturity by approximately three years from April 2025 to February 2028.
Danny Abajian: The effective credit spreads increase of 50 basis points was commensurate with recent movements in the securitization market for term out transactions with similar advance rates.
Danny Abajian: The facility continues to have a diversified set of nine relationship lenders.
Danny Abajian: We also achieved certain other improved terms that afford more flexibility to fund our anticipated future product and geographic measures. Our team also continues to execute tax equity transactions, including structures that facilitate ITC transfers to a deepening pool of large buyers. As we discussed on the last few calls, the traditional tax equity market has been tighter recently, which we believe is resolving now that tax equity investors have adapted their approaches to structuring deals in this new environment. In addition, we continue to build an active pipeline to sell tax credits to corporate buyers for ITCs that are generated when systems are placed into service.
Danny Abajian: We also achieved certain other improved terms that afford more flexibility to fund our anticipated future product and geographic mix.
Danny Abajian: Our team also continues to execute tax equity transactions, including structures that facilitate the transfer to a deepening pool of large buyers.
Danny Abajian: As we discussed on the lot on the last few calls the traditional tax equity market has been tighter recently, which we believe is resolving now that tax equity investors have adapted their approaches to structuring deals in this new environment.
Danny Abajian: In addition, we continue to build an active pipeline to sell tax credits to corporate buyers bride. She sees that are generated when systems are placed into service.
Danny Abajian: As of today, closed transactions and executed term sheets provide us with expected tax equity capacity to fund over 331 megawatts of projects or subscribers beyond what was deployed through the first quarter. We expect to expand this runway during Q2. Sunrun also had $593 million in unused commitments available in its non-recourse senior revolving warehouse loan at the end of the quarter.
Danny Abajian: As of today close transactions and executed term sheet provide us with expected tax equity capacity to fund over 331 megawatts of projects or subscribers beyond what was deployed through the first quarter.
Danny Abajian: We expect to expand this runway during Q2.
Danny Abajian: That's right also had $593 million unused commitments available and its non recourse senior revolving warehouse loan at the end of the quarter.
Danny Abajian: This unused amount would fund approximately 214 megawatts of projects for subscribers. Our strong debt capital runway allows us to be selective in timing transactions. Since the start of the year, we have closed two ABS trends.
Danny Abajian: That's not used them out would fund approximately 214 megawatts of projects where subscribers are strong debt capital runway allows us to be selective and timing of transactions.
Danny Abajian: Since the start of the year, we have close to ABS transactions.
Danny Abajian: Sunrun's industry-leading performance as an originator and servicer of residential solar assets continues to provide deep access to attractively priced capital. In February, we closed an ABS transaction with a private credit investor and arranged subordinated debt financing on the portfolio. The $361 million non-recourse senior debt was rated A- by Crowell and was priced with a 232.5 basis point spread. This demonstrated yet another improvement in capital costs, with spreads declining from our last securitization in September that was priced with a 240 basis point spread. We placed a $109 million subordinated loan on the portfolios.
Danny Abajian: That runs of industry, leading performance as an originator and servicer of residential solar assets continues to provide deep access to attractively priced capital.
Danny Abajian: In February we closed the navy as transaction with a private credit investor and arrange subordinated debt financing on the portfolio.
Danny Abajian: 361 million nonrecourse senior debt was rated a minus like rule and was surprised with the 232 and a half basis points spread.
Danny Abajian: This demonstrated yet another improvement in capital costs with rates declining from our last securitization in September that was priced with a 240 basis point spread.
Danny Abajian: We placed a $109 million subordinated loan in that portfolio as well.
Danny Abajian: The all in full stack weighted average cost of capital on this portfolio was approximately seven 5% and resulted in a cumulative advance rate as measured against our contracted subscriber value metric of over 80%.
Danny Abajian: The use of private credit investors showed a strong interest in our assets from a growing and broad set of investors.
Danny Abajian: The all-in, full-stack weighted average cost of capital on this portfolio was approximately 7.5% and resulted in a cumulative advance rate, as measured against our contracted subscriber value metric, of over 80%. The use of private credit investors shows a strong interest in our assets from a growing and broad set of investors. In April, we closed a $230 million securitization to refinance existing debt on a Portfolio C index. The non-recourse senior debt was rated A by Kroll and was priced at a credit spread of $195,000.
Danny Abajian: In April we closed the 239 securitization to refinance existing debt on a portfolio of seasoned assets.
Danny Abajian: The nonrecourse senior Dad was rated a by accrual and was priced at a credit spread of 195 basis points.
Danny Abajian: A 37.5 basis point improvement from our private securitization in February and 45 basis points lower than our securitization in September of 2023. The latest execution represents the lowest spread achieved for similarly rated transactions across the sector since 2021.
Danny Abajian: 37, and a half basis point improvement from a private securitization in February and 45 basis points lower than our securitization in September 2023.
Danny Abajian: The latest execution represents the lowest spread achieved for similarly rated transactions across the sectors in 2020 one.
Danny Abajian: The portfolio is jointly owned by National Grid and Sunrun, following their project equity investment in 2017, with National Grid receiving the majority of cash flows through 2042, including the significant net cash proceeds from this refinancing. Importantly, however, this transaction highlights our continued deep access to capital at improving terms and demonstrates the favorable market for refinancing seasoned assets we have originated in service. This bodes well for the significantly-sized portfolios of seasoned assets that we will refinance in the coming year. Moving to the parent capital side,
Danny Abajian: The portfolio is jointly owned by National grid and Sunrun. Following their project equity investment in 2017 with National grid, receiving the majority of cash flows through 2042, including the significant net cash proceeds from this refinancing.
Danny Abajian: Importantly, however, this transaction highlights our continued deep access to capital and improving terms and demonstrates the favorable market for refinancing seasoned assets, we have originated and serviced.
Danny Abajian: Bodes well for the significantly sized portfolios of seasoned assets that we will refinance in the coming years.
Danny Abajian: During Q1, we took actions to extend maturities and optimize our parent balance. In February, we closed an extension of our Recourse Working Capital Facility. We reduced the size from $600 million to $447.5 million, with an option to upsize the facility to $477.5 million prior to September 30, 2024. We amended the facility to extend the maturity from January 2025 to November 2025. We also included a feature that will further extend the maturity to March 2027, should we meet the requirements for this provision, which include addressing the maturity of the convertible notes due in February 2026.
Danny Abajian: Moving to the parent capital side.
Danny Abajian: In Q1, we took action to extend maturities and optimize their parents balance sheet in February we closed an extension of our recourse working capital facility, we reduced the size from 600 million to 447, and a half million with an option to upsize the facility to 477 and a half million prior to September 30th 'twenty 'twenty four.
Danny Abajian: We amended the facility to extend the maturity from January 20 to 25 November 2025. We also included a feature that will further extend the maturity to March 'twenty 'twenty seven should we meet the requirements, where this provision which include addressing the maturity of the convertible notes due in February 2026.
Danny Abajian: Also in February, we issued $483 million in convertible notes due in 2030. Since the issuance of the 2030 Convertible Notes, we have repurchased another $82 million of our 2026 Convertible Notes. To date, we have now spent $175 million to repurchase over $205 million of bonds. Less than half of the 2026 notes now remain outstanding. We will continue to be disciplined and selective with repurchases given alternative high-yielding capital. Our intent is to maintain a strong and healthy balance.
Danny Abajian: So in February we issued 483 million in convertible notes due in 2030.
Danny Abajian: The issuance of the 2030 convertible notes, we have repurchased another $82 million of our 'twenty 'twenty six convertible notes debate. We have now spent 175 million to repurchase over 205 million of these notes.
Danny Abajian: Less than half of the 20th 'twenty six notes that remain outstanding.
Danny Abajian: Continue to be disciplined and selective with repurchases given alternative high yielding capital uses.
Danny Abajian: Our intent is to maintain a strong and healthy balance sheet, the recourse financings and bond repurchase activity in Q1, including all related fees increased our cash by $102 million and increase our debt by $125 million.
Danny Abajian: The recourse financing and bond repurchase activity in Q1, including all related fees, increased our cash by $102 million and increased our debt by $125 million. With continued repurchases of the 2026 convertible notes or retirement at par maturity, we expect net recourse debt to be minimal. We have also prudently extended maturities while mitigating dilution with the cap call. When we think about our balance sheet, we prioritize a strong cash position and the use of asset-level non-recourse debt financing.
Danny Abajian: With continued repurchases of the 20th 26 convertible notes or retirement at par at maturity, we expect net recourse debt to be little changed.
Danny Abajian: We have also permanently extended maturities, while mitigating dilution with the capped call.
Danny Abajian: What do we think about our balance sheet, we prioritize a strong cash position and use of asset level nonrecourse debt financing. This strategy provides the lowest cost of capital to finance cash flow producing assets backed by high credit consumers and to use parent recourse debt that is appropriately sized and balances maturity date cash interest costs.
Danny Abajian: This strategy provides the lowest cost capital to finance cash flow producing assets backed by high credit consumers and to use parent recourse debt that is appropriately sized and balances maturity dates, cash interest costs, and flexibility. Turning now to our Outlook on slides.
Danny Abajian: And flexibility.
Danny Abajian: Turning now to our outlook on slide 17.
Danny Abajian: The underpenetrated nature of our market gives us confidence we can sustain robust growth throughout this decade. In this strong long-term demand backdrop, our priority is to generate cash by continuing to increase customer values through growing storage adoption and other high-value products and services, and by reducing costs by further driving efficiencies across the business. While sales activities in Q1 were slightly less than we previously anticipated, we are seeing strong demand signals and expect a material pickup to occur in Q2, leading to an inflection point with meaningfully higher installations in the second half. Storage capacity installed is expected to be in a range of 215.
Danny Abajian: Underpenetrated nature of our market gives us confidence we can sustain robust growth throughout this decade.
Danny Abajian: And that strong long term demand backdrop, our priority is to generate cash by continuing to increase customer values through growing storage adoption and other high value products and services and by reducing costs by further driving efficiencies across the business.
Danny Abajian: While sales activities in Q1 were slightly less than we previously anticipated we are seeing strong demand signals and expect a material pick up to occur in Q2, leading to an inflection point with meaningfully higher installation in the second half.
Danny Abajian: George capacity installed is expected to be in a range of 215.
Danny Abajian: The 225 megawatt hours in Q2 represents 105 to 115 percent growth year over year. For the full year, we are reiterating our guidance for storage capacity installed to be in a range of 800 megawatt hours to 1 gigawatt hour, reflecting 40 to 75% growth year over year. Solar energy capacity installed is expected to be in a range between 190 and 200 megawatts in Q2. At the midpoint, this represents 10% growth from Q1.
Danny Abajian: 225 megawatt hours in Q2. This represents a 105, 215% growth year over year for the full year, we are reiterating our guidance for storage capacity installed to be in a range of 800 megawatt hours to one gigawatt hour, reflecting 40% to 75% growth year over year.
Danny Abajian: Solar energy capacity installed is expected to be in a range between 190 and 200 megawatts in Q2 at the midpoint. This represents 10% growth from Q1.
Danny Abajian: Because of the pull of demand in California in early 2023, year-over-year comparisons are less relevant in Q2. We are confident that Q1 volumes will mark the low point in the year, and we expect robust sequential growth into the rest of the year. For the full year, we expect solar energy capacity installed year-over-year growth to be in the range of down 15% at the low end to flat at the high end.
Danny Abajian: Cause them to pull in of demand in California in early twenties 23 year over year comparisons are less relevant in Q2, we are confident that Q1 volumes will mark the low point in the year and we expect robust sequential growth into the rest of the year.
Danny Abajian: For the full year, we expect solar energy capacity installed year over year growth to be in the range of down 15% at the low end to flat at the high end.
Danny Abajian: This updated range reflects recent sales activities and outlook. We believe this guidance still represents market share gains underpinned by the strength of our subscription offering and our disciplined go-to-market approach. Our growth in the value we create with this volume will be much larger. We continue to forecast subscriber values will increase by greater than 10% in 2024 as we increase our mix of higher-value offerings and input cost decline, resulting in growth of total value generated of greater than 10% in 2024. Turning the slide 18.
Danny Abajian: The updated range reflects recent sales activities and outlook. We believe this guidance still represent market share gains underpinned by the strength of our subscription offering and our disciplined go to market approach.
Danny Abajian: Our growth in the value we create with this volume will be much larger we continue to forecast subscriber values book increased by greater than 10% in 'twenty 'twenty four as we increase our mix of higher value offerings and input cost decline, resulting in growth of total value generated a greater than 10% in 2024.
Danny Abajian: We remain committed to driving meaningful meaningful cash generation as we execute our margin focus and discipline growth strategy. We are reiterating our cash generation outlook. We are guiding cash generation to be positive on a quarterly basis for the remainder of the year, with cash generation in Q4 at an annualized run rate of 200 to 500. This run rate will be expanded upon on an annual basis into 2025. We have outlined our current set of assumptions underpinning this outlook on the bottom of slide 8.
Danny Abajian: Turning to slide 18, we remain committed to driving meaningful meaningful cash generation as we execute our margin focus and disciplined growth strategy.
Danny Abajian: We are reiterating our cash generation outlook, you're guiding cash generation to be positive on a quarterly basis for the remainder of the year with cash generation in Q4 at an annualized run rate of $200 million to $500 million.
Danny Abajian: That's the run rate will be expanded upon on an annual basis into 2025, we.
Danny Abajian: We have outlined our current set of assumptions underpinning this outlook on the bottom of slide 18.
Danny Abajian: The most notable variable is the realization of the domestic content adder. The low end of the guidance range assumes no domestic content adders, while the high end assumes these adders are. We currently expect a large portion of our storage systems to qualify for the domestic content adder.
Danny Abajian: Most notable variable is the realization of the domestic content out or the low end of the guidance range assumes no domestic content hours, while the high end assumes these hours are obtained we currently expect a large portion of our storage systems to qualify for the domestic content adder.
Danny Abajian: With that, let me turn it back to Mary.
Danny Abajian: With that let me turn it back to Mary.
Mary Grace Powell: Thanks, Danny I want to again express my appreciation to the entire Sunrun teams. Your continued commitment to providing our customers and communities with clean affordable energy to power their lives and to create value for all of our stakeholders is what drives us forward a rapid transition to a storage first company is extending our differentiation.
Mary Grace Powell: Asian, driving enhanced margins and delivering the best value to customers operator with that let's open for the questions.
Mary Grace Powell: Thanks, Danny. I want to again express my appreciation to the entire Sunrun team. Your continued commitment to providing our customers and communities with clean, affordable energy to power their lives and to create value for all of our stakeholders is what drives us forward. Our rapid transition to a storage-first company is extending our differentiation, driving enhanced margins, and delivering the best value to customers. Operator, with that, let's open the floor to questions.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 2.
Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Operator: Confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Operator: So that we may address as many questions from as many participants as possible, we ask that you limit yourself to one question and one follow-up. If you have additional questions, you may re-queue, and, time permitting, these questions will be addressed. Our first question comes from the line of Brian Lee with Goldman Sachs. Please proceed with your question.
Operator: So that we may address as many questions from as many participants as possible. We ask that you limit yourself to one question and one follow up if you have additional questions you may re queue and time for many of these questions will be addressed.
Speaker Change: Our first question comes from the line of Brian Lee with Goldman Sachs. Please proceed with your question.
Brian K. Lee: Hi, everyone. Good afternoon, thanks for taking the questions.
Brian K. Lee: Everyone, good afternoon. Thanks for taking the questions. The first one was just on the reduction in solar volume outlook for the year here. It appears, I guess, strategic. You said earlier in the slides that you're just kind of focusing on profitable growth and storage, but then you also alluded to some market-related weakness, I guess, sales activity being a little bit slower. Can you maybe parse those two pieces out?
Mary Grace Powell: How much of it is market-related? How much of it is strategic on your own part? And then were there specific areas that you kind of pinpointed had the weakness or the non-strategic sort of focus that you wanted to pull back from? And then I had a follow-up.
Brian K. Lee: First one was just on you know the reduction in solar volume outlook for the year here. It appears I guess strategic you you said earlier in the slides.
Mary Grace Powell: Can you just kind of focusing on profitable growth and in storage. But then you also alluded to some market related weakness I guess sounds activity being a little bit slower can you maybe parse those two pieces out how much of it is market related how much of it is strategic on your own part and then what are there specific areas.
Mary Grace Powell: That you kind of pinpointed had had the weakness or the non strategic sort of focus that you wanted to pull back from and then I had a follow up.
Paul S. Dickson: Sure. Thanks, Brian. Great to hear from you. Yeah, so to be clear, we really see Q1 as marking the bottom, and we feel confident in the uptick and our outlook for the year. And you are absolutely right. As we have said, we continue to focus on our goals around profitability and cash generation and really be very strategic on volume. And with that, I would turn it, Paul, why don't you give a little bit more detailed, you know, response to some of Brian's questions? Yeah, great question.
Speaker Change: Sure. Thanks, Brian Great to hear from you yeah, so to be clear, we really see Q1, marking the bottom and we feel confident in the uptick and our outlook for the year and you're absolutely right. As we have said we continue to focus on.
Danny Abajian: Our goals around profitability and cash generation and really being very strategic on volume and with that I would turn it Paul why don't you give a little bit more detailed response to some of Brian's questions. Yeah. Great question. So we underwent a kind of a final evaluation of our market economics and the various routes that we have.
Paul S. Dickson: Yeah, great question. So we underwent kind of a final evaluation of our market economics and the various routes that we have generating volume, and did a final cut of volume that did not meet our target return threshold. And so we underwent that exercise, which is a component of the volume adjustment. The other thing that we're seeing in the market is kind of this like new entrant kind of this ankle biter finance provider that comes in with aggressive pricing and has been somewhat distracting to various channel partners or affiliate partners that we work with and while we don't see you know any sustainable you know approach in their business model and we've made you know a business practice in the past of purchasing their portfolios when they're unable to operate them because of the uneconomical approach that they take there has been some distraction for our affiliates
Paul S. Dickson: Generating volume and did a final cut.
Paul S. Dickson: Volume that did not meet our target return threshold. So we underwent in that exercise, which is a component of the volume adjustment. The other thing that we're seeing in the market is kind of just like.
Paul S. Dickson: New entrants kind of his ankle biter finance provider that comes in with aggressive pricing and its been somewhat distracting to various channel partners or affiliate partners that we work with.
Paul S. Dickson: And while we don't see any sustainable you know.
Paul S. Dickson: Approaching their business model and we made a business practice in the past of purchasing their portfolios when they were unable to operate them.
Paul S. Dickson: Because of the add on economical approach that they take them. There has been some distraction for our affiliate business.
Mary Grace Powell: Understandable. Yeah, that's super helpful. And then just one last point on that, just, you know, again, I'm sure you did notice it, but storage volume was retained. And we're really thrilled with the storage attachment rates and with our ability to retain that volume, which is very positive from a bottom line perspective. Absolutely. It seems like the reallocation of any resources or capital should further de-risk the storage numbers. That's awesome.
Speaker Change: Yeah understood Yeah, that's a that's super helpful.
Speaker Change: And then Brian just one point on that just you know again I'm sure you didn't notice it but storage volume was retained and we are really thrilled with the storage attachment rates and with our ability to retain that volume, which is very positive from a bottom line perspective.
Brian: Yeah, absolutely it seems like the the re allocation.
Brian: Of any resources or capital should further derisk the storage number that's awesome.
Danny Abajian: Maybe one for you, Danny, and then I'll pass it on. Slide 18, this is super helpful, just kind of giving us some context, low to high end. I know there's been a lot of questions between, you know, how do you get to 200 versus how do you get to 500? Well, if I look at this slide and a lot of the data you provided during the quarter on where you're tracking, it seems like you're already tracking at or ahead of the low end, the 200 million annualized based on these three bullets.
Mary Grace Powell: Maybe one for you Dan and then I'll pass it on Slide 18. This is super helpful. Just kind of.
Danny Abajian: Giving us some context, a low to high and I know there's been a lot of questions between you know how do you get to 200 versus how do you get to 500, if I look at this slide and in a lot of the data data you provided during the quarter on where you're tracking it seems like you're already tracking at or ahead of the low end of the 200 million annualized based on these three bullets.
Danny Abajian: Can you help us understand kind of the framework of, you know, going from 36 to 40, capital costs 8 to 7.5? Like, how much is each of those buckets worth? I wouldn't presume it's 100, 100, 100, but is it that simple where if you get capital costs down to 7.5, you get storage attached up 10%, each one of those is worth 100? Maybe just kind of helping to quantify what each of those buckets is worth to the cash flow generation. Thank you.
Brian: Can you help us understand kind of the frame of you know going from 36 to 40 capital costs eight to seven and a half like how how much of is each of those buckets worth is I wouldnt presume. It's 100 100 hundred but is it that simple where if you get <unk>.
Danny Abajian: Capital costs down to seven and a half you got storage attach up 10% in each one of those is worth 100, maybe just kind of helping to quantify oh, what what each of those buckets is worth to the to the cash flow generation. Thank you.
Danny Abajian: Yeah, great, great question. And we absolutely did want to break this out as to what assumptions are associated with opposite ends of the range, as we've been getting a lot of questions around that. So we wanted to be responsive to that. As far as the magnitude of each of those primary drivers, in the middle of slide 18, you know, capital costs. So, not in order, but capital costs, a quarter point is between $40 to $50 million, you know, depending more on the volume in the period.
Speaker Change: Yeah, Great Great question and we.
Danny Abajian: Absolutely I'd want to break this out.
Danny Abajian: What assumptions are associated with opposite ends of the range as we we've been getting a lot of questions around that as they wanted to be responsive to that as far as that the magnitude of each of those primary drivers in the middle of slide 18.
Danny Abajian: Capital costs, there was a capital cost so not not an order, but a capital cost a quarter point is between $40 million to $50 million, depending more on the on the volume in the period.
Danny Abajian: And that'll fluctuate through the year as we grow volume, and this is most relevant to the Q4 exit rate. I would say it's probably closer to $50 million. And then the point of IPC adders is probably south of $50 million, maybe somewhere in a, you know, plus or minus $40 million range per point. And then storage attachment rate, I don't have the exact translation, but I would say the first two are more meaningful at this point, given we're in a smaller range on storage attachment rate relative to, you know, where we are. Great. I appreciate it.
Danny Abajian: That'll range through the year as we grow volume.
Danny Abajian: And this is most relevant to the Q4 exit rate I would say, it's probably closer to $50 million and then the point our I T. T. Adders Ah is probably south of 50 million, maybe somewhere in the plus.
Danny Abajian: Plus or minus $40 million range per point.
Danny Abajian: And then storage attachment rate am I I don't have the exact translation, but I would say the first you are.
Danny Abajian: A more meaningful.
Danny Abajian: At this point given we're in a smaller range on storage attachment rate relative to where we started.
Brian K. Lee: Great. I appreciate that additional color. Thank you.
Speaker Change: Great I appreciate that additional color. Thank you.
Speaker Change: Thank you.
Operator: Thank you. Our next question comes from the line of Moses Sutton with BNP Paribas. Please proceed with your question.
Brian K. Lee: Thank you. Our next question comes from the line of Moses Sutton with BNP Paribas. Please proceed with your question.
Moses Nathaniel Sutton: Thanks for taking my question. The tax credit receivable of $181 million, is this transferability credit sold outside of a TE fund, or is it still going through the typical cash waterfall that essentially partially replaces the tax equity proceeds that you could have gotten from some of those banks? And what could delay the $181 million, maybe further than 2Q?
Moses Nathaniel Sutton: Hi, Thanks for taking my question. So the tax credit receivable of 181 million is this transferability credit sold outside of a T fund or is it still going through the typical cash waterfall looks like.
Moses Nathaniel Sutton: Essentially partially replaces the tax equity proceeds that you would have gotten from some of those banks and what could delay the 181 million maybe farther than two cute.
Danny Abajian: Yeah, so let me tell you that the general expectation is to be caught up by the end. There's a... There's a basket here of like, you know, reasons for the delay, but primarily, it's the timing of when you sell the credit out of the fund to the buyer. In traditional tax equity structures, the tax equity bank would be willing to, you know, both take the credit and give an advance ahead of the installation or around the time of the installation for that credit.
Speaker Change: Yeah. So let me I think that the general expectation is to be caught up by the end of Q2.
Moses Nathaniel Sutton: But there's a.
Danny Abajian: There's a basket here of like you know reason for the delay, but primarily it's the timing of when you sell the credit out of the fund to the buyer.
Danny Abajian: And traditional tax equity structures.
Danny Abajian: The tax equity bank would be willing to you know both take the credit and giving advance ahead of Dol or around the time of the install part of that credit.
Danny Abajian: Whereas today, the tax credit buyer is buying in arrears, and that can trail the time of installation. And as we're migrating structures, for structures that don't involve a traditional tax equity bank, the fronting, if you will, of that tax credit monetization is not happening to the degree it used to.
Danny Abajian: Whereas today the tax equity.
Danny Abajian: The tax credit by a rather.
Danny Abajian: It's buying in arrears and that seems trial at the time of install them and as we're migrating structures for structures that don't involve a traditional tax equity bank. The fronting if you will of that tax credit monetization is not happening to the degree it used to now and some of it also varies based on.
Danny Abajian: Now, some of it also varies based on the timing of when the individual buyer is, you know, transferring over the proceeds for the purchase. They might do it monthly. They might do it quarterly or they might do it annually. I think we're seeing the market move to monthly and quarterly, as opposed to annually, which is, you know, kind of where we started on one of the funds we've done recently. So, I would say it's really the frequency of payment that is the big driver.
Danny Abajian: You know the timing of when the individual buyer is.
Danny Abajian: Transferring over proceeds for the purchase they might do it monthly they might do it quarterly they might do it annually I think we're seeing the market move to monthly and quarterly.
Danny Abajian: As opposed to annually, which is you know kind of where we started.
Danny Abajian: On on one of the funds we've done recently, so I would say, it's really the frequency of payment is a big driver and obviously the payment for both the big tax credit of 30% plus theaters.
Danny Abajian: Obviously, the payment is for both the base tax credit of 30% plus the adders. So, I would say, you know, it's predominantly timing-driven, and that's in the process of being resolved, as we said in the prepared remarks. As traditional tax equity banks are figuring it out and moving into these structures, the working capital dynamics are improving.
Danny Abajian: Every day you know it.
Danny Abajian: It's predominantly timing driven and that's in the process of being resolved as we said in the prepared remarks.
Danny Abajian: You know as traditional tax equity banks are figuring it out.
Danny Abajian: Moving into these structures are the working capital dynamics are improving.
Moses Nathaniel Sutton: Unrelated to timing, are you seeing any reduction in the tax equity capacity that you would normally use because NOVA is increasing its participation in the market? Maybe those banks want to limit their aggregate exposure to Resi Solar? Just thinking through if that's a possibility.
Speaker Change: I see okay. That's very helpful and I guess unrelated to timing and are you seeing any reduction in the net.
Moses Nathaniel Sutton: Tax equity capacity that your specific you'd normally use because nobody is increasing its participation in the market and maybe those banks want to limit their aggregate exposure to rescue solar just just thinking through if that's a possibility.
Moses Nathaniel Sutton: I think we're seeing them.
Danny Abajian: Generally, we're seeing capacity in the process of expanding radically. I think that the biggest thing we see is just the value that we now provide to corporate buyers who basically are getting up to 10% of a high single-digit type of discount; immediately, they can clip that coupon on their taxes. And I think we're going to see a large swarm of repeat buyers come in once they figure out how to do this and get comfortable.
Moses Nathaniel Sutton: Generally we're seeing capacity are in the process of expanding radically I think the biggest thing. We see is just the value that we now provide to corporate buyers.
Danny Abajian: So basically are getting up.
Danny Abajian: Up to 10% high single digit type of discounts.
Danny Abajian: Mediately, they can cut that coupon on their taxes.
Danny Abajian: And I think we're going to see a large swarm of repeat buyers come in you know once they figure out how to do this and get comfortable and I think that's driving the expansion rate.
Danny Abajian: And I think that's driving the expansion. We've noted traditional tax equity now for a couple of quarters to be tight. I think that dynamic still persists to some degree. But I think as we're moving the hybrid structures net net, we're seeing a big expansion in capacity.
Danny Abajian: Notice traditional tax equity now for a couple of quarters to be tight.
Danny Abajian: I think that dynamic.
Danny Abajian: It's still present to some degree, but I think as we're moving to a hybrid structure that that we're seeing a big expansion in capacity.
Speaker Change: Great. Thanks again.
Danny Abajian: Okay.
Operator: Thank you. Our next question comes from the line of Cassie Harrison with Piper Sandler. Please proceed with your question.
Danny Abajian: Thank you. Our next question comes from the line of chassis Harrison with Piper Sandler. Please proceed with your question.
Kasope Oladipo Harrison: Good afternoon, everyone, and thanks for taking the questions. Um, so maybe the first one is for Danny. I think, please correct me if I'm wrong, but I think you just said $40 million for ITC Point for the domestic content adder. What, and so my question is, what specifically should we be looking for once the Department of Treasury releases guidance that would say, okay, this is fully funded.
Kasope Oladipo Harrison: Good afternoon, everyone and thanks for taking the questions.
Kasope Oladipo Harrison: So maybe first one is for Danny I think please correct me if I'm wrong, but I think you just said $40 million for ITC point for the domestic content adder.
Kasope Oladipo Harrison: What and so the question. My question is what specifically should we be looking for once the department of Treasury releases guidance that would say okay. This is a fully derisked.
Kasope Oladipo Harrison: And are you referencing the domestic contact?
Kasope Oladipo Harrison: And your.
Kasope Oladipo Harrison: Saying that the domestic contract.
Danny Abajian: Yes, for the Devote.com website, yes.
Danny Abajian: Or yes, that's for the domestic account yes.
Danny Abajian: Yeah, I think it's eligibility. It's the basis of the calculation.
Danny Abajian: Yeah, I think it's eligibility, it's the basis of calculation.
Danny Abajian: I think we have as we've noted before are we already in the case of batteries. We buy batteries that are made domestically you know module supply I think.
Danny Abajian: I think we have, you know, as we've noted before, we already, in the case of batteries, we buy batteries that are made domestically. You know, module supply, I think, you know, that's in the works. So, as we kind of get, you know, the domestic supply that we think, based on, you know, past guidance is technically eligible, the rulemaking around how you specifically attribute things in a calculation will matter, and I don't think we have yet full clarity there.
Danny Abajian: That's in the works so as we kind of get them you know the domestic supply that we think based on our.
Danny Abajian: Past guidance is technically all eligible.
Danny Abajian: The rulemaking around how you specific specifically attribute things into calculation will matter and I don't think we have yet full clarity there. So where you know we're in a bit of a range and you know as soon as are we.
Danny Abajian: So, we're, you know, we're in a bit of a range. And, you know, as soon as we see some additional guidance, we'll be able to narrow that range, is our hope. And that's been, you know, a hope for, unfortunately, too long, but, you know, we're hopeful that it is very soon.
Danny Abajian: We see some additional guidance that we'll be able to narrow that range is our is our hope and that's been a you know a whole unfortunately too long, but I you know, we're hopeful that as very soon.
Kasope Oladipo Harrison: I guess maybe just asking it a little bit differently: if batteries alone qualify, would that be enough? Or do you need batteries and modules to qualify?
Danny Abajian: I guess, maybe just asking it a little a bit of a different way if batteries alone qualify would that would that be enough or do you need batteries and modules to qualify.
Danny Abajian: Yeah, we, again, short of the guidance, you know, we've taken a preliminary view that on most battery installs, the battery should qualify. However, again, we have to, you know, punch through all the details and firm up that view, and on solar only, we'll need we'll need a module. And in some cases, we might also need an inverter. There could be other combinations involving the balance of system components like racking on a solar panel only, you know, to meet the tests to meet the minimum threshold.
Speaker Change: Yeah, we we we again short of the guidance you know we've taken a preliminary view of that.
Danny Abajian: On most battery installed the batteries should qualify us.
Danny Abajian: However, again, we have to punch through all the details and for about that view and on.
Danny Abajian: Solar Omi.
Danny Abajian: He will need module and in some cases, we might also need in Burger.
Danny Abajian: There could be other combinations involving balance of system components like racking on the solar only.
Danny Abajian: You have to meet to meet the test to meet the minimum threshold.
Kasope Oladipo Harrison: I appreciate the color there. And then just my second question, just again, back to the discussion on the newer entrants with the uneconomic offerings. I fully appreciate the focus of cash in lieu of volumes, you know, that, you know, definitely the right call. But I was wondering how you handicap the risk that some of these headwinds either continue or potentially accelerate in 3Q or 4Q. I'm just trying to make sure that, you know, we're not having another call in August and, you know, there's another guidance cut on the solar side. Yeah, great question. I think we've got
Danny Abajian: I appreciate the color there and then just my second question just again back to the discussion on the newer entrants with be on economic offerings.
Kasope Oladipo Harrison: Fully appreciate the focus on cash in and blew up volumes.
Kasope Oladipo Harrison: The right call.
Kasope Oladipo Harrison: But just wondering how you handicap the risk that some of these headwinds either continue or potentially accelerate in Korea Q4 can you just I'm just trying to make sure that you know we're not having another call in in August and you know, there's another guidance called for on the solar side.
Paul S. Dickson: Yeah, great question. I think we feel really confident about the guidance that we're providing on the volume side and that we're taking a conservative view with the guidance range adjustment. I think in the history of the business, we've seen kind of irrational behavior in different segments throughout time as different areas have gained traction. So we've seen really low install prices, we've seen really attractive sales commissions, and now we're seeing it in, you know, capital providers.
Speaker Change: Yeah, Great question, I think we feel really confident about the guidance that we're providing on the volume side and that we're taking.
Paul S. Dickson: A conservative view with the with the guidance range adjustment I mean in the history of the business, we've seen kind of irrational behavior in different segments throughout time is different.
Paul S. Dickson: Areas have gained attraction. So we've seen really well install price we've seen really attractive sales commissions and now we're seeing it in you know capital providers and so if somebody we have a lot of confidence in our ability to navigate.
Paul S. Dickson: And so it's something we have a lot of confidence in our ability to navigate. I think the key component for us is the affiliate partner business. We have deep and strong relationships with a few key partners and continue to see robust opportunities with them. The rest of our business is a captive sales force that's largely insulated from this competitive risk.
Paul S. Dickson: The key component for us is.
Paul S. Dickson: The affiliate partner business, we have a deep and strong relationships with a few key partners and continue to see robust opportunities with them. The rest of our business is captive sales force that's largely insulated from this competitive risk.
Speaker Change: Thank you.
Paul S. Dickson: Yeah.
Operator: Thank you. Our next question comes from the line of Andrew Percoco with Morgan Stanley. Please proceed with your question.
Speaker Change: Thank you. Our next question comes from the line of Andrew pair cocoa with Morgan Stanley. Please proceed with your question.
Andrew Salvatore Percoco: Great, thanks so much for taking the call and the question here. So I guess just to start out, and apologies if this has been asked already, but, you know, I think it's clear that some of your peers in the space are coming under some pressure here.
Andrew Salvatore Percoco: Great. Thanks, so much for taking the call and the question here. So I guess just to start out and I apologize. If this has been asked already but you know I think it's clear that it's some of your peers in the space are coming under some pressure here and I'm just curious if you've seen any impact to your ability to find.
Andrew Salvatore Percoco: Nonrecourse project level capital have to have the conversations changed at all.
Andrew Salvatore Percoco: <unk> changed at all in those in those deals as a result of some of the disruptions you're seeing across the space.
Andrew Salvatore Percoco: And I'm just curious, have you seen any impact on your ability to find non-recourse project level capital? Have the conversations changed at all? Have the terms changed at all in those deals as a result of some of the disruptions you're seeing across the space?
Danny Abajian: Yeah, good question. We get underwritten, you know, first on asset quality. And I think asset quality has been great, and our servicing level has been great. So, you know, we also get underwritten on sponsor quality. And we've been meeting and passing those tests.
Speaker Change: Yeah. Good question, Yeah, we we get underwritten.
Danny Abajian: We get underwritten on asset quality, and I think asset quality has been great in our servicing level has been great. So.
Danny Abajian: You know, we also get underwritten on sponsor quality and we've been beating and passing those tests so to underscore that we did.
Danny Abajian: So, you know, to underscore that, we did talk about, and obviously, it's been news for some time, the extension of our non-recourse warehouse loan, which is now about $2 billion and almost 10 lenders. And lenders who, many of whom, well, all of whom kind of extended and several of whom also came up in size in the February timeframe. And, of course, that is a group of lenders that are seeing all the visibility on the turnouts that we do.
Danny Abajian: Talk about and obviously, it's been news for some time the extension of our nonrecourse warehouse loan, which is now about $2 billion and almost 10 lenders and lenders, who many of whom are well all of them kind of extended.
Danny Abajian: And several of whom also came up in size are in the in the February timeframe and of course that that is that a group of lenders.
Danny Abajian: That are seeing all the visibility on the term out that we do and of course in that regard do you have to go to get data points recently, one involving the public markets are with.
Danny Abajian: And of course, in that regard, we have two good data points recently, one involving the public market with a seasoned pool of assets. So, those have been running for about seven, eight years in duration. They've been maintained well. They're performing.
Danny Abajian: With a seasoned pool of assets.
Danny Abajian: He had been running for them you know about.
Danny Abajian: Seven eight years in duration, they've been maintained well they're performing.
Danny Abajian: And we got the spread lower from the prior transaction that we did in the private market that we closed in February so we're seeing a broadening of participation in the private credit market.
Danny Abajian: And we got the spread lower from the prior transaction we did in the private market that we closed in February. So, we're seeing a broadening of participation in the private credit market. We're also seeing a continuation of our good track record and performance in getting deals done in the public ABS market.
Danny Abajian: We're also seeing a continuation of good track record and performance and getting deals done in the public ABS market. So we're not seeing any sort of and issues and in that in that regard.
Andrew Salvatore Percoco: Okay, that's great that I'll make it.
Danny Abajian: Okay.
Andrew Salvatore Percoco: Okay over the over the company's history like a flight to quality mindset has generally benefited us.
Andrew Salvatore Percoco: Yep, definitely. Okay, that'll make sense. Thank you.
Speaker Change: Yes, definitely okay that all makes sense. Thank you and maybe as a second follow up question, maybe more a strategy question, but I'm just kind of curious what you see in terms of a battery retrofit opportunities now that battery supply is more readily available costs have come.
Andrew Salvatore Percoco: Down a lot obviously, you know growth in solar has slowed a little bit is there an opportunity to go back to some of your customers in that batteries and and what would that look like from a cash perspective would that impact would that be positive or negative to the near term cash generation. Thank you.
Mary Grace Powell: And maybe as a second follow-up question, maybe more of a strategy question, but I'm just kind of curious what you see in terms of battery retrofit opportunities. Now that battery supply is more readily available, costs have come down a lot. Obviously, you know, growth in solar has slowed a little bit. Is there an opportunity to just go back to some of your customers and add batteries? And, and what would that look like from a cash perspective? Would that impact? Would that be positive or negative for near-term cash generation? Thank you. Yeah, a great question.
Mary Grace Powell: Yeah, great question. Yes, we totally agree. And, in fact, we launched a storage retrofit program that's doing very well. We also, as you know, launched our first phase of our renewal pilot. We've also launched a repowering program and a renewal program combined with storage retrofit. So yes, we see tremendous opportunity to really focus in on and grow the storage side of the business.
Andrew Salvatore Percoco: Yeah, Great question, Yes, we totally agree and in fact have already launched at the beginning of the year, we launched a storage retrofit program. That's doing very well. We also as you know launched our first phase of our renewal pilot and we've also launched our Repowering program and a <unk>.
Mary Grace Powell: Renewal program.
Mary Grace Powell: Combined with storage retrofit. So yes, we see tremendous opportunity to really focus in on and grow the storage side of the business and as I also described the other incredible tertiary benefit of that is that also really provides us with much more value from a grid services.
Mary Grace Powell: And as I also described, the other, you know, incredible tertiary benefit of that is that it also really provides us with much more value from a grid services perspective, in the long term, because every solar customer that we then attach storage to becomes a customer that can potentially participate in grid services programs. So yes, we are very bullish on it. We've rolled out programs, we're seeing good numbers and uptakes, and we're excited about the impact. And one of the reasons that, again, we feel really good about our storage guy.
Mary Grace Powell: Specter of longer term because every solar customer that we then attached storage two becomes a customer that can potentially participate in grid services programs. So yes, we are very bullish on it we've rolled out programs, we're seeing good numbers and uptake and we're excited about the impact in my notes there.
Mary Grace Powell: Reasons that again, we feel really good about our storage guide.
Mary Grace Powell: Okay.
Speaker Change: Great. Thank you so much.
Operator: Thank you. Our next question comes from the line of James West with Evercore ISI. Please proceed with your question.
Mary Grace Powell: Thank you. Our next question comes from the line of teams West with Evercore ISI. Please proceed with your question.
James Carlyle West: Hey, Mary, Danny, and team. [inaudible] And I hear you guys on your confidence that we've bottomed here and one cues the low point for the year, but could you maybe provide a little color on, you know, in the states where you operate, where you're seeing the most growth, the most recovery, the faster recovery rates, and maybe where things aren't recovering.
James Carlyle West: Hey, good afternoon, I'm married to any of the team.
Speaker Change: Thanks Maria.
James Carlyle West: And I hear you guys on your confidence that we bottomed here and once you still at the low point for the year, but could you maybe provide a little color on you in the states, where you operate where you're seeing the most growth the most recovery the faster recovery rates, and maybe where things aren't recovered as fast.
James Carlyle West: Yeah.
Mary Grace Powell: I think we continue to see a really robust return to volume in California and believe that we're gaining market share inside that market, which is really strategic for us, obviously from a solar volume perspective, but as well from a future grid service perspective. Another really exciting market for us is Texas. And we've been doing geographic expansion inside the state and are quite excited about that market as well. So those are two really promising big growth markets for us. The third item I would list is Illinois as well.
Speaker Change: Yeah, I think we continue to see really robust returned to volume in California, and believe that we're gaining market share inside that that market, which is really strategic for us that'd be sort of a sore volume perspective, but as well from a future grid service perspective, another really exciting market for us is Texas.
Mary Grace Powell: And we've been having geographic expansion inside the state and are quite excited about that market as.
Mary Grace Powell: As well so those are those are two really promising a big growth market for us the third I would list.
Mary Grace Powell: As Illinois as well.
James Carlyle West: Got it. Okay, that makes sense. Thanks for that.
Speaker Change: Got it okay that makes sense. Thanks for that and then maybe just a quick follow up but you didn't he gave some numbers around you know the equipment declines in equipment cost and.
Danny Abajian: And then just a quick follow-up, Danny. You gave some numbers around the equipment, the clients, and equipment costs. And they're just still working through some higher-cost inventory. Then, by the end of the year, I think you said down 18 percent from a peak. Does that incorporate all the higher-cost inventory being in the field and out of your inventory?
James Carlyle West: And they're still working through some higher cost inventory the the by the end of the year I think you sit down 18% from a peak does that incorporate all of the higher cost inventory being in the field and out of the room.
Danny Abajian: Sure.
Danny Abajian: Yeah, the timing for that, as you continue to track our inventory balance, you've seen it fall quite a bit. And we've guided to Q2 being most of the way there in terms of realization of the lower cost purchase activity we've been seeing late last year and this year. Some of that, there'll be a residual that gets fully, fully recognized in Q3, but we're nearly there in Q2 in terms of the expense recognition of the lower cost equipment we've been buying. Thank you.
Danny Abajian: Yeah, that's the timing for that as you continue to track our inventory balance you've seen it fall quite a bit.
Danny Abajian: And we had guided to Q Q2, being most of the way there in terms of realization of the lower cost purchase activity. We've been seeing you know late last year and this year some of that Oh.
Danny Abajian: And there'll be a residual that gets you know fully fully recognized in Q3, but we're nearly there in Q2 in terms of the expense recognition of the lower cost equipment, we've been buying.
James Carlyle West: Very helpful. Thank you.
Speaker Change: That's very helpful. Thank you.
Speaker Change: Thank you.
Operator: Thank you. Our next question comes from the line of Parnees Shadis with Wells Fargo. Please proceed with your question.
Carnitas Cities: Thank you. Our next question comes from the line of Carnitas cities with Wells Fargo. Please proceed with your question.
Parnees Shadis: Thanks. Good afternoon, So, you know, if we think about 2025, it seems like many of the assumptions that you laid out for your cash generation forecast between the low and high ends will play out in 2025 between, you know, battery supply shifting domestically, getting more clarity from Treasury, and maybe interest rates coming down a bit. So, I mean, I recognize you're not giving 2025 guidance right now, but maybe if you could just talk about the puts and takes to consider as we look out another year to cash generation.
Parnees Shadis: Thanks. Good afternoon. So you know if we think about 2025 mm. It it seems like many of the assumptions.
Parnees Shadis: That you'd laid out for your cash generation forecast between the low and high end. It seems like many of those assumptions what will play out in 2025 between you know battery supply shifting domestic getting more clarity from treasury and maybe interest rates coming down a bit. So I mean, I recognize you're not giving 2025 guidance right now, but maybe if you could just talk.
Parnees Shadis: Talk about the puts and takes to consider as.
Parnees Shadis: As we look out another year to cash generation.
Danny Abajian: Yeah, I think the one we've put here at the top of the assumption list is those adders. The adders we have now we have energy community and low-income running. There's obviously been some movement between the bucket and net-net.
Parnees Shadis: Yeah, I think that's the one we.
Danny Abajian: But right here at the top of the assumption, but it is those out or something like.
Danny Abajian: Theaters, we have now we have energy community and low income running there's obviously been some movement between the bucket.
Danny Abajian: And that that we've seen that percentage climb since the last quarter.
Danny Abajian: We've seen that percentage climb since the last quarter. Domestic content is a matter of time for that, to whatever extent we get the upside and over what period. It's just a matter of time for that to arise.
Danny Abajian: And domestic content is a matter of time for that.
Danny Abajian: Or whatever to whatever extent, we got the upsides and over what period. It's just a matter of time for that to rise and you know we've been cautious in our planning around domestic content.
Danny Abajian: We've been cautious in our planning around domestic content, but we do expect that will be a driver we carry into 2025. Interest rates, as you see here, are expressed in a range of 7.5% to 8%. We are not assuming a set of major declines in interest rates. We've seen base rates go up. We've seen credit spreads improve recently, and we've generally held for most of the last few quarters within this range. The story there, again, is that carrying this range of cost of capital into 2025 will allow us to also carry this magnitude of cash generation we're planning on.
Danny Abajian: We do expect that it.
Danny Abajian: There will be a driver we carry into 2025 mm interest rates as you see here a word.
Danny Abajian: Pressing in a range of 7.5% to 8% that we are not assuming.
Danny Abajian: Outside of major declines in interest rates.
Danny Abajian: Yeah were seeing base rates go up we've seen credit spreads improve recently and we've generally held up you know for.
Danny Abajian: For most of the last few quarters.
Danny Abajian: Within this range. So you know the story there again it is.
Danny Abajian: Carrying this range of cost of capital into 2020 five.
Danny Abajian: Well allow us to also carry that magnitude of cash generation, where we're planning on them and then the third one is are you keeping that.
Danny Abajian: Storage attachment rate, where it is that you know slightly growing that even more over time.
Danny Abajian: And you know working to further penetrate.
Speaker Change: Mark, yes, with so far lower penetration rates and storage and I think we'll continue to push push for that as well.
Danny Abajian: Hopefully I'm you know grow the range as we move into 2025.
Danny Abajian: And this is Ed, just to make sure we clarify one thing.
Danny Abajian: Right.
Ed: To make sure we clarify one thing the batteries that we have been installing over the course of the year are those that we expect will qualify for the domestic content adder. So while you cannot monetize those until the guidance is sufficient.
Ed: And obviously confirms our expectations.
Ed: That would then make retroactive.
Ed: That is possible for the 'twenty 'twenty four installations now there could.
Ed: It could be puts and takes and delays in getting that retroactive credits but.
Ed: We do not need to wait for domestic.
Ed: The batteries to show up we're already installing those that we expect are likely to qualify for the guidance.
Edward Harris Fenster: Got it. No, that's helpful.
Ed: Got it right now that's that's helpful and maybe just staying on on batteries I mean, you kind of addressed.
Parnees Shadis: And maybe just staying on batteries. I mean, you kind of addressed that, but you're at your 50% attach rate now, and it looks like you're assuming that ratio to be flat for the balance of the year. So the first question is why? How come it's not continuing to creep higher? And second, you know, what scenarios would you need to see happen to get it to that 60% or higher range? I mean, because it does look like you're close to maxing out the attach rate in California. So what do you need to see to get the rates higher for the rest of the country? Well, I think.
Speaker Change: Addressed it but you're at your 50% attach rate now and it looks like you're assuming that ratio to be flat for the balance of the year. So that's the first question is why how come it's not continuing to creep higher and then second you know what what scenarios would you would you need to see happen to get it to that 60% or higher range.
Parnees Shadis: I mean, because it does look like you're close to maxing out the attach rate in California. So what do you need to see to get the rates higher for the rest of the country.
Parnees Shadis: Mhm.
Mary Grace Powell: Well, I think, as we talked about, we continue to see the storage attachment rate increasing. Yes, as we look to the future, you know, I think over time, we could absolutely see it go above 50%. But what we've been looking at is landing, when you look at the entire country, and all of the markets were in landing at about that percentage. But absolutely, my view from a grid perspective is that you'll start to see other parts of the country moving towards different tariff schemes that might make storage more attractive for customers, as well as grid reliability issues that will make storage more attractive for customers. But again, we also see a tremendous re like attach rate per storage program as well. So we're really excited about the opportunity to also go back to our existing customer base and offer storage.
Parnees Shadis: Well I think as we talked about we continue to see storage attachment rate increasing.
Mary Grace Powell: Yes, as we look to the future you know I think over time, we could absolutely see doesn't go above 50%, but what we've been looking at is landing when you look at like the entire country and all of the markets. We're in landing at about that percentage, but absolutely like my view from a grade.
Mary Grace Powell: Perspective is that you'll start to see other parts of the country moving towards a more different tariff schemes that might make storage more attractive for customers as well as grid reliability issues that will make storage more attractive for customers, but again, we also see a tremendous we read.
Mary Grace Powell: Like attach rate for <unk>.
Mary Grace Powell: George program as well so we're really excited about the opportunity to also go back to our existing customer base and attach storage.
Speaker Change: Thank you.
Mary Grace Powell: Yes.
Operator: Thank you. Our next question comes from the line of Joseph Osha with Guggenheim Partners. Please proceed with your question.
Mary Grace Powell: Thank you. Our next question comes from the line of Joseph Osha with Guggenheim Partners. Please proceed with your question.
Joseph Amil Osha: Hi, thank you. I have two related questions. First looking at the adjusted Q1, 24 cash generation number, I see that you're talking about an adjusted number that's flat there. Not to be a stick in the mud, but you did have a nice tailwind issuing this 2030 convert and not taking the 26 back in. So I guess what I'm asking, first question, is are you asserting here that on an ongoing basis you think, you know, Q1 cash generation can be flattish And then I have a follow-up question.
Joseph Amil Osha: Hi, Thank you kind of two related questions.
Joseph Amil Osha: First looking at the adjusted Q1, 'twenty forecast generation number I see that you're you're talking about an adjusted number that's flat there not to be a stick in the mud you you did have a nice tailwind. If you win this there's 2030 converted not taking the 26 back in so I guess, what I'm asking.
Joseph Amil Osha: First question is are you asserting here a bit on an ongoing basis do you think you'll Q1 cash generation can be can be flattish and then I then I have a follow up.
Danny Abajian: Yeah, so one clarification is the issuance of the new convert and any proceeds from that we would back out from cash generation as we've defined it, because we don't give ourselves credit for cash generation for any corporate capital raises. So that number, obviously, while that drove the cash balance, it did not drive the cash generation number because we backed it out. But what we did incur were all the fees related to the transaction.
Speaker Change: Yeah, So one clarification.
Danny Abajian: The issuance of the new convert and any proceeds from that we would back out from cash generation.
Danny Abajian: As we've defined our we would do them.
Danny Abajian: Because we don't give ourselves credit and cash generation for any corporate capital raises and so that that number obviously that drove the cash while that drove the cash balances did not drive the cash generation number because we backed it out but what we do.
Danny Abajian: Yeah.
Danny Abajian: Incur what's the where all the fees related to the transactions that was $51 million on the convert which is all we're putting back in the in the Pearl sorry about that.
Danny Abajian: That was $51 million on the convert, which is all we're putting back in the pro forma. So I would say, as far as, and then, of course, there's a list of other items, like the warehouse facility, the advanced rate, all the related fees. But if you look at the pro forma, two-thirds of it is the tax equity, you know, the tax credit, kind of the tax credit transfers of $181 million, and the low-income ITCI is up $30. And we've said we do expect to recover most or all of that by the end of the quarter. So that's our plan, which would imply a quarter of substantial cash generation coming to offset that.
Danny Abajian: So I would say as far as.
Danny Abajian: And then of course, there's a list of other items like the warehouse facility that advance rate also related fees, but if you look at the pro forma two thirds of it is the tax equity and tax credit are kind of the tax credit transfer of 181 million.
Danny Abajian: And the low income ITC out are up 30.
Danny Abajian: And we said we do expect you.
Danny Abajian: Recover most or all of that by the end of the quarter.
Danny Abajian: That's our plan, which would imply.
Danny Abajian: A quarter of substantial cash generation come in to offset that.
Joseph Amil Osha: Okay, and then just as a follow-on, you know, we spent a lot of time talking about this this annualized 200 to 500 number which which is great But you know, it's not going to help as much if we just give it all back in q1 25 So I guess what I'm trying to understand, you know, you put in your comments that there's going to be positive q3 23 to q3 24 generation, how should we think about That level of q4 to q4 q1 to q1 choose your poison, you know, what should we think about these sustainable? annualized rate of Cash generation because yeah again, the q4 number is great. But if we give it all back in qq 1 of 25 It doesn't doesn't help
Speaker Change: Okay, and then just as a follow on you know we spend a lot of time talking about this annualized 200 to 500 number which is great.
Joseph Amil Osha: But it's not going to help as much yeah. We just give it all back in Q1 25, So I guess, what I'm trying to understand where you put it in your comments that theres going to be positive Q3, 'twenty three 'twenty four generation, how should we think about that level of Q4 to Q4, Q1 and Q1 choose your poison.
Joseph Amil Osha: Can we think about the sustainable annualized rate of of cash generation because again, the Q4 numbers great, but if you gave it all back in Q1 of 25, but it doesn't it doesn't help.
Danny Abajian: Yeah, I think we expected, you know, the annualized run rate. Delivery to be sustainable and not timing. I think that's the most important thing.
Speaker Change: Yeah, we expect that you know that the.
Danny Abajian: The annualized run rate.
Danny Abajian: Delivery to be sustainable and not timing driven I mean I think.
Mary Grace Powell: Now, there will be normal fluctuations. If you look back at our results, there is seasonal fluctuation, but over a trailing four-quarter period. We expect to continue this number or this trend line. So I think deal timing, seasonality, those things will still matter. But if we zoom out and look over four quarters, that's the annualized run rate kind of thinking and framework that we're bringing here to the guys. Yeah, I would also just add to that.
Danny Abajian: That's the most important thing now.
Mary Grace Powell: There will be normal fluctuation.
Mary Grace Powell: If you look back at our results. There there is there a seasonal fluctuation, but over a trailing four quarter period.
Speaker Change: We expect to continue the number so.
Speaker Change: Or that you know the trend lines, so I think.
Mary Grace Powell: Deal timing seasonality those things will still matter.
Mary Grace Powell: But if we zoom out and look over four quarters.
Mary Grace Powell: That's the annualized run rate kind of you know thinking in a framework that we're bringing here so the guys.
Danny Abajian: Yeah, I would also just add to that, Danny, that we also are doing a number of things like our retrofit program and our renewal program that we are thinking about in the context of how we can also utilize those programs to supplement, typically, low quarters from a seasonality perspective. So that is also something we're thinking about and working on strategically as we think about Q1 25 and going forward.
Speaker Change: I would also just add to that I would also just add to that Dan D. That we also are doing a number of things like weather or retrofit program, our renewal program that.
Danny Abajian: That we are thinking about it in the context of how we can also utilize those programs took supplement.
Danny Abajian: Typically low quarters from a seasonality perspective. So that is also something we're thinking about and working on strategically as we think about Q1, 'twenty five and going forward.
Danny Abajian: Got it thank you.
Danny Abajian: Okay.
Operator: Thank you. Our next question comes from the line of Philip Shen with Roth MKM. Please proceed with your question.
Danny Abajian: Thank you. Our next question comes from the line of Philip Shen with Roth and can please proceed with your question.
Philip Shen: Everyone, thanks for taking my questions. The first one's on the impact of AI-based load growth on your business. For example, ERCOT power forwards have moved up 60% in the last 12 months. KAISO has been similar.
Philip Shen: Hi, everyone and thanks for taking my questions first one is on the impact of AI based on those growth on your business. For example, ERCOT power forwards have moved up 60%.
Philip Shen: Last 12 months Cai so it's been similar.
Philip Shen: When do these flows through I mean, it's a retail pricing and affect your pricing power.
Mary Grace Powell: When do these flow through into retail pricing and affect your pricing power?
Philip Shen: Yeah. That's great question, you know from our perspective strategically we see what's happening.
Mary Grace Powell: With load growth as being you know really directionally positive.
Philip Shen: Yeah, that's a great question. From our perspective, strategically, we see what's happening with low growth as being, you know, really directionally positive, largely because there will be, we already see this, but there will be capacity challenges, you know, at the utility level, at the regional level. And so again, growing our fleet of storage plus solar assets will, we believe, provide valuable and will be a meaningful resource relative to how that is going to flow through from a rate perspective.
Mary Grace Powell: Really because there's going to be you know we already see this but theres going to be capacity challenges you know at the utility level at the regional level and so again growing our fleet of storage plus solar assets. We believe will provide valuable and it will be a meaningful resource relative to how.
Philip Shen: That is going to flow through from a rate perspective, I would say, there's nothing we've seen so far that suggests that the.
Philip Shen: I would say there's nothing we've seen so far that suggests that the rate is, that the utility grid infrastructure has a path toward becoming stronger from an economic perspective. So there's massive spending needed at the transmission level, at the project level, and at the distribution level. So again, I think there's going to be real pressure on utility rates in the future as this happens, and it also provides an opportunity for Sunrun and our assets to be helpful in the solution.
Philip Shen: The rate is that the utility grid infrastructure has a path towards becoming more like stronger from an economic perspective, so there's massive spend needed at the transmission level at the project level and at the distribution level.
Philip Shen: So so again I think there's gonna be real pressure on utility rates in the future as this happens and it also provides an opportunity for sunrun and our assets to be helpful. In the solution.
Philip Shen: Yeah.
Mary Grace Powell: Great, thanks, Mary. Shifting to the impact of new entrants in the lease market. I was wondering if you could give us a little more color. You've shared some in the past. Have you felt this increased competition offset by NOVA and Sunpower's situations? Is there anything that has changed in the sense that these new market entrants, which are mostly corporate or PE-backed, have started to enter an asset class that was previously very fringy or not institutional quality?
Speaker Change: Great. Thanks, Mary shifting to are the impact of new entrance in the lease market. I was wondering if you could give us a little bit more color you've.
Mary: Sure some in the past and you know have you felt this increased competition offset by Nova and some pairs.
Mary Grace Powell: Situations.
Mary Grace Powell: Is there anything that has changed in the sense that these new market entrants, which are mostly corporate or piggybacked have started to enter into an asset class that was previously very friendly or not institutional quality.
Mary Grace Powell: Yeah.
Philip Shen: Yeah, I think for us, we continue to see them operate kind of how we've seen it historically. I think they're trying to figure out the business model. When you look at owning assets for 25 years and forecasting out service costs and understanding asset ownership, consumer experience, and customer service, there's a lot to managing these assets. And we are extremely confident, having financed, you know, dozens of billions of dollars of this stuff, that we know how to price it. And, you know, while we see, you know, annoyances from these partners, we don't view them as a durable threat; we view them as, you know, some short-term frustration with volume.
Mary: Yeah, I think for US we continue to see him operate them kind of how we've seen it historically I think they're trying to figure out the business model.
Philip Shen: When you look at owning assets for 25 years and forecasting out service cost and understanding asset ownership consumer experience customer service, there's a want to managing these assets and we are extremely confident having financed dozens of billions of dollars have been stopped and we know how to price it and.
Philip Shen: While we see you know annoyances from these partners, we don't view it as like a a.
Philip Shen: A durable threat, we view it as you know some short term frustration to volume.
Operator: Great, thanks very much. Thank you. Our next question comes...
Speaker Change: Great. Thanks very much.
Operator: Yeah.
Speaker Change: Thank you.
Colin William Rusch: Our next question comes from the line of Colin Rusch with Oppenheimer. Please proceed with, Thanks so much. Can you speak to the performance of your VVPs from a monetization perspective versus your internal expectations when you guys enter into them?
Operator: Our next question comes from the line of Colin Rusch with Oppenheimer. Please proceed with your question.
Colin William Rusch: Thanks. So much you know can you speak to the performance of your V piece from a monetization perspective versus your internal expectations. When you guys entered into that market.
Mary Grace Powell: Yeah, we're really pleased. As I described, again, we've got, you know, enrolled 16,000 Sunrun customers in the CalReady program that we rolled out, and 1,800 on Power On Puerto Rico. Our growing experience with grid services increases our conviction that we can realize $2,000 or more per customer NPV from these assets.
Colin William Rusch: Yeah, we're really pleased as I described again, where we've got you know in.
Mary Grace Powell: Enrolled 16000 sunrun customers in the Cal ready program that we rolled out 1800 on the power on Puerto Rico are growing experience with good services increases our conviction that we can realize $2000 or more in per customer N. P. V from these assets.
Mary Grace Powell: Oh, Thanks, so much and then now as you see higher storage attach rates are there meaningful adjustments to convert or storage hardware mix that you're looking at coming down the pipe and are there meaningful new products that you're looking forward to being able to integrate.
Speaker Change: I agree with that that could impact your unit economics.
Mary Grace Powell: I think from a core hardware perspective, the major components, we're really comfortable with the diversity we have in the products that we're using. And we continue to forecast and see steadily declining costs in those core products. On the innovation and new product side, we actually see a lot of exciting products coming into the market. And Sunrun's position, given our large and complete distribution, is a preferred option for those people. And so we view ourselves as well positioned to be a recipient of the best and most innovative, exciting new products that come onto the scene. We have been doing some pilots with different products. And I think, as the markets mature and as the products mature, we will start to make those more of a standard offering in more homes. Yeah. And, of course, we're looking forward to the deployment of
Mary Grace Powell: Yeah, I think from a CT hardcore hardware perspective, the major components.
Mary Grace Powell: We've been we're really comfortable with the.
Mary Grace Powell: Diversity, we have and the products that we're using and we continue to forecast and see steadily declining cost.
Mary Grace Powell: Cost in those core products on the innovation side and new product side, we actually see a lot of exciting products coming.
Mary Grace Powell: Coming into the market and Sunrun is positioned given our large.
Mary Grace Powell: And complete distribution is a preferred option for those people and so we view ourselves as a well positioned to be a recipient of the best and most innovative exciting new products that come onto the scene and have been doing some pilots with different products and.
Mary Grace Powell: I think as the markets mature as the products mature are starting to make those more of a.
Mary Grace Powell: Standard offering and more homes, yeah and of course, we're looking forward to the appointment of lunar.
Mary Grace Powell: Yeah, and of course, we're looking forward to the deployment of Lunar and their storage capabilities, and we're already working with Lunar on their grid share capabilities, which are quite powerful.
Mary Grace Powell: And their storage capabilities, and we're already working with lunar on their grid share capabilities, which are quite powerful.
Speaker Change: Thanks, so much.
Operator: Thank you. Our next question comes from the line of Maheep Mandoli with Mizuho. Please proceed with your question.
Mary Grace Powell: Thank you. Our next question comes from the line of Mike mentally with Mizuho. Please proceed with your question.
Maheep Mandloi: Hey, Gareen, and thanks for squeezing me in over here. Just a question on the systems and product business. So the gross margins were a bit weaker in the quarter, which probably led to the lower platform margins. So just trying to understand the drivers there and how we should think about the platform contribution going forward, especially after the distribution business sale you talked about a month ago. Yeah, happy to hit that.
Maheep Mandloi: Hey, good evening. Thanks for squeezing me in over here just a question on the systems and product business. So.
Maheep Mandloi: The gross margins were a bit weaker in the quarter, which probably led to the lower profit margins. So just trying to understand the drivers there and how should we think about the the platform contribution going forward, especially after the distribution business and you talked about a month ago.
Danny Abajian: Yeah, happy to hit that. So, you know, during the quarter, we made a decision to wind down our AEE distribution business. And in connection with that, there was a one-time, you know, kind of non-cash charge on inventory impairment of $22 million. So that definitely weighed heavily on the gross margin in the period. You know, as we thought about that business, we retained the higher margin and value-generating components of that business. But, you know, that did weigh in.
Gareen: Yeah happy to hit that so you know during the quarter we made.
Danny Abajian: Made a decision to wind down our <unk> distribution business and in connection with that.
Danny Abajian: There was a one time.
Danny Abajian: You know kind of noncash charge, an inventory impairment of $22 million. So that's definitely weighed.
Danny Abajian: Heavily on the gross margin in the period.
Danny Abajian: As we.
Danny Abajian: Thought about that business you know, we we've retained that you know that the higher margin and value generating components of that business.
Danny Abajian: And as we move on from that, that should help restore some of that margin. If we look at that line item in total, it includes our distribution business. It includes our cash sales. It includes our home upgrade business, which is ancillary to the solar install. If we just look at the cash system sales component in that line, you know, a couple of line items, that gross margin is a healthy double-digit number.
Danny Abajian: But as you know that did weigh in and you know as we as we move on.
Danny Abajian: From that that should help restore some of that margin. If we look at that line item in total it includes our distribution business.
Danny Abajian: Those are cash sales.
Danny Abajian: Fluids are home upgrade business, which is ancillary to the solar install a if we just look at the cash system sales component in that line. A couple of line items that gross margin is a healthy double digit number.
Maheep Mandloi: Got it. Thank you. Appreciate that. And just on cash generation, just looking at your slide 14 there, the orange bars for 2Q to 4Q seem probably more in line with the 200 million cash generation exiting Q4. Is that fair? Or could we probably see some upside to that, those numbers starting 2Q as well, with all the levers you talked about?
Speaker Change: Got it. Thank you appreciate that and then just on the cash generation.
Speaker Change: Uh huh.
Maheep Mandloi: Slide 14, there's a D.
Maheep Mandloi: The orange bars food to Q2 for Q seem probably more in line with the 200 million a cash generation exiting Q4 is that fair or like we could probably see some upside to that.
Maheep Mandloi: Those numbers starting to choose bode well because then it was you talked about.
Danny Abajian: I think what you see on the bar charts on the bottom left of slide 14 is what I think you're looking at. Obviously, that's a directional picture, but I think the illustration here is a return of a lot of the working capital we incurred in Q1, returning that in Q2, and then in Q3 and Q4, moving more towards that run rate and exit rate that we see falling within our guidance range. I would say that's the general picture there. I'm not sure if I missed part of your question.
Speaker Change: Yeah, I think so.
Maheep Mandloi: What you see on the bar charts on the bottom left of Slide 14 is what I think you're.
Speaker Change: Looking at them.
Danny Abajian: Obviously that that that's a that's a directional picture.
Danny Abajian: But I think the illustration here is a return of a lot of the working capital we incurred in Q1, returning that in Q2.
Danny Abajian: And in Q3, and Q4 now moving more towards that that run rate.
Danny Abajian: Yes.
Danny Abajian: But we see falling within our guidance range I would say that's the.
Danny Abajian: You know the general picture there I'm not sure if I missed a part of your question.
Maheep Mandloi: No, it's just like reading those, and it looks like for Q4 it implies around $50 million of cash generation. Does that commensurate with the $200 million, or does the exit run rate have something else going on, or is it just the Q4 number here?
Speaker Change: Oh, no I was just like a living doesn't it looks like for Q4, it implies around $50 million of cash generation.
Maheep Mandloi: And so as that's commensurate with the 200 million or does it.
Maheep Mandloi: Like the exit run rate is.
Speaker Change: So not the not the Q4 number here.
Danny Abajian: Yeah, the you know, within the 200 to 500 million range is what's implied there.
Maheep Mandloi: Yeah.
Maheep Mandloi: Within that 200 to $500 range is what it is what's implied there.
Maheep Mandloi: All right. Sounds good. Thank you. Thank you. Our next question comes from the line of Dylan Mazzano.
Speaker Change: Alright sounds good thank you.
Operator: Thank you. Our next question comes from the line of Dylan Mezzano with Wolf Research. Please proceed with your question.
Dylan Mazzano: Thank you. Our next question comes from the line of Julien Maisano with Wolfe Research. Please proceed with your question.
Dylan Mezzano: Yeah, Hey, good afternoon, everyone I'm Mary you briefly hit on the early renewal program in your opening remarks I was just wondering if you had any more color you could share on how that program has been progressing central last update.
Dylan Mezzano: Yeah, so we actually, as I described, we're going to be using this year to run a number of different approaches on renewals and then scale as we exit 24 into 25. So we concluded that program, which again, we were really pleased with a 70% positive interaction on early renewal. And now we're launching our repowering and renewal with add-on storage pilots, and that begins in May. So at our next call, we'll be able to update you on that next one, super encouraged by our first one, rolling out a different flavor, seeing what the uptake will be on that, and then getting ready to scale as we exit the year. And I would just add that I'd take this as, you know, kind of like us.
Dylan Mezzano: Yeah. So we actually as I described we're gonna be using this year to run a number of different approaches on renewals and then scale as we exit 'twenty four into 25. So we concluded that program, which again, we were really pleased with 70% positive interaction an early renewal and.
Dylan Mezzano: Now, we're launching our repowering and renewal with add on storage pilots and that begins in may. So in our next call will be able to update you on that next one super encouraged by our first one rolling out a different flavor I've seen what the uptake will be on that and then getting ready to scale as we exit the year and I would just.
Mary Grace Powell: And I would just add, I take this as, you know, kind of like us beginning more of a concerted focus around understanding our portfolio that's now close to reaching a million customers and investing in providing additional products and services like the battery to these homes. And as we focus on that opportunity that's in front of us, I think there's a lot of cash generation additions that can come as we effectively manage the portfolio. Got it, yes.
Dylan Mezzano: Add I'd take this as you know kind of like the bus beginning more of a concerted focus around understanding our portfolio. That's now close to reaching a million customers and investing in providing additional products and services like the battery to these homes and as as we spoke.
Mary Grace Powell: Because on that opportunity that's in front of US I think there's a lot of cash generation edition that can come as we effectively manage the portfolio.
Speaker Change: Got it yeah I appreciate that color all my other questions have been asked and answered. Thanks.
Speaker Change: Great. Thank you.
Mary Grace Powell: Thank you. That concludes the time that has been allocated for Q&A. You may now disconnect. Everyone else has left the call.
Speaker Change: Thank you that concludes the time that has been allocated for Q&A you may now disconnect.
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