Q2 2024 Sunrun Inc Earnings Call
Unknown Executive: Good afternoon, and welcome to Sunrun's second quarter 2024 earnings conference call. All participants have been placed on Please note that this call is being recorded and that one hour has been allocated for the call, including question and answer sessions. To join the Q&A session after prepared remarks, please press star 1 at any 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 Investor Relations Officer. Please go ahead.
Good afternoon, and welcome to Sunrun second quarter 'twenty 'twenty four earnings conference call. All participants have been placed on mute. Please note that this call's being recorded and that one hour has been allocated for the call, including question and answer session to.
She joined the Q&A session. After prepared remarks, Please press star one at any time.
We ask participants to limit themselves to one question and one follow up I will now turn the call over to Patrick Jobin son runs Investor Relations Officer. Please go ahead.
Speaker Change: 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.
Patrick Jobin: Before we begin, please note that certain remarks we will make on this call constitute forward-looking statements. Before we begin, please note that certain remarks we will make on this call constitute Although we believe these statements reflect our best judgment based on the factors currently known to us, actual results may differ materially, and it, 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.
Patrick Jobin: Please also note that these statements are being made as of today, and we disclaim any obligation to update or revise them. During today's call, we will also 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 a substitute for, superior to, or in isolation from GAAP results.
Speaker Change: 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. These statements are being made as of today and we disclaim any obligation to update or revise them. During today's call. We will also be discussing certain non-GAAP financial measures, which we.
Patrick Jobin: You will find additional disclosures regarding the non-GAAP financial measures discussed in today's call, our press release issued this afternoon, and our prior announcements with the SEC, each of which is posted on our website. On the call today are Mary Powell, Sunrun's CEO, and Danny Abajian, Sunrun's CFO. Ed Fenster, Sunrun's co-founder and co-executive chairperson, along with Paul Dickson, Sunrun's president and chief revenue officer, are also on the call for the Q&A session.
Speaker Change: We believe can provide meaningful supplemental information for investors regarding the performance of our business into something meaningful evaluation of current period performance on a comparable basis with prior periods.
Mary Alexandrine: non-GAAP financial measures should be considered as a supplement to and not as substitute for superior to or in isolation from GAAP results. You will find additional disclosures regarding these non-GAAP financial measures discussed in today's call. Our press release issued this afternoon in our filings with the SEC each of which are posted on our website on the call today are married Alexandrine CEO.
Speaker Change: Any of the bedroom Sunrise CFO.
Speaker Change: Sensors that runs co founder and co executive chair, along with Paul <unk>, President and Chief revenue Officer are also on the call for Q&A session.
Patrick Jobin: A presentation is available on Sunrun's Investor Relations website, along with supplemental materials. An audio replay of today's call, along with a copy of today's prepared remarks and transcript, including Q&A, will be posted on the Investor Relations website shortly after the call. We've allocated 60 minutes for today's call, including the question and answer session. Now, I will turn the call over to Mary.
Speaker Change: A presentation is available on the Sunrise Investor Relations website, along with supplemental materials and audio replay of today's call along with a copy of today's prepared remarks, and transcript, including Q&A will be posted to the Investor Relations website. Shortly after the call. We've allocated 60 minutes for todays call, including the question and answer session.
Speaker Change: And now let me turn the call over to Matt. Thank you Patrick and thank you all for joining US today, So I'm gonna strategy to become the beloved trusted provider of clean energy and storage for households across America is delivering strong results.
Mary Powell: Thank you, Patrick, and thank you all for joining us today. Sunrun's strategy to become the beloved, trusted provider of clean energy and storage for households across America is delivering strong results. In the second quarter, the Sunrun team set records for storage installation and attachment rates, beating the high end of our installation guidance while delivering solid quarter-over-quarter solar installation and net subscriber value growth. We also delivered strong cash generation of $217 million in Q2, recouping the tax credit transfer-related working capital investment noted in Q1.
The second quarter, the Sunrun team set records for storage installation and attachment rates, beating the high end of our installation guidance, while delivering solid quarter over quarter solar installation and that subscriber value growth.
Speaker Change: We also delivered strong cash generation of 217 million in Q2 recouping the tax credit transfer related working capital investment noted in Q1.
Mary Powell: Our primary focus is accelerating our differentiation, launching additional products and services to expand customer lifetime values and remaining the disciplined, margin- and customer-focused leader, growing cash generation in the business for years to come. We are on track to achieve our cash generation objectives as we exit 2024 and our increasing cash generation guidance for 2025. We are also on track to exceed the high end of our full-year storage installation guidance this year, as our focus on storage products pays dividends faster than we even expect.
Speaker Change: Our primary focus is accelerating our differentiation launching additional products and services to expand customer lifetime values and remaining disciplined margin and customer focused leader growing cash generation in the business for years to come.
Speaker Change: We are on track to achieve our cash generation objectives as we exit 2024.
Speaker Change: And our increasing cash generation guidance for 2020 five.
Speaker Change: We are also on track to exceed the high end of our full year storage installation guidance. This year as our focus on storage products paid dividends faster than we even expected.
Mary Powell: Driven by our margin-focused strategy and slightly lower sales pacing than we initially expected, we now expect our solar volumes for 2024 to be at the lower end of our guidance range. Nevertheless, we are seeing strong sequential growth in order activity as consumer interest continues to build over this hot summer with soaring electricity. We continue to focus on the most margin-accretive customers. The hot summer and high utility bills are driving consumers to focus on their home energy use and related costs.
Speaker Change: Given by our margin focused strategy and slightly lower sales pace that'd be initially expected. We now expect our solar volumes for 2024 to be at the lower end of our guidance range now.
Speaker Change: Nevertheless, we are seeing strong sequential growth in order activity as consumer interest continues to build over this hot summer with soaring electricity rates.
Speaker Change: We continue to focus on the most margin accretive customers.
Speaker Change: The hot summer and high utility bills are driving consumers to focus on their home energy use and related costs. Our strategy is to focus on products and geographies, where sunrun shareholders can earn a strong return well ceragon customers experienced an excellent value proposition.
Mary Powell: Our strategy is to focus on products and geographies where Sunrun shareholders can earn a strong return while Sunrun customers experience excellent value. Driven by these dynamics, we are increasing our storage capacity installation guidance from approximately 58% to approximately 86% growth in a year. And we are narrowing our solar installation guidance to reflect the low end of our prior range, down approximately 15% for the year. We expect to see solid high-teen sequential growth in solar installations into Q3 and Q4, and to resume double-digit year-over-year growth in Q4.
Speaker Change: Driven by these dynamics, we are increasing our storage capacity installation guidance from approximately 15% to approximately 86% growth a year.
Speaker Change: And we are narrowing our solar installation guidance to reflect the low end of our prior range down approximately 15% for the year.
Speaker Change: We expect to see solid high teens sequential growth from solar installations into Q3, and Q4 and to resume double digit year over year growth in Q4.
Mary Powell: We are reiterating our cash generation guidance of $50 million to $125 million in Q4. In addition, we are initiating even higher cash generation guidance for 2025 of $350 million to $600 million. The fundamental drivers of our business continue to surprise us. Utility rates continue to rise, while solar and storage equipment costs are declining. Our operating efficiency and customer experience continues to improve. Customers remain eager to take control of their energy needs with affordable and resilient solutions to power their lives, the ultimate in independence. A Pew study issued in June affirms what polls have said for years: the majority of Americans.
Speaker Change: We are reiterating our cash generation guidance of 50 million to $125 million in Q4.
Speaker Change: In addition, we are initiating even higher cash generation guidance for 2025 of 350 million to 600 million.
Speaker Change: The fundamental drivers of our business continue took salary utility rates continue to rise, while solar and storage equipment costs are declining.
Speaker Change: Our operating efficiency and customer experience continuous trumpet.
Speaker Change: Customers remain eager to take control of their energy needs with affordable and resilient solutions to power their what the ultimate and independence.
Speaker Change: Few study issued in June FERC policy I've said for years.
Speaker Change: Majority of Americans, Republicans, and Democrats, and independents favorite expanding solar power in the United States.
Mary Powell: Over a year ago, we oriented the business to be storage first, which increases the customer value proposition and lays the foundation for future value creation from grid service. This strategy has also allowed us to capitalize on regulatory changes faster and better than others in the industry. In Q2, we installed storage on 54% of our new customers, up from an 18% attachment rate in the prior year and a four-point increase from levels achieved in Q1.
Speaker Change: Over a year ago, we oriented the business to be storage first which increases the customer value proposition and lays the foundation for future value creation from good service.
Speaker Change: This strategy has also allowed us to capitalize on regulatory changes faster and better than others in the industry.
Speaker Change: In Q2, we installed storage on 54% of our new customers up from an 18% attachment rate in the prior year and a four point increase from levels achieved in Q1, we.
Mary Powell: We installed 265 megawatt hours of storage in Q2, up 152% from a year ago, and the most we have installed in any quarter. Sunrun's experience selling, installing, and monetizing storage for the grid is a clear differential. Storage systems provide increased customer value to enhance resiliency and control, while providing higher margins for Sunrun. Our fleet of network storage capacity has reached 1.8 gigawatt hours with 116,000 systems installed.
Speaker Change: We installed 265 megawatt hours of storage in Q2.
Speaker Change: 152% from a year ago and the most we have installed in any quarter, sometimes experience selling installing and monetizing storage for the grid is a clear differentiator.
Speaker Change: Storage systems to provide increased customer value to enhance resiliency and control, while providing higher margins for some of them are fleet of network Stoller Pastorage capacity has reached one eight gigawatt hours with 116000 systems installed.
Mary Powell: While still in the early stages of commercializing these valuable, dispatchable energy resources, we continue to advance programs that prove their value potential. We now have more than a dozen operating virtual power plants across the country. Just this afternoon, we announced a program with Tesla in Texas. The program has already enrolled customers and will scale up while dispatching stored solar energy from at-home batteries to rapidly increase capacity on the grid during periods of high demand. Customers will be compensated for their participation while retaining a portion of their stored energy to provide backup power to their homes in the event of a power outage. Sunrun will also earn incremental recurring revenue for the program.
Speaker Change: Still in the early stages of commercializing these valuable as basketball energy resources, we continue to advance programs, which prove their value potential. We now have more than a dozen operating virtual power plants across the country.
Speaker Change: Just this afternoon, we announced a program with Tesla in Texas.
Speaker Change: The program has already enrolled customers and will scale up while dispatching storage with solar energy from alcohol batteries to rapidly increase capacity on the grid during periods of high consumption.
Speaker Change: Customers will be compensated for their participation, while retaining a portion of their stored energy to provide backup power to their homes in the event of a power outage and some of them will also earn incremental recurring revenue for the program.
Mary Powell: These same resources are providing tremendous value for our customers. During prolonged power outages in the aftermath of Hurricane Beryl, more than 1,600 Sunrun customers in the greater Houston area were able to keep their homes energized with more than 70,000 hours of backup energy provided by their solar and storage systems. With over 3 million homes and businesses without power, we are seeing strong demand in Texas, as many are seeing the obvious value our service can provide.
Speaker Change: These same resources are providing tremendous value for our customers during prolonged power outages in the aftermath of hurricane barrel more than 1600, several hundred customers in the greater Houston area, we're able to keep their homes energized with more than 70000 hours of backup energy provided by their solar and storage systems.
Speaker Change: With over 3 million homes and businesses without power, we are seeing strong demand in Texas as many are seeing the obvious value our service can provide.
Mary Powell: Just last week, we announced the operation of the nation's first vehicle-to-home power plant, using a small group of customer-owned, bi-directional electric vehicles. Initiated by Forward Thinking Regulation and in partnership with Maryland's largest utility, Baltimore Gas Electric, this program utilizes all electric Ford F-150s and 15 lightning trucks to deliver power this summer during peak demand times. These programs build on many others we are operating, including the Demand-Side Grid Support Program initiated by regulators in California.
Speaker Change: Just last week, we announced the operation of the nation's first vehicle to home power plants, using a small group of customer owned by directional electric vehicles.
Speaker Change: Initiated by forward thinking regulation and in partnership with Maryland's largest utility Baltimore gas and electric.
Speaker Change: This program utilizes all electric Ford F 150, 150, as lightning trucks to deliver power that suffered during peak demand times.
Speaker Change: These programs build on many others, we are operating including the demand side grid support program initiated by regulators in California. This virtual power plant is being actively used to support California's power grid.
Mary Powell: This virtual power plant is being actively used to support California's power. Just last month, during a heat wave, over 16,000 Sunrun customers' solar plus storage systems dispatched power during peak hours, supplying the grid with an average of 48 megawatts each night, exceeding the capacity of several costly and polluting gas-fired peaker plants in California. Home solar and battery systems are modernizing and strengthening the electric grid. With forward-thinking regulation, these resources could lower the cost of the overall grid for all users. As a reminder, California has 14,000 megawatts of power plants that are used less than 5% of the time.
Speaker Change: Just last month during a heat wave over 16000 struggling customers solar plus storage systems dispatch power during peak hours supplying the grid with an average of 48 megawatts each night exceeding the capacity of several costly and polluting gas fired power plants in California.
Speaker Change: Home solar and batteries system are modernizing and strengthening the electric grid.
Speaker Change: With forward thinking Eregulation these resources could lower the cost of the overall grid for all users as a reminder, California has 14000 megawatts of power plants that are used less than 5% overtime.
Mary Powell: We are quickly becoming a multi-product company that offers a suite of clean energy products to our consumers in a bundled, easy-to-finance way. By continuing to invest heavily in service and providing a leading customer experience, we are able to monetize opportunities to provide additional services to our large base of customers for decades into the future. We are proud of our customer-first approach, evidenced by a continued increase in customer net promoter scores at the time of installation, which this quarter reached 76 points, up over 5 points in the past year.
Speaker Change: We are quickly becoming a multi product company that offers a suite of clean energy products to our consumers in a bundle easy to finance way.
Speaker Change: By continuing to invest heavily in service and providing a leader customer leading customer experience, we are able to monetize opportunities to provide additional services to our large base of customers for decades into the future.
Speaker Change: We are proud of our customer first approach evidenced by a continued increase in customer net promoter scores at the time of installation, which this quarter reached 76 points up over five points in the past year.
Mary Powell: We have invested time and resources to develop products and learn from pilots to best inform our strategy to harness these opportunities. On slide seven, we highlight our focus, including renewals, repowering customers with new equipment that meets increased energy demands, installing batteries for existing solar-only customers to provide energy resilience, Networking Systems to Form Virtual Power Plants, and Providing Electric Vehicle Charging or Even Bi-Directional Solutions.
Speaker Change: We have invested time and resources to develop products and learned from pilot to best inform our strategy to harvest these opportunities on.
Speaker Change: On slide seven we highlight our focus including renewals.
Speaker Change: Powering customers with new equipment that meet increased energy demand installing batteries for existing solar only customers to provide energy resilience networking systems to four virtual power plants, and providing electric vehicle charging or have you been bidirectional solutions.
Mary Powell: We are seeing strong results. For instance, we have over a thousand orders by existing customers to add back. While we just recently launched this, borders are growing at a rapid rate, and I want to spend a minute discussing developments with a public peer who recently announced their market exit and restructuring. This presents an opportunity for Sunrun to continue our industry leadership and gain share in a financially disciplined and measured way. We are engaged in conversations with many of their former dealers and our selectively onboarding partners that share our vision and commitment to provide the best customer experience.
Speaker Change: We are seeing strong traction.
Speaker Change: For instance, we have over 1000 orders by existing customers to add batteries.
Speaker Change: Well, we just recently launched this orders are growing at a rapid rate.
Speaker Change: I want to spend a minute discussing developments, where the public peer who recently announced their market exits and restructuring.
Speaker Change: This presents an opportunity for a starting run to continue our industry leadership and gain share in a financially disciplined and measured way.
Speaker Change: We are engaged in conversations with many of their former dealers and are selectively onboarding partners that share our vision and commitment to provide the best customer experience.
Mary Powell: We have been an established leader in the new homes business for many years and are engaging with many large national homebuilders about joining the Sunrun Club. In July, we announced the addition of two strong leaders and industry veterans who most recently led the new homes business at SunPower. We expect strategic growth in the new homes segment in the coming quarters, given by our leading platform, expanded leadership team, and a long track record of being a reliable, trusted partner for homeowners. This dislocation will provide opportunities for competitors as well, and especially new entrants in the financing segment, Eager for Volume. We continue to see irrational pricing and immature controls from some of the new entrants.
Speaker Change: We have been an established leader in the new homes business for many years and are engaging with many large national homebuilders about joining the sunrise platform.
Speaker Change: In July we announced the addition of two strong leaders and industry veterans, who most recently led the new home business at southern power.
Speaker Change: We expect strategic growth in the new homes segment in the coming quarters, driven by our leading platform expanded leadership team and a long track record of being a reliable and trusted partner for homebuilders.
Speaker Change: This dislocation will provide opportunities for our competitors as well.
Speaker Change: Especially new entrants in the financing segment eager for volume.
Speaker Change: We continue to see irrational pricing and immature controls from some of the new entrants, but I've also seen some indications that as as they have gained more experience they are adjusting pricing and controls accordingly.
Mary Powell: But I've also seen some indication that as they have gained more experience, they are adjusting pricing and controls accordingly. We continue to hear from our partners that they value Sunrun most for being a sustainable, reliable partner, and that has led to strong, long-term relationships. We deeply value these partners and our shared vision of success, particularly some of our longest-standing and largest. Before handing over to Danny, as always, I want to take a moment to celebrate some of our people who truly embrace the power of clean energy and the desire to connect customers to the cleanest energy on earth.
Speaker Change: We continue to hear from our partners that they value sunrun, most for being a sustainable reliable partner and that has led to strong long term relationships.
Speaker Change: We deeply value of these partners at our shared vision of success, particularly some of our longest standing and largest partners.
Speaker Change: Before handing over to Danny as always I want to take a moment to celebrate some of our people who truly embrace the power of clean energy and the desire to connect customers to the cleanest energy on Earth.
Mary Powell: Thank you to our leading direct-to-home sales team in Los Angeles. Thanks so much to our team members, Adler, Rich, and John, for delivering on safety, quality, reattachment rates, and customer experience, delivering some incredible results this quarter. I also want to celebrate the team at Snap and Rack, our independently-run business, which is proudly manufacturing premium solar racking in the United States, creating jobs and helping improve the efficiency of Sunrun's installation activities and those across the interstate.
Speaker Change: Due to our leading direct to home sales team in Los Angeles. Thanks, So much to our team members Adler rich and John for delivery on safety quality battery attachment rates and customer experience delivering some incredible results. This quarter I also wanted to celebrate the team at Snap Inc.
Speaker Change: Our independently run business, which is proudly manufacturing premium solar racking in the United States, creating jobs and helping improve the efficiency of someone's installation activities and those across the industry.
Speaker Change: He was busy innovating and ramping production of U S made equipment to help the entire industry, including Sunrun meet domestic content standards. Thanks, So much Troy Charles a room and the entire team with that let me turn the call over to Danny for our financial update.
Mary Powell: The team is busy innovating and ramping up production of U.S.-made equipment to help the entire industry, including Sunrun, meet domestic content standards. Thanks so much, Troy, Charles, Arun, and the entire team. With that, I will turn the call over to Danny.
Danny Abajian: 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 outcomes. Turning first to the results for the quarter on slide 11, we have now installed over 116,000 solar panels in storage, with storage and tax rates reaching 54% of installations nationally during the quarter.
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 turning first to the results for the quarter on slide 11.
Danny: Now installed over 116000 solar and storage systems with storage attachment rates, reaching 54% of installations nationally during the quarter.
Danny Abajian: We expect storage abatement rates to remain at or above this level throughout the remainder of. This higher mix of storage continues to drive Net Subscriber values higher as backup storage offerings carry higher margins. During the quarter, we installed 265 megawatt hours of storage capacity, well above the high end of our guidance and an increase of 152% compared to the same quarter last year. Our total network storage capacity is now approximately 1.8 gigawatt hours. In the second quarter, the solar energy capacity installed was approximately 192 megawatts, within our guidance range of 190 to 200 megawatts.
Speaker Change: We expect storage attachment rates to remain at or above this level throughout the remainder of the year.
Danny: This higher mix of storage continues to drive that subscriber values higher.
Speaker Change: I've got storage offerings carry higher margins.
Speaker Change: During the quarter, we installed 265 megawatt hours of storage capacity well above the high end of our guidance and an increase of 152% compared to the same quarter last year.
Speaker Change: Our total networks storage capacity is now approximately one gigawatt hours.
Speaker Change: In the second quarter solar energy and capacity installed with approximately 192 megawatts within our guidance range of a 190 to 200 megawatts.
Danny Abajian: Customer additions were approximately 26,700, including approximately 25,000 subscriber additions. Our subscription mix reached 95% of deployments in the period, an increase from 93% last quarter and again the highest level in many years. We ended Q2 with 984,000 customers and approximately 828,000 subscribers representing 7.1 gigawatts of network solar energy capacity, 14% increased year over year. Our subscribers generate significant return revenue with most under 20 or 25 year contracts for the clean energy we provide. At the end of Q2, our annual recurring revenue, or ARR, stood at almost $1.5 billion, up 27% over the same period last year. We had an average contract life remaining of nearly... Turning to slide 12.
Speaker Change: Customer additions were approximately 26700, including approximately 25000 subscriber additions.
Speaker Change: Our subscription mix reached 95% of deployments in the period.
Speaker Change: And then can range from 93% last quarter and again the highest level in many years.
Speaker Change: We ended Q2 with 984000 customers and approximately 828000 subscribers, representing seven one gigawatts of networks solar energy capacity, a 14% increase year over year.
Speaker Change: Our subscribers generate significant recurring revenue with most under 20 or 25 year contracts for the clean energy and we can provide.
Speaker Change: At the end of Q2, our annual recurring revenue or <unk>.
Speaker Change: Our stands at almost one 5 billion up 27% over the same period last year.
Speaker Change: We had an average contract life remaining of nearly 18 years.
Speaker Change: Turning to slide 12 in Q2 subscriber value was approximately $49600 and creation costs was approximately 37200, delivering a net subscriber value of 12394.
Danny Abajian: In Q2, subscriber value was approximately $49,600, and creation cost was approximately $37,200, delivering a net subscriber value of $12,399. This strong result was due to higher battery attachment rates, efficiency, and sequential growth in volume. Although subscriber value decreased slightly in Q2 due to a smaller average system size relative to Q1, we expect this trend to reverse in Q3 and Q4 with higher average system sizes, which is measured on a per watt basis to normalize the system size, subscriber value per watt, increase slightly from Q1 to Q2.
Speaker Change: This strong result was from higher battery guys at rates efficiency and sequential growth in volumes.
Danny Abajian: Our Q2 Subscriber Value and Net Subscriber Value reflect a blended investment tax credit of approximately 35%, again reflecting the portion of our deployed systems qualifying for the Energy Communities program at Lowing MIT. Total value generated, which is the net subscriber value multiplied by the number of subscriber additions in the period, was $310 million in the second quarter. 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 is approximately 7.5% in June. As a reminder, to enable ease of comparison across periods, we generally do not update the discount rate for each period.
Danny Abajian: To this extent, we provide advanced rate ranges that reflect current interest rates, enabling investors to calculate the obtainable net cash unit margins on our deployment. In addition, we provide a program and net subscriber value using the capital cost observed for the quarter. At a 7.5% discount rate, net subscriber value was $7,075 and total value generated was $177. We expect additional tailwinds and net subscriber value in future periods from the following variety of factors. More Favorable Business Mix, Increased Realization of ITC Average, Lower Hardware Prices, Labor Efficiency, and Operating Leverage from Strong Sequential Volume. On slide 13, we detail the tailwinds provided to Seattle.
Speaker Change: Investors to calculate the obtainable net gas unit margins on our deployment.
Speaker Change: In addition, we provide a pro forma net subscriber value using the capital costs observed for the quarter.
Speaker Change: At a seven 5% discount rate that subscriber value was $7075 and total value generated was 177 million.
Speaker Change: We expect additional tailwind net subscriber value in future periods when the following a variety of factors.
Speaker Change: More favorable business mix increased realization of ITC hours.
Speaker Change: Lower hardware prices labor efficiency and operating leverage from strong sequential volume growth.
Speaker Change: On slide 13, we detail the tailwind from IPC hours.
Speaker Change: In Q2, we recognized the weighted average I D. C of approximately 35% the equivalent of approximately half of our systems qualifying for the energy communities or blowing it out or.
Danny Abajian: In Q2, we recognized a weighted average IPT of approximately 35%, the equivalent of approximately half of our systems qualifying for the Energy Communities or Boeing amount. Proceeds from domestic content adders are expected to be realized in the coming quarters, including a retroactive monetization of a portion of 2023 and year-to-date 2024 installation. We were encouraged to see the updated guidance in May, which should allow for a strong majority of our installations to qualify for this hour within a few quarters and increase our rated average ITC level to around 45% in 2025.
Speaker Change: Proceeds from the domestic content adders are expected to be realized in the coming quarters, including a retroactive monetization of a portion of 2023 and year to date in 2024 installations.
Speaker Change: We were encouraged to see the update updated guidance in may which should allow for a strong majority of our installations to qualify for this out or within a few quarters and increased our weighted average ITC level to around 45% in 2025.
Danny Abajian: Turning now to Gross and Net Earning Assets. Enter the balance sheet on slide. Gross earning assets were $15.7 billion at the end of the second quarter. We're expressing assets as a measure of cash flow we expect to receive from subscribers over time. None of the operating and maintenance costs, distribution to tax equity partners, and distribution to project equity financing partners, all discounted at a 6% unlevered capital cost. Net earning asset for $5.7 billion at the end of the second quarter, of approximately $430 million from the prior quarter. Net earning assets is gross earning assets plus cash lethal debt. Net earning assets does not include inventory or other construction and progress assets or net derivative assets related to our interest rate swaps.
Speaker Change: Turning now to gross and net earning assets and our balance sheet on slide 15.
Speaker Change: Gross earning assets were $15 7 billion at the end up with second quarter.
Danny Abajian: All of which represent additional value. The value creation upside we expect from future grid services opportunities and selling additional products and services to our customer base is now reflected in. We programmatically enter into interest rate hedges to 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 have been hedged with interest rates. As such, we do not adjust the discount rate used in net-earning assets to match current capital costs for new investors.
Danny Abajian: We ended the quarter with over a billion dollars in total cash, an increase of $259 million compared to the prior quarter. Cash generation was $217 million, which included the recovery of timing-related items, most notably the $181 million reduction in Q1 proceeds as a result of the transition from traditional tax equity to tax credit trends. Turning to our Capital of Artists Activity,
Danny Abajian: As we discussed on the last call, we were very active in Q1 arranging capital to support our growth and further optimizing our balance sheet by extending maturity. To navigate potential economic conditions and volatility, we have been prudent to extend facilities early and proactively. As of today, closed transactions and executed services...
Speaker Change: As we discussed last call we were very active in Q1, raising capital to support our growth and further optimizing our balance sheet by extending maturities.
Speaker Change: The aggregate potential economic conditions and volatility we have been prudent to extend facilities early and proactively.
Speaker Change: As of today close transactions and executed term sheets provide us with expected tax equity capacity just found over at 313 megawatts of project for subscribers beyond what was deployed through the second quarter.
Danny Abajian: Provide us with expected tax equity capacity to fund over 313 megawatts of projects for subscribers beyond what was deployed through the second quarter. We also have over a billion dollars in unused commitments available in our non-recourse, tenure-evolving warehouse load. This unused amount would fund approximately 373 megawatts of projects for subscribers. Our strong dead cattle runway allows us to be selective in driving turnout trends. Since the start of the year, we have closed three ADS trends.
Speaker Change: We also had over $1 billion in unused commitments available in our nonrecourse senior revolving warehouse alone.
Speaker Change: It's not used them out with fund approximately 373 megawatts of projects for subscribers.
Speaker Change: Our strong debt capital runway allows us to be selective in time it turned out transactions.
Speaker Change: Yeah.
Speaker Change: Since the start of the here, we have closed three 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 cap. In June, we closed an $886 million ABS transaction, representing the largest ever securitization for Sunrun and the residential solar industry. We also arranged a support agent financing on the portfolio. The Class A non-recourse debt, comprising both publicly and privately placed tranches, was rated A-plus by Crowley The class A notes had a higher rating than precedent ABS transactions with comparable advance rates, evidencing the higher quality of our portfolio.
Speaker Change: So I'd run through industry, leading performance as an originator and servicer of residential solar assets continuous to provide deep access to attractively priced capital.
Speaker Change: In June we closed an $886 million ABS transaction, representing the largest ever securitization for sunrun as the residential solar industry.
Speaker Change: We also arranged a subordinated financing on the portfolio.
Danny Abajian: The spread of 205 basis points on the public tranche represented a 35 basis point improvement from our previous comparable ABS transaction in September 2021. The advance rates on the portfolio were 73% for the Class A notes and 83% cumulatively when including the additional subordinated finance.
Danny Abajian: As previously noted, in February, we issued $483 million in convertible notes due in 2030 and concurrently began repurchases of our 2026 convertible. To date, we have repurchased over $266 million, or two-thirds, of our 2026 convertible. This amount includes repurchases of $50 million in July.
Danny Abajian: You will continue to be disciplined and selected with our research. When we think about our balance sheet, we prioritize a strong cash position and the use of asset-level non-recourse debt financing. This strategy provides the lowest cost capital to finance cash flow producing assets. Backline Highly Creditworthy Consumers, and use parent recourse debt that is appropriately sized and balances maturity dates, cash entrance costs, and flexibility. Turning now to our Outlook on Sliding.
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 higher value products and services, and by reducing our costs. Storage capacity installed is expected to be in a range of 275 to 391 hours in Q2. This represents approximately 64% growth year-over-year at the midpoint... For the full year, we are increasing our storage guidance to a range of 1,030 to 1,100 megawatt-hours, representing 86% growth at the midpoint, an increase from our prior guidance range of 800 to 1,000 megawatt-hours.
Speaker Change: Generate cash by continuing to increase customer values growing storage adoption and other higher value products and services and by reducing our costs.
Speaker Change: Storage capacity installed is expected to be in a range of 275 to 300 megawatt hours in Q3.
Speaker Change: This represents approximately 64% growth year over year at the midpoint.
Speaker Change: For the full year, we are increasing our storage guidance to a range of a 1000 31100 megawatt hours, representing 86% growth at the midpoint an increase for my prior guidance range of 800 to 1000 megawatt hours.
Danny Abajian: Solar energy capacity installed is expected to be in a range between 220 and 230 megawatts in Q3. At the midpoint, this represents 17% growth. For the full year, we expect solar energy capacity installed to decline approximately 15%, in line with the low end of our prior guidance range.
Speaker Change: So a lot of energy and capacity installed is expected to be in a range between 220 of 230 megawatts in Q3.
Speaker Change: At the midpoint this represents 17% growth from Q2.
Speaker Change: For the full year, we expect solar energy capacity installed to decline approximately 15% in line with the low end of our prior guidance range.
Danny Abajian: We believe this guidance still represents market share gains underpinned by the strength of our subscription offering and our disciplined go-to-market approach. We also expect your rate of growth to be positive starting. Given our focus on increasing net subscriber values through product mix, additional ITC adders, and cost-efficient, we expect our net subscriber values will be materially higher in the second half of the year, relative to Q2. Because we have been increasing the unit economy.
Speaker Change: We believe this guidance still represents market share gains underpinned by the strength of our subscription offering and our disciplined go to market approach.
Speaker Change: We also expect year over year growth to be positive starting in Q4.
Danny Abajian: Total value generated growth will be at least 15 percentage points higher than solar installations. We remain committed to driving meaningful cash generation as we execute our Margin Focus and Discipline Growth Strategy. We are reiterating our cash generation outlook for Q4. We expect cash generation to be positive in Q3. $50 to $125 million in Q4, and now $350 to $600 million in 2025. On slide 19, we have outlined sensitivities related to key variables that would affect our achievement.
Danny Abajian: We now expect a large portion of our solar-only system, in addition to our storage systems, to qualify for the domestic content adder starting later this year and into 2025. We will provide more concrete expectations for amounts and timing of initial receipt of domestic content adders during the coming quarter. Our 2025 cash generation guidance reflects an approximately 45% average. With that, let me turn it back to Mary.
Mary 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, let's open the line for questions. Thank you. We will now be
Unknown Executive: 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 list. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Brian Lee with Goldman Sachs. Please proceed with your question.
Speaker Change: Thank you. Our first question comes from the line of Brian Lee with Goldman Sachs. Please proceed with your question.
Brian Lee: Hey, everyone. Good afternoon.
Brian Lee: Hey, everyone. Good afternoon, thanks for taking the questions and kudos on the solid cash generation here.
Brian Lee: Thanks for taking the questions and kudos on the solid cash generation here. I guess the first question on that front, just given it's such a focus for you now and for the overall market as well. How are you thinking about capital allocation priorities, especially in 2025 as you think about, you know, now the significantly higher and absolute levels of cash gen you're talking about? And then, just given the wide range, what are some of the biggest win factors for the 25-year outlook for cash gen?
Brian Lee: I guess first question on that front, just given it's such a focus for you now and for the overall market as well.
Speaker Change: Are you thinking about capital allocation priorities, especially into 2025 as you think about now the significantly higher in absolute levels of cash Gen you're talking about.
Speaker Change: And then just given the wide range what are some of the biggest swing factors for the 25 outlook for cash Gen.
Brian Lee: You know, the rates, the mix, et cetera. You know, what's sort of in your control versus what's not in your control? If we're trying to kind of handicap your potential to reach the higher end of some of those cash generation targets. And then I have a follow-up.
Speaker Change: <unk> to the mix et cetera.
Speaker Change: What sort of in your control versus what's not in your control.
Speaker Change: If we're trying to kind of.
Speaker Change: Handicap your potential to reach the higher end of some of those are cash generation targets and then I have a follow up.
Danny Abajian: Hey, Brian, it's Danny. I'll take the second part of the question first. And I'll just generally refer to slide 19 of the presentation, where we do kind of zero in on the three primary factors. If we're trying to think through sensitivities, they are the ITC realization rate, the cost of capital, and the battery tax rate. Those are the three principles we've highlighted in the past as well. And we've, you know, per point or quarter point of change in each of those, we've indicated, you know, the degree of sensitivity.
Danny: Hey, Brian it's Danny.
Brian: Take the second part of the question first and ill just generally refer to slide 19.
Brian Lee: The presentation, where we do kind of zero in on the on the three Brian <unk> factors.
Speaker Change: If we're trying to think through sensitivities.
Speaker Change: The ITC realization rate cut.
Danny Abajian: So I'd refer you there for those big three, you know, there are a bunch of other items noted around, you know, mostly timing, I would say in the bucket of, you know, not entirely within our control, always at all times, so that could have some, you know, intra-quarter variability around incentive monetization, capital markets, timing. Just as a general reminder, we do about three to four turnout transactions a year. So the timing for those decisions will matter.
Danny Abajian: And generally other working capital, you know, I mentioned, incentives, rebates, you know, the ITC monetization, you know, the timing of cash received by transaction, I would put those all in the in the timing bucket, In addition to the, you know, the three primary factors. On the capital allocation question, you know, we'll continue to evaluate, you know, the best options and remain disciplined around that, and, you know, say, parent fee leveraging to better position the balance sheet will become a focus that will drive available, you know, higher available liquidity, clean up the balance sheet, which we think will drive shareholder value meaningfully as we do that, and then the remainder, you know, the balance will be put to best use with best use being determined at the time, you know, buybacks and other uses would be a consideration, of course, you know, some of which would be board level decisions, considering the best use of
Brian Lee: Okay, that's awesome. Great color, too.
Mary Powell: Maybe one for Mary, since you brought it up in your prepared remarks, just obviously real-time developments around some of your peers, not doing very well in the marketplace, potential for share gain for you. You know, given, you know, the better cash flow prospects, you talked about gaining some share, how would you factor in kind of adding incremental growth and spending money on that as a priority for capital allocation in 25?
Mary Powell: You know, just on the solar side, obviously, you're doing very well on the storage side already. But, you know, given you're also talking about being back to double-digit year-on-year solar growth exiting this year, seems like you might have a tailwind into 25. Like, what are the sort of the spending priorities slash needs you might be looking at there? Thank you.
Mary Powell: Yeah, Brian, good to chat with you. Yeah, so just to reiterate, again, we're going to continue our disciplined, margin-focused approach and strategy. So yes, you know, certainly what is happening is providing some opportunity for us, some market opportunity. As I said in my remarks, I mean, we were really thrilled to have two industry veterans and leaders join our New Homes team. And we are talking to some of, you know, really the most significant builders in the market.
Speaker Change: That's what I said in my remarks, I mean, we were really thrilled to have you know.
Brian Lee: Really two industry veterans and leaders join our new homes team.
Brian Lee: And we are talking to some of you know really the most significant of builders in the market and so where we're progressing those kinds of conversations and looking at ways. We can continue to grow in our margin focused way measured way that delivers what we're after right, which is volume and margin and cash generation.
Mary Powell: And so we're progressing those kinds of conversations and looking at ways we can continue to grow in a measured way that delivers what we're after, right, which is volume and margin and cash generation. So that's like, you're not going to see any change.
Brian Lee: Like you're not going to see any change, but that's what our focus is on while we also continue to really drive continue to drive efficiencies in the business. So I'm really proud of what the team has done both on the customer experience side from an NPS perspective, but also from an efficiency perspective as we have also done in the operation.
Mary Powell: That's what our focus is on while we also continue to really drive, continue to drive efficiencies in the business. So I'm really proud of what the team has done, you know, both on the customer experience side from an NPS perspective, but also from an efficiency perspective, as we have also done in the operations of the company. We've been in the New Homes business for some time now. And we've been in the business of working with, you know, really important partners.
Speaker Change: Something company, we'd been in the new homes business for some time, we've been in the business of working with really important partners. So we also see some opportunity we've had a number of our affiliate partners reach out to us and so again we're.
Mary Powell: So we also see some opportunity. We've had a number of affiliate partners reach out to us. And so again, we're really pleased to be having those conversations and continuing to build out the momentum we have in the business towards, again, that margin-creative, profitable growth. So Paul, I don't know if there's anything you want to add to that. Yeah, and maybe say...
Brian Lee: Really pleased to be having those conversations and are continuing to build out the momentum we have in the business towards again that margin accretive profitable growth sorry, Paul I don't know if there's anything you want to add to that.
Paul Dickson: Yeah, I would maybe say, just, you know, similar to what we've talked about in the past on the viewer side of the business, we're seeing people migrate more to safe harbor, safer harbors, and we don't view this situation as one where the market's demanding people come in and overpay to attract volume. In much of our conversation with these new home partners and other volume sources that Sunpower has had historically, they're coming to us looking for the foundation that Sunrun has, a reliable business that knows how to predictably price service and maintain and deliver for consumers and do so at a fair rate. So we've definitely seen that take place.
Paul: Maybe you're saying just so.
Paul Dickson: We are, however, investing in product expansion and not chasing, you know, volume specifically. And we don't, we don't anticipate that exercise. It consumes a lot of capital, but we do think it contributes towards that, you know, mid-teens, double-digit, year-over-year growth resume queue.
Brian Lee: All right, I will appreciate it. Best of luck.
Unknown Executive: Thank you. Our next question comes from the line of Julien Dumoulin Smith with Jeffreys. Please proceed with your question.
Julien Dumoulin: Hey, good afternoon, team. Thank you very much. I appreciate it. Nicely done, indeed, on the cast here.
Julien Dumoulin: Maybe pick it up where Brian left off here if we can. Just on the full year, just rolling forward here. I mean, cash in looks very constructive. What does that reflect in terms of volumes looking at 25? You said as you look at the full year, you know, obviously expecting solar volume to decline but seeing an inflection here to a positive beginning in Q4. Just how do you think about that volumetrically across the space as you look forward here? What's reflected and related? Well, actually, I'll let you go, and I'll follow up with a clarification.
Danny Abajian: Hey Julien, I'll give the short answer on volume as it relates to cash debt, which is double-digit growth. I think we made that remark on the script. Getting to that level in Q4 and holding at that level beyond Q4 is the anticipation. That's in line with the longer term view and objective of double-digit mid-teens industry growth potential as well. Thank you.
Julien Dumoulin: I always try to ask for more granularity, right? If I can, just pressing on this a little further, right?
Mary Powell: So despite the eligibility of solar-only systems for domestic content here, you're still raising storage guidance, right? I think that's an interesting dynamic here, by 10 to 20%. Is that a statement on California and the NEM market specifically, right? As you think about California being a big driver here nationally on volumes, is the fact that storage is doing relatively well a statement of what you guys specifically are seeing in California?
Mary Powell: It's a statement on what we specifically see provides incredible value for customers all across America, as well as for our shareholders. So we have made the move, Julien, into a multi-product company with our Storage First strategy. We sell other products as well, but storage has really been, you know, a key focus of ours, not just because of the value it provides for shareholders, the value it provides for customers in terms of resilience, but also what we really continue to see is going to be a future unlock, which is the grid services value that we continue to talk about.
Mary Powell: So it really allows Sunrun, over time, to be building a fleet of stored energy capacity that I think is going to become increasingly valuable in the United States as utilities face not just rising cost challenges but capacity challenges.
Julien Dumoulin: Got it. All right, guys. Thank you very much.
Unknown Executive: Thank you. Our next question comes from the line of Moses Sutton with BNP Paribas. Please proceed with your question.
Moses Sutton: Thanks for taking my questions. Congratulations on a stellar update. How do you think of competing for tax equity and transferability hybrid funds in the context of rising demand for such capital, particularly from your top competitor who is successfully pushing deeper into these markets, but possibly also from former loan providers and others trying to flood into the space?
Speaker Change: Your top competitor, who has successfully pushing deeper into these markets, but possibly also from former loan providers and others trying to flood into this market.
Danny Abajian: Hey Moses, it's Danny. We feel pretty well positioned, I think. You know, in particular, given how many years we've been at it, the buyer universe that's been pretty stable for us over many years, the ability to implement hybrid structures where we're combining the traditional buyer universe with a very rapidly expanding set of transferability buyers, many of whom are in the nine-figure zip code for individual check size in the transactions. I think just given the momentum we've seen build over the year, we feel well positioned
Speaker Change: Hey, Bob This is Danny we feel pretty well positioned I think.
Danny: In particular, given how many years they've been at it right.
Bob: The buyer universe, that's been pretty.
Bob: Stable for us over many years.
Speaker Change: <unk> ability to implement hybrid structures, where we're combining the traditional buyer universe with a very rapidly expanding set of transferability buyers.
Bob: Many of whom are in the ninth day here Zipcode for individuals check size into transactions I think I've just given the momentum we've seen build over the year, we feel well positioned wherever we can and we're well aware of the kind of the overall demand for tax equity, but I think.
Danny Abajian: We're well aware of the overall demand for tax equity, but I think it is being balanced for us with the radically expanding available supply that's coming in from the corporate buyer universe that is supplementing deal sizes in a very, very material way for us. And Moses, I would say that a company I think has a fantastic reputation across all of our capital providers on a non-recourse side, but I think that is particularly acute with tax equity who we've been working for for so long and have done dozens of funds with multiple counterparties, both the company's performance, the lack of need to amend the transaction, the quality of the team, all those things I think contribute to us being really on the top of the list of counterparties for those capital providers that I think we feel very good about.
Bob: It is being balanced for us with the erratic.
Bob: Radically expanding available supply that's coming in from the corporate buyer universe.
Bob: That is supplementing.
Bob: Sizes in a in a very very material a way for us and most of them have had I would say that you know a company I think has a fantastic reputation across all of our <unk>.
Bob: Capital providers.
Bob: And of course side, but I think that is particularly acute with tax equity who we've been working for for so long you never done.
Danny Abajian: Yeah, and then one point just on that, like the reliable flow nature of our business, leads to a very high rate of predictability for the person on the other side seeking tax credits and a tax planning exercise as well. And I think I think that's understood by the market.
Danny Abajian: I think it's very helpful, and I sure remember you out-competing as far as SolarCity's days, so you've proven that. I guess one more separately, I noticed $220 million early repayment of pass-through financing. How is that reflected in cash gen? Was that swapped out with new project debt? I know that was sort of a form, a former kind of tax equity, but what's happening there with that
Danny Abajian: Oh, are you referring to the repayment? Sorry, I just missed part of the question. Is it the repayment of the tax equity financing?
Moses Sutton: I know, I noticed the early repayment of pass-through financing of $220 million; you had $20 last quarter also. Yeah, that was an older style of tax equity fund that reached its buyout point. I think we've had a rolling number of tax equity buyouts, and I think this is no different. You know, the tax equity fund buyout, and the asset capital structure gets cleaned up eventually in connection with that. So I think that's just a kind of ordinary course type of activity for us. These funds just reached kind of the end of life in terms of getting to the buyout. Right, right? Sorry. How was that paid? But was that reducing cash generation, though?
Danny Abajian: It would have been paid with a concurrent debt financing of the assets, in connection with I'll take the rest off.
Moses Sutton: I'll take the rest offline. Thank you.
Unknown Executive: Thank you. Our next question comes from the line of Joseph Osha with Guggenheim Partners. Please proceed with your question.
Joseph Osha: Thank you, everybody. Following on Moses's question, you know, insofar as the market for transferable credits is concerned, I'm wondering if you can give us some rough commentary on where those transactions are clearing in terms of pricing. And then I'm also curious as to whether there's any difference. In the market, if you're looking at something that might be perceived as a little more aggressive, like stacking and energy communities credit and domestic content on top of the 30 percent, or is everything kind of priced the same? And then I'll just give you my follow-up, which is super simple. I want to clarify the cash generation for next year. Are you talking about Q4'24 to Q4'25?
Danny Abajian: So taking the first part, really the primary pricing data point is the price per credit being paid. And I think that's been in the low 90s. Expressed in cents per dollar of credit, in the low 90s range. I think that has moved.
Danny Abajian: Incrementally, I think over the course of a year, especially if we get late in the year, we could see pricing move up for those looking to fill out the year, and they're just kind of in a moment of urgent demand. So we're seeing some of that activity now materialize in the back half of the year. And potentially, we'll see more of it.
Danny Abajian: Generally, the long-term expectation is that we see the price for credit incrementally pick up over time, both because the buyer universe expands, but then we mature to the point where we're seeing repeat buying activity. And it's that kind of reliability play where, you know, we could see the, you know, value differentiation or the, you know, the ticking up in value come into play. You know, retro, like there are, there will be monetization of retroactive credits.
Danny Abajian: So pricing can be a little bit different depending on how far back we're reaching. And there's no distinction, you know; it's because it's for dollar credits. Transferred, there isn't a distinction between the type of adder that's being paid for.
Joseph Osha: Yeah, that was my question; there's not any kind of perceived higher level of recapture if you're stacking multiple credits; people are just kind of paying what they're paying.
Danny Abajian: I think that's generally right. I mean, investors are doing their diligence, and they're paying in, you know, in consideration of their diligence. I think the prices reflect that. Okay, and then Joe, can you remind me the second part, the follow-up?
Joseph Osha: Yes, just a simple clarification. The 25 cash generation target, can I think of that as where you exit 24 and then where you exit 25? I just want to make sure I understand.
Danny Abajian: That's more simply the cash generation in the year, so all four quarters added up.
Joseph Osha: All right, so I want to make sure I'm clear on what that imply for exiting 24 versus exiting 25. If I'm just comparing like for like, what does that number mean? Right, so we have...
Danny Abajian: Right, so we have 50 to 125 for Q4, which is the guidance, and if you simply annualize that by multiplying by 4, that's 200 to 500 for the exit date. And then for the full year next year, it's $350,000 to $600,000. January 1st, 2021.
Joseph Osha: Yeah, I guess I'm sorry. I want to clarify this. Are you saying that, by exiting 2025, the cash balance leaving the year should be between 350 and 600 million higher than the cash balance leaving 2024? That's correct.
Danny Abajian: Thank you. I'm restricted. Okay.
Speaker Change: Got it thank you.
Unknown Executive: Thank you. Our next question comes from the mind 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 Percoco: Great. Good evening, everyone, and thanks for taking the question.
Andrew Paircocoa: Great Good evening, everyone and thanks for taking the question.
Andrew Percoco: I do want to ask another question on this cash generation here, just related to some of the ITC adders. I mean, I guess I would have expected a slightly more meaningful jump in 2025 as you fully realize some of that domestic content adder. I believe that the top end of the $250 to $500 million range that you provided for the fourth quarter this year contemplated a 40% ITC, so that goes to 45%.
Speaker Change: Want to ask another question on this cash generation here.
Speaker Change: Just related to some of the ITC Adder is I guess I, just would've expected a slightly more meaningful jump in 2025 as you fully realize some of that domestic content at or I believe that the top end of the $2 $50 million to $500 million range that you provided for the fourth quarter of this year contemplated like a 40%.
Andrew Percoco: I guess I would have expected the top end of next year's to be slightly above where you're guiding. Is that just conservatism? Am I misreading some of your sensitivities? We would love some additional color around how you're thinking about benefiting from some of those credits and whether or not there's potentially an additional upside if you don't have to pass that through to the customer.
Speaker Change: And that goes to 45% I guess I would've expected the top end of next year's to be slightly above where you're where you're guiding is that just conservatism in MMS misreading. Some of your sensitivities would just love some additional color around how youre thinking about.
Speaker Change: Benefiting from some of those credits on whether or not there's potentially additional upside if you don't capacity through to the customer.
Danny Abajian: Hey, Andrew. Yeah, so based on the implied volume growth we expect to see next year, the volume mix, and the amount of adders. The 350 to 600 implies a high single-digit to slightly north of 10% type of free cash flow margin, if you will. So just taking free cash flow against all the proceeds raised for financing in the business as the indexing, which we view as an appropriate level of target margin for the business next year.
Speaker Change: Hey, Andrew Yeah, so based on the.
Andrew: Implied volume growth, we'd expect to see next year, the volume mix and the amount of adders that.
Speaker Change: <unk> 600 implies a high single digits to slightly north of 10%.
Speaker Change: Free cash flow margin, if you will.
Speaker Change: Taking free cash flow against that.
Speaker Change: All of the proceeds raised from financing in the business as the indexing.
Speaker Change: We view as an appropriate.
Speaker Change: Our level of targeted margin for the business next year.
Speaker Change: Especially as we figure out.
Danny Abajian: You know, especially as we figure out, you know, how to market by market, go to market with the adders, especially the domestic content piece in areas where we have lower battery adoption, there might be some pricing benefits accruing to the consumer as opposed to us, like all things considered as we, you know, watch that through. That's a six to 10 percent level of net margin, even through like consideration for working capital as we resume growth. We feel like it's an appropriate target area.
Speaker Change: You know how to market by market go to market with theaters, especially the domestic content piece.
Speaker Change: In areas, where we have lower battery adoption.
Speaker Change: There might be some pricing benefits accruing to the consumer as opposed to us like all things considered as we are.
Speaker Change: Wash that through and that's it.
Speaker Change: The 10% level of net margin even through like consideration for working capital as we resume growth.
Speaker Change: We feel like it's an appropriate target area.
Speaker Change: Do you expect.
Andrew Percoco: I understand. Okay, that's helpful.
Speaker Change: Understood. Okay. That's helpful. And then maybe just switching gears coming back to the battery storage part of your business for a second maybe can you just elaborate obviously, California is a very very strong battery storage market under NIM. Three can you just give any give us any data points or anecdotes in terms of what youre seeing on attach rates outside of California.
Paul Dickson: And then maybe just switching gears and coming back to the battery storage part of your business for a second. Maybe can you just elaborate, obviously, California has a very, very strong battery storage market under NEM3. Can you just give us any data points or anecdotes in terms of what you're seeing on attach rates outside of California? You mentioned Texas already, but maybe just compare and contrast where you are on battery attach rates in some of those markets today versus 2023 or 2022.
You mentioned, Texas already but maybe.
Speaker Change: Maybe just compare and contrast, where you are on battery catch rates and some of those market today versus 2023 or 2022 that would be helpful. Thank you.
Paul Dickson: Yeah, I think overall we see consumers in every market expressing interest in batteries, but we really have pockets that have far stronger battery attach rates. So inside Hawaii and Puerto Rico, obviously, we have nearly 100% or 100% battery attached. California in the backup storage is 80, you know, well under 80%.
Paul Dickson: That'd be helpful. Thank you. Yeah, I think so.
Speaker Change: I think overall, we see consumers in every market expressing interest in batteries, but we really have pockets.
Speaker Change: Far stronger battery attach rates, so inside Hawaii, Puerto Rico, obviously, we have nearly 100% or 100% battery attached.
Speaker Change: All of ammonia in the pocket storage as well.
Speaker Change: Well under the 80%.
Mary Powell: Texas has been trending up really steeply, as we've talked about in the past. So for us, the heavy focus, as Mary kind of alluded to this being a core strategy for us, is opening up additional markets. And across the East Coast, we see a lot of markets that have relatively low penetration today but have really attractive consumer value propositions. The grid deeply needs it, and we see a lot of future opportunity because of it.
Speaker Change: Texas has been trending up really steeply as we've talked about in the past.
Speaker Change: So for US the heavy focus was married kind of alluded to this being a core strategy for us.
Speaker Change: Is opening up additional markets across the east coast and see a lot of markets that are relatively low penetration today, but have really.
Speaker Change: We really are trying to consumer value props, the grid deeply needs that we see a lot of future opportunity because of it.
Mary Powell: Our sales people are eager to sell it. So as we work with policy, the different cities, the utilities, and a good market strategy, that's kind of where additional growth would come. But nationwide, I would say, strong demand for it, and pockets that we've cracked the code on and other markets that are emerging. Yeah, and I would also just build on that by saying we see really significant potential in our retrofit program, going back to our existing customer base. So again, we expect to see real growth there as well.
Speaker Change: Our salespeople are eager to sell it so as we work with policy the different cities. The utilities had a good market strategy, that's kind of where additional growth will come but.
Speaker Change: Nationwide I would say strong demand for it in pockets that we've cracked the code on you've had other markets that are emerging.
Speaker Change: Yeah, and I would also just build on that by saying we see just.
Speaker Change: Really significant potential in our retrofit program going back to our existing customer base.
Speaker Change: So again, we expect to see real growth there as well.
Speaker Change: Thank you.
Unknown Executive: Thank you. Our next question comes from the line of Kashi Harrison with Piper Sandler. Please proceed with your question.
Speaker Change: Our next question comes from the line of Kashi Harrison with Piper Sandler. Please proceed with your question.
Kasope Harrison: Good afternoon, and thanks for taking the question and congrats on the cash gem. So, my first question goes back to the commentary surrounding irrational pricing. You know, if we take that comment and combine it with the fact that the, you know, the OEMs will have, you know, domestic content available for, you know, pretty much everyone, what gives you guys the confidence that, you know, competition won't just end up eliminating the excess benefit of the higher ITC and that, you know, you guys can, in fact, retain the value?
Kashi Harrison: Good afternoon, and thanks for taking the question and congrats on the cash Gen.
Kashi Harrison: So my first question goes back to the commentary surrounding irrational pricing.
Kashi Harrison: If we take that comment and then we combine that with the fact that the you know the Oems will have domestic content available for pretty much everyone. What gives you guys. The confidence that you know competition won't just ended up eliminating the excess benefit of the higher ITC and that you guys.
Kasope Harrison: What makes you think that the cost of the lease across the board doesn't just come down and really benefits the customer, but you and your peers end up in a relatively similar cash position as this year?
Speaker Change: Can in fact retained the value like what makes you think that the cost of the Leafs across the board doesn't just come down and and really a benefit to the customer, but you and your peers.
Speaker Change: End up in a relatively similar cash position as this year.
Speaker Change: Yeah, Great question. So I think today, we're proving that out in the reality that we're generating cash we have differential price points and returns than our competition.
Paul Dickson: Great question. So I think today we're proving that in the reality that we're generating cash, and we have differential price points and returns that are competitive. And we see, you know, a large component of the market is out there, selling and offering higher rates to sellers, dealers than we do. And we still have the volume and the growth and the kind of pricing power that we have. And as we see more competitors struggle and go out, we see consumers become more thoughtful.
Speaker Change: And we see a.
Speaker Change: A large component of the market is out there selling and offering higher rates.
Speaker Change: Cells dealers than we do and we still have the volume and the growth and the kind of pricing power that we have and as we see more competitors struggling while we see consumers get more thoughtful around selecting who they go sort with merits other than just the price they're paying.
Paul Dickson: around selecting who they go sore with on merits other than just the price they're paying. We also think that Complication is our competitive advantage. And so, as markets get more complicated, have different rate structures, and require batteries and other considerations to deliver a complete consumer value proposition, we view that as absolutely our advantage and anticipate more markets becoming more complicated and us being able to price differentially.
Vince: We also think Vince.
Speaker Change: Complication is our competitive advantage and so as markets get more complicated and have different rate structures will require batteries and other considerations to deliver a complete consumer value prop.
Speaker Change: That is absolutely our advantage and anticipate more markets, becoming more complicated.
Speaker Change: US being able to price differentially as a result.
Danny Abajian: And as Danny mentioned, you know, some pass-through to the customer is considered. Yeah, I mean, for sure, and how we built our guidance. We built in the assumption that some would flow through to benefit customers without a doubt. But yeah, for sure. And we are just building on what Paul said, you know, that is something we are definitely saying that is more recent, which is, uh, and probably the most recent disruption with Sunpower will drive this home even further where customers are looking harder at servicing. They're looking harder at the longterm relationship where, again, Sunrun just has a very, very strong story.
Speaker Change: And as you mentioned.
Speaker Change: Some pass through to the customer he is considered yeah, I mean for sure and how we built our guidance we built in the assumption that some would flow through to benefit customers without a doubt.
Speaker Change: Yeah for sure and we are just building on what Paul said you know that is something we are definitely theme that I think is more recent which is probably the most recent disruption with Sunpower will drive that told me with further where customers are looking harder at servicing theyre looking harder at the law.
Speaker Change: Long term relationship where again.
Speaker Change: Someone just has a very very strong story to tell.
Kasope Harrison: Got it. I appreciate the color there from everyone.
Speaker Change: Got it I appreciate the color there from everyone and and then my follow up question.
Speaker Change: Maybe a little bit more theoretical might be a little bit.
Kasope Harrison: And then my follow-up question, maybe a little bit more theoretical, might be a little bit tricky to answer, more difficult to answer. But, you know, let's say rates decline faster than the market currently anticipates, faster than what's implied in yield curves, just due to a more significant deterioration in the economy. Do you have any historical reference for how project financing spreads could trend? I'm basically trying to understand if, you know, you get lower benchmarks, but they're offset entirely by higher credit spreads, or if, you know, you think that would potentially be a net benefit to you, or if it's just, you know, too difficult to answer until you go ahead and do a deal under that scenario.
Speaker Change: Tricky to answer more difficult to answer, but let's say rates decline faster current faster than the market currently anticipates faster than whats implied in yield curves just.
Speaker Change: Just due to a more significant deterioration in the economy.
Speaker Change: Do you have any historical reference for how a project financing spreads could trend I'm I'm basically trying to understand if you know you got lower benchmarks, but they're offset entirely by higher credit spreads or if.
Speaker Change: Do you think that would potentially be a net benefit to you or if it's just too difficult to answer until you go ahead and do a deal under that scenario. Thank you.
Danny Abajian: Thank you. That's a great question. And, you know,
Danny Abajian: That's a great question. And, you know, prior to assuming this role, I liked capital markets. And, you know, we've seen this play out through cycles and different points and cycles. You know, you might, and you know, I suspect what we're seeing right now in capital markets transactions, when there's an immediate and sudden change in base rates, you might see a little bit of credit spread impact, but that can be relatively short
Speaker Change: That's a great question.
Speaker Change: Prior to assuming the role I led capital market, we see.
Speaker Change: <unk>.
Speaker Change: Play out through cycles in different points in cycles.
Speaker Change: You know you might and.
Speaker Change: And what we're seeing right now.
Speaker Change: In capital markets transactions. When there is an immediate and sat in change in base rates, you might see a little bit of a credit spread impact.
Speaker Change: Those can be relatively short lived.
Danny Abajian: You know, we go through a period of price reset and price discovery. We've seen it happen over the last couple of years, even where spreads have momentarily moved, and in subsequent transactions, they've come back down. So we've planned for all of that. I think we're taking both sides of the equation, you know, looking at base rates and planning appropriately and conservatively for credit spreads as we plan out the cash generation of the business.
Speaker Change: We go through a period of.
Speaker Change: That price reset prices discovery, we've seen it happen over the last couple of years and where spreads are momentarily move.
Speaker Change: And then subsequent transactions they've come back down and so it was something we had planned.
Speaker Change: For all of that.
Speaker Change: We're.
Speaker Change: Taking both sides of the equation, but looking at the base rates and planning appropriately and conservatively for credit spreads.
Speaker Change: As we plan out the cash generation of the business.
Danny Abajian: As far as the approach is concerned, when base rates fall monthly, we, and even weekly, we hedge the base rate; we lock in the base rate environment we're in for that week or month, depending on the life cycle of where the asset is relative to installation. And we effectively protect that rate until the asset is installed and turned out. So we've been quite, as you can imagine, active in that very recently with the pullback in rates, and the seven-year treasury index measures our borrowing costs, and that's down quite a bit, you know, ahead of any decision by the Fed to start reducing short-term rates.
Speaker Change: As far as the approach.
Speaker Change: When base rates fall.
Speaker Change: Simply we and even weekly we hedged the.
Speaker Change: Base rate when we lock in the base rate environment, we're in or that weaker bugs it.
Speaker Change: Depending on the lifecycle of where the asset is relative to insult.
Speaker Change: And we effectively.
Speaker Change: Fact that ray.
Speaker Change: The asset is installed and turned out so we've been quite as you can imagine we've been active at that.
Speaker Change: Recently with the pullback in rates.
Speaker Change: And the seven year Treasury indexes, our borrowing costs and thats down quite a bit.
Speaker Change: Ahead of that.
Speaker Change: And any decision like this that you start reducing short term rates is already benefiting from that on the credit spread environment.
Danny Abajian: So we're already benefiting from that. In the credit spread environment, you know, we'll be very thoughtful about how we approach markets. So in the past, when we've seen momentary short-lived rises in credit spreads, rather than doing non-callable transactions in the capital markets, it might be better to go to the commercial bank market, which has refinancing flexibility for a future point when credit spreads come back down.
Speaker Change: We'll be.
Speaker Change: Very thoughtful about how we approach markets. So in the past, where we've seen momentary short then rises in credit spreads.
Speaker Change: Rather than doing non callable transactions in the capital markets It might turn out in the commercial bank market.
Speaker Change: Which have refinancing flexibility for a future point when credit spreads come back down so we've got a well scripted playbook for Adam.
Danny Abajian: So we've got a well-scripted playbook for, you know, out of, you know, experience playing that through a different point in the cycle. Appreciate all the color. Thank you. Our next question comes from the line of James West with Evercore ISI. Please proceed with your
Adam: <unk> experienced and playing that through different points in the cycle.
Adam: Okay.
Speaker Change: I appreciate all the color.
Speaker Change: Yeah.
Unknown Executive: Thank you. Our next question comes from the line of James West with Evercore ISI. Please proceed with your question.
Speaker Change: Thank you. Our next question comes from the line of James West with Evercore ISI. Please proceed with your question.
Speaker Change: Yeah.
James West: Hey, everyone I wanted to.
James West: Just quickly ask about the current pricing environment Mary I know you mentioned it was getting your competition that had been a little sloppy was getting better it looks like it some more context on this are these larger competitors are these smaller competitors or are these competitors that are slowly went out of business.
Mary Alexandrine: What's changing in the overall pricing environment and how is it helping to get better.
James West: Yeah, so thanks for the question. I view it more as we were giving you an update versus a seismic shift. So there has been, I would say, since the Inflation Reduction Act, there has been, particularly in the financing only space, with the rapid move to third party owned models versus loan, there's just, there's been a lot of entrance into the space.
Mary Alexandrine: Yeah. So thanks for the question I view it more as like we were giving you an update versus a seismic shift. So there have been I would say it seems to me inflation reduction Act there has been particularly in the financing only space with the rapid move to third party owned model versus.
Mary Alexandrine: With loan.
Speaker Change: There's been a lot of entrants into the space. So I view it more as we were giving an update we aren't definitely you know glad to see what we thought would happen which is some maturation.
James West: We are definitely, you know, glad to see what we thought would happen, which is some maturation, as entrants learn that this is a very, very different space than loan or cash. But Paul, do you want to add any specific color to this question? Yeah, I think the only thing I would add to that is when a new
Speaker Change: As entrants learn that this is this is a very very different space than loan or cash.
Speaker Change: But Paul do you want to add any color relative to the questions. Yeah. I think I think the only thing I would add to that is when a new financial engine comes in and Theres been a pretty big handful of them with small individual skill, but several of them.
Paul Dickson: Yeah, I think the only thing I would add to that is when a new financial entrant comes in, and there's been a pretty big handful of them with small individual scale, but several of them, they come in with low controls, attractive pricing, and try to buy up and grow market share. And as they and their financers learn more about owning 25-year assets, tax credits, and the things that, to use Danny's terminology, the Wellstirker playbook that we've built over nearly two decades, as they learn those things, they are repricing and implementing a lot of the controls that we already have in place, bringing it closer to a level playing field.
Speaker Change: They come in with low controls attractive pricing trying to buy up and grow market share and has them and their finance or learn more about owning 25 year assets tax credits with the things that you know.
Speaker Change: They use that terminology, the well scripted playbook that we've built over nearly two decades as they were in those things they are repricing and implementing a lot of the controls that we already have in place.
Speaker Change: Bringing it closer to a level you can call it a level playing field and as that happens volume migrates back to us and so we have not seen and don't see these people these groups.
Paul Dickson: And as that happens, volume migrates back to us. And so we have not seen and don't see these people, you know, these groups scaling, but it's more the quantity of them out in the marketplace with transferable tax credits making it more granular.
Speaker Change: Cabling, but it's more of the quantity of them out in the marketplace with transferability, I, suppose making them more readily available.
Speaker Change: Okay got it that makes sense. Thanks Lucas.
Unknown Executive: Thank you. Our next question comes from the line of Philip Shen with Roth Capital Partners. Please proceed with your question.
Lucas: Thank you.
Speaker Change: Question comes from the line of Philip Shen with Roth Capital Partners. Please proceed with your question.
Philip Shen: Hi, this is Robert on Phil's line. Thank you for taking my question.
Speaker Change: Hi, This is Robert on Phil's line. Thank you for taking my question.
Philip Shen: The first question is just about the inverter battery procurement strategy for domestic content. The second is how you're thinking about originations over the next 12 months and leveraging tax equity versus tax credit transferability. Philosophically, how are you making the decision between tax credit transfers and tax equity? To what degree does tax credit transfer improve the gap financials? And then, which is more expensive between tax equity and tax credit transfers? I know you kind of touched on that a bit earlier. If you could provide any additional color, that would be helpful.
Robert: First question is just for the inverter battery procurement strategy for domestic content.
Speaker Change: Second is how youre thinking about originations over the next 12 months and leveraging tax equity versus tax tax credit transferability.
Speaker Change: Philosophically how are you, making the decision between tax credit transfers and tax equity.
Speaker Change: To what degree does tax credit transfer improve the GAAP financials, and then which is more expensive between.
Speaker Change: <unk> equity and tax got transfers I know you kind of touched on that a bit earlier, if you could provide any additional color that would be helpful.
Danny Abajian: Yeah, yeah, I think on the first part of the question, you know, we think that we'll get, you know, implied in the 45% weighted average IPC level guided for next year is the vast majority of our systems qualifying, whether they are storage or solar only. In the case of solar only, you know, it's a combination of components, you know, including the inverter, the racking, you know, we called out, we gave a shout out to Snap and Rack on the call. There is a domestic content qualification contribution from that business that will primarily benefit solar only. On the battery side, we have been using batteries that have been manufactured in the U.S. I think there's a good line of sight industry wide on batteries.
Speaker Change: Yeah, Yeah, I think on.
Speaker Change: On the first part of the question.
Speaker Change: We think that will again.
Speaker Change: Flight in about 45% weighted average I E C level guided for next year is a you know the vast majority of our systems qualifying whether they are a storage or solar only.
Speaker Change: In the case of solar only you know as.
Speaker Change: The combination of components.
Speaker Change: Including the.
Speaker Change: The inverters the wracking when you you called out gave a shout out to snap in rack on the on the call that you know there is domestic content qualification contribution from that business.
Speaker Change: So primarily benefit solar only on the on the battery side, we have been using batteries that have been manufactured.
Speaker Change: Manufacturing in the U S. I think there's a good line of sight industry wide on batteries as well.
Danny Abajian: On the second part, on the mix of financing, I think we'll definitely see a mix of both, and we'll even see participation of traditional tax equity players, you know, in a hybrid format where it does look like a tax equity fund, and a large portion of the credit to be transferred out, and the traditional participant will also be active in, you know, brokering the transfer out of the fund. So, you know, we'll expect a good deal from that hybrid format.
Speaker Change: On the second part on the mix of financing I think well definitely see a mix of both and we'll even see.
Speaker Change: Our anticipation of traditional tax equity players.
Speaker Change: In a hybrid format.
Speaker Change: Where it doesn't look like a tax.
Speaker Change: What do you find them and then a large portion of the credits would be transferred out.
Speaker Change: The traditional participant will be a wholesale activity and brokering the transfer out of the funds. So.
Danny Abajian: And we'll probably see a mix of, you know, an arrangement of parties by us in structures where each participant takes a different part of the value stream, and, you know, we're participating in the transfer of credits. I think it'll be more often than not that there's a tax credit transfer involved in a transaction. What that does is it takes the size we would have had in a bilateral transaction with a traditional player and allows us to raise single tax equity funds of much greater size. I think that's a key benefit for us, and considering the number of deals we have to do throughout the course of the year.
Speaker Change: We will expect a good deal.
Speaker Change: That hybrid format.
Speaker Change: And we'll probably see a mix of.
Speaker Change: And arrangement of the parties by us.
Speaker Change: And structures, where each participant takes a different part of the value stream.
Speaker Change: We're participating out the transfer of rights I think it'll be.
Speaker Change: Hmm.
Speaker Change: More often than not that there is a tax.
Speaker Change: Tax credit transfer involved in that transaction and what that does is it takes the trim exercise we would've had.
Speaker Change: In a bilateral transaction with a traditional player. It allows us to raise single tax equity fund does much greater size I think that's the key benefit for us and we considered a number of deals we have to do it throughout the course of the year.
Philip Shen: Great, thanks so much. I'll pass it on. Thank you. Our next question comes from the line of Maheep Mandloi with Mizuho. Please proceed with your question.
Speaker Change: Great. Thanks, so much I'll pass it on.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of my heat Mandalay with Mizuho. Please proceed with your question.
Unknown Executive: Hey, good evening. Thanks for taking the questions here. Firstly, on the storage growth here, could you just help us?
Mihir Mandalay: Hey, good evening, Thanks for taking my questions here.
Mihir Mandalay: Firstly, just on the storage growth here could you just help us understand whether it's driven by attach rate growth or are you seeing larger system sizes, maybe more backup and sort of share of batteries in.
Speaker Change: California, and then I had a follow up on cash generation.
Mary Powell: I mean, we're definitely seeing that it's driven by a higher attachment rate, as we've talked about, as well as the fact that many customers want whole home backup now. So we're seeing more and more customers with the desire for multiple batteries. So, you know, again, two, in some cases, three, sometimes that is tied to a larger solar system size as well, depending on the individual customer. But for sure, that is a big part of what is driving the storage attachment rate and the growth. It's both the attachment rate and the number of products. Gotcha. And just on cash generation for the next.
Speaker Change: I mean, we're definitely seeing that it's driven by a higher attachment rate as we've talked about as well as the fact that many customers want now holds them back up so we're seeing more and more customers with the desire for multiple batteries. So you know again too in some cases three.
Speaker Change: Sometimes that is tied to a larger solar system size as well.
Speaker Change: Depending on the on the individual customer, but for sure that is a big part of what he's driving the storage attachment and the growth. It's both the attachment rate and the number of products per customer.
Speaker Change: Got you and then just on cash generation for next year and you just early thoughts on the cadence there.
Speaker Change: So the Q4 run rate is it more linear or some seasonality I think in the past you said Q1 weaker but are there any thoughts I appreciate that thanks.
Danny Abajian: I think other than, you know, to expect normal seasonality, Q1 we get volume decline, we start to see that pick up, you know, in Q2 and more materially in Q3, and that has a, historically, if you look at our cash generation, obviously adjusted for one-time extraordinary items, especially this year, you will see that sort of shape of cash generation. I think that will continue, but, you know, we'll get more specific as we go. Okay, thank you. Thank you. Our next question comes from the line of Dylan Nassano with Wolf Research.
Speaker Change: I think other than you know normally you know do you expect normal seasonality.
Speaker Change: Q1s, we get volume decline we.
Speaker Change: We start to see that pick up materially in Q2 more materially in Q3.
Speaker Change: And that has of course, yeah. Historically, if you look at our cash generation.
Speaker Change: <unk>, obviously adjusted for onetime extraordinary items, especially this year, you will see that sort of shape of cash generation I think that'll continue.
Speaker Change: But you know, we'll get more specific as they go.
Speaker Change: Alright, thank you.
Unknown Executive: Thank you. Our next question comes from the line of Dylan Nassano with Wolf Research. Please proceed with your question. Hey, good afternoon, everyone. Thanks for fitting me in. Just going back to the questions on domestic.
Speaker Change: Thank you. Our next question comes from the line of Gielan Maisano with Wolfe Research. Please proceed with your question.
Gielan Maisano: Hey, good afternoon, everyone and thanks for fitting me in I'm, just going back to the questions on domestic content and the qualifying equipment.
Gielan Maisano: How much do you plan to shift the current equipment mix as it stands now.
Speaker Change: To potentially realize more adders in the back half of this year and then just a follow up is how permanent could those changes be would you kind of revert back to the prior mix at some point. Thank you.
Paul Dickson: Yeah, I think the current products that we have in inventory are set established, and flowing out into installs currently are domestic content qualifying. So that is, and has been underway.
Speaker Change: I think the current products that we have the inventory are set to establish some flowing out into installs currently our domestic content qualifying for that.
Speaker Change: Is and has been underway.
Speaker Change: Okay.
Speaker Change: Okay. Thanks, that's it for me.
Unknown Executive: Thank you. Our next question comes from the line of Colin Rusch with Oppenheimer. Please proceed with your question. Thanks so much, guys.
Speaker Change: Thank you. Our next question comes from the line of Colin Rusch with Oppenheimer. Please proceed with your question.
Colin Rusch: And can you talk about how much market risk you're taking?
Colin Rusch: Thanks, So much guys and you can you talk about how much market risk or taking on pricing or disaggregated capacity portfolios and secondly are you seeing any uptick from potentially utility partners to start in programs, especially given what's going on with interconnection fees.
Unknown Executive: Could you repeat that beginning of the question? I'm not sure I understood it. Are we just talking about the Brits? I'm just curious.
Speaker Change: Could you repeat the beginning of the question I'm not sure I followed it.
Speaker Change: I'm, sorry, I'm talking about the breast I'm just for our clients.
Mary Powell: Yeah, with the VPPs, how much market risk are you taking on in pricing? And how should we think about that following through the model as we go through the balance? We're not taking a market risk with the pricing. So all of the virtual power plant projects that we're actively engaging in are positive for customers and positive for Sunrun. And again, like the value of what we're doing is not just the initial inherent value for customers and for Sunrun, but is really, again, as you mentioned, in the second part of your question, so much tied to the future potential value. As we see it play out all over the country, more acutely in some parts of the country than others, but where utilities really don't have the capacity to meet the electrification demand combined with weather events that are happening So we see that our resources are going to continue to have increased economic value in the coming three to five.
Speaker Change: Yeah. It was a V P T. It's how much or how much market risk are you taking on the pricing and how should we think about that flowing through the model as we go through the balance of this year and into next year.
Speaker Change: We're not taking market risk with the pricing so all of the virtual power plant projects that we're actively engaging in are positive for customers and positive for sunrun.
Speaker Change: And again like the value of what we're doing is not just the initial inherent value for customers and for Sunrun, but is really again as you mentioned I think in the second part of your question. So much tied to the future potential value as again, we're seeing it play out all over the country.
Speaker Change: More acutely in some parts of the country than others, but where utilities really don't have the capacity to meet the electrification demand combined with weather events that are happening combined with of course, you know the highly talks about Ah publicized a peak load growth demand. So we see that our resources.
Speaker Change: <unk> are going to continue to have increased economic value in the coming.
Speaker Change: Three to five years.
Speaker Change: Thanks, so much.
Speaker Change: Thank you.
Unknown Executive: That concludes the time that has been allocated for Q&A. You may now disconnect. Everyone else has left the call.
Speaker Change: That concludes the time that has been allocated for Q&A you may now disconnect.
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Speaker Change: Everyone else has left to come.
Speaker Change: [noise] [music].
Gielan Maisano: Hum.
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Gielan Maisano: Hmm mm.
Gielan Maisano: [music].
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Gielan Maisano: Hmm.
Gielan Maisano: Mhm.
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Gielan Maisano: [music].
Gielan Maisano: Sure.