Q2 2024 Sunnova Energy International Inc Earnings Call

[music].

Speaker Change: Good morning and welcome to Sunnova's second quarter 2024 earnings conference call.

Speaker Change: Today's call is being recorded and we have allocated an hour for prepared remarks and question and answer. At this time, I would like to turn the conference over to Rodney McMahan, Vice President, Investor Relations at Sunnova. Thank you.

Rodney McMahan: Thank you, Operator. Before we begin, please note that during today's call, we will make forward-looking statements that are subject to various risks.

Speaker Change: and Uncertainties, as described in our slide presentation, earnings press release, and our 2023 Form 10-K . Please see those documents for additional information regarding those factors that may affect these forward-looking statements.

Speaker Change: Also, we will reference certain non-GAAP measures during today's call. Please refer to the appendix of our presentation, as well as the earnings press release for the appropriate GAAP to non-GAAP reconciliation and cautionary disclosures.

Speaker Change: On the call today are John Berger, Sunnova's Chairman and Chief Executive Officer, and Eric Williams, Executive Vice President and Chief Financial Officer. I will now turn the call over to John .

Speaker Change: Good morning, everyone. First, I want to extend a warm welcome to Eric Williams, our new Chief Financial Officer, who is with us today for his first earnings call with Sunnova.

Speaker Change: Eric joined us in June from Diversified Energy, where he accumulated significant expertise in leveraging the capital markets, specifically the asset-backed securitization market, which is particularly relevant for Sunnova in our long-term financing strategy.

Speaker Change: I speak on behalf of the entire management team and our board when I say we are looking forward to working with him and utilizing his strategic insights and wealth of experience.

John: Before I jump into more detailed remarks, I want to provide a quick update on our cash balance and cash generation forecast, which can be found on slide four. We are continuing to make progress on the four key priorities we outlined last quarter, such as maximizing asset level caps. Our progress against these initiatives resulted in a $21.5 million increase in our unrestricted cash balance for this quarter. Total cash, inclusive of both restricted and unrestricted cash, on our consolidated balance sheet, increased by $142.9 million, resulting in a balance of $630.4 million as of June 30, 2024.

Speaker Change: Before I jump into more detailed remarks, I want to provide a quick update on our cash balance and cash generation forecast, which can be found on slide 4.

Speaker Change: We are continuing to make progress on the four key priorities we outlined last quarter of maximizing asset-level capital, driving cost efficiencies, increasing ITC adder utilization, and refocusing on our core adaptive energy customers.

Speaker Change: Progress against these initiatives resulted in a 21.5 million dollar increase in our unrestricted cash balance for this quarter.

Speaker Change: Total cash, inclusive of both restricted and unrestricted cash, on our consolidated balance sheet, increased by $142.9 million, resulting in a balance of $630.4 million as of June 30, 2024.

Speaker Change: As we continue to progress our strategy and shift our approach, we remain focused on cash generation.

Speaker Change: As a result of our efforts, I am pleased to share that we are increasing our cash generation guidance from cash neutral to an estimated $100 million in 2024.

Speaker Change: Additionally, we are increasing our cash generation guidance for 2025 and 2026 to $350 million and $400 million, respectively.

Speaker Change: In total, we now expect cash generation of $850 million over our three-year guidance period, an increase of 70% from where we got it on our last earnings call.

John: As I mentioned, the four strategic priorities we introduced last quarter are driving our results, which are summarized on slide five. First, given the current inflated cost of corporate capital, we said we wanted to maximize asset-level capital.

Speaker Change: As I mentioned, the four strategic priorities we introduced last quarter are driving our results, which are summarized on slide 5.

Speaker Change: First, given the current inflated cost of corporate capital, we said we wanted to maximize asset-level capital.

John: We have made strides in this area as we were able to issue four securitizations in the first half of 2024 compared to only two in the first half of 2023. Our focus here goes beyond the securitization market to also include increasing our tax equity commitments and opportunistically generating cash through asset sales, giving us confidence that the steps we are taking to right-size our cost structure are bearing fruit. Our third priority is to increase ITC at our disposal.

Speaker Change: We have made strides in this area as we were able to issue four securitizations in the first half of 2024 compared to only two in the first half of 2023.

Speaker Change: Our focus here goes beyond the securitization market to also include increasing our tax equity commitments and opportunistically generating cash through asset sales.

Speaker Change: Second, we said we are going to continue to drive cost efficiencies by utilizing our technology platform in scale.

Speaker Change: While there is more work ahead in this area, in Q2, for the second quarter in a row, we experienced a sequential decline in our adjusted operating expense per weighted average customer, giving us confidence that the steps we are taking to right-size our cost structure are bearing through.

Speaker Change: Our third priority is to increase ITC Adder Utilization.

Speaker Change: ITC adders continue to serve as a tailwind for cash generation, even more than we expected just a few short months ago, thanks in large part to the Domestic Content Adder Guidance issued by the IRS in May of this year.

Speaker Change: Our final priority that we laid out last quarter was to put the focus back on our core adaptive energy customers.

Speaker Change: While we are reducing guidance on the total number of customers we expect to add in 2024, those reductions will once again mostly be accessory loan customers.

Speaker Change: We continue to expect strong additions in solar and solar plus storage customers with a heavy weighting to lease and PPAs. We also expect continued growth in our high margin capital light service only customers.

John: On slide six, you can see the significant increase in the number and size of securitizations we issued in the first half of 2024 compared to the same period last year, particularly since these cash flows underpin a portion of our corporate cash flow. After Fees and Debt Repayment. The combination of these two loan sales generated cash proceeds of $52.4 million in the second quarter and will generate another $8.4 million in future periods.

Speaker Change: On slide six, you can see the significant increase in the number and size of securitizations we issued in the first half of 2024 compared to the same period last year.

Speaker Change: The four securitizations issued through June 30, 2024 totaled $853 million, a 40% increase in size from last year and twice the number of deals closed in the same period of 2023.

Speaker Change: I would like to highlight Kroll's recent upgrade of our 2022 and prior TPO securitizations as evidence of the strong underlying asset performance, particularly since these cash flows underpin a portion of our corporate cash flows.

Speaker Change: We expect these strong asset level cash flows to improve our position in the ABS market, setting us up for a strong second half of 2024 and beyond.

Speaker Change: We estimate that in the second half of 2024 we will issue up to an additional 1 billion dollars of securitizations.

Speaker Change: Giving a bit more color to tax equity, during the first half of the year we added 811 million dollars in tax equity commitments versus 264 million dollars over the same period last year.

Speaker Change: Additionally, during the second quarter, we completed two separate non-solar loan sales. These sales included the sale of our entire home security loan portfolio, as well as a portion of our home improvement loan portfolio.

Speaker Change: The home improvement loans sold included loans for items such as roofing, generators, and EV chargers, which play a role in creating the Sunnova Adaptive Home.

Speaker Change: We elected to sell a portion of these loans not only to demonstrate to the market it could be done, but also to bring cash in the door ahead of the expected surge in cash from ITC adders.

Speaker Change: After fees and debt repayments, the combination of these two loan sales generated cash proceeds of $52.4 million in the second quarter and will generate another $8.4 million in future periods.

John: We continue to evaluate other potential asset sales in a variety of different areas of our business where we believe it makes sense. On slide seven, you can see we have continued our trajectory of decreasing our adjusted operating expense per customer, reporting an additional sequential decline in this metric in Q2, bringing our total reduction between Q4 2023 and Q2 2024 to 15 percent. Also contributing to this increased efficiency is a 10% decline in headcount since the end of 2020. Moving forward, our efforts to continue scaling the most profitable areas of our business and reducing operating expenses through our technology platform will position us to drive costs per customer even lower. As a result,

Speaker Change: We continue to evaluate other potential asset sales in a variety of different areas of our business where we believe it makes sense.

Speaker Change: Another key priority where we are making solid progress is in improving our cost structure and driving efficiency.

Speaker Change: On slide 7, you can see we have continued our trajectory of decreasing our adjusted operating expense per customer.

Speaker Change: reporting an additional sequential decline in this metric in Q2, bringing our total reduction between Q4 2023 and Q2 2024 to 15%.

Speaker Change: Also contributing to this increased efficiency is a 10% decline in headcount since the end of 2023.

Speaker Change: Moving forward, our efforts to continue scaling the most profitable areas of our business and reducing operating expenses through our technology platform will position us to drive costs per customer even lower.

Speaker Change: Next, slide 8 covers the priority that we expect will have the greatest impact in the near term, increasing our utilization of ITC adders.

Speaker Change: Given the latest guidance, as I noted earlier, we now expect 2024 cash generation to be $100 million. Included in this estimate is cash generation from the retroactive capture of domestic content and energy community adders.

Speaker Change: As of September 1st of this year, we will mandate our dealers to only originate lease and PPA customers who qualify for the Domestic Content Adder.

Speaker Change: As a result, we see our weighted average ITC rate rising in the second half of this year, moving up to 45% in 2025.

Speaker Change: And while last quarter we believed that every 1% increase in our weighted average ITC rate would translate to over $30 million in cash proceeds per year, we now estimate that number to be approximately $50 million.

Speaker Change: Lastly, this year we have refocused on our core adaptive energy customers.

Speaker Change: As you can see on slide 9, we continue to expect strong growth in our solar customers. Additionally, we expect to add 59% more megawatt hours of energy storage in 2024 compared to last year, as more homeowners look to include a battery with their solar system.

Speaker Change: What you will also notice is in 2024 our solar customer deployments will be dominated by leases and PPAs. This is beneficial for our business as it will allow us to generate more cash as only these type of customer contracts can capitalize on IPC adders, which again are incredibly valuable.

John: This is beneficial for our business as it will allow us to generate more cash as only these types of customer contracts can capitalize on IPC adders, which are again incredibly valuable. Now that I've gone through the details of our progress against our short-term priorities, I would like to take a minute to remind you all of our core business strategy, the Sunnova Adaptive Home, illustrated on slide 16. Sunnova can manage the upfront costs, maintenance, and technical complexities of powering a customer's home or business with affordable, dependable, and sustainable energy solutions.

Speaker Change: Currently over 90% of our origination is lease or PPA.

Speaker Change: Now that I've gone through the details of our progress against our short-term priorities, I would like to take a minute to remind you all of our core business strategy, the Sunnova Adaptive Home, illustrated on slide 10.

Speaker Change: This innovative approach seamlessly integrates solar energy, battery storage, and energy management solutions to optimize energy usage and enhance resilience across all applications in the home.

Speaker Change: Sunnova Adaptive Home Platform is designed first and foremost with our customers in mind, as it minimizes the increasingly complex nature of energy and utilities.

Speaker Change: As a trusted energy partner, Sunnova can manage the upfront costs, maintenance, and technical complexities of powering customers' home or business with affordable, dependable, and sustainable energy solutions.

John: Before I turn the call over to Eric, I would be remiss if I did not mention Hurricane Beryl, which left nearly 3 million people in the Houston area without power. The tremendous disruption caused by Beryl reaffirms the value of the Sunnova DACA project, specifically in the resiliency it provides when the grid fails. During the hurricane and its associated outages, our customers produced 485.2 megawatt hours of energy through their Sunnova solar and storage systems, and 96% of our customers needed no repair to their service, demonstrating the sort of quality, control, and reliability that Sunnova brings to its customers.

Speaker Change: Before I turn the call over to Eric, I would be remiss if I did not mention Hurricane Beryl, which left nearly 3 million people in the Houston area without power. To all those affected by the hurricane, our thoughts go out to you and your families.

Eric Williams: The tremendous disruption caused by Beryl reaffirms the value of the Sunnova DAC at home, specifically in the resiliency it provides when the grid fails.

Eric Williams: During the hurricane and its associated outages, our customers produced 485.2 megawatt hours of energy through their Sunnova solar and storage systems, and 96% of our customers needed no repair to their service.

Eric Williams: demonstrating the sort of quality, control, and reliability that Sunnova brings to its customers.

John: These types of events drive people to reevaluate the service they get from utilities at a persistently increasing price and deteriorating reliability. Ultimately, this leads to the adoption of our energy. For those listening with whom I have not yet spoken, please do not hesitate to reach out, and we'll find time to connect.

Speaker Change: These types of events drive people to re-evaluate the service they get from utilities at a persistently increasing price and deteriorating reliability.

Speaker Change: Ultimately, this leads to the adoption of our energy solutions. We take considerable pride in the fact that Sunnova can be there for our customers when it matters the most and provide some level of comfort even in the most difficult of times. With that, I will pass it to Eric.

Eric Williams: Thank you for the introduction, John .

Eric Williams: You and the entire Sunnova team have extended the warmest of welcomes, and I am excited to join you today for my first earnings call.

Eric Williams: It is great to be here, and I look forward to combining my experience with that of Sunnova's talented team to advance our commitments to stakeholders and to further refine our strategic focus with an emphasis on profitability and cash generation.

Eric Williams: Since joining in mid-June, I have spent considerable time with John , the board, our team, and some of you listening to this call. For those listening with whom I have not yet spoken, please do not hesitate to reach out and we will find time to connect.

Eric Williams: My near-term focus is simple. To fund our business by securing asset-level capital at attractive terms and simplifying the way we articulate our business to current and potential stakeholders.

Eric Williams: I am pleased with the progress we've made during the first half of 2024, closing ABS and tax equity transactions, which provides momentum to do more in the quarters ahead, including a focus on refining our investor communications.

Eric: To offer our financial results for the quarter, I'll begin on slide 13. In addition to meaningfully growing our cash balances and reducing our per-customer level adjusted operating expense, which John discussed earlier, during the quarter, we delivered $216.7 million of adjusted debit depth and $35.4 million of interest income. Our reported adjusted EBITDA excludes the non-cash $24 million loss from the sale of our home security loans following our decision to eliminate the sales channel from our business.

Eric Williams: To walk through our financial results for the quarter, I'll begin on slide 13.

Eric Williams: In addition to meaningfully growing our cash balances and reducing our per-customer level adjusted operating expense, which John discussed earlier, during the quarter we delivered $216.7 million of adjusted debit data.

Eric Williams: $35.4 million of interest income and $55.4 million of principal proceeds from customer notes receivable.

Eric Williams: Our reported adjusted EBITDA excludes the non-cash $24 million loss from the sale of our home security loans following our decision to eliminate this sales channel from our business.

Eric Williams: Conversely, we included in adjusted EBITDA the non-cash $18.9 million loss on the sale of certain home improvement loans since we expect to continue originating these types of loans, albeit at a lower volume in the near term.

John: If you also exclude the $186.1 million second quarter ITC sales, adjusted EBITDA for the period would be $30.6 million, or 9% higher than the similarly adjusted $28.1 million in the second quarter of 2023. Ultimately, these factors underpin our ability to maintain strong implied spreads, allowing us to offset higher debt costs with a higher fully burdened unlevered return. You can see that both on a trailing 12-month and quarter-to-date basis, we generated an implied spread that exceeds our long-term target of 500 basis points.

Eric Williams: If you also exclude the $186.1 million second quarter ITC sales, adjusted EBITDA for the period would be $30.6 million or 9% higher than the similarly adjusted $28.1 million in the second quarter of 2023.

Eric Williams: We also continue to see steady year-over-year growth in our Net Contracted Customer Value, or NCCV. Assuming a 6% discount rate, NCCV was $3 billion, or $23.68 per share, on June 30.

Speaker Change: Before I discuss our updated unit economics on slide 14, I mentioned earlier that one of my priorities is working to develop materials for investors that clearly communicate our business, including key drivers that provide insight into our financial performance.

Eric Williams: Reflective of this commitment, it is worth mentioning that we refined our fully burdened unlevered return calculation this quarter to provide a more nuanced and accurate measure.

Eric Williams: Specifically, we now include a higher service cost allocation, an estimate of renewal value in customer purchases, and an estimate of our asset retirement obligations, including the cost to remove all equipment and restore sites to their original condition.

Speaker Change: While this is a minor revision, as a newcomer to the industry, I am in the process of evaluating each of the non-GAAP measures we use to provide additional insight into our financial performance and expect to make additional refinements to other measures in the coming quarters.

Eric Williams: Turning back to slide 14, the implied spread we present as the difference between our fully burdened and leveraged return, less our current weighted average cost of debt, illustrates the durability of our returns even in high interest rate environments.

Speaker Change: Shortages of traditional power generation, continuously increasing demand, lack of competition, a growing backlog of grid maintenance needs.

Eric Williams: Aging infrastructure, higher interest rates, and other variables continue to drive utility rates higher and serve as a catalyst for consumers to reconsider their energy sources.

Speaker Change: Importantly, these factors enable Sunnova to continue improving its pricing power, which we evaluate and implement on a market-by-market basis.

Speaker Change: Ultimately, these factors underpin our ability to maintain strong implied spreads, allowing us to offset higher debt costs with a higher fully burdened unlevered return.

Speaker Change: You can see that both on a trailing 12-month and quarter-to-date basis, we generated an implied spread that exceeds our long-term target at 500 basis points.

Speaker Change: With the ITC adders, we discussed driving a higher realized ITC percentage compounded by potential interest rate cuts that would reduce our weighted average cost of debt. We would expect to see these spreads move even higher.

John: Flipping to slide 16, I will discuss our guidance. First, we are increasing our adjusted EBITDA guidance to a range of $650 to $750 million. This increase reflects our expectations in the second half of 2024 of higher lease and TPA revenues. However, thanks to the progress we have made to realize the ITC adders, coupled with our high-margin customer focus, price increases, and more efficient call structure, we now expect to generate approximately $100 million of unrestricted cash this year and $850 million through the end of 2026.

Speaker Change: Flipping to slide 16, I will discuss our guidance.

Speaker Change: As we execute on our commitment to prioritize profitability and cash generation over growth, we are revising these values where appropriate.

Speaker Change: First, we are increasing our adjusted EBITDA guidance to a range of $650 to $750 million.

Speaker Change: This increase reflects our expectations in the second half of 2024 of higher lease and PPA revenues, lower per customer operating expenses, and higher ITC sales, which specifically represent between 65 and 70 percent of our total expected adjusted EBITDA.

Speaker Change: As we prospectively prioritize adding high-margin solar and solar plus storage customers, deploy more capital into leases and PPAs, and less into loans including accessory loans, we expect customer additions to range between $110,000 to $120,000.

Speaker Change: We are also adjusting our guidance related to interest income and principal proceeds from customer notes receivable, which we now expect to range between $115 million to $125 million, and $180 million to $190 million, respectively.

Speaker Change: Our update is driven by the recent monetization of accessory loans and the quicker-than-anticipated move to leases and PPAs.

Speaker Change: It's worth mentioning that we continue to see upside to our principal proceeds target, as in the past eight weeks, loan prepayments have been strong.

Speaker Change: Turning to slide 17, I will reiterate once more the emphasis we've placed on cash generation throughout this call, which I am pleased to say is driving higher the associated guidance, not only for the second half of 2024, but significantly for the additional years we forecast for this metric.

Speaker Change: Just last quarter, we expected to be cash neutral this year.

Speaker Change: However, thanks to the progress we have made to realize the ITC adders, coupled with our high margin customer focus, price increases, and more efficient call structure, we now expect to generate approximately $100 million of unrestricted cash this year and $850 million through the end of 2026.

Speaker Change: The results...

Speaker Change: A 70% increase in our expected unrestricted cash over this period.

John: Thus, if you include the $213 million of unrestricted cash with which we began the year and add the approximately $850 million of unrestricted cash we expect to add over the next three years, our unrestricted cash balance rises to over $1 billion by the end of 2020. Wrapping up on that key highlight, I would like to now turn the call back to John for closing remarks. The origination flow our dealer network has experienced these past few weeks has been so great that we simply cannot absorb the growth this quickly, increased by the recent exit of a large public competitor. However, And I continue to be a strong believer in the long-term value proposition of Sunnova, its place in transforming the energy landscape, and its role in meeting society's ever-increasing energy needs.

Speaker Change: Thus, if you include the $213 million of unrestricted cash with which we began the year and add the approximately $850 million of unrestricted cash we expect to add over the next three years, our unrestricted cash balance rises to over $1 billion by the end of 2026.

Speaker Change: Wrapping up on that key highlight, I would like to now turn the call back to John for closing remarks.

John Berger: Thanks, Eric. Clearly, our first-half results have demonstrated that we have identified and executed on the correct priorities to properly position Sunnova in the current environment.

Speaker Change: For now, and in the near future, we will prioritize cash generation over growth and raise prices to protect margins.

Speaker Change: The origination flow our dealer network has experienced these past few weeks has been so great that we simply cannot absorb the growth this quickly.

Speaker Change: As a result, we recently paused adding new dealers to our network as our planned growth optimizes cash generation.

Speaker Change: in addition.

Speaker Change: We are working to better align payment terms with our dealers to the funding schedules of our warehouse and tax equity facilities.

Speaker Change: This better alignment will lower the working capital needed for our growth, which in turn will lead to even better cash generation.

Speaker Change: The opportunity to turbocharge our growth is clearly there, increased by the recent exit of a large public competitor.

Speaker Change: However, we will remain disciplined and focused on increasing cash generation to pay down our corporate debt.

Speaker Change: While we still have further to go, I remain incredibly encouraged by the significant progress we have made in such a short time.

Speaker Change: And I continue to be a strong believer in the long-term value proposition of Sunnova, its place in transforming the energy landscape, and its role in meeting society's ever-increasing energy needs. With that, Operator, please open the line for questions.

Operator: Apologies for the delay. Thank you so much, Mr. Berger. Everyone, if you would like to ask a question...

Speaker Change: Please press star followed by one on your telephone keypad now.

Speaker Change: If you change your mind, please press star followed by T. When preparing to ask you a question, please ensure your device is unmuted locally.

Speaker Change: The first question is from Philip Sheng with Roth Capital Partners. Your line is open.

John: Your line is open, or Liquidity Forecast for 2024-2025. In our preview note for you guys, we wrote about how you may be slow-paying some of your dealers. Give us a little more color on the situation and how that might affect... How does that affect you? [inaudible] In fact, we have a tremendous number of closings, including the securitization we priced yesterday. I would say it's a rather tidal wave of cash over the next few days, six to 10 days, and then increasing from there as we close out these capital pieces.

Philip Sheng: Hey John , Eric, congrats on the strong results. You've mentioned, sorry, you've meaningfully increased your liquidity forecast for 2024, 2025, and 2026. What do you plan on doing with all this incremental cash? Thanks.

Speaker Change: Hey Phil, this is John . Thank you. Paydebt.

Speaker Change: Stack the cash, pay the debt, and at the right time and levels will be dictated by the board, working with the management team and I, but pay the debt.

Speaker Change: Great. Any color you can share in terms of timing, this year versus next year, etc.

Speaker Change: No, I would prefer not to share that, I think for obvious reasons, but you know, the job is pretty clear, earn the cash, pay down the debt, support our dealers, and service our customers.

Speaker Change: Great. Thanks, John . In our preview note for you guys, we wrote about how you may be slow-paying some of your dealers.

Speaker Change: Some of this may be due to a delayed tax equity tranche.

Speaker Change: Can you give us a little bit more color on the situation and...

Speaker Change: How might this be tied to your growth outlook? You know, you mentioned in your prepared remarks about the exit of...

Speaker Change: another publicly traded solar company that does leases. I'm guessing this is likely pushing a lot of dealers to you.

Speaker Change: And so, you know, from a cash consumption standpoint and growth, you know, how do you balance all that? You're not taking on any new dealers. And then how does that, you know, ultimately impact your growth outlook for 2056? Thanks.

Speaker Change: Certainly a lot there, so let me start by saying that lining up the adders

Speaker Change: Some are easier than others to get through all the legal and accounting hoops and so forth, but I think we're there. Now we've got to execute more.

Speaker Change: Going back as far as January of 2023, which of course we can, really appreciate all of our partners, both on the financial side and obviously on the operations side, working with us.

Speaker Change: to collect that money, that cash going from January 1st of 2023 to yesterday of July is roughly about $270 million of cash.

Speaker Change: We've collected roughly about half of that. This is all the Atter's EC, sorry, energy communities, domestic content, no LMI yet, as of yet, but we do expect that. And then we expect to collect the other half in the next few days and weeks.

Speaker Change: In fact, we have a tremendous amount of closings, including the securitization we priced yesterday. I would say it's a rather tidal wave of cash over the next few days.

Speaker Change: six to ten days.

John: So, it's never very easy to close all these transactions, and clearly we had a very busy quarter, but we've accomplished it, and we continue to see near-term execution measured in days, not even weeks at this point. When we look at the market, and we'll talk about the actions we took, I mentioned in my prepared remarks, I've never seen anything like this. The growth in our business started in May. There was still a lot, I would say, a preponderance of noise about how negative the growth was going to be this year in our industry, and we just weren't seeing it, and then it kept going higher in terms of trucking.

Speaker Change: and then increasing from there as we close out these capital pieces. So, never very easy to close all these transactions, and clearly we had a very busy quarter, but we've accomplished it, and we continue to see near-term execution measured in days, not even weeks at this point.

Speaker Change: When we look at the market, and we'll talk about the actions we took, I mentioned in my prepared remarks...

Speaker Change: I've never seen anything like this.

Speaker Change: started in May. There was still a lot of, I would say, a preponderance of noise about how negative the growth was going to be this year in our industry, and we just weren't seeing it. And then it kept going in terms of trucking hire.

John: We had either our first or second-best month in history in June in terms of cash, like the actual amount of CapEx, with August of last year being our best historically, so June surpassed that. But that was nothing compared to the month that we finished just last night.

Speaker Change: We had our second, either our first or second best month in history in June in terms of cash, like actual amount of CapEx, with the August of last year being our best historically, so that June surpassed that.

John: We were heading towards, about 10 days ago, two weeks ago, a 30 percent increase in trucking higher as far as the percentage, which is off a big base in terms of increasing capex year over year. Right now, we've been able to take some steps, and that's only 20 percent higher, but that's still well ahead of our plan. So I know this is not necessarily welcome to the dealers, but we simply cannot handle this level of growth, and we will not sacrifice our core focus of earning cash to pay our debt, to support our dealers, and to service our customers.

Speaker Change: But that was nothing compared to the month that we finished just last night.

Speaker Change: We were heading, about 10 days ago, 2 weeks ago, we were heading towards a 30% increase in trucking hire, as far as a percentage, which this is off a big base.

Speaker Change: in terms of increasing CapEx year over year. Right now, we've been able to take some steps and that's only 20% higher, but that's still well ahead of our plan. With that, we did the unprecedented Pausing New Dealer Additions.

Speaker Change: and we expect that to continue. We are changing payment terms and we're moving in a move to reflect our current contractual rights and then change the payment terms further than that. We are mandating domestic content by September 1st.

Speaker Change: And then we're raising prices and have raised prices over the last few days further in some regions.

Speaker Change: So, I know this is not necessarily welcome to the dealers, but we simply cannot handle this level of growth, and we will not sacrifice our core focus of earning cash to pay our debt to support our dealers and service our customers.

John: Therefore, bringing on more dealers is not fair to the current dealers who are working hard with us, and I very much appreciate their patience and working with us as we make these changes, but this is all to the benefit of extending and using our working capital more wisely and therefore generating more cash than possibly even reflected in our guidance forecast on cash. Thank you so much.

Speaker Change: is not fair to the current dealers. They're working hard with us, and I very much appreciate their patience as we.

Speaker Change: and working with us as we make these changes.

Speaker Change: But this is all to the benefit of all of you.

Speaker Change: of elongating and using our working capital more widely and therefore generating more cash than possibly even reflected in our guidance forecast on cash.

Speaker Change: Great, congrats again John , I'll pass it on.

Speaker Change: Thank you.

Andrew Salvatore Percoco: The next question is from Andrew Percoco with Morgan Stanley. Your line is open. Great, thanks so much for taking the questions this morning. I guess my first question is on the EBITDA guide, obviously a strong update there, and it seems to be mostly driven by higher ITC sales. I'm just curious, is there any recapture of 2023 domestic content included in the 2024 EBITDA guidance? And if so, can you quantify how much?

Speaker Change: Thank you so much. The next question is from Andrew Percoco with Morgan Stanley . Your line is open.

Andrew Percoco: Great, thanks so much for taking the questions this morning. I guess my first one is on the EBITDA guide, obviously a strong update there. It seems to be mostly driven by higher ITC sales.

Speaker Change: I'm just curious, is there any recapture of 2023 domestic content included?

Speaker Change: in the 2024 ECA DIC guidance, and if so, can you quantify...

John: And then maybe looking at 2025, is the percentage of EBITDA contribution from ITC sales in 2024 representative of what you should expect in 2025? We've been very, I think, as noted by a few of your peers and I think yourself, Andrew, very conservative in 25 and 26 as a result of assuming that there would be some balance return to the capital markets. But right now, capital markets are, I think, demanding higher returns on capital.

Speaker Change: How much? And then maybe looking at 2025, is the percentage of EBITDA contribution from ITC sales in 2024 representative of what you should expect in 2025?

John Berger: Andrew, this is John . I'd say maybe a small amount, just with regards to the ITC sales, and that's why we show, you know, the adjusted EBITDA with and without the ITC sales, so you don't have to do, you know, the math.

Speaker Change: But I don't think it's the, you know, I know it's not the vast majority of it, and you move forward in time, going from, you know, an ITC of mid-30s into high-30s up to the mid-40s, as we've got it to.

Speaker Change: that is going to produce even greater amount of tax equity requirements and therefore ITC sales.

Speaker Change: So it actually should increase as we move forward in time. There's not this one-time pickup and that's it. The amount of cash generation, as clearly shown in the slides, you don't have to do any math, is clearly moving materially higher.

Speaker Change: and the returns on the unit level economics are moving materially higher and did in this past month, I would add. So we see a greater contribution to go along with a greater expectation of cash generation.

Speaker Change: understood okay that's helpful and then maybe just sticking to that for a second I guess how

Speaker Change: Sticky, would you expect this domestic content?

Speaker Change: Benefit to be. There's obviously another competitor out there that does leases that has the opportunity to benefit from this.

Speaker Change: Adder, I'm just curious if you expect any of this benefit to ultimately get flowed through to the customer and there to be some competition on that pass-through?

Andrew Percoco: We've been very, I think it is noted by a few of your peers, and I think yourself, Andrew, very conservative in 25 and 26 as a result of assuming that there would be some

Andrew Percoco: balance return to the capital markets, but right now capital markets are, you know, I think

Andrew Percoco: Demanding higher returns for the capital.

Andrew Percoco: And as I, you know, clearly laid out, and very directly,

Speaker Change: We're overrun with origination right now.

Speaker Change: So, I'm not materially worried about...

Speaker Change: us being able to capture the returns and cash generation that we've laid out in the short term. And I think we've been appropriately conservative in the back two years.

Speaker Change: Great. Thank you so much. I'll leave it there.

Speaker Change: Thank you. The next question is from Julian Dominic Smith with Jeffrey. Your line is open.

John: And as I clearly laid out and very directly, we're overrun with origination right now, so I'm not materially worried about us being able to capture the returns in cash generation that we've laid out in the short term. And I think we've been appropriately conservative in the last two years. Your line is go. Hey, good morning. Thank you guys very much for your time. Nice to chat again, and nicely done, I gotta add.

Julian Dominguez-Smith: Hey, good morning, team. Thank you guys very much for the time. Nice to chat again. And nicely done, I've got to add.

John: Thank you, Sarah. Excellent. So just following up a little bit earlier on the Ted, the health of the tax equity market a little bit further, right? You talk about, you know, changing the terms of the dealers to align with your sort of warehouse and tax equity funding. How about just the health of the tax equity market? You talk about that.

Speaker Change: Thanks, Julian. Welcome back.

Julian Dominguez-Smith: Thank you, Sarah. Excellent. So just following up a little bit earlier on the Ted, to help the tax equity market a little bit further, right, you talk about

Speaker Change: You know, changing the terms of the dealers.

Speaker Change: to align with your sort of warehouse and tax equity funding. How about just the health of the tax equity market? Can you talk about that? What about changing the payment terms and the timing there? How do you think about adding additional tax equity partners here? It seems like from the cue that some of that plays into the outlook here a little bit.

Speaker Change: Can you talk, as you think about handling growth, partnering more effectively, perhaps, with your funding partners here to enable more rapid funding?

Speaker Change: Yes, I think, you know, look, overall, the tax equity market and really the tax credit market is probably a better way of saying it at this point.

Speaker Change: has greatly expanded due to the transferability of the ITC, right?

Speaker Change: And so that's transformed the financing sources.

Speaker Change: to the point where it is quite likely...

Speaker Change: without practical limits, right? Because there are a number of companies that pay billions and hundreds of millions of dollars in tax. And so that really opened things up in terms of the IRA change and the transferability of the ITC.

Speaker Change: And I think that it came at the exact right time, and it's certainly helping to

Speaker Change: and in large, the funnel top of the available capital. And I think you can see that in the numbers for the entire industry, not just...

Speaker Change: Behind the meter, but in front of the meter as well.

Speaker Change: You know, I would say that there's a growing number of permutations at that almost by the week as more and more OEMs get certain lines of manufacturing up and running in the United States.

Speaker Change: the gear, whether it's batteries, or ESS, or inverters, or panels.

Speaker Change: including the racking companies have moved very quickly that we're going to have a number of permutations for our dealers and this is going to get it's it's hard to put all the pieces together but it's going to get set up and moving smoothly I think over the next couple of months or so.

Speaker Change: Thank you.

John: What about changing the payment terms and the timing there? How do you think about adding additional tax equity partners here? Seems like from the cue that some of that plays into or plays into the outlook here a little bit. Can you talk, as you think about handling growth, partnering more effectively perhaps with your funding partners here to enable more rapid funding? Excellent. Good luck, guys. We'll see you soon.

Speaker Change: Hey, good morning, John and Eric.

Speaker Change: I wanted to touch on unit economics and how you're thinking about that.

Speaker Change: Going forward, as you're high-grading, clearly, the customer additions, you've got...

John: Hey, good morning, John and Eric, going forward as you're high rating clearly the customer additions you've got, you know, costs coming down on the equipment side. We get, we have obviously tax credits, everything else, but a lot of moving parts. But how are you thinking about internet economics for the business going forward? Or how would you guide us, I guess?

John: Yeah, it's a good question, James, and John. How are you thinking about this from a timing standpoint? Is this a quarter, a couple months, the rest of the year? When do you think you will be adding to that? [inaudible] John, if I look at slide nine, you have the megawatts added per year, it's up 25%. So you know, just looking at last year, you're forecasting 830 megawatts of new growth in 2024.

Speaker Change: One of the things that Eric's been able to do in a short period of time here is lead working with his teams and board members.

Speaker Change: That would be our best guidance at this point in time given what we know and what we're seeing here as far as the uptake on the adders and the price increases and what's going on in the marketplace.

Speaker Change: your base of dealers and adding customers further than what you forecasted for this year.

Speaker Change: That's what we need to do to optimize the cash and I think we're just going to keep with that. So anything in terms of growth that goes above that we're going to take steps to to mitigate that down. We want to take care of our core dealers especially those that have been with us for years.

Speaker Change: First and foremost, and so I just think that's fair. Now, are we going to lose some dealers potentially over some of these?

Speaker Change: Possibly. And we would just pay them out, wish them well, and they could move on. The line to get in is very long.

Speaker Change: and really believe in working well with us and not try to take on and get aggressive to grow. And on the other side of that, being aggressive and grow is not what we need to be doing for our shareholders. We need to be earning the cash, paying down the debt, and that's exactly what we're going to stick to.

Speaker Change: Thank you.

Speaker Change: Thank you. The next question is from Brian Lee with Goldman Sachs. Your line is open.

Brian Lee: Hey guys, good morning. Kudos on the cash generation and liquidity improvement here.

John: That's actually higher than what you showed us last quarter on this same slide, and we are seeing some of these adders and what have you. So, I know you can't give us a... And, you know, we did take upon this debt and levered our asset level of cash flows.

Brian Lee: Can you talk to kind of what's driving that improved growth outlook? Is it share gain? Is it other things? Just because, you know, there's a lot of talk about...

Speaker Change: You know, faster growth, you know, more investment in 2025 and 2026, is it 20%, is it 25% that you're implying for megawatt growth for the next couple years, just trying to get a sense of what your growth outlook is here and what's driving the better view here for 2024 as well?

Speaker Change: Yes, certainly. Part of this is the amount of kilowatts per system average has been continuously increasing. That's been a multi-year trend, as you know, Brian .

Speaker Change: But we are also seeing some pretty large growth and have seen pretty large growth in some of the southern markets where the, you know, kilowatt per customer is pretty high, relative to say our island markets in the Pacific and the Caribbean where it's pretty low.

Speaker Change: So I think that's a big piece of this.

Speaker Change: Right now, at the pace we're running at, we're managing to, by limiting dealers and taking some of these other steps.

Speaker Change: I would say it's basically kind of a run rate that if we just stayed here, we'd be looking at for 25 and 26, so I think we're basically there, you know, if not maybe a little bit higher, but doubtful. I think we're about where we want to be.

Speaker Change: Okay, great, that's helpful, and then just, you know, kind of a follow-up question to Phil's earlier one. I'm curious, you know, you've got

Speaker Change: Probably the most robust liquidity forecast you've had in a while. A billion dollars plus of unrestricted cash by 2026 is the new target. I mean, it sounds like there could even be upside to that based on how much leverage you're seeing to some of these adders and what have you. So, I know you can't give us a...

Speaker Change: singular answer per se. But as you think about the different permutations of how to address the debt, it sounds like you're planning to pay it down as kind of the first priority. But I think up until now, there's been lots of different discussions around restructuring and refinancing and, you know, doing different things like as as that

Speaker Change: priority or strategic focus shifted to just simply paying down the debt as you generate cash or are there you know multiple multiple options still on the table would be curious if you can speak to that a bit.

Speaker Change: Yes, certainly. I personally don't believe on taking on debt unless you can pay it off.

Speaker Change: facilities. The other thing is made mention of we're seeing a surge in prepayments so those that think that the loan ABS's are going to be negative in value are not going to produce the cash.

John: We'll see about that. We're seeing a pretty tremendous pickup, and I think that any sort of falling rates, as the Fed was talking yesterday about cutting rates pretty soon and so forth, and the bond market's clearly rallying, that's just going to turbocharge those prepayments. So I'd put that out there.

Speaker Change: We'll see about that. We're seeing a pretty tremendous pickup. And I think that any sort of falling rates, as the Fed was talking yesterday about cutting rates pretty soon and so forth, and the bond market's clearly rallying, that's just going to turbocharge those prepayments.

John: And by the way, the discount on those loan portfolios is now measured, as you can see in the appendix, at a billion dollars. So just crossing having customers pay us off would produce a billion dollars of cash. Yeah, this is Eric. I just want to add behind that. You heard in my comments that I'm committed to really maximizing that asset level cash flow, but at least we have tremendous opportunity to do that. And nothing puts you in a better position to create options than having cash in. So, we'll absolutely be opportunistic, as John just said, and be thoughtful as we look at what we think will create the most value as that maturity comes All right, sounds good.

Speaker Change: So I'd put that out there, and by the way, the discount on those loan portfolios is now measured, as you can see in the appendix, a billion dollars. So just crossing having customers pay us off would produce a billion dollars of cash.

Speaker Change: When you look at AHEAD, there's a number of options available to us as a company.

Speaker Change: for the shareholders. And that cash is clearly piling up to the point, to go back to my personal view, we should never take on debt that we can't pay off in cash flow.

Speaker Change: Yeah, and this is Eric. I'd just add behind that, you heard in my comments that I'm committed to really maximizing that asset-level cash flow. I believe we have tremendous opportunity to do that. And nothing puts you in a better position to create options than having cash in hand.

Speaker Change: So we'll absolutely be opportunistic, as John just said, and be thoughtful as we look at what we think will create the most value as that maturity gets closer, but we've got a nice runway before that's the case.

Speaker Change: All right, sounds good. Thanks guys.

John: Thanks, guys. Thank you. The next question is from Dylan Lozano with Wolf Research. Your line is open, and the updated cash generation. There are some, offer any more color on kind of and that number, and then, just as a follow-up, John. Just wondering, how much appetite do you have?

Speaker Change: Thank you. The next question is from Dylan Lozano with Wolf Research. Your line is open.

Dylan Lozano: Hey, good morning. Just on the updated cash generation, it looks like there are some offsets to the higher tax equity proceeds.

Dylan Lozano: Presumably this relates to the shift to TPO sales, but can you just offer any more color on kind of what gets netted against that 50 million per 1% increase?

Speaker Change: That is not offsetted. I mean, that's basically a rule of thumb. It can be more or less, but a rule of thumb when you look at cash generation, you know, per 1% of ITC.

Speaker Change: Right, but to the net number or just from gross ITC proceeds?

Speaker Change: I mean, it's going to waterfall down into the, you know, the OPEX and so forth. And so that gets into where you could look at the adjusted EBITDA plus P&I. But it's largely going to end up towards the bottom line of cash generation.

Speaker Change: Got it, thanks. And then just as follow-up, John , you referenced...

John: the right time to try to grab. We have been increasing our market share in California, And I think that trend is going to continue. Thank you. The next question is from Michael Bloom with Wells Fargo. Thanks. Good morning.

Speaker Change: It's kind of stabilizing at this point.

Speaker Change: Great, thank you.

Speaker Change: Thanks.

Speaker Change: Thank you. The next question is from Michael Boone with Wells Fargo. Your line is open.

John: I wanted to ask, in the cash generation guide... I think the clearest way I'd answer that is that we expect all of our dealers to choose from a domestic content compliant, whether it's under the cost method or the Safe Harbor Method, focus exclusively on the least PTAs at this point. Well, the business really is about serving power to customers, and predominantly residential customers, a little bit of business markets, as you know.

Speaker Change: Well, the business really is about serving power to customers and predominantly residential customers.

Speaker Change: And so that's the business. The business is not focusing on one financing type or another. What we're therefore to do after we serve our customers is to optimize the returns and the cash generation to shareholders.

John: And so clearly, because of the ITC adders, the lease and PPA is a superior cash generation. Outside that, though, there's still some needs that our customers have. It could be EV chargers, you know, additional load management, generators, even, you know, some of those items that, again, our customers need roofs.

Speaker Change: The lease in PPA is a superior cash generation. Outside that, though, there are still some needs that our customers have.

Speaker Change: It could be EV chargers, additional load management, generators, even some of those items that again our customers need, roofing. And we're going to continue to supply those services to our dealers that in turn supply them to our customers.

John: And we're going to continue to supply those services to our dealers, who in turn supply them to our customers. Now, were we to enter forward flow agreements and sell those assets off, those loans on the accessory loan side and even the solar loan side, that's highly likely. You know, we executed on this past quarter. We would look to obviously make money doing that. We feel very comfortable that we can.

Speaker Change: on the accessory loan side and even the solar loan side, that's highly likely. You know, we executed on this past quarter.

John: So we'll have the option to either securitize those loans as we've done historically in the past, or sell them off. And we're leaning pretty strongly to go ahead and sell them off with valued partners that we've already picked up in this past quarter in terms of loan purchasers. On the securitization front, we do have a private securitization right behind this one that's closing in the next couple of days or so, and then we probably have another one or two.

Speaker Change: So we'll have the option to either securitize those loans, as we've done historically in the past, or sell them off, and we're leaning towards pretty strongly to go ahead and sell them off with valued partners that we've already picked up in this past quarter in terms of loan purchasers.

Speaker Change: On the securitization front, we do have a private securitization right behind this one that's closing in the next couple of days or so.

John: The first one in the fall timeframe would be another lease PPA, and then behind it potentially would be a loan. If we go ahead and sell the loans, then we won't have that securitization. So hopefully, that gives you a little bit of color on what we're thinking. Thank you. Thank you. The next question is from Ben Kallo with BAD.

Speaker Change: Thank you.

Speaker Change: Thank you. The next question is from Ben Kallo with BAT. Your line is open.

Davis: Hey, good morning, John and Eric. It's Davis on for Bent. I think you guys are taking the time. Just super quick, I actually was going to ask a question, a follow-up maybe to the one that was just previously asked, just about selling the non-solar, the accessory loans on the portfolio and the benefit that you guys could see

John: Your line is open, in this quarter, for the remainder of the year. Just as we think about timing, what is assumed for sales closing this year versus visibility in the next year for what you can see so far? Sure.

Speaker Change: in this quarter, the remainder of the year. Just as we think about timing, what is assumed for sales closing this year versus visibility in the next year for what you can see so far. Thank you.

John: I do expect us to sell some more loans and broaden that into the solar loan side. So, again, I expect to either work with some of the partners we've picked up this past quarter and sell loans on probably a forward flow or batch basis or pick up some additional financial partners that love our product. We include service with our solar loans. No one else does.

Speaker Change: Sure. I do expect us to sell some more loans and broaden that into the solar loan side. So again, I expect to either, you know, work with some of the partners we picked up this past quarter and sell loans on probably a forward flow or batch basis.

Speaker Change: or pick up some additional financial partners that love our product. We include service with our solar loans. No one else does. That's become very, very important. Finally, everybody woke up in the capital markets how important service is and making sure customers get what they were promised.

John: That's become very, very important. Finally, everybody has woken up in the capital markets to how important service is and making sure customers get what they were promised. So, I think we've got a fantastic product. I'm confident in that. And I'm looking forward to working it out and turning these loan products, if you will, into a fee-based type business for us. What caused that?

Speaker Change: So, I think we've got a fantastic product, I'm confident in that, and I'm looking forward to working out and turning these loan products, if you will, into a fee-based type business for us.

Speaker Change: Thank you. The next question is from Pavel Molchanov with Raymond James. Your line is open.

Pavel Molchanov: Thanks for taking the question. First, kind of a macro one, this surge in demand that you've observed since May, what caused that?

Speaker Change: I have my view and I guess it's the collective view here at the company.

John: If you look at the utility rates, they continue to go higher all the while natural gas is at $2 an ounce. I personally see that the probability of gas staying at $2.00 NM has to be a very low probability. When you look ahead over the next year, I think we could be exiting a 15-year bear market in natural gas even. And so the probability that gas goes higher, given the extreme demand, LNG facilities, the power demand, just general economic growth, and the rollover of some of the basins, Hainesville, and so forth, I think it's an interesting constructive backdrop to be long natural gas, which is going to push utility rates up much further if But wait, there's more.

Speaker Change: If you look at the utility rates, they continue to truck higher all the while natural gas is at $2 an M.

Speaker Change: I personally see that the probability of gas staying at $2.00 NM has to be very low probability. When you look ahead over the next year, I think actually we could be exiting a 15-year bear market in natural gas.

Pavel Molchanov: even, and so the probability that gas goes higher, given the extreme demand.

Speaker Change: LNG facilities, the power demand, just general economic growth, and the rollover of some of the basins, Haynesville and so forth, I think is an interesting constructive backdrop to be along natural gas, which is going to push the utility rates up much further if nothing else is done.

John: The reliability problems, as I sit here in Houston, are obviously extreme in terms of the issues at hand. A lot of people have offered assistance and ideas to CenterPoint, for instance, about how to get better. But all those come with multibillion-dollar price tags. Somebody's got to pay for all that, and that's going to be the utilities, and they're going to pass that on to the ratepayers. So I see retail rates going higher, well higher than inflation, and I think everybody else now sees that too. Not having competition, not having consumer choice is going to be a real topic.

Speaker Change: But wait, there's more. The reliability problems, as they sit here in Houston, are obviously extreme in terms of the issues at hand. That, you know, a lot of people have offered assistance and ideas to CenterPoint, for instance, about how to get better.

Pavel Molchanov: All those come with multi-billion dollar price tags. Somebody's gotta pay for all that. That's gonna be the utilities, and they're gonna pass that on to the rate payers. So I see retail rates trucking higher, well higher than inflation, and I think everybody else now sees that too.

Speaker Change: not having competition, not having consumer choice.

John: We've got to have competition so that we can have better technology, and better services for consumers. And when you have a monopoly, you should expect to see continuously higher rates. So I think people are getting that more and more. On the other side of that, the equipment, whether it's a solar panel or inverter or battery, especially the batteries, are plummeting.

Speaker Change: is going to be a real topic. We've got to have competition so that we can have better technology, better services for consumers. And when you have a monopoly, you should expect to see continuously higher rates.

Speaker Change: The other side of that, the equipment.

Speaker Change: whether it's a solar panel, an inverter, or a battery.

John: Batteries are becoming more and more dominant in our portfolio. Just look at the megawatt-hour growth, for instance, and we make good money and serve our customers better, like the storm we just went through here in Houston. Our customers were well served, as we laid out on the slide, 11.

Speaker Change: You know, good money and serve our customers better like the storm we just went through here in Houston. Our customers were well served as we laid out.

John: So when you look at everything, we see fundamentals, utility rates going higher, and we see equipment moving lower. That produces a value proposition year over year, almost exactly, I might add, if you looked at the 10-year, your flat interest rates. So your cost of capital is basically flatlining or potentially declining. So this is all a very constructive backdrop for overall macro growth in our industry. Okay, zooming in on your financials, you reference the importance of service. What is the current cost structure of your in-house service effort? How has that tracked? Fairly is obscenely expensive.

Speaker Change: on the slide, 11.

Speaker Change: So, when you look at everything...

Speaker Change: And we see equipment moving lower. That produces a value proposition. Year over year, almost exactly, I might add, if you looked at the 10-year, your flat interest rates, so your cost of capital.

Speaker Change: Okay, zooming in on your financials, you know, you reference the importance of service, what is the current cost structure of your in-house kind of service efforts and how has that tracked

Speaker Change: you know, maybe over the last 12 months.

Speaker Change: On a per-customer basis, we've been able to drive it down, and we continue to see the ability to drive the per-customer cost down. I don't know if we've been public about what that per-customer service cost is, but we'll take a look at that, see if we can.

Speaker Change: I'll talk about that a little bit more in the Q3 call, but...

Speaker Change: Appreciate it.

Speaker Change: Thank you. The next question is from Sophie Karp with KeyBank. Your line is open.

Sophie Karp: Hey guys, good morning, congrats on the solid results and thank you for taking my question.

Speaker Change: Yes, Sophie, this is John . You know, our strategy has always been, as you and I have spoken over the years, is to, you know, let's have the option of doing either corporate level capital or asset level capital, whatever we feel is more flexible and cheaper.

Speaker Change: Clearly, the corporate-level capital was inexpensive relative to the asset-level capital back when we raised those debt pieces. That is clearly not the case anymore. The corporate capital, I would say...

John: And so we're going to focus more than ever on the asset level capital size we've laid out and we've executed on. I don't see that changing, but I'm not the market. The market will dictate what we do. My personal opinion is that the converts are a heck of a lot higher cost of capital, and I probably will not be voting to do converts again. Got it, got it.

Speaker Change: fairly is obscenely expensive, and so we're going to focus more than ever on the asset level capital size we've laid out and we've executed on.

Speaker Change: I don't see that changing, but I'm not the market. The market will dictate what we do. My personal opinion is that the converts are a heck of a lot higher cost of capital, and I probably will not be voting to do converts again.

John: Thank you. And then what are your thoughts on how safe, I guess, the ITC errors are in terms of a potential change in administration, maybe in November, you know, to the extent you would like to comment on that? I think President Harris will probably be very supportive of them, and that's a bit of a joke. Who knows who's going to win the election?

Speaker Change: What are your thoughts on how safe the ITC errors are in terms of a potential change in administration maybe in November , to the extent you would like to comment on that?

John: But I think when you look at it, clearly this is a dead heat now. So I think that the old, you know, Trump trade and so forth. I'd be very cautious on that, just personally, just looking at the situation. I think it's been a very active three weeks in the political landscape, and I think we'll continue to see some surprises. Look, I don't think that as a matter of party, I think that you should be supportive of what the IRA is doing, and behind the scenes, politicians of both stripes are exactly that. So I don't listen to the noise, and quite frankly, I personally find it to be more unhelpful and not worth my time to listen to the political noise than ever.

John: And I'd stay focused on what's working. As I mentioned earlier, domestic content is driving domestic manufacturing growth and jobs in a very important space that is the power generation space, using new technologies like solar, batteries, load management, EVs, etc. So I think that as you move forward in time, I think you'll find both parties to be very supportive of what we're doing and achieving. And I think the idea of repealing this and that, I think, will end up being in the dustbin of history, much the same as the Obama healthcare plan is basically still intact after all these years.

John: Thank you. Thank you so much. That's all for me. Thank you. Thank you all. Certainly, it doesn't seem like you guys are having any problems with competition from a growth perspective with the pause in new dealers. But I just want to... Yeah, certainly.

John: You know, look, I believe firmly in competition. And I think that the utilities ought to get some. And I believe that capitalism and competition make us all better, certainly pushes me to be better, love Puerto Rico and everything that we've been able to do down there for now over a decade. We're firmly committed to the market. And we obviously have a very large market share there still after over a decade.

Speaker Change: Any other area of the energy business.

Speaker Change: Period.

Speaker Change: So I think that theres going to be a lot of struggles with the new entrance you got a lot of painful lessons.

Speaker Change: What I've learned over the over the last 12 years and more and I'm certainly my prime competitor can share their painful lessons as well.

Speaker Change: And everybody has to go through them.

Speaker Change: I would say that there is a lot to be done to build up the kind of sizing company and performance that <unk> has.

Speaker Change: So embraced the competition I think it's important to have.

Speaker Change: And at the same time, I'm very confident and increasingly so in our our moat and our competitive position.

Speaker Change: I appreciate that and then maybe just a quick follow up any update kind of on the status of the Puerto Rico market and how you're thinking about things there.

Speaker Change: Great market.

John: We're completely focused on making sure our customers are taken care of, and we still believe in the market potential as we move forward over the next few years. So it's fantastic and I wish all of our markets were like Puerto Rico. Is it assuming any kind of pay down, like, Can you just talk about that? Is this just kind of a placeholder for now? I think that's fair. You nailed it. And in terms of just the domestic content, September 1st, is that timing just based on your checks with EPC or talks with them, or waiting for any further clarification from the IRS on that as well?

Speaker Change: Yeah, and then I just had this is Eric.

Eric Williams: Just to add that it's been.

Speaker Change: Nice to see some new investors coming in and we're working to grow the secretary class have a broader base of investors so that yield while while we don't like that is helpful. In expanding the universe. The asset outperformance will allow us to price more tightly and future deals and you just look at what we've done and we talked about.

Speaker Change: Moving from two deals last year to four we just announced the fifth John said, the <unk> is right behind possibly another one or two behind that so that's why it's so important to make sure we get a broader base and investors in <unk>.

Speaker Change: And that asset quality backstopping that will give us the chance to pull it in and having issued a significant amount you would expect.

Speaker Change: Single name pressure there, but.

Speaker Change: That having coal really highlight what we've done and then thats an underpinning to the quality of the cash flows under the corporate cash flows.

Speaker Change: We can always.

Speaker Change: Change in our strategy as far as allowing new dealers on if that makes sense, but right now we're saying is solidly doesn't end.

Speaker Change: We need to.

Speaker Change: Take care of those who who brought us to the dance and so.

Speaker Change: That's exactly what we're going to focus on and we're going to focus on maximizing the cash generation over growth.

Speaker Change: Got it and just lastly, any update on the project Hestia initiative and to what extent you've been leveraging that on recent initiatives securitizations.

Speaker Change: We did one last quarter.

Speaker Change: <unk>.

Speaker Change: It's a great program great success and.

Speaker Change: We're happy we're happy with it and look forward to.

Speaker Change: Finding ways to use more of that program.

Speaker Change: Alright, thanks for the time good luck in the second half.

Speaker Change: Thank you.

Speaker Change: Thank you. The next question is from Matthew.

Speaker Change: With Mizuho your line is now open.

John: I thank you all very much. Thank you. Q2 was busy, and we made tremendous progress. Execution on our plan of earning cash, paying down debt, supporting dealers, and serving customers is our sole focus. I expect Q3 will be even better, and look forward to sharing the results of our execution with you in late October.

Matthew: It is awesome.

Speaker Change: Thank you.

Speaker Change: Thank you. We currently have no further questions. So I'll hand back to Mr. Gallagher for closing remarks.

Mr. Gallagher: Thank you.

Mr. Gallagher: Q2 was busy and we made tremendous progress.

Mr. Gallagher: Execution on our plan of earning cash paying down debt supporting dealers in serving customers is our sole focus.

Speaker Change: I expect Q3 will be even better and look forward to sharing the results of our execution with you in late October. Thank.

Speaker Change: Thank you.

Speaker Change: Thank you very much Mr. Bye Bye. This concludes today's call. Thank you all for joining you may now disconnect your lines.

Speaker Change:

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Okay.