Q4 2024 Sunrun Inc Earnings Call
Thank you for watching!
Speaker Change: <unk>, CFO and Paul <unk>, President and Chief revenue Officer.
Speaker Change: Patient is available and Sunrise Investor Relations website, along with supplemental materials.
Speaker Change: A replay of today's call along with a copy of today's prepared remarks, and transcripts, including Q&A.
Speaker Change: The Sunrise Investor Relations website shortly after the call.
Speaker Change: 60 minutes for todays call, including the question and answer session and now let me turn the call over to Mary. Thank you Patrick and thank all of you for joining US today, the fourth quarter was an exceptionally strong quarter for Sunrun and our.
Speaker Change: Execution positioned us well for 2025.
Speaker Change: We are delivering high quality growth generating meaningful cash increasing our book value of deployed systems and paying down our parent debt.
Speaker Change: Our employees to further improve our operating and financial results and deliver a very strong 2025 with meaningful cash generation.
Speaker Change: In 'twenty 'twenty four we adapted to the rapid increase in interest rates innovative changes in state regulations.
Speaker Change: Robust supply chain with strong domestic content focus and remain steadfast in the face of irrational behavior from several industry participants.
Speaker Change: We are improving in every dimension focusing on fast effective execution to deliver a strong financial and operating results gaining share in a disciplined way and building a long term foundation of valuable great resources.
Speaker Change: Shooting on our plan does not require equity funding in.
Speaker Change: In 2024, we optimize our product mix prioritize the highest value geographies and routes to market with an intense focus on cost efficiency at the same time, we increased storage attachment rates, resulting in the highest net subscriber values Sunrise has ever reported we have now closed.
Speaker Change: Positive cash generation for three consecutive quarters and expect to do so in every quarter throughout 2025.
Speaker Change: Including the first quarter, which is seasonally the weakest.
Speaker Change: We are allocating excess cash to pay down our parent debt by them.
Speaker Change: And $86 million since Q1 of last year, while making strategic long term investments in AI, the lower cost streamline operations and create a differentiated customer experience.
Speaker Change: We also allocated excess cash to execute our end of year safe harbored equipment purchases should mitigate what we view is unlikely but still potential policy changes.
Speaker Change: The fundamental long term demand drivers for our business are incredibly strong and unrelated to any political party affiliation.
Speaker Change: Americans want greater energy independence and control of their lives and their pocketbooks. The country also needs more power from all sources, just feel rapid growth in electrification and data centers and our growing fleet of energy resources will be part of that solution for.
Speaker Change: For these reasons. It is no surprise that support for the energy we provide spans across all party lines.
Speaker Change: Turning to more specifics for the quarter and.
Speaker Change: In Q4, we grew contracted total value generated or the aggregate that contracted value of systems installed in the quarter using capital cost observed in Q4 by 125% compared to the prior year and 48% compared to the prior quarter. We did this by growing our customer.
Speaker Change: Sequentially and by increasing subscriber values from higher battery attachment rates and ITC realization, while holding our creation costs flat.
Speaker Change: Cash generation was $34 million in the quarter, we elected to invest 18 million of working capital in Safe Harbor equipment, which obviously lowered our cash generation results in the quarter.
Speaker Change: In Q4, we also hit all time highs for storage attachment rates and capacity installed we installed storage for 62% of our new customers an increase of 17 percentage points from a year ago. We installed 392 megawatt hours of storage in Q4 up 78% from a year.
Speaker Change: Our fleet of network storage capacity has reached 2.5 gigawatt hours with over 156000 storage systems installed.
Speaker Change: We continue to advance programs that generate value for customers the grid and sunrun.
Speaker Change: We have 16 grid service programs active across the country with over 20000 customers participate.
Speaker Change: During 2020 for Sunrun spiritual power plants successfully supported empowered races across the country with a combined instantaneous E of nearly 80 megawatts of capacity greater than many traditional fossil fuel power plants, sunrun is leading and establishing a platform to chart homes at vehicles.
Speaker Change: In the smart controllable load that can be dispatched into and improve the electric grid.
Speaker Change: I wanted to spend a minute on what we're seeing in recent industry data, we don't manage the market share we view, our leading position in the industry is a natural long term result of pursuing a customer first disciplined growth strategy.
Speaker Change: Just curious where they're rational competitive behavior, such as pricing and terms loan providers offered a few years ago and more recently pricing terms being offered by certain financing only new entrants, but our view is that a focus on the fundamentals and first rate execution always prevail in the long term.
Speaker Change: Lead with the best possible customer experience underwrite healthy financially sound business and grow in a sustainable strategic way we.
Speaker Change: We have seen some new entrants become more rational in recent periods, while others continue to scale with an economic cash consuming activities.
Speaker Change: We have seen our share of residential storage installations expand to over 15% in the U S. While residential solar installations nationwide picked up significantly in the last few quarters from 13% in Q1 to 19% in Q4 I'm pleased to see these trends, but I'm more pleased that we are.
Speaker Change: Doing it in a way that is consistently generating cash and delighting our customers.
Speaker Change: Sunrun is well positioned to drive meaningful value for shareholders in 2025 and beyond.
Speaker Change: The grid continues to become less reliable and more expensive consumers are demanding more energy independence and choice and technology advancements continue to unlock more opportunities.
Speaker Change: Our primary focus is furthering our differentiation launching additional products and services to expand customer lifetime values and remaining disciplined margin and customer focused industry leader growing cash generation of the business for years to come.
Speaker Change: I know we are living in uncertain times and no one can predict the future perfectly but what we can do is to continue building an incredibly resilient and efficient organization. They can pivot and respond to whatever is thrown at it I recall just a few years ago investors were skeptical because sunrise had negative cash generation of what's facing large regular.
Speaker Change: Tori changes in California massive increases in interest rates and a challenging supply chain sunrun not only managed to adapt to these pressures, but has now started to generate significant cash on a recurring basis.
Speaker Change: These higher rates, while operating under now three and navigating the various supply chain dynamics. This is a team that knows how to focus on first rate execution and lead this industry.
Danny: Before handing it over to Danny I wanted to take a moment to share how sunrun employees responded during the devastating in Los Angeles wildfires in January.
Soon as high with wildfire threats emerged our team initiated our planned response to support customers and employees in an emergency like this the homes, we serve become critical infrastructure and impacted communities supporting both our customers and the communities. They live in batteries will automatically adjusted.
Speaker Change: To maximize backup power ahead of widespread blackouts when I visited our Los Angeles teams and customers during that time I heard numerous stories of how sunrun customer homes provided its central power as a safe Haven for so many were impacted by this tragedy. These events highlight the urgent.
Speaker Change: Need to more safely generate and deliver energy to customers and to have onsite power generation and storage systems, providing critical power during those emergencies demand for our storage offering remains robust following to say that with that let me turn the call over to Danny for our financial update. Thank you Mary today I won't.
Danny: Our operating and financial performance in the quarter, along with an update on our capital markets activity that outlook.
Danny: First the results for the quarter on slide 10.
Danny: We have now installed over 156000 solar and storage systems with storage attachment rates, reaching 62% of installations during the quarter.
Danny: We expect storage attachment rates to remain around this level or slightly higher for the next few quarters as higher mix of storage continues to drive net subscriber values higher.
Danny: During the quarter, we installed 392 megawatt hours of storage capacity well above the high end of our guidance and.
Danny: And an increase of 78% compared to the same quarter last year.
Danny: Our total network storage capacity is now above two five gigawatt hours in.
Danny: In the fourth quarter solar energy capacity installed was approximately 242 megawatts.
Our guidance range of 240 to 250 megawatts and an increase of approximately 7% compared to the prior year.
Danny: Customer additions were approximately 32900, including approximately 30700 subscribers chips.
Danny: Our subscription mix remained at 96% of deployments in the period.
Alright, guys.
Danny: <unk> was approximately 21400 in the quarter, an increase of 50% compared to the same quarter last year.
Irwin: And then Irwin.
Irwin: Approximately $1 million customers and 889000 subscribers, representing seven five gigawatts of networks solar energy capacity.
Irwin: 13% increase year over year.
Irwin: Our subscribers generate significant recurring revenue with most under 20% and 25 year contracts for the clean energy we provide at.
Irwin: At the end of Q4, our annual recurring revenue or <unk>.
Irwin: So that's number one 6 billion.
Irwin: 23% over the same period last year.
Irwin: We had an average contract life remaining of nearly 18 years.
Irwin: Turning to slide 10 in Q4 subscriber value was approximately $55800 and creation costs was approximately 36600 <unk>.
Irwin: And that subscriber value of $19177.
A strong result was from iron battery attachment rates and higher average investment tax credit level and sequential growth in volumes, leading to improved fixed cost absorption.
Irwin: Our Q4 subscriber value in that subscriber value reflected blended investment tax credit of 39, 8%.
Irwin: We realized stronger than expected achieve that in the 2024 low to middle income ITC adder allegation process.
Irwin: Which provided an approximate $750 benefit tomorrow.
Irwin: Scriber value with Q4.
Irwin: While litigation versus the domestic content ITC adder is picking up although at a slower ramp within our affiliated partners segment.
Irwin: Our blended investment tax credit was that approximately 42% for January installations, and we expect this level to increase further in a 45% later in 2025.
Irwin: Total value generation, which is net subscriber and value multiplied by the number of subscriber additions in the period was $589 million in the fourth quarter.
Irwin: Our present value based metrics are presented using a 6% discount rate.
Our financial underwriting already accounts for our constant capital, which was approximately seven 3% Q4.
Irwin: At a seven 3% discount rate net subscriber value was approximately $14400 and total value generated was $441 million.
Irwin: Excluding the non contracted portion of subscriber value, but still adjusting for seven 3% discount rate.
Irwin: Net subscriber value was approximately $11600.
Irwin: And total value generated was $357 million, an increase of 125% compared to the prior year.
Irwin: On slide 11, you can see our progress increasing subscriber value through higher value mix and higher ITC muscles, while keeping creation costs, largely flat generating expanding that subscriber values.
Irwin: Efficiency improved management of our grid costs declines coupled with operating cost leverage from sequential volume growth largely offset the increased costs associated with higher storage attachment rates.
Irwin: Turning now to gross and net earning assets and our balance sheet on slide 13.
Irwin: Gross earning assets were $17 8 million at the end of the fourth quarter.
Irwin: Gross earning assets as the measure of cash flows we expect to receive from subscribers over time.
Irwin: Operating and maintenance costs distributions and tax equity partners and distributions through project equity financing partners, all discount and a 6% Unlevered capital cost.
Irwin: Net earning assets were $6 8 billion at the end of the fourth quarter.
Irwin: $136 million from the prior quarter.
Irwin: Net earning assets gross earning assets less cash less our debt.
Irwin: Net earning assets does not include inventory under construction in progress assets running that derivative assets related interest rate hedges all of which represent additional value.
Irwin: The value creation upside, we expect from future grid services opportunities as selling additional products and services to our customer base are now reflected in these metrics.
Irwin: And our prudent risk management approach, we programmatically enter into interest rate hedges to insulator capital costs from adverse near term fluctuations.
Irwin: The vast majority of our debt is either fixed coupon long dated securities are floating rate loans that have been hedged with interest rate swaps.
Irwin: We do not and we do not adjust the discount rate used in net earning assets to match current capital cost for new installations.
Irwin: Turning to our capital markets activities.
Irwin: Sunrun is industry, leading performance as an originator and servicer of residential solar assets continues to provide deep access to attractively priced capital.
Irwin: As of today close transactions and executed term sheets provide us with expected tax equity capacity to fund over 500 megawatts of projects for subscribers beyond what was deployed through the fourth quarter.
Irwin: Thus far in 2025, we have added more than $1 3 billion in tax equity, resulting in a strong runway.
Irwin: We also had over $680 million in unused commitments available at our nonrecourse senior revolving warehouse loan after our January securitization.
Irwin: The amount of approximately 230 megawatts of projects for our subscribers.
Irwin: Our strong debt capital runway allows us to be selective and tightening termed out transactions.
Irwin: In January we priced the industry's second largest securitization behind only our own transaction from June of last year.
Irwin: The oversubscribed transaction was structured with three separate classes of a rated notes on material inflation Republic Reoffering.
Irwin: Weighted average spread of the notes was 197 basis points, which was an improvement of approximately 38 basis points from our prior securitization in September.
Irwin: Similar to prior transactions, we ranked traditional subordinated non recourse debt financing, which increased the cumulative to date.
Irwin: As measured against our contracted subscriber value metrics.
Irwin: About 80%.
Irwin: When we think about our balance sheet, we prioritize a strong cash position and use of asset level nonrecourse debt financing.
Irwin: This strategy provides the lowest cost of capital to finance cash flow producing assets backed by highly credit worthy consumers and is designed to avoid the use of capital to fund our recurring origination activity.
Irwin: Cash generation was $34 million in Q4, the third consecutive quarter of positive cash generation.
Irwin: Cash generation would have been approximately $66 million and have not been for a few factors first we decided to invest $18 million in cash for safe Harbor equipment purchases in late Q4.
Irwin: Second our affiliate partners experienced a slower ramp in domestic content.
Irwin: Qualification.
Irwin: These two primary factors along with other mining minor working capital timing differences collectively represented over $32 million in reductions to cash generation for the period.
Irwin: During the fourth quarter, we executed in the Safe Harbor program to insulate various tax policy risks and program was executed in a very capital efficient bank, securing $350 million and equipment purchases.
Irwin: They consuming about $18 million of temporary compatible.
Irwin: These are instances provides risk mitigation for volumes throughout 2025 for solar projects and midway through 'twenty 2025 for storage projects, we will explore additional safe harbor initiatives, if circumstances warrant in the future and we intend to maintain availability of non equity capital dedicated for this purpose.
Irwin: Okay.
Irwin: We have a strong balance sheet with no near term corporate debt maturities.
Irwin: Ended the quarter with $947 million in total cash.
Irwin: During the fourth quarter, we repurchased 126 million in principal of our 2026 convertible notes at a discount.
Irwin: And there'll be end of 2024.
Irwin: $8 million in principal outstanding of these notes, which we plan to repurchase in 2025.
Irwin: Since March 2024, we have paid down recourse debt by $186 million by repurchasing our 2026 convertible notes and reducing borrowings under our recourse working capital facility.
Irwin: We expect to further pay down of $100 billion or more in recourse debt in 2025.
Irwin: Aside from the $8 million outstanding of our 2020 convertible notes, we have no recourse debt maturities until March 2020, we.
Irwin: We have no current capital needs at this time.
Irwin: Overtime, we will explore further capital allocation options to maximize shareholder value based on market conditions and long term outlook.
Irwin: Turning now to our financial outlook, the Underpenetrated nature of our industry gives us confidence we can sustain robust growth throughout this decade and this strong long term demand backdrop, our priority is to generate cash by continuing to increase customer values through growing our mix of higher value products and by keeping our costs low.
Irwin: Our margin focus growth is yielding strong results and provides a high growth outlook for aggregates value creation, which will translate into cash generation and growth in our book value of deployed systems or net earning assets.
Irwin: Turning to slide 17 in AG.
Irwin: Before I share our specific guidance for Q1, and the full year 2025, I want to detail a few of the key metrics. We will report and guide you commensurate with our Q1 2025 release and we believe align with our strategy.
Irwin: Well, great year ago, we started reporting subscriber value in net subscriber value pro forma for the marketing cost of capital that we observe each period and used to make our financial underwriting decisions.
Irwin: Additional disclosure showed our ability to substantially grow unit margins, even if capital costs remained elevated and fluctuated.
Irwin: Fortunately, we also directly address critiques about our use of a 6% discount rate and the higher capital cost environment.
Irwin: Going forward, we will report subscriber value net subscriber value total value generated any similar metrics derived from subscriber value using only a floating discount rate that reflects the market absorb cost of capital for each period.
Irwin: Gross earning assets our book value measure will continue to use a fixed discount rate.
Irwin: As I noted.
Irwin: Because the vast majority of our customer cash flows are not subject to floating rate exposure adjusting the discount rate each quarter is not appropriate.
Irwin: Continuing to increase our aggregate value creation correlates with growth and cash generation overtime.
Irwin: Accordingly, we will start guiding to aggregate value creation metrics, while moving away from guiding just specific solar and storage deployment volumes and unit margins each period.
Irwin: Reported and provide commentary on deployment unit margins, including our optimization between the two so that analysts and investors can continue to track the fundamental building blocks in our business.
Irwin: On our next call we will provide guidance on the following primary metrics first Niagara.
Greg: Greg its subscriber value, which is subscriber value multiplied by the number of subscriber additions in the period.
Greg: Second contracted net value creation, which is the contracted only portion of aggregate subscriber value conservatively, excluding non contracted value less aggregate creation costs.
Greg: And third cash generation.
Greg: On slides 19, and 20, we detail our guidance.
Greg: Strong value creation and will allow us to deliver cash generation of <unk>.
Greg: <unk> million dollars in Q1, which will be our fourth consecutive quarter of positive cash generation.
Greg: Underpinning our Q1 cash generation guidance storage installations are expected to grow at a robust pace, while solar installations are expected to be approximately flat compared to the prior year with higher growth in our direct business that are affiliated partner business.
Greg: In Q1 storage capacity installed is expected to be in a range of 265 to 275 megawatt hours and solar capacity installed is expected to be in a range of 170 to 180 megawatts.
Greg: For the full year 2025, we expect cash generation to be in a range of $200 million to $500 million.
Greg: This is a revision from our prior guidance of $350 million to $600 million.
Greg: Driven by a slower ramp in domestic Tom Jan <unk>, and our affiliate partner business.
Greg: Higher capital cost assumptions and slightly lower volume expectations, partially offset by higher storage bags.
Greg: On slide 20, we outlined the assumptions and sensitivities related to key variables that would affect our achievement of our 2025 outlets.
Greg: We expect a 44% weighted average ITC level in 2025, and further underpinning our guidance are assumptions of 75% to 8% average cost and project level capital.
Greg: Battery attachment rates around 66% and slight improvement.
Greg: Mentioned, the timing of tax credit transfers is that market further matures.
Greg: Our cash generation outlook does not reflect additional safe harbor equipment purchases.
Greg: We expect solar installed volumes to be approximately flat next year this year.
Greg: As we achieve cash generation, we will continue to allocate excess unrestricted cash to deleverage with the target to pay down parent recourse debt by $100 million in more by the end of 2025.
Greg: We are committed to our capital allocation strategy beyond this initial deleveraging period that drive significant shareholder value.
Greg: With that let me turn it back to Mary Thanks, Danny I. So appreciate the work of the entire Sunrun team and our scale, even with more modest growth in new additions, we are adding over 100000 customers a year, which is double digit growth to our fleet and with 66% battery attachment rates.
Greg: That's well over a gigawatt hour of valuable storage capacity or the peak capacity of the nuclear plant on an annual basis. The strategic shift we undertook nearly two years ago to emphasize high quality growth is yielding strong results in terms of repeatable and meaningful cash generation.
Speaker Change: Along with providing customers with a greater sense of independence stability and security in their own helps with that operator, let's open the line for questions.
Speaker Change: Okay.
Speaker Change: Thank you we will now be conducting a question and answer session.
Speaker Change: You'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the starts.
Speaker Change: We ask participants to limit themselves to one question and one follow up question.
Speaker Change: One moment, while we poll for questions.
Speaker Change: Okay.
Speaker Change: Our first question comes from the line of Preneed cities with Wells Fargo. Please proceed with your question.
Speaker Change: Yeah.
Speaker Change: Thanks.
Speaker Change: Good evening, I guess I wanted to start first on the Safe Harbor, maybe this is too simplistic of a way to look at this but if I take the $350 million of Safe Harbor that you did and divide by 5% get 2% to $7 billion. So that kind of seems like you could cover.
Speaker Change: Few years' worth of solar and storage installation. So I'm just trying to square that with the commentary you made on how the safe Harbor will cover I think solar installs for one year and storage for half year.
Danielle: Yeah, Hey, it's Danielle <unk>.
Danielle: Add a little bit. So we said on the prepared remarks, it's about 12 months for solar deployments and approximately half of the year for storage deployments.
Danielle: One element of bridge is.
Danielle: The amount of equipment purchases and the kind of the ticket price if you will.
Danielle: Got it perfect optimization for every project you exactly 5%.
Danielle: The actual amount of purchase could represent more than 25% that simple division.
Danielle: Cause you to overstate the amount of value.
Danielle: The amount of aggregate value again switching to apply as the fair market value of projects.
Danielle: So you should be looking at aggregate system value created at over an annual period for any period.
Danielle: Is that kind of remainder of difference, but it is six six months for batteries about 12 months for storage only projects.
Danielle: Got it that's helpful.
Danielle: And then secondly on the guidance here, so you're guiding to $200 million to $500 million of cash generation in 'twenty five.
Danielle: You're committing to pay down one.
Danielle: $100 million of recourse debt basically I guess, the working capital facility. So that leaves a good amount of.
Danielle: Unallocated cash generation, maybe if you could just kind of walk us through your priorities for deploying that additional cash and I guess why not pay down more debt.
Danielle: Yeah, I think the priority is to continue to deleverage as far as deleveraging target I think we're.
Danielle: Looking at a target range of one five to three ex free cash flow multiple which for US we would use cash generation.
Danielle: And it's important to build.
Danielle: Multiple quarters trailing a look back of cash generation as we do that.
Danielle: With an outlook to continue to assess it.
Danielle: Obviously.
Danielle: Bulk orders into that with the Q1 guide.
Danielle: It meant that what makes four consecutive quarters of positive cash generation that we would want to continue to use this period of time to delever, the balance sheet and within those targets.
Danielle: <unk>.
One your outlook beyond that there could be more deleveraging or during the period of time there could be.
Danielle: Substantially more than $100 million.
It is the floor.
Danielle: And then the ultimate priority is to strengthen balance sheet.
Danielle: Over this period of time.
Danielle: And as we get closer and closer to our deleveraging targets what comes into focus is capital allocation beyond that period.
Danielle: With me in the interest of maximizing shareholder value.
Danielle: Got it thank you.
Danielle: Thank you.
Speaker Change: Our next question comes from the line of Philip Shen with Roth Capital Partners LLC. Please proceed with your question.
Philip Shen: Congrats on your solid execution cash generation debt pay down.
Philip Shen: Stable performance overall during this challenging time.
Philip Shen: You know the stands in contrast, with what some peers in the industry who are struggling.
Philip Shen: I wanted to see if you could comment on the tax equity and upfront.
Philip Shen: Funding dynamics.
Philip Shen: It seems like things may be slowing down on the front end, especially following the election.
Philip Shen: Can you give some color on this and importantly, how are you guys managing through perhaps a lengthening of the tax equity payment terms. Thanks.
Philip Shen: Yes.
Philip Shen: So on the prepared remarks.
Philip Shen: We talked about one 3 billion in tax equity added to our run rate. This year. If we include that.
Philip Shen: <unk> is not specific to that but we've had a very busy start to the year in terms of raising capital.
Philip Shen: On Friday evening, our capital raises.
Philip Shen: You know being on a pretty high velocity deal base.
Philip Shen: So that's 2 billion or more in aggregate.
Philip Shen: Capital if you add the two together on the tax equity piece, specifically, we're continuing to see.
Philip Shen: Both the re emergence of certain traditional tax equity buyers it might've been.
Philip Shen: For reasons unspecific into space.
Philip Shen: The market for a little bit of time.
Philip Shen: <unk> seen traditional tax equity continue to participate in greater and greater awareness and the hybrid transactions format and we've definitely seen most significantly I think broadening out of the transfer credit buyer universe.
Philip Shen: No very large.
Philip Shen: Corporates are increasing in the mix.
Philip Shen: And we're certainly seeing our investor universe, broaden out and the deal activity to be quite active at the front end of the year.
Philip Shen: Right and so as the broadening of that buyer universe.
Philip Shen: Happens and with the uncertainty with the all right have you seen payment terms changed as a result, you know perhaps the traditional tax equity.
Philip Shen: Investors who are syndicating.
Philip Shen: For lack of a better word the deals now instead of participants being the entire source of the tax equity they might be bringing in other tax credit investors, but those guys might be getting a little bit skittish with the IRA.
Philip Shen: How are you guys managing through that where some of the traditional tax equity might be very comfortable with the situation, but some of the new players who may not have deep expertise in this space be dealing with that and then shifting to my other topic on domestic content and.
Philip Shen: Last quarter, you guys talked about power wall, three not having shortages for you guys and so they recently shared some new allocations for Q2 in terms of how much people are getting up there in terms of power. All three are you getting the full allocation that you've been expecting.
Speaker Change: Sure Phil I'll take that.
Speaker Change: High up on that first question and then I'll pass it over but on the tax equity dynamics.
Speaker Change: I would say if you track our commentary of the past, which is as we've moved into the trans tax credit transfer market. There haven't been any impacts of the price of credits that we sell but I would say not much new to report there.
Speaker Change: Low low to mid 90 days on a cents per credit Hs agenda is would be the price I would say if those if that's already forwarded by the system and we're expecting to continue with potential for upside.
Speaker Change: As far as a policy or tax policy uncertainty risk and how it's being digested by the market I think people.
Speaker Change: People are generally comfortable at this point.
Speaker Change: Ed.
If we're talking about in calendar year 2025 tax credit salespeople are generally comfortable with the current law that's in place and underwriting those credits. So we're not really seeing it.
Speaker Change: And in fact, that's noticeable there.
Speaker Change: And then I will just answer the question on powerful supply generally in great shape, there as youre seeing where rates steadily raising our guidance.
Speaker Change: That's what in particular remains a strong partner for us at generally keeping up with demand.
Speaker Change: We do have other partners in our fleet portfolio that we use.
Speaker Change: Have a great partnership with them, but no.
Speaker Change: Really widen supply chain.
Speaker Change: Very little issues whatsoever.
Speaker Change: Great. Thanks, guys keep up the good work good work and I'll pass it on.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Mohit Madlib with Mizuho Securities. Please proceed with your question.
Speaker Change: Hey, good evening, thanks for taking the questions that doesn't know the nice to see discussion ratio hitting 200 ER.
Speaker Change: Including that 18 million five does that but maybe one question just on the guidance for 25, you talked about solar being slightly flattish.
Speaker Change: Is that due to the.
Speaker Change: Your affiliate partners or just broader.
Speaker Change: Market slowdown, you're seeing there or just more competition with the other leasing companies. If you could just highlight any color on that.
Speaker Change: Right.
Speaker Change: Yeah. So for sure. This is Mary Thanks for the question or volume outcome is a bottoms up go to market approach. Our direct business is seeing solid growth. We are seeing some less growth in affiliate partners.
<unk>, we shifted to a storage first strategy margin focused strategy, that's generating cash.
Speaker Change: So again, we feel we're growing market share and the data clearly indicates this.
Speaker Change: So.
Speaker Change: That's our view.
Speaker Change: Got it and then maybe just on top of that so you talked about a well one of the reasons for reduced cash generation 425 was a slower ramp in domestic content just for the affiliate partners could you elaborate on that is that perm.
Speaker Change: Partners getting less domestic equipment or like batteries or solar or are there anything specific there.
Speaker Change: Yes, I think youre exactly that so I think there is.
Speaker Change: Some challenges with obtaining qualifying divested content hardware and then.
Speaker Change: As the rules.
Speaker Change: <unk> all been clarity comes on them operationalized and processes to be able to qualify.
Speaker Change: Can be challenging for some smaller partners since losing silver adoption.
Speaker Change: With our affiliate business.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Colin Rusch with Oppenheimer. Please proceed with your question.
Speaker Change: Thanks, So much can you just talk a little bit about the labor pool that youre seeing right now and shifts in terms of any impact of immigration law Oh.
Speaker Change: Or other folks are exiting the business and being able to pick up some new folks.
Speaker Change: Hi, Thanks for the question. This is Mary we're not seeing any labor impact changes.
Speaker Change: We have you know Sunrise repeatedly comes out as one of the best companies to work for we have a really good pipeline.
Speaker Change: To support our needs across the business. So we're feeling really good in that arena I think on the second part of the question just as others.
Speaker Change: Slowdown in this space is picking up talent I would say yes.
Speaker Change: People to say some of it is kind of a safe Haven and a place to go.
Speaker Change: While stable career and on the sales front and on the installation front, we see people who have been out of the industry kind of migrating to sunrun.
Speaker Change: Great.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of.
McDonald: Mcdonald with Wolfe Research. Please proceed with your question.
Speaker Change: Hey, good afternoon, everyone.
Speaker Change: Hey, Joe.
Speaker Change: Just want to start with it looks like sales and marketing has been kind of one of the more meaningful tailwind for creation costs, which were flat in the quarter can you just talk a little bit about what you're seeing with conditions.
Speaker Change: The competitive dynamics that you've talked about is that kind of how.
Speaker Change: How is that factoring into how you are kind of paying.
Speaker Change: And paying commissions.
Speaker Change: Yes, I think one of the areas of focus for us has been standardization.
Speaker Change: The installation of our operations business.
Speaker Change: Our operations team I think is good.
Speaker Change: I can confidently say the best in the industry and the fastest and most efficient they've ever been and so as salespeople evaluate where do they want to sell.
Speaker Change: The experience of their customers get.
Speaker Change: First class etcetera, and so that's really helped us to be able to have.
Speaker Change: Mission leverage if you will by providing a secure operations experience for salespeople and the second would be the product that we sell and being a storage first business. So when you're out there trying to compete on price or.
Speaker Change: Delivered customer savings against utility rate versus talking about the benefits of resiliency and battery backup in future revenue sources for the customer through virtual car quest.
Speaker Change: Clearly a different offering and more sophisticated thoughtful salespeople are recognizing that and are seeing.
Speaker Change: They're able to generate assets that have higher value.
Speaker Change: Or a more attractive commission.
Speaker Change: But on a relative basis create good economies of scale for us on a per unit basis.
Speaker Change: Got it thank you.
Speaker Change: And then I guess, just a more timely question.
Speaker Change: Trump administration seems like it's trying to keep everybody on their toes with the tariffs.
Speaker Change: Specifically for Sunrun.
Speaker Change: Assuming that would kind of flow through the snap and rack business in terms of exposure to tariffs whether that'd be.
Speaker Change: China, Canada, Mexico can you just speak to any exposure that you might have.
Speaker Change: Yeah, I'll talk through it at a high level as we think about it from the holistic financial picture says first as a reminder, there have been various forms of tariffs burdening the industry since 2012.
Speaker Change: Today as we look at the total cost stack hardware is about a third of our total costs and we estimate that and when do you kind of play it's about a 20 cent per watt aggregate cost.
Speaker Change: Between all of the elements not just wrapping it with it and that would be about a 13% increase to our overall hardware costs, but then when you cut that down for what it means to our overall capital.
Speaker Change: Yes.
Speaker Change: Our creation cost stack, if you will.
Speaker Change: It's about a 4% increase.
Speaker Change: Overall costs so.
Speaker Change: I would say a large portion of which we've already also.
Speaker Change: Into our expectations.
Speaker Change: And so if we look at it and we think that in combination with the fact that pricing related to our safe Harbor purchases has already been locked in and Theres a good mitigation for cost impacts this year.
Speaker Change: And that ultimately 2026, that's a few.
Speaker Change: Percentage points potentially.
Speaker Change: Potential impact.
Speaker Change: We'll continue to grind cost down around it.
Speaker Change: The best positioned to kind of continue to grow cash generation would be up 25.
Speaker Change: Great. Thank you I'll pass it on.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from the line of Brian Lee with Goldman Sachs. Please proceed with your question.
Speaker Change: Hey, guys. This is Tyler bisset on for Brian Thanks for taking my questions.
Speaker Change: Just wanted to first touch on your updated key assumptions for the different cash generation metrics can you just discuss what drivers led you to revise those it's just higher cost youre seeing or is it something else.
Speaker Change: Yeah.
Speaker Change: Yes, I think you just made in the course of the planning exercise.
Speaker Change: And we talked about the ITC realization.
Speaker Change: That's 44.
Speaker Change: Mainly a reflection of not ultimately where we will end up but that delayed near term Brad we discussed and covered that is mainly related to the affiliate partner.
Speaker Change: We said also expecting to reach 45% for the year, but may be obtaining 44% for the whole calendar year.
Speaker Change: So long term not a change but near term impacts of the calendar year.
Speaker Change: On cost of capital I would say today, obviously, we gave the seven 3% discount rate looking back on Q4, actuals and we planned a little bit more conservative way, we said it obviously.
Speaker Change: Multiple quarters now with rates fluctuating.
Speaker Change: So we are planning a little bit higher than where we're currently running.
Speaker Change: For sake of conservatism and then battery attachment rates, that's just updating to the normal run rate of course, we also gave commentary on both on the call and during the Q&A here.
Speaker Change: You mean, how that's moved around for us.
Speaker Change: Task orders outlook.
Speaker Change: Great Super helpful. And then just on safe harboring mentioned spent $18 million in cash and for Q2 to secure the $350 million.
Speaker Change: Should we expect any continued cash deployment for that like incrementally here I like the first half or anything.
Speaker Change: Italy.
Speaker Change: Not in a one time fashion I would say it will probably look more like a run rate activity for the year.
Speaker Change: The one thing we have also mentioned is that we don't assume.
Speaker Change: Alright, so so theres also step back there's also consumption of other equipment through the year occurring with them, which.
Speaker Change: Which is cash timing of monetization and install occurring concurrently with equipment payments for committed purchases. So so the one time activity, we called out for <unk>.
Speaker Change: Q4, well run rate out for the year, and then as far as any future safe Harbor activity.
We haven't planned.
Speaker Change: Plan for that in the numbers that could be incremental activity as we planned out the year.
Speaker Change: So there could be future forthcoming impacts.
Speaker Change: If we took on more safe harbor purchases to the extent that out.
Speaker Change: Great. Thank you very much.
Speaker Change: Thank you. Our next question comes from the line of Tim Moore with Clear Street. Please proceed with your question.
Tim Moore: Thanks, so much.
Tim Moore: Investors are clearly starting to appreciate your cash generation and focusing that is the main metric and we like that youre doing profitability and cash generation rather than solely focusing on the top line.
Tim Moore: I guess I'm, just wondering with your guidance commentary on <unk>.
Tim Moore: Slats solar energy and capacity installations versus the robust growth on the battery energy stores.
Tim Moore: Just kind of factoring in new home sales could be a driver this year you've been doing good on that since last summers.
Tim Moore: The California rebound retrofits battery attachment rates might go up I don't know 8%.
Tim Moore: First half of the year is you'll have to 52% first half.
Speaker Change: Last year. So can you just any color maybe on what you think revenue growth could be even though it's not the main metric I mean.
Tim Moore: Is it to sort of to think upper single digits growth for the year.
Tim Moore: So from a.
Tim Moore: Top line revenue growth perspective.
Tim Moore: <unk>.
Tim Moore: So revenue should be growing faster than the units.
Tim Moore: We're creating higher value units I think you hit you already had all the factors.
Tim Moore: In storage attachment rate.
Tim Moore: I'm focusing roads.
Tim Moore: In the highest value markets.
Tim Moore: D prioritization, if you will.
Tim Moore: Our only.
Tim Moore: And.
Tim Moore: We do that the other thing we noted.
Tim Moore: Alrighty to hold the cost discipline and the creation costs flat.
Tim Moore: Lucid about sales and marketing at.
Tim Moore: Enables us to expand margin and reduced costs as a percent of revenue.
Tim Moore: That's correlated with cash generation. So the other part of this is.
Tim Moore: I did.
Tim Moore: Is that a little bit of light for a few minutes on the new metrics. We're excited about that and I think there'll be able to better illustrate all of those dimensions over time.
Tim Moore: See better how the top line growth is not just units, but it is higher value units and margin expansion.
Speaker Change: No that's helpful and my only other question I had was on <unk>.
Speaker Change: Just an irrational competitor behavior I know Mary mentioned that you know some new entrants on the rationale, but there's probably some of the comments that still haven't changed their ways. I mean can you just give us a flavor or at least benchmark you know.
Speaker Change: Rational behavior peaked sometime last summer I don't know if it did but.
Speaker Change: If it was something like five out of 10 last summer.
Speaker Change: Have you seen it in the last few months.
Speaker Change: There's an improved overall a little bit.
Speaker Change: Yeah, Great question I would say it's about stable.
Speaker Change: They are actually they have a tendency to not be able to do it forever and so it's one kind of unwind that'd be one is kind of replace them and then quickly gets filled up with volume with the sales reps that are happy to take advantage of somebody paying more for assets and the proceeds you can generate on them and so I would say, it's largely stable and in terms of a person.
Speaker Change: Out of the market that is overpaying for assets.
Speaker Change: But it's kind of been some exchange of hurdle.
Speaker Change: Sure.
Great. That's very helpful. Then it hasnt worsened I appreciate that.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Vikram <unk> with Citibank.
Speaker Change: Please proceed with your question.
Vikram: Hi, Thanks for taking the question just going back to the safe harboring of equipment.
Vikram: Are you able to quantify whether youll face any higher inventory costs on those modules in the storage that you are safe harboring this year.
Vikram: Is there any incremental warehousing costs.
You might face on that.
Vikram: Yes, we've been able to say you can look at the Q4 inventory balance.
Vikram: Pick up in the range of <unk>.
Vikram: $60 million.
Vikram: So there is a little bit higher carrying but as you'll also see that number is not $350 million.
Vikram: So it's not necessarily showing up as a big front end impact on inventory warehouse costs, but.
Vikram: But we also didn't know when we did it in a very capital efficient manner.
Vikram: Use of corporate cash, which implies we use third party capital.
Vikram: Do you find it which has some interest costs. So I think that the bigger share costs bright and more on the financing charges as opposed to the holding costs, which I think we're going to be very quite efficient.
Vikram: Got it and just one follow up.
Vikram: Maybe.
Vikram: Might have missed it but what was the rationale for having a little bit of a longer lead time on the modules as opposed to storage.
Vikram: Okay.
Could you repeat that question.
Vikram: What was the thinking behind having a bit of a longer runway for safe harboring on the module side as opposed to solve the storage side.
Vikram: Yes, I think I'd, just say, it's relative availability of it.
Vikram: Equipment in the market.
Vikram: One year of modules being available what are your batteries not being available.
Okay. Thank you.
Vikram: Yeah.
Vikram: Thank you.
Speaker Change: And that concludes the time that has been allocated for Q&A.
Vikram: You may now disconnect.
Vikram: Okay.
Vikram: Everyone else has left the call.
Vikram: Okay.
Vikram: Yeah.
Vikram: [music].
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Okay.
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Vikram: Okay.
Vikram: [music].
Vikram: Hum.
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Vikram: Okay.
Vikram: Okay.
Vikram: [music].
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Vikram: Yeah.
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Vikram: Okay.
Vikram: [music].