Q1 2025 Sunrun Inc Earnings Call
Speaker Change: Good afternoon, and welcome to Sunrun's first quarter earnings conference call. Please note that this call is being recorded, and that one hour has been allocated for the call, including the Q&A session.
Speaker Change: To join the Q&A session after prepared remarks, please press star one at any time. We ask participants to limit themselves to one question and one follow-up. I'll now turn the call over to Patrick Jobin, Sunrun's Investor Relations Officer.
Speaker Change: Thank you, Alicia. Before we begin, please note that certain remarks we will make on this small constitute forward looking statements. Although we believe these statements reflect our best judgment based on factors currently known to us, actual results may differ materially and adversely.
Speaker Change: Please refer to the company's filings with the SEC for a more inclusive discussion of risks and other factors that may cause our actual results to differ from projections made in any forward-looking statements. Please also note these statements are being made as of today and we describe any obligation to update or revise them. [inaudible]
Speaker Change: On the call today are Mary Powell, Sunrun CEO , Paul Dickson, Sunrun President and Chief Revenue Officer, and Danny Abajian, Sunrun CFO A presentation is available on Sunrun's investor relations website along with supplemental materials
Speaker Change: An audio replay of today's call, along with a copy of today's prepared remarks and transcript including Q&A, will be posted to the Sunrun investor relations website shortly after the call.
Mary Powell: And now let me turn the call to Mary. Thank you, Patrick, and thank you all for joining us today. In the first quarter, we exceeded our volume and cast generation targets in what is seasonally the slowest quarter of the year. We generated 56 million in cash, our fourth consecutive quarter of positive cast generation.
Mary Powell: We delivered market share gains and continued delivering, paying down our parades at by 27 million
Mary Powell: We added Q1 with $605 million in unrestricted cash, a $30 million increase from a firequarter.
Mary Powell: At the same time, we are excited about the official announcement of our new product, Flex, which Paul will talk about shortly.
Mary Powell: It is a dynamic environment for tax policy and tariffs. These uncertainties make planning difficult and may require significant adjustments for the business.
Mary Powell: Like many companies across the country, we are controlling what we can and are ready to adapt to changes that may occur
Mary Powell: Sunrun has faced periods of major change over the last few years and we used it as an opportunity to become even stronger. We believe the tariff outlook is manageable and we will generate meaningful cash this year. [inaudible]
Mary Powell: We are delivering the best products for customers, underwriting volumes with strong unit margins, optimizing our routes to market and driving cost disciplines, including leveraging AI for innovation, creating significant operating efficiencies and quality enhancements.
Mary Powell: This has allowed us to gain considerable market share in recent periods and produce strong operating and financial results
Turning to an update on demand.
Mary Powell: Demand remains strong. In Q1, total customer additions grew 6% compared to the prior year. And more meaningfully, our aggregate subscriber value grew 23% from last year to more than 1.2 billion.
Mary Powell: This growth was supported by our higher value storage offerings and less.
Mary Powell: Customer Editions with storage grew by over 46% from Q1 of last year, hitting a record high of 69% storage attachment rate.
Mary Powell: We are growing our share of consumers' energy spend and have favorable tailwinds with further electrification, increasing grid instability, and utility rate escalation.
Mary Powell: Americans weren't affordable and reliable energy. We provide a way for them to lock in predictable energy costs and reliability with no money down.
Mary Powell: Demand for our offering is strong in good time and during periods of weakening consumer confidence or even a recession, as Americans look for ways to control what they can [inaudible]
Mary Powell: On slide 5, you can see the strong volume growth we are achieving.
Mary Powell: Sunrun is now a multi-product company, primarily providing solar and storage systems.
Mary Powell: Nearly quadrupling this business in the last two years, demand for residential solar and storage is strong and the industry has only penetrated approximately six percent of households of households.
Mary Powell: Our approach has led us to gain considerable market share, as you can see on slide six. We have steadily increased our share to approximately 19% of new solar installations and about 45% of new storage installations across the country.
Leading with a storage first offering provides numerous financial benefits.
Mary Powell: Subscribers with storage have higher upfront margins as we are providing a more sophisticated offering that provides additional value to customers.
Mary Powell: and because it is more complex to sell design in install and service. Over time, storage systems also unlock additional recurring revenue strings as they present valuable energy resources for the grid.
Mary Powell: While still in Nathan's business and small source of revenue today, this will grow significantly in the years ahead. Turning to updates on federal policy and the trade situation.
Mary Powell: We are encouraged that Congressal offices understand the economic benefits of energy tax credits, especially given new electricity demand from trends like artificial intelligence.
Mary Powell: Interest in residential solar and storage is bipartisan, are 1 million customers and their representatives in Congress are politically diverse and they all want more affordable and reliable energy.
Mary Powell: A growing number of Republicans in Congress, including 39 overall House members, and four Senators have publicly expressed support for maintaining energy tax credits through various letters over the past few months.
Mary Powell: Just last week, an additional letter of support for maintaining the technology neutral credit 48e for the benefit of nuclear power with signed by 24 members. This credit is also the same technology neutral credit we utilized.
Mary Powell: We expect a range of draft proposals to be issued, possibly including some draconian scenarios, but they are expected to be moderated as negotiations progress. As a reminder, Republicans in the House can only lose three votes to pass legislation.
Mary Powell: and more than three dozen, as well as four U.S. senators, have been advocating to maintain energy credits.
Mary Powell: We are actively working through scenario planning and corresponding actions if there are material changes.
Mary Powell: Actions could include say, harboring with equipment purchases and carrying back geographies. In the past, we have seen industry-wide customer acquisition costs decrease and end-consumer prices increase to absorb compression and margin from regulatory changes, and we have a playbook to enact this.
Mary Powell: These are in addition to our ongoing efforts to drive further cost reductions and further monetize the value of our existing customer base.
Mary Powell: Shifting to the current tariff situation, hardware costs represent about one third of our total costs, and this cost will increase from tariff
Mary Powell: Near term, the effects are mitigated, owing to the advanced purchasing we did at the end of 2024.
Mary Powell: We are also shifting to use more domestically produced equipment, but supply is limited.
Mary Powell: Currently about half of our modules supply and a hundred percent of inverter and battery supply is sourced domestically
Mary Powell: Although within put components source globally, we do not directly import any solar equipment from China, although producers in China are important for various upstream components used by our suppliers.
Mary Powell: Any adverse changes to tax and tariff policy, of course, will also impact utilities and create additional pricing headroom .
Mary Powell: Lastly, before I turn the call over to Paul, I want to thank all of our Sunrun teams and our partners that are clearly born to one, driving significant results for our customers and shareholders.
Disquarter, I also want to highlight our AIT.
Mary Powell: This team is driving enhanced efficiency and customer experience. As an example, one of our recent projects includes our system design tool. We have been able to unlock 30% higher efficiency and design process, improving turnaround times and accuracy, reducing costs and increasing sales realization.
Mary Powell: We are working on over 100 AI initiatives across the company, a big shout out to our Chief Technology Officer Redshift and the AI team lead.
Paul Dixon: Chalk, Edward Blocchew, Marco Parker, Terry Victor, Yahya, thank you so much. And with that I'll turn the call over to Paul to discuss Sunrun's lecture.
Paul Dixon: Thanks, Mary. One of the reasons we've been gaining significant market share, generating strong unit margins and producing cash is our innovative new product, Sunrun Flex.
Speaker Change: Flexes the most important financial product in innovation, the industry has seen since Sunrun introduced the residential power purchase agreement in 2007.
Speaker Change: Currently there are no solar plus storage offerings, cash loan or subscription that allow customers to plan for their growing energy needs in a flexible, affordable way.
Speaker Change: Home solar systems have historically been designed to either match a household's current energy usage or be oversized in anticipation of future needs, likely resulting in either unmet needs as energy usage increases or generating solar energy that is not used immediately. Thank you very much.
Speaker Change: Flex removes any uncertainty, offering a solution that fits families needs now and in the future.
Speaker Change: We do this by identifying the customer's current energy usage and contracting with them for that amount of generation like we always have then we flex up their system by adding additional panels and contract with the customer to buy that power when they use it [inaudible]
Speaker Change: Over our history, we have observed that homes that go solar, on average, increase their electrical consumption by 15% within the first year of getting solar.
Speaker Change: It's also not uncommon for SOAR customers to adapt an electric vehicle which drives up their energy consumption even more [inaudible]
Speaker Change: This incremental energy consumption is typically coming from the utility at a high cost or the customer needs to go through the hassle of getting an additional source system installed.
Speaker Change: Are offering allows customers to use more electricity in a locked in affordable rate as they electrify their lifestyles?
Speaker Change: This means energy is ready for them as they want it at a low rate. If they don't use more electricity beyond their contracted minimum baseline, they don't pay for it.
Speaker Change: Assuming 100,000 typical customers with flex used just 15% more electricity, we would generate approximately 20 million per year in additional customer payments repeating every year.
Speaker Change: We're actively building out home-specific insights and education to help our flex customers make electrification decisions that fit their lifestyle and enable them to tap into more flex capacity, which is available to them. This will result in many using significantly more than 15 percent. This will result in more than 15 percent.
Speaker Change: We include only the baseline contracted amount in our contracted subscriber value and the flex upside revenues are additive to strong contracted net subscriber values from the product.
Speaker Change: Since we launched Flex in several pilot markets over the last few months, we have seen over 10,000 or half of Flex eligible customers select Flex over our non-flex alternative.
Speaker Change: Since black systems are larger, we benefit from cost efficiencies from installing larger systems, and therefore can earn a similar margin to our standard product. If you assume the customers planned consumption increases, we will earn even higher returns from the recurring cash flows. [inaudible]
Speaker Change: Additionally, larger flex systems are paired with more batteries, and the excess storage capacity creates an even more valuable grid resource, allowing these distributed batteries to benefit all ratepayers.
Speaker Change: Sunrun is playing a different game, leading with storage, generating cash, and innovating. Lex is only available through Sunrun. With that, I'll turn the call to Danny for this financial update and outlook.
Danny: Thank you Paul, turning first to slide 12. As we discussed last quarter, we made modifications to our key operating metrics. We made these changes to simplify how we communicate our value creation activities. Thank you.
Danny: We now report both unit margins and aggregate value, starting from the top line gross value of subscribers to present values of expected subscriber cash flows including non contracted or upside revenues.
Danny: present values including only contracted cash flows and to margins that just reflect proceeds we expect to obtain from financing.
We also made several other key modifications to methodologies.
Danny: First, we move to measuring subscriber values using a variable discount rate based on observed project level capital costs each period instead of using a fixed 6% discount rate.
Danny: Second, we are now reporting a precise advance rate each period to estimate proceeds based on market terms as opposed to reporting ranges.
Danny: Third, we simplified how we calculate creation costs, including more costs such as R&D expenses along with tying the creation cost build up directly to cash flow statement items
We did not remove any metrics we previously provided
Danny: We have provided a full reconciliation of these metrics in our posted materials and have provided recast historical metrics starting with the first quarter of 2023 for comparative purposes.
Danny: Turning first to the unit level results for the quarter on slide 13 [inaudible]
Danny: Subscriber value increased to approximately $52,000, a 15% increase compared to the prior year, as we increased our storage attachment rate by 19 percentage points is 69%
Danny: grew our flex deployments and benefited from a 44% weighted average ITC level an increase of eight percentage points from Q1 of last year.
Danny: Subscriber value reflect the 7.5% discount rate this period.
Danny: We were able to maintain cost discipline with creation costs increasing only 7% from the prior year, a smaller increase than the 15% growth and subscriber value.
Danny: Creation costs increase due to higher battery hardware and associated installation labor costs from the storage attachment rate increase, the labor productivity and fixed cost absorption offset a portion of these increases.
Danny: This led to a 66% year-over-year growth in net subscriber value to $10,390.
Danny: Consistent with prior years, the first quarter of the year is seasonally the lowest margin period of the year as we are ramping sales activities for the busier summer months and have worse, worse fixed cost absorption from lower in period installation activities. [inaudible]
Danny: Turning now to aggregate results on slide 14. These results are the average unit margins multiplied by the number of units.
Danny: First, on the top line, aggregate subscriber value was $1.2 billion in the first quarter, a 23% increase from the prior year. Aggregate costs were $991 million, which includes all CapEx and asset origination OpEx, including overhead expenses.
Danny: This resulted in net value creation of $246 million or approximately $1.9 per share.
Danny: Excluding the expected present value from non-contracted or upside cash flows, contracted net value creation was 164 million.
Danny: A 104% increase from last year in about 72 cents per share. This level of value creation reflects a net margin of approximately 14% of contracted subscriber value.
Danny: Slide 15 breaks down the unit level economics and aggregate economics on a contracted only basis along with the main underlying drivers for the increases.
Danny: Turning now to slide 16. Sunrun raises non-recourse capital against the value of the systems we originate each period from tax equity which monetizes the tax credits and a share of cash flows, and asset back debt along with receiving cash from subscribers opting for prepaid leases and from governments and utilities under incentive programs.
Danny: We estimate these upfront sources of cash will be approximately 1 billion for subscriber additions in Q1, representing approximately 87% of the aggregate contracted subscriber value, or what we call the advance rate.
Danny: When we deduct our aggregate creation cost of $991 million, we are left with an expected upfront net value creation of approximately $12 million.
Danny: This represents our estimate for the expected net cash to Sunrun from subscriber additions in the period after raising non-recourse capital and receiving upfront cash from subscribers and incentive programs.
Danny: It conservatively excludes any value from our equity position in the assets over time [inaudible]
Danny: including potential asset refinancing proceeds and cash flows from non-contractive sources such as grid services, repowering or renewals or upside from flex electricity consumption above the contracted minimum. Thank you very much for your time.
Actual Realized Proceeds in the Quarter
Danny: We're just over $1 billion. With $256 million from tax equity, $755 million from non-recourse debt, and 53 million from customer prepayments and upfront incentives.
Danny: Aggregate upfront proceeds differ from proceeds realized due to the former being an estimate for subscriber additions in the period and the latter being the proceeds received against subscriber additions that may have occurred in a different period.
Danny: Cast Generation, which reflects realized proceeds and is after other working capital changes in parent interest expense, was 56 million in Q1.
Danny: We expect up front net value creation and cast generation to correlate over time [inaudible]
Danny: These value and cash-based metrics clearly articulate how we create net value, finance our growth, and ultimately generate cash.
Danny: Turning now to slide 19 for a brief update on our Capitol Market's activities
Danny: Sutrun's industry leading performance as an originator and servicer of residential solar and storage continues to provide deep access to attractively priced capital. [inaudible]
Danny: As of today, close transactions and executed term sheets provide us with expected tax equity capacity to fund over three hundred seventy five megawatts of projects for subscribers beyond what was deployed through the first quarter
Danny: Thus far in 2025, we have added more than 1.3 billion in tax equity, resulting in this strong runway.
Danny: We also have 819 knowing and not used commitments available in our non-recourse senior revolving warehouse loan to fund over 286 megawatts of projects for subscribers for subscribers.
Danny: Our strong debt capital runway allows us to be selective in timing term out transactions.
Danny: In January , we priced a 629 million asset back securitization at a yield of 6.35%. In March, we priced the 369 million securitization at a similar yield of 6.36%.
Danny: The marked securitization was placed into the private credit market, given strong interest from large, alternative asset managers active in the space.
Danny: The weighted average spread of the notes was 225 basis points, which is approximately 28 basis points higher than our January Securitization.
Danny: The higher spread followed overall market movements and credit spreads for similarly rated credit [inaudible]
Danny: Similar to prior transactions, we raised additional capital in a subordinated non-recourse financing, which increased the cumulative advance rate to well above 80% net of all fees, as measured against the initial contract at subscriber value of the portfolio.
Danny: asset financing markets are open and healthy, and there are an increasing number of investors, especially from private credit, who have done repeat transactions with us. We expect to continue executing both publicly placed transactions and direct placements in the private credit markets.
Danny: On the parent capital side, we continue to pay down parent recourse debt. During the first quarter, we repaid 27 million of borrowings under our working capital facility and repurchase the small amount of our 2026 convertible notes.
Danny: Since March of last year, we have paid down recourse debt by 214 million. We have also increased our unrestricted cash balance by 118 million and grown net earning assets by 1.6 billion over this time period. We expect to pay down our recourse debt by 100 million or more in 2025.
Danny: Aside from the 5.5 million outstanding of our 2026 convertible notes, we have no recourse debt
Danny: Over time, we will explore further capital allocation options to maximize shareholder value based on market conditions and our long-term outlook.
Turning now to our outlook on slide 20.
Danny: For the full year, we are introducing guidance for aggregate subscriber value and contracted net value creation
Danny: We expect aggregate subscriber value to be between 5.7 and 6 billion, representing 14% growth at the midpoint. We expect contracted net value creation to be in a range of 650 to 850 million, representing 9% growth at the midpoint.
Danny: We are reiterating our cast generation guidance for the year of 200 to 500 million.
Danny: Underpinning this guidance are a couple things that have changed since our last call. We are seeing strong demand across channels and as such, now fork as subscriber additions will grow in the mid single digits instead of our prior outlook of approximately flat for the year.
Danny: This strength led us to beating our prior Q1 guidance for solar capacity installed and storage capacity installed.
Danny: Offsetting these improving volume and unit margin fundamentals are the tariff developments.
Danny: We expect the series of tariffs in place today to create cost headwinds of approximately a thousand to three thousand dollars per subscriber in 2025, which is about three to seven percent of creation costs
Danny: This reflects tariff impacts being felt in the second half of the year and includes only partial mitigation measures excluding any price increases and other cost reductions we may explore.
Danny: These tariff impacts represent approximately 100 to 200 million of potential variance within our guidance range.
Danny: At current tariff levels, we are trending in the lower half of our cast generation guidance range, but if tariffs are substantially reduced, we would be trending in the upper half of the range.
Danny: For the second quarter, we expect aggregate subscriber value to be approximately 1.3 to 1.375 billion representing 21% growth at the midpoint.
Danny: and contracted net value creation to be between $125 and $200 million, representing 80% growth at the midpoint. We expect cast generation to be between $50 and $60 million.
With that operator, let's open the line for questions.
Speaker Change: Thank you. We will now be conducting a question and answer session.
Speaker Change: As a reminder, if you would like to ask a question, please press star one on your telephone keypad. A confirmation phone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue.
Speaker Change: For participants using squeak speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: So that we may address questions from as many participants as possible, we ask that you limit yourself to one question and one follow-up. If you have additional questions you may recue and time permitting, those questions will be addressed. One moment please allow me to pull for questions.
Speaker Change: Thank you for joining us. We hope to see you again soon.
Speaker Change: Our first question comes from a line of Brian Lee with Goldman Sachs. Please proceed.
Brian Lee: Hey everyone, good afternoon. Thanks for taking the questions. You know, lots of moving pieces here with you know the tariffs and some of the new guidance metrics so maybe I'll just start off with the with the sourcing strategy you mentioned you know the hundred percent of the batteries are domestically sourced but components may not be and then you kind of outline how you know different ranges of tariffs are going to push you to either the low or high end of the the cash generation guidance. Can you also kind of help bridge [inaudible]
Brian Lee: When I look at the 2Q contract in that value creation, you're talking about 80% growth here on year, and then for the full year, it's much more muted at about 9%, even though the aggregate subscriber value is going to be up in the mid-teens. So is that just a representation of the second half impact of these tariffs, or is there anything else in the middle in that bridge where the 2Q results look like you're getting a lot more accretion than what you're getting for the rest of the year?
Brian Lee: Yeah, I think it's generally the impact setting in in the second half of the year as we cycle through the
Brian Lee: Equipment, Purge's Safe Harbor Period, where we've discussed a full year worth of modules on the last call, a half years worth of batteries. So as we cycle through all that, it's materially picking up in the second half of the year as to the tariff impacts.
Brian Lee: So that's kind of the general trend, of course, that's being met with
Brian Lee: You know, strength on the volume side, continuing to grow, you know, we've increased the ITC realization with grown volumes with higher value systems. And we continue to get some cost efficiencies through the business to offset some of the impact but it is definitely back halfway.
Speaker Change: The second quarter of 26 is going to take longer because I just would assume that on growing scale and some of the other tailwinds in the business that you presumably want to be creating more net value versus aggregate value at some point just wondering when you might get to that point and what the strategy is behind specifically the batteries to mitigate the tariff risk if that isn't reduced.
Speaker Change: Yep, absolutely, and just go like maybe relating it to the prior question.
Speaker Change: and I think also in the prepared remarks, the price, any sort of price and go to market.
Adjustments are not assumed
But the costs are assumed, so as we...
Speaker Change: Think about adjusting on the supply chain side. There's also the top line adjustment on pricing and go to market.
sales commission and other cost efficiencies.
Speaker Change: Could very much be part of the equation, but on the speaking to of that.
Speaker Change: Supply Chain, Side Directly. A lot of the manufacturing has been increasingly been moving on shore that's a trend more related to the domestic content incentives that we have had.
That trend will presumably continue.
Speaker Change: and offset some of the impacts as well, but, you know, I think...
also important to keep in mind.
Speaker Change: that we may get substantial reductions in tariffs as well. So we're in a moment where we have been planning scenarios. I would say I'm the go to market and pricing side. We haven't acted upon any of that, but I think we stand ready to as soon as we have a bit more clarity. I'm ready.
Alright, understood. I appreciate it. Thank you.
Speaker Change: Thank you. Our next question comes in line of Andrew Percoco with Morgan's family. Please proceed.
Andrew Pericoco: Great, thanks so much for taking our questions. Maybe just to pick up where you left off, Danny, on the pricing strategy, I think you guys are pretty clear that you're seeing stronger than expected volume growth in the first quarter of the year. Just curious, what's the sensitivity dynamic with the customers to those potential pricing increases? Have you engaged, or how has your sales team engaged with customers? Since April 2nd, obviously, the first quarter was strong. But just curious how. [inaudible]
Andrew Pericoco: So if there has been any change in demand profile or consumer sentiment as your sales team has engaged in whether or not that might impact your pricing power here, thank you.
Andrew Pericoco: We have a lot of ambitions to continue to get cost efficiencies through the business.
Andrew Pericoco: Whether that's the <unk>.
Andrew Pericoco: On the AI initiatives, we cited as examples or continuing to build up scale as we sequentially grow volumes will also very much play a factor into all of the modeling.
Andrew Pericoco: And.
Andrew Pericoco: Andy as far as any adjustments, we don't want to make adjustments prematurely.
Andrew Pericoco: I think we see definitely headroom to make adjustments in markets.
Speaker Change: As as the whole industry will be bearing the problems associated.
Speaker Change: Associated with tariffs more uniformly I think there'll be pressure to make adjustments across the industry. So we don't think we'd be uncompetitive in doing so, but we just wanted to do.
Speaker Change: Do it at the moment, where we feel like firm and those decisions from a longer term planning standpoint, but I'll I'll pass it over to policy wants to add anything yes, maybe the only thing I would add is in periods of political or economic macro uncertainty.
Speaker Change: The sunrun consumer offering plays very well so as soon as consumers are looking for.
Speaker Change: Price certainty and savings on utility costs and things like that we see a lot of.
Speaker Change: Strong demand continued to persist so we do see some of this.
Speaker Change: R&D driving.
Speaker Change: Demand for the product.
Speaker Change: Okay understood. That's that's super helpful and maybe just a follow up on the cash generation guidance I know theres a lot of moving pieces a ton of uncertainty here I think you guys had previously committed to seeing growth in cash generation in 2026 over 2025, I know, it's probably increasingly difficult to do that in this period of time.
Speaker Change: But curious if you have any updated thoughts on that.
Speaker Change: As it relates to 2026 cash generation. Thank you.
Speaker Change: Yeah I think at this point, we feel like are you managing.
Speaker Change: Managing through the tariffs and looking at their back half impact we could see positive cash generation in 2026.
Speaker Change: It's way too premature to specify them actual ranges.
Speaker Change: But you know as as time goes by and we get into narrower planning scenarios.
Speaker Change: We will be able to share.
Speaker Change: Thanks, so much.
Speaker Change: Thank you. Our next question comes from the line of Moses Sutton with BNP Paribas. Please proceed.
Moses Sutton: Hi, Good afternoon, I have a question on safe Harbor.
Moses Sutton: Do you plan on doing anything material in terms of safe harboring a head of a possible already modification or you're getting in front of that and if not why not given the potential risk it poses to the business model if the ITC get severely modified I'd imagine you'd spend 5% of costs I dunno through 2027, maybe the and equipment financing or some.
Moses Sutton: Other arrangement and any color there would be helpful. Thanks.
Moses Sutton: Sure Yeah, so that the end of year activity was.
Moses Sutton: It's really a two fold that's looking at them.
Moses Sutton: The transition from 48 to 48 E credits of.
Moses Sutton: Of course.
Moses Sutton: Some price hedging, which is benefiting us well that we talked about the potential to do more in connection with some of the domestic content rules changing I would say beyond that.
Moses Sutton: It's really a function of understanding.
Moses Sutton: What if any changes there will be and when they will set in.
Moses Sutton: And those will establish the plan and the deadlines for executing more I think in the meantime generating cash.
Moses Sutton: Turning to have substantial unrestricted cash on hand that paying down debt will be the objectives, but I think that will all be supportive to also having the ability to safe Harbor.
Moses Sutton: If and when we get to those moments in time, which we think.
Moses Sutton: Horizon in the future, but we certainly weren't in before with.
Moses Sutton: With certainty and knowing that we have that we have to and what those benefits those financial benefits up doing so will be.
Speaker Change: Yeah, that's helpful and another one on the RMA, if transferability gets taken away how would you consider the impact now that tax equity or at least vanilla tax equity is more competitive with utility scale market being three extra size than it was three years ago.
Moses Sutton: Yeah, Yeah. So we are like others, we've heard.
Speaker Change: Some speculation around.
Moses Sutton: Transfer ability are.
Speaker Change: Getting discussed.
Speaker Change: Certainly too soon to know what will.
Speaker Change: Appear in drafts I think it's been Oh.
Speaker Change: Mindedly made abundantly clear by industry as well like what the benefit of transferability has been not.
Speaker Change: Not just for us, but the adoption of a lot of renewable and clean technologies.
Speaker Change: We think.
Speaker Change: Generally there will be support for transferability.
Speaker Change: There was a.
Speaker Change: 'twenty one house Republicans, specifically noted this support for continuation of Transferability.
Speaker Change: Of tax credits given what impact that's had on the industry.
Speaker Change: And I think.
Speaker Change: You know we've also been at the forefront of developing the tax credit transfer market.
Speaker Change: But we are also like recall, we are at we have historically been a very significant player in the traditional tax equity market as well.
Speaker Change: It has remained active and strong for us.
Speaker Change: So any removal would create temporary shifts on how.
Speaker Change: How we source capital but.
Speaker Change: But I think we feel like ultimately also the outcome, we'll end up Ah okay for the for the industry on that.
Speaker Change: Thank you Daniel I'll take the rest off line.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Mohit.
Speaker Change: Mhm.
Speaker Change: Please proceed.
Speaker Change: Hey, good evening. Thanks for taking the question here just on the tariff portion I think you've kind of talked about the 100 to 200 million impact that seems around 6% increase in prices required, but just wanted to understand like how would that translate to actual PPA prices because there's also some <unk>.
Speaker Change: B C, which could subsidize those tariff increases right. It's a they're just trying to think like how do we think about the price increases next year, if tariffs don't change here. Thanks.
Speaker Change: Yeah, I think you've got it so it's about a 3% to 7% of cost impact again back half weighted so that was 3% to 7% for the year.
Speaker Change: A more substantial.
Speaker Change: And then potentially slightly higher.
Speaker Change: If you take the second half are realized impact.
Speaker Change: And that's.
Speaker Change: To be offset with you know if it was entirely offset with pricing.
That would be the maximum magnitude, though as you correctly noted that some of that will be offset by higher cost structure, and therefore higher fair market values. That's just some fraction of that 10% type.
Speaker Change: Type number would be outset first by fair market values, and then the rest would need to get.
Speaker Change: Allocated towards on.
Speaker Change: On the revenue side at higher pricing on the cost side lower operating costs lower customer acquisition cost them anything else, we can do on the efficiency side.
Speaker Change: There may be some go to market implications as well that might be slight but we would you would have to look at that on a market by market level products, yes, we compare solar only with solar versus so solar and storage.
Speaker Change: At the individual market level, there might be some go to market implications, but.
Speaker Change: Again, we're narrowing.
Speaker Change: Narrowing the bands of uncertainty first and then Actioning later, but we think we have a good well device playbook.
Speaker Change: I appreciate that and then maybe just quickly on the flex product it seems pretty interesting.
Speaker Change: Just wondering if the sun like how does it impact the upfront cost.
Speaker Change: And.
Speaker Change: And then do you need any certain amounts of upgrades in the freezer or a higher power draw to meet the same NPV or IRR compared to your current.
Speaker Change: <unk> offerings.
Speaker Change: Yeah, Great question so.
Speaker Change: Obviously, the product with larger systems hasn't increased equipment cost, but the efficiencies we gain associated with installing larger systems largely offsets and in some cases, we even have superior upfront returns on.
Speaker Change: On the flex product absent the.
Speaker Change: The assumption of any utilization of the excess capacity so similar to superior returns on its space as the base contracted product and then all upside as our customers increase consumption and we drive electrification.
Speaker Change: Okay.
Speaker Change: Got it appreciate it thank you.
Speaker Change: Thank you. Our next question comes from the line.
Speaker Change: Alan.
Alan Oppenheimer: Oppenheimer. Please proceed.
Speaker Change: Yeah.
Speaker Change: Your line is muted.
Speaker Change: Yeah Ebrahim.
Speaker Change: Self muted.
Speaker Change: Hi, you may have lost him.
Speaker Change: Our next question comes from the line of Joseph Joseph Osha with.
Speaker Change: Securities. Please proceed.
Speaker Change: Hello, Hello can you hear me everybody.
Speaker Change: Sure Ken.
Speaker Change: Super two two questions first understanding you can't actually forecast cash generation next year you have in the past provided some thoughts around the level of sensitivity in terms of cash generation relative to the D. C and I'm wondering if you might be able.
Speaker Change: I'll do that again in particular its interesting if I look at page 15 of the deck no I see 43.6% squaring up against your $164 million.
Speaker Change: Last year, a 35% $80 million can we.
Speaker Change: Perhaps try and draw some extrapolation from from that analysis. Thank you and then I have a follow up.
Patrick: Yeah, absolutely and then Patrick.
Patrick: Patrick appears to have moved it to later in the presentation. So so if you refer to slide 27.
Patrick: The bottom of slide 27 in the appendix, it's a one percentage point of weighted average ITC realization.
Patrick: It's approximately $50 million.
Patrick: 25 basis points is a proxy of cost of capital is.
Patrick: It was approximately $40 million.
Patrick: In the past you've had storage attachment rate that's been mm one point of storage attachment rates are more in a single digit number but the two primary factors are there on the page if you want to reference that.
Speaker Change: And so that not to be a stick in the mud gun, but that would imply all other things being equal that a 30% ITC wiped out your free cash am I, drawing that conclusion correctly, if I go back to 30% or can the company take some steps to mitigate that.
Patrick: Yeah. So so.
Patrick: All else equal, it's 50 times 15, so that that's the right math, but are.
Patrick: Yeah, there would certainly be.
Patrick: Plenty of action.
Patrick: To offset as much of that as we could so probably you know pricing again, all the same factors, whether it's tariffs or I T C level changes pricing customer acquisition costs.
Patrick: If we're talking about a 45% level going to 30 also substantial go to market implications.
Speaker Change: Okay. Thank you and then my second question our good friends at the CPUC public advocates office had been busy as I'm sure. You know I'm wondering if you have any thoughts about how that situation might progress.
Speaker Change: Specifically as it relates to the state funding net metering out of a different funding source.
Speaker Change: Yeah, Hey, Joe good good to hear you and thanks for the question I mean, yes as you would expect we're tracking closely and are very active in the state house utility rates in California, you know have risen rapidly am I looking at that.
Speaker Change: Investments.
Speaker Change: Yeah exactly so.
Speaker Change: You know, there's definitely been some push them under the agenda of affordability and we were really pleased the other day that again, the you know language that would've been very negative for our industry for our customers and for existing customers was actually taken out of the bill It was.
Speaker Change: Very very active opposition. So yes, we stay very engaged and our customers stay very engaged as well as other advocates in the space.
Speaker Change: And Jay just to clarify for listeners that that it is true that the the grandfathering or D. Grandfathering out yesterday has been taken out of the bill Yeah.
Speaker Change: Yes, 100%, yes.
Okay, sorry about that.
Speaker Change: Typically yes, you grant wherever that is okay. Thank you very much.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Philip Shen with Roth Capital Partners. Please proceed.
Philip Shen: Hi, Thanks for taking my questions I have a follow up on the transferability question if that.
Philip Shen: Is removed from the IR, a I think Danny you mentioned that it would be a temporary shift in how you source. Your capital. So I was wondering if you could elaborate on that so specifically you know would you elect for the direct pay option and then kind of work with some lenders for a bridge financing what's what are the levers that you might be able.
Philip Shen: The pull to two manage that transition and how big of a concern do you think it might be I know you emphasized that youre still working with the bank partners that you've had but you know I think 50% of the market is with transfer ability partners at this point. So there there could be a bit of a hiccup just wondering.
Philip Shen: How you guys manage through that thanks.
Philip Shen: Sure Yeah. So I think it just at a high level, it's very important to see.
Philip Shen: The full balance of activity or the full balance of changes that result from.
Philip Shen: The package right. So if transferability were removed.
Philip Shen: It is a supply and demand driven market. So you'd also have to look at what available supply of credits are also removed from the market based on changes to the IRS. So we don't know where the market equilibrium will be on supply demand.
Philip Shen: We'll have to know that missing data point as well to be more fulsome in the response to.
Philip Shen: So that's the comment about the the shift in our approach.
Philip Shen: Really is.
Philip Shen: Nothing more complicated than we would be.
Philip Shen: We'd be reliant on the traditional tax equity market as opposed to some hybrid of the two as we are today.
Philip Shen: Okay. Thanks, and then on the tax equity.
Philip Shen: Supply in your remarks, you talked about having capacity.
Philip Shen: Capacity to fund 375 megawatts beyond Q1, I think at the end of Q4 is 500 megawatts Oh can you just give us an update on what the tax equity market is doing thus far there's.
Philip Shen: <unk> been some changes in the market with T. P. Owes you know some are not doing as well as you know and and so with the uncertainty around the IRA and so forth has pricing changed to any degree for you guys. Specifically a 375 is a decent amount of a very high amount for an absolute on an absolute basis, but in my carrier you guys about.
Philip Shen: Two quarters and so just curious how.
Philip Shen: You expect tax equity funding to close in the coming quarters. Thanks.
Philip Shen: Yeah, Yeah. So we're we're well diversified against.
Philip Shen: Among state like a large and increasingly growing buyer universe.
Philip Shen: We continue to close transactions. So so we're not where it's not a relatively few number, especially with transferability and the mix.
Philip Shen: It's not a relatively small number of transactions, we're doing it in tax equity.
Philip Shen: It's hybrid transactions are some are very large size.
Philip Shen: In which we're placing multiple tax credit transfers and we continue to do that through quarters.
Philip Shen: So I think that continues to look good to us.
Philip Shen: And continues to develop.
Philip Shen: Certainly as others in the market with available tax credits.
Philip Shen: Struggling failed to deliver them.
Philip Shen: There. There is this there is an aspect of a safety play with Sunrun, who has a steady flow and it has proven to be reliable.
Philip Shen: So in moments where the.
Philip Shen: By on the buyer side, you have numerous options for where to acquire your credits.
Philip Shen: You know in this sort of environment. There could also be like a if you will like a flight to quality benefit that could be in our favor.
Philip Shen: But what.
Philip Shen: What we'd like to do is demonstrate to everyone who's done transactions with us.
Philip Shen: How solid we are on the delivery so that they also repeat with us and that's been the track record as far back as we can go.
Philip Shen: Great. Thank you Danny.
Speaker Change: Thank you. Our next question comes from the line of Dylan Siano with Wolfe Research. Please proceed.
Dylan Siano: Hey, good afternoon, Thanks for taking my question.
Speaker Change: I just want to go back to the conversation around competition.
Speaker Change: You show in the slides that you're seeing market share actually start to tick up.
Speaker Change: And you know in the past you've talked about kind of staying disciplined.
Speaker Change: And not trying to solve for market share. So I guess just can you can you walk us through like how are you accomplishing that and and any changes to kind of how you're thinking about competition in light of the tariff impacts things.
Speaker Change: Yeah, Great question so.
Speaker Change: We really view it as starting our own course in the industry right now and we've talked in the past about the rates that other dealers pay in financing companies and things, but as we focus more on differentiating and innovating our product offering.
Speaker Change: Seeing more customers.
Speaker Change: I understand and realize the benefits of I can get this standard product from some finance company and a rep may make more or less but I have a similar offering.
Speaker Change: Compared to our flex offering for example, where they get a bunch of extra capacity that'll walked into low rate that they can tap into for a similar <unk>.
Speaker Change: Back to the rate on the base amount things.
Speaker Change: Things like that things like leaning into storage in customers buying more on <unk>.
Speaker Change: Resiliency and understanding features and benefits people are carrying more about.
Speaker Change: Longevity of the company being around to service their assets and reviews and things like that so we're really seeing all of the benefits of what we've been working to build it here at sunrun flow through in consumer demand and competing less on price and pace and focusing more on differentiation.
Speaker Change: Great. Thanks, and then for my follow up so Danny correct me, if I'm wrong, but I think you're actually running at.
Pretty close to your targeted blended ITC level for the year.
Speaker Change: How should we think about that trending through the rest of the year.
Speaker Change: Could it potentially go a little bit above what.
Speaker Change: What the target was for the year.
Speaker Change: We're still expecting a mid 40% 45% number.
Speaker Change: So we are.
Speaker Change: Cited the initial part of the year as being a little bit of a delayed ramp than we expected two quarters ago. I think we've hit we largely hit that ramp.
Speaker Change: I think where we're generally.
Speaker Change: The flat line as we hit that 45% level and go through the rest of the year.
Speaker Change: Great. Thank you.
Speaker Change: Thank you our next.
Speaker Change: Question comes from the line of Kashi Harrison with Piper Sandler.
Speaker Change: Please proceed with your question.
Kashi Harrison: Good afternoon, thanks for taking the questions and congrats on the results maybe maybe just a follow up to this question earlier on Safe Harbor, Yeah. So lets say there is a step down.
Speaker Change: So it's a 30%.
Speaker Change: How many years do you think you would be able to safe Harbor.
Speaker Change: Based on your discussions with your equipment suppliers and what would be the plan to finance it.
Speaker Change: Yeah. So it is it is dependent on it.
Speaker Change: Available supply available.
Speaker Change: Available capital.
Speaker Change: I think we.
Speaker Change: We noted on the last call.
Speaker Change: The Q4 activity was about a year's worth of modules.
Speaker Change: Yeah.
Speaker Change: So six months of batteries.
Speaker Change: The reason for six months was available physical supply driven.
Speaker Change: There are other ways, we could go longer than that but that there would be some limitations.
Speaker Change:
Speaker Change: Once you get out beyond the period of six months six to 12 months I think it gets there there are certain ways, we could achieve it but it gets more limited.
Speaker Change: Yes.
Speaker Change: Got it appreciate that color and then just.
Speaker Change: Oh I'm sorry go ahead.
Speaker Change: Just a follow on on the thought.
Speaker Change: As has been the case in the past.
Speaker Change: If it's multiple step down events over multiple years.
Speaker Change: Then there are also multiple safe harbor events of shorter periods of time.
Speaker Change: It's not that it's not a one and done duration of six to 12 months, if that's the available supply.
Speaker Change: It's a recycling over a number of years, so as the step downs occur.
Speaker Change: Yes, we will have stepped down we will have delayed at that but we will also be carrying a higher level of realized ITC than competitors, who were not able to safe harbor, so that would be a competitive advantage on the way down.
Speaker Change: Got it I appreciate the thoughts there and then maybe my follow up Dan I think you flagged that.
Speaker Change: Full impact of the tariffs would be closer to 10% later in the year. After you exhaust. Your current inventory is that is that correct and is that is the bulk of that really just coming from the batteries.
Speaker Change: And then maybe lastly, like you know if we do if we do see a situation where you know maybe the tariffs on batteries aren't or started from from Chinese sales or $1 50, maybe they're 50% for example.
Speaker Change: How should we think about the impact to.
Speaker Change: Your your your increase the tariff costs that you flagged it. Thank you.
Speaker Change: Yeah, we see it so majority is right. So we've seen majority from.
Speaker Change: Battery costs are so so it's a little more than half to be more specific.
Speaker Change: And that sort of magnitude would be driven by cells.
Speaker Change: Supplied from China as you noted.
Speaker Change: It would be the portion of battery costs better cell driven would be the math to do on the way down.
Speaker Change: Okay.
Speaker Change: Got it thank you.
Speaker Change: There are other potential.
Speaker Change: There are in addition, other components upstream.
Speaker Change: But that that would be the biggest number.
Speaker Change: Thank you.
Speaker Change: Our last question comes from the line of Amit <unk> with BMO capital markets. Please proceed.
Speaker Change: Hi, Thanks for squeezing me in.
Speaker Change: Just I guess, maybe follow up on <unk> question that the 10% increase is that net of any price adjustments you've made on your end or is that the kind of the gross impact to you right now.
Speaker Change: Price increases and I had one quick follow up.
Speaker Change: It's gross.
Speaker Change: Okay. Thanks, and then just coming back to California Assembly Bill 942.
Speaker Change: I, just just to kind of be clear.
Speaker Change: This shows the sunsetting kind of provisions are all out it's not going from 10 to 20 years is that correct and then.
Speaker Change: Do they still have kept the provision where if a homeowner sells their system.
Speaker Change: Then.
Speaker Change: They would kind of lose the NIM to point those status is that correct and how do you see that impacting your kind of asking for renewal value. Thank you.
Speaker Change: Yes, you are absolutely correct. The you know again generally telling customers that youre reneging on a promise doesn't actually works. So yes that language was killed and the home transfer of language is still in there, but you know.
Speaker Change: It'll be interesting to see if it leads to see final passage.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: That concludes today's teleconference. You may disconnect your lines.
Speaker Change: Hi, thank.
Speaker Change: Thank you for your participation.
Speaker Change: Everyone else has left the call.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].