Q2 2025 Sunrun Inc Earnings Call
Good afternoon and welcome to son. Runs second quarter earnings conference call please note that this call is being recorded and that 1 hour has been allotted for the call, including the Q&A session to join the Q&A session. After prepared remarks, please press star 1 at any time, we asked participants to limit themselves to 1 question and 1. Follow-up question, I will now turn the call over to Patrick Tobin Sun. Runs investor relation officer, please go ahead sir.
Thank you, operator. Before we begin, please note, that certain remarks, we will make on this call constitute forward-looking statements. So we believe these statements reflect their best judgment. Based on factors, currently known to us, actual results, May differ materially and adversely. Please, refer to the company's filings with the SEC, for 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 just cleaned any obligation to update or revise them. Please let us know during this earnings call, we may refer to certain non-gaap measures including cash generation.
Aggregate creation costs which are not measures prepared in accordance with us, gaap.
The non-GAAP measures are being presented because we believe they provide investors with a means of evaluating and understanding how the company's management evaluates the company's operating performance. Reconciliation of these measures can be found in our earnings press release and other investor materials available on the company's investor relations website. Non-GAAP measures should not be considered in isolation from, or substitutes for, or superior to financial measures prepared in accordance with U.S. GAAP.
Flaps, customer experience for over a million Americans.
We generated 1.6 billion in Topline aggregate subscriber value. Significantly exceeding. Our guidance and growing 40% year-over-year. Contracted net value creation of 376 million which was our highest ever more than doubled from last quarter. And was also well above guidance.
We generated this record profitability by growing, the attachment rate of our storage offering to an all-time high of 70% of customer additions in the period. And by driving significant cost efficiencies and performance improvements across the business.
We also reported the highest upfront, net subscriber value quarter in the company's history. A 17 percentage Point margin Improvement, compared to the prior year and now representing an 11% margin on contracted subscriber value. We achieved this result by growing contracted subscriber value while reducing our installation and customer acquisition costs,
The trends in our operating performance highlight the cash generation trajectory of the business, as our customer, origination activities are financed over the coming quarters.
We are structurally generating cash.
In the quarter, we generated 27 million in cash. Our fifth consecutive quarter of positive cash generation.
While the quarterly number is lower than our prior guidance, we are on track to meet our cash generation Outlook of 200 to 500 million for the full year.
We paid down another 21 million, in recourse debt in the quarter and ended with 618 million in unrestricted, cash in 13 million in the prior quarter.
1 of the things that excites me the most about the work of the team over the last couple of years. And that really accelerated. This quarter is our definitive leading position as the nation's largest home to grid. Distributed power plant operator, we have transformed the business to be a provider of energy resilience for homeowners and a formidable, independent power producer. Now with more than 3 gigawatt hours of dispatchable energy from our Fleet of Home batteries and nearly 8, gigawatts of solar generation capacity, our transition to lead with storage and provide more sophisticated products and services. Not only differentiates Us in the market but also provide a tremendous energy resource that is extremely valuable to the grid.
We now have nearly 200,000 storage systems installed.
Over 71,000 customers. Have enrolled in home to grid programs, representing 300%, year-over-year growth. These programs provided 354 megawatts of power capacity to the grid over the last year.
Based on current activities and the energy capacity, challenges our country faces. We are finding that our prior estimate of 2,000 or more in incremental net present value, per participating customer is not only realistic, it is likely conservative.
As we continue to scale storage and provide utility scale energy resources back to the grid, we expect a rapidly growing cash flow stream over the coming years. We expect to have more than 10 gigawatt hours of dispatchable energy online by 2029.
Turning to an update on policy on slide 8.
Paul. And I spent a good portion of the quarter actively engaged in Washington DC and in legislative offices around the country to ensure that the work we are doing to build the nation's largest distributed. Power plants, driving American Energy Independence. And dominance is
well, understood
What we do is provide our customers with an opportunity to take control of their own Energy Future, and at the same time, help Americans get vital energy capacity, they need quite strengthening the grid.
Given our rapid transition over the last couple of years, many stakeholders hadn't realized we are scaling just what the country needs. A massive customer base of Americans who become independent power, producers that provide a valuable dispatchable energy resource to America's grid.
While there were a few twists and turns in the process that led up to the final budget bill.
The ultimate legislation is something that will encourage the continued buildout of dispatchable energy.
Sunrun is well positioned to continue to generate strong financial returns under the enacted legislation.
Credit no known as 48e. That's 94% of new customer, editions are subscribers.
The 48e credit and starting in 2028 for the solar portion of a project but remains in place for storage through 2033.
While the sunset of the 25d homeowner tax credit could lead to large declines for a segment of the market in certain geographies Sun Run is positioned to continue to grow margins and volumes into 2026.
You can see on slides 9 and 10 that nationally we represent over 40% of storage installations and more than one-third of subscription volumes. While market dynamics will present significant growth and market share opportunities, our focus will remain on running a sustainable business with strong margins, high-quality installations, and delighted customers.
We are building a business that can generate value with lower incentives.
On slide 11, we demonstrate 1 of many, achievable paths, to generating strong margins in 2028 without the solar portion of the tax credit.
With conservative assumptions, for pricing increases against utility rate, escalation equipment costs, declines customer acquisition cost, reductions and grid Services value. We would more than offset. The reduction of the solar tax credit. These items are just a subset of the value. We planned to unlock in the years ahead.
While we are planning for a step down in the Solar portion of the tax credit in 2028. We are of course taking actions to lengthen our Runway per statute and current treasury guidance projects that have commenced construction. The 4 July 2026 are eligible for the solar portion of the tax credit Beyond 2027.
In accordance with these rules. Someone has already commenced construction on projects or plans to soon in order to retain the full solar portion of the tax credits. Through 2030. Treasury guidance on the requirements to commence, construction, may be updated. But new guidance is not expected to be retroactive and must be consistent with legislative statute. I'll now turn the call over to Danny for the financial update and Outlook.
Thank you. Mary, turning first to the unit level results for the quarter on slide 13, subscriber value increases to approximately 54,000, a 22% increase compared to the prior year. As we increase our storage attachment rate by 16 percentage points to 70%.
Grew our flex. Deployments and benefited from a 43% weighted average ITC level an increase of 7 percentage points from Q2 of last year.
Subscriber value, reflects a 7.4% discount rate this period.
We meaningfully reduce costs as well with creation cost flowing 4% from the prior year.
Though, installation costs were approximately flat to the prior year. We were able to offset a 12% increase in equipment costs, driven by the jump and storage attachment rate with a 13% Improvement in non-equipment costs, such as install, labor and other soft costs.
We also lowered customer acquisition costs and overhead by 10% on a per subscriber ignition basis.
We accomplished these strong cost reduction outcomes, while delivering high quality, maintaining strict safety standards, and embracing product and technological innovation.
The higher subscriber value and lower creation costs led to a 182% year-over-year growth in met subscriber value to 17,000 the highest outcome in the company's history.
Turning now to aggregate results. On slide, 14, these results are the average unit margins multiplied, by the number of units.
First on the top line aggregate subscriber value was 1.6 billion in the second quarter. A 40% increase from the prior year.
Aggregate creation costs were 1.1 billion which includes all capex and asset origination Opex, including overhead expenses.
Excluding the expected present value from non-contracted or upside. Cash flows. Are contracted that value creation was 376 million, an increase of 285 million from last year and about 1.64% per share.
This level of value creation, reflects a net margin of approximately 206% of contracted subscriber value.
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.
Starting now to slide 16.
along with receiving cash from subscribers opting for prepaid leases and from governments and utilities under incentive programs
We estimate these upfront sources of cash will be approximately 1.2 billion for subscriber additions in Q2 representing approximately 85% of the aggregate, contracted subscriber value or what we call the advance rate.
When we deduct our aggregate creation cost at 1.1 billion, we are left with an expected upfront, net value, creation of approximately 10065 million.
This represents our estimate for the expected net cash to Sunrise from subscriber editions in the period after raising non-recourse capital and receiving upfront cash from subscribers and incentive programs.
This figure excludes any value from our equity position in the assets over time, including the potential asset referencing proceeds and cash flows from other sources such as grid services, repowering, or renewals, or upside from flex electricity consumption above the contracted minimum.
Actual realized proceeds in the quarter were $1.3 billion, with $679 million from tax equity.
526 million from non-recourse debt.
And 82 million from customer, prepayments and upfront incentives.
Aggregate upfront proceeds differ, from proceeds realized due to the former being an estimate for subscriber additions in the period and the latter being proceeds received again, subscriber editions, that may have occurred in a different period.
Cash generation. Which reflects realized proceeds as opposed to aggregate upfront proceeds and is after working. Capital changes impaired, interest expense, was 27 million in Q2.
No upfront. Debt value creation is different from cash generation due to working capital and other items. It is a strong indicator of cash generation over time.
Cash generation was impacted negatively by working capital timing in Q2.
Inventory increased by 77 million from q1, and taken together with changes, to payables, and receivables this represented and investment of 45 million in Q2. As you can see on our cash flow statement,
We also are continuing to see tax Equity Partners. Spend extra time, digesting policy developments and changes with competitors, leading to Extended timelines associated. With monetizing, tax credits.
Turning out to slide 19 for a brief update on our Capital markets activities.
Sunrise industry leading performance as an originator and serer residential solar and storage continues to provide deep access to attractively priced capital,
As of today, closed transactions and executed term sheets provide us with expected tax equity capacity to fund over 210 megawatts of projects for subscribers, beyond what was deployed through the second quarter.
Thus far in 20125, we have added 1.7 billion in tax Equity, resulting in a strong Runway.
We also have 3203 million in unused, commitments available in our non-recourse senior revolving Warehouse loan to fund over, 114 megawatts of projects for subscribers.
We are underway with plans to execute multiple turnout transactions in the coming months, including a private transaction with counterparties already identified.
Our strong debt capital, Runway, has allowed us to be selective and time our transactions.
in July, we price, our third securitization transaction of 2025, where we refinanced the season, full of residential solar systems,
The $431 million securitization priced at a yield of 6.37%, in line with the yield of our prior securitization in March.
The weighted average spread of the notes was 240 basis points, which is approximately 15 basis points higher than our securitization. In March, the higher spread, followed overall Market movements and credit spreads for similarly rated credit.
Inclusive of this transaction. We have issued approximately 1.4 billion in asset back securitizations, thus far, in 2025.
So some investors are taking extra time to assess transactions. As noted earlier 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 plan to continue executing both publicly placed transactions and direct placements in the private credit markets and to expand our tax credit by our universe with more large corporations.
On the parent Capital side. We continue to pay down recourse debt, hanging down another 21 million during the second quarter.
Since March of last year, we have paid down recourse debt by 235 million.
We expect to pay down our recourse debt by $100 million, or more, in 2025.
Aside from the 5.5 million outstanding of our 2026 convertible notes, we have no recourse debt maturities until March 2027.
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,
We are either reiterating or raising all of our guidance for 2025.
For the full year. We are reiterating our guidance for 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 1 to 1.3 billion and increased from a prior range of 650 to 850 million and representing 67% growth at the midpoint,
Strong performance in the second quarter along with continued cost efficiency, improvements and value optimization is leading to improvements in our contracted, net value creation outlook for the year.
We are reiterating our cash generation guidance for the year of $200 million to $500 million.
This reflects the strong operating performance along with the increased working capital Investments.
For the third quarter, we expect aggregate subscriber value to be approximately $1.5 to $1.6 billion, representing 8% growth at the midpoint.
and contracted that value creation to be between 275 and 375 million representing 58% growth at the midpoint.
We expect cast generation to be between 50 and 100 million.
Operators, let's open the line for questions.
Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. We asked participants to limit themselves to 1 question and 1. Follow-up question for participants using speak equipment, it may be necessary to pick up your handset before pressing to Star Keys 1 moment, while we pull for the first question.
The first question comes from, Moses Sutton with BNP parabas, please proceed.
Thanks and congrats on quite an impressive update on really everything. Um, on slide 11 where you detailed the the start of construction. If 3 years will have started construction by mid August, is that like saying extending through all of 28 and 29 because you don't have to save Harbor for 26 and 27, and if so, why on this on that same slide? Would you show the bridge above the 6500 Bridge? Uh, you know, you have all that done by 2028. It seems to me, like, you're properly protecting the solar ITC through year, end, 29. And that you'll do 2030 in 1 H 26, notwithstanding the new rules.
Right. I I think. Yeah. 2 2 different things. Yeah, the Safe Harbor. Um, we are articulating. The, you know, the, the, there's a section 48 of a few months. Uh, there's section 48, Safe Harbor of a few months. And then there's, there's 3 years, um, that you noted from from the slide there, um, and you're you're correctly noting that, um, you know, that is extending the runway by a few years Beyond, uh, 2028. Uh, and on the top portion of that slide, uh, we're just doing a, a very simple, um, walk of the loss in margin from the loss of the solar portion of the ICC, um, you could think of that as 2028 or even a different year. Um, but really, to show the the build up back up to
You, uh, full recovery. It's not a little bit more than full recovery of that about 000 per system, uh, last night, DC value, and we've shown a few of the factors. Um, not in here is other cost reduction in the business. So, operating cost efficiencies servicing cost efficiencies, everything else will do, uh, on top of this, this was just to show, you know, 1 possible path. Uh, just to illustrate that, we think it's achievable to recover that solar portion. And of course, we're complementing that uh, um, prudently with a, with a safe harbor strategy as well.
The working capital effects we noted in Q2, we've also reflected, um, expectations for the, for the balance of the year.
Thank you.
Thank you. The next question comes from. Brian Lee with Goldman Sachs, please proceed.
Thanks for. Uh, thanks for taking the questions, Kudos on the nice, uh, nice quarter and execution. Um, I guess the first question, um, kind of related to the Moses's question. You know, you had uh, the the big uptick in net value creation. So 1, I was wondering if you could maybe quantify the different buckets to, you know, what's driving that that significant increase in the view for the year and then
kind of related to that. How how how come?
You know, that's not really translating to anything on the cash generation outlook for the year, maybe some of the puts and takes between, you know, what drove the uptick in net value creation. But why that's not translating, at least this year into Into Cash generation. Uh and
Yeah, I'll unpack that a little bit. So, so the, um, you know, the sequential growth in volume, um, that definitely was a, you know, big factor of the jump in if we look here on a year-over-year basis. So I think that's a good way to try to bridge um you know 17 points of uh unit level margin extension. Um, but we noted about 7 to 8 points at worth of margin
Expansion within that associated with the, uh, increase in the weighted average ITC, as we've had more adders in the business, um, the the battery attachment rate, I noted certainly contributed and to the aggregate results as the strength in year-over-year growth in subscriber editions also certainly helped. So that's a, you know, more volume with tilted Thor Tire value mix. Um, and then we also noted, you know, the the operating cost efficiencies, um, you know, have been, you know, when you look at it on the surface, it appears as a 4% here on your reduction, but actually once you unpack it, um, and realize that, you know, all the extra materials cost, uh, consumption being fully absorbed by Ops and sales and marketing cost reduction around it. Um, you know, the ability to create keep creation cause flat year-over-year as we raise the Top Line, uh, led to huge, uh, you know, huge margin expansion now. Uh, we're also noting in Q2 and we're
In particular, um, you know, some of the activity with our inventory balance and associated change in working capital, um, a little bit of, um, you know, extra time, uh, in the capital markets, as people are kind of coming back from digesting the effects of um, uh, you know, the budget bill. Um, that market is uh, picking up inactivity. I think is also uh, you know, a little bit of the summer period coming into effect as well. But, um, you know,
Tax planning for the balance of the year continues, as that activity picks up. So, when you couple that with the sequential growth in volume and some of the installation activity to full cash conversion cycle with tax equity and turn out that we normally have, we expect to be more back half weighted in the cash generation in the business.
Okay, fair enough that's uh that's helpful caller. And then just just on the say partnering um,
Presumably, you're focused on the fee, you know, meeting the 5% threshold to uh.
To satisfy the commencement construction. Um, criteria. Can you give us a sense of what the kind of working? Capital financing needs will be uh, between now and sort of, I guess, July 2026. Um,
Kind of quantify that for us and then where you are with respect to discussions with lenders on on securing, you know, what percent you have you secured? What percent do you have a line of sight to secure? Thank you.
Uh, I'll I'll take the, the first part. I might need to clarify the, the lender questions but, um, uh, you know, we, we did, we did a bunch of activity, um, at the end of last year, um, you know, that's several months worth. Uh, you know, we we talked about, um, additional activity in the quarter, um, the associated effects. Um, you know, you can kind of see in the inventory balance and the, you know, the sum of the change in working capital.
Active and we've already done a few years worth of of that. Um, again, I think maybe your lender question was around, uh, the capital to maybe Finance it. I'm not sure if I'm following that. But, um, again, we we, we've been able to do it in a very, very Capital efficient manner.
Okay, I appreciate it. Thank you guys.
The next question comes from praneet Satish with Wells. Fargo, please proceed.
Thanks uh good afternoon, maybe just uh, you know, going back to the Safe Harbor in question. Um, just in terms of trying to quantify how much cash, uh, you've spent so far in in Q2 and then into Q3, I guess we should look at maybe the the inventory, um, change as, as kind of a proxy. I think those 70, 70, 70, 80 million, something like that. Um, and then you mentioned that by mid August, you'll have enough Safe Harbor to cover volume current volume through 2030. Um, I, I guess is that, uh, we'll see what happens with the, uh, with the executive order. But, is, is that where you stopped, or will you continue to Safe, Harbor to cover expected, volume growth, um, to create a bit of a buffer,
I I think we we we we we did note um that you know, there there's about 3 years worth of activity. Um, there's a 1-year period from the date of Bill passage uh, to supplement with more Safe Harbor activity and we would plan to do more uh, the details of that will, you know, very much depend on the
Um, you know, the treasury guidance that comes out following the executive order. So, uh, you know, we still need some more time to firm up thoughts on, you know, how much more, uh, but we can, uh, comment by saying we do intend to do more. Um, it's just kind of a matter of the details, uh, with what qualifies and what that strategy looks like.
Got it and maybe, um, you know, Switching gears a little bit on on the grid services. So I know you're estimating at least, uh, 2,000 npv per customer. Um, but maybe if you can help frame, you know, how much you're getting on a recurring Revenue basis. Currently, I think we're kind of triangulating around 20 million dollars per year, um, of recurring revenue from your enrolled customers, uh, I guess, is that in the in the ballpark and then as a follow-up, um, you know, at what point do you securitize that Revenue stream? Um, can you can you securitize it if it gets to 50 million? Is that large enough? Or do you need to go higher than that? Because it seems like based on the guidance, you provided of, of getting to 10 gigawatts by 2029. Um, you know, maybe you can cross, uh, you can get to 50 60 million of recurring Revenue by by 2029. So just trying to, um, you know, understand if, if there's a possibility of some securitizations there,
Yeah, I think uh I'll start with that and then I'll let Danny maybe take the securitization and financing of it. But, you know, you know, today we have about 3, you know, 3.2 gigawatts of storage devices, roughly 200,000 devices out in the market. 35% of those are currently enrolled in programs, a little over 70,000 of our battery devices are enrolled um in functioning and paying programs.
We're focusing heavily in our our go forward strategy, about around deploying battery devices and, and, uh, reaching penetration and concentration in areas that would have and do have attractive home to grid. Uh, virtual power, plant type programs set up and so, 35% enrollment rate of, you know, is today and we anticipate that growing nicely. We've articulated this 10 gigawatt. Uh, number that we think is very achievable for us, and so kind of like anchoring around a, a 20 million dollar number is is, I think conservative but directionally okay, um, we see that that 2,000 per subscriber number, um, being something that that we are currently meeting and plan to continue to be.
And I think, as we build out more more capacity and more robust programs, we'll have more stability. Uh, that will make financing those, you know, easier, but I'll let Danny kind of take that. Yeah. And and and you know that latching on to the, you know, thousand dollars per customer. Um,
A trip, you know, a vision that, you know, and a realistic path to tripling. The deployed capacity over the next few years. You know, we start to push in the several hundred thousand customer range for participating customers with their batteries. Uh, so on a present value basis, that starts to look very meaningful in terms of scale, you know, several hundred million dollars of total present value, um, as far as the
Financing outlet for that. I I don't think we've uh concluded yet. Um I think we're we're happy with the way the scale is building. Um you know so if you make financing activities, certainly subscale uh but as it scales uh those options will open up and become very obvious to us.
Got it. Thank you very much.
Council from Joe OSHA with Guggenheim please proceed.
Uh, hi, thank you. I've, I've got 2 questions for you first. Just thinking about the market as you know, 25 d goes away. Um, maybe I'm asking this question in the white in the right way. Does some portion is some portion of that cash and Loan Market sort of convertible to, to lethal BPA, or do we just think about it, going away? Uh, I'm just trying to, to think about, you know, how, how do I think about that? Thanks. And I have a follow-up.
Yeah, great question.
Kind of independent research research consensus suggests how the market is that cash loan today and about half of that goes away. So a 25% pulled out from the market overall and we think that, you know, is is quite reasonable. So if 25% of that market largely is, uh, areas where third-party yield isn't a viable solution. So most of that market, I think goes away the cells and fulfillment partners that operate in third-party on markets that are today's selling under 25. Ft, I do think most of them, make a reasonably successful transition over into a third-party owned model with with, uh, the solutions available to us or to them.
I think for us there maintains a really heavy focus on quality margin control and I think most of the players who you know, are a bit more, you know, focused on the superior consumer offering that third party has been for quite some time, our focused around an understanding, the value of dispatch controllable load have already migrated, um, into a third-party model and are working with us. And so, while I do see, some migration of the 25b volume flowing into some rest, I think there's a lot of uh, development and maturity for many of the partners that would need to take place even simple things like we deploy domestically manufactured equipment and are focused on that. So having these organizations build out the supply chain and officiate sophistication to track and report on that to adhere with, you know, that standard for us. For example, I think there's some development that would need to take place, uh but I think overall 25% contraction in the overall Market, some of that flowing to Sun Run, um, we will be natural
Yeah, I I agree and I just wondering if that's, you know. Okay, thanks and my other question is this just occurred to me listening to your call. It's it's interesting that if if I heard correct when we went about a third of your existing storage Fleet is is signed up for grid Services. I'm, I'm wondering if there's been any effort to go back to the existing installed base and see if you can sign up non-participants.
But um, are you talking about signing them up to install storage with them or going back to? I believe, I heard I believe, I I believe I believe. I heard you say that October installed storage Fleet about a third, is signed up for grid Services. Did I hear that correctly?
Yeah, sorry. So that's because of the, the programs and the geographies Joe. It's not like all of our customers are technically capable um, to participate in programs. So again, it's it's more to the geography of where we are already seeing a lot of grid, uh, constraints and challenges that we expect to see that growth. Um, and then we also I
Yeah, I wasn't trying to be negative. I'm just wondering whether there's some opportunity to go back and try and sort of remarket that existing Fleet of of storage. That was my question,
100%.
Yep. Absolutely.
As is we also see tremendous opportunity.
With our existing customer base. Um, and we we've started to do that successfully, which is scale. Um, in a super low, CAC way, um, storage attachment for the 800,000 customers that we have that, don't currently have storage, so that we can enroll them in these programs.
Okay, thank you.
The next question comes from David oaro with Morgan Stanley. Please proceed.
Oh hi uh thanks so much for taking my questions. Um, I was wondering, could you touch on just maybe how aggressively you're pursuing, cost savings, and cost efficiencies right now, you know where do efforts stand in terms of cutting customer acquisition costs? Um, good progress here on creation costs. Obviously, for the quarter just wondering, you know how much is that is of, that is you really pushing more aggressively there, um, and is that part of the near-term strategy that you plan to pursue
Strong, uh, AI team that has helped to really to accelerate that throughout the business. So we still see, uh, opportunity, uh, for, you know, years to come and the context of continuing to drive down costs in the business drive down the cost of, uh, customer acquisition. Um, and so, so yes, we we, we not only have achieved a lot of that, but we see a lot of continued opportunity as a business.
Yeah, the only additional call out I'll make is on um, closed installation, servicing costs. Uh, we've seen those come down, uh, quite a bit over the last year as well. Um, and that that's been a, a key focus on top of installation, and, and customer acquisition cost efficiency. Um,
On that side, we are also seeing as we've kind of scaled scale up volume. Uh we're seeing operating cost leverage uh across our next cost base in in a very, very meaningful and nice way.
Yeah, absolutely makes sense. Um, and then separately um where do you stand with regard to the fiac provisions, particularly with your storage, uh, Supply. Um, how much visibility do you have there to manage uh, within the thresholds of the obv?
Yeah, we, uh, we've worked a lot with our partners that have had a lot of really good collaboration. We think the, uh, capabilities that, uh, we have in the timeline Works, uh, quite nicely. And we, we see a good ability to walk into it. Uh, compliance.
Great, thank you so much.
The next question comes from John Wendab with UBS. Please proceed.
There we go. I had to get off mute. Sorry. Um, first of all, um,
I'm not usually 1 to dull out compliments on uh quarterly calls but over 5700 on the front that subscriber values, a a massive number. Um, so good work by the team. Um I wanted to ask a question to maybe he's been an area where people aren't looking these days. We've obviously had so much focus on the federal level um
Could I give you the opportunity maybe to walk around the room a little bit and talk about anything. You have an eye on in terms of state level subsidies and policy programs? You know, historically in this industry, when the federal government wants to go sort of 1 way, under 1 Administration, the opposite States tend to go to another meaning, like the last time we saw, uh, Trump elected saw some of the more Democratic states. So a double down on their commitment to Renewables. Just if, if you could help us on anything, we should be keeping an eye on investors should be keeping an eye on at the state level over the next 6 or 12 months. Would really appreciate just your high level.
Thoughts, thank you so much.
I think it like an overall perspective, um, you articulated a a dynamic we've seen play out and and to be true multiple times and continue to be be, uh, the the right way to think about it. Overall, there there are and have been long-standing, durable rebate programs. Uh, that we continue to see a strong stable elements, like the asteroid programs that exist, for example, or other state programs that have, um, you know, dedicated funding and and continued stability. And we've seen, I think in some areas some, um, enhancements there and some, you know, uh, further commitments there. And then I would say early conversations are kind of budding in in several new markets uh, that create interesting and exciting opportunities for us. Yeah, the only thing I would add to that
is that, um,
you know, as
from reading the news, every
The grid is running in the challenges, um, and uh, now with also the AI Challenge and the AI race with China, um, you're seeing a lot more focus on energy capacity. So not only do I expect to see some of the same phenomenon we've seen in the past, but I think someone is in a particularly athletic position because I think you're going to see a real focus on storage as a part of that. So as states are looking at, uh, you know, that exact topic of, you know, how do we make sure we're accelerating it and our jurisdiction, I think there is also a very strong focus on dispatchable resources.
uh, which again uh plays very well into our vision and our work, uh, in the energy space,
Appreciate it. Thank you.
The next question comes from Dillon, Nano with wolf research, please proceed.
That sales commission payments are kind of like the lifeblood of volume growth. So uh to me it seems like a little bit of a chicken and egg problem. Curious. How you think you could kind of achieve both
I think we we programmatically been focused on Innovation and creating a differentiated consumer offering. And as we've done that CAC as a percent of proceeds or of value created has been, like I said programmatically falling and we're in, I would say the early stages of that Innovation, cycle, and building out that differentiated offering. So, our sales reps are focused more on selling consumers, uh features and functionality and benefit.
Later on top of that Revenue that we were talking about with home to great capab about capabilities around virtual power plants and that becoming a more substantial thing is the grid. Uh, fills the impacts of the electron shortage. The price, you'll be able to fetch to be sitting on, you know currently a little over 3 gigawatts of dispatchable capabilities soon to be 10 gigawatts over the next few years uh becomes very meaningful and a a real source of you know, incremental pipeline Revenue with no real Associated cap uh to speak of a, you know, burdening it. And so as those kind of Dynamics play out, we we have been seeing and expect that Trend to continue to walk us into account. Reductions, you know, in line with what's shown on slide 11.
Got it. Thanks. Um, and then just just as a follow-up. So
I guess just given that residential solar is generally shorter cycle than utility scale solar. Can you talk a little bit about how you plan to balance? Uh, Safe Harbor related equipment, Acquisitions with you know a little bit more limited for demand visibility. Just trying to think through some potential headwinds like stuff like uh, equipment degradation, and then separately kind of on that point. Uh, are you looking to further diversify, your supply chain, mix kind of uh, maybe more towards some historically less represented suppliers.
uh, I would say the the take the
Second part, first saying the the Safe Harbor activity, um, and the the available capacity and like ability to do the Safe Harbor activity.
With our existing vendor mix. There's like a very achievable exercise. Um, so I wouldn't say the activity of Safe Harbor. Necessitates a big, big change in Vendor mix.
Um, it could impact the mixed amongst our vendor Universe, uh, but it's not like a, you know, drastic change in mix. So, um, then then I would say the, uh, you know, the, the multiple here, uh, the question on the, the multiple year Runway, um, you know, it's a it's definitely a, you know, big combination of activity. Um, you know.
Aggregate engine to, um, you know, a few years. Um, you know, I think we would like to see the executive order fully play out, fully complete the strategy before we kind of get into the details.
Got it. Thank you.
The next question comes from Julian dumaran Smith with Jeffries, please proceed.
Hey, good afternoon. This is Hannah Velasquez on for Julian, uh, like everyone else has said congrats on the quarter. So I just wanted to open up with a clarifying question. It sounds like of the 3 year, Safe Harbor program that you all are pursuing, you safe. Harvard about 1, Year's worth, uh, post the 1, Big Bill, uh, to date. And then you're waiting, I assume until a treasury issues guidance for the remaining 2 years. Uh so clarifying. Questionnaire, is that correct and the follow-up? There is uh what gives you confidence that no portion of guidance will be retroactive. I'm sure you're hearing all the whisperings that it could be retroactive back to uh, 74 or 77 or even retroactive back to January 1st.
I I can hit the retroactive comment first. This is Barry. Um,
Yeah, I I what we're hearing. You know, having spent quite a bit of time in Washington and was just there last week like well, we're hearing is, retroactivity is very, very low likelihood. Um, extremely low like
Hood. And I think, as we've all seen, we already are seeing a lot of, you know, Republican Senate leadership, you know.
Expressing their desire. Frankly not for there to be a lot of changes at all, let alone retroactive changes. So everything we're hearing is that there will be there, likely will be some changes and they will be prospecting.
So, Danny, why don't you think the rest of it?
That so, the bullet point you can see at the bottom of the slide 11. Um, you know, it's 2 months of section 48. Um, that implies the equipment that is available from that Safe, Harbor activity. Uh, there's 6 months, uh, that have immense Construction in 20, like in the calendar year before the passage of the bill. Um, so that's the 6 months and then there's 3 years expecting to have commenced by, by this August. So that's fully incremental to the first 2, um, and then what we're talking about further to that is doing more than the 3 years by July 2026, which is the 1 year, deadline from the data Bill passage. And that's, um, Still Still In Flight. Um, you know, again that's the part that's more dbd, uh, based on the treasury guidance.
Okay, thank you. And then just as a follow-up on the battery side, when you talk about potentially getting to 10 gigawatt hours by 2029, what macro and market-level assumptions are you considering to underwrite that number? Does it assume other states adopting maybe VPP programs across utilities or expanding across the current base states where batteries are particularly strong? And then maybe you could also just identify which of the key states currently you feel will drive a bulk of this ramp to 10 gigawatt hours through 2029.
Yeah. So the um State participation in Grid service programs, um would just be the enrollment rate in the economics. We would drive off of that, 10 gigabytes. But the batteries absent, uh, grid service, programs are highly economical and attractive for us to be selling and create a great grid resource and good customer functionality. So the building, the 10 gigawatt basis attractive, we're on, Independent of, uh, Pro program. Enrollment
Uh, as we said, we're at 3.2 gigs right now, and I think a kind of steady state mix or consistent State mix of what you've been seeing. I'm, we're at about 70% attach rate today. So that puts us in about 70,000, uh, new batteries installed on an annual basis. Um, that puts us not far off, uh, with little acceleration needed to be walking right into that gig Lots, um, through 2028.
Okay, thank you.
The next question comes from man, heat manly.
With mizuho, please proceed.
Hey uh, thanks for taking the questions here and considerations on the quarter here. I just want to notify 1 thing on the Safe Harbor through 28. All you want to see on that. Like what growth rates are we, uh, assuming here for that. Is this python 76 billion for you and have a great day or
like the higher than that, uh, for those, you next
Is just to clarify. The growth rate, is that the growth rate we're assuming for our business, when we size the Safe Harbor activity,
Yeah. Yeah. Because I think, uh, most of the only part of that shows up in inventory. I presume right? The rest shows up as uh, yeah, it's, you know, modestly growing uh, you know, I would say the expectation, obviously, uh, we've talked about the industry dynamics of 25d and the, the opportunity we have their, um, I think also, uh, you know, we're being very disciplined on on the, on the volume growth. I think we're just uh, anchored as we've said for many quarters on on the margin growth. I think that has us with a view of of modest growth, um and the resulting multiple year, um, Runway comment that when we're talking about the magnitude of the Safe Harbor. Activity is, is is underpinned by that assumption
Got it. Appreciate that. Thanks.
The next question comes from Colin. Rouge with Oppenheimer? Please proceed.
Thanks so much guys, you know, given some of the distress that's out there in the market. Are you seeing any opportunities to pick up, you know, portfolios of assets that you could optimize and leverage with uh you know, kind of add-on sales, um you know, especially given what you're doing with the balance sheet right now.
Um that's uh definitely an opportunity that exists out in the market. It's not something that uh we're we're pursuing I think there's an opportunity for us to, you know, do more with battery deployments and and growing up with an optimizing our own Fleet and we're, we're really focused on on that the time being
That uh, you could start deploying and an ability to start driving. Some pricing margin, just through some of those uh incremental chemistry improvements.
Yeah, 1 of the benefits of being the largest employer of uh, residential batteries in the country is you get burnt pick and you get uh, insights into what anybody is doing. And so we we do look at a lot of Technologies. There's some incredibly impressive uh innovators out there and we're excited about the prospects of uh continuing development around uh
Cheaper batteries or functionality, better install ability. Uh, there's a lot of innovation taking place in that space. Um, and uh, and we think we're seeing it both from our existing Partners as well as new emerging opportunities.
Great. Thanks so much, guys.
The next question comes from Philip Shin with Roth Capital please proceed.
Hey guys, thanks for taking my questions. Uh, first, 1 is a follow-up on retroactivity. Um, I know Mary, you talked about it being an extremely low, extremely low likelihood, uh, we're hearing similar, you know, that they're not leaning that way. That said there is still a probability out there, that's non zero. And so what happens if there is retroactivity, uh, what's the, the past? And then in terms of what you guys have Safe Harbor, thus far, um, how have you guys done that? Is it through inverters batteries modules? What what's the?
Dominic category of equipment, thanks.
Yeah. And the first part well, and I see nice to chat with you. Um, the key context to keep in mind for someone is that, you know, it would be isolated to claiming the ITC for solar for 28 through 30 and I think as we show in our slide, we see it as uh, you know, our we believe someone can generate attractive returns without the solar portion of the ITC. So, first and foremost, like that's like, that's really important to understand from a base Stakes perspective. And then, when you layer on top of that, that you've heard exactly what I'm hearing. Exactly. What everybody else is hearing. Uh, which is very low, likelihood of retroactivity. I think, you know, we're feeling in a very strong position.
The vendor, you know, equipment type makes, you know. And so, if you kind of all of all of the above, um, I think we'll we'll Reserve, um, comment on exact specifics of our strategy.
Okay. Uh thanks guys. And then shifting to my second question here um on tax credit. Um bying buyers and buying some of our checks suggest substantial percentage of the tax credit buyers out there are not interested in resi solar as a category in general. So then you have just less Demand, right? Uh and there's a fair amount of Supply special with the new entrance. Um,
Uh, you know, Nova's BK, not withstanding. Uh, pricing appears to be challenged with some of these residue players. Uh, we're hearing kind of in the call, it mid to high 80 cents, on the dollar of credits, I got to imagine the pricing for you guys is better but to what degree has that overall kind of challenge sentiment for resi solar impacted your pricing for tax credits. Uh have you seen um meaningful change that could impact um margins despite your strong margins in the quarter but could it impact. Margins ahead. Thanks.
Yeah, I I think it's a, you know, it's a big big Market. Uh, we've raised 1.7 billion in 2 year to date. Uh, we did note on the call and the prepared comments that, uh, you know, buyers, uh, over the period, uh, with the, you know, the the the playing out of the bill between the different versions. Uh, I think going into the summer that, you know, the market, you know, the players in the market did slow down a little bit. Um, some of it was residential driven
Wanting to understand, uh, you know, the sponsor differentiation in the space. Uh, that's not different than we see, uh, in the debt Capital markets as well. Uh, when we're doing our Securities and transactions, uh, I think, uh, you know, in a moment like today where we're showing the, uh, results of our work. Uh, you know, we do encourage, uh, Capital providers,
Utility scale. Um, there are definitely different considerations, uh, in utility scale. Uh, you do have a very, very long deployment window, uh, the timing of which can be very uncertain, uh, the overall completion rate of the project, uh, you know, which could be uncertain. Um, so the fact that we're, you know, we're unique in that, there aren't that many, uh, business models with a flow rate. Um, that is very reliable. Uh, we see that in the residential space. I think that is an attractive Point, um, you know, there are pricing differences, um, between where residential clears and where utilities squares. Uh, we feel like, uh, over time those 2, uh, should still converge. Uh, I I think in the moment that there might be, um, certain price points that are, you know, there's Market chat around certain price points that may or may not clear. Uh, I would say that's more than in the moment saying, um, as a
As opposed to like a a big long-term structural uh deviation from what we expect the economics to be.
Okay, great. Thanks Danny. Thanks mayor.
Thank you. The next question comes from Chris Dendrinos with RBC. Please proceed.
Yeah, thank you. I wanted to follow up on the um 25d conversation and the opportunity to capture some of that I guess call it non TPO Market that that might come to to TPO. You know, you mentioned. You're not looking to to employ long tail or roll-up strategy. You know what, what kind of is the strategy here. Do, do you do anything different? I guess, from this point forward, in terms of onboarding new installers, are you looking to add add new installers or how, how are you thinking about, um, making sure that you're benefiting from some of this opportunity here. Thanks.
Yeah, we we have a really successful, um, and, and great, uh, relationships with our affiliate partner business and and do see some opportunity. Um,
To onboard, uh, people in the 25s to join that affiliate partner Network, just calling out that it is. There are some limitations, given our, um, strict underwriting, quality, safety controls, and things like that. So there there's really strict
Things that we think Limit Out much of that market, um, that being said, there are some fantastic players in that space that we see, you know, could be and likely will become good son, run Partners beyond that. Um, we do see some companies, um, seeing this, as an opportunity, to kind of go to safer harbors, and we've seen the onboarding and actually organizations come, uh, uh, into Southern and become Southern employees, joining our sales force or our installation, labor force and
So, um, we see that taking place as well, and those would be the two mechanisms and interaction points between Sunrun and kind of the 25D market.
Got it. Thanks. And then I guess maybe separately on a follow-up, um, you know, tariff impact CLS. Last quarter you had highlighted I want to say it was maybe a thousand or or 1300 dollars per customer from terrorists. How has that changed? Um I guess today just given given fluctuation in in Terra Freight. Thanks?
Yeah, I think I mean the short answer is we've moderated uh and ended up at the low end of the range. Um and uh all of the associated impacts uh we've kind of reflected in our forecast and the zip board and all the guidance we've given.
All right. Thank you.
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