Sunrun(RUN) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - The company raised $715 million through the largest residential solar securitization, with a credit spread of 240 basis points, a 25 basis point improvement from the previous securitization in May [3] - Total cash at the end of Q3 was$952 million, an increase of $31 million compared to the prior quarter [87] - The company installed 258 megawatts of solar capacity in Q3, a 1$1.2 billion, up 28% YoY, with an average contract life remaining of nearly 18 years [101] - Net subscriber value was $11,030 in Q3, with total value generated at$323 million [127] Business Line Data and Key Metrics - Storage attachment rates reached over 33% of installations in Q3, up from 15% at the start of the year, with expectations for further growth [59] - The company installed 176 megawatt-hours of storage capacity in Q3, a 131% increase YoY, bringing total network storage capacity to over 1.1 gigawatt-hours [114] - Sales of storage-attached systems grew to over 40% nationally, driving higher installed attachment rates [126] - The company launched a storage retrofit offering with strong early results, expecting meaningful volumes of storage installations in the existing customer base [115] Market Data and Key Metrics - Installations outside of California grew over 25% in Q3 compared to the prior year, while sales also grew at double digits [120] - In California, storage attachment rates in the direct business were over 85% of sales, closer to 100% in investor-owned utility service territories [62] - The company expects to gain market share in California due to its expertise in storage and subscription offerings [117] Company Strategy and Industry Competition - The company is transitioning to a storage-first strategy, focusing on higher-margin storage products and reducing costs through efficiency improvements [58][63] - The company is prioritizing cash generation over pure solar megawatt growth, adjusting its geographic mix and sales channels to adapt to the new interest rate environment [122] - The company is leveraging its diversified market approach, including an integrated sales force and fulfillment capacity, to insulate itself from irrational behavior in the affiliate partner segment [121] Management Commentary on Operating Environment and Future Outlook - The company expects robust growth in the solar market, which remains underpenetrated, and is focusing on increasing customer value through storage adoption and cost reductions [18] - The company is responding to higher interest rates and difficult market conditions by sharpening its focus on cash generation and sustainable growth [55] - The company expects hardware costs to decline by over 20% or nearly $3,000 per system by the end of next year, driven by rapidly decreasing prices for key components [129] Other Important Information - The company successfully executed a tax equity fund leveraging the new tax credit transferability provisions from the Inflation Reduction Act, expecting transferability funds to become a large part of its funding strategy [148] - The company is managing inventory levels, having reduced the inventory balance by$130 million in the last quarter, with another $100 million to$200 million to go to reach target levels [159] Q&A Session Summary Question: Impact of PG&E's 13% rate increase on pricing strategy in California - The company views the rate increase as making its current offerings more attractive to customers and maintains a flexible pricing strategy to adapt to market conditions [182] Question: Constraints in accessing the tax equity market - The company does not see constraints in accessing the tax equity market and expects transferability funds to become a significant part of its funding strategy [144] Question: Inventory management and hardware procurement strategy - The company is reducing inventory levels and expects to see pricing declines flow through as it works through higher-cost inventory [156][159] Question: Economics of direct ITC monetization vs. traditional tax equity - The company expects the price per credit to increase as more transactions are completed and anticipates preserving value relative to traditional tax equity [179] Question: Normalized volume growth expectations - The company has not provided specific guidance on normalized volume growth but emphasizes the importance of grid services and storage retrofits in driving future value [189]