Good afternoon and welcome to Sunrun's Third Quarter 2023 Earnings Conference Call. All participants have been placed on mute. Please note that this call has been recorded and that 1 hour has been allocated for the call including the question-and-answer session. [Operator Instructions] I will now turn the call over to Patrick Jobin, Sunrun's Senior Vice President, Investor Relations. Please go ahead.

Thank you, Sherry. Before we begin, please note that certain remarks we will make on this call 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. 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 disclaim any obligation to update or revise them. During today's call, we will also be discussing certain non-GAAP financial measures, which we believe can provide meaningful supplemental information for investors regarding the performance of our business and facilitate a meaningful evaluation of current period performance on a comparable basis with prior periods. These non-GAAP financial measures should be considered as a supplement to and not as a substitute for, superior to, or in isolation from GAAP results. You will find additional disclosures regarding the non-GAAP financial measures discussed on today's call in our press release issued this afternoon and our filings with the SEC, each of which is posted on our website. On the call today are Mary Powell, Sunrun's CEO; Danny Abajian, Sunrun's CFO; Ed Fenster, Sunrun's Co-Executive and Co-Founder, is also on the call for the Q&A session. A presentation is available on Sunrun's investor relations website, along with supplemental materials. 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 Sunrun's Investor Relations website shortly after the call. We have allocated 60 minutes for today's call, including the Q&A session. And now, let me turn the call over to Mary.

Thank you, Patrick. As you all know, this has been a volatile time across the solar industry with changes in important policies and rising interest rates, leading to difficult conditions in the sector. We are taking action and responding to this environment, which results in a lower growth outlook than we expected at the start of the year. We are also sharpening our focus on cash generation and continue to execute a customer-first, sustainable growth strategy that does not require equity funding. Here is what we are doing to respond to these tough conditions and improve our position. First, we are reshaping the business to be storage first. During the quarter, we rapidly accelerated storage adoption. And as a result, we are growing our lead as America's clean energy company, one that delivers a superior value proposition to customers and creates multiple value streams for our shareholders. This is a significant national change management exercise and one that most competitors have not yet undertaken. Second, we have made thoughtful decisions on solar only volume. We are not chasing growth that has subpar economics. Therefore, we rejected opportunities for growth in Q4 that did not meet our return hurdles. Third, we intensified cost reductions through both process efficiency and a best-in-class artificial intelligence team. We have improved the customer experience and built a strong foundation to deliver increased value to customers over time. We installed 176 megawatt hours of storage capacity in Q3, growing 131% compared to the prior year and 68% from the prior quarter. We now have more than 1.1 gigawatt hours of storage capacity installed across the country. Our storage offerings provide customers enhanced value and generate significantly higher margins for Sunrun, while providing a foundation for future monetization in the years to come. Our storage attachment rate…

Thank you Mary. Today I will cover our operating and financial performance in the quarter along with an update on our capital markets activities and outlook. Turning first to the results for the quarter on Slide 11. In the third quarter solar energy capacity installed was approximately 258 megawatts, a 1% increase from the same quarter last year, and within our guidance of 255 megawatts to 275 megawatts. Customer additions were approximately 33,800, including approximately 29,300 subscriber additions. Our subscription mix represented 89% of our deployments in the period, a meaningful increase from 83% last quarter and the highest level in two years. We have now installed over 76,000 solar and storage systems. We expect storage installations will grow substantially in the quarters ahead. Sales of storage-attached systems have grown to over 40% nationally, which should continue to drive installed attachment rates meaningfully higher in future periods. Our backup storage offerings carry higher margins, typically by several thousand dollars per customer. During the quarter, we installed 176 megawatts of storage capacity, an increase of 131% from the same quarter last year, bringing total network storage capacity to over 1.1 gigawatt hours. We ended Q3 with approximately 903,000 customers and 754,000 subscribers, representing 6.5 gigawatts of network solar energy capacity, an increase of 20% year-over-year. Our subscribers generate significant recurring revenue with most under 20 year or 25 year contracts for the clean energy we provide. At the end of Q3, our annual recurring revenue, or ARR, stood at over $1.2 billion, up 28% over the same period last year. We had an average contract life remaining of nearly 18 years. Turning to Slide 12. In Q3, subscriber value was approximately $47,100 and creation cost was approximately $36,000, delivering a net subscriber value of $11,030. Our Q3 subscriber value and net…

Thanks, Danny. I am so appreciative of our hardworking team whose passion and ingenuity is helping Sunrun transition to a storage-first company to extend our differentiation, expand our margins, and deliver the best value to customers. Importantly, I believe our steadfast commitment to our discipline growth strategy will maximize the value we can create for the long run. Operator, we're ready for questions.

Thank you. [Operator Instructions] Our first question is from Andrew Percoco with Morgan Stanley. Please proceed.

Thanks so much for taking the question. I did just want to dig a little bit more into the backup storage uptake that you're seeing in California. I guess, I'm a little surprised by the demand there, especially since it doesn't appear like there's any bill savings associated with that product. So can you maybe just elaborate on what you're hearing from the customers specifically as to why they're going to that product versus just sticking with the Sunrun Shift product? Thank you.

Yes, great, Andrew. Thanks. Nice to hear you. Yes, I mean, one of the things we were really pleasantly surprised to accomplish was to really see the uptake in backup home storage outpace the Shift. So again as we had talked about when we went into the transition we were pleased that we had an innovative product offering with Shift, but we also know that there was significant value for customers to consider whole home backup. And if you look at the presentation we really hit very clearly that in terms of the value to customers, the value of home storage, particularly in a state like California, one could say it's actually priceless because of the number of outages and events that happen. But if you look at that, what you'll see is that, even with a whole home backup, what we provide to customers is stable pricing equivalent. As we show in the slide, similar to the current price that they're paying for power. So they get to switch over and have similar pricing and have peace of mind, have the capability to store energy and use it when they need it, as well as protect themselves from the -- continuing to escalate rates in states like California. So again PG&E has a request that it’s poised for next year at 13%. I think the original request was for 26%, 25% or 26% and it looks like 13% is going to go through. So that kind of environment I think really makes the reliability environment and the price environment is driving a much more robust whole home backup market. And one of the reasons I should also add that we're really pleased with our investment in Lunar that we've talked about in the past, which is going to be another best-in-class storage offering for customers.

Got it. That makes a lot of sense. And maybe just as a follow-up, just interested in just your hardware procurement strategy here. I think it's clear that panel prices have been coming down. Inverter prices seem to be coming down as well, as well as battery prices there too. So are you adding additional vendors to your approved vendor list? How is -- or are you just buying more at lower prices from existing vendors? How are you kind of managing the current landscape for hardware? Thank you.

Yes, I think it's more the latter, as opposed to big movement in the number of vendors on the list or the nature of that list. I think it's really driven by procurement activity we're seeing right now. I'd also keep in mind as we've mentioned a few times here and over time is, we still also are in the midst of burning down our elevated position of inventory. So as we cycle through that, we won't necessarily see that deliver into our external metrics right away, but over the course of a few quarters, we definitely will based on the pricing indications and firm pricing we're getting on our purchases today.

Great. Thanks so much.

Our next question is from Brian Lee with Goldman Sachs. Please proceed.

Hey, everyone. Good afternoon. Thanks for taking the questions. And I apologize in advance if you already kind of went through this. But I'd be curious if you could maybe give us a bit more detail around where the biggest delta is coming from in the new megawatt install guidance versus prior, whether it's states, customer types, or maybe how much of a function of this is being -- let’s customers being available to meet your return requirements since you're just kind of pulling back, if you could maybe provide a little bit more of a breakdown between where you're seeing the pullback in the volume outlook here?

Yes, I mean as we look at the solar installed megawatt volume outlook. I think as we lay out in the deck in the presentation very clearly, I mean, there's basically three things driving it, Brian. So one is, the trajectory of just pure up sales recovery in California was a little bit slower than we anticipated. So that definitely impacts the outlook. As we also said in the call we are seeing, again, really good numbers, growth numbers in other states, but again we break it down showing that again we're losing because of a certain amount of that change in the uptick in the trajectory. We also leaned in really hard to hold home backup. So that was something that also really drove our outlook when we saw that we could really make strides in our goals towards cash generation by leveraging customers' interest in storage. And so that's why we also launched the storage retrofit program this quarter as well. And then the third thing was, we were seeing sub-par economics in the channel segment of the market and so we made really strategic decisions to prioritize value over pure solar megawatt growth in certain areas.

Okay, fair enough. That all makes sense. And then just second question before I pass it on. I know the cash generation target you're reiterating here, $200 million to $500 million by the end of this year. Why is there such a wide delta? I mean, presumably -- given it's already November, I mean, presumably financing is a swing factor. One, is that correct? And then two, kind of what sort of options are on the table here through year end that drive that swing factor? And then what's driving the uncertainty around timing, I suppose, given it's a couple more months here before the end of the year. Thank you.

Hey Brian, it's Danny. I think just to clarify at the top, the guidance for hitting cash generation annualized within the range is specific to the fourth quarter of next year. And then the five quarters of total cumulative cash generation is also through the end of next year, not through the end of this year, just to make sure I clarified that, because I think that's potentially where the question is coming from in thinking that it's 2023. But I think just generally looking at the guidance and the assumptions, I think the few changes we've made in the assumption set we've noted on the page and as I called out in the remarks, and there's more specificity on the timing and the total cumulative cash generation. But again, that's over the next five quarters, taking us through the end of next year, not through the end of this year.

Okay. Understood. Appreciate the clarification. I guess having said that, though, it's still a pretty wide delta. What are kind of the swing factors where you hit 2 versus 5 over five quarters?

You mean the delta between $200 million and $500 million within the range?

Correct, yes.

Yes. So I think we've noted in the past, I'll call out a few not to hit every single one, but the backup storage mix, that's one we actually took up version over version, as we've seen that strength that we just discussed. The ITC adders, we nudged up slightly from 34 to 35. The shape of the attainment of that is more back-ended over the course of this period of time. And the swing factor there is really, the last of which comes in is domestic content. And there's generally a wider range of outcomes [indiscernible] content, as there is less clarity at the moment, but we remain bullish on the upside there. And that's back-ended capital costs. We've adjusted the range, but are still planning for this amount within that range. And I think we've noted a 0.25 point is about 1 percentage point change in our advance rate, which annualizes somewhere in the range of about $50 million plus or minus. So that's to give you the heuristic on the plus or minus on advance rates. I would say those are the big costs falling, equipment costs. Another one we mentioned that is another factor at play, which is delivering, again, over time in increasing amounts.

All right, super helpful. Thank you.

Our next question is from Joe Osha with Guggenheim Partners. Please proceed.

Thank you. Hello, hello. To follow up on Brian's line of questioning. Once we get to the end of 2024, I'm seeing you use words like annualized and recurring. Is the implication that that level of cash flow generation be something that we can expect to continue and/or grow in future years? Is that what you're signaling with that language? And then I have a couple other questions.

Yeah, absolutely. That's the -- the recurrence in nature is both recurring and with the objective of growing it over time once we stick the landing and getting within that range for all the reasons I mentioned.

Okay. Thank you. Second question is, if you look at what [indiscernible] had to say and then SolarEdge just here today, pretty shocking outlooks for the fourth quarter driven, I think to some extent, by inventory. Obviously some of that's in Europe, which has nothing to do with you guys, but I am curious as to how you feel about the level of inventory on your own balance sheet and also what you're seeing out there, especially in the dealer world? Thanks. And then I have one more question after that.

Great. So the inventory, I'd say very simply, we've been above our targets. We measure in days of supply based on our run rate installation activity, and that's been -- we've been trending well north of our objectives, but we've also made progress in reducing the inventory balance. So, for instance, in the last quarter, we drove the inventory balance down by $130 million. I think we have another $100 million to $200 million to go to get levelized to our targets. So the rate of our purchasing activity is now, and will be until we're right-sized beneath the rate of our installation flow as we right-size. And we think that's going to take us another two to two quarters.

And Joe, this is Ed. I might add. I think there are three markets that are reducing inverter sales that haven't really impacted us. We're calling out international is obviously one. Companies unable to make the transition to storage is another. And then the third, which we've mostly sidestepped is markets within the United States that stop being cost effective with higher interest rates. And so that's a differentiating factor that has helped us relatively. Got you. Nice to hear from you, Ed. And then last one, and then I'll go away. Probably is another one for Danny, maybe you, Ed. How are the economics of direct ITC monetization relative to traditional tax equity for you guys? And in particular, is there some mechanism for a basis step up when you do a direct monetization? I'm curious about that. And that's it for me. Thank you.

So there's structural economics and then there's price per credit. I’d say, as has been noted across the market, we're in a period of everybody doing their first deal on both the sponsor side and the investor side and participation has been pleasing to see, but deals are getting done for the first time. And ultimately we think the price per credit is going to increase as we do more and more of these transactions. And that's why we also noted we expect it to be part of our mix, that is driving that. As far as structurally, I think there are different modes of transaction being done in the market, some of which do not have monetization for things like depreciation, some do. In some cases, it might look more like a traditional tax equity structure where there's a subsequent sale of the credit not directly by us. And so, there are emerging structures as well. I think ultimately we'd expect to preserve the value, if you will, relative to tax equity, putting price per credit aside.

Understood. Thank you.

Thank you.

Our next question is from James West with Evercore ISI. Please proceed.

Good afternoon, guys. So, Mary, as you think about this move to storage first, which makes perfect sense, but you're going to have to do some re-skilling. You got a lot of stuff going on with the company in general. How long of a transitional period should we expect to be in for?

Great question. I mean, we're well on our way. I mean, the good thing is, as you know, like Sunrun's been invested in a storage future since 2016. So the cool thing is, we already did have expertise in the company. We had experience. And it's really the challenge of scaling and taking that experience that we have and scaling it in a significant way, particularly amidst a very rapid policy shift in one of our large markets in California. So, we're really well on our way. It's just been incredible to see the strides that have been made over the quarter. As, again, we're improving all of our customer communications, our sales training, our installation teams, instead of having like a percent of them that are experts in installing storage, we're moving to having all of them being experts that install storage. So I would say, we're well on our way and I'm feeling really good about this uptake that we saw. I mean, no question, we were working towards that kind of uptake. So we were just really pleased with the customer reaction to our focus on whole home backup and storage across the country, particularly -- and particularly in California.

Okay, okay, got it. And then as we think about things starting to at some point normalize here in whatever the new normal environment looks like, you are prioritizing cash flows. So how should we think about what the normal volume growth should be on an annual basis?

I mean, as you know, we guide to next year at our next earnings call. Again, we're talking about how we expect to see storage megawatt hours grow this quarter, because we think it is so strategic and so important. So as you think about how we're going to talk about it next year, I think you can really anticipate that we're going to be talking about growth in a broader context than we have historically. Which is really important from a value creation perspective, value creation for our customers, and value creation for our shareholders. And it's also really powerful, like that's again why we -- like we've been really pleased with the initial reaction we're getting to our retrofit program, for instance. And again, we're also launching our renewal practices around helping customers renew their contracts. And as a part of that, that gives us the opportunity to cross-sell, to up-sell, and to lock in even longer-term relationships. But Ed, it sounded like you wanted to add something on.

Yeah, I was just [indiscernible]. Storage is significantly higher entry barrier business, that probably most obvious if you look historically what happened in Hawaii where our market share grew several times after the market effectively required storage. Storage is harder to price, design, sell, permit it requires working capital. There are obvious fantastic economy scale in grid services and [indiscernible] making the strong pivot. And so obviously volume holistically is still very important to us. Solar nameplate megawatts were de-emphasizing a little bit and we're now focusing on total value proposition, a broader suit of products and cash flow.

Yes, and we haven't talked a lot about grid services on this call so far, but the program that we just did with PG&E this summer was very, very powerful. And as a former utility executive, to build on what Ed said, it's incredibly powerful to think about the amount of clean energy generation we're going to be sitting on top of with this kind of storage attachment rate and with the ability to now go back and retrofit customers with storage.

Very helpful. Thanks, guys.

Our next question is from [Pranesh Satish] (ph) with Wells Fargo. Please proceed.

Thanks. Good afternoon. So you mentioned PG&E looks like they're on track for a 13% rate increase. Just wondering how that impacts your pricing strategy in California? Do you envision kind of raising prices in lockstep with PG&E or leaving pricing unchanged and maybe benefiting from a higher pace of installs, just trying to understand maybe how you think about capturing that benefit in January?

Well, I would say, first and foremost, it makes what we are currently selling a lot more attractive to customers. So I think first and foremost, that's really important. Secondly, I think as I've described on other calls, we have a very flexible pricing strategy. I mean, we are very opportunistic, but we're also always evaluating it from a whole host of different factors. So no decisions have been made. And I would say, again, we're going to keep our nimble, flexible approach to every single market and geography within every market that we're in. And we'll make the right decisions at that time focused on sustainable, profitable growth.

Got it. And then maybe just switching to the tax equity market. I guess, are you seeing any constraints from your end in terms of accessing the tax equity market, given some of the proposals that are out there and uncertainty? And then, if so, is that impacting your growth plans at all? And then I guess longer term, obviously, I assume there's going to be a mix shift here to ITC transfers. Any sense in terms of what that mix looks like over the next few years?

Sure. This is Ed. I'll speak to this in a couple of ways. So first, it's definitely not constraining our growth. The market is growing rapidly both on the supply and demand side for tax equity, but we don't have any concerns about clearing the market. I think you were indirect with also referencing the potential Basel rules, those that only affect 2025 and future. So it's certainly not showing up for residential funds at the moment. In my conversations with the tax equity investors who are having the direct conversations with the regulators regarding Basel, it seems pretty clear that the proposed treatment for tax equity was viewed as a myth and they're papering the file to fix that. There's obviously no guarantee that that will happen, but people are starting to feel pretty comfortable that that will occur.

Got it. Thank you.

Our next question is from Julien Dumoulin-Smith with Bank of America. Please proceed.

Hey, guys. It's Alex on for Julien. Just -- you guys give a lot of color when you're talking about the pivot into storage as sort of a whole company, in addition to this more measured sort of growth profile. I'm curious, right, I mean, does that also come when we sort of think about the current backdrop, with any sort of reassessment of the overhead that you guys need to be carrying, again, with sort of like eye on the cash generation targets, heading into that sort of 4Q run rate next year?

Yeah, I think getting the transition to storage is a key element affecting the near term. So dealing with -- also if you look at our value creation metric, like the speed at which we recognize storage projects, obviously, that affects the subscriber value we book in period relative to the expenses we book in period, but also we capture proceeds on that at the point of install. So there's just a, I would call it, like an order to cash cycle realization element in there, that's an efficiency. And I think getting -- and then cycle time being the point here. Getting cycle times accelerated for storage, thinking about how we design those systems to streamline their operation along the dimensions that Ed was talking through earlier, like home upgrades, electrical work, how do we design the backup configuration to simplify all that? So those are all part of the picture. And then you also mentioned overhead. Overhead we've been managing quite well. It's really operating cost leverage on the overhead by getting more units through to install in an accelerated fashion. I would say it’s the bigger lever than bringing down the gross dollars of overhead, which we've been doing. We've been at that for forever, but over the last several quarters, we've been pretty aggressive on containing and cutting overhead where we can throughout the business.

Got it. Yes, super clear. Just on the pro forma adders you guys are indicating. Sort of a housekeeping point. One, do you expect this will be a cash true up as those rules are finalized? And then, I mean, I guess, when we think about the net subscriber value metric that you guys are expecting to guide to, would that include this sort of true up or pro forma for what you expect it to be or sort of what it is realized in period. Thanks.

Great. So definitionally, in the past, we have not put in the catch up into the net subscriber value unit metric. We have generally floated that just through cash, and we've indicated to people what the dollar amounts of catch-up have been as we've claimed them through our tax equity fund. So that will be the case, again, for energy community adders, which we did report in the metric in the period. We are actively claiming on tax equity, and there is a sub-portion for systems that will get retroactive treatment that we will claim through tax equity. So we haven't yet done a lot of that activity. That will probably be over the course of Q4 and Q1. And we've given information on that in the past. So energy communities does have a retroactive catch-up element to it. That's live, low-income. As we noted, the application window opened. We are well underway in submitting our initial batch of applications and the award when it comes in there should be an initial lump sum element that is a catch-up, and then we should run rate going forward as the future windows for applications open up. And any true-ups will not be in net subscriber value, just to make sure I'm clear on that. We will not go restate prior metrics, and we will not put them in the prospective metric for the unit margin as far as the catch-up element to any of these. Domestic content, not yet live, will also have the potential to be retroactive, but we're still awaiting final guidance and rulemaking on that.

Got it. Appreciate the clarification, guys. We'll take the rest offline. Thanks.

Thank you.

Our next question is from Colin Rusch with Oppenheimer & Company. Please proceed.

Thanks so much, guys. Can you talk a little bit about the VPP monetization and the maturity of that model at this point? I guess I'm trying to get a sense of when to start layering some of that revenue into the model going forward?

Yes. I mean, as I articulated a number of times, we really see this value as growing exponentially in years to come. When you think about how fast we're scaling, and now how fast we're scaling with storage, and you put that against the backdrop of the grid challenges as society electrifies, which creates lumpy, uneven load on a grid that's already strained. So we see programs like what we just did with PG&E as a postcard from the future of what you're going to start to see all over the country. And that was a program whereby we were providing nearly 30 megawatts every day to the grid during peak times from August through to October. We're in active discussions with them to upsize the fleet in the future. And our growing experience with grid services increases our conviction that we can realize 2,000 or more in per customer NPV from these types of assets. So that's certainly how we're looking at it. And again, you just see the headlines all over the country where utilities in so many parts of the country are really struggling with keeping up with the load, keeping up with the different climatic events, and I see more and more that utilities are going to need what we proved at a utility way back in 2015 and some have proven since, which is, these provide incredible flexible resources unlike any other to support the grid.

Great. [Multiple Speakers]

Just to remind. We have previously said over and over again that like, lifetime grid services value could be about $2,000 per customer. And there's data that it's maybe even $2,000 per customer [indiscernible].

Thank you. I have some follow-ups, but I'll take it off-line. And thanks for the clarity around some of the inventory on modules and inverters. I'm just curious about some of the racking inventory that you guys may have and other balance of system elements that you'll need to work through just in terms of the days on hand.

Yeah, on racking, We have more direct control over that, just because we do own a racking manufacturing company called Snap and Rack. And we do both distribute that equipment and use it on our installations. I would say, once we get beyond modules, inverters, batteries, racking, as far as inventory is concerned, racking and other balances system becomes much smaller in dollar value. But we have been managing those inventory levels and bringing them down in line with everything else.

Great. Thanks so much, guys.

Thank you.

Our next question is from Mark Strauss with JP Morgan. Please proceed.

Hi, this is [Geron] (ph) from Mark. Thanks for taking our questions. First one, just back on the inventory topic. I think you've mentioned that we expect to get back to that 60 day to 80 day level in the early first part of next year and that would be when you can start to expect to see some of the pricing declines come through. With the relatively tapering of the growth outlook here, could there be any headwinds to the first half value creation because of that or am I reading too much into that?

I would say the pace of -- it's expensing inventory. So the actual price reductions are already accruing to us on new purchases. It's just that we're not purchasing as much as we're installing. And we're expensing more expensive inventory that we've held. So that's what the nature of that timeline is. And I'd say, we get it gradually, probably over the next couple of quarters. And then you'd probably see it more significantly after that. But remember, we've also cautioned as you look at our creation cost, what you're also getting concurrently is, each system coming with more and more batteries. And because the battery unit cost is high in relation to all of the solar only equipment, you're getting an increase in the installation cost due to equipment, although the units of equipment are coming in at a lower unit price. Just something to keep in mind as you observe that over the next few quarters. But it's all contributing to a pickup in net subscriber value as we put in higher value storage attaching, get operating cost leverage back as volume paces up.

Okay, that makes sense. That's helpful. And then just one quick one on California. Your peer said this morning that they're having some elongated, I guess, interconnection times with some of the utilities in California, and that's been a headwind to getting systems into operation. Is that kind of the same for you guys? And does that have anything to do with some -- maybe some slowering of installs in California?

Yes, to a degree, but again, I would say that's like routinely a challenge for us. But at the same time, we're also encouraged, again, as a very storage-obsessed company. We're really encouraged by what we've seen with the adoption of meter collars, for instance, with some storage devices, which actually should help accelerate installation times over time. So we're seeing some good moves in the context of where our focus is, which is whole-home backup with solar.

Okay, great. Thank you.

Our final question will be from Philip Shen with Roth MKM. Please proceed.

Hi, all. Thanks for taking my questions. Just had a quick follow-up on the tax credit monetization discussion. Can you give us a sense of the timing of when your first deal could be? And then how much of your 2024 TPO volumes could be supported by tax credit sales?

Yes, so we've closed the first transaction. We are in the final stages of completing the transfer element of that fund and will be a heavy user of that fund for the balance of the year. So that's the status of the transaction generally.

Great. And do you expect it to be a majority of your financing as it relates to the credit financing for 2024?

I think it would be a substantial portion. I don't know if it's majority, half. I think over time definitely as these funds are very -- it could be very large in size. At some points of the year it might be more transferability. At other points in the year, it might be more traditional tax equity, depending on what we're utilizing over time. But I think the other thing to keep in mind, just one other thing, similar to the equipment piece, as far as like GAAP treatment, the ITC transfer, the traditional tax equity delivers a lot of income through the non-controlling interest line of our P&L. As we transition to ITC transfer, the treatment of the ITCs will look more like likely contra-depreciation, so it will have impact on the trending of our EPS over time. Just something to keep in mind again as you attract all that activity through our GAAP statements.

Great. Thanks, Danny. Can you also talk about the growth of your installation costs and why they're up $0.40 per watt sequentially. Is it due to increased storage penetration? And if so, why are proceeds -- why proceeds are going up or why aren't proceeds going up in line with that? Thanks.

Yes, I think the general point about we're making the transition. So we picked up 18 percentage points -- sorry, 15 percentage points on the battery attach over last quarter, we started spending against that and we expect more pickup to come. And the expenditure against the battery install as we've been transitioning our mix has been proceeding. So that's a little bit of a drag. The volume being down a little bit is a negative operating leverage on the non-variable elements to install cost, such as like getting permits and doing site audits etc. So battery equipment, negative operating leverage, the recognition of the subscriber value not coming in as quickly enough, there are a few other elements, but I would say those would be the largest factors.

Okay, great. Thanks. And then the final question here is around some reports questioning the subscriber count and customer count that EIA uses. So there seems to be a difference. I was wondering if you could break down the disconnect or the difference between the two? Thanks.

Yes, happy to run through that a little bit here. I think we have responded to that publicly. Obviously, we think our response was adequate. Happy to go into more detail here on this call. And I would say just first and foremost, like the numbers from two different sources are not comparable. We do define what we express in our metric. It's been the same and hasn't changed as far as subscriber count. And as any diligent company would do, where it's not clear, in this case, EIA asking us for information, we do have conversations with them to make sure that we cover off all of the nuances and give them exactly what they're looking for and that's where a team has done over time through multiple conversations between our team and directly with EIA. And there are like atypical aspects of our business that a generic reporting guideline that you pull from their website wouldn't perfectly address. So, as to solar customers, there are a couple of places, EIA has requested that we diverge from GAAP. The first place is our prepaid customers, which they've said we should not report because we don't actively bill them and they're trying to obtain billing data and we have well more than 50,000 of those customers. That gives rise to 865 million in prepayments on our balance sheet and if they change their mind and ask us to report that, we would happily do so. Another area is like the monthly billing customers, and whether you go with the GAAP number, we have contract that escalates from $0.10 to $0.20 over 25 years, GAAP records. $0.15 of levelized payments over the contract term, and we actually report our current cash billing amount, which would be $0.10 in year one. That's…

Great. Thanks for the detail, Danny. I'll pass it on.

Happy to do it.

Thank you. That ends all the time that we have allocated for the Q&A. You may all disconnect your lines at this time and have a wonderful day.