Greetings, and welcome to the Sunrun Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Patrick Jobin, Investor Relations. Thank you, sir. You may begin.

Thank you, Maria. Before we begin, please note that certain remarks we will make on this call constitute forward-looking statements related to the expected future results of our company, including our 2026 financial outlook and other statements that are not historical in nature or predictive in nature or depend upon or refer to future events or conditions, such as our expectations, estimates, predictions, strategies, beliefs or other statements that may be considered forward-looking. 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 a more inclusive discussion of risks and other factors that may cause our actual results to differ from projections made in any forward-looking statements. Please also note these statements are being made as of today, and we disclaim any obligation to update or revise them. Please note, during this earnings call, we may refer to certain non-GAAP measures, including cash generation and aggregate creation costs, which are not measures prepared in accordance with U.S. GAAP. These non-GAAP measures are being presented because we believe they provide investors with 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. These non-GAAP measures should not be considered in isolation from, as substitutes for or superior to financial measures prepared in accordance with U.S. GAAP. On the call today are Mary Powell, Sunrun's CEO; Danny Abajian, Sunrun's CFO; and Paul Dickson, Sunrun's President and Chief Revenue Officer. The 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. Now let me turn the call over to Mary.

Thank you, Patrick, and thank you all for joining us today. Sunrun continues to deliver strong operating and financial results. Our disciplined growth strategy focused on our role as a critical energy system player, while creating healthy margins is paying off. The heart of our strategy is providing a richer and more meaningful customer experience by providing generation and storage capabilities, and then utilizing those resources to create the nation's leading residential power producer, leveraging our assets as a distributed power plant. We are providing American families peace of mind with predictable, affordable and reliable energy, which is particularly welcomed in an environment where utility costs are rising rapidly, and the grid is proving time and again to be unreliable in the face of extreme weather and increased demand. We have built a base of incredibly valuable grid resources that are helping to improve our country's energy system and meet the growing energy capacity challenges. Just last year, we dispatched 425 megawatts to the grid, equivalent to the peaking capacity in some states. Our growth each year is equivalent to adding a moderate-sized utility to our fleet, in addition to dispatchable generation capabilities of 1.5 gigawatt hours added in 2025. In 2025, we demonstrated our value in the face of significant uncertainty surrounding passage of the 2025 budget bill. This process served as a powerful catalyst for us to help legislators and their constituents recognize that distributed storage plus solar is not just a preference, but of strategic importance to meet America's energy needs. We emerged in a stronger position, focused on higher-value storage-first offerings and building upon our domestically focused supply chain. To that end, in 2025, we continue to prioritize growing our customer base in an optimized disciplined way, focusing on product mix and the highest value routes…

Thank you, Mary. The Sunhine team executed well in Q4, both operationally and in our financing activities. Subscriber additions were approximately 25,000 in Q4, bringing the full year subscriber additions to 108,000, approximately flat from the prior year. Compared to the prior year, we increased our storage attachment rate by 9 percentage points to 71%, allowing us to grow storage capacity installed by 26%. Average system size grew by 4%, leading to similar growth in solar capacity installed. This margin-focused disciplined growth strategy allowed us to generate meaningful cash. In the fourth quarter, we increased sales of newly originated assets to the financing structure we launched in Q3 that results in upfront revenue. In the fourth quarter, approximately half of our subscriber additions were monetized through this vehicle, while the remaining half was monetized through our traditional on-balance sheet structures. This represents an increase from 10% of our mix being monetized through this arrangement in the third quarter. As a result, GAAP revenue, gross profit and operating income were meaningfully higher in the period. Also as a result, our reported non-GAAP value creation metrics were lower in Q4 as these metrics do not include future cash flows from these customers, even though we maintain a service relationship, rights to grid services and ability to cross-sell and upsell these customers over time. The diversification of funding sources is prudent for our scale, carries improved and simpler GAAP results and generates equal or better upfront cash on our originations. Further, as Mary noted earlier, we have transitioned this asset sale relationship into a strategic joint venture. Going forward, we expect to maintain a share of long-term customer cash flows under the partnership structure, which will maximize value and have a less dilutive effect on our subscriber value and other value creation metrics.…

[Operator Instructions] Our first question comes from Brian Lee with Goldman Sachs.

Kudos on the cash generation here and the guidance for 2026. You're implying basically a stable guidance range for cash gen as the range you started with in 2025. I know in the past, you've kind of given us a bridge with cash gen drivers, lower interest rates, higher ITC weighting, more storage, et cetera. I mean it seems like the drivers are in place for cash gen to go higher. Maybe the offset there is less volume. But can you kind of speak to some of the moving pieces around cash gen maybe not having more upside off the range you started with in '25?

Sure, Brian. Nice to talk to you. We still have the typical factors. The primary variables we've talked about in the past include interest rates, the ITC percentage, the storage attachment rate. I'll go through a few details, particular to 2026 as we try to bridge the year-over-year comparison. So we did talk a bit about volume on the call. So some factors in play there with modest growth in the Sunrun direct side, contraction on the affiliate side. So that is a net negative effect on volume that kind of bears into the comparison. I would say the other factors, a little bit of, I would say, on a year-on-year comp, a little bit of overperformance in '25 relative to our expectation. That was small items that were favorable in timing in 2025. More largely speaking, we've taken a slightly lower view on potential ITC pricing in the market, some supply/demand dynamics largely across the market, weighing down pricing. We've incorporated into the forecast. We're also seeing higher insurance costs as the insurance market is also dealing with the increase in amount of insurance volume. And then equipment prices are also weighing as we continue to shift to domestic. I would say those are the primary factors impacting the year-over-year bridge.

That's super helpful color. I appreciate that. And then just a follow-up on this -- the asset sales model, I know it's kind of -- it's new, and we're all trying to get a handle on how to model this, but it jumped around a lot here in the past 2 quarters. It sounds like you might have a bit more of a view on kind of the mix into '26. Is there sort of an average level it should trend at quarter-to-quarter? And is that kind of 40,000 homes capacity under the HASI JV maybe indicative of the volume under that structure you'd be doing in 2026?

So there are a couple of structures. There's the asset sale that we talked about last quarter. That is now -- so that picked up considerably from 10% to about 50% from Q3 to Q4. That will continue to move around. But I think we generally expect a decline from a 50% level. But quarter-to-quarter, as has been typical in all tax equity funds, you'll see some fluctuations. Some periods will have fund recently closed with maybe more elevated allocation and sometimes there will be a different funding mix. But generally, we expect that activity now in the joint venture format to remain in our mix for the year at a lower level from the more recent pace of 50%. Separate from that, we announced in early January, the Q4 closing of the partnership with Hannon Armstrong. That is also in a joint venture format that is different and incremental to the mix of the other JV we just talked about, and both will be -- part of the meaningful part of our mix for the balance of the year. And I would say just to layer on to that, longer range, it is our intent to continue to utilize structures like that as part of the overall diversification of funding sources and evolving structures to gain and unlock more efficiency and capital cost.

Our next question comes from Moses Sutton with BNP Paribas.

Congrats on the great end to 2025. On the retained versus the non-retained assets, just a little more on that. How should we think of the mix, let's take it beyond Brian's question, like if you're looking beyond 2026 and you're thinking strategically, if tax credit monetization metrics get, I don't know, easier with retained advance rates maybe back to 88% or 90%, I assume you'd go back and do more retained. So how should we think of that? And then are you going to disclose the available capacity you have in dollar terms for non-retained asset sales like on a forward basis, the same way you talk about tax equity and availability and capacity on the -- for the forward quarters?

Yes. So retained and non-retained, we are giving runway disclosure. I think when you look at the tax equity or tax credit capacity that includes -- certainly includes both. Just to hit a little bit of that. It's not broken out, but we will certainly involve a mix of both retained and non-retained. And I'd just say just to comment on -- in terms of the asset sales, like the non-retained piece, the asset sales, joint ventures that present with that sort of treatment as well, we like having it be a part of our mix and as part of a broader mix that will still include traditional tax equity, hybrid tax equity and accessing the tax credit transfer market in a very meaningful way. So the other benefits on transaction simplicity, right, involving full stack capital, the deconsolidation, at least partially leading to a better clarity of GAAP presentation as well as improved results on GAAP dynamics. I think just to name a few benefits of that transaction in terms of the asset sale. In terms of the other partnership with Hannon Armstrong, that will still consolidate. That will still access tax credit transfers that will still access the ABS market. That is an innovation relative to more traditional tax equity and hybrid structures and that will also be part of the mix. So I'd say the mix is evolving. And certainly, there are more tools to access the capital markets in more efficient ways. As far as specific breakouts, I don't think we'll be providing a longer-range outlook of specific mix other than to say what I just said to Brian, which is 50% was the level we hit in Q4. In terms of that asset sale transaction structure overall for the year, we expect that to come down.

Our next question comes from Ameet Thakkar with BMO Capital Markets.

Just on the cash gen outlook for the year for 2026, I think your press release talks about that it excludes some potential safe harbor investments. Did your cash gen kind of numbers for 2025 actually already net those out? And if you do kind of move forward with those investments, can you just kind of give us an idea of the magnitude on how much that might kind of impact kind of the cash gen figure thereafter?

Yes. So we have it in a $50 million to $100 million range for the whole year. So I'll just note a little bit more on the activity just to have the texture. The 2026 activity will give us the ability to safe harbor up to 4 tax years that follow 2026, which gets us through the end of 2030, in terms of the extension of runway of safe harbor activity. We expect to -- we have done some to start the year. We expect to do more before the July deadline because we're in the process of finalizing those plans, some of which are quite advanced, we do want to complete the activity before we share a specific number. But right now, we have it in a range of $50 million to $100 million of cash allocation out of our cash for the year.

And how much was it in 2025 that impacted your -- I guess, your actual cash gen from kind of the safe harbor activities you engaged in last year?

Yes. Yes. So the 2025 activity was -- we said capital light. I don't think we've detailed the exact number, but $50 million to $100 million more specific. But in relation to that, we'd say capital light in 2025.

Our next question comes from Chris Dendrinos with RBC Capital Markets.

I guess I wanted to just ask about the demand environment and how you're kind of seeing the TPO, non-TPO, I guess, maybe more of the non-TPO market play out? And is that turning into an opportunity for you all to take more customers? And then maybe just on the affiliate side of things, I mean, previously, I guess, they were a partner, but now would you consider them a bit more of a competitor? And is there an opportunity to take share there as well?

Yes. So as the 25D market wound down, I think there was some consideration that, that volume would immediately flow to us. And we've kind of articulated previously; the cohort of organizations that typically sold under the loan model have tried to migrate to the most simple sales processes and the highest paying partners. And so as we've been talking about more complex rate environments, ever-increasing complexity around compliance and the need for improved controls and fiscal responsibility, we've seen that, that volume has largely migrated to other places. As we watch that play out, we anticipate seeing the same thing that we've seen play out time and time again over the last 2 years. The financing shops that attract volume by focusing more on simplicity of underwriting or lack of underwriting and excessive pay typically don't last long, and those people eventually, we anticipate will migrate if they want to stay in the industry to a place that's been investing heavily around controls, prudent financial processes and deep training on complex rate environments and a focus on evolving into an independent power producer, thoughtfully underwriting these distributed assets.

That's it for me.

Our next question comes from Philip Shen with ROTH Capital Partners.

As a follow-up to that last point, talking about the complexity with everything that's happening. The [ FIAC ] rules or guidelines came out recently. It seems like that wasn't enough. We need more clarity on PFEs and FIEs and so forth. And so there was an article out from Bloomberg about how certain large tax equity investors, I think JPMorgan was named, may have paused some investments in tax equity. And you said in your prepared remarks that compliance with ITC rules was important or part of the package of tax equity and so forth. Just was wondering if you guys could give us some color on the challenges that you're seeing for resi solar out there because of the delayed release of the [ FIAC ] guidelines? And then how you guys specifically are navigating it? And do you see risk that there could be even challenges for you guys if the [ FIAC ] rules take longer than expected to come out. So let's say it's after the midterms, for example, which is a possibility. And then this also impacts the transfer market. And so I know you guys have these other structures, which are fantastic and unique, but I was wondering if you could talk through these impacts from the delayed [ FIAC ] guidelines.

Nice to hear from you. This is Mary. I'll take it and then pass it to Danny to talk a little bit more on the market side. But I mean, make no mistake, really, how we're seeing this is really, frankly, right now, playing to Sunrun's strength in the business. Like Sunrun is the sophisticated vertically integrated player that has end-to-end visibility. And we have gotten, I think, really good at making complex work in a way for consumers that's very powerful and then also really helps us as we think about building out our distributed power plants. The initial guidance that we just got actually was from a Sunrun perspective, exactly what we were expecting and fit. You're right, it didn't provide very specific guidance on the -- for financers. But the reality is everybody always knew there was going to then be this next rule-making process. So make no mistake, like this first phase was exactly what we expected. It came out in a positive way for Sunrun. And yes, to your point, we are really pleased with the strategic partnerships we've developed and how we've diversified our capital structure. But Danny, why don't you take it a little bit more on the specifics there that [ he ] was also after.

Sure. Our view on the -- I'll start with the [ FIAC ] considerations, and then I'll go into the dynamics in the tax equity and the tax credit transfer market. So on the [ FIAC ], we view it as incrementally helpful and also confirmatory to some of our expectations on what the rules and approaches would be under the material assistance portions as it relates to [ FIAC ]. What we did not get as many who follow this know, is further clarity on prohibited foreign entity and foreign influence entity rules, which are the piece that's forthcoming. And that relates to where you started your question, which is some participants in the market awaiting more clear rules on entity level considerations before they put more dollars into tax credits effectively. So that has sidelined a few people. I would say then going to the broader conditions in the tax credit -- overall tax equity space, the market was a bit of a mixed story last year. If you look at the kind of the ultimate headlines, the tax credit transfer space grew by in the magnitude of 50% year-over-year from 2024. So there continues to be growth in the tax equity market. Some of the tax effects of the budget bill did ease corporate appetite in the second half of the year for tax credits. And I would say, in the second half of the year, it was a tighter market in terms of supply/demand, dollars continue to flow very adequately for us. But what we started to see and led us to expectations for this year was a softening up of price expectations in that market, given the supply-demand fundamentals, but at a $50 billion-plus type scale when you consider the tax credit transfer market and the traditional tax equity space. There is a lot of capital that was put to work, but also obviously, a proliferation of the number of types of credits and demand. So it kept that market kind of tightly balanced between supply and demand with a little bit more slowness in the second half of the year. But I would say, at the same time, we were able to manage an acceleration in our activity in the second half of the year, and that culminated with that we had a 499-megawatt kind of number in the script here on our tax equity monthly. So the net-net is like lower pricing, some people not yet coming back to the market, but plenty of people having remained active in the market sufficient for our needs. And we expect that to continue. We've made good progress exiting last year in securing more tax equity and into this year and continuing to advance our pipeline as we try to fill out the balance of this year.

Great. Danny and Mary, thank you for that color. I know it's a complex topic and also dynamic. Shifting to the outlook for shareholder return. I was wondering if you could give an update on the outlook for a potential buyback or the latest in terms of how you're thinking about capital allocation. It likely hasn't changed much, but wanted to get a refresh on that.

Yes. I think it's the same positioning in terms of continuing to pay down parent debt. We said $100 million or more for this year and with an expectation that, that would get us below our overall leverage target that we've been managing towards over the last several years. So that kind of in our mind, like marks the completion of the deleveraging period. But as far as beyond that, I think the same kind of expectation in terms of looking to maximize shareholder return with capital allocation. And this year, in particular, we're also real time going through that exercise we mentioned around finalizing the magnitude of our safe harboring activity, which is a very high returning long-term use of cash.

Our next question comes from Colin Rusch with Oppenheimer.

This is Andre Adams on for Colin. I was just hoping you could quantify on an apples-to-apples basis, how much labor costs increased year-over-year?

We had the installed cost comparison, and I'm just looking for that -- I know I just said the number, we had it in the prepared remarks, but the install cost number up year-over-year. I believe it was 8%, but I just don't want to misquote that. We did have -- if you are thinking installed labor included in that number, but not detailed is installed labor and equipment taken together. And then we had sales and marketing costs also up 4% year-over-year, but against which we saw a higher storage attachment rate continue to drive up the top line as well to manage to healthy margins.

Great. And...

And the creation cost is the 8% number. That includes everything, just to get that right.

Yes. All right. I appreciate it. And can you just speak on the DPP side about whether utilities are looking to leverage the asset base to drive some grid stability outcomes in addition to kind of basic power availability and how that might vary by geography?

Yes. So depending on the market, we're seeing varied levels of activity, but overall, massive increases in interest in our assets. When you think about like the next generation of power plant and access to power, it needs to happen quickly. The expansion and growth of AI data center energy consumption is growing rapidly and is pent-up. And so a power plant solution that can be brought online quickly is critical. And so as utilities are realizing the quick deployment nature of our assets, there's growing interest in them. As we talked about in Mary's remarks, we talked about exciting programs with both NRG and Tesla in the Texas market, for example, where we're essentially pledging assets to those partners to be able to dispatch as needed to be able to stabilize the grid and control costs for consumers.

Yes. And as we said, we have 18 different programs already, and the success of the programs we've had has spurred, as Paul mentioned, a lot of interest, and we're having very -- yes, very interesting talks with a number of partners across the country.

And just to maybe conclude with that point. By the end of 2028, we've communicated we plan to have over 10 gigawatts of dispatchable capacity that's 0.75 million batteries across the country that can be dispatched and have communicated $2,000 net subscriber value per customer on those and are very excited about what we're building out.

Our next question comes from Julien Dumoulin-Smith with Jefferies.

I appreciate it. Look, maybe just to follow-up a little bit on the last one here and press a little bit further. As you think about the backdrop here, your comments about capital markets at large, how do you think about returning cash here? I just want to press you a little bit. I know at times; there have been conversations about dividends and buybacks and things. But I just want to make sure I'm hearing you very clear about where you stand in terms of being offensive or defensive in the current environment. Has your thinking evolved at all? Obviously, kind of more of a flattish overall cash gen profile? And any comments you'd make as to what you need to see to kind of get more offensive, if you will, if you want to take a foot forward?

Yes. It's $350 million cash generation at the midpoint. It's $100 million of use to pay down more debt. I think that dynamic taken together by the end of the year has us below the 2x leverage target we had previously communicated several times. And so it's just -- it's a continuation of that and charging towards that over the course of this year. But also there is an implied $250 million of excess once we've dealt with that. And then we've talked about using a portion of that, that remains on Safe Harbor. So it's getting us closer to the point where we're starting to look, well, what is the capital allocation beyond that -- but that is the established focus for this year. And then beyond that, we start to introduce in our conversations with the topic of shareholder return and go through the relative attractiveness of that. And we look at balance sheet strength and we go through all the options. But so far, at the moment, the guidance is the $100 million of debt paydown and then further use on safe harbor. That's where we are at the moment.

Got it. And if I can follow-up just real quickly on the financing environment here. Is there a definitive moment that you're looking for that will hopefully open up the tax equity markets more? Or do you not see this playing out that way? I mean I know we were alluding to [ FIAC ] earlier, but is there kind of a catalyst in as much as reenabling these markets? Or is this just a general malaise or widening out of spreads that will persist here? Just curious on how you frame it. And then separately, related to that, how do you think about should this environment persist moving more structurally in other directions for capital markets? I mean you guys have been very nimble over the years in adapting, and it seems like you are here today again. Just curious on how you would frame the backdrop and your latitudes.

Yes. In terms of going to the most core of the issue is corporate profitability and tax appetite is there, has been there and has been growing. In terms of any single event that serves as a catalyst, we did get the [ FIAC ] guidance. And again, in my prior response, I did say we view that as incrementally helpful and largely confirmatory with what we felt was our approach, and we were confident in this confirms it. And then in terms of other events, it could be further clarification on the entity level rules. And that would -- to the extent anybody is sideline in the market, that would bring them back in from the sidelines and they are a portion of the market that is already very large. So I would say it's just more of a continuing to build pipeline, execute transactions and build runway. And if you look at our runway, we have extended it very meaningfully from prior quarters. So again, it's not a single event, but you'll see it and notice it over time.

Our next question comes from Maheep Mandloi with Mandloi.

Perfect. Sorry about that. A quick clarification on the buyback. The leverage ratio you're targeting, is that still 2x debt to cash generation is the metric here? Or is that changing in this environment?

2x. And with this year's activity of $100 million -- at least $100 million of paydown, we expect to get through that number, below that number. That's the current outlook on it.

Yes. And just a quick clarification on the creation cost, and I might have missed this earlier. The change between OpEx versus CapEx and OpEx seems more than 60% of the cash generation here. Is that structural? Or should that reverse going forward over here?

That you're noticing the effect there of that 40 percentage point increase in our mix from 10% to 50% from Q3 to Q4 going to asset sale activity on the financing mix is also resulting in a full expensing of -- a greater degree of expensing of asset origination costs that have shifted from previously capitalized into expense. So you're noticing that pickup and that corresponds to the significant pickup in revenue from those asset sales. And that's why you're seeing the pickup in margin, operating income, et cetera.

Our next question comes from Robert Zolper with Raymond James.

What's the significance of changing the default rate measurement in the metric sensitivities?

Yes. I think this is following trends we've been seeing and making sure we're capturing the whole range of sensitivity. We -- the proceeds amounts that we raised on our transactions do have default assumptions being made by capital providers. And it's just to capture the evolving range as we've been seeing and to make sure everybody has the full coverage. Before we used to -- so the other thing you'll notice in the numbers just as a presentation thing. Previously, we used to show it as cumulative and now we're showing it as annual measures to give more clarity in terms of what you want to model.

Okay. Understood. And I guess on your more seasoned securitizations, which bucket of default rate would they typically fall into?

I'm not sure I follow the question. Like what are our default rates? Is that the...

Exactly. Yes. What are your default rates relative to what you have in the metric sensitivities for your more seasoned securitizations?

Yes. I think it really depends on -- it depends on the asset performance, the vintages, the types -- there is a bit of a spread. I think we've said cumulatively, I don't know if we've put out the recent updates. But certainly, on our deals, the rating agencies do look at it. And we've seen about 50 to 75 basis points on an average, and that's the annual figure. In the past, we -- again, we've used cumulative figures. So there could be a little bit of a difference in translation when you go back and look at what we've disclosed previously. But on average, it's 50 to 75 basis points. And again, that could vary by FICO score, geography, product, et cetera.

Okay. Very helpful.

The rating agencies take long-term assumptions when they're rating transactions. And generally, when they updated on our performance, they've been able to maintain or in a limited case or 2 upgrade our ratings.

Understood.

We have reached the end of our question-and-answer session, which concludes today's teleconference. You may disconnect your lines at this time. Everyone else has left the call.