Sunnova Energy International Inc. (NYSE:NOVA) Q1 2024 Earnings Call Transcript

Sunnova Energy International Inc. (NYSE:NOVA) Q1 2024 Earnings Call Transcript May 2, 2024

Sunnova Energy International Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning and welcome to the Sunnova’s First Quarter 2024 Earnings Conference Call. Today’s call is being recorded and we have allocated an hour for prepared remarks and the question-and-answer portion of the call. [Operator Instructions] At this time, I would like to turn the conference over to Rodney McMahan, Vice President, Investor Relations at Sunnova. Please go ahead.

Rodney McMahan: Thank you, operator. Before we begin, please note during today’s call, we will make forward-looking statements that are subject to various risks and uncertainties as described in our slide presentation, earnings press release and our 2023 Form 10-K. Please see those documents for additional information regarding those factors that may affect these forward-looking statements. Also, we will reference certain non-GAAP measures during today’s call. Please refer to the appendix of our presentation, as well as the earnings press release for the appropriate GAAP to non-GAAP reconciliations and cautionary disclosures. On the call today are John Berger, Sunnova’s Chairman and Chief Executive Officer; and Rob Lane, Executive Vice President and Chief Financial Officer. I will now turn the call over to John.

John Berger: Before we get started, I wanted to acknowledge Rob Lane, our Chief Financial Officer. As we stated in our 8-K yesterday, Rob will be stepping down from his role as our Chief Financial Officer to pursue other opportunities. This is a decision we have arrived at together recognizing this is a logical time for transition. On behalf of the Sunnova team and the Board of Directors, I want to recognize and thank Rob for his many contributions, including helping the company execute its initial public offering, our acquisition of SunStreet and launching the industry’s first corporate green bond. We want to express our sincere gratitude to Rob for all that he has done to support Sunnova’s success during his tenure. Rob will serve as CFO through June 30, 2024, or until his successor is named and will remain focused on supporting the key financing activities we will discuss later in the call.

This change presents an opportunity for new perspectives as we position Sunnova for continued success. Working with the Board, we have retained an outside search firm to run a full search process which is already well underway and we expect to share further details on his successor in the weeks ahead. Thank you, Rob. We will miss you. Now, as we review our first quarter performance, I want to take a moment to remind everyone that our team at Sunnova remains focused on making clean energy more accessible, reliable and affordable for both residential and commercial customers. As we will discuss shortly, we have an outstanding market opportunity in front of us and Sunnova is positioned to capitalize on this opportunity so that we can deliver long-term value to all of our stakeholders as power demand continues to grow on slide 5, we see a multiyear tailwind driven by a tremendous load growth on aging electricity infrastructure by 2028.

It is expected that the demand for power in the US will increase dramatically due to the continued electrification of the economy, onshoring of manufacturing electric vehicle adoption and increased demand from AI. crypto currency and data centers but an aging power grid means less energy reliability and with so much growth on the horizon. The energy services that Sunnova provides will be needed for decades to come. At the same time, we’re also seeing steady increases in utility rates at the capital needed to support and replaces aging and frequently damaged infrastructure becomes more expensive. And the current interest rate environment inflation has had a direct impact on the cost to maintain and upgrade grid infrastructure and public utility regulators continue to approve higher and higher utility rates.

This scenario allows Sunnova to maintain a highly competitive and compelling energy offering, as evidenced on slide 7, a consistent and direct correlation exists between utility rates and the adoption of solar energy. On slide 8, we see these dynamics create strong demand for our Sunnova Adaptive Energy offerings as a company. We view these macroeconomic trends as indicators of the many opportunities ahead through our innovative financing, servicing and energy management offerings. We are proud to be helping our customers protect their homes, businesses and families. To date, Sunnova has provided energy services to over 438,000 customers, managing 2.6 gigawatts of power backed up by almost 1.2 gigawatt hours of energy storage solutions. We have partnered with over 21,000 dealers and new homes installers in over 50 U.S. states and territories.

We are doing this with industry leading technology, both in hardware and software which is backed by our service offerings and our entire team of dedicated employees. We support our customers day in day out. We see the demand and recognize as we continue to make improvements to the business. We remain committed to the core customer value proposition. We centered our entire business around 12 years ago as a leading adaptive energy services company. We are delivering a comprehensive, sustainable and streamlined approach to energy services with our platform we are simplifying the increasingly nuanced landscape of energy so that our customers do not have to worry about the upfront costs, maintenance or technical complexities of powering their homes and businesses instead, they rely on Sunnova as their trusted energy partner accessing affordable, reliable and sustainable energy solutions.

We are more excited than ever to see what the future brings and we will continue to innovate on our customer experience and work hard to support the growing energy needs of the country. Moving to our Q1 financial results on slide 11. Most notably during the quarter, we generated $18.9 million in unrestricted cash and our total cash balance remained relatively flat compared to the prior quarter, sitting at $487.5 million as of March 31, 2024. Additionally, we experienced an 11.6% decrease in adjusted operating expense per customer compared to the fourth quarter of last year. Prove that the initial steps we have taken over the last few months to reduce costs are starting to bear fruit. This quarter, we delivered $46.4 million in adjusted EBITDA, $35.7 million in interest income, and $41.9 million in principal proceeds from customer notes receivable which were all in line with the quarterly guidance we provided on our prior earnings call.

We also continue to see steady year-over-year growth in our net contracted customer value or NCCV assuming a 6% discount rate and TCV was $3 billion, an increase of 15% compared to March 31, 2023. Our March 31, 2024 NCCV per share was $24.34, assuming the same discount rate over the last few months. We have also made several exciting strategic announcements. In January, we announced the opening of our Adaptive Technology Center in Houston, equipped with cutting edge energy testing and integration technologies. This center allows our engineering teams to innovate and integrate various technologies seamlessly but also empowers our service technicians to troubleshoot field issues in a controlled environment, enhancing our service response times and visiting our customers’ homes in late March, after years of working with the Home Depot to empower customers with cost-effective energy solutions and ensuring dependable and resilient power.

We were thrilled to announce our strategic partnership whereby we will now be the sole provider of solar and battery storage services in the Home Depot stores across the United States and its territories. This agreement provides consumers with access to the Sunnova adapted home energy offerings in over 2000 Home Depot stores. Lastly, in early April, we announced the growth of our virtual power plant network powered by our Sunnova Sensient technology platform. Our customer systems and the Clean Power produce continues to help offset the need for utilities to use heavily polluting fossil fuel power plants during peak demand periods in return for their demand, battery response and contribution. Our customers are compensated for the power supplied by their batteries in most programs, creating a win-win for the customer and the community.

As our customer base continues to expand, we are at a pivotal moment in enrolling customers into these programs and we look forward to sharing more details in future earnings calls, recognizing the current state of the industry. Our immediate focus remains on increasing cash generation and maintaining our margins. This has only sharpened our focus on maximizing asset-level capital, driving cost efficiencies, further leveraging IDC adders and refocusing on our core adaptive energy customers. All of which we will discuss in greater detail in the subsequent slides. Turning to slide 14, you will see our total unrestricted cash balance was up compared to the end of last year. We have remained active in the asset-backed securitization market with two issuances in February totaling $453 million.

And our securitizations are trading well in the secondary market which gives us confidence in a strong ABS. environment for solar. We expect to continue to access the securitization market this quarter and throughout the year as investor appetite remains strong. We also continued to be active in the tax equity market with the closure of a new $195 million fund in February and increased funded commitments of $58 million throughout the quarter to previously established funds. Additionally, where our large TEP eight the fund closed in December, it was not funded until March of this year, providing us with significant liquidity in the first quarter as the shift from loans to leases and PPAs continues driven by macroeconomic conditions and ITC. adders.

We expect that tax equity will make up a larger component of our total financings. We are generating more proceeds from asset-level financing than we have in recent years. We believe there are three main dynamics at play that will support this. The first is more asset-backed securitizations per year and monetizing those securitizations beyond the investment grade credit attachment points. Second, increased utilization of tax equity driven by the shift from loan financing to lease and PPAs and third, accelerating the overall pace of asset-level financing. First, on more securitizations, we have done four securitizations per year for the last three years and we expect to complete at least six securitizations in 2024. Also since Q4 2023, we resumed a practice of issuing beyond the investment grade credit attachment point by monetizing the Class C notes in our asset-backed securitizations in addition to the Class A and Class B notes.

This change in our securitization approach allows us to increase our net proceeds. Second, on our customer mix shift towards more solar leases and PPAs. This is an advantage for us as leases and PPAs benefit from higher total advance rates than loans due to their ability to utilize tax equity recently enhanced by the ITC adders. Lastly, we are focused on accelerating the pace of our asset-level financings by working with our dealers and internal resources to bring assets into service quickly; closing securitizations at a faster pace allows us to take advantage of higher advance rates. Net of hedge breakage when we securitize. Moving to slide 16, we detail that trend in our unit economics spanning across multiple different interest rate environments in only three years, taking a step back, our value proposition is comprised of many things, including cleaner, safer and more reliable energy.

But one of the biggest advantages to our customers is savings. Given the increasing utility rates, we’ve been able to continue delivering savings to customers while at the same time increasing our pricing. This has allowed us to achieve a healthy spread in a rising interest rate environment. This dynamic is illustrated by the trend of our implied spread over the last three years. We have always said that we target a 500 basis point spread long term in 2021 in a lower rate environment, we delivered an implied spread of 6.4% as interest rates rose into 2022 and 2023. So too, did our cost of debt doubling from 2021 to 2022, where we dipped below our spread target in 2022. Our pricing changes in 2023 allowed us to increase our fully burdened unlevered return and generate an implied spread of 5.6%, 60 basis points higher than our target over the last three years in a host of different rate environments, we’ve been able to average a 5.5% implied spread while still delivering savings for our customers.

We believe that this is indicative of the sustainability of our business model. Additionally, in the first quarter of this year, even as our cost of debt increased, it was more than offset by an increase in our fully burdened unlevered return and we saw an increase in our spread back up above the 6% mark. However, we recognize that strong unit economics can only be part of the story. Therefore, we are continuing to drive further cost efficiencies in the business. In the first quarter of 2024, our adjusted operating expenses declined roughly 6% quarter over quarter for 6.6 million. This decrease in total adjusted operating expense was the first decrease in this metric since 2020 and was driven by our initial efforts to reduce costs and to further drive efficiencies in our business moving forward, we will utilize our technology platform and scale to continue driving cost per customer down as evidenced by the 11.6% reduction in the first quarter.

Another dynamic we are monitoring is the monetization and the investment tax credit adders introduced in the inflation Reduction Act. In addition to the base 30% tax credit increasingly, we are seeing the ability to access the adders allocated to Building and Energy communities, providing service to low income individuals and the push for more domestic content and equipment for 2023, we saw a little uplift from these orders as the year’s weighted average ITC with adders was only 31.5%. This was due to limited implementation guidance on the orders from the U.S. Treasury last year with the guidance we have received this year and with more to come shortly, we expect we will be able to increase our weighted average ITC to somewhere between 36% and 40% by the end of 2024.

As you can see here on slide 18, we estimate that a 1% increase in the weighted average TCE rate would generate at least an additional $30 million in cash proceeds in 2024, based on the fair market value of the lease and PPA systems we expect to place into service this year. And lastly, we are refocusing on our core adaptive energy customers. The left side of Slide 19 shows our customers deployed per year. While we expect flat growth in overall customer additions in 2024, we still expect the number of megawatts we deployed this year to increase. This is due to a shift in our expected customer mix in 2024 as we refocus our capital expenditure investment on core adaptive energy customers. Also our solar additions in 2024 are expected to be much more heavily weighted towards lease and PPA customers which as I discussed, is advantageous for our cash generation as well as our margins.

This renewed focus on our core adaptive energy customer will help us to make progress against the priorities I previously mentioned, while also providing us the adequate scale necessary to fund the business through asset-level financing. I also want to be clear, there’s more than enough market demand despite economic challenges to continue to recognize the benefit that scale has for our business. With that, let me now turn the call over to Rob.

Robert Lane: Thanks, John. Turning to slide 21, you will see that we are tempering our outlook on customer additions for 2024 from the prior range of 185,000 to 195,000, down to 140,000 to 150,000 [ph]. This reduction is in no way indicative of any lapse in demand for our offerings but is instead a proactive move we are taking to rightsize our growth. As John mentioned earlier, scale is important to our business but we are being much more intentional about the kinds of customers we are adding. We believe this approach to customer additions focused on our highest value customers and offerings, while limiting growth in some areas of our business that do not provide the highest returns will better position us to achieve our customer cost reduction and cash generation goals.

Aside from our customer additions. We are reaffirming all of our 2024 guidance figures, including adjusted EBITDA, interest income and principal proceeds. Turning to Slide 22. In the first quarter we generated $23 million unlevered cash flows which is comprised of residual cash flows from securitized customer contracts, all MSA fees and proceeds from unpledged SRX and grid services. The EPC costs that make up our investment in systems totaled $561 million. We generated roughly $627 million in asset-level financings and use $20 million of cash from corporate interest expense, leading us to a net increase of $19 million of unrestricted cash in the quarter. Now moving to our full year forecast for 2024 and beyond. A more focused approach to our customer additions, impacts the guidance we set last quarter producing unlevered cash flows but also our investment in systems and the amount of proceeds from asset-level financing.

As we said last quarter, we still anticipate being cash neutral for 2024 and continue to expect strong cash generation in 2025 and beyond. And before I turn the call back over John, I just wanted to say what an honor it has been to work beside you and the entire Sunnova team for the past five years. While I will remain a dedicated Sunnova customer and shareholder, I’m excited to close out my tenure as CFO and pass the torch in the coming months. I’ll turn the call back over to John for closing remarks.

John Berger: Thanks, Rob. And closing. Sunnova is well equipped to manage our balance sheet through the remainder of 2024, while also setting us up for increased cash generation. Moving forward, though, elevated interest rates it made for a challenging short-term macro picture. Overall, there is more than enough demand to continue adding to our customer base in an economic and sustainable manner. As we look to the remainder of 2024, we are encouraged by the rapid progress we’ve made already in the first quarter and will continue to take steps to transform the energy landscape, challenges, status quo and offer customers a better energy service at a better price to help meet society’s ever-increasing energy demands. All while maximizing shareholder value. With that, operator, please open the line for questions.

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Q&A Session

Operator: [Operator Instructions] We have the first question from Philip Shen with ROTH & Co. Your line is open.

Philip Shen: Thanks for taking my questions. Rob, it’s been a pleasure working with you, best wishes in your next endeavour. First question is on — yes, best of luck and best wishes, Rob. First question is on Moelis. Ahead of your results yesterday, the stock was down 16% on this Bloomberg article about potentially you guys engaging Moelis to explore the balance sheet options. What can you share about that engagement with them? Can you confirm or deny that you have engaged them? And is there any timing of any potential outcomes that you might talk about?

John Berger: It is John. Thanks, Phil. What I would say is that it’s very obvious to us and I think everybody how deeply discounted our corporate debt is trading. And that presents, we feel some interesting opportunities. And we’re going to evaluate those opportunities accordingly, as you would expect us to and as we always do.

Philip Shen: Great. Okay. I appreciate that. Thank you. Shifting over to the ITC adders; you talked about 1% increase, equates about $30 million in cash proceeds. So moving from your — on the start of the year level of 31.5% and to maybe a 38% ITC value level; that suggests you could generate nearly $200 million of cash possibly this year. Can you talk about some of the assumptions there? And in timing as to when you — and how the magnitude of the cash that you might be able to generate from the ITC this year in 2024, as well as next year from these adders? Thank you, John.

John Berger: I don’t think this ITC adder is very well understood. We’ve actually been collecting on this adder with the energy communities adder for quite the last few months. There was an additional guidance that — at the tail end of March that the Treasury gave them the energy communities adder that greatly expanded it and we have since collected most of those monies I would add. So the cash generation and the ITC adders has surprised us, I would say greatly. We expect the domestic content, as well as everybody else to come out quite possibly in the next few weeks or so and that will further increase. So while we’ve been very conservative in our cash forecast, including on the liquidity forecast slide here and in our comments on this call for both 2024 and beyond, we want to see everything come together.

But what we’re seeing in terms of the ITC adders on our origination mix and how we’re able to change our origination to pick up more of those adders is quite startling, in a positive way. So, we like how the cash generation is coming together with the ITC adder. And that further goes to a point about how lease and PPA is going to continue to grow share against loans, quite substantially. So there’s a lot of cash generation here to be had and we’re going after it.

Philip Shen: Great. Is there any way to quantify the potential impact for 2024 and 2025?

John Berger: I’d like to stick with what we have right now. Let’s be conservative. Let’s go out there and execute.

Philip Shen: Got it. Okay. Thanks very much. I’ll pass it on.

Operator: Thank you. The next question is from Brian Lee with Goldman Sachs. Your line is open.

Brian Lee: Hey guys, good morning. Thanks for taking the questions. I’ll echo Phil’s sentiments as well, Rob. Great working with you. Best of luck and hope our paths cross again. With that in mind, I guess maybe just going straight to one of your slides, your favorite slides, slide 22; follow-up to Phil’s question. So John, Rob, is it fair to assume based on your comments you just made, none of those — every 1% equals $30 million of incremental cash, none of that is actually reflected in slide 22 for the 2024 cash walk or liquidity walk?

John Berger: No, that wouldn’t be fair. We do have the energy communities adder and a little bit of domestic content in the forward years adder. But I think the full extent of what we expect and how we can change up origination profile to capture even more cash from those adders is quite possibly not reflected there. But again, this is a pretty good position to be in. And let’s go out and execute and see what we can do to increase those adders and increase that ITC towards 40%; maybe beyond on an average basis.

Brian Lee: Okay, sounds good. Fair enough. And then on the — kind of sticking with the concept of trying to maximize cash flow. You had a lot of discussion here, focused slide 15, around maximizing kind of asset level capital existing assets. You have this bullet point around potential additional options; I don’t think you got into a lot of detail around those. Can you kind of walk us through a little bit in terms of each of those potential options, maybe, you know, amount; you could potentially monetize timing? And then what each one of those options would entail [ph] in terms of kind of go to market and being able to execute those transactions? Maybe just a little bit of color around those opportunities.

John Berger: What I would say is that there’s multiple levers given the assets that we have and historically have under leveraged them at the asset level, especially from the years 2021 to 2023. And what we need to do is continue to — and step up our efforts to maximize the cash flow up to the corporate parent and whatever generates the most cash we’ll do it. So if that’s a sale of an asset, we’ll do that; if that’s securitization of a late through — you know, securitizing or selling the result of a securitization, we’ll do that as well. So I think the purpose here is just to layout the multiple different options to generate cash that I don’t think people have fully thought through in terms of the capability of generating and the optionality of generating cash to the corporate parent.

Brian Lee: Alright, fair enough. Last one for me and I’ll pass it on. You did reduce the on the customer additions forecast here for the year. You’re focusing on kind of the core customer base, the adaptive solar customers, why I guess some is there no sort of impact to the P&L or cash flow, our balance sheet and just as we think about your forecasted KPI targets, I would have assumed taking down the growth forecast would have resulted in some savings in OpEx or O&M or maybe some incremental cash flow generation. Any thoughts around kind of where that might show up and in what time frame as you sort of tighten the belt around growth?

John Berger: It’s certainly going back and having an asset base as large as ours at this point in the year, I would say greater than 85%, probably greater than 9% of those revenues and cash inflows from principal and interest from our loans is locked in. So again, we have a very durable model as far as cash generation, it cost cuts. There have been quite a bit. Others started to show up some to some degree, actually on a per customer basis, quarter over quarter, 1.6% drop in adjusted operating expense but more have happened since even the end of the first quarter and much more is going to happen as you move forward. So very much focused on OpEx, getting these software and automation in place to further cut the need for on operating expenditures, people, et cetera. So we’re focused on doing more in the OpEx on a forward basis. And indeed, we’ve already had some that will show up in this quarter.

Operator: Thank you. The next question is from Mark Strouse with JPMorgan.

Mark Strouse: Hey, good morning, guys. Thank you very much for taking our questions. And Rob, thank you very much for all of your help dating back to the IPO. I have a couple of questions. I’ll just throw them both at the same time on slide 15 as well on the on the tax equity portion, can you just talk about the latest that you’re seeing within the transferability market and on the traditional side, is there any impact from Basel three that you’re seeing at? And then on the — actually, let’s just start with that. Thank you.

John Berger: And Mark, this John the sale of the transferability of the ITC is gaining a lot of traction. A lot more companies are coming into the market and willing to do that a lot more quite a year, get your head around as a CFO of a major company. So we’ve already executed on several of those, as you pointed out and we see that market expanding rather significantly and we have not seen any impact yet on traditional tax equity from Basel three. So the tax equity market, I would say is not only alive and well but it’s but it’s certainly growing significantly from what we can see.

Robert Lane: If I can add that went on into that. And then on the transferability moderated, the transfer of all the market remains strong is the execution of the ITC trenchers has been something that we’ve led on. So we’ve already done a significant number of those transfers with the IRS and the IRIS portal. We were one of the first to do it. We’ve done tens of thousands of systems and their associated ITC.s. We have successfully processed. It’s amazing how much back office. He’s really required to make that work. But that’s something that we’ve been able to solve and get out ahead of as well which has been a huge success, our ability to be able to speak to investors about not only just the price which I think is where a lot of folks start but the entire process and life cycle as well.

Mark Strouse: Okay. And then just a quick follow-up on the increased number of securitizations. So I understand the benefit of kind of getting cash in the door more frequently sooner? Or are there any potential kind of it downsides that you would see to that as far as you may be increased, so transaction fees or anything else like that that would that you would call out?

John Berger: No. In fact, there is a lot of our corporate capital that’s trapped in the warehouses that need to be released on a more timely and more a deliberate securitization schedule that we are now on. So we expect to have quite a bit of cash released as these securitizations are executed.

Mark Strouse: Yes, that makes sense.

Operator: Thank you. The next question is from Andrew Percoco with Morgan Stanley.

Andrew Percoco: Thanks so much for taking the question. And again, Rob echo everyone else’s comments and great working with you, Tom and best of luck in your next endeavour. So I guess I want to start with some A question on asset level performance. If we just look at the numbers in the 10-Q, it looks like customer loan delinquency rates continue to grind higher. I know service has been a kind of a big component of that historically on. Can you just maybe just give us an update there in terms of what’s driving that delinquency rate higher from here and expected trends going forward now that you’ve invested a little bit more in the service portion of part of your business?

John Berger: Yes, we are seeing some performance, so that’s quite good there as far as service. And therefore, the response by customers on paying more timely. You rightly pointed out that the loan is a on an outlier two things. One, we do take and as part of the program of testing with the government low cycle customers. And so those were priced accordingly to a higher default rate and delinquency rate. And so that’s one aspect of the loans. And again, a reminder, HST as all loans. Secondly, our origination mix has continued to as decidedly transform itself from a we are a majority loan at one point in time to a significant manual or a majority of TBO. or lease PPA. And so therefore, you’ve got a law of small numbers that’s at play there as well. So those two aspects are causing that delinquency rate to be a little bit higher.

Andrew Percoco: Understood. Okay. And then maybe just kind of coming back to a question on liability management and any sense for can you give us any sense for timing on when we might hear more on that front? Sounds like you’re engaged with some of advisors. There has been a he can broaden in terms of potential timing solutions? I know asset sales are kind of on the table. So any additional color would be helpful there.

John Berger: No, I wouldn’t if I had more color I wouldn’t I wouldn’t say it is not the place to say who we engage in doing business with in any way. What I would say again is our corporate debt. Clearly is trading at very deep discounts. And we are, as you would expect, evaluating the opportunities that that presents itself.

Operator: Thank you. The next question is from Praneeth Satish with Wells Fargo.

Praneeth Satish: Good morning. Let me also just echo my best wishes to Rob. Thanks for dealing with all of our questions. And maybe going back to the liquidity table forecast, you touched on the ITC. adders but can you just review what advance rate you’re assuming in the cash generation guidance? I think you’ve done the last few raises high 70s this year. So if you take that into the 80s, would that result in incremental cash versus this forecast? I think you said every 7% equals 200 million of cash, if I remember correctly. And then same thing on the frequency of ABS issuance. Does the guidance already assume six or would this be incremental just trying to figure out what’s baked into that guidance.

John Berger: And the answer is that this table is assuming what we have done and what we currently see in the market so no improvement in pricing, no improvement in advance rates, no significant improvement in the ITC. adders. And so therefore is the advance rates in your example, increase that would increase the cash generation and so would additional operating expense cuts would increase the cash generation. So again, I think this is of a fairly conservative view of cash generation and there are ample levers to go and pull and generate even more cash.

Praneeth Satish: Got it. And I didn’t see any mention of ATM issuance in the prepared remarks versus last quarter. So just wondering now that you’ve got some levers here to increase the cash generation. Is ATM off the table, or is that still a lever that you’d consider as kind of a backstop if some of these financing plans don’t go to plan.

John Berger: We have not used the ATM because there is no ATM, we’ve not filed it.

Praneeth Satish: Okay. That’s clear. Thank you.

Operator: Thanks. Thank you. The next question is from Pavel Molchanov, Raymond James. Your line is open.

Pavel Molchanov: Thanks for taking the question. When we look at the slide showing customer additions, it looks like solar customers will be up maybe 20%, non-solar will be down 50%. Is the geographic mix of both of those categories the same or are you sort of pivoting to one part of the country versus another.

John Berger: If it’s — if the mix is about the same, we’re seeing more growth in the south United States and then than we have historically, we still have a very small market share in California but that’s picking up a little bit. And then the rest of our footprint is broadening out as again as utility rates move higher, the equipment prices crash lower the opportunity even within with the cost of capital where it is has been increasing that valuation. The customer has been increasing. It really everywhere so that we see a lot of opportunity in the marketplace and expect the market to, I think, to surprise the upside in growth.

Pavel Molchanov: I did not see this and some in the slides, you may have mentioned that what was the battery attachment rate? And just any commentary on kind of the trend in that metrics?

John Berger: Yes. We wanted to focus on some of the other aspects of the business. But the storage attachment rate continued to have been strong and about what we’ve had historically. And as the pricing of batteries is dropping, in some cases quite significantly. And we do expect the natural response from the marketplace is to increase purchases. And we’ve seen some of that. We’ve seen a broadening of geographies wanting some storage, for instance. So storage is going to be really important, especially as you get into it and Energy Services, grid services, whatever you want to call them we’re seeing a lot of opportunity there to generate additional revenues for both ourselves and our customers and to be a part of that stabilizing the overall centralized system in the local area.

Pavel Molchanov: All right. Thanks very much.

Operator: Thank you. The next question is from Tristan Richardson with Scotiabank.

Tristan Richardson: Hey, good morning, guys. I appreciate all the comments on. Maybe just one follow-up on the liquidity side. Totally understand the customer refocus takes your investment systems down quite a bit but it did seem that your expectations for tax equity proceeds came up a little.

John Berger: And so I’m curious if that is purely a function of just seeing that weighted average tick-up from homeowners or if actually that core adaptive customer might see that growing a little bit more than you thought, maybe in previous slides, it just adds to the adders and the origination mix of we are doing more lease PPA far more than we expected at the beginning of the year.

Tristan Richardson: Appreciate, John. And maybe one more housekeeping follow-up and maybe could you talk a little bit about terminations we saw in the quarter. Is that largely a function of this refocus initiative? Or was there something specifically going on that we saw that might be seasonal, anything to think about there?