John Berger: Thank you, Dennis, and John, I would say yes we’ve been consistent saying that and stated again in our prepared remarks that we believe that the long-term spread is 500 basis points and that’s 500 basis points on an unlevered basis. So you, obviously, lever these assets up and that can be quite meaningful spread. And when you look at our history we’ve topped out something at closer to 700 for maybe one quarter it was above two or three quarters, 600 and above. And so I think somewhere in that 600 to 700 range is probably the peak. And again, we’ve laid out for years that we felt like it would be 500 to the long-term average. And that I don’t see any reason why that wouldn’t be the case. Now the only reason why it wouldn’t be the case is it more competition drops out of the market for at least a period of time, it could expand further especially, if you get a pretty big decline and the risk-free and more importantly the risk premiums quite suddenly maybe brought on by a recession or something of that nature.
And given our strong paper performance, we have seen investors wanted to flock to it versus some of the other paper markets and that could widen it out further than what I’ve ever seen. But I think right now where we are maybe a little bit more towards 700 is probably what I would consider would be peak.
Operator: Our next question comes from Sophie Karp from KeyBanc. Your line is now open. Please go ahead.
Sophie Karp: Hi, good morning, guys and thank you for taking my question. I was wondering if you could give us a quick rundown on what different markets in the US look like in the current environment in terms of demand trends and where you see the highest grow geographically, and which ones can do you consider unsalable right now and for the foreseeable future?
John Berger: Hi, Sophie, this is John. We’re seeing pretty strong growth across the board with the exception of California. That’s probably I’m certain that it’s more about us. Most of our – the vast majority of our California businesses are new homes channel. We do have plans to improve that region and we’re so small in that region on the retrofit market that would be pretty easy to increase market share there. The rest of pretty seem, pretty strong growth in the islands and those markets have continued to mature and we’ve been building out and started those markets like Puerto Rico for instance over a decade ago. The Northeast Mid-Atlantic seems to be doing pretty well. I would say, general trend growth, solid growth. And but what we’re seeing is a lot of growth in the South and then some of these other states that we’ve historically never had that much of anything.
Some of that is going to be enabled by our Home Depot relationship and some of the other dealers that we’ve been able to bring on. So it’s a – it’s something that we certainly have been a bit surprised about. And that market I think went decidedly from loan to TPO, fairly quickly and gains continued to gain traction. And so there’s just not that many folks out there as you know with the – with a lease or PPA.
Sophie Karp: So that is helpful. And then maybe along the lines on the partnership with Home Depot and other channels you guys have. Can you give any thought to addressing structural sales costs, customer acquisition costs I guess and in your markets is the knock on the economics of the US solar spin, higher customer acquisition costs are going to eat into that. So I was wondering if you guys have given this any thoughts and strategically how can you address that at some point in the future?
John Berger: Yes, we are actually with retail. We have addressed it. We do have a fundamentally different model. Again, this company is very focused on its dealers and that is what we’ve built the company on and we’re going to continue to have that focus on that business model. And then going into the retail channels and specifically, you asked me about Home Depot that is dealer driven. So, we have a very different perspective than model than what others have done and are doing in the retail channel. It’s been very successful for us financially, for our dealers financially and for our partner, retail partners financially. So, we have changed that model up and it is working.
Sophie Karp: Yes. Thank you. I’ll take the rest of time. Thank you.
John Berger: Thank you.
Operator: Our next question comes from Pavel Molchanov from Raymond James. Your line is now open. Please go ahead.
Pavel Molchanov: Thanks for taking the question at the risk of delving a bit into politics, so to speak. You obviously had the letter from the Congressional Committee about Healthia that was several months ago. Can we just get an update on that whole situation?
John Berger: Sure Pavel. Yes, most unfortunate, it’s very clear politics are at play, but to be clear that that letter was directed at the Department of Energy and the Loan Program Office not us. Obviously, we’re mentioned but we’re not subject to any investigation at this point in time. And look, what I would say is, I’m just going to focus on having us do a better and better job of serving customers. There’s always ways that we can improve our customer service. There’s always ways that we can improve our quality control or consumer protection. We’ve got plans that we’ve put out — put forth about how to improve consumer protection, mandating service. I think the States and the Fed federal government audit mandate service with a creditworthy companies, service companies like ourselves.
We’ve been calling for that for years. So, we’re going to focus on doing a better, better job for our customer. And again, there’s always something we can improve on and we’re going to focus on doing that. And we’re going to leave the noise, shall we say to two others to deal with.
Pavel Molchanov: Okay. Fair enough. Can I just follow up on M&A? You’ve been asked a lot about sort of selling assets. I’m curious if in the current industry conditions, there are any corporate M&A opportunities for Sunnova as a company particularly when it comes to entering new geographies?
John Berger: It’s a good question and we do see some attractive asset purchases that we’re taking a look at. We haven’t executed on anything yet, but we have seen that and we see more of it particularly in the business market side of things that may be pretty interesting to do. On the terms of the corporate Act, M&A obviously, we can’t comment anything specifically, but right now, I think it’s really we have all the growth we need. We need to make sure that the growth comes in at the highest possible cash generation possible. So, I’m not really looking to do anything at this point in time we don’t need to it. But candidly that was one of the reasons just shutting down the international and some of the other moves is we don’t need to do it to get the growth that we need to generate the cash.
So, we just need to we need to stay focused on generating the cash and then doing some of these other things. And they’ll be there down the road, because nobody else is able to really expand and exploit those opportunities right now either. So, I don’t see anything on the horizon but there’s always a possibility.
Pavel Molchanov: Thanks very much.
John Berger: Thanks.
Operator: Our next question comes from William Griffin from UBS. Your line is now open. Please go ahead.
William Griffin: Great. Good morning, and thanks for squeezing me in here. My first one just was wondering if you could touch on O&M costs. How you’re seeing those trends relative to what’s embedded in your customer value assumptions, particularly in light of your enhancements in response time and service levels that you discussed here?
John Berger: Yes. This is John. We see the cost per customer coming down rather quickly. We have been putting a lot of IT in place new processes. We clearly have a new leadership we brought in over a year ago and that’s been a tremendous improvement. So, the way I’d put it is, we wanted to get effective, the best in the industry at service. We think we have done that now, doesn’t mean that we can improve to go into that question I just answered from the gentleman. But we see a lot of opportunity to improve our cost structure on the service side of things and we’re realizing that. So, we expect quite a bit quite large decreases in even greater than the 20% on the service cost per customer as we’re moving forward really from here on out and I’m quite confident we’ll achieve those.
William Griffin: Perfect. And just the last one for me here. You gave a pretty wide range on the cash generation guidance exiting 2024. Could you walk us through some of the puts and takes that would get you to the higher end versus lower end of that range? And then is that going to be more cost of capital driven or more a function of growth?
John Berger: There’s a couple of things that will get us there. One is a better ITC guidance. If we get the domestic content, there’s a significant uplift we would assume we could get there. The second is if we can continue to see the contraction of the risk-free — sorry the risk premium. We’ve seen a risk premium come back down, but it’s still much, much wider than it was even three, four years ago when this was still a pretty nascent industry and was enjoying very tight margins on the risk premium. And then the third, obviously, is the risk-free. If that comes in, that’s a benefit. And then finally, I would say it depends on the magnitude of asset sales. If we can accelerate some asset sales, then that would end up being accretive to that cash number as well.
And we could — frankly, we could blow through the target too. I mean there’s nothing that’s really keeping it artificially at that number. But we’re I’m not trying to be irrationally aspirational with that with that range.
William Griffin: Got it. Appreciate the time. Thanks very much.
Operator: Our next question comes from Donovan Schafer from Northland Capital Markets. Your line is now open, please go ahead.
Donovan Schafer: Hey guys. I want to follow-up with — I forget who was the someone else asked about customer acquisition costs and with the Home Depot and the way you approach that, it sounds like you have proactive actions and measures and things that you take to address it. But I’m curious if you can talk more generally about the overall kind of industry trends there right now. So, I think one parallel that comes to mind and it just it just kind of raises this question and makes you kind of contemplate, but you guys are probably the best ones to have an answer. In the EV — in the market for commercial — or sorry for consumer EVs, there has been sort of slower growth than maybe people are initially thinking the idea that well you had the early adopters and then maybe some kind of intermediate wave of adopters.
And then you have a third or fourth wave is it getting — a somehow — a bit more difficult somehow? And so I’m wondering if there’s anything that you guys have seen at all and that’s and if that has had impacts on customer acquisition costs just any kind of commentary around there? It would be helpful.
John Berger: Certainly. I think when you look at our overall strategy being an adaptive energy services company we’re selling multiple serve — energy services and services to customers. That’s been a huge benefit to us in terms of profitable growth and we expect that to continue. And so specifically as well as storage pricing as battery pricing continues to plummet downwards. And that is enabling us to go back and upsell our existing customer base quite a bit. And you can see that over the years that we’ve done that better than anybody frankly. And then we have additional items like EV charging, load management that’s really coming to bear, it’s pretty interesting. And the other items that we offer in roofing and generators and all of that is really got a pretty strong uptake.
So, I think one, just how do you margin stack and think about expanding the EBITDA per customer, the cash generated per customer. We’ve been doing that. That goes to our services per customer metric. And so we see a lot of opportunity to really drop our customer acquisition costs, but just minding our current customer base and delivering them better and better services as products come on the market that are better and cheaper frankly on the overall organic growth outside adding new customers that continues to be where we’re taking market share. And I think some big portion of that is our product set is the widest and the best in the industry. We feel we hear that a lot from our dealers and more people that are more dealers that want to come on board and be our dealer.
And so I think it’s really about the products that we offer the service services become something that not nobody but us talked about to now everybody’s talking about it and how do you have great service how do you get that power to flow not just for the first few weeks after the install the first six months of the contract life if you will that how do you do that for 25 plus years and having the best service and then being able to sell service only, even is expanding the marketplace quite nicely. So we focus on service. We focus on delivering these new products. Our OEM partners focus on delivering better products, hardware cheaper than I think the market will continue to expand and the cost of acquisition will continue to go down. And we’re seeing some of that in some of the southern states, in the in the middle part of the country states.
And so, again, there’s a lot more good things happening in the marketplace then I think obviously that most to speak up today with regards to the capital markets.
