And we’re not going to have the size and scale. I think you need to compete effectively. So we’ve made the decision to stop working on SunVault 2.0 and to really focus on who are the world class partners that would want to work with us as we go forward to serve consumers well in the space. So more to be talked about in future discussions, but that’s sort of how we’re thinking about the battery world as we go forward.
Colin Rusch: Thanks so much. Appreciate it.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Philip Shen from Roth MKM.
Philip Shen: Hey, guys. Thanks for taking my questions. Looking at the ‘24, Peter, I know you haven’t given the official guidance, but given where we are in the year and what you see so far, it looks like Q4 bookings have improved. But that said, the Q4 customer ads are still down, maybe 15% quarter-over-quarter. So what kind of run rate should we expect for — and what kind of activity should we expect for Q1 and Q2 of next year? And what that cadence might look like as we get through ‘24. Thanks.
Peter Faricy: Thanks, Phil. Yes, let me give you some color around how we’re thinking about growth and the kinds of factors that impact it. One of the big positives this year is that because we’ve always been agnostic between lease loan and cash, we were well positioned to pivot as the market pivoted. So last year at this time, we were roughly 80-20 loan on financing and this year it’s exactly the opposite. We’re roughly 80-20 lease. Why does that matter on customers? Well, for leases, the revenue recognition is about 30 days plus later than it is for cash and loans. And that’s because we don’t recognize revenue and EBITDA until we get to permission to operate stage. And as you know, in California, the utilities have really struggled to keep up with the demand that came out of NEM 2.0 bookings.
And so that normal 30-day delay has been more like 60 to 90-day delay. So it has really slowed down our customer recognition this year. And we’ll work through most of that as we end through this calendar year. As we take a look at 2024, as you mentioned, we’re not giving our guidance yet. We give out guidance every year on our first quarter call. I think we’re cautiously optimistic that the new homes business looks like it’s trending positively and will be in a position to grow next year. And then I think, you know, it’s too early on the retrofit business. I like the signals of September and October. But I think if the volatility of this year has taught us anything, it’s, you know, we need a longer proof that there’s, you know, that this is a trend that’s going to continue before we make any comments on what that looks like as we go forward.
Just to put it in perspective, you know, last year in 2022, we grew revenue at 56%, grew our customer base at 48%. So the dramatic change this year is one that you normally don’t see in consumer businesses. And so I think given that volatility, we’ll be thoughtful. We’ll see how bookings play out for the remainder of this calendar year. And then we’ll be better prepared when we talk to you in February to give you our guidance for ‘24.
Philip Shen: Okay. Thanks, Peter. Shifting to balance sheets and liquidity, I was wondering if you could help us understand the liquidity at the end of Q3, and then also share any thoughts on potential need for external capital, under what conditions might you need to pursue external capital? And then, you know, inventory can be a lever for you. How much do you think you need to work down by year-end to avoid external capital? Thanks.
Beth Eby: So, we ended with $104 million of cash, $143 million of net recourse debt in the quarter. Cash from operations was good on the inventory drawdown, so we’re pleased with how we ended in Q3. Going forward, we are working multiple options to improve cash and liquidity, and there are multiple options. But our first priority is the same thing, as I said last quarter, is to improve our own working capital management and continue to draw down inventory. I think, I mentioned last quarter that target days of inventory for us is about 60-days. We’ll get there and then we’ll set a bigger target. But at a 60-day target we’d be at about $200 million at the moment, we’d be at about $250 million of inventory, so we’ve got some drawdown left to do.
Philip Shen: Okay, thanks, Beth. Just to clarify, so you have $250 million. Can you quantify, to get to that 60-days, what might that mean for inventory, how much in terms of dollars?
Beth Eby: So, we’re at about $327 million right now, so that’s another $75-millionish.
Philip Shen: Got it. Great. Okay. Thanks very much. [Multiple Speakers]
Beth Eby: We’re shooting for that for year-end, but some of it might bleed over into Q1, but it’s the focus for the whole company.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Pavel Molchanov from Raymond James.
Pavel Molchanov: Yes. Thanks for taking the question. Going back to the loan versus lease dynamic, given that in the final analysis, there is, let’s call it $20,000 a capital per rooftop system that needs to be sourced from some capital provider. Why does it matter so much from your perspective, whether the customer chooses one flavor of financing versus the other?
Peter Faricy: Well, I guess that’s the point that we’re — that we’ve made, which is that we really believe we’re the only residential solar company that’s agnostic. You know, we really, our goal is to talk to consumers, get to know them and their needs, and really figure out the best option for them, including cash, by the way. So 20% of our business today is still cash sales. But when it comes to financing, we always offer both options and try to talk through the consumer, the pros and cons of both. Typically loans require down payment, leases don’t. Historically, last year, loans were a little better value, that’s actually flipped. Leases are a better value this year. So I think the fact that leases are growing is very rational.
Consumers like the fact that they’re saving a little bit more than they would with versus a loan and no down payment required. It’s an easier vehicle to get people into and get them off into rooftop solar. For those, just as a friendly reminder, we’ve been in the lease business since 2008, so it’s not a new business for us. We’ve been in this business for a long time. We have a number of great partners on the tax equity side and on the regular lease capital side. So it’s a business that we’re excited about and plan to continue to grow as we go forward.
Pavel Molchanov: Okay, let me follow-up on with another inventory question. Benchmark price of modules, and you said this is the bulk of your inventory base, is down roughly 30% between April and October. At what point would you get into a situation where just as a matter of accounting you would have to recognize a write-down on the value?
Beth Eby: So accounting rules are if you’re selling it at above cost, you do not take a write-down. And we are still selling all of it above cost.
