James West: Hey, good afternoon, Mary, Danny, and team. Hey, Mary. And I hear you guys on your confidence that we’ve bottomed here and want to use the low point for the year, but could you maybe provide a little color on in the states where you operate, where you’re seeing the most growth, the most recovery, the faster recovery rates, and maybe where things aren’t recovering as fast?
Danny Abajian: Yes, I think we continue to see really robust return to volume in California and believe that we’re gaining market share inside that market, which is really strategic for us, obviously, from a solar volume perspective, but as well from a future grid service perspective. Another really exciting market for us is Texas. And we’ve been having geographic expansion inside the state and are quite excited about that market as well. So those are two really promising big growth markets for us. The third I would list is Illinois as well.
James West: Got it. Okay. That makes sense. Thanks for that. And then maybe just a quick follow-up, Danny, you gave some numbers around the equipment, declines in equipment costs, and that you’re still working through some higher cost inventory. By the end of the year, I think you said down 18% from a peak. Does that incorporate all the higher cost inventory being in the field and out of your inventory?
Danny Abajian: Yes. The timing for that, as you continue to track our inventory balance, you’ve seen it fall quite a bit. And we’ve guided to Q2 being most of the way there in terms of realization of the lower cost purchase activity we’ve been seeing late last year and this year. Some of that, there’ll be a residual that gets fully, fully recognized in Q3. But we’re nearly there in Q2 in terms of the expense recognition of the lower cost equipment we’ve been buying.
James West: Okay, very helpful. Thank you.
Danny Abajian: Thank you.
Operator: Thank you. Our next question comes from the line of Praneeth Satish with Wells Fargo. Please proceed with your question.
Praneeth Satish: Thanks. Good afternoon. So if we think about 2025, it seems like many of the assumptions that you laid out for your cash generation forecast between the low and high end, it seems like many of those assumptions will play out in 2025 between battery supply shifting domestic, getting more clarity from Treasury and maybe interest rates coming down a bit. So, I mean, I recognize you’re not giving 2025 guidance right now, but maybe if you could just talk about the puts and takes to consider as we look out another year to cash generation.
Paul Dickson: Yes, I think the one we’ve put here at the top of the assumption list is those adders, right? The adders we have, now we have energy community and low income running. There’s obviously been some movement between the bucket and net-net we’ve seen that percentage climb since the last quarter. And domestic content is a matter of time for that whatever — to whatever extent we get the upside and over what period, it’s just a matter of time for that to arrive. And we’ve been cautious in our planning around domestic content. But we do expect that will be a driver we carry into 2025. Interest rates, as you see here, we’re expressing in a range of 7.5% to 8%. We are not assuming a set of major declines in interest rates.
Obviously, we’ve seen base rates go up, we’ve seen credit spreads improve recently. And we’ve generally held for most of the last few quarters within this range. So the story there again, is carrying this range of cost of capital into 2025 will allow us to also carry this magnitude of cash generation we’re planning on. And then, the third one is keeping that storage attachment rate where it is and slightly growing that even more over time, and working to further penetrate markets with so far lower penetration rates in storage. I think we’ll continue to push for that as well to hopefully grow the range as we move into 2025.
Danny Abajian: Great. And just to make sure we clarify one thing, the batteries that we have been installing over the course of the year are those that we expect will qualify for the domestic content adder. So, while you cannot monetize those until the guidance is sufficient, and obviously confirms our expectations, that would then make retroactive adders possible for the 2024 installations. Now, there could be puts and takes and delays in getting that retroactive credit, but we do not need to wait for domestic content batteries to show up. We are already installing those that we expect are likely to qualify for the guidance.
Praneeth Satish: Got it. That’s helpful. And maybe just staying on batteries, I mean, you kind of addressed it, but you’re at your 50% attach rate now, and it looks like you’re assuming that ratio to be flat for the balance of the year. So, just the first question is why, how come it’s not continuing to creep higher? And then second what scenarios would you need to see happen to get it to that 60% or higher range? I mean, because it does look like you’re close to maxing out the attach rate in California. So, what do you need to see to get the rates higher for the rest of the country?
Mary Powell: Well, I think as we talked about, we continue to see storage attachment rate increasing. Yes, as we look to the future I think over time we could absolutely see them go above 50%, but what we’ve been looking at is landing, when you look at like the entire country and all of the markets we’re in, landing at about that percentage. But absolutely, like my view from a grid perspective is that you’ll start to see other parts of the country moving towards A, more different tariff schemes that might make storage more attractive for customers, as well as grid reliability issues that will make storage more attractive for customers. But again, we also see a tremendous re- like attach rate storage program as well. So, we’re really excited about the opportunity to also go back to our existing customer base and attach storage.
Praneeth Satish: All right. Thank you.
Operator: Thank you. Our next question comes from the line of Joseph Osha with Guggenheim Partners. Please proceed with your question.
Joseph Osha: Hi. Thank you. Kind of two related questions. First, looking at the adjusted, Q1 ’24 cash generation number, I see that you’re talking about an adjusted number that’s flat there, not to be as thick in the mud. You did have a nice tail wind issuing this 2030 convert and not taking the 26 back in. So, I guess what I’m asking, first question, is are you asserting here that on an ongoing basis you think Q1 cash generation can be flattish? And then I have a follow-up.
Danny Abajian: Yes. So, one clarification is the issuance of the new convert and any proceeds from that we would back out from cash generation as we’ve defined we would do because we don’t give ourselves credit in cash generation for any corporate capital raises. So, that number — obviously, that drove the – while that drove the cash balance, it did not drive the cash generation number because we backed it out. But what we did incur was the — were all the fees related to the transactions. That was $51 million on the convert, which is all we’re putting back in the pro forma. So, I would say, as far as — and then, of course, there’s a list of other items like the warehouse facility, advance rates, all the related fees. But if you look at the pro forma, two-thirds of it is the tax equity the tax credit — kind of the tax credit transfers of $181 million in the low-income ITPI are up 30.
And we’ve said we do expect to recover most or all of that by the end of the quarter. So, that’s our plan, which would imply a quarter of substantial cash generation coming to offset that.
Joseph Osha: Okay. And then just as a follow-on we spent a lot of time talking about this annualized 200 to 500 number, which is great. But it’s not going to help as much if we just give it all back in Q1 ’25. So, I guess what I’m trying to understand you put in your comments that there’s going to be positive Q3 ’23 to Q3 ’24 generation. How should we think about that level of Q4 to Q4, Q1 to Q1, choose your poison? , what should we think about the sustainable annualized rate of cash generation? Because, yes, again, the Q4 number is great, but if we give it all back in Q1 to Q ’25, it doesn’t help.
Danny Abajian: Yes, I think we expect it the annualized run rate delivery to be sustainable and not timing driven. I think that’s the most important thing. Now, there will be normal fluctuation. If you look back at our results, there is seasonal fluctuation, but over a trailing four-quarter period, we expect to continue the number or the trend line. So, I think field timing, seasonality, those things will still matter. But if we’re going to zoom out and look over four quarters, that’s the annualized run rate kind of thinking and framework that we’re bringing here to the guide.
Mary Powell : Yes, I would also just add to that, Danny, that we also are doing a number of things, like our retrofit program, our renewal program that we are thinking about in the context of how we can also utilize those programs to supplement typically low quarters from a seasonality perspective. So, that is also something we’re thinking about and working on strategically as we think about Q1 ’25 and going forward.
Joseph Osha: Noted, thank you.
Operator: Thank you. Our next question comes from the line of Philip Shen with Roth MKM. Please proceed with your question.
Philip Shen: Hey, everyone. Thanks for taking my questions. First one’s on the impact of AI-based load growth on your business. For example, [ERCOT] (ph) power forwards have moved up 60% in the last 12 months. [KAISO] (ph) has been similar. When do this flow through into retail pricing and affect your pricing power?
Mary Powell: Yes, that’s a great question. From our perspective, strategically we see what’s happening with low growth as being really directionally positive, largely because there is going to be — we already see this, but there is going to be capacity challenges at the utility level, at the regional level. And so, again, growing our fleet of storage crystal assets, we believe, will provide valuable, and will be a meaningful resource relative to how that is going to flow through from a rate perspective, I would say, there is nothing we’ve seen so far that suggest that the rate — that the utility grid infrastructure has a pass towards becoming more, like, stronger from an economic perspective. So, there is massive spend needed at the transmission level, at the project level, and at the distribution level.
So, again, I think there is going to be real pressure on utility rates in the future as this happens. And it also provides an opportunity for Sunrun and our assets to be helpful in the solution.
Philip Shen: Great. Thanks, Mary. Shifting to the impact of new entrance in the lease market, I was wondering if you could give us a little bit more color, you shared some in the past, and have you felt this increased competition offset by Nova and Sun Paris situations. Is there anything that has changed in the sense that these new market entrance, which are mostly corporate or T-backed have started to enter into an asset class that was previous very fringy or not institutional quality?
Danny Abajian: Yes. I think for us, we continue to see them operate kind of how we seen it historically. I think they’re trying to figure out the business model. When you look at owning assets for 25 years and forecasting our service cost and understanding asset ownership, consumer experience, customer service, there’s a lot to managing these assets, and we’re extremely confident of finance dozens of billions of dollars of this stuff, and we know how to price it. And while we see annoyances from these partners, we don’t view it as like a durable threat. We view it as some short-term frustration of volume.
Philip Shen: Okay, thanks very much.
Operator: Thank you. Our next question comes from the line of Colin Rusch with Oppenheimer. Please proceed with your question.
Colin Rusch: Thanks so much. Can you speak to the performance of your VPPs from a monthly perspective versus your internal expectations when you guys enter into that market?
Mary Powell: Yes. We are really pleased, as I described, again, we’ve got enrolled 16,000 Sunrun customers in the CalReady program that we rolled out, 1,800 on the PowerOn Puerto Rico. Our growing experience with good services increases our conviction that we can realize $2,000 or more in per customer MPV from these assets.
Colin Rusch: Thanks so much. And then, as you see higher storage attached rates, are there meaningful adjustments to your inverter storage hardware mix that you’re looking at coming down the pipe? And are there meaningful new products that you are looking forward to being able to integrate that could impact your unit economics?
Danny Abajian: Yes. I think from a core hardware perspective, the major components, we are really comfortable with the diversity we have in the products that we are using, and we continue to forecast and see steadily declining cost in those core products. The innovation side and new product side, we actually see a lot of exciting products coming into the market, and Sunrun’s position, given our large and complete distribution is preferred option for those people. And so, we view ourselves as well-positioned to be recipient of the best and most innovative exciting new products to come on to the scene, and have been doing some pilots with different products, and I think as the markets mature and as the products mature, starting to make those more of a standard offering in more homes.
