Sunrun Inc.

Sunrun's CEO, Damian Badgen, Sunrun's CFO, and Paul Dixon, 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 the Sunrun's Investor Relations website shortly after the call. And now let me turn the call over to Mary.

Thank you, Patrick, and thank all of you for joining us today. In the second quarter, we delivered strong financial and operating results while delivering a best-in-class customer experience for over a million Americans. We generated $1.6 billion in top-line aggregate subscriber value, significantly exceeding our guidance and growing 40% year-over-year. Contracted net value creation of $376 million, which was our highest ever, more than doubled from last quarter and was also well above guidance. We generated this record profitability by growing the attachment rate of our storage offerings to an all-time high of 70% of customer additions in the period, and by driving significant cost efficiencies and performance improvements across the business. We also reported the highest upfront net subscriber value quarter in the company's history, a 17 percentage point margin improvement compared to the prior year, and now representing an 11% margin on contracted subscriber value. We achieved this result by growing contracted subscriber value while reducing our installation and customer acquisition costs. The trends in our operating performance highlight the cash generation trajectory of the business as our customer origination activities are financed over the coming quarters. We are structurally generating cash. In the quarter, we generated $27 million in cash. our fifth consecutive quarter of positive cash generation. While the quarterly number is lower than our prior guidance, we are on track to meet our cash generation outlook of $200 to $500 million for the full year. We paid down another $21 million in recourse debt in the quarter and ended with $618 million in unrestricted cash, a $13 million increase from the prior quarter. One of the things that excites me the most about the work of the team over the last couple of years and that really accelerated this quarter is our definitive leading position as the nation's largest home-to-grid distributed power plant operator. We have transformed the business to be a provider of energy resilience for homeowners and a formidable independent power producer. Now with more than three gigawatt hours of dispatchable energy from our fleet of home batteries, and nearly 8 gigawatts of solar generation capacity. Our transition to lead with storage and provide more sophisticated products and services not only differentiates us in the market, but also provides a tremendous energy resource that is extremely valuable to the grid. We now have nearly 200,000 storage systems installed. Over 71,000 customers have enrolled in home-to-grid programs, representing 300% year-over-year growth. These programs provided 354 megawatts of power capacity to the grid over the last year. Based on current activities and the energy capacity challenges our country faces, we are finding that our prior estimate of 2,000 or more in incremental net present value per participating customer is not only realistic, it is likely conservative. As we continue to scale storage and provide utility scale energy resources back to the grid, we expect a rapidly growing cash flow stream over the coming years. We expect to have more than 10 gigawatt hours of dispatchable energy online by 2029. Turning to an update on policy on slide eight, Paul and I spent a good portion of the quarter actively engaged in Washington, D.C., and in legislative offices around the country to ensure that the work we are doing to build the nation's largest distributed power plants driving American energy independence and dominance is well understood. What we do is provide our customers with an opportunity to take control of their own energy future, and at the same time, help Americans get vital energy capacity they need by strengthening the grid. Given our rapid transition over the last couple of years, many stakeholders hadn't realized we are scaling just what the country needs, a massive customer base of Americans who become independent power producers that provide a valuable dispatchable energy resource to America's grid. While there were a few twists and turns in the process that led up to the final budget bill, the ultimate legislation is something that will encourage the continued build-out of dispatchable energy. Sunrun is well-positioned to continue to generate strong financial returns under the enacted legislation. The investment tax credit for customers who purchase solar outright or finance it with a loan, known as 25D, will sunset at the end of 2025. Sunrun, however, primarily benefits from the commercial investment tax credit, known as 48E, as 94% of new customer additions are subscribers. The 48E credit ends starting in 2028 for the solar portion of a project but remains in place for storage through 2033. While the sunset of the 25D homeowner tax credit could lead to large declines for a segment of the market in certain geographies, Sunrun is positioned to continue to grow margins and volumes into 2026. You can see on slides 9 and 10 that nationally we represent over 40% of storage installations and more than one-third of subscription volumes. While market dynamics will present significant growth and market share opportunities, our focus will remain on running a sustainable business with strong margins, high-quality installations, and delighted customers. We are building a business that can generate value with lower incentives. On slide 11, we demonstrate one of many achievable paths to generating strong margins in 2028 without the solar portion of the tax credit. With conservative assumptions for pricing increases against utility rate escalation, equipment cost declines, customer acquisition cost reductions, and grid services value, we would more than offset the reduction of the solar tax credit. These items are just a subset of the value we plan to unlock in the years ahead. While we are planning for a step down in the solar portion of the tax credit in 2028, we are, of course, taking actions to lengthen our runway. Per statute and current Treasury guidance, projects that have commenced construction before July 2026 are eligible for the solar portion of the tax credit beyond 2027. In accordance with these rules, someone has already commenced construction on projects or plans too soon in order to retain the full solar portion of the tax credits through 2030. Treasury guidance on the requirements to commence construction may be updated but new guidance is not expected to be retroactive and must be consistent with legislative statutes. I'll now turn the call over to Danny for the financial update and outlook.

Thank you, Mary. Turning first to the unit level results for the quarter on slide 13. Subscriber value increased to approximately 54,000, a 22% increase compared to the prior year, as we increased our storage attachment rate by 16 percentage points to 70%, grew our flex deployments, and benefited from a 43% weighted ITC level, an increase of 7 percentage points from Q2 of last year. Subscriber value reflects a 7.4% discount rate this period. We meaningfully reduced costs as well, with creation costs falling 4% from the prior year. Though installation costs were approximately flat to the prior year, we were able to offset a 12% increase in equipment costs, driven by the jump in storage attachment rates, with a 13% improvement in non-equipping costs such as install labor and other soft costs. We also lowered customer acquisition costs and overhead by 10% on a per-subscriber addition basis. We accomplished these strong cost reduction outcomes by delivering high quality, maintaining strict safety standards, and embracing product and technological innovation. The higher subscriber value and lower creation costs led to a 182% year-over-year growth in net subscriber value to 17,000, the highest outcome in the company's history. Turning now to aggregate results on slide 14. These results are the average unit margins multiplied by the number of units. First on the top line, aggregate subscriber value was 1.6 billion in the second quarter, a 40% increase from the prior year. Aggregate creation costs were 1.1 billion, which includes all CapEx and asset origination OpEx including overhead expenses. Excluding the expected present value from non-contracted or upside cash flows, our contracted net value creation was $376 million, an increase of $285 million from last year, and about $1.64 per share. This level of value creation reflects a net margin of approximately 26% of contracted subscriber value. Slide 15 breaks down the unit-level economics and aggregate economics on a contracted-only basis, along with the main underlying drivers for the increases. Turning now to slide 16. Sunrun raises non-recourse capital against the value systems we originate each period from tax equity, which monetizes the tax credits and the share of cash flows, and asset-backed debt, along with receiving cash from subscribers opting for prepaid leases and from governments and utilities under incentive programs. We estimate these upfront sources of cash will be approximately 1.2 billion for subscriber additions in Q2, representing approximately 85% of the aggregate contracted subscriber value, or what we call the advance rate. When we deduct our aggregate creation cost of 1.1 billion, we are left with an expected upfront net value creation of approximately $165 billion. This represents our estimate for the expected net cash to some run from subscriber additions in the period after raising non-recourse capital and receiving upfront cash from subscribers and incentive programs. This figure excludes any value from our equity position in the assets over time, including potential asset refinancing proceeds and cash flows from other sources such as grid services, repowering or renewals, or upside from flex electricity consumption above the contracted minimum. Actual realized proceeds in the quarter were $1.3 billion, with $679 million from tax equity, $526 million from nonrecourse debt, and $82 million from customer prepayments and upfront incentives. Aggregate upfront proceeds differ from proceeds realized due to the former being an estimate for subscriber additions in the period, and the latter being proceeds received against subscriber additions that may have occurred in a different period. Cash generation, which reflects realized proceeds as opposed to aggregate upfront proceeds, and is after working capital changes in parent interest expense, was $27 million in Q2. Though upfront net value creation is different from cash generation due to working capital and other items, it is a strong indicator of cash generation over time. Cash generation was impacted negatively by working capital timing in Q2. Inventory increased by $77 million from Q1, and taken together with changes to payables and receivables. This represented an investment of $45 million in Q2, as you can see on our cash flow statement. We also are continuing to see tax equity partners spend extra time digesting policy developments and changes with competitors, leading to extended timelines associated with monetizing tax credits. Turning now to slide 19 for a brief update on our capital markets activities. Sunrun's industry-leading performance as an originator and servicer of residential, solar, and storage continues to provide deep access to attractively priced capital. As of today, closed transactions and executed term sheets provide us with expected tax equity capacity to fund over 210 megawatts of projects or subscribers beyond what was deployed through the second quarter. Thus far in 2025, we have added $1.7 billion in tax equity, resulting in a strong runway. We also have 323 million in unused commitments available in our non-recourse senior revolving warehouse loan to fund over 114 megawatts of projects for subscribers. We are underway with plans to execute multiple turnout transactions in the coming months, including a private transaction with counterparties already identified. Our strong debt capital runway has allowed us to be selective in timing turnout transactions. In July, we priced our third securitization transaction of 2025 where we refinanced a season full of residential solar systems. The $431 million securitization priced at a yield of 6.37% in line with the yield of our prior securitization in March. The weighted average spread of the notes was 240 basis points, which is approximately 15 basis points higher than our securitization in March. The higher spread followed overall market movements and credit spreads for similarly rated credit. Inclusive of this transaction, We have issued approximately $1.4 billion in asset-backed securitizations thus far in 2025. Though some investors are taking extra time to assess transactions as noted earlier, asset financing markets are open and healthy, and there are an increasing number of investors, especially from private credit, who have done repeat transactions with us. We plan to continue executing both publicly placed transactions and direct placements in the private credit markets. and to expand our tax credit buyer universe with more large corporations. On the capital side, we continue to pay down recourse debt, paying down another $21 million during the second quarter. Since March of last year, we have paid down recourse debt by $235 million. We have also increased our unrestricted cash balance by $131 million and grown net earning assets by $2.4 billion over this time period. We expect to pay down our recourse debt by $100 million or more in 2025. Aside from the $5.5 million outstanding of our 2026 convertible notes, we have no recourse debt maturities until March 2027. Over time, we'll explore further capital allocation options to maximize shareholder value based on market conditions and our long-term outlook. Turning now to our outlook on slide 20. We are either reiterating or raising all of our guidance for 2025. For the full year, we are reiterating our guidance for aggregate subscriber value to be between 5.7 and 6 billion, representing 14% growth at the midpoint. We expect contracted net value creation to be in a range of $1 to $1.3 billion, an increase from our prior range of $650 to $850 million, and representing 67% growth at the midpoint. A strong performance in the second quarter along with continued cost efficiency improvements and value optimization is leading to improvements in our contracted net value creation outlook for the year. We are reiterating our cash generation guidance for the year of $200 to $500 million. This reflects the strong operating performance along with the increased working capital investments. For the third quarter, we expect aggregate subscriber value to be approximately $1.5 to $1.6 billion, representing 8% growth at the midpoint, and contracted net value creation to be between 275 and 375 million, representing 58% growth at the midpoint. We expect cash generation to be between 50 and 100 billion. Operator, let's open the line for questions.