Sunnova Energy International Inc.

Good morning and welcome to Sunova's third quarter 2020 earnings conference call. Today's call is being recorded and we have allocated an hour for prepared remarks and questions and answers. At this time, I would like to turn the conference over to Rodney McMahan, Vice President, Investor Relations at Sunova. Thank you. Please go ahead, sir. Rodney McMahan, Vice President, Investor Relations at Sunova Thank you, Operator.

And good morning, everyone. Yesterday, we released our earnings press release and posted a slide presentation to the investor relations portion of our website at investors.sonova.com, which will be referenced during this call. Joining me today are John Berger, Sonova's Chairman and Chief Executive Officer, and Robert Lane, Executive Vice President and Chief Financial Officer. Before we begin, let me remind everyone that this call may contain certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about future expectations, beliefs, estimates, plans, and prospects. Such statements are subject to a variety of risk, uncertainties, and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risk and other factors are set forth in our press releases and filings with the Securities and Exchange Commission. We do not undertake any duty to update such forward-looking statements. Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in our earnings release. I will now turn the call over to John.

Good morning, and thank you for joining us for our third quarter 2020 earnings call. We are pleased to report another quarter of strong, steady results, enabling us to once again reaffirm our full year 2020 guidance and to initiate full year 2021 guidance. Our third quarter performance is characterized by record-setting customer growth as we added more customers in the third quarter of 2020 than in any other quarter in the company's history. While this record is impressive, we expect to add significantly more unique customers in the fourth quarter. This exceptional customer growth, coupled with our stable unit economics and declining costs on a per-customer basis, has placed us in the desirable position of being able to optimize recurring operating cash flow and company growth for 2021 and beyond. Simply put, we will either invest to grow profitable cash flows quicker, or we will preserve the recurring cash flows for our shareholders. On slide three, you'll see the details of yet another quarter of strong operational results. We increased our customer base, expanded our dealer network, and maintained a robust storage attachment rate. We continued our rapid growth by adding over 7,000 new customers in the third quarter of 2020, a 40% increase from what was added in the same quarter in 2019. This exceptional growth is fueled by the 270 dealers and subdealers who power our differentiated, low-cost model. Sunova has nearly doubled its number of dealers over the past 12 months by selectively adding 134 dealers and subdealers. If you are a contractor seeking a solar and storage service provider partner that does not compete with you, that offers the broadest array of products with all the financing types, loans, leases, and PPAs, that partners with the leading energy storage and other technology providers, and that has a stable capitalization strategy, there is only one solar and storage service provider available to you, and that is Sunova. As a result, we expect to see our dealer count continue to rise during the remainder of this year and well into 2021. Our storage attachment rate on origination increased from 15% in Q3 2019 to 34% in Q3 2020, as we continue to see strong consumer appetite for Solar Plus storage. The large driver of our robust storage attachment rate over the past several quarters has been our 100% attachment rate in our island markets of Guam, Saipan, Hawaii, and Puerto Rico. However, we have recently seen storage attach rates rapidly increase in select non-island markets, such as Florida and California, which had Q3 2020 attachment rates on origination of 16% and 12% respectively. In fact, to date we have sold storage service in 17 states and territories. In addition to providing battery storage to new customers, We've also been busy retroactively adding battery storage to previously solar-only customers. Since we began offering storage as a service, we have performed 883 battery retrofits through September 30, 2020, for both Sunova and non-Sunova customers alike. We expect to double this amount over the next two quarters. Turning to slide four, we provide a summary of our third quarter 2020 financial results, which are further expanded on slide five. Our total customer count, adjusted EBITDA, the principal and interest we collect on solar loans, and our adjusted operating cash flow were all at or above our expectations. On slide six, you will see both our gross contracted customer value, or GCCV, and our net contracted customer value, or NCCV, are experiencing significant increases year over year. This translates directly into shareholder value creation. Using a discount rate of 4%, NCCB increased from $1.1 billion on September 30th, 2019 to $1.4 billion on September 30th, 2020. This equates to approximately $15.63 per share as of September 30th, 2020, which is nearly a 17% year-over-year increase. This increase clearly shows our rapid growth is creating value for shareholders. Please note both our GCCB and NCCB metrics represent only our existing contracted cash flow base after MSA fees, which we collect and use to service the contracts, and after payments to tax equity providers. It excludes all future contract renewals. It assumes we sell no complementary products and energy services to existing customers, and it assumes no growth. While these items are not reflected in our contracted customer values, They do have value and will become more meaningful to SNOVA as the number of services sold per customer grows. Later in the call, I'll expand upon these additional service opportunities and provide an overview of how we expect them to grow over time and what impact they will have on our NCCB. For unit economics, we continue to see stable returns and expect those to continue. For instance, over the last 90 days, we achieved approximately 9.7% unlevered and 8.6% fully burdened unlevered returns. As you can see through the slight improvement in our fully burdened unlevered returns, we have seen improved single customer net margins. We accomplished this through scaling our sales overhead by increasing our nominal per quarter customer growth. At Sunova, we believe in consumer choice, which is why we offer our customers the broadest portfolio of service offerings in the industry. Recently, we've seen loans make up a larger percentage of our contract mix, going from 27% of originations in June to over 40% in October. We expect this trend to continue into next year and have set our 2021 guidance accordingly. I will now turn the call over to Rob to walk you through our financial results, our recent financing activities, and our guidance in greater detail.

Thank you, John. Slide 8 shows the period-over-period changes in our key financial performance metrics. Across the board, our results improved on the back of our significant customer count increases and the fact that our business continues to scale on an adjusted operating expense per customer basis. On slide nine, you will see a summary of several important financing transactions completed during the year to ensure Sanova has the capital it needs to continue funding its high level of growth. The 2020 financing transactions completed to date include just over $570 million in new securitizations, $235 million in new tax equity funds, multiple expansions of our third-party operated warehouse facilities, a new $60 million loan facility, and $190 million in convertible debt, much of which has already been converted into common stock. If market conditions continue to be favorable, we anticipate closing and additional securitization in the coming weeks. As investors no doubt recall, we were one of the few companies who maintained guidance throughout the pandemic this year and one of only a handful of renewable companies to do so. On slide 11, we once again confirm our 2020 guidance ranges, which is a testament to the predictability, scalability, and flexibility of our business model. Unchanged from last quarter's call, we still expect our adjusted EBITDA and the principal and interest we receive from solar loans to trend toward the upper end of guidance and AOCF to trend toward the lower end. Again, this bifurcation is because of growth-related initiatives that have increased interest expense as working capital needs have increased, as well as marginally increased spending for growth and efficiency projects to accelerate growth and value creation. In the previous earnings call, we introduced guidance for recurring operating cash flow, or ROCF. As a reminder, ROCF is revenues and principal and interest from solar loans, less the principal and interest we pay on our permanent debt, including securitizations and corporate-level debt. We also subtract out service-related expenses and allocated overhead, which together account for approximately 60% of our annual SG&A and service cash costs. As previously mentioned, we were able to generate new assets at more or less cash flow neutral on a fully securitized basis after taking into account sales related operating expenses including approximately 40% of our overhead and all of the interest paid on working capital. RLCF then looked at the cash flow created or consumed by existing customers and assets after debt service and service expenses. Put another way, we generate new services into our utility at roughly break-even, while ROCF measures the cash flows from our utility. The balance of our cash consumption is directly related to the working capital required for the high growth of our business. We believe ROCF is an important measure of our financial performance and gives investors greater insight into how we are increasing our operating leverage and reducing risk for our debt and equity holders. Together with our NCCV at PV4, which more accurately captures the capital cost of our leases and loans versus a PV6, RLCF gives investors a clear view of value creation after all expenditures and costs of permanent debt are taken into account. As a growing company, we will expect to continue to be a net consumer of working capital, but the trend in RLCF continues to be up and to the right. Turning to slide 12, we are introducing 2021 full-year guidance of customer additions of $42,000 to $48,000, adjusted EBITDA of $77 million to $83 million, customer principal payments received from solar loans, net of amounts recorded in revenue of $57 million to $63 million, Interest received from solar loans of $28 to $34 million, adjusted operating cash flow of $20 to $30 million, and recurring operating cash flow of negative 15 to positive $5 million. We have a high level of comfort in hitting our 2021 targets as the nature of our business provides excellent visibility. This visibility is reflected in the fact that approximately 80% of the midpoint of our 2021 target revenue and principal and interest we received from solar loans will be locked in through existing customers as of December 31, 2020. In our previous earnings call, we introduced a customer growth target of 40% for 2021 and 2022. Using the midpoint of our 2021 customer additions, we are now anticipating that growth target to exceed 50% for the upcoming year. For 2022, we will continue to estimate a conservative customer growth rate of 40%. Our ability to lead the industry in growth rate continues to be a major component of our success. Later in the call, John will dive deeper into how we are driving and thinking about that growth. Our customer base and business model is expected to continue to produce industry-leading operating leverage. As a result, even with media replacement costs of $5 million in 2020 and $11 million in 2021, we expect to reduce our adjusted operating expense per customer by as much as 35% between 2019 and 2022. Looking forward, we expect ROCF to be positive in 2022 and beyond. In fact, we would have expected to reach positive ROCF ahead of schedule in 2021 if not for our decision to replace our 2G and 3G meters next year, to invest in measures to increase efficiency, uptime, and power production in order to further decrease our already low delinquency and capital loss rates, and investments to further increase our forward growth. This is normal tension every high-growth company manages, balancing between higher growth and generating larger cash flows to the equity. This same tension is shown in our per customer cost reduction pace in that the rate of the reduction would be much quicker if we limited growth investments and lowered our growth rate. Overall, our ROCF is growing faster than our customer growth due to our ability to increase operating leverage, as previously discussed, our continued decline in our all-in costs of capital, and our natural deleveraging driven by front-end loaded amortization schedules. And soon, our ROCF will be further propelled by tax equity flips and debt refinancings. I will now turn the call back over to John to provide closing remarks.

Thanks, Rob. At Sunova, our goal is to be the best source of clean, affordable, and reliable energy with a simple mission to power energy independence so that homeowners have the freedom to live life uninterrupted. To achieve this goal, we are reinventing the way energy is generated and consumed by offering homeowners a better energy service at a better price. Beginning on slide 14, you will see how energy options for homeowners have evolved over time from the traditional energy service model, reliant entirely upon centralized electric grids, to the new energy paradigm of distributed solar and solar plus storage. Looking forward, by utilizing the latest technologies in solar storage, secondary generation, demand control, we are endeavoring to turn our customers' homes into partially or even fully self-sufficient nanogrids, whereby our customers will no longer need to completely rely on centralized power and have gained true energy independence. We are aggregating these nanogrids into what we call the Sonoma Network, This network will create value for consumers, Sunova stakeholders, and even the centralized grids. Slide 15 provides a listing of Sunova's array of current core offerings, which already include the wide variety of services. For example, all of our customers benefit from our Sunova Protect comprehensive service plan, which provides both maintenance and system monitoring. Additionally, as our battery penetration rate increases, more customers are benefiting from the reliability and resiliency of our Sonova SunSafe solar plus storage service offering. Over the next several quarters, we expect our core offerings to continue to grow as we offer even more energy services to our existing and new customers. This includes, but is not limited to, electric vehicle charging, energy management solutions, and secondary generation. Before further exploring the impact of our expanding energy offerings, we want to quickly define some terminology. Sunova defines a service as a transaction that Sunova or Sunova's designee performs in exchange for a fee from the customer and is counted for the duration of the customer relationship so long as that service is still in effect. Furthermore, a customer relationship is defined by the presence of at least one active agreement such as a service plan or a similar offering. As noted on slide 16, we currently provide an average of 3.6 services per customer, which equates to approximately $14,000 of net contracted customer value generated per customer. As we begin to provide more holistic energy offerings, it is only natural the number of services per customer will continue to increase. As a result, We estimate by 2025 we will be providing anywhere between five to nine services per customer. This in turn will increase the amount of NCCD per customer we generate by an additional amount anywhere from between $15,000 to $17,000 for customers with five services to $18,000 to $20,000 for customers with seven services and $21,000 to $23,000 per customers with nine services. Our goal is to sell seven services per customer by the end of 2025, or nearly double our current services per customer. Another example of our expanded energy service offerings can be found in our recent qualification to participate in the ISO New England Ford Capacity Auction. This ability to participate in capacity markets and other grid services will drive even further value for both Sunova and its customers. A key to our success has been and will continue to be our industry-leading growth, which allows us to achieve the scale necessary to dramatically lower our cost per customer and, as a result, further improve our single customer net margins. In closing, as technology continues to rapidly improve, residential solar is quickly transitioning from being a product sale to a service sale. There are a growing number of hardware technologies that are being integrated with software by large-scale energy service providers such as Hinova, and this integration is going to help make the power industry, the grid, look more like the Internet. Instead of having 100% centralized assets with command and control and no intelligence at the endpoints of the system, U.S. power industry is heading toward a hybrid of centralized and decentralized that will become more durable, more reliable, more decarbonized, and more useful to consumers. For Sunova, as this vision is realized, it has opened further growth opportunities for us to create and sell more energy services to our existing customers, creating further value for our customers and shareholders. Our vision has been that we would go from just putting panels on a roof to to adding solar plus storage, to integrating low-control and EV charging, to essentially creating a nanogrid system on our customers' homes, all of which facilitates our long-term vision of becoming a global wireless power company. With that, operator, please open the line for questions.

Thank you. To ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Your first question comes from Ben Carroll of . Your line is open.

Ben, are you there?

Ben Carlo of Bird, your line is open.

Hello, can you hear me now? Yes, we can. Okay, sorry about that. Thanks for all the information here. My question is about just the net value per customer and how that's trending. And can you kind of give us the put and takes as we look into next year, you know, as you get guidance and, you know, I know it's probably tough to – It's a forecast, but can you talk to us about where you think that net customer value is going forward? And then I'll have a follow-up.

Okay. Ben, good morning. This is John. You're referring to the NCCB, I assume? Yeah. Okay. We cautioned in the past, you know, the first two quarters were fairly flat, and we said that it would pick up given the variability in tax equity closings and other financings, and it did. Obviously, it was a big jump from Q2 to Q3, as we predicted and forecasted. Q4 this quarter will also be fairly large. So we do see a growing rate, and I do think the right way to look at this is on a per share basis. So it takes into account any dilution, any equity issuance, and so forth. And so you can see that the trend is decidedly moving up as we gain more and more scale. And that goes to the point about having an increasing growth rate. The amount, the nominal amount of growth that we have per year is obviously increasing at a very rapid rate. And then the cost per customer is that throughput per quarter. And I think you'll even see a lot better visibility into that this quarter. I know you will. Scales our overhead and drops our costs. And so, you know, the way that we've conservatively counted a customer creates a lag in that metric. If you think about it, you spend on a customer, and then six months later or so, approximately you originate that customer, and then six months later that customer for us, when it goes in service, becomes a customer. So there's about a year lag, you know, plus or minus, from spending to generating the growth. And so, therefore, you'll continue to see an upwards trend in NCCV.

Great. And, you know, you guys mentioned the potential asset-backed security for this year. Can you talk about any other financing transactions that there should be as well, either tax equity or at the corporate level?

I think that Yeah, no, I appreciate it, Ben. This is Rob. Generally speaking, we're going to continue to focus on concentrating the tax equity that we have in the pipeline and get back to a regular cadence on our securitizations. I think that when we first talked about our goals for this year before COVID, we were Four to five securitizations a year. COVID slowed things down. It caused some major disruptions in the ABS market. We seem to have snapped back to a good point on the investment grade side, the high yield side on the securitization market. is much recovered but still lacking a little bit from where it was at the beginning of the year. I think, though, you should still expect us to try to follow that expected cadence of four to five securitizations a year and to continue closing on tax equity. We've got We do expect to close on other transactions this quarter, and we've got some very good visibility into 21 and 22 based on commitments. We're not going to call it closed until it's closed, but we feel very comfortable with our position there.

And I would add, Ben, that the growth that we've been seeing has been massive, and the Growth outlook and guidance that we put in for 2021 is pretty easy for us because that's where the trend rate we've been growing at for the last several months. So I want to see more, I think everybody does, what happens on Tuesday, get some more information, see what happens over the next few weeks on a macro basis. And then I think just like we did this year, we'll revisit guidance and growth for next year and early next year when everybody else issues their first guidance. And we'll probably look at 2022 guidance as well, just given the significant growth we're seeing. That also goes to working capital, and we fund the vast majority of our working capital with tax equity and debt. There is a little corporate capital involved that can be debt or equity. So we'll take a look at everything as we go through the next few weeks. I'm sure I know I'm not alone as the CEOs are going to do that after election. We'll just know, as, again, all of us will, a lot more after hopefully Tuesday it's over. And then we'll come back in and get any updates later this year or, you know, for certain in the next quarterly earnings call early next year. Great. Thank you very much, guys.

Your next question comes from Brian Lee of Goldman Sachs. Your line is open.

Hey, guys. Good morning. Thanks for taking the questions. John, maybe first off on the guidance, it sounds like you guys have a high degree of visibility per your business model. construct. I think you talked about an 80% number. Can you dive into that a bit more, just trying to figure out or get a better understanding of how de-risked the customer growth target here is for 2021? I think you had been talking about a low 40,000 new customers. target or so prior to this official guidance. So it seems like some upside has materialized here. So, you know, one, wondering what's driving that, and then two, how exactly you're defining the backlog of visibility on that 80% you talked about to gain comfort with the new targets. And then I had a follow-up.

Certainly. Good morning, Brian. You know, first is, you know, when we spoke about 80% locked in in terms of revenue and then principal and interest from our loans by the end of the year, we made a very similar, I think the exact same number this time last year, if you recall. That goes to our metrics of adjusted EBITDA plus P&I. and then recurring operational cash flow, adjusted operating cash flow as well. So it's all in the financial aspect of our major metrics, if you will. So that's what that 80% refers to. So that gives us very, very good solid visibility into 2021 because we have 80% of the revenue. So as long as we manage the expenses and balance that up against growth, as we referenced, we'll hit our targets just like we've been doing, you know, quarter in, quarter out. So we'll start to give more and we have more confidence as we start to look in early part of 21 into even 22. We can go that far out. In terms of customer growth, what I just referenced and said in the answer to Ben, here's a couple of his questions, is that we feel comfortable about this guidance because we've been running at this pace for the last several months. And therefore, we have the work in progress or backlog booked in at this level. So we anticipate on taking in roughly maybe a little bit less than half of the contracts needed to hit this midpoint target for next year that we laid out. We expect to have that by the end of the year going into 2021. If the growth continues to accelerate, and again, as we laid out, we grow three ways. We grow through adding dealers and sub-dealers, which we see strong traction in and picking up. We grow through adding and selling additional services or upselling to our existing customer base. and we're growing by selling additional services to our new customers, which we've been doing quite a bit of, particularly on the storage side of things. So that's how we're growing, and we see more and more growth, especially in those last two in terms of adding additional services. We've laid out for everybody about what that looks like and how you can model that out with regards to a margin or NCCB. And hopefully that gives you some more help and visibility in modeling out the company, not into just 2021, but 2022 and beyond.

No, that's helpful. And then just my follow-up question on the adjusted EBITDA guide specifically, you know, it looks lower than most people had penciled in for next year. But when we factor in the P&I payments from customers, it looks like the aggregate is across those two buckets is actually moving higher. So, you know, is that the right assumption slash math? And then what's driving the higher P&I? It sounds like it's just more loans and mixed shift, but can you provide a bit more specific as to, you know, why you think you're seeing some of that and what's baked into your mixed assumptions for 2021 versus what you're seeing in 2020? Thanks, guys.

Yes, sir. We have been seeing, as we referenced, a pretty significant surge in our market share. I mean, we're seeing it across the board in terms of contract type, lease, PPA, loan. But loan has been growing at a much faster rate this past quarter. In fact, an updated number last week, we were hitting about 46% of our origination was loans. So that's significantly up. So we don't see that trend abating. What's causing that? Our view is that, one, the company is growing, and as I think it's well known, the majority of the market share out there is loan. And so we're just picking up, we're doing a better job in the loan market with our products. All of our loan products come with service, and that's really attractive to customers. You know, they want that long-term service, and that's unique to us. And so that's driving, I feel that's driving a lot of interest in our loan products. We're certainly doing very well on the net margins. on those products. So we did model that out to continue, and therefore, you do have a drop. Because remember, adjusted EBITDA, as I think Rob reminded everybody in his comments, only includes the revenue from the lease and PPAs, but includes 100% of the cost. So when you look at the P&I, there's about zero cost associated with the P&I. So therefore, you can have big jumps in the P&I and not so big jumps in the adjusted EBITDA as a result of that. We'll also add this, that we've built in a little more spending on adjusted EBITDA. And the rough breakout is, you know, roughly about 40% of that spending increase. And it's not much. Most of this, to be very, very clear, is driven by the mix going to loan from leased PPA. But we've added in because we do see faster and faster growth as we laid out in this report. additional services per customer that we're selling for 2021 and beyond. About 40% of that's just general growth in terms of the spending increase year over year that we expect and baked in our numbers. About 40% of that changed the business is what we call it. So that's the additional services and so forth. Most of that you'll start to see an impact in late 21, certainly 2022. So it's a little bit longer dated investment. And then 20% as we've laid out the last couple of quarters is meter replacement. Now, what this means is that if we choose to drive up adjusted EBITDA and recurring operating cash flow faster, as Rob said in his comments, we can certainly delay that spending and push it out. We do have that flexibility. So if we wanted to do that, we can push those investments out, if that made sense from a macroeconomic standpoint or from a capital market standpoint. But in this, I think it's a real salient point. If we chose to just stop growth, which we're not going to, obviously, but if we chose to do that, we can shut growth off and just blow cash. We're at that point.

Understood. Appreciate the additional context. Thanks, guys. Thanks, Brian.

Your next question comes from Hillary Colley of GNP. Your line is open.

Hello, thanks for taking my question today. I wanted to first touch on your comments around the recent grid service announcement. If you could just speak a little bit more to your strategy on how you guys are looking to monetize your strong storage space, that'd be great.

Certainly. Thanks, Hillary. So we have a rather large deal up in Nepal. It's about 95 megawatts. We won't know the exact money side of things, if you will, or revenue side of things, which is pretty much all margin. you know, for us until after the auction in February timeframe, I believe. And so, you know, when we get done with the auction and we'll go out and report those numbers out to you all, but it should be a fairly significant amount of money that will be recurring for a number of years. On our connected solutions, we're working with our partners across the board, whether that's a Generac, a Tesla, Enphase, SolarEdge is obviously coming out with a product on the ESS side as well. And we're going to be networking up the customers with the storage and driving even further value in these respective regions. And so We do see increasingly, and I think we're not alone in this in the industry. Our competitors are seeing it as well, ability to capture more and more revenues through grid services. Grid services can be a very broad term. It can cover energy capacity. It can cover ancillary services. It can cover, obviously, selling of energy. But also there is increasing amount of interest from policymakers to make the customer system, as I discussed, and having a more hybrid decentralized and centralized versus 100% centralized to be more beneficial, to be stronger, to be more resilient and reliable for consumers. And so we anticipate seeing more value being associated with having distributed batteries at the endpoints of the system, specifically on our customers' homes.

Okay, great. And second, just kind of wondering if you could share your thoughts on when you look at your customer growth, how you think about that in terms of growing within your existing footprint versus perhaps expanding your geographics. Thank you.

You bet. We, as always, prioritize existing footprint growth because the densification drives our per-customer service costs down, which continue to drop this year per our plan, and we expect further drop next year and beyond as we continue to scale the business. So densification is really impactful for us. It increases our utilization rate of labor in the field, our service technicians, And basically, a big part of why we have a dealer model is increasing utilization rates for the labor everywhere. With that said, at some point in time, you continue your geographic expansion. We do expect to grow in more geographies in the coming year, and that will hopefully, as we've gotten much, much larger, we'll be able to deploy more customers in those new geographies faster, therefore increasing our utilization rate faster than we have previously. So we do find ourselves in a good spot to expand geographically. I would say that we probably would have done more. We would have done more this year in terms of geographic expansion, but the pandemic crisis got in the way, shall we say. And so I look forward to next year when we'll have quite a bit more geographic expansion, and therefore we'll see incrementally more growth than we've been seeing even today.

Your next question comes from Michael Weinstein of Credit Tree. Your line is open.

Hey, John. Good morning. Hey, Michael.

Good morning.

On the leases versus loans mix, are you seeing a pickup in loans mainly because of competition in leases? Is it a market share issue, or is it more that there's more of a general trend where people want loans rather than leases?

Yeah, no, we are not seeing a competition. I think everybody is doing – we've all got more than enough growth that we can probably handle respectively. I know that it's certainly everything we can do to keep up with the growth here. So I think everybody is, you know, so-called behaving themselves, and the market is rather stable. You look at our unit economics, our unlimited returns, they're very stable. Our fully burdened is, you know, is moving up as we scale the business and, again, scaling our sales overhead. So, no, I don't see any pricing pressure in the least PPA market. And that's interesting because the cost of capital, right, is really plummeting. But we still see, and I've said this, I think, to you and to a few others over the last couple of months, basically the industry's margins have expanded when you have the lower cost of capital and kept the least PPA pricing stable. I think it's simply just that we've become very big. And when you become very big, you must reflect what the market weighting is. And the market weighting is not 80% or 75%, rather, at least PPA, as you know, and 25% loan. It's more like the flip of that, the reciprocal of that. So I think it's simply just we're growing into being our size and growing into we've picked up significant market share, clearly, and we expect to continue to pick up significant market share. And having service in your loans and taking care of customers is what they want. I think that just makes sense. And when you start adding storage to it, they demand it. And so it goes from a simple putting panels on a roof to optimizing, again, creating a nanogrid on each customer's home. They're going to want a service provider. This is not a product sale anymore. It's a service sale. And what that means is that people increasingly, even with loans, want to say that, you know, sign up for a service contract. So they're coming in and picking up our product versus maybe some others in the marketplace.

All right, that makes sense. Do you think there's any sensitivity to tax credit extension? You know, let's say there's a fall off in demand next year because tax credits are extended and so people don't have to rush to get there. I don't know, do you think that could affect the mix?

It's possible. That's what I want to see. That's one of the things, many things that I want to see come Tuesday, what happens. And then we've got a scenario, multiple scenarios, depending on the outcomes on Tuesday, about what would happen with the ITC and, therefore, the mix of the business. The business is going to be, no matter who wins on Tuesday, the business will be fine. Do we have one preference over another? I think sure, and everybody knows what it is. for the obvious reason of ITC. So that is a fair point, and I am looking at that. I will tell you, Michael, I'm surprised that we didn't see more of an impact this year with a 4% drop from a 30 to a 26, and therefore at least PPA was advantaged. if you could save Harbor, which ourselves and three or other competitors, two or three other competitors did, as you know. And so I think it's possible you could see a swing back a little bit towards the end of next year. But the other thing is that you've got to balance is if you're truly not going to have an ITC extension for whatever, you're going to have a rush to get the loan to even at the 22% versus the 0% as you move into 2022, right? So at this point in time, There's just too many unknowns, and hopefully I'll have more information and be able to update post-Tuesday.

Given the emphasis on value per customer on slides 16 and 17, do you think you're moving more towards the company on that basis rather than just in general overall metric to look at? Is that the most important metric now, value per customer?

You know, I think I look at it personally. Just the way I look at things, Michael, is I look at a hybrid approach. And I think that gives a pretty good indication because it has what you have is a contracted cash flow and a value in terms of option value, as you put it. You can put renewal value in there as well, as you and many other analysts like to do. And we certainly are supportive of that. I think that's reasonable. But I think that's a long-term value. So what I look at is, you know, that $16 or $15.63 per share, I look at that as kind of bedrock value. Obviously, I believe the bedrock is quite a bit higher than that. I think, you know, frankly, I view the stock as pretty compelling personally in terms of valuation. But on adjusted EBITDA, it doesn't reflect the capital structure. I've always been upfront about that. It doesn't. But what it does tell you is are you getting operating leverage? And even with about a year lag on spending to growth, what it is showing very clearly is that we are. And so that I look at, you know, from my personal point of view is in how I run the business is I make sure that we're scaling the business. by essentially scaling adjusted EBITDA plus P&I faster than the customer growth, even with that lag impact, which is really compelling, and that we're scaling the recurring operational cash flow, the cash flow of the company even faster than the adjusted EBITDA plus P&I. which it is clearly doing. That's telling you that we're gaining more and more operating leverage, that we're making progress. And then I look at that NCCD per customer, and I'm saying, this is the amount of value or bedrock value that we're creating for the company's equity. So I think the answer here, and this is why we have all these metrics, is there's a balancing act here as far as the way to look at valuation and make sure that we're doing our job creating value for the shareholders.

One last question. As long as you're talking about recurring operating cash flow and recurring numbers, would it make sense to maybe exclude some of the investments you talked about, like the meters, anything that might be non-recurring, for instance, going forward?

We do believe it does make sense to exclude those. We just didn't want to be criticized for excluding a lot of different things. We already had some exclusions, and obviously we've laid them out very clearly. We don't have a lot of them, but we have some of them on the adjusted EBITDA calculation. So we didn't want to exclude it to try to play games. I think you know us. We're pretty direct in saying, you know, here's all the information. When we talk about cash flows, there's no expenses left out. There's no spending left out. What you see is what you get. But do I feel like it's... better to look at a trend in the way that I look at it, excluding the meters? Yes. Because like you said, they are, you know, one time in nature. And, you know, to get a better sense of the trend, I would exclude them. But I just, we don't want to do that just to make sure that we have the right culture and setting as far as being, you know, very direct and get every single expense out there for everybody like yourself to know.

All right. Thanks a lot, John.

Your next question comes from Mark Strauss of JP Morgan. The line is open.

Good morning. Thank you very much for taking our questions. Just a follow-up to Michael's question about the election. One of the things that Biden has targeted is a pretty dramatic increase in rooftop solar deployments. Just wanted to get your opinion on how workable you think a high-level plan like that is and how quickly or, just generally speaking, how Sanova might react if that plan comes to fruition. Yeah, certainly. Good morning, Mark. I think it's very workable. I think if you want to And I think we all do. We want to get this economy moving again. And I think what all of us know, being CEOs, is that the economy is not in great shape at all at this point in time. That's a fact. And we need more job growth. We need more people out there. And certainly being in Houston, the oil and gas industry is obviously hemorrhaging quite a bit because of the overcapacity in the marketplace. The shale oil and gas was way too expensive at the end of the day. And so we need to have policy that makes sense, that addresses the transition that is going to happen regardless of who wins on Tuesday. We need to have policy make sense to create jobs and do so very quickly. And we've got a very good track record in the industry to do this. And so when you look at, you know, what simple moves can be made by the Fed, by Congress and the President, to make these jobs show up, and they're good-paying jobs, they're great-paying jobs, by the way, is that you extend the ITC. Then we don't have to deal with all the safe harbor and equipment and machinations and spending and spending more money on interest to banks and such and all these other things. We can put that money in the pocket of the people where it belongs. So that's a very, very simple action to take. The other is to start having more and more accommodative policy that focuses on consumers, not monopolies, not big energy companies, big oil and such. Focus on what's right for the people and make sure that the lines of permitting, for instance, and that any sort of impediments to consumers having choice We hope they choose Sunova. We strive, and everybody at Sunova works so hard, including our dealers and our technology supplier partners and everybody else, to make sure that we earn their business. But the point here is that we feel like we must earn their business. And in the energy business, particularly in the power business, that's not the case. There's no choice there. So open things up. Give consumers choice. Create jobs. And the momentum and the wealth creation, the job creation that will be unleashed through residential solar, and obviously we're talking about so much more here that we've laid out with services, will be immense. So we're looking forward to it, regardless of who wins, to working with the Congress and the President next year to put these policies in place. Let's get moving. Let's get back to work. Sounds good. That's it for us. Thank you.

Your next question comes from the line of Philip Chen of Roth Capital Partners. The line is open.

Hey, guys. Thanks for taking my questions. How much do you think you could grow your dealer base in 21, John? Can you talk about the latest in terms of your dealer concentration now? At the time of the IPO, one dealer represented a substantial amount of your originations. So just kind of talk to us through where things stand now. And then in spite of exclusivity payments, can you talk through the risk that you could lose a top dealer and what that could look like? I know it's a low-probability type event, but I wanted to understand how you think through that and what your latest thinking is. Thanks.

Sure. Thanks, Bill. So the dealer and subdealer growth obviously is a lot higher than what we expected at the beginning of the year and, frankly, a lot higher than we expected even last earnings call. We don't see any abatement in that trend. If anything, we see an escalation in it. Why is that? As I laid out in my comments, we don't compete with them. We have the broadest product array out there. You want to come to a one-stop shop of leases, PPAs, loans, and we're mixing the contract financing types together, for instance, and do a you know, a solar-only lease and then upsell, you know, with a battery loan. Having that all on one platform is very helpful, and we create – we have a very powerful engine of creating new products that are interesting to various different, you know, segments in the marketplace of customers. And we have the best technology partners. I mean, Tesla, awesome, Generac, awesome, Enphase, and SolarEdge, awesome. So all these different things that come to the table when you think about this, if you're a contractor, we're the only place to go to get all this. If you want to not have somebody compete with you, if you want the broadest product rate, if you want the best technology available to you, you come to Sunova. And then last is we have a very stable capitalization strategy. We have long-term contracted cash flows that are now measured in the billions, regardless of discount rate. And that's extremely attractive to a lot of contractors that are coming on the dealer side. So we do expect this trend to continue to accelerate, not just the current trend. And I would say the fourth and first quarters I mentioned in the past are the times where most dealers, given the low point in the seasonality of origination, make a switch. And so we're excited to see what the next few months bring us. In terms of concentration, way different, way, way, way different. And let me be very clear. I highly value each and every dealer, especially those who have been with us for a long number of years. Some are personal friends of mine I would do anything for. I don't greatly value their contribution and greatly value their business relationship and friendship, and will do so for years to come. So hopefully that will never happen, but life events take place. People can't stay on earth forever and certainly won't work forever and need to enjoy the fruits of their labor and hopefully no bad events happen, which do happen in life with sickness and so forth. So it's about people at the end of the day. And when you look at the number and potential of loss of any one large dealer, Right now, we're pretty optimized for that in terms of being able to take it. Our concentration is significantly below 25%. It's closer to 20% and falling on any one dealer. And we do see opportunities for... many other dealers coming on board. So I see that further dropping over the next two quarters quite significantly. So we don't see that risk really being applicable to us much at all at this point in time. But, again, I want to stress, personally, very appreciative of each and every one of our dealers, their hard work, and their friendship.

Great. Shifting over to storage, you've had strong attach rates. Your very clear in the metrics on storage in terms of on a blended basis as well as with certain states. Can you give us a target for 21 and maybe even split it up between attach rates for new customers as well as retrofit?

Yeah, we don't have that, and I don't think we want to guide to that at this point in time, Phil. So, you know, what I would say is that, you know, the origination in terms of certain geographies, obviously if you have some geographies, as we've laid out, I think, you know, I know we are, at least to date, giving out way more information than anybody else in storage attachment, right? And when you have 100% attachment rates in some markets, if those markets happen to not generate as much origination that quarter or more than you expect that quarter, you can fluctuate quite wildly. We are very pleased to see other markets, and we're very focused on having other markets such that we laid out. Florida and California continue to move up. We're seeing a lot of traction in the Northeast, Mid-Atlantic. finally. And interestingly enough, we're seeing a lot of traction in Texas. I'm really surprised about how fast Texas is growing, not only in storage attachment rate, but also just anomaly with even solar only. So, you know, unfortunately, I'm not going to give you what you want, Phil, but hopefully, you know, I took a step forward here and gave you a breakout for at least the top few markets here in storage attachment rate. I do expect, and I wouldn't say, look, The numbers are working against us in terms of math. It's a lot harder to double 34% than it is, you know, 15%, right, or 11%. So I wouldn't expect that kind of move, and I've been very clear on that. But you will see quarter-to-quarter fluctuations in the attachment rate. But overall, we're simply selling a lot more batteries than expected to do so, both in new origination and future. in our existing base. We see a lot of interest in that, and we're gearing up and continuing to sell more and more to our existing customer base.

Great. That's helpful around the edges. But maybe I'll try it a different way. In terms of Puerto Rico, you guys have grown that geo really nicely. And so as you think about Puerto Rico through 2021, What kind of growth could that specific region give you?

You know, I think that that market's going to stay strong for us, but other markets stay strong for us as well. You know, I think that, you know, we've given out our growth guidance, and I don't want to start breaking it out by region. I've already got enough pressure on me, right, to make sure we continue to hit that for you guys and ladies. So, you know, I expect – I don't see why, if you're sitting in Puerto Rico and you can, you know, qualify for the service – I don't know why you don't sign up for it. It's pretty compelling, to say the least. It's a better energy service at a better price, full stop. And that's why I founded the company, was to deliver that for people all across the world. And Puerto Rico is a really important, great market, and everybody in Puerto Rico deserves a better energy service at a better price.

Great. Thanks, John. I'll pass it on.

Your next question comes from Julien Jimoulin-Smith of Bank of America. The line is open.

Hey, good morning, team. Thanks for the time. Thanks, Julien. Good morning. Hey, good morning. I wanted to follow up here. Can you talk about the labor dynamics out there? You know, obviously, we've seen commentary at times about this. It would seem as if the backdrop, as you say, with the economy seems to have certainly improved here in terms of labor availability, right, given the challenge economic backdrop. How does it play into your ability to execute with confidence on the even higher numbers on customer ads next year and And in light of the customer answer 21, what does that say about the trajectory thereafter at this point? And, again, I know I'm pressing for more, but since we can't try.

Yeah, that's okay. That's okay. You know, look, I think it's – I've seen some commentary out there that it's easier to grow a very large, dispersed labor force through this than otherwise with a smaller – a more fleet-footed base, if you will, of smaller dealers slash contractors. I haven't seen that. That doesn't make any sense. It makes more sense that you have that entrepreneur, that man or woman that can go out there and know enough people in that area and build up a contractor. Hopefully they become a dealer for us. And so I think those folks are really able to more optimize the labor market, if you will. And when labor was tight, remind everybody back last year and early part of this year before the pandemic crisis really fell upon us, We were blown and going, and our dealers were doing an awesome job, little, medium, and big. If you're running a big dealer, you've got a lot of management skill in hiring people. My hat's off to you because I've done that before. It's a hard job. What we expect is our dealers and what we're seeing are doing a fantastic job of making sure they get the labor in the door to match the increasing growth rate. On our side of things, we are advantaged by being in Houston, which is the most diverse city in the United States, by the way. And the labor pool and the talent here available to us at very effective rates is fantastic at this point in time. And we're hiring like crazy here. We're hiring IT people, accounting, legal people. finance, I mean, customer care, everybody. And we're hiring a lot of field service techs across the country as well. Some markets are tighter than others, Julian, as far as for those type of folks. But we're seeing a lot of good folks come into the industry. And that's my point is, We have done a great job as a company being where we're located, being our model with dealers, pulling people out of other industries, in some cases, yes, oil and gas, into our industry. And that's really what we need to do, not only ourselves but our competitors, is to continue to increase sales. the labor availability through training programs and others to get people to work in this industry. So, again, going back into answering another question that was previously asked, I see this as an enormous job creation opportunity for the United States and really encourage, more than encourage, you know, whoever wins on Tuesday to see this advantage, take advantage of the job creation potential, and let us put people back to work across the board. In 2022, I do feel like that we're going to continue to see a lot of momentum. And I do feel with all these additional services, there's so much more that we can sell. There's a lot of work we have to do in putting together and developing IT software. I mean, in many ways, we're a software company. The amount of money, and I'm assuming our competitors are the same way. They've made similar investments. remarks in the past. We're spending a lot of money on software development, integrating software. It's extremely complex to do. Think about adding all these different components, solar panels, smart inverters, ESS storage, gensets, fuel cells, load management, putting it all together and optimizing both for the customer and for grid services. That is really complex, takes a lot of software development, and it's something that's pretty unique, and it's hard to replicate. So I see just a lot more growth, not only, as I laid out, adding more dealers and subdealers and continuing that momentum growth into 2022, which we'll revisit on the 40% in the next quarterly update, and I think you can read through that. And then we're growing more on services upsell per customer in existing customer base, and we're selling more service per customer, which is why in some cases you see The cost that we – the amount of capital we deploy has been going up per customer. We see growth, growth, growth. That's what we're seeing. And so 2022 should be pretty fantastic.

Hey, quick technicality if I can. I know we're running a little late here. The meters, the $11 million going into next year, just to be clear, that is included in that EBITDA number, right? So that's kind of a one-time item if you think about it that runs through your cash flow and EBITDA metrics, right? Correct. Okay. All right. Sorry. I just wanted to call that up. Thank you. Thank you.

Your next question comes from . Your line is open.

Thanks for taking the question. Two quick questions both about the ITC. Let's suppose that There is no extension for the residential ICC beyond December of 21, so in which case, presumably, there will be demand pull-in by the end of 21. Why would there not be a decline in installations in 22 under this scenario, given what we've seen, for example, back in 2016 in a similar scenario? kind of pattern of events.

Yeah, thank you, Pavel. So the reason why we wouldn't see it is that the lease PPAs, the major service providers, the major residential solar and service providers, of which Sonoma is obviously one of them, have done a lot of safe harbor at the 30% ITC. We're obviously boiling through that inventory as our growth rates are accelerating, but we bought a lot. And I think there were some questions about that. Why did you buy a lot? Because we're growing really fast. That's why. We need it. And so I think that we would look at, and this is one of the things that Rob and I want to do, is sit around along with obviously the board, see what happens on Tuesday, and then make an assessment about what we need to do on further safe harbor for the 26% so that we can look at even further. out on the timeline, if you will. So that's first and foremost, the lease and PPA. You can save harbor so you can continue to go with a pretty nice tax credit all the way out to 2025 currently, if nothing else was done. And then on the loans, I think you actually see a lot of pull in next year. So it's counter to what you said because the 22% is going to be ending for loans, right, in 2022. So, you know, I think you'll actually see a huge year next year if nothing was done. If something is done, I think it actually levels itself out a little bit because there's not as much, you know, call to action, if you will, in the sale by the end of the next year as there is if nothing's done on the ITC. Does that make sense?

Yeah, well, and you're right. Obviously, we've got to wait until next Tuesday in part. My other question is the SEIA and the other renewable trade groups have been pushing since March, as I recall, to get the ITC to cover storage issues. that is not integrated with solar directly. If such enhancement to the ICC were to be enacted, would that do anything for your business specifically?

I think it's incrementally positive. Most people, in fact, obviously all people at this point in time, when they want storage, they'll go get solar because they want the, quote, fuel for the battery, right? And, in fact, what we're seeing, and I'm sure we're not alone in this, is that we're seeing a huge move to higher efficiency panels. because of storage, and we've seen a huge jump in terms of the wattage that's put on our customers' homes this year. And then we also see people wanting more panels put on their home. And so that was something that a couple of years ago when we started doing this, I guess two and a half, three years ago, We didn't anticipate, but that's another, you know, service and offering. We figured out how to blend, you know, with the contract or issue another one is to put more solar panels on. So, you know, I think that it would be predominantly, regardless of that extension or, I guess, having the ITC cover storage without solar. You know, most, the vast majority of people are going to want solar, but obviously, incrementally, it's positive for us if that were to take place.

All right. Thanks, John. Thank you.

Your next question comes from Kishi Harrison of Simons Energy. Your line is open.

Good morning, everyone. Thanks for taking my questions, and congratulations on hitting 100,000 customers earlier this month. Thank you. Thank you. So, John, just a follow-up question on Mick. You know, you talked about traversing or convergence with market trends in terms of mix between leases, PPAs, and loans. And so is your expectation as we move, you know, maybe beyond 2022 or beyond 2023, we should eventually start expecting the loan business to be something maybe closer to 70% from 40-ish today? Is that what you were getting at there? And then are there any implications to sources of financing for project development?

Yeah, I'll take the first question, maybe Rob will take the second one. You know, I think, you know, again, Chris, we need to see what happens on Tuesday to answer that question. You know, of everything, the mix, like I said, we'll be fine either way, depending on what happens on Tuesday. But, you know, the loan market will definitely be impacted if their ITC is not extended, right? Going from 22% ITC to zero, right? when the service providers, the large service providers like ourselves, have ITC and leased PPA of 30% or 26% or eventually maybe 22% and then permanent 10%, that's a huge valuation difference in value proposition for the customer, right? I can't give you a better, you know, I'm stepping out a little bit here to give a mixed forecast, but we needed to do it for guidance for next year and assume the current trend stays the same. But past 2021, That's really hard for us to do without having a better understanding about what the political environment is. But, again, we're going to be fine either way. You know, if we sell more leases and PPAs like we've done in the past versus this past quarter, you know, we're doing great. If we sell more loans like we did this past quarter than we have in the past, you know, we're doing great. So we're agnostic, and that is a unique position. for all the service providers. We're agnostic. If the customer wants a lease, awesome. If the customer wants a loan, awesome. You get the same great service from Sunova, regardless of how you want to finance the equipment.

And just on the financing side, we've got great relationships with our banks, with multiple tax equity providers, larger funds that are coming out, we've been able to be accommodated as well by our banks. As you can see, we just expanded our back levered facility for our leases and PPAs. For the loans, we've also had a lot of fantastic cooperation and opened a second loan facility as well. over this past quarter. So we've definitely got the capacity. And then getting back again into that regular cadence of securitization just allows us to continue reloading those facilities and give us a financing room that we need. And John's made this point a couple times, and I made it once myself, is that the cost of capital, again, it's not We continue to be an asset class where even at our absolute best pricing, we are still the best return for the risk. If you look at the default and delinquency rates in our industry versus other securitization industries, we still have the widest spread premium out there, but we continue to shrink it. We continue to get it tighter and tighter. And so we'll continue, we believe, to do well on the cost of capital side. And that then just allows us to continue, you know, pricing, securitizing, reloading, and making sure that we're set out there on the financing side.

That's very helpful. Thanks for responding to those questions. And then just my quick follow-up. Is there a long-term target in terms of market share or specific customers are under contract? before you start eventually transitioning towards a marked growth rate? So, for example, you're growing 55% next year, probably another robust year in 2022. Do you have a specific long-term customer target before you start transitioning towards something like a 15%, 20% growth rate? Hey, Kashi.

No, we don't. We don't focus on market share. We focus on cash flow, and we're going to continue to do that. Our business model is built to scale. you know, operating expenses and to scale very quickly and grow faster. So you should always expect us to grow faster than others that say, you know, don't have the dealer model, for instance. You know, with that said, obviously the law of numbers takes over at some point in time as a reference to the storage attachment rate side of things, right? But I don't know where that is, frankly. We certainly still have a very relatively low market share out there in the marketplace. I will say this. I do find that most investors think that this marketplace in terms of the residential solar and storage service providers is, quote, fragmented. It's not. It's actually fairly concentrated. Obviously, in the past quarter, it's gotten more concentrated. In terms of the number of players, it's a relatively small number. Do I think consolidation continues to occur in this space? Absolutely. Just look at the valuation differential between companies out there. We obviously are extremely, in my opinion, extremely compelling value out there in the equity marketplace. And I think consolidation continues to happen, so it's going to be a relatively small number of players. So I don't think that we've neared nor would we start to near a top-out point, if you will, just based on math on the market share. It's certainly not before, you know, 2022, 2023.

Got it. Thank you.

Thank you.

Your next question comes from Christopher Salber of D-Riding. Your line is open.

Hey, guys, thanks for taking the question. On the dealer network growth, which has been better than you expected, can you provide any color on what the mix of these folks looks like? Are they coming from some large competitors? Is it regional players or small independent teams that are kind of getting folded into the mix here?

Yeah, Chris, this is John. What I'll say is that there's a mixture. Some are rather large. Some are medium. Some are smaller. Some teams that go in the sub-dealers for our large wholesale dealers. So it is a mixture. Do we pull them from other competitors? Primarily, yes, but there's also more and more teams being formed out there. If you're an independent person and you've been doing a great job selling or doing a great job installing and so forth, you may want to team up with some of your colleagues and go out and start your own dealership with us. If you've got a track record, We'll happily invite you on board. We've got pretty strict protocols. It's hard to become a dealer at Sanova, but I think that's necessary and certainly gives all of our stakeholders, especially our customers, a lot of comfort. But we're seeing more and more dealers being formed all the time. And that's why we have our model. I mean, it's enabling the American entrepreneur. And there's no better people in our industry than the folks that own and operate and run our dealers. And so we're quite proud to have them and keep looking forward to welcoming more and more as the weeks move forward here.

That's helpful. And then you recently announced you're expanding storage in a few markets, Connecticut, Pennsylvania, Rhode Island. What is it that kind of fit the switch for these regions where you would start to start selling storage as well? And are these kind of key regions as far as the retrofit opportunity that you talked about doubling or how should we think about that?

Yeah, we've got a pretty broad, as I mentioned, we have sold storage now in 17 U.S. states and territories. We'll continue to broaden that out, as you mentioned, Chris. You know, the primary reason for that you just don't roll everything out at one time is it is actually a fairly heavy lift for any company to go out there and make sure you're properly licensed, make sure your dealers are properly licensed, make sure you have all the equipment. I mean, there's been Some supply shortages in the battery side of things, I think it's fairly well known. Starting around July this year, that continues. So you've got to line up your partners in that area. We're very proud of the relationship with Tesla, Generac, and others. And then you've got to train, help train your dealers on how to sell, which is a completely different sell, and then how to install. And so you do all that, make sure all your processes are working, your software is up to date, your accounting is all buckled up and working. That's actually a fairly heavy lift. It's not trivial to do it. And then you've got to make sure you have the service technicians in. out there because increasingly as consumers start to put on batteries, the idea that you can fix their system in a few months that's been the industry's norm, that becomes unacceptable, right? So if you're there and you want your battery there for when the lights go off because you've been shut off due to wildfires or you've got a hurricane that's raging, on your doorstep overhead or whatever, all this means that you want the power to be there. And so if something goes wrong and we can't fix it remotely, we've got to roll one of our, you know, awesome service technicians to go out there and get it fixed. And so, anyways, it's definitely not trivial to continue to grow geographically, but we're obviously filling it out, and we expect to have our storage service offering in all of our territories within the next few months.

That's good to hear. That's all I have. Thanks.

Thanks, Chris.

And your next question comes from Sophie Karp of KeyBank. Your line is open. Sophie Karp of KeyBank, your line is open. Okay. There are no further questions at this time. I'll turn the call back over to John Berger for closing remarks.

Thank you, everyone. We are very proud of the quarter we put, especially given all the challenges out there. And I just want to say again to all of the people at Sunova, you know, thank you very much for working so hard to make this happen. It's very impressive. Thank you to all of our dealers, those of you that have been with us for years, and those that have just joined us. You're awesome. You're the whole reason why we're successful, and we literally couldn't do it without you. Thank you to our technology partners. You know, a partnership is just a key part of the DNA here at Sanova. We don't believe that one company should rule the space and be out there making sure that customers get a better choice, a better energy service at a better price. residential solar and storage service. And, you know, we feel that the industry ought to be more collaborative, and, indeed, we take that to heart. You know, we are a great partner. We're not perfect, but we are a great partner out there, and we endeavor to bring more and more partnerships to bear to serve our customers better. And, you know, the highlights for the quarter, and I would say as I look out in the next quarter, this quarter, and into next year, and even beyond that into 2022, is we're growing. We're growing massively. There's three ways we're growing. We're growing by adding dealers and sub-dealers. We're growing by selling additional services. to our existing customers, and we're going by selling more services to our new customers. And we've laid out very clearly how we view that value. We're reducing our costs. We're increasing our margins on a per customer basis through scaling our fixed costs. And we're doing a fantastic job on that. Expect more of that in the coming quarters. And we're flowing more cash. We're seeing faster recurring operational cash flow generation. We see more opportunity for refinancings and even down the road potentially issuing a bond and doing a lot more to drive more and more cash flow to the company's equity. And, therefore, we've got a very, very good feeling about as we move forward into the next year and look forward to the next earnings call. Thank you all very much.

And this concludes today's conference call. Thank you for participating.