Sunnova Energy International Inc.

Good morning and welcome to Sunova's second quarter 2021 earnings conference call. Today's call is being recorded and we have allocated an hour for prepared remarks and question and answer. During the question and answer session, please limit yourselves to one question and one follow up. At this time, I would like to turn the conference over to Rodney McMinn, Vice President, Investor Relations at Sunova. Thank you. Please go ahead.

Rodney McMinn Thank you, operator. Before we begin, please note during today's call we will make forward-looking statements that are subject to various risks and uncertainties that are described in our slide presentation, earnings press release, and our 2020 Form 10-K. Please see those documents for additional information regarding those factors that may affect these forward-looking statements. Also, we will reference certain non-GAAP measures during today's call. please refer to the appendix of our presentation as well as the earnings press release for the appropriate GAAP to non-GAAP reconciliations and cautionary disclosures. On the call today are John Berger, Synovus Chairman and Chief Executive Officer, and Robert Lane, Executive Vice President and Chief Financial Officer. I will now turn the call over to John. Good morning, and thank you for joining us.

We are proud to report that the strong growth we experienced in our dealer network, customer account, and single customer margins in the first quarter carried through into the second quarter. Over the last several months, we have seen the residential solar industry enter a new phase of maturation and growth. And with it, the value proposition for customers has changed. Our industry was once solely focused on savings, and now it is driven by an acute customer focus on reliability and resiliency, as well as savings. This quarter, We continue to see improvements in many of our key financial metrics, specifically stronger than expected growth in adjusted EBITDA, the principal and interest we collect on solar loans, and our single customer implied spread or margin. Additionally, we experienced a decline in adjusted operating expense on a per customer basis of 23% over the past year. We expect this trend of declining adjusted operating expense per customer to continue over the coming quarters. On slide three, you'll see some of the details of the strong operational results where we further increased our customer base, battery attachment rate, and dealer network. We began the quarter on a high note with the timely closing of the SunStreet acquisition and finished the quarter by placing more solar systems into service during the month of June than in any other month in the company's history. As a result, our customer growth continues to accelerate With just over 46,000 customers added in the second quarter of 2021, with three months of SunStreet integration behind us, the rapid growth of our dealer network, and the expected launch of several new services later this year, we are increasing our expected year-over-year organic customer growth rate for 2022 from 40% to 50%. The combination of continued operational improvements An advantage from our increasing scale is setting SNOVA up for a strong 2022. We saw the continued instability of regional power grids increasingly push homeowners to seek out more reliable and resilient energy services. This resulted in a continued increase in our battery attachment rate and origination, which went from 23% in Q1 2021 to 28% in Q2 2021, even when accounting for the Sunova New Homes customers we acquired. On the subject of supply chain constraints and batteries, we have seen continued improvement in availability as expected. Much of this availability is being driven by increased competition amongst battery suppliers. However, given the dramatic increase in consumer demand for reliability in their power service, we are not certain if all constraints and batteries will be eliminated by late this year or if the relief comes early next year. Our success continues to be made possible thanks to the dedication of our 621 dealers and sub dealers and new home installers across our rapidly expanding service territory. Over the last year, we added nearly 400 dealers and sub dealers and new home installers, and we anticipate this count to be at or near 1000 by the end of 2022. Our brand visibility and value continues to grow. which over time will greatly contribute to both decreasing our customer acquisition costs and increasing our customer base, giving us further confidence in our future growth estimates. For the latter point on growth, we've increased our lead generation to our dealers by over 350% compared to last year. Lastly, on this slide, we've updated our information on customer contract life and expected cash inflows. As of June 30, 2021, The weighted average contract life remaining on our customer contracts equal 22.4 years, while the cash inflows we expect to receive over the next 12 months increased from $266 million in the previous quarter to $297 million. Turning to slide four, we provide a summary of our Q2 2021 financial results. These strong results are expected to strengthen even further in the coming quarters as the growth in adjusted EBITDA and the P&I from our solar loans trend higher than customer growth, especially once meter replacement spend ends and growth investment subsides. We believe our focus on service, as well as the upselling of hardware and the growth of aggregation services, such as grid services and microgrids, will result in an 80% increase in the value per customer as measured by adjusted EBITDA together with the principal and interest we receive on solar loans by 2025. As expected, our cash flow results improved materially from the prior quarter. Rob will discuss cash in greater detail later in the call, but it's worth noting that we continue to anticipate very large year-over-year growth in adjusted operating cash flow for full year 2021, and we expect to achieve a break-even midpoint on our recurring operating cash flow this year. Turning to slide five, it is clear that customers are now expecting a long-term energy service offering that is fast and intelligent. To meet this need, we're building out our end-to-end software platform, which contains capabilities such as quoting tools for dealers, predictive service analytics for customers, and grid services software for aggregation. we are seeing significant opportunities in grid services. To date, we have seven grid service programs in place with an estimated value of at least $45 million over the next 20 years and a pipeline with the potential for an additional $450 million in value. It should be noted that Sunova has the contractual right and obligation to the customer for both the service to the customer and any grid services in all of our contracts. Therefore, Sunova retains the ownership of the relationship with the customer for years to come. Our dedicated field service technicians and customer care team are increasingly providing higher quality service at a quicker pace to our growing customer base. The Sunova employed service team is focused on delivering unparalleled energy service quickly, accurately, and predictably as new technologies such as batteries, Load managers, electric vehicle chargers, and secondary generation enter the market. Service is becoming the crucial differentiator in the residential energy industry, and Sunova continues to position itself as the industry leader for service. I will now turn the call over to Rob.