Sunnova Energy International Inc.

Good morning and welcome to Sunova's second quarter 2022 earnings conference call. Today's call is being recorded and we have allocated an hour for prepared remarks and question and answer. At this time, I would like to turn the conference over to Rodney McMahon, Vice President, Investor Relations of Sunova. Thank you. Please go ahead.

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 2021 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, 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.

Sunova delivered solid second quarter results as we delivered where it counts the most. Growth was strong in revenue and adjusted EBITDA. We grew our quarterly fully burdened unlevered return by 50 basis points from the prior quarter, and we increased our net contracted customer value, or NCCV, during what is typically a light quarter for NCCB growth. Additionally, we saw both our adjusted operating expense on a per-customer basis and our customer default and delinquency rates decline. However, we did fall short of our expectations in customer additions, primarily due to delays in receiving permission to operate, or PTO, from some utilities that we believe were stressed due to high industry growth. We also collected less than expected unscheduled principal payments on our solar loans as the economic recession and the sudden spike in mortgage rates led to a significant decline in mortgage and mortgage refinancing activities. While missing these targets was frustrating, investors should consider these shortfalls to be timing-driven as we still expect to hit our 2022 customer additions target with a more back-end weighting, and we will ultimately still collect the principal owed to us over the terms of the solar loans. More importantly, we are able to reaffirm our 2022 guidance as well as our intermediate term major metric growth plan, the triple-double-triple plan, due to the following reasons. The large backlog of customers we have under contract but not yet placed in service. Sunova had its best quarter for sales in company history in the second quarter, creating a significant backlog of customers, which we expect to be placed in service by the end of the year. the increasing traction with upselling energy services to existing customers, the earning stability our long-term contracted cash flows generate that allow us to meet and in some cases exceed expectations for adjusted EBITDA and the interest payments we collect on solar loans, even when customer additions fall below expectations, and the robust demand we are seeing for our essential energy services even in the face of waning consumer confidence as homeowners seek an offset to rapidly rising energy costs. Slide four summarizes the growth in Synovus customers, battery attachment rate on origination, battery penetration, and dealer network. In the second quarter of 2022, we added approximately 17,300 customers, bringing our total customer count to 225,000 customers as of June 30, 2022, a 40% increase in cumulative customers from June 30, 2021. As I just noted, the delay in customer additions was primarily driven by slower than expected interconnection times in select utility areas, but was also impacted by battery deliveries scheduled to occur late in the second quarter moving into earlier in the third quarter, and accessory and service-only sales ramping later in the second quarter than initially anticipated. While these factors impacted the number of customers who placed in service in Q2, We still expect to fall within our guidance range of 85,000 to 89,000 customer additions for full year 2022. As anticipated, our battery attachment rate on origination increased in the second quarter of 2022 to 31%. More importantly, our battery penetration rate continues to grow and reach 14.2% as of June 30, 2022, inclusive of over 2,000 battery retrofits we have performed live to date. Our backlog of battery retrofit sales also grew materially in the second quarter. Our growth continues to be driven by our dealer network, which as of June 30, 2022, stood at 986 dealers, sub-dealers, and new homes installers, only a few dealers shy of our year-end target of 1,000. We expect our dealer growth to accelerate further as we move out of the current peak selling season. Finally, on slide four, we have updated our information on customer contract life and expected cash inflows. As of June 30, 2022, the weighted average contract life remaining on our customer contracts equaled 22.3 years, and expected cash inflows from those customers over the next 12 months increased to $432 million, an increase of 45% versus June 30, 2021. On slide five, we provide a summary of the broad and rapidly growing energy services we offer. centered around our vision of the Sanova Adaptive Home, which is increasingly being demanded by both current and new customers. When we discuss our goal of increasing the number of services sold on a per customer basis to seven by the end of 2025, these service offerings position Sanova to achieve that goal. We derive the number of services per customer by dividing the total number of unique service transactions by our cumulative customer base which as of the end of Q2 stood at 225,000. As you can see on slide five, we sold an average of 3.84 services per customer as of June 30, 2022, compared to 3.52 when we established this goal last year. In addition to growing our services per customer, we've also seen an increase in non-unique transactions. These non-unique transactions consist of up sales to our existing customer base. And while they do not increase our cumulative customer count, they will assist us in our ability to achieve our NCCV per share and services sold per customer targets included in the triple, double, triple plan. We currently offer 29 distinct services categorized here to both current and new customers. As technological advancements in our industry continue to accelerate, allowing us to create a margin-rich, integrated, and comprehensive energy service for our customers, We are increasingly called upon to expand the number of services we sell to meet our customers' demands as we move beyond just the solar panel. I will now hand the call over to Rob.

Thank you, John. Starting on slide seven, you will see the year-over-year improvement in our second quarter results. This includes a 121% increase in revenues, significant increases to both adjusted operating cash flow and recurring operating cash flow, and a 44% year-over-year increase in the adjusted EBITDA together with the principal and interest we collect on our solar loans. Our increase in revenue includes a change in how we have been sourcing some equipment for our dealers that resulted in $54.2 million in inventory sales revenue in the second quarter of 2022. Including that number, our revenue increase was 39%. While collections on solar loans increased from the same period last year, we had initially expected this increase to be even greater. As John noted earlier, we were anticipating a much higher level of principal payments from our customers during the quarter. This lag in payments was due to customers delaying unscheduled principal payments given rising interest rates, materially lower refinancings of mortgages, and overall concerns about the economy. Scheduled payments, however, were better than expected. and so we consider the unscheduled payments merely delayed, and thus there is no loss of cash value to Sunova. Furthermore, our second quarter 2022 adjusted operating expense per customer on a trailing 12-month basis declined by 7% compared to the first quarter of 2022, despite our continued strong investment in growth, an inflationary environment, and spending on the recently completed 5G meter replacement cycle. This was driven by our business continuing to scale and our focus on managing spending. Slide 8 summarizes our recent financing activity and liquidity position. The 2022 financing transactions completed to date include $167 million in tax equity funds and $653 million in asset-backed securitizations. While our June securitization priced at a yield above previous issuances, Even with that most recent print, our weighted average cost of debt at issuance remains well within the 400 basis points range at 4.15%. Our total liquidity as of June 30, 2022, was $482 million, down from $703 million as of March 31, 2022. This planned utilization of liquidity was partially driven by an acceleration of work in progress as we entered the strong sales portion of the calendar. Additionally, as investors recall, in August of last year, we issued the residential solar industry's first ever green bond. This issuance effectively pre-funded our balance sheet, allowing us to forego issuing any non-investment grade tranches in our next several securitizations to better match the earnings profile of our assets to our debt maturities. As such, our liquidity glide path is on target as we work through the pre-funding from the green bond. Included in these numbers are both our restricted and unrestricted cash, as well as the available collateralized liquidity we could draw upon from our tax equity and warehouse credit facilities. Given available unencumbered assets as of June 30, 2022, this available collateralized liquidity equaled $118 million. Beyond that, subject to available collateral, we had $470 million of additional capacity in our warehouses and open tax equity funds. That represents just over $950 million of liquidity available, exclusive of any additional tax equity funds, securitization closures, the cash value of our deep in the money interest rate swaps, or warehouse expansions planned later this year, including an expansion of our loan warehouse just last week. On slide nine, you will see our fully burdened unlevered returns on new origination was 9.2% as of June 30th, 2022. based on a trailing 12 months. While our returns remained flat from last quarter on a trailing 12 months basis due to lower returns in the second half of 2021, the fully burdened unlevered return for the three months ended June 30th, 2022 increased to 9.7%, an increase of 50 basis points compared to the three months ended March 31st, 2022. Since the beginning of the year, we have raised our returns by 100 basis points and we expect a further increase of 30 to 50 basis points in the third quarter. As we discussed on our last earnings call, high and rising utility rates have enabled us to raise our pricing on newly originated customers and thus allow us to offset our own increases in costs, specifically the higher cost of debt. Additionally, higher utility rates are driving even greater value to Sunofa on a per share basis by improving our customer payment performance. Currently, we are seeing just under 30 basis points in value loss from net defaults, a number that continues to decline while the market assumes this loss rate to be closer to 120 basis points. The spread between these two assumptions equals approximately $69 million or $0.60 per share every year and growing as we grow our contracted cash base and keep our value loss rate low. These price increases, together with the high growth of our industry, our increasing operating leverage, and our continued growth in additional energy services should keep margins wider in the near term and position the company to push our implied spread on a trailing 12 months back toward the 600 basis point range later this year. However, as we have noted before, we model a long-term average for our implied spread in the 500 basis point range to estimate our guidance targets. Slide 10 reflects the strong growth we have seen in both our gross contracted customer value, or GCCV, and NCCV. As of June 30, 2022, NCCV was $2.4 billion, discounted at 4%, an increase of 41% compared to June 30, 2021. Our June 30, 2022 NCCV at this discount rate equates to approximately $10,800 per customer, and $21.16 per share. At a 6% discount rate, our June 30, 2022 NCCV was $1.9 billion, or $16.64 per share, an increase of 48% since June 30, 2021. And our June 30, 2022 NCCV at a 5% discount rate was $2.1 billion, or $18.74 per share. These current per share values demonstrate that even at a higher discount rate, Sanova is receiving little to no credit for either its platform, customer optionality, or expected growth. Looking back further, our net contracted customer value on a per share basis is up approximately 60% since our IPO three years ago this week. Over these three years, this growth on a per share basis, regardless of discount rate used, has been accelerating, and we expect that trend to continue. Beginning on slide 12 through slide 14, you will find our detailed 2022 guidance, liquidity forecast, and our major metric growth plan, the triple-double-triple plan. There are no changes to these estimates as we remain on target as it relates to both our liquidity forecast and our overall guidance. Regarding the uncertainty around a potential investment tax credit extension, Neither SNOA's 2022 guidance nor the triple-double-triple plan are dependent on any extension as one was never included in our assumptions. As of June 30, 2022, over 95% and approximately 75% of the midpoints of our 2022 and 2023 targeted customer revenue and principal and interest we expect to collect on solar loans was locked in through existing customers as of that same day, respectively. As John mentioned, Our second quarter origination created a significant backlog of customers who have signed up for our services but are not included in our customer count as we do not count an originated customer in our cumulative customer count until they have been placed into service. While receiving permission to operate was slower than we would have preferred in Q2, we have seen PTOs start to free up in July, adding to our confidence that these originated customers will be interconnected in the coming months and thus added to our customer count before the end of the year. Finally, despite concerns about the housing market, our new homes business continues to generate new customers and take market share in key territories. I will now turn the call back over to John.

Thanks, Rob. As customer payment performance becomes more of a concern in less essential and more mature industries, Synova's performance has improved as our customer delinquency, default, and value loss rates are at an all-time company lows and continue to improve. We believe we are seeing this improvement because our customers are experiencing a level of energy savings greater than ever due to utility rates being significantly higher today than they were when their contracts were originated. This utility rate escalation not only further incentivizes our customers to prioritize paying their SNOVA bill, but also entices other homeowners to make the switch to solar and the many other energy services we offer. While regulatory debates, supply chain gridlock, and geopolitical tensions have created a steady stream of negative headlines that have weighed heavily on our equity valuation, these headlines have had little to no impact on Sonoba's operations, growth, or financial performance. Since we have had a more pessimistic view of the global economy for some time, including predicting a recession two earnings calls ago, We've taken certain steps over the past several quarters to prepare Sinova for the many challenges seen today. This includes raising significant liquidity in 2021, well before the recent interest rate hikes, blocking and matching debt for historical growth, keeping inventory on our balance sheet to provide a safety net for our dealers to meet unwavering demand, vetting and adding new equipment manufacturers to our approved vendor list to further insulate ourselves from equipment constraints as they arise, and finally, prioritizing service to ensure our customers remain happy paying customers who will engage us when ready to add new energy services. While some of the investment community have begun to question the outlook of our industry in both the near and midterm, we remain bullish due to the following reasons. We have a sizable backlog. As of today, we have originated all the customers needed to meet our 2022 customer additions guidance and have begun to originate for 2023. We expect hydrocarbon prices to stay relatively high despite a recession, which will therefore drive strong consumer demand for our energy services. We have demonstrated our pricing power in a material way and expect that ability to continue. We expect our cost of capital to slow its growth relative to rising utility rates or even decline in the near term as recession impacts the global economy. We expect our service offerings, global software platform, service capabilities and capacity and geographic growth to be more mature in 2023, providing us even greater earnings and cash flow growth. And we expect to continue the trend of decreasing our costs on a per customer basis, a trend that will escalate now with the completion of the 5G meter replacement cycle. Finally, it is difficult to ignore the recent wildfires, heat waves and flooding around the world, including record summer temperatures in our home state of Texas. To combat these challenges, the world is in desperate need of clean, resilient, and reliable energy more than ever. At Sunova, we are working diligently to bring solutions to the global energy crisis trifecta, energy affordability, energy security, and climate change by providing an unparalleled energy service to help homeowners gain true energy independence in the face of growing economic hardship and climate change realities. With that, operator, please open the line for questions.

Thank you. We will now start today's Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. I'm preparing to ask you a question. Please ensure your phone is unmuted locally. So our first question comes from Mark Strauss from JP Morgan. Your line is now open, Mark.

Yeah, good morning, everybody. Thanks very much for taking our questions. I do want to come back to the Senate bill here in a minute, but just real quick, any color that you can provide on your inventory sales to dealers, it looks like there was some benefit that you had in EBITDA in 2Q. How should we think about that going forward? And was that the EBITDA guidance that you had previously provided earlier this year, were those sales already baked into that outlook?

Yeah, that accounting treatment, sorry, hey, Mark, this is Rob. That accounting treatment was already baked into some of our assumptions. The bottom line is that we've been really focused on inventory, on supply chain, on making sure that our dealers get the absolute best pricing and making sure that they get the inventory in that they need in order to do their installs. We had previously, when we were in Safe Harbor, been contributing it directly. It was actually more costly for us to do that, both to our dealers and to us. By the changes that we made, it was more efficient for us to get the equipment to the dealers. And although we do pick up some margin in the process, and certainly that is beneficial and that is cash margin that we do, in fact, pick up, Really, this was always within the plan that we had for ourselves, and it was in our projections. And you've seen that there's other aspects and benefits to this, but the biggest one for us is that our dealers have inventory and supply at very good pricing that they're able to deploy quickly and get their systems installed.

Okay. Thanks, Rob. And then, John, just coming back to the bill in the Senate, I know it's still a bit early, but assuming that does pass, just kind of your initial thoughts, what you've seen so far, how this might be better or worse than some of the puts and ticks that we've seen over the last year or so from Build Back Better.

Yeah, Mark, this is John. Yeah, it was a pretty nice surprise, wasn't it? Certainly, you know, we thought that there was, as I've said publicly, we were, you know, optimistic, cautiously optimistic that something would happen here, maybe in extenders at the end of the year, kind of a worst case scenario. And then this came about. Obviously, this is a big bang for our industry in a material way. And What I would say is that as it's written now, and let me heavily qualify this, we've had my government affairs experts, lawyers, et cetera, combing through this obviously overnight. I'm sure that I'm wrong in some of the things that I'll say, but what I would say is that if you had to write a bill that was perfect for a company as a residential energy service provider like Sunova, this bill would be the perfect bill. And, you know, let me tell you why. First, the ITC extension, most importantly, and that was what 90% of what we wanted, is now done on a 10-year basis. It moves to a clean technology agnostic, which fits very well with the Sanova Adaptive Home on not just solar. And that gives investors a high degree of visibility that we frankly have lacked my entire career. The other is that the manufacturing credits are something that we obviously will never manufacture anything. We have partners that do that, but the tariffs, the wranglings of all the issues that we've had with regards to forced labor, seizures of cargoes, of panels, etc., All that is only going to be addressed on a long-term basis by bringing manufacturing back to the U.S. and those jobs. This does that. And then we have bonus investment tax credits on top of this. Looks like the top end for us on some of the things that we do and many more things that we have in the pipeline that we haven't disclosed publicly yet that could be as much as a 50% ITC there. There's some other things there. We're obviously a little bit involved in fuel cells, and so that was very helpful. And like I said, there's a lot of other growth initiatives that hadn't been public yet. They'll come out in the next few weeks and months that are being addressed in this bill as well. So, gosh, I hope it happens. I think it will. And this is beyond great for the industry.

Excellent. Thank you very much. Thank you.

Our next question comes from Philip Shen from Roth Capital. Your line is now open.

Hey, guys. Thanks for taking my questions. It's good news in terms of the bill here. As it relates to looking ahead to liquidity and you have your forecast through 2023, I was wondering if you could give us a little more color on how you were thinking about the $300 million for next year. Historically, John, I think you've talked about the green bond and just was wondering if you're still thinking about the $30 million in terms of green bond or if there might be some other sources that might be more likely to be tapped into. Thanks.

Hey, Phil, this is Rob. Thanks so much for asking the question. I mean, obviously, we've been talking about this for quite some time. We've clearly signaled to the market that by the first part of 2023, we would be looking to enhance our liquidity position. We really haven't made a decision as far as how we're going to end up doing that. We still have a number of options available. I know it probably doesn't help too much with your modeling, but certainly the debt markets are still very attractive to us. But what we want to do is make sure that whatever we do and whatever the timing is, it's the one that's going to be most beneficial to our shareholders. So we're going to continue to follow that path. Sorry not to give you too much more on there, but it's still the target. As you can see from the reiterated guidance, that's still what we perceive the needs to be. And on a go-forward basis, continuing along the trajectory and our anticipated growth path, we think that that's still the right number.

Great. Thanks, Rob. And then as a follow-up there, when you think about 2024, I know you haven't provided guidance or an outlook or even commentary yet, but as we get closer and you guys have a long term or an ability to view and have a view pretty far out, I was wondering if you could talk about whether or not after the $300 million, if you still think you will have exit velocity and not require any more corporate capital because the core business itself can generate enough of the capital needed for the incremental annual installations. And so do you think your ROCF can get you guys there? So I just wanted to see if that view is still there. Thanks.

Yeah, I appreciate the question, and it really is the right question. If you take a look at our business, there's two aspects of it. One is the recurring operating cash flow, and we are really hitting that exit velocity. And frankly, if we were to stop growing today, there would never be any need at all for anything else whatsoever. But at our current growth trajectory and where we see the growth for ourselves in the industry, we would assume that would be the case. Now, the only thing that would change that would be a very strong increase in growth because the only thing that this is funding is working capital. It's not funding operations. It's really just funding the fact that we continue to grow at a very high pace. And if we were to ever reach a sort of steady state of, let's call it the same number or a good modest increase in the 20, 25% growth or less, We don't think that we would ever need anything more, but if we start getting into some of this hyper growth we've been growing 100% or 85% second derivative growth year over year. That obviously creates working capital needs and the timing there and that's where the only reason why we've been out there in the market. In the past, for any sort of corporate capital otherwise. If you take a look at our business and our decision really in founding from over 10 years ago, the decision has been to hold on to our cash flows by and large. And because of doing that, we've been able to build up this big bank of cash flows. And as the tax equity reaches its flips and as we hit ARDs in our securitizations, That's when we expect the cash to really flow and to see even more realization of all that NCCB that we've spent time banking.

Great. Thank you, Rob, for that color. And just one last question, if I may, in terms of, you know, that's the long-term view. If we bring it more near-term and look at the next two quarters, you know, you have your first two-quarter customer additions, and, you know, John highlighted that earlier. you know, PTO and interconnections were taking a little bit of time. Things appeared to have accelerated, but that said, you know, you have a bigger number for customer additions in Q3 and Q4. What gives you the confidence that those interconnections will not slow down again, and what's the risk around the customer additions in the back half, and how do you think about that? Thanks.

Hey, Phil, this is John. I would say that July has been pretty good as far as the permission operates picking up speed. Some of the utility areas still have some issues with the overwhelming demand. Quite candidly, the utilities need to hire some more people to process and automate, which they are very slow to do being typical utilities. Some of our dealers have moved service territory several months ago because of some of those constraints. And so some of our composition of our work in progress or our backlog has changed up a bit over the last quarter or so. And so we feel that if you look at the sheer number and then the different services that are being offered, those are really taking off at this point in time. Unfortunately, it was just at the tail end of the second quarter. of last month. We've seen continued high growth in July, and we expect that all the way through. And those typically have very short durations as well. On the supply side of things, the batteries didn't quite come in like we wanted to in the last two weeks of June. Came in really the first three weeks of this month, and so we already have those batteries, and they're being deployed as we speak. So that was another mover there as well. There's a lot here in terms of growth, in terms of the backlog, the composition of that growth with regards to utilities, the additional services, that growth, and then just the supply chain continues to improve, particularly given what we've done in the past as evidenced by that billion one and inventory position that we talked about last quarter. All those are coming together to give us a pretty good degree of confidence that we'll hit this year. One thing that I know has been chattered about is Sanova New Homes, so the new homes market. I think it won't be surprised to anybody that we were quite bearish on the new homes market a year ago. I don't think that you can go into a recession with a white-hot housing market and expect that housing market to stay white-hot. And we've been very conservative yet again. As I know, some competitors count when you win a community that that is their work in progress. We do not do that. We only count a work in progress when the home breaks ground. And so that should give you further confidence that we not only have the new homes, we think, in a pretty decent shape regardless of the new homes market, housing market for this year, but we've already booked several thousand groundbreakings in for 2023 as of today as well. So we're looking forward to 2023 and quite candidly, I see a pretty big boom regardless of this bill in 23, even toyed with how do we think about maybe higher growth when we've laid out. But certainly with this bill, I think any growth forecast for 2023, certainly for us, I can speak for that, but I would think that the industry are absolutely going to be shredded. I think this is going to be a big boom time in our industry.

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

Our next question comes from Julian DeMulin Smith from Bank of America. Your line is now open.

Hey, team. Thank you and congratulations on all the successes here. Hopefully this comes together. Maybe just coming back to the spread and this implied spread we talked about, the unlevered versus the coffee debt. Can we talk about your pricing power, how you see that maintaining or improving unlevered returns? as to maintain your spread, right? So can we talk about sort of a forecasted view of that spread and what that pricing power is doing to it? I just want to, as I think about that 4%, you know, trailing here, weighted average cost of debt, where do you see that trending to? Obviously, that's going to be higher here. And how do you maintain that spread, or how do you think about that? Just if you can break apart the pieces. Obviously, there's a cost reduction element to this as well.

Yeah, Julian, this is John. So we've had a lot of, we moved early. We moved quite a bit more than everybody else has on pricing. I think that's pretty well known in the marketplace. And, you know, I think that that's the responsible thing to do. And so giving back a little bit of growth when we already had a very blistering record smashing Q2 as far as sales go and building a backlog. So it certainly didn't hurt us and we built quite a bit. of margin in those transactions and then on a forward basis. So I would tell you that, as we said today, our fully burdened unlevered returns are higher than that 9.7 that we printed for Q2 already. And so pretty much everything that we had planned for is already baked in. Now, that doesn't mean that as the cost of capital were to increase, from its recent over the last month decline since that asset-backed securitization we did back in June. We would take a look at that and continue to increase price and we feel quite confident we have that pricing power. We're confident that competitors are going to have to move in the next few days on pricing and that will further bolster the pricing power that we would have in the marketplace. Now, on the cost of capital side, there's a couple of things. One, we had some transactions that we'll be excited to announce in the not-too-distant future on lowering cost of capital that I think will be pretty interesting to investors. The second thing is if this bill does pass, if you look at the transferability of the credit, which I failed to mention earlier to Mark's question, that can't do anything but reduce the cost of tax equity, right? When you look at a lot of these different things, there's a likelihood that the cost of capital for us is going to at least marginally go down. And then when you look at where we sit on the asset-backed securitization market or even doing commercial bank debt, I would say that right now we're at least 50, 60 basis points wide or narrowed, sorry, tightened on the risk-free side. from when we had done our securitization. So we look at a weighted average between loans. That was lease PPA securitization we did, which trades wide of loan securitizations. It's pretty clear that we're already back into the high fours, if you will, of cost of capital here. So we'll see where this goes. I don't know where the bond market's going to go. I will say that it looks like we are now technically could be deemed in a recession, which very few people predicted. We obviously were a little bit ahead of that. And so we feel pretty strongly that our pricing power is going to continue to be high because energy prices are going to continue to be high relative to the economy. And the cost of capital, as we laid in and prepared in March, we think is probably going to marginally drop even from here. So all that together is that we feel pretty good about where we're trying to get back to our 600 basis point spread. And we feel pretty confident we can get there one way or the other, either drop in cost of capital or some further increases in pricing, or a combination of both.

Hey, John, just to clarify that super quick, as you think about the next couple of quarters here in particular, given sort of the delay in the dynamic of the timeline when you price something, when you install it, et cetera, do you think that you can get back that 6% over the next couple of quarters, or how do you think about that timeline playing out, you know, given the backlog and the higher cost versus the timeline to implement that higher pricing?

Yeah, much of our backlog, if not all of it, has already got much higher pricing in it. And so you'll see that come out as far as in a 12-month trailing basis. It'll be just math, right, Julian? So obviously all the origination that we do from now to the end of the year won't be securitized until next year. So it's something to take. That's why we've always looked at this on a trailing 12-month basis. I know I would too. I'd look at the front end of an ABS and see what that implied. you know, a trajectory of the cost of capital is, but at the same time, you know, there is a timing lag between when we originate and when we would securitize. Rob, do you have any more comments on that?

Yeah, I would also point out that, you know, so much of our competition that's out there who just originates and then sells almost immediately, they're a lot more impacted by this than we are. So if you see these sharp increases in that we had in the 10-year that really sort of peaked about a month or so ago, that impacted them a lot more, we believe, than it impacted us. For those that look at the ABS market, you're able to take a more long-term view, and you're also able to take the time to actually change some of the pricing. But the required returns, a lot of the buyers out there in the loan purchase and the whole loan market, have, those have gone up significantly. And what it means is that for anyone who did originate a loan with the purpose of actually selling it, and by the time that loan ends up getting into service, they could find themselves underwater on that. Given where we are in the market, given the fact that we've held on to those cash flows, we're in a much better position. And certainly we're not alone. There are others within the industry that have chosen to go with the ABS pathway. as well instead of just selling everything off. But I think that you're really going to see the benefits of the long-term discipline of staying and holding on to those cash flows really be reflected in those of us who have chosen to keep them.

All right. Fair enough. Thank you, guys. Good luck.

Thanks, Julie.

Our next question comes from Mahit Mandloy from Credit Suisse. Your line is now open.

Hey, good morning and congratulations on the bill. A lot of good work from you guys over there. Just quickly on the leases versus loans over here, PPS and leases versus loans. How should we think of that mix going forward? And for the multiple constructs here, but like as you're pushing higher prices, does it push dealers to go more towards loans versus leases? And how does this mix change if there's no direct pay end at the 25D in this proposal? Thanks.

Hey, Mahit. This is John. Yeah, we've actually seen a swing back towards, as they say, TPO leases, PPAs over the last few months. That's been stronger than I anticipated. And to be clear about it, we're agnostic. So You know, it's something that for us is, you know, fine. We'll take it either way. I will say as interest rates continue to move, what I believe to be a long-term secular inflationary problem, mainly caused by the structural issues with regards to energy and food exacerbated by the war in Europe. You know, I would say that, you know, you look at this and it is highly likely that even away from this bill, which I think does favor lease and PPA on a slight basis, right, as I laid out earlier, I think that you're going to see more and more leases and PPAs being sold versus loans. So I think we've definitely seen the loan, in my opinion, the top of the market share as far as that regards in terms of a split. I think maybe it topped out at 75% of the market or 80% of the market. I've never thought it would go beyond that. It's just math, and we're certainly seeing that trajectory on the way down. But again, we're agnostic to it. But I would say that if you look ahead, given everything, the environment, macro environment, interest rate, this proposed bill by Senator Manchin and Senator Schumer, I think you've got to come to be a lot more constructive on the growth of elite PPAs versus loans.

I appreciate that color. Not sure if this was touched upon, but just on your expectations on equipment supply, be it modules or batteries for later this year or next year, given logistics and UFLPA. Thanks.

Yeah, we're continuing to see the battery supply loosen up materially and a lot more choices out there in the marketplace. We've got fantastic partners in Tesla and Generac and SolarEdge and Enphase. We continue to see an improvement in the product itself, the ease of installation. Badri over at Enphase yesterday made that clear. He was very focused on that. I can second that. He definitely is, as well as the other gentlemen that run the key supplier partnerships with us. You know, I would say that the supply is only going to get better from here. Now, that also is relative to demand, right? So let's be clear about that. As demand really continues to outstrip even my expectations, you know, that there will always be a little bit of tightness in the marketplace, if not quite a bit, all the way through all different types of equipment. And on the panel side, we have taken steps to procure panels. We do have some equipment directly. and we've been facilitating, making sure our dealers are taken care of, and I feel very comfortable about the panel supply given the information I have right now as well. So we're in pretty good shape across the board as far as equipment goes. You know, maybe a little bit a few months or a couple of quarters longer in terms of how it took to get through the, quote, supply chain hell, but we're here now, and we're in pretty good shape.

Gotcha. Thanks for that.

Our next question comes from Ben Callow from Bard. Your line is now open.

Hey, good morning. Thanks for taking my question, guys. First, just robbing some houses. The 95-65%, did that have to do with the EBITDA? Were those percentages correct for the coverage for 22 and 23?

95% and 75%. It's EBITDA and P&I. Sorry, it is revenue and P&I is what we're looking at. But it does exclude revenue impacts from things like the inventory sales. So it's really the coverage of the recurring revenue from customers.

So revenue and P&I. Got it. And, John, could you just talk maybe because you're closing in on the 1,000 plus 1,000 dealership number early. Could you talk about maybe, you know, the progress there and then also just, you know, with the current, you know, economic environment, you know, the health of the dealers because I know they vary in size. And then finally just on that last on that front, could you talk about, you know, remind us on the level of this exclusivity that you have with the dealers? Thank you, guys.

Yeah, Ben. So first and foremost on the exclusivity, it's something that we continue to see a lot of dealers interested in, and we continue to sign more of those relationships up. I would say I could be a little off on this, but somewhere around 75%, 80% of our origination flows under exclusivity. So that's continued to be about where it has been over the last few years. We don't expect that to change. In terms of growth of dealers, that continues to be strong. We continue to add additional services, namely generators, load management, EV charging, and so those bring additional contractors into the fold, into the family, so to speak, and then we can help them be able to sell other things like solar and storage and so forth. There's a lot of the different channels, and it's a big key piece part of the company's growth plan to bring these different dealers to the platform that is Sunova and serve them the way that they want to be served. And so we see that the trajectory of dealer growth is going to continue to be strong. We will obviously blow past 1,000 by the end of the year, our set goal that we gave out last year. And in terms of the health of the dealers, you know, it's a tricky time. You've got to be careful. You've got to know what you're doing. Obviously, almost 10 years into this, just with this company, we know what we're doing. And we know how to be good partners. We know that you need to have the inventory there to take care of them because, you know, they've got payroll that's going out the door sometimes daily, certainly weekly. And if they don't have the equipment, that can chew up capital pretty quickly. You've got to stay on top of them. You can't just sit there and wire money and hope for the best. It's something that this is a partnership, and we've got to make sure that we understand what their needs are and what the customers are looking for and make sure that they're in good financial state. And they are across the board. We're pretty pleased with the health of our dealers. Again, we're going to stay vigilant on that. But at this point, we're quite confident in their financial health. And we're confident and continue to see small dealers become very large dealers. That's another continuing trend. It always warms my heart being the entrepreneur to see somebody come and have nothing and really build a multimillion-dollar business, and they can take that money home back to their families and so forth. And it's the American dream. And we're a big, proud sponsor of the American dream.

Thank you. Our next question comes from Sophie Karp from QBank. Your line is now open, Sophie.

Hi, good morning. Thank you for taking my question. Congrats on a solid quarter and the good news from Washington. Just a couple of questions for me. So you guys are talking about the backlog of interconnections with the utility, right? Is it possible to quantify, if not for utilities' inability to interconnect as fast as you want them to, what the customer additions would look like this quarter?

We've taken into account the elongated duration, Sophie, and I would tell you just under roughly around 27-28% of our backlog is already installed and in some cases been installed for weeks on end. We've got a pretty good idea about where things are. I would say that things would have to materially worsen from here to be in bad shape on the number, on the guidance range. And we don't see that. We see a slight improvement as we move forward in time. So the confidence there is that the WIP is frankly, as we would say, aged quite a bit. And so we're starting to get to the point where several months in, it's difficult to see that that would actually worsen materially from where we sit today.

Got it. And I'm just kind of curious, you know, one of the points that the industry has made in a long-standing debate about net metering and et cetera is that ultimately you don't have to interconnect with the utility, right, if you have storage. Is that something that... you might use, I guess, as a strategy to maybe in the future go around it, even where, I don't know, that may not be tariff-driven, I guess, but more of a speed to connect to make the system operational. Does that make sense?

Yes, it does make sense. We have used that in the past quite a bit and continue to do so. Love to expand it. Love to have an open market and capitalistic market where utilities have to provide great service. And I think that regulators should look very intently at that. Not providing speedy interconnection to consumers harms consumers in a period of rising energy and what is now obviously a recession. And so it harms the consumers that they're supposed to serve. And it's something that I think that regulators ought to take a look at as far as anti-competitive behavior as well. And so anything we can do as far as changing technology, if the regulators won't act or slow to act as they clearly are in many states and territories, we will certainly do that. There's a technological shift here that's pretty big and is getting bigger and bigger as the technology improves. And I would hope that the utilities can start to think about us as being more of a facilitating consumers as customers. But if they don't, then technology will fill the gap and we will need less and less of their services.

Thank you. And then one last one, if I may. I guess just maybe too early to answer definitively, but coming to this bill and assuming that it goes through unchanged, it seems like there's a little bit of everything in there. and these rebates for heat pumps, for example, for incentives for EVs, etc. What is the low-hanging fruit for you guys if this goes through, I guess, to add services? Would you be interested in heat pumps and integrating that into the whole energy management system or EV chargers? What's the most obvious next addition, I guess, as far as services go?

Yeah, we already have EV chargers, and we've got some things going on in the fuel cell area. Obviously, that's nascent. But the other thing is we do a lot of other accessories, roofing. Obviously, the necessity of having a new roof and a good idea there before you put solar is something that we've been promoting out there. It's better for consumers. And then when you look at something on the demand side of things, load management, we're already involved in that. And selling that to consumers, you need to ramp that up a lot more. And then when you start adding EVs, then you sell a lot more solar, right? We're seeing, again, we talked about last quarter, surprised me, and we continue to see this as additional contracts. We call them up-powerings when people want more solar, more inverters, more solar service to fill that EV up, if you will, and the batteries. Will we get more in the heat pump side and demand side? Most likely, yes. That's something as we're looking at wanting to not only manage the supply but the demand side of the customer, making sure everything is working and working well, particularly when they are off grid for whatever reason because they don't have a choice because of the lack of reliability of the grid that's increasing due to climate change issues, wildfires, flooding, et cetera, hurricanes. But whatever the case may be, those big loads are something that we've definitely been keeping our eye on and targeting. So don't be surprised if we get involved in that and to help our customers as well. Rob, do you have any comments?

Yeah, I would just say, Sophie, that this really dovetails into the Sunova Adaptive Home and the whole vision we've had as not just being merely a solar company, but our mission, powering energy independence. It's all about how do we take everything that we can offer out there and really use it to benefit the consumer.

Thank you. Thank you.

Our next question comes from Pavel Malkinov from Raymond James. Your line is now open.

Thanks for taking the question. You highlighted the ability to push through higher lease and PPA pricing. If we go back maybe 18 months before the inflationary spirals began, there was a common rule of thumb that 15 cents a kilowatt hour at the utility rate is kind of the threshold for where rooftop solar makes economic sense. With everything that's happened since then, what is that new threshold if there is one?

Hey, Pavel. It's John. Look, I've always thought my number was roughly about 13, 13.5 cents, but I don't think that we really quibble. I'm looking across the country, and so a place like Houston, Texas, for instance, we've gone from a market that was roughly around the 10, 12-cent range. Dallas is a little bit higher, as you're aware of. And now we are minimum, you know, 16 cents in these natural gas pricing, closer, I think, this week to 18, 20 cents. We see Houston as a fantastic market, one of the largest metropolitan areas, very, very low penetration. We're very, very bullish on these markets because of the material kilowatt hour rate movement driven by natural gas and coal pricing primarily. What I would say is that, you know, at this point, you're probably looking at something closer to 16 cents, you know, 15, 16 cents from my 13, 13 and a half. And so, you know, clearly we're there across the board, even in places that were used to be very low cost like Houston. So we're, again, as a data point, we talked about last quarter, but we see a very rapidly expanding geography as far as market base across the United States. And for the first time, I think this really sticks. We're going to see every state as a place where we can offer our services very profitably.

A lot of questions already on headlines out of Washington. I'll ask about a slightly different policy dynamic, which is California. There's presumably nothing happening before the midterms with net metering. But what's your expectation for California doing something after November?

I think that they'll do something that'll tilt towards the utilities. So I'm a broken record on this. This has been our position from day one. With that said, as the utility rates continue to skyrocket, particularly in California, and more and more spending, massive spending, is desired by the utilities there. That's going to push rates up even further. I don't know how Governor Newsom is going to do anything but at least pay attention to his consumers, his voters, and do the right thing. He's obviously a smart guy, smart politician, clearly wants to run for president, and I think we all know what his likely opponent, or at least one of them is, and we all know what Governor Newsom DeSantis did for the consumers and people of Florida. So I think there's a very strong possibility here that things end up very good for the consumers and therefore us in the state of California. The one thing I'll just leave with is my previous answer to your previous question is California will make up, I predict, in the next couple of years a smaller and smaller portion of our overall sales. just by definition as the geographies greatly expand due to the global energy crisis.

Thank you very much.

Thanks.

Our next question comes from David Peters from Wolf Research. Apologies, David's question has dropped off. So our next question comes from Sean Morgan from Evercore. Your line is now open, Sean.

Hey, guys. Hey, guys. I'll take it real short here. Just circling back to the inventory sales to dealers, can we just think of that as a one-time accounting change so that we had this pretty big spike quarter over quarter in sales and also the COGS, but this is really just a sort of one-time change that will not be sort of recurrent?

It's a change, but we expect it to be recurring. I mean, it's still a matter of how we're making sure that our dealers get their inventory. But the other thing I think to point out is we always point to the ROCF and the AOCF metrics as being really the best proxy for our actual cash flow. And these numbers, that margin is excluded from those. So we back that margin out. because it's a lot more related to how we view our returns on origination than it is on a recurring cash flow basis. So it's viewed much more as part of our sales rather than our service type of revenue. So you should expect to continue to see it, but when we really look at ROCF, it's not going to be an impact there.

Okay. Thanks, Rob. That's it for me. Thanks, Sean.

Our next question comes from David Peters from Wolf Research. Your line is now open, David.

Yeah. Hey, good morning. Question just on the OPEX on a per customer basis. You guys noted the 7% improvement on a trailing 12 despite inflationary pressures, the meter investments you made and so forth. Just wondering if you have a view where this settles out, I guess kind of the run rate, if you will.

Yeah, our long-term view from two, three years ago was that we were going to ultimately get to about 25% savings from where we had started from the end of 19 to the end of 22. We still feel very strongly that we'll get there. What we've really seen that's been very encouraging is that we've continued to see that scaling increase the investment and service really pay off for us so that the densification of our service areas, our ability to deploy our people, our investment in technology has all really been beneficial and continues to drive that down. So it's been a long-term mission, and we still look at ourselves as being well on target for that.

And I would also add there that despite some things in terms of growth efforts that we haven't disclosed yet and been public about, that spending that goes along there as well. So it's quite remarkable, to Rob's point, the amount of operating leverage this company is demonstrating. And as the company gets bigger and bigger and those growth initiatives are out there and they throw cash here, you know, next year or the year after, the years after, then that operating leverage is going to even increase more. So, you know, we're in really good shape as far as our long-term expectations with the company and reduction of cost despite the inflationary environment.

Thanks for that color. Just one last one, just to squeeze in. Wondering if you could expand on the new homes market just a bit. I think you said things are still strong there and even taking share in some key markets, but just I'm curious if you could clarify within the triple-double-triple plan, like what percentage of new customers you're expecting to come from the new home segment specifically?

About 15%. Okay. Thank you.

Our next question comes from Abshik Sinsa from Northland. Your line is now open.

Yeah, hi, good morning guys. So most of the questions have been answered. I just want to delve into the question that was asked last question on the COPEX per customer. If you could just provide a little more color like what exactly were the drivers? I know you're talking about technology, but exactly sort of see what are the main drivers in terms of what you guys are doing there.

This is Rob. I mean, I think when you take a look at it, where are we spending money and where are we really able to find, you know, what scales and what doesn't scale? So as we continue to deploy out into new markets and as we continue to have new customers, we're making investments both on the technology side and we're making investments on the side of customer service, both within the call centers and out in the field. Most of the rest of our business departments tend to scale with that, so we don't need to add necessarily more assets, personal assets or other assets onto that side of the business where we have found things that don't scale have been really in the construction and construction management, sales and sales management side of the business, which is why we have focused on the dealer model primarily. That scales very well for us as we continue to grow we don't have to add a bunch of additional layers of management there, which is from our experience where a lot of the diseconomies of scale can happen. So we're focusing a lot more on the service side where we do find economies of scale where even though we continue to have an open technology platform, our dealers who do have this, I'm sorry, our service folks who do have specific knowledge are able to deploy that knowledge across a more geographically concentrated base. And on other aspects of our business, we're able to add a lot more customers without necessarily adding a lot more expense, especially on the administrative side.

One thing I will add is culture. From the very beginning, when I founded this company, we wanted to make sure that we had everybody understand, particularly management, That it's not the management's money, it's the shareholder's money. Don't spend it. And I think that that culture is clearly still with us today.

Got it. And the other one is wondering if I could, can you provide some color on the termination side? So we saw like 193 terminations this quarter. Trying to see what's going on there. Anything specific about that?

Yeah, it's a good detail to catch. It caught my eye, too, quite frankly. And what I would say is that looking into it, there's a little bit of catch-up, so it's obviously immaterial by a long shot, but some calculation catch-up, if you will, from the first quarter. Secondly, there are some of these service-only contracts that may have dropped off. That's what it looks like to me after a little bit of digging anyway. We need to do a better job. I need to do a better job of going back to those customers and reconnecting, signing them up again because clearly they still value the service. And so I think I dropped the ball on that one a little bit. We'll pick that ball up and we'll fill that gap. If there's anything more than that, we'll certainly be up front and talk about that. But I think it's really just more of a calculation catch-up and a little bit better job we need to do as far as some of these service-only contracts we signed years ago coming due.

But I will also say that it goes to how strict we are in our definitions. We're counting a customer if they are someone with whom we have an ongoing service relationship and they're a paying customer. We're not just saying, hey, we sold you something five years ago, so therefore you're a customer. This isn't McDonald's, right? We're not saying that we've had billions and billions served. If you're in the restaurant and we're serving you, you're a customer.

Perfect, got it. Thank you, Mr. That's all I have. Thank you.

Our next question comes from Brian Lee from Goldman Sachs. Your line is now open, Brian.

Hi, thanks for taking the question. This is Grace on for Brian. I guess for my first question, going back to the inventory sales, I just wonder why are you changing the accounting and was the inventory that you bought in the quarter and so in the quarter or is this the previously held inventory now being sold? And did it help add some cash to your balance sheet this quarter? Thanks. And I have a follow-up.

Sure. So this is – it's not a change in the accounting. Accounting has basically been GAAP rules as long as it's been GAAP. It's been a change in how we've been moving the equipment to our dealers. So previously, especially with the Safe Harbor inventory that we had, what we were doing was putting it in a subsidiary and then contributing it directly down to the project. In this case, what we're doing is we're selling it to the dealer and then the dealer is putting it in their project. So it's a technicality, but it's one that the accountants insisted that we go ahead and make, so we went ahead and did that with the change in how we're deploying it. As far as the amount of inventory that we're bringing on, If you can look at the inventory levels, we basically started the quarter with $150 million of inventory at cost, and we ended the quarter with $150 million of inventory at cost. So we're keeping fairly consistent inventory levels just as a matter of how we're moving. And while it did certainly add cash net as we've been moving that inventory, again, we bring on two pieces onto the balance sheet. One is accounts receivable and the other is inventory. So as we see the accounts receivable move, that's obviously something that's going to have a lag effect there while we do some of the collections. But it really is, as far as we're concerned, something that, from an AR standpoint, probably that's the only thing that's one time really is sort of the boost in AR. We would expect that to be fairly consistent there. And then for the inventory, As we buy the inventory and as the AR gets paid off, we'd expect that to be matching up fairly well.

Okay, got it. Understood. I guess my second question on your guidance, you talked about like all these macro factors impacting your 2Q principal payments. So why are your principal payments stopped in 2Q but not changing the guide for 2022? Is there a risk to principal payments slowing down in the current environment? Thanks.

We would look at the principal payments as being something that certainly can flex, and we've seen it go up and down. Where the big piece is that we saw the unscheduled principal payments start to slow down, but we also have a big chunk of our unscheduled principal payments really weighted much more towards the second quarter than any other quarter, because that's when folks tend to get their income tax refunds, and that's what drives a lot of the unscheduled principal payment. The scheduled principal payments, as we said, were actually stronger than we had expected, and that's really a reflection of how much lower our default and delinquency rates have been. Look, we keep talking about how this is an essential service. This is not something consumers are looking as an option. It's something they need and it's more reliable and it's cheaper than what the utility is providing them. So this is the bill they're going to pay. They're going to pay this before they pay the car, the cell phone, the rent. It means that when we do end up in an environment that's potentially a recessionary environment and an inflationary environment, we do well. We are built for this type of environment. And so we would expect that the scheduled principal payments will remain strong, and we still expect to be able to come in within that guidance range as of right now.

Okay, got it. Thank you. I'll pass it on.

Our next question comes from Praneesh Sathish from Wells Fargo. Your line is now open.

Thanks. Good morning. So it looks like the battery attach rate moved up quite a bit in Q2. And I just want to clarify, are you still supply constrained at all on batteries or has supply caught up to demand? And then maybe as a follow up, any comments in terms of where the attach rate could trend in 2023 under NAM or this new climate package? I mean, it's been kind of hovering in this 20 to 30 percent range over the last few quarters. But is there a point where the attach rates just really kind of step change higher?

This is John. As I answered earlier, the supply situation of batteries continues to improve, and so I think that we find ourselves in pretty good shape as we sit here today relative to the demand that we see out there. In terms of demand changing and inflecting out of that 20-30% range, I do feel like that's still going to happen. We obviously need a more options out there that is happening for the marketplace in general. So more manufacturers producing more gear. We need a little, you know, some more price relative to the kilowatt hour rate. So the kilowatt hour rate moves up. More and more people are willing to go ahead and spend on the battery side because, frankly, the power is more valuable. They don't want to give it back to the utility for free, even under net metering. And they have more and more concerns on reliability, right? So as climate change bites down on the current antiquated infrastructure. So you look at Europe, you've got many countries over there, 80-plus percent attachment rates. I don't know why that wouldn't be the case here in the United States pretty soon. So we see very, very strong signs in looking at the economics that consumers are going to continue to gravitate to more and more batteries. Okay, I'll leave it there. Thank you.

Our next question comes from Antoine Orimond from Bank of America. Your line is now open.

Hey guys, good morning. Thanks for taking my question and congratulations on the very good quarter. I just have a question on the credit side. So as you reaffirm your triple, double, triple growth plan, I'm curious if you can talk about sort of the credit trajectory once you reach that goal. and any sort of like near-term and longer-term sort of credit aspirations that you may have?

Yeah, this is Rob. I mean, what I would say is that as we continue to grow the company, and we've held on to a lot of the cash flows, that the credit quality certainly, as you have seen, has continued to improve and will continue to improve. There are a number of things that we've done that have actually been very credit accretive, but as we continue to pay down our existing securitizations. That ends up being credit accretive. We expect, as we've shown, to see the continued growth in the ROCF. And that is a big piece of where a lot of the credit metrics really begin. And I would say that when we've talked to the rating agencies, the feedback has generally been positive. So we're continuing to stay very close to them, let them know sort of where our plans are. But generally speaking, I think you're seeing improving credit metrics. Certainly that's a lot of where my focus is and where John's focus is. It has to be good credit metrics, and we think that accrues to our shareholders as well. But we're very conscious of making sure that we satisfy the debt holders.

Very well. Thank you so much, guys.

That concludes the Q&A session on today's call. I will now refer you back to John Berger for further remarks.

Thank you, and thanks to everybody for joining us this morning. Obviously, a very exciting morning, given the news out of Washington. When we look ahead for the business, though, away from any action in Washington, we're very comfortable seeing for three reasons and very, in terms of interested as to where this whole thing will take us with regards to the strong planning, strong strategy, strong balance sheet that we've built. First and foremost is our match funding of debt. We've locked in spreads that I think are really not appreciated for years and years to come with the asset-backed securitization market built over several years, and that spread is locked in. The second thing is the value of losses. The terminations of the contracts and so forth that were expected previously and still expected in the marketplace are far, far and away way too conservative and we are actually generating a faster pay down of debt, a faster pay down of tax equity, and faster cash flow to shareholders than expected. And lastly, energy prices are rising faster than the overall economic growth and we do see that, Taryn, unfortunately continuing. We see a global crisis in energy. the energy crisis trifecta, if you will, and we continue to see that this business will continue to boom. And then lastly, finishing on the news out of Washington yesterday afternoon, a step in the right direction, great policy for not only the United States but the world. We applaud it and we look forward to having a just really big bang in the industry and looking ahead to growth that would be substantially stripped of any expectations we've had previously So we're very bullish on even more so after yesterday afternoon. Look forward to joining you on the next quarter call. Hopefully after that bill is passed and looking forward to giving you more updates on the future of Sunova. Thank you for joining us.

That concludes today's call. You may now disconnect your lines.