Sunnova Energy International Inc. (NOVA) on Q3 2021 Results - Earnings Call Transcript

Operator: Good morning, and welcome to Sunnova’s Third Quarter 2021 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 now like to turn the conference over to Rodney McMahan, Vice President of Investor Relations. Please go ahead, sir. Rodney McMahan: 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, Sunnova’s Chairman and Chief Executive Officer and Robert Lane, Executive Vice President and Chief Financial Officer. I will now turn the call over to John. John Berger: Good morning and thank you for joining us. Today I am pleased to report another quarter of strong results, to reaffirm our 2021 guidance, and to officially initiate our 2022 guidance. Slide 3 summarizes the growth in Sunnova’s customers, battery attachment, and dealer network. In the third quarter, we added over 14,000 customers, double the number added in the same quarter last year. This growth is notable not just for its magnitude, but for the optionality it creates. Each new customer Sunnova adds presents the opportunity for additional revenues in the future as we continue to broaden our service offerings. Sunnova’s battery attachment rate on origination now stands at 30%, up from 19% in the fourth quarter of 2020. Improved equipment availability has contributed to this steady improvement in our battery attachment rate. We are encouraged by the progress our equipment partners have made in delivering energy storage systems over the past several weeks and months, which has helped alleviate supply chain constraints. This is great news for the ever-increasing number of homeowners seeking reliable power service. Our growth remains powered by over 700 dealers, sub-dealers, and new homes installers strategically located across the 33 U.S. states and territories. Our dealer growth is driven by the strength of Sunnova’s business model, our best-in-class technology platform, and our brand’s growing ability to deliver strong lead generation to our dealers. Lastly, on this slide we have updated our information on customer contract life and expected cash inflows. As of September 30, 2021, the weighted average contract life remaining on our customer contracts equaled 22.4 years and expected cash inflows over the next 12 months has increased to $330 million. On Slide 4, we provide a summary of our Q3 2021 financial results. Adjusted EBITDA, the principal and interest we collect on solar loans, adjusted operating cash flow, and recurring operating cash flow. Our financial results have shown strong growth over the past three years and as I will discuss later in the call, we expect that trend to continue. Slide 5 outlines our unique and unparalleled service commitment to customers. Launching first in select key markets, we have established a goal well beyond that of any other residential energy service provider. To provide service within 72 hours for our solar-only customers and within 24 hours for our solar plus storage customers. This responsiveness, when combined with the resilience of our storage product offering, amounts to a superior energy experience for customers who are frustrated with the increasing cost and decreasing reliability they experience with a monopoly power provider. We will accomplish this goal by accelerating the build-out of our software platform, continuing to build up our highly experienced and professionally managed service team, and continuously improve our logistics capabilities. This unprecedented service commitment will allow us to provide our customers with the power to live life uninterrupted. In time, it is our goal for the Sunnova name to be synonymous with the best energy service in the world. Slide 6 illustrates our expansive, customer-centric vision for the future, the Sunnova Adaptive Home. With the Adaptive Home our customers will have the option when it comes to staying connected to the centralized grid or not, an option many are already seeking in the wake of increased power outages and the rising cost of centralized power. We are working to achieve a service offering above what a traditional utility can provide. A service offering that integrates solar power, battery storage, possible secondary generation, electric vehicle charging, and energy control and management technologies which will give consumers unparalleled energy reliability and capabilities for their homes. What will further differentiate Sunnova will be our ability to integrate multiple technologies from multiple manufacturers into a single software and service interface. Our vision for increased customer touchpoints and engagement impacts our forward-looking outlook, which is increasingly more constructive on growth. Slide 7 updates expected growth in both net contracted customer value or NCCV and services provided on a per customer basis. Currently we provide an average of 3.5 services per customer, which equates to approximately $10,000 of NCCV generated per customer. We anticipate both metrics to increase over time as it is only natural the number of services per customer and the NCCV from those services increases as the technology and costs continue to improve. We estimate by 2025 we will be providing an average of seven services per customer. This, in turn, should increase the amount of NCCV per customer into the range of $18,000 to $20,000 of NCCV. Last quarter, we noted we are seeing significant opportunities in grid services. To date, we have 10 grid service programs in place with an estimated value of at least $67 million over the next 20 years, and a pipeline with the potential for an additional $445 million in value. Turning to Slide 8, we are unveiling our intermediate term major metric growth plan. We have dubbed this the Triple-Double Triple Plan. This plan consists of the following, a doubling of our estimated year-end 2021 customer count by year-end 2023; a doubling of our estimated year-end 2021 NCCV per share by year-end 2023; a doubling of our estimated year-end 2021 services sold per customer by year-end 2025; and a tripling of our estimated 2021 full-year adjusted EBITDA together with the principal and interest we collect on solar loans for full-year 2023. Our expectation is that our plan will assist shareholders in understanding how management anticipates creating value for shareholders over the coming quarters. I will now hand the call over to Rob. Rob Lane Thank you, John. Turning to Slide 10, you will see the continued improvement in our third quarter results over the past few years. Q3 2021 revenues are up 88% from Q3 2019, while over the same period adjusted EBITDA and the principal and interest received on solar loans increased by 58% and over 200%, respectively. Slide 11 contains both our gross contracted customer value, or GCCV and NCCV, discounted at 4%. As the slide reflects, we are experiencing significant increases to these metrics. In just three years time NCCV went from $892 million as of September 30, 2018 to $1.8 billion as of September 30, 2021. Overall, we deem 4% a conservative cost of capital as we continue to incur an incremental fully burdened cost of capital of 2.8% or less for our growth. Given our operations are generating flat to positive recurring cash flow, inclusive of our legacy securitizations and their heavy debt amortization profile, it is clear that our NCCV per share, as measured by a 4% discount, should naturally increase over time even if our treasury bill reference rates increase. Slide 12 summarizes our recent financing activity and liquidity position. Just this week, we closed our fourth securitization of the year. This loan securitization was our third loan securitization of 2021, and like the three issuances that proceeded it, was structured to include only investment grade tranches of debt. As a reminder, investment grade-only securitizations are less punitive in their amortization than those that include high-yield tranches. This approach to generating long-lived, recurring cash flows gives us strong visibility into our expected financial performance over the next several years. This capitalization strategy also gives Sunnova an advantage in the cost of capital in our industry, which aids us in capturing the full spread, resulting in Sunnova generating some of the highest margins in the industry. Our total liquidity as of September 30, 2021 was $951 million, up from $629 million on June 30, 2021, and up from $212 million on September 30, 2020. 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 September 30, 2021, this available collateralized liquidity equaled $431 million on September 30, 2021. Beyond that, subject to available collateral, we have $578 million of additional capacity in our warehouses and open tax equity funds. That represents over $1.5 billion of liquidity available exclusive of any additional tax equity funds or securitization closures. Turning to Slide 13, we have updated our forecasted sources and uses of cash for 2021 through 2023. In addition to the takeaways from last quarter, keen-eyed investors will note that while our capital commitments have increased somewhat, so has our expected debt utilization, which is reflective of the strong reception we have received in the ABS markets in our most recent transactions. This, in turn, has decreased our expected corporate capital requirements for 2023. Again, our options for capital in 2023 are numerous. These include issuing another bullet-maturity bond, serviceretained asset sales now that we have the critical mass of cash flows and assets have appreciated, refinancing of older securitizations, and incremental thickening of investment grade tranches of our securitizations. On Slide 14 you will see our fully burdened unlevered return on new origination remained at 9.4% as of September 30, 2021, based on a trailing 12 months, while our weighted average cost of debt was 2.8%. This resulted in a trailing 12 months implied spread of 6.6% as of September 30, 2021. On Slide 16, you will see our guidance ranges remain unchanged for 2021 and then on Slide 17, you will find our guidance ranges for 2022 which are customer additions of 83,000 to 87,000. Adjusted EBITDA of $117 million to $137 million. Principal payments received from solar loans, net of amounts recorded in revenue of $134 million to $154 million. Interest received from solar loans of $45 million to $55 million. Adjusted Operating cash flows of $143 million to $153 million. Recurring operating cash flow of $39 million to $59 million. Please note the midpoints of adjusted EBITDA together with the interest and principal we collect on solar loans and customer additions are in line with how we guided investors in previous earnings calls. This includes a forecasted year-over-year increase of 80% in full-year adjusted EBITDA together with the interest and principal we collect on solar loans and a year-over-year increase of approximately 50% in organic customer additions. I should also note that we expect to have at least 75% of the midpoint of our 2022 targeted revenue and principal and interest collected from solar loans locked in through existing customers as of December 31, 2021. I will now turn the call back over to John. John Berger: Thanks, Rob. This could not be a more opportune time for our industry, especially for service providers like Sunnova. What was once often seen as an "install and forget" product sale, dealing only in solar panels and a single inverter, has now become an evolving energy service offering that contains an increasing number of pieces of equipment made by a growing number of manufacturers. Over time, this increasingly complex energy system will demand a level of service that is well beyond what our nascent industry currently provides, especially when juxtaposed with an ever-increasing consumer demand for higher energy reliability. Financing and software are enablers for this new energy service and we now have enough financial and operational scale in these areas to drive forward our long-term vision for service. Our service response goals are ambitious, but we see what the future of service must be for our industry to truly flourish, and we are well on our way to delivering on these goals. At Sunnova, we are here to provide our customers with an energy service unlike anything they have experienced with traditional or new energy providers. And with the climate crisis on our front doorsteps, we are proud to be able to provide our customers with an energy solution that not only provides them with the ability to live life uninterrupted, but to also be a part of solving the biggest crisis facing our world today – climate change. With that, operator, please open the line for questions. Operator: Your first question comes from the line of Philip Shen with Roth Capital Partners. Philip Shen: Hi everyone. Thank you for taking my questions. On your unit economics slide, was wondering what you thought and how you thought the unit economics might trend ahead. We’re hearing about resi module pricing already reaching mid $0.50 life for January delivery for example, and contracts are now having structured based on an index to input costs like glass, aluminum, poly and freights. And so as just the friction and everything continues to increase, how do you expect that 6.6 implied spread that trend through 2022? John Berger: Hey Phil, this John. Thank you. We’ve – Rob and I constantly said that the unlevered returns were very, very strong and the spread of nearing 700 basis points is a bit high. And we expect that to compress over time. To date and currently as we sit here today, that has not happened and obviously that’s good news. I do think it has a lot. I know it has a lot to do with the fact that, because we have a balance sheet because we take in a capitalization strategy that’s much more, much different than anybody else out there that we compete with. Our cost of capital is very low. I mean, it’s pretty clear when you look at all the numbers and comparative. So, right now we’re seeing that spread maintain, you’ll notice that the Q3 unlevered returns about 9.3, obviously a 0.1 or even something double or triple that it doesn’t really matter in the grand scheme of things. But we continue to see quite strong spreads. The cost of capital, we do expect to drift downwards and you can – we’ve got some pretty good visibility and that is just recently closing that securitization. We think the investment grade attachment points are going to continue to rise. We think that our cost of corporate debt it’s definitely traded up right after our issuance. It’s only been a couple of months. We continue to see that that’s going to come down quite substantially. And then we see our costs scaling in terms of dropping our overall cost stack, because remember these are fully burdened numbers. So I think that we’re quite likely to see this spread relatively maintained as you move forward into 2022. And indeed, as we sell more services, a lot of these services such as service only and so forth have 50% gross margins in it. So they’re quite profitable for us. Some are more profitable than others. But we expect the spread to hang in here if you will as you move into 2022. Philip Shen: That’s great, John, thank you. You talked about your cost of capital going down and the potential for that to go down into more and on the previous slide, the liquidity forecast slide, we see – and saw some changes in 2023 that went in your favor, notably that the amount of borrowings have gone up or the – $50.5 billion. And then I think the cost in the new systems also went up from $3.5 billion to $3.6 billion. And so you see that this net change in cash go down, is there a scenario where we could see that go from negative to positive in 2023 as your cost of capital goes down? And can you talk us through why some of those lines, especially at $3.5 billion to $3.6 billion in new systems went up? Thanks. Robert Lane: Yes, this is Rob. So a lot of why that is going up is, one, we’re seeing customers opt in for more and more services. As you know, we just released yesterday our partnership with ChargePoint and we’ve seen a lot more – a big increase in battery attachment. I think the new home market, which was a market that we were probably expecting not to adopt batteries as fast. It’s been a great deal of interest there as well. So I think what you’re really seeing there Phil is the average ticket rise. It’s not that the cost, the unitary costs themselves are rising. But then on the on the funding side, we’ve been able to go a little deeper into the investment grade part of the securitization stack picking up anywhere from about 2% to 5% more in some cases actually even maybe a little bit more, we haven’t really tried – we are seeing what’s going to happen on the TPO side yet, but on the loan side, we’ve been able to pick up more advance even as we have been going with lower APRs on our loans. So it’s been moving actually in the opposite direction that we had initially anticipated. But as we mentioned in the prepared remarks are also a number of other things tools that we have at our disposal to be able to postpone the use of any corporate capital. And again, as we continue to drive those efforts, we’re actually seeing a lot of potential daylight on the number, which would mean that we would first turn towards a new corporate debt when we’re looking at that financing aspect. But I think that it’s probably going to be prudent to continue to look at new corporate debt. It’s just that our need and the timing of our need is continues to be pushed out. Philip Shen: Great. Thanks for that detail. And then one last thing, as it relates to your 2022 guide, you mentioned in your prepared remarks that you might hit 75% of your 2022 guide as of December. When do you think you hit a 100% of your guide? I mean, we probably see it in Q1 or maybe Q2 at the latest next year? John Berger: Historically, the trend has been very consistent and the higher the growth that you projected in the next year, it’s just a law of numbers or math, right? So – but, we might get as high as 80% going into the year of our projected cash inflows. So I would say that you’re right probably by early Q3, we should be nearing a 100%. I mean, there’ll be something like 98%, 99% would be my guess based on past history. But things are very, very predictable. The only thing that we manage is the rate of growth, which right now is pretty heavy. In fact, I would say that as we look into 2022, there are a number of partnerships. We, Rob mention of the partnership, which we’re very excited about with ChargePoint. There’s a lot to go on there and we could talk about that later. But there’s more coming on the partnership side and they’re eminent and they’re big. And I would say that we’re very, very constructive on growth. But we’re also the only ones that give guidance at this early as you know, most give it in March of next year. So we’ll have that opportunity to have a few more months here and get those partnerships underneath us and execute and look to see where our growth comes out after that. But I do expect to beat this growth profile that we laid out and it’s already very, very aggressive. So I would expect as you move forward in 2023, we’ll see even bigger increases in cash flow and adjusted EBITDA plus P&I. Philip Shen: Great. We’ll look forward to that. Thanks very much. I’ll pass it on. John Berger: Thanks. Operator: Your next question comes from the line of Ben Kallo with Baird. Ben Kallo: Hey, good morning. Congrats. Just maybe John you started talking about partnerships, you did the home depot deal in the ChargePoint, maybe talked about home depot and we used to think about that as like one of the highest customer acquisition, but how’s that changed, and then ChargePoint, then I had two followups. John Berger: Yes, sure. Hi, Ben. You’re right. The retail scores are your – typically your highest customer acquisition channel. The way that we do our business, so is that we’re focused on our dealers, our partners, and that we’re working with them. And when you look at the way that we’ve constructed, those returns are actually fairly even with our other origination. So this is mostly, I think that the dealers decided that they want the additional growth and candidly, they’re paying a little bit more to acquire those leads that we generate for them with home depot. So there, it’s pretty well down the fairway. This is the right way to do it. And in my mind it was early days of my first solar company with the home depot, and now we’re back and it really excited and feel really fortunate to be with them. So we’ve got to execute on that. But the returns are quite nice. On ChargePoint, I think this is really, it’s very interesting. We’ve got what we feel is a excellent partner. They’ve got a – I think a great business model and in a space that has a lot of charging companies and solutions as you know, neither company has an exclusivity on one of the other, I think that’s the right way to do things here, especially in the nascent industry. But we’re – it’s not only equipment. I think a lot of folks focus on that. We’re putting a charger in for homeowners who are increasingly demanding that that’s a given we’re going to do that, and they have really good equipment. But really what we’re also looking for is selling more the service, solar service storage and so forth, so more equipment, and that it generates a bigger returns for us. But the really interesting thing is we’re going to plug into our network into ChargePoint, and we’re going to be able to provide energy to our customers when they travel away from home. And so this is going to be – Sunnova is going to be your power provider, energy provider not only at your home, but away from home. And I think it’s going to be this really fascinating when we are able to put all the pieces together here and get this launched out next year. It’s going to be really something special for our customer base. And we think it will actually drive more and more customers to Sunnova as well. So we’re pretty, we’re very excited about this partnership. Ben Kallo: I think in your remarks in the deck, the services comes up quite a bit, maybe more than a dozen times. And so I don’t know if there’s a way to help us understand what the different types of services are and how important this is, but it seems it’s pretty important because you’re highlighting either? John Berger: Yes. That’s a good eye on that. Yes. I mean, we see ourselves is from the founding of the company as a service provider. And we see financing as an enabler. We see software as an enabler. We’re big on both obviously make great money on the financing side. But we’re all about providing that service and having that customer for what effectively is life, but for the most part 25 plus years, and as we add batteries and we knew this because we’re early days in places like Puerto Rico and other island markets in the Pacific. You can easily see where people start to go. This is very complex. This is a power that I need to have on no matter what happens. And you need to have a totally different experience, not unlike what and it has to be the same or better than what you experienced with your monopoly power provider, right. So when the power goes down, you expect them to be out, five minutes ago. And that’s something that we’ve been working towards for a long time. We finally have the ability to given the scale of our operations and the density of our customer base. The software platform and then the people and the logistics capability to be able to deliver this kind of service. And to give you an idea about how important this response time is and how different it is from the marketplace. We’re aiming for 24 hours within 24 hours for battery and solar customers and 72 hours with solar only. Right now, we’re roughly in about a couple of weeks sometimes less than that timeframe that we got a little ways to go, but we’re confident we can get there. The rest of the industry is like 60 days or 180 days to never. And so there’s a wide gulf and response time out there. We think that needs to be closed tremendously obviously, and get something more commensurate with what you would see out of home security, satellite cable, television cellular, et cetera. So we’re on the forefront of this. And we’re driving towards that point. In the meantime, the number of services you’ve heard on some of the equipment manufacturers calls, and you will hear on the ones coming up that there is a tremendous amount of new pieces of equipment more energy storage systems, more load managers, the EV charger, the case in point, the charge point relationship generators, et cetera. There’s a lot to be added here with services and upselling customers. And so we’ve laid that out quite clearly. We roughly about $10,000, which is inclusive of all of our sensory customers, that income with cash flows of NCCB, which is a PD4, we’re borrowing capital fully loaded at 2.8. And we feel very strongly, there was a lot of value to be added there and we’ve shot it down the fairway and said, if we doubled from 3.5 services to seven services by 2025, which we see doable that we should pick up about another $9,000 per customer on a midpoint. So somewhere between $18,000 and $20,000 by that timeframe. And so it’s another way to value in the company’s equity, if you will, and looking at the breakup value of NCCB per share, but then adding the option by of the number of times, the number of customers we have and then expect to hold us accountable for executing against that option value. Are we upselling batteries? Are we upselling EV chargers? Are we upselling generators, load managers, et cetera? And I think, I am confident what you’ll see as we go into 2022, we’re going to be doing all that. And then some so, a lot of value out there in the services and a lot of value in being responsive to the customer with service. Ben Kallo: Thank you for that. My last one, just NCCB total going up I think per customer is ticked down just maybe the last two quarters, but the one should we see it tick back up with all this stuff you have good going on? Thank you. John Berger: Yes. That is priming a cash flows mainly in a tax equity, but also in some of the other fund flows. And I’ll let Rob comment on that just a second. We’re – I think the right way to look at as a NCCB per share because obviously investors are buying shares, but we do expect to see the NCCB per customer tick up over the next few quarters, particularly as we get into 2022. If it does not, then that means the customer additions are smoking the projections for us in there, more on the single services and some of the other services that we’re launching out that we have yet to announce. But we do expect that NCCB customer to – per customer to be ticking up for what I just laid out particularly as we upsell batteries. So one thing I want to make it very clear is we have not upsold our existing customer referring to any batteries in this year, and that is simply because of a lack of battery availability that is materially changing now. I mean, materially, so we’re already starting to engage and upsell our existing customers batteries, and we’ll be celebrating that tremendously as we go into 2022, expanding that the new home business where we have not sold – upsold a single battery yet. So it’s definitely going to move up on a per customer basis as we upsell batteries, all of the things being equal. Rob, you want to talk about? Robert Lane: Yes. And I think John sort of really hit on a number of points there and I won’t rehash too much of it. But remember that the last two quarters were the first two quarters that we added the SunStreet customers. And so those customers did bring down the average ticket size on a NCCD per customer basis mostly because they’re just smaller systems. And as John said, fewer services, because just everything there is, it’s just a solar but to John’s point we’re making the turn right there as well to get those systems larger to add more services to those systems. So that’s one big catalyst, but the second one without getting too much into the sausage making is just really the timing of our whip pile. So the way that we’re showing the NCCD is that as we put our assets and the construction to progress, we’re carrying those at costs. As soon as we put them into service, we get the uplift of the actual value of the system itself. And given our trajectory, we would expect that to be a significant uplift in the fourth quarter. And it mainly has to do with the fact of the supply chain on the batteries, unlockings, we’re putting in those really high value systems into service in the fourth quarter. And at the same time, we’re leasing the remaining tax equity on those systems, which really all just sort of is accretive to cash, because we’ve been carrying it this entire time. Ben Kallo: Thanks guys. John Berger: Thanks, Ben. Operator: Your next question comes from the line of Brian Lee with Goldman Sachs. Brian Lee: Hey guys. Good morning. Thanks for taking the questions. Appreciate all the NCCD color here. Maybe thinking longer term, this – the triple double framework, which is new. I think you’re going to end the year at 200,000 customers. So to double that you’re implying about 35% to 40% more growth in customers and 23 off the 22 guide you just gave. So quite robust growth even in the out year, but then you’re talking about tripling the EBITDA plus P&I. So that’s implying the metric grows close to 80% in 2022 based on the guidance and then another 70 in 2023. So I think this has to do with NCCD, but can you kind of bridge the gap a little bit as to where some of that additional leverage is coming in, even in the out here, you’re talking about $10,000 today, where does that number get to in the interim and what are kind of the pieces in the next 12 months to 24 months? I know you’re talking about 19 K midpoint by 2025, but what are you sort of embedding in the 2023 numbers? Robert Lane: Yes, Brian, we’re – what we’re seeing is an increased amount of operating leverage, despite the fact that we’re obviously investing, spending money to launch out new grid services, new lines of business, bring on new partnerships and an overall not only increase our growth rate in terms of the number of customers, but the number of services sold per customer, right. So these are all heavy lifts and at the same time, delivering a better service experience, which has been baked into our cost structure. So that what that shows you quite simply is I’ve always said is what you want to see. Do you want to see adjusted EBITDA plus P&I grow faster than your growth rate of your customer base eventually. So our challenge has been in the near term, is that growing off a small base and not having as much operating leverage by definition, but having a high growth rate, we’ve been challenged in that a little bit. We’ve been close to basically break even, or a little south of that as we get bigger and move forward. Then again, the law of math starts to help us and a lot of numbers rather. And so we can gain a tremendous amount of operating leverage. And that’s what we’re highlighting for you all is that we’re seeing it. We know we’re going to experience it, and this is exactly what you should expect it out of us. So if we grow at a less of a rate on adjusted EBITDA plus P&I, then you should expect to see a heck of a lot more and profitable growth, the number of customers and services so per customer. But right now it’s pretty growth. Again, if there’s any biases, definitely to the upside on that growth rate, but we feel very good about the adjusted EBITDA plus P&I growing faster in the customer base. And quite frankly we’re seeing, the growth that we have and going back to the unit economics and so forth is extremely profitable growth and that’s again reflected in the adjusted EBITDA plus P&I. Brian Lee: But I guess to dig into that a little bit more granularly though, if you’re talking about the unit economics having leverage over the next couple of years. I know that the target model out to 2025 is pretty well laid out, but the $10,000 you’re at today on NCCD if I look at some of the bridges you’ve provided to get to the 19 K over time. Let’s say half of your customers are doing storage and energy management by the time you get to 2023, that would imply 2 K more per customer. So you’re at 12 K right after that, but any just sort of color as to where you think you’ll be able to see the most amount of sort of I guess, materialization of some of these bridges to get to the 19 K by the time you’re out in 23, is a 10 K going to go to 14 before we get to the 19, just trying to get a sense for how quickly you think you’ll start to see some of these move into the customer unit economics over the next one to two years? John Berger: Yes, I think it’s fairly linear, but there’s a lot of variables to it. So if we can launch out some of these other services and add them be more successful, and some of these technologies are rather early days, right, like load manager. Then I think that we can have a little bit more of a higher slope on that escalation towards that upper number. But the storage side, I would say looking at internally we think that by 2025, our storage attachment and penetration rate will move up by a factor of six, so 60% or so. We see strong uptake on the storage side of things. So I think obviously that’s first and foremost is how do you execute on up selling customers storage. I think another one that’s pretty interesting is we’re seeing a lot of demand for EV charging. That’s not a big needle mover, but the service that we talked about in a way, I think that could be pretty interesting margin wise and therefore NCCD, certainly recurring cash flow. And then some of these others, like generators and so forth, we see a strong demand for the generators too. So and additional upsell of more panels, more inverters, et cetera, as particularly as people do get EVs. We’re seeing that accelerate. So and more fuel to fuel up the battery, if you will for backup power. We’re seeing that. So there’s a lot in here, but I think that if you were to draw a gradual linear line from this period to the end of 2025, I think that’s not a bad assumption. And remember, as you move forward in time, you’re discounting at a 4%, but our cost of capital is really 2.8 and we’re paying the debt off at a fairly rapid rate. So that’s something else to remember is that we’ll be naturally accretive as you move forward in time and recognize that Delta in between the discount rate and the actual cost of capital falls out in cash flow, right, and calls our cash to the equity. So that’s another thing. And so in Rob’s prepared remarks, he talked about that is naturally you should expect NCCB per share to and therefore per customer large part as well to increase over time, even if we did nothing. Brian Lee: All right. Fair enough. I appreciate all that additional color. Last one for me and I’ll pass it on. Yes, I’m kind of surprised on the third color. And we’re talking about supply chain this late into the call. Maybe because John, you started off the call talking about the supply chain being better for you. Can you maybe get into a bit more detail? It sounded like batteries, you’re feeling better about what’s happening there. That’s giving you more confidence. And then maybe also just your status on inverters and separately on solar panels. How much of that 2022 growth from a supply perspective, I know from a demand perspective, you see high visibility, but from a supply perspective, how much of that is de-risk, how far out do you have supply visibility? And then obviously a lot of focus around where you’re getting panels these days just given all the different geopolitics out there. So can you kind of level set us as to how much of your panel supply is not coming from Southeast Asia today and then how much higher you think that makes could go overtime? Thanks guys. John Berger: Yes, sure. Yes, I needed supply chain was going to be a big topic. So thanks, Brian. Look, I’ll divide things up to panels, inverters and ESS is. And when you look first and foremost at the panel, there’s obvious a lot of shall we say political intervention here, or government intervention, every one to phrase it, that’s causing a lot of chaos and pushing up prices artificially in United States. We’ve been moving as our storage attachment rates been moved up. We’re continuing to see more and more customers want the higher wattage panels, which typically don’t come out of China or Southeast Asia. And so is the dominant number or members of the family we buy from panels from are non-Chinese. If it’s not, if we buy any from China at this point in time, which I don’t think is a bad to be clear about it. But that is a fact just given the WRO, the countervailing duty issue, the 201, et cetera. So if we’re increasingly looking pretty good going now it’s starting to look into towards Q2 on that front. We feel pretty confident. We’ve got some, like I said, panel secured just in case our dealers foot fault on some of the deliveries that they were expecting or should have procured. We’re making, we’re on top of our dealers working with them and helping them to secure those panels. So we feel pretty good about the panel situation. It’s clearly tight. We’re meeting just, meeting demand as an industry, but given the political intervention, but we feel pretty good about where we sit. On the inverter side, we continue to see more and more real strongly well managed firms come in and compete. And we’ve got a number of providers that are going to be providing ESS with their own inverters in it. And that’s going to have a dynamic impact on the inverter market by definition. And so, the lot last one, you go into the energy storage systems and we’re seeing an increasing amount of availability. It’s literally been every two weeks. We’re seeing more deliveries hit our warehouses and when hit our dealer’s warehouses. And we continue to see a significant improvement in those delivery schedules as we move forward. I do think that’ll be normalized, increasing it looks like it will happen in Q1 at the latest, I think Q2 borrowing any sort of significant unforeseen supply chain issues, which it would have to be really significant given how messed up things are globally, but we see a rapidly improving deliverability on energy storage, particularly the big player and a couple of the biggest players. I would go as far to say that we are seeing those equipment providers who increase costs or try to raise price currently, they will start to lose market share. So there is not a huge amount of stickiness on price. There’s more and more availability. There’s more qualified competitors that we’re looking for to buy their inverters, their ESSs. So there’s a loosening up in the equipment side that I think is pretty significant, particularly as we get into Q1 and Q2 next year. Brian Lee: All right. Thanks a lot, guys. Operator: Your next question comes from the line of Julien Dumoulin-Smith with Bank of America Merrill Lynch. Julien Dumoulin-Smith: Hey, good morning team. Thanks so much for the time. Congratulations on all the continued progress really nicely done on the follow through here on forward-looking guidance. Perhaps just to kick things off real quickly here, can you elaborate a little bit on the pipeline as you say of opportunities and services? Can you elaborate a little bit on what those are that sort of comprised that 400 million plus that you talked about a second ago? John Berger: Are you talking about the grid services, Julien? Julien Dumoulin-Smith: Yes, exactly. John Berger: Well, we can’t break those programs out. That’s competitive intelligence we are bidding on, so we are trying to get visibility to you and everyone else about, hey, what are we working on, right. So what can you expect? I got to say, I’m pleasantly surprised in a big way of how much progress we’ve made on grid services and how many contracts we’ve locked up. I mean, 67 million I think is up there, especially the number of contracts at 10. I never thought we’d be in this spot. And then I’m looking ahead more and more programs are coming our way. And we’re seeing a lot more profitability as far as the dollars that are associated with these programs. So I can’t break them out and for competitive reasons, but I’m trying to do everything I can to give you a window into what we’re working on and what kind of money is associated with that. So and hopefully we’ll have big wins. Julien Dumoulin-Smith: And indeed John, maybe an idea to ask it this way, what percent of your customers, does that represent i.e. is that fully monetizing your customers or what portion do you think at this point, does that represent i.e. how much of a further upside is there to more fully maximize that opportunity? John Berger: I see, I’d say that’s probably representative, it’s roughly about 50% or so maybe 60% of our customer base. I would also point out that most of these are capacity services. And so we have the ability to upsell, ancillary services and in some cases, energy as well. So I think that there’s more grid services on top of this. And then we start looking into microgrids and getting that moving, which I don’t expect to have material movement there next year. But the following year, I think that we’ll have something more to add there on the microgrid front, but I think that’s my best estimate I can give you right now. Julien it’s probably 50%, 60% is covered by what we’ve already done, and then what we have in the backlog. Julien Dumoulin-Smith: Got it. And just to clarify this a little bit, what you’re implying for fourth quarter customer additions, off this 14K, it almost seems like you’re implying something like 20,000 customers in the fourth quarter. It’s a nice step of any nuances to what’s driving the big quarter-on-quarter dynamic. And then if you can just specify, I know there’s a few different small nuances. What is that specific baseline for the customer account here going into 2023, if you will? John Berger: Yes. It’s about 20,500. And the last question I’ll go ahead and answer that. I, think it’s just a little south of 200,000, I think a 197,500 somewhere in there, 198,000. So that’s what we expect, look first to say it is, yeah. It’s one heck of a climb. And we got our work cut out for us now, we’re seeing good visibility in that we have the customers, we have the backlog we’ll take into next year. Right now we have just south of 1.1 billion of contracts in the backlog at cost. So we’ve got the contracts what’s held us up is a couple of things, mainly the batteries, which we’re seeing accelerated delivery schedule already. We expect to see more of that delivery schedule accelerate in . And so that’s going to source of customers that we didn’t have in Q2 and Q3. The other is, is that the new homes business, I think people are underestimating. And it’s because we talked about having roughly about 12,000 a year, that business continues to grow. So it’s a little bit more than a thousand a month. In some cases, moving towards 1500 a month expectations, and the new homes business has been challenged by all the supply chain issues, as far as closeouts of the new homes. And you can’t book those customers until those homes are closed out and sold to the customers. So that’s been a delay from Q3 into Q4 as well. So we got the reasons and we got we feel like we were in pretty good shape on both of those in terms of improvement given the supply chain improvements. But we’ll be working all the way up to December 31st to hit that number. And but we’re working hard at it. We’ve got the contracts, we’ve got the supply chain where we want it. Now we just got to get the work done and get it through the utility system to get the permission to operate and register the customer. Julien Dumoulin-Smith: Awesome. I wish you the best of luck. Speak to you guys soon. John Berger: Thanks, Julien. Operator: Your next question comes from the line of Maheep Mandloi with Credit Suisse. Maheep Mandloi: Hey, good morning. And thanks for taking questions here. Congratulations on the progress here as well. John, maybe just talking about the 2023 guidance over here. If we kind of look at the customer growth that kind of implies probably around 20%, 25% increase in new customer adds in 2023 versus 2022. So just want to understand what’s driving that growth and is the expectation that the market growth somewhat similar in line with that growth. And how should we think about the mix of loans and leases and that? John Berger: So I think the growth implied growth rates a little bit higher than that Maheep for 23, obviously that’s a little ways out there, but let me give you some more color, as you look at what we’ve been originating for the last couple of quarters, and then you look at my answer on this Q4 and this quarter to Julien’s question just prior, you basically multiply that times four, you get it pretty close to our range, right? If not in the range exactly that we’ve laid out for growth for next year. So as we’re looking forward, and we’re seeing a number of these partnerships, The Home Depot, ChargePoint, we got more coming that’s imminent and just the general growth, our improvement in our technology platform. We’re picking up more dealers, the number of services sold per customer and so forth. I think we’ve done a pretty good job of being fairly conservative moving off of growth a number of customers from 2022 to 2023. So simply put, that’s not in nominal terms, a huge increase in number of customers from 2022 to 2023. So again, if there’s any bias and there is, it would be to the upside of these growth projections on both the number of customers and the services sold per customer. Maheep Mandloi: Got it. But fair to say, it’s more kind of in line with your expectations for the market at this time? Or do you think the market is slower than that? John Berger: No. I think it’s in line. I think we’ve telegraphed I think quite nicely, we’ve laid out even sources and uses of cash two years out, which I don’t think anybody – I know nobody else does. And so we’re trying to get more visibility out to everybody on what we’re seeing out there. Look again, I reference this earlier, no else gives guidance for 2022 this early and it really is early as you know, going across the year. So this is where we feel comfortable at this point in time. Candidly, right now the stock is in our opinion, if you look at – if you double NCCV per share measured on a PD4 within two years, and I’ve already got the next two quarters by the end of the year booked up in terms of contract backflow or back – sorry, whip going into 2022. That means that we’re really just kind of looking about roughly 18 months or so, right, of growth. And so we’ve got a high degree of predictability and what I would say is that right now, we felt like, hey, look, their share prices needs to start reflecting that we can move something into the kind of low to mid 30s of essentially breakup value within the next 24 months. We think that’s pretty cheap. But that’s for the market to decide. But yeah, right now this is where we sit and this is where we laid out for folks and we’ll update on the Q4 call. And the bias is definitely to the upside. On your loan question, we continue to see consumers take more loans. We see that to be roughly volatile, it continues to move up. When I say volatile, on a week by week, day by day basis. And we can – as you look forward to the policy, which we hadn’t had a question yet, there’s a possibility given the refundability we think is a high degree of chance of getting done and the reconciliation bill, there’s a possibility that can move more leases and PPAs. I know there’s a good argument on the other side of that. But that’s something to pay attention and watch. And what I would also point out is that on Page 33 of the deck, we’ve laid out for the first time and no one else does this again what our discount is on the loans that we get. So for those of you who don’t want to just look at principle and say, that’s return of capital, no, we’ve been clear about it. It’s return of capital and return on capital, and it’s pretty sizable. So it’s about $213 million of margin, not revenue margin that’s booked as of 9/30/21, and roughly about 21% of our expanding face value of the note. So these loans are quite profitable. We’ve laid out and if you just want take the OID and the interest on the loans, instead of taking the principle of interest, you can now do that. And obviously that’s a pure profit or margin. So hopefully that gives you a little bit more comfort as far as getting your hands around modeling the loan versus lease mix. Maheep Mandloi: Perfect. No, appreciate the color. Thanks. Operator: Your next question comes from the line of Mark Strouse with JPMorgan. Mark Strouse: Yeah. Good morning. Thank you very much for taking our questions. Just wanted to ask the 30% storage attach rate in 3Q, what would that have been supply constraints? Just trying to think about look like as the storm kind of clears here. John Berger: Yes. Hey, Mark, this is John. I think that first of all, that’s on all customers. So we would’ve had if it was just in the dealer channel that would’ve been closer to 35%, a little over 35% storage attachment rate, which would’ve been a new record for us. I don’t want to play games. I don’t play games on metrics. So we added all the customers in, even though we don’t have the capability just yet, we’re just out getting into that upselling batteries to new home customers. And we’ll start to see that attachment rate I would say, probably Q2 or Q3 and next year start to materialize. So that suppresses that number and that’s the primary drivers, the new homes customers that have no battery upsells at this point in time. We’ve had some many weeks of 40%-plus attachment rates on the dealer only channel. So it’s something that is clearly moving up and you just get a modicum of selling batteries to new homes customers that storage attachment rate’s going to zip up. So we continue to see a lot of interest from consumers and growing amount of interest in battery. So we are becoming even more constructive on the storage attachment rates and move forward in the next few quarters. Mark Strouse: Okay. Thanks. And then John, I know you’re a football fan. So I want to ask you a question about your supply chain kind of as an analogy to college football, right? So we’ve got four teams that make the playoffs every year. But rank number five, rank number six are obviously good teams as well. Thinking about that as your supply chain, in the past you selected suppliers but there’s been a company on the cusp that’s been left out. Just given everything that’s happened over the past year, how do you change that approach? Do you potentially look to diversify your supply chain by adding more? And how do you weigh that against a potentially kind of inferior product that you hadn’t chosen in the past? John Berger: Okay. Well, I’ll try to answer that. I don’t know if I can wrap it into the football analogy. But I would say, we’re seeing more, really strong and this is on a global basis, equipment providers show up with inverters with energy storage systems and even some that haven’t been in the panel manufacturing business get into that and start to ramp that up as well. I would say that our primary relationships on the ESS side with Tesla, with Generac, with SolarEdge, and then lastly in Phase are well intact. I would say that some are doing better than others on the supply chain side of things. I think it’s pretty clear that Elon and Tesla are doing very well as you can see by their numbers that they reported. And again, I’ll let them talk to their own business, but with microchip deliveries and therefore you would expect to see that flow into their ESS business. And indeed that’s been the case and continues to be the case of a rapidly improving supply chain. And then, some others have struggled a bit of late in continuing this quarter. But I do expect that to get ironed out. We’re eagerly anticipating ramping up very strongly with SolarEdge. And in particular, they’ve got some really nice products out. We know there are some dealers that want to start selling that immediately. But it will – Generac’s got a lot of new products coming out, very close with that company as well. I think that they’re doing a great job and we’ll continue to increase our purchases quite substantially as we move into 2022. They obviously have a micro inverter coming out. We’re very interested in that as well. And so all these companies are very well managed companies. They’re obviously very well financed companies, in terms of financial capability and balance sheet. So we don’t see any problems with the equipment amongst these and even some others that are fairly large companies by themselves in Asia and Europe. So we feel comfortable that we’re getting and they have to go through a rigorous process to get on our AEL, our available equipment list, but we feel very comfortable that we’re seeing more and more highly qualified good equipment manufacturers, making great equipment that we can buy. And so that’s definitely a change from the past few years, and it’s obviously a great news for increasingly lower prices to consumers and frankly, those lower prices against juxtaposed against higher utility rates, which we expect to increase in the next few years, quite substantially given gas price and other cost pressures. That will have this business in this industry overall in terms of solar and storage, et cetera grow much more substantially than I think a lot of people are thinking at this point in time. So we need all those – that equipment is what I’m saying. And then some – but we think part of that will also be some decreases in equipment pricing to incent more and more consumer demand. Mark Strouse: Got it. Thank you very much. John Berger: Thanks, Mark. Operator: Your next question comes from the line of Sophie Karp with KeyBanc. Sophie Karp: Hi, good morning. Can you guys hear me? John Berger: Yes, Sophie, we can. Good morning. Sophie Karp: Thank you. Thanks for taking my question. Just a couple of questions here that I have. Can you talk a little bit about whether you are experiencing loan interconnect times in any of your markets with utility and how that might be impacting your outlook? Is it an issue for you at this point anywhere? John Berger: Yes, Sophie So it’s a good question. A little bit here and there. There’s a utility in the Southeast it’s been dragging their feet a little bit on some interconnections. There is one out in California and one or two up in the Northeast. But some others have sped up the issuance of PTO. We’re talking about days two, three weeks. That could matter I grant you that, and so we’re watching it closely, but we’re putting a lot of pressure on those utilities as well as others in the industry, such as our dealers, et cetera, are doing to close those gaps. We can do a little better job in our end, too, of being more quick on the operational side to apply for those PTOs. And then also to convert a PTO to end service and flip the system on. So we’ve got a number of initiatives to do improvement on our side and drop that time, if you will. But we have seen a little bit, but not a huge amount of change. If anything, some of the there’s been a quite a bit of improvement in the second and third quarter over the first and fourth quarters, and certainly last year that we’re heavily impacted by the pandemic. Sophie Karp: Got it. Thank you. And then John, you mentioned my other question was on the kind of equipment landscape. You mentioned that there’s a growing number of suppliers of various pieces of equipment that you use. Could you talk a little bit about your sort of barriers to switch if you will, how hard is it to qualify a new supplier for you once they roll out their product and is your bias to kind of stay with the existing ones or to price shop around if there’s an offer and that seems comfortable and cheaper maybe than what you have currently kind of, can you talk about your thought process here? John Berger: Yes, so we’ve had a strategy of having basically being an open platform service provider. I know there is a strategy where if you want to be an equipment provider getting into service business, that basically you close your world off, right. And it’s just your equipment and your service. Typically in other industries that are very similar to ours that is led to frankly much lower growth inability to scale and a disaster ultimately. And so we think that the best way to go about this, particularly as more and more capitals flowing into this industry is to keep an open mind. And there are new technology, new firms that crop up around the world. And it is a global business. With that said, some of those traditional partners, have you seen acquire those new upstarts and firms, and then integrate that technology into what they’re doing? Obviously, the most recent example of that is what Generac is doing with the micro inverter side of things. And so in some cases, we’re certainly very well open to new technologies and some of these are new technologies, like electronic or digital J box for load management and so forth. Those are different companies out there, but the traditional ones are also coming out with load manager solutions as well. And so I think it’s keeping an open mind and looking to see when we become comfortable, we go through rigorous testing. We have engineers on staff here that do that for us. And so once we become comfortable with both the equipment quality and their financial capability, then we’ll start to look at how do we launch their product out. ChargePoint is a good example of that. That’s a new piece of equipment, right. So that and service and plugging into their software platform with our software platform that we’re launching out. But I think it’s primarily going to be that we’re going to stick with our core group of partners on the equipment side of things. That may narrow a bit, depending upon what strategic decisions those equipment partners make. If it’s not favorable, if it’s to try to get into our business, then we’ll stop buying equipment there. And that can be a fairly, very rapid change in the dealer network with us. So, the switching capability is actually decently quick if something goes awry, so to speak. Sophie Karp: Thank you. It’s very helpful. Go ahead. John Berger: Thank you. Operator: Your next question comes from the line of Pavel Molchanov with Raymond James. Pavel Molchanov: Thanks for taking the question. So, we are supposedly 24, maybe 48 hours away from learning what happens with the reconciliation package in Congress, and therefore, among other things, the ITC for solar. Depending on what that tax credit extension looks like, particularly the duration of the extension, would that have any impact on, let’s say, the urgency of installation in 2022 or 2023 for you directly and across the industry? John Berger: Hi, Pavel. I spent some time actually a few days in Washington last week. And my sense of this and our sense as a company is, is that there’s definitely a deal that’s going to get done here. I’ve read some reports as recently as a few hours ago, there’s some naysayers there. I just, the Democrats need to do something over the next 60 days and clearly trying to do something between Christmas and New Year’s is going to be really challenging as always. So, I think it’s less than 60 days. And I think it’s very clear by the way that even on both sides of the aisle, that the investment tax credit is strongly supported. And we see 10-year ITC at 30%, plus refundability, plus storage ITC, plus a few other things. We’re also strong supporters of a domestic manufacturing initiative and suggestions of subsidies to locate these different parts of particularly the module manufacturing supply chain in the United States. And so, we strongly support Senator Ozouf’s proposals as part of the reconciliation. And I think some of that is going to get, if not all of that gets into the bill. It’s probably going be some. So, I think that there’s going to be a very little pressure for accelerating pull forward if you will, if the demand from the federal angle. I think what we’re going to have is actually a fairly long runway which is fantastic for the industry. We’ve never had that before, as you know. We need it to grow the business in the right way and to grow the industry in the right way, and deal with climate change. And I think we’re on the cusp of finally getting that. Does that answer your question fully or no? Pavel Molchanov: Right. So, I guess your guidance for 2022 assumes what scenario, kind of the urgency scenario of the law that currently stands or an extension scenario? John Berger: An extension scenario. So, if you were surprised, you are right, the growth would be tremendously higher than what we’ve laid out for 2022. But again, I feel pretty comfortable we’re going to get a very long runway on the ITC, finally. Pavel Molchanov: Okay understood. One more question on the supply chain, you alluded to some of the geopolitical complications earlier, have any suppliers, modules, or otherwise that you directly work with have they had any shipments into the United States blocked or confiscated at the border because of forced labor issues? John Berger: No, not to our knowledge. Pavel Molchanov: Okay. Clear enough. Thank you, guys. John Berger: Thank you. Operator: Your next question comes from the line of Sean Morgan with Evercore ISI. Sean Morgan: Hey guys thanks for taking my question. So, my first question is I think probably for Robert, of the three tranches on that securitization you guys just did and obviously great interest rates achieved. And I think there was three different credit ratings on the three sub tranches. But I guess my question is that mainly a function of just the high FICO scores of the customers with the portfolios, as large as you guys have, it’s going to have to obviously be some kind of workout or distress customers in the portfolio. So, is there like a support tranche that you guys are effectively retaining on your balance sheet to support those three investment grade tranches? John Berger: Yes, absolutely. We’re retaining a significant portion of the face value of those loans on our balance sheet, that’s really what’s driving the ROCF. One of the things that’s allowed us a competitive within that marketplace and securitization marketplace has been the incredible tracker we’ve had on collections on, on not only keeping customers from becoming delinquent, but when they do become delinquent or go and we default the customers, which we do earlier than the anyone else in the industry, we do that 120 days. We actually get more than half those defaults recovered which is also pretty unique. And that that information that they’ve taken to account as well when they look at those securitizations. So, we we’ve actually had a very good track record there. And while we do who have very strong FICOs we find that that’s been probably a little bit less of an advantage in the industry. There are some that will hold out their lower FICOs to try to get a higher FICO score. What we’ve really just been doing is coming back with the receipts of what our default delinquen
NOVA Ratings Summary
NOVA Quant Ranking
Related Analysis

Sunnova Energy’s Upcoming Q1 Earnings Preview

RBC Capital provided its outlook on Sunnova Energy International Inc. (NYSE:NOVA) ahead of Q1 earnings, which are scheduled to be reported tomorrow after the market close.

The analysts lowered their Q1 estimates on seasonality but largely maintained their full-year 2023 estimates. They now forecast Q1 adjusted EBITDA of $12 million ($24 million prior), principal income of $28 million ($34 million prior) and interest income of $17 million ($25 million prior).

According to the analysts, Q1 is seasonally slower given lower solar production and SRECs as well as higher installations. For the full year 2023, they now forecast adjusted EBITDA + P&I of $519 million and for 2024 they forecast adjusted EBITDA + P&I of $782 million.

The analysts reiterated their Outperform rating and $31 price target on the company’s shares.