Sunrun Inc. Q2 FY2025 earnings call

• Delivered strong financial and operating results with $1.6B in aggregate subscriber value, exceeding guidance and growing 40% YOY. - Contracted net value creation was $376M, the highest ever, more than doubled from prior quarter. - Storage attachment rate at 70% of customer additions. - Highest upfront net subscriber value quarter, 17 percentage point margin improvement. - Fifth consecutive quarter of positive cash generation, generated $27M in Q2, on track for $200M to $500M full year. - Nation's largest home-to-grid distributed power plant operator, with over 3 gigawatt hours of dispatchable energy from home batteries and nearly 8 gigawatts of solar generation capacity. - Over 200,000 storage systems installed, 71,000 customers in home-to-grid programs, providing 354 MW power capacity to grid. - Actively engaged in policy at federal and state levels to support dispatchable energy build-out. - 48E tax credit for commercial investments remains in place for storage through 2033; 25D for homeowners sunsets in 2025.

In the second quarter, Sunrun generated $1.6 billion in top line aggregate subscriber value, a 40% year-over-year growth. Contracted net value creation was $376 million, the highest ever, more than doubling from the prior quarter. The storage attachment rate reached an all-time high of 70% of customer additions. Nationally, Sunrun represents over 40% of storage installations and more than 1/3 of subscription volumes.

• Reiterating/raising 2025 guidance: Aggregate subscriber value between $5.7B and $6B (14% growth midpoint). Contracted net value creation $1B to $1.3B (up from prior $650M to $850M). Cash generation guidance $200M to $500M. - Q3 outlook: Aggregate subscriber value $1.5B to $1.6B (8% growth midpoint), contracted net value creation $275M to $375M, cash generation $50M to $100M.

• Retroactivity of tax credit guidance is a potential risk, though considered extremely low likelihood. - Market dynamics and changes in tax credit policies could impact margins. - Working capital timing and capital markets activity delays may affect cash generation.

Q: Congrats on quite an impressive update on really everything. On Slide 11, where you detailed the start of construction, if 3 years will have started construction by mid-August, is that like saying extending through all of '28 and '29 because you don't have the safe harbor for '26 and '27? And if so, why on that same slide would you show the bridge above the $6,500 bridge, you have all that done by 2028? It seems to me like you're properly protecting the solar ITC through year-end '29 and that you'll do 2030 in 1H '26, notwithstanding the new rules?

A: Right. I think, yes, two different things. On the safe harbor, we are articulating that there's a Section 48 of a few months. There's Section 48 safe harbor of a few months, and then there's 3 years that you noted from the slide there. And you're correctly noting that, that is extending the runway by a few years beyond 2028. And on the top portion of that slide, we're just doing a very simple walk of the loss in margin from the loss of the solar portion of the ITC. You could think of that as 2028 or even a different year, but really to show the buildup back up to full recovery, if not a little bit more than full recovery of that, about $6,000 per system loss in ITC value. And we've shown a few of the factors. Not in here is other cost reduction in the business. So operating cost efficiencies, servicing cost efficiencies, everything else we'll do on top of this. This was just to show one possible path, just to illustrate that we think it's achievable to recover that solar portion. And of course, we're complementing that prudently with a safe harbor strategy as well.

Q: Kudos on the nice quarter and execution. I guess first question kind of related to Moses' question. You had the big uptick in net value creation. So one, I was wondering if you could maybe quantify the different buckets to what's driving that significant increase in the view for the year? And then kind of related to that, how come that's not really translating to anything on the cash generation outlook for the year, maybe some of the puts and takes between what drove the uptick in net value creation, but why that's not translating at least this year into cash generation?

A: Yes. I'll unpack that a little bit. So the sequential growth in volume definitely was a big factor. The jump in -- if we look here on a year-over-year basis, I think that's a good way to try to bridge 17 points of unit level margin expansion. We noted about 7 to 8 points worth of margin expansion within that associated with the increase in the weighted average ITC as we've had more adds in the business. The battery attachment rate, I noted, certainly contributed. And to the aggregate result, the strength in year-over-year growth in subscriber additions also certainly helped. So I'd say more volume were tilted towards higher value mix. And then we also noted the operating cost efficiencies have been -- when you look at it on the surface, it appears a 4% year-on-year reduction. But actually, once you unpack it and realize that all the extra materials cost consumption being fully absorbed by ops and sales and marketing cost reduction around it, the ability to keep creation costs flat year-over-year as we raise the top line led to huge margin expansion. Now we're also noting in Q2, in particular, some of the activity with our inventory balance and associated change in working capital, a little bit of extra time in the capital markets as people are kind of coming back from digesting the effects of the budget bill that market is picking up in activity. I think is also a little bit of the summer period coming into effect as well. But as the tax planning for the balance of the year continues, that activity picks up. So when you couple that with the sequential growth in volume and some of the installation activity to full cash conversion cycle with tax equity and turnout that we normally have, we expect to be more back half weighted in the cash generation in the business.