Sunrun Reports First Quarter 2023 Financial Results

Source: 5/3/2023, Location: North America

Solar Energy Capacity Installed of 240 Megawatts, exceeding the high-end of guidance
Net Subscriber Value of $12,000, exceeding guidance
Sales activities growing over 30% year-over-year in Q1, with over 80% growth in California
Launched Sunrun Shift™ offering in California, sales activities increasing significantly in recent weeks
Annual Recurring Revenue now $1.1 billion with Average Contract Life Remaining of 17.6 years
Networked Solar Energy Capacity of 5.9 Gigawatts

Sunrun the nation’s leading provider of residential solar, storage and energy services, announced financial results for the quarter ended March 31, 2023.

“The Sunrun team is focused on crushing it on the fundamentals, driving strong, profitable and sustainable growth. Demand for clean affordable energy from Sunrun continued to accelerate in the first quarter, with over 30% growth in sales. The strength of Sunrun’s energy subscription offering and leading market presence allowed us to gain significant market share, and these trends are set to accelerate in the quarters ahead,” said Mary Powell, Sunrun’s Chief Executive Officer. “It is stunning to compare the speed and scale of our installed solar capacity in one quarter to utility solar developments. The average utility solar plant is 5 megawatts and takes a minimum of 6 to 12 months to build, compared to Sunrun’s installed capacity of 240 megawatts in one quarter. We are on track to add over one Gigawatt this year, on rooftops.

To put that in context, the capacity we are adding this year is equivalent to an average nuclear power plant which takes decades to build. We do this by utilizing single and multi-family homes, avoiding the disruption to at least 5,000 acres of land it would take to do this in the centralized utility fashion and avoiding costly transmission and distribution infrastructure. As we accelerate adoption of storage and electric vehicles, the capability to leverage smart controllable load is powerful.”

“Sunrun’s team delivered a strong Q1, meaningfully exceeding both our installation volume and Net Subscriber Value guidance. We are on track to deliver a year of strong growth in 2023 with increasing Net Subscriber Values. A continued focus on operational efficiency and cost discipline, dramatically improving supply chain dynamics and smart execution in the capital markets places us on a path to achieving our goal for meaningful cash generation,” said Danny Abajian, Sunrun’s Chief Financial Officer.

Growth & Market Leadership
The growth opportunity for the solar industry is massive. Today, only 4% of the 88 million addressable homes in the U.S. have solar. The U.S. residential electricity market is over $194 billion per year and ongoing utility spending has resulted in escalating retail rates, increasing our value proposition and expanding our addressable market. Households that adopt electric vehicles consume approximately double the amount of electricity, increasing our market opportunity and value proposition even further. In addition to delivering a superior energy experience and more affordable electric service, we are quickly amassing one of the largest networks of storage capacity, which will position us to also serve the $125 billion annual market for utility capex. This dispatchable set of energy resources offers greater potential for resiliency and precision than bulky centralized infrastructure.

Owing to network effects and density advantages, increasing operating scale efficiencies, growing brand strength, capital raising capabilities, and advanced product and service offerings, we believe Sunrun will continue to expand our leadership position. Here are a few highlights:
• Sunrun has now installed over 58,000 solar and storage systems nationwide, which offer homeowners the ability to power through multi-day outages with clean and reliable home energy. Solar and storage systems also optimize when power is purchased or supplied to the grid, helping manage constraints on the grid during peak times. Sunrun expects storage installations to grow at a rapid rate in the coming quarters.
• In August 2022, the Inflation Reduction Act (IRA) was passed by Congress and was signed into law by President Biden. The IRA enhances and extends the investment tax credit (ITC) available to Sunrun. The IRA effectively provides a 10-year extension of the 30% solar ITC as well as a $7,500 credit for new electric vehicles and a $4,000 credit for used electric vehicles. Solar and storage projects installed in low-income areas can receive an additional 10% tax credit, and projects installed on affordable multifamily housing can receive an extra 20% tax credit, both subject to quota allocations and program guidelines established by the US Treasury. In addition, projects that use a sufficient amount of domestically-produced content and projects that are located in specified Energy Communities can qualify for additional 10% credits. These adders are only available to commercial entities claiming tax credits under Sections 48 and 48E, not homeowners claiming residential clean energy credits under Section 25D, and as such should drive market share towards solar-as-a-service.

Innovation & Differentiation
The world has the technologies to move to a decentralized energy architecture today. Home solar and storage can operate economically at small scale and can therefore be located where energy is consumed, leveraging the built environment instead of relying on expensive, centralized infrastructure whose design specifications do not meet today’s energy needs and weather reality. Sunrun is effectuating this transition through continued business model innovation and a superior customer experience. We provide fixed-rate solar-as-a-service subscriptions, whole-home backup power capabilities, and participation in virtual power plants. We are investing in efforts to further electrify the home, including electric vehicle charging infrastructure and converting gas appliances to electric. We expect these efforts will increase Sunrun’s share of the home energy wallet and enhance our value to customers. The following recent developments highlight our innovation and increasing differentiation:

• On April 12, 2023, we launched Sunrun Shift™, a new home solar subscription offering that maximizes the value of solar energy under California's new solar policy, the net billing tariff. By storing self-generated solar energy throughout the day, Shift optimizes potential customer savings of going solar by increasing self-consumption during peak hours when rates are highest and reducing low-value exports back to the grid through the use of a new storage configuration. Shift is specifically designed to maximize self-consumption, and it does not provide backup power capabilities. This innovative storage configuration provides value to the customer, while minimizing labor hours, equipment costs, and the potential need for a main panel upgrade, for a cheaper, easier and quicker installation than conventional home backup systems.
• On February 6, 2023, Sunrun and PG&E announced a first-of-its-kind residential virtual power plant to support grid reliability for electric customers. Through the Energy Efficiency Summer Reliability Program, Sunrun will enroll up to 7,500 new and existing residential home solar and storage systems in PG&E’s service area into the program, creating a virtual power plant capable of discharging 30 megawatts of clean energy back to the grid. PG&E and Sunrun partnered to create an optimal storage dispatch schedule that lowers the overall cost of power during the times of highest need as well as reduces critical strain on the entire energy system and reliance on fossil fuel burning power plants. For their participation, customers will receive an upfront payment of $750 and a free smart thermostat. Storage systems enrolled in the program will share a portion of stored energy with the grid during summer months, when energy supply is tight in California, while still retaining enough energy to meet personal, essential needs in the event of a local power outage in their area. This program will also provide Sunrun incremental revenue for managing and delivering virtual power plant services to the grid for one year, with an opportunity for Sunrun and PG&E to extend and expand the program in future years.
• Sunrun’s partnership with Ford to serve as the preferred installer of Ford Intelligent Backup Power continues to gain momentum, with Sunrun taking orders for the installation of the 80-amp Ford Charge Station Pro and the Home Integration System, along with providing options for solar and storage systems. Customers will need to equip their home with the 80-amp Ford Charge Station Pro and Home Integration System to unlock bidirectional power flow and future energy management solutions. The Home Integration System—designed and developed together with Ford—can be purchased exclusively through Sunrun. Customers interested in combining Ford Charge Station Pro and/or Home Integration System installation with clean solar power may be eligible to do so for as little as zero dollars down and reduced installation pricing. The partnership continues to deliver strong initial results; we have over 2,000 Ford Charge Station Pro orders thus far (and many thousands of initial conversations) and installs are ramping rapidly. Approximately half of such customers are purchasing bidirectional home backup capability.
• Streamlining permitting and interconnection processes present an opportunity to accelerate the adoption of solar and storage by reducing “soft costs” and improving a homeowner's experience. Sunrun is a founding member of a coalition that developed an industry-wide web-based solar permitting tool called SolarAPP+ in coordination with the Department of Energy and the National Renewable Energy Laboratory. SolarAPP+ reduces costs and delivers a better customer experience by automating the process for issuing permits for solar and storage systems. To date, nearly 20,000 permits have been issued via SolarAPP+ across the country. In September 2022, California adopted a mandate (SB 379) requiring cities and counties with populations over 50,000 to adopt an online, automated permitting platform like SolarAPP+ by September 2023.

Additionally, last year, the California Energy Commission launched a one-year grant program (CalAPP) with $20 million in funding for local governments to adopt SolarAPP+. Over 278 cities and counties have applied for CalAPP grants, receiving nearly $17 million in funds to implement SolarAPP+. Colorado also recently adopted legislation (HB23-1234) establishing a one million dollar grant program to implement SolarAPP+ and Arizona adopted a bill (HB-2373) enabling the use of automated permitting platforms like SolarAPP+.

ESG Efforts: Embracing Sustainability & Investing in Our Employees and Communities
Sunrun’s mission is to create a planet run by the sun and build an affordable energy system that combats climate change and provides energy access for all. We proactively serve all stakeholders: our customers, our employees, the communities in which we operate, and our business and financial partners. Investing in our people and providing meaningful career opportunities is critical to our success. As the country embarks on upgrading infrastructure and rewiring our buildings, the demand for skilled workers will increase substantially. We are focused on developing a differentiated talent brand and providing opportunities to train and develop workers to be part of the clean energy economy. The following recent developments highlight our commitment to sustainability, investing in people, and investing in our communities:
• In April, Sunrun issued its sixth annual Impact Report underscoring the company's progress toward long-term sustainable value, profitable growth, and operational responsibility. Key highlights include:
• Reduced emissions intensity by 10% year-over-year.
• Increased customer energy saving since 2007 to over $1 billion.
• Launched Sunrun Empowered Giving, a $3 million corporate giving and employee charitable contribution matching program.
• Completed an assessment of how ESG is best incorporated into our compensation structure and determined to add Safety as a second ESG factor in our 2023 annual cash bonus plan.
• Incorporated stockholder feedback to propose and recommend the company’s stockholders vote to declassify the company’s Board of Directors.
• Following an analysis of our operations and impact opportunities, identified Safety, Customer Experience, Emissions Reduction, and Diversity as the most material ESG factors for our business this year.
Helped enable the avoidance of an estimated 14.6 million metric tons of CO2e from entering the atmosphere — the equivalent of taking 3.2 million cars off the road for a year.
• Sunrun is dedicated to democratizing energy and increasing access to affordable, reliable, clean power for everyone, including low-income households and those who rent instead of own their homes. Sunrun currently serves more than 11,000 households in low-income multifamily properties and expects to significantly increase our impact across the country in the quarters ahead. Sunrun has committed to develop 100 megawatts of solar on affordable multifamily housing in California by 2030 via the state Solar on Multifamily Affordable Housing (SOMAH) program and to bring at least 500 megawatts of low-income solar to people across the country by 2030.
• On April 26, 2023, Sunrun held a ribbon cutting ceremony to celebrate a new 780-kilowatt solar installation at Villa Loma Apartments, an affordable housing community in Carlsbad, California. The new installation serves 344 families and will help residents save an average of more than $60 per month on their electricity bills and an expected $7.5 million in total resident savings over the next 20 years. The installation will also generate immediate energy savings of 30% at Villa Loma, totaling $15,000 annually in the property’s budget. Those savings will be used for resident support services and new programs. In addition to cost savings, Sunrun is offering paid solar job training opportunities to residents at Villa Loma through the Solar on Multifamily Affordable Housing (SOMAH) program. Residents who enter and complete the training program can be fast-tracked to a good-paying job in the rapidly growing clean energy sector.
• Sunrun has continued to invest in our employees through our Guild Education partnership. Nearly 10% of all Sunrun employees are currently enrolled in an upskilling program through PowerU, with approximately 685 employees currently enrolled in an electrical licensure pathway program, and approximately 170 employees who have already completed a degree program or professional certification in a variety of disciplines. Since the launch of the Guild program in 2021, over 160 employees have been promoted to a new role after enrolling in a short form or foundational program. 40% of all graduates identify as women or non-binary, contributing to our efforts to increase representation and retention of women in our industry.
• The solar systems we deployed in Q1 are expected to offset the emission of 5.1 million metric tons of CO2 over the next thirty years. Over the last twelve months, Sunrun’s systems are estimated to have offset 3.2 million metric tons of CO2.

Key Operating Metrics
In the first quarter of 2023, Customer Additions were 32,413, including 25,154 Subscriber Additions. As of March 31, 2023, Sunrun had 829,709 Customers, including 692,395 Subscribers. Customers grew 20% in the first quarter of 2023 compared to the first quarter of 2022.

Annual Recurring Revenue from Subscribers was $1.1 billion as of March 31, 2023. The Average Contract Life Remaining of Subscribers was 17.6 years as of March 31, 2023.

Commencing with the first quarter of 2023, Sunrun increased the discount rate used to calculate Subscriber Value and Gross Earning Assets from 5% to 6%.

Subscriber Value was $44,055 in the first quarter of 2023 while Creation Cost was $32,055. Net Subscriber Value was $12,000 in the first quarter of 2023. Total Value Generated was $301.8 million in the first quarter of 2023.

Gross Earning Assets as of March 31, 2023 were $11.6 billion. Net Earning Assets were $4.0 billion, which includes $843 million in total cash, as of March 31, 2023.

Solar Energy Capacity Installed was 239.8 Megawatts in the first quarter of 2023. Solar Energy Capacity Installed for Subscribers was 187.8 Megawatts in the first quarter of 2023.

Networked Solar Energy Capacity was 5,907 Megawatts as of March 31, 2023. Networked Solar Energy Capacity for Subscribers was 4,952 Megawatts as of March 31, 2023.

Management’s focus is on leading the market through sustainable and profitable growth, prioritizing unit cash generation capabilities, while prudently managing working capital needs.

Management continues to expect Solar Energy Capacity Installed growth to be in a range of 10% to 15% for the full year 2023. Management currently sees more upside opportunity than downside risk to achieving growth in this range and anticipates market share gains in 2023.

Management expects Solar Energy Capacity Installed growth to be in a range of 270 to 290 Megawatts in the second quarter of 2023.

Net Subscriber Value is expected to increase sequentially in the second quarter and to be materially higher in the second half of 2023 compared to the first half of 2023.

First Quarter 2023 GAAP Results
Total revenue was $589.8 million in the first quarter of 2023, up $94.1 million, or 19%, from the first quarter of 2022. Customer agreements and incentives revenue was $246.5 million, an increase of $36.8 million, or 18%, compared to the first quarter of 2022. Solar energy systems and product sales revenue was $343.4 million, an increase of $57.3 million, or 20%, compared to the first quarter of 2022.

Total cost of revenue was $556.9 million, an increase of 23% year-over-year. Total operating expenses were $817.5 million, an increase of 21% year-over-year.

Net loss attributable to common stockholders was $240.4 million, or a loss of $1.12 per basic and diluted share, in the first quarter of 2023.

Financing Activities
As of May 3, 2023, closed transactions and executed term sheets provide us expected tax equity to fund, at a 30% ITC level, over 450 Megawatts of Solar Energy Capacity Installed for Subscribers beyond what was deployed through March 31, 2023. As of March 31, 2023, Sunrun also had $522 million available in its $1.8 billion non-recourse senior revolving warehouse facility to fund over 175 Megawatts of Solar Energy Capacity Installed for Subscribers.

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