Sunrun Inc. (RUN) Q3 2019 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to the Q3 2019 Sunrun Inc. Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to your host, Mr. Patrick Jobin with Investor Relations. Please go ahead.

Thank you, operator, and thank you to those on the call for joining us today. Before we begin, please note that certain remarks we will make on this conference call constitute forward-looking statements. Although we believe these statements reflect our best judgment based on factors currently known to us, actual results may differ materially and adversely. Please refer to the company's filings with the SEC for a more inclusive discussion of risks and other factors that may cause our actual results to differ from projections made in any forward-looking statements. Please also note, these statements are being made as of today, and we disclaim any obligation to update or revise them. On the call today are Lynn Jurich, Sunrun's Co-Founder and CEO; Bob Komin, Sunrun's CFO; and Ed Fenster, Sunrun's Co-Founder and Executive Chairman. The presentation today will use slides, which are available on our website at investors.sunrun.com. And now let me turn the call over to Lynn.

Thanks Patrick. We are pleased to share Sunrun's third quarter results and progress against our strategic priorities. We are on track to deliver cash generation of $100 million this year, which represents about 60% year-over-year growth. We expect to lead the industry again by adding well over 50,000 customers in 2019 and growing our customer base over 20%, now approaching 300,000. The near-term customer growth is lower than we were expecting due to labor shortages in both installation and our sales force. However, the strength of orders and the increasing value proposition from batteries and forced blackouts makes us confident in a 15% to 20% long-term growth rate in new customers with continued strong cash generation. In the quarter, we added 14,200 customers representing just over 107 megawatts of deployments, a 7% year-over-year increase and within our guidance range. We generated $22 million in cash and have achieved record low capital costs. Consumer interest remains strong and we are actively working to increase our capacity to meet this demand. We expect to grow 9% quarter-over-quarter in Q4. Households across the country are facing unreliable and increasingly expensive electricity service. Forced blackouts in California are the new normal with PG&E saying they will last a decade. Investing in inefficient centralized infrastructure and forcing blackouts to lower the risk that transmission lines and equipment start fires is not sustainable. Sunrun offers homeowners the ability to generate and store their own energy with our Brightbox service, and we are networking those together to provide services to the entire system through our grid services efforts. The decentralized system we're helping build is the best way to achieve affordable resilient power in a warming world. Hundreds of Sunrun customers in California were able to keep the lights on during multiple recent outages. The average customer affected lock power for 35 hours. Family facing these outages are eager for resiliency. In the Bay Area, the attachment rate of Brightbox nearly doubled to approximately 60% for new orders in October. The stories we heard are moving. One family lock power for 142 straight hours, nearly six straight days with Brightbox, they were able to run critical loads like the refrigerator and lighting without interruption. While some say backup generators are the only solution, they are far inferior. They are expensive, pollute, require constant refilling which may not be possible if fuel station is also down, and our noisy and need maintenance. Brightbox can power homes' critical needs for about 12 hours through the night and can recharge when the sun is shining providing power through multi-day outages. Nationally, we have now installed more than 8,000 Brightbox systems. Attachment rate for Brightbox sales in our direct business was approximately 30% in California throughout ,Q3 and while we have only launched the service in nine states, thus far, we're approaching 15% attachment across all geographies. Overall demand continues to be strong. We are seeing approximately 15% to 20% growth in orders in Q3 and into Q4, which is consistent with our views on long-term industry growth rates. While demand is trending in line with our expectations, we are facing constraints in our ability to install and meet sales demand exacerbated by a tight labor market. For example, in California, our largest market, which is seeing some of the strongest growth trends, unemployment rates are at record lows and construction labor is especially tight with all the rebuilding following the fires. We are actively working to fill over 600 positions in our installation and sales organization. Sunrun can be a preferred employer given the benefits and career mobility on national scale and growth provides. We believe our benefit packages along with the opportunities for career progression are among the best and can differentiate us from smaller localized solar companies. I'm confident we can address the labor challenges over the next couple of quarters. We are focused on delivering strong financial returns. We are on track to generate $100 million of cash flow this year, which generates growth of 60%, excuse me, which represents growth of 60%. This is repeatable through continued growth in our customer base, resiliency offerings in California, further cost reductions and advanced grid service offerings, combined with a strong financing environment. We are excited about 2020, and we'll share official guidance on our Q4 call early next year. I'll now turn the call over to Bob to review Q3 performance and to discuss next quarter's guidance in more detail.

Thanks Lynn. NPV in the third quarter was approximately $7,000 per customer, or $0.90 per watt. Year-to-date NPV is about $1.02 and unchanged from last year. NPV would have been higher and above $1 in the quarter, had it not been for install flagging sales growth, particularly in high-value markets like California. We expect NPV to be above $1 in Q4. Project value was approximately $32,400 per customer, or $4.18 per watt in Q3. As a reminder, project value is very sensitive to modest changes in geographic channel and tax equity fund mix. Turning now to creation costs on Slide 8. In Q3, total creation costs were approximately $25,400 per customer, or $3.28 per watt, an improvement of $0.06 or 2% from last quarter. As with project value, creation costs can fluctuate quarter to quarter. As a reminder, our cost stack is not directly comparable to those appears because of our channel partner business. Blended installation cost per watt, which includes the costs of solar project deployed by our channel partners, as well as installation costs incurred for Sunrun Built systems was $2.48 per watt percent, a 4% - a $0.04 improvement from last quarter. Installed costs for systems built by Sunrun improved by $0.16 for 8% year-over-year to $1.90 per watt. In Q3, our sales and marketing costs were $0.81 per watt up $0.01 from Q2. Our total sales and marketing unit costs are calculated by dividing costs in the period by total megawatts deployed. A higher mix of direct business results in higher reported sales and marketing cost per watt, but it also means there will be lower blended installation cost per watt over time due to the higher mix of Sunrun Built systems at a lower cost per watt. In Q3, G&A costs were $0.25 per watt, an improvement of $0.03 from Q2. Finally, when we calculate creation costs, we subtract the GAAP gross margin contribution realized from our platform services. This includes our distribution racking and lead generation businesses as well as solar systems we sell for cash or with third-party loan. Our platform services gross margin was $0.26 per watt in Q3, $0.01 higher than last quarter. In the third quarter, we deployed 107 megawatt. Our cash and third-party loan mix was 18% in Q3, in line with recent levels. We expect this mix to continue in the high teens. Turning now to our balance sheet, we ended the third quarter with $373 million in total cash. Quarterly cash generation was $22 million. We continue to expect cash generation of $100 million in 2019. We define cash generation as the change in our total cash less the change in recourse debt. Cash generation can fluctuate significantly due to the timing of project finance activities. As a reminder, our cash generation exclude strategic opportunities and ITC safe harbor related activities, which we will undertake. Ed will discuss our safe harboring plans in more detail later in the call. We also want to share two corporate finance updates. First, we amended our working capital facility, our only recourse credit facility to extend its maturity to April 2022 and to enhance flexibility. Rate and size were unchanged. Second, our Board has authorized a three-year up to $50 million share repurchase program. As we continue to generate cash and now have an equity light safe harbor strategy in place, we view this program as another tool to create shareholder value. Moving on to guidance on Slide 9, we expect to deploy between 115 megawatts and 118 megawatts in Q4. As our direct business represents a larger portion of our mix, more expenses are front loaded for increasing sales and deployment capacity. The dynamics of a tight labor market and these more front loaded expenses put pressure on NPV and cash generation. Despite this, given the strong financing environment, we still expect to generate $100 million of cash in 2019. We expect NPV per watt in Q4 to be above $1 and for 2019 to be near prior year levels. Now let me turn it over to Ed.

Thanks Bob. We have lots of good news to share across all of our capital raising activities. Today I plan to focus on our recent capital market activities implied capital costs and our investment tax credit safe harbor strategy. I'll also review cash generation, net earning assets and capital runway. Low interest rates and strong finance execution continued to provide a strong tailwind for the company. In October, we once again set new records for capital costs and advance rate with our $312 million securitization of solar assets. We priced the senior notes at 3.63% with an 80% advance rate demonstrating that the market and ratings agencies increasingly recognize both the high quality of residential solar assets as well as our industry-leading performance. The depth of investors for senior and subordinated debt continues to increase significantly as well. October's transaction was similar in structure to the one we closed in December 2018. Comparing the two securitizations, however, this year, we achieved yield that was 191 basis points lower in advance rate that was 8 percentage points higher, and a single A rather than A minus credit rating. In addition, we achieved a BB credit rating on an additional tranche of debt with a 95% cumulative advance rate at a 6% discount rate, setting the stage for us to raise more than 100% of contracted asset value from subordinated debt outside the ABS market in a transaction we expect to close during Q4. In addition, these facts lay that a 6% unlevered discount rate for our assets is now too high. To put our current labor constraints and growth trajectory in our development business in context, if we measure customer values using a 5% discount rate rather than a 6% one, our net present value year-to-date would be approximately $0.25 per watt higher market to market. Next I would like to preview our investment tax credit safe harbor strategy. While we are planning for our business to thrive in a lower ITC environment, we are also availing ourselves the Safe Harbor provisions, the IRS codified to extend access to higher tax credit levels. We expect to extend access to the 30% tax credit for about 500 megawatts of projects by incurring more than 5% of the cost of these projects in 2019 because we expect the debt finance on a non-recourse basis. The vast majority of these costs. We initially expect to carry about $25 million in equity capital against this strategy. No, the actual cash amount of equity, capital deployed it exactly in December 31, 2019 may vary based on the exact timing of payments and capital costs. The credit facility, we anticipate closing as a multi-year revolving facility. As such, we can elect to add equipment to it during future years to further safe harbor at 26% or 22% ITC levels. We expect to benefit from at least 22% investment tax credit through December '23 on our lease projects with the 10% permanent tax credit becoming relevant in 2024. This ability to extend access to higher tax credit levels exists only for residential solar systems that are subject to a PPA or lease or what we call solar as a service. Solar as a service represents approximately 80% of our run rate business. Absent a change in law, next year and for all future years, solar as a service will therefore enjoy a substantial competitive advantage versus systems purchased with cash or a loan. This structural advantage in favor of solar as a service will begin at 4% of cost next year climbed to about 26% of cost in 2022 and settle at 10% of cost in 2024 and for all subsequent years. The perpetual 10% advantage for solar as a service is because it benefits from a 10% tax credit under permanent law, while homeowner purchase systems do not. We're also monitoring the environment in Washington and are pleased to report, they are a growing coalition and supportive extending renewable energy tax credits as the single highest impact actionable policy opportunity to combat climate change. However, especially with the wild card impeachment, handicapping the chance of passage in any specific moment in time is difficult. We're nevertheless increasingly optimistic for its eventual extension. Moving to Slide 10, net earning assets increased both year-over-year and quarter-over-quarter to $1.4 billion. Net earning assets measured at 6% unlevered discount rate is our way to describe the value of cash flows to Sunrun shareholders after payments to finance counterparties. Cash was $373 million, total cash less recourse debt increased $106 million year-over-year. Turning finally to our pipeline, our project debt and tax equity runway each extend into the fourth quarter of 2020. With that, I'll turn the call back over to Lynn.

Thanks Ed. With that, let's open the line for questions, please.

[Operator Instructions] Our first question is from the line of Brian Lee with Goldman Sachs. Please go ahead, sir.

I guess, first off, maybe to provide a little bit of context around the labor issue and the sales funnel. I think last quarter you mentioned you were seeing above 20% bookings growth, can you give us a sense of how much bookings growth you saw in the quarter at this time around? And then can you also comment on cycle times today if they've sort of moved outside of that 60-day to 90-day target window? And then I had a follow-up.

Sure. So, yes, Brian, the orders are at 15% to 20% for Q3 and we expect that to persist for Q4. So, again, if you look over any multi-quarter time horizon, we're sustaining those types of growth rates. And as we described last quarter, we fell behind after focusing on install efficiency, and it's proven to be difficult to catch up quickly in a market this tight, and especially at our scale, so we have 600 open position today. So, I think, if you just again look at the cycle times on that they are being pushed out. And the key there is, you really want to communicate with your customers upfront with the right expectations and that really helps you mitigate any sort of concerns with that and that's how we're approaching them.

Well, just Lynn maybe to clarify on that comment about pushing out, is it pushing out within that 60-day to 90-day window? Or you inferring that you're actually sort of in some instances moving outside the 90-day window?

Some backlog will be built and pushed into Q1. So if you look at Q4, the growth rate from Q3 to Q4 is 9% quarter-over-quarter, so it's still strong growth, but you're going to see still some backlog being able to be realized in Q1.

And then I guess that's kind of a segue into my second question, and then I'll pass it on. So the labor issues I think most people appreciate they're keeping you from hitting the deployment targets for the year, but if we do look ahead into Q1, obviously, weather is something you can't control, but volumes are seasonally weaker. But you do have deployment capacity just based on the fourth quarter guidance here that would imply you can do I guess over 150 megawatts a quarter with that most people are expecting it to be that strong into Q1. But question is, just trying to get a sense of how much of the labor issues are impacting you now because you're in a seasonally strong period of the year? And then maybe, does that just naturally lessen into the early part of next year as things slow down seasonally? And then you've ramped up some of those capacity, the sales funnel is strong. And so maybe the sales to install lag, you really do start to see it, and it naturally helped by some seasonal slowness?

Yes. If you characterize that well, we do expect to catch up within a couple of quarters. And that's a combination of actions we're taking, a lot of the actions you may suspect we're taking, which are around hiring recruiters inside and outside, making sure our compensation and retention packages are tight, making sure we're really marketing the employment brand and the career opportunities that we have. And so again this issue came up last quarter, and at our scales it is hard to do it in a quarter. But in - with any reasonable period of time, we feel confident we can catch up. The other thing that we are leveraging, and we're also seeing a little tightness is just leveraging third-party labor as well. Yes, so one of the advantages to our business model is we do have this multi-channel model. So we can flex relationships that we have with our existing network and third parties. They also are constrained in this market as you can imagine, but it gives us a little bit more flex. So I think you characterized it well and we think getting into Q1 will be in good shape.

And your next question is from the line of Michael Weinstein with Credit Suisse. Please go ahead.

So, Ed, you mentioned 5% as a possible new legitimate discount rate based on the outcome of the ABS refinancings, I'm just wondering if you'd plan to actually deploy that many future presentations at this point.

That's a great question, Michael. We are currently of the mind that we are less likely to actually mark to market the 6% discount rate. Certainly, if conditions change vary materially, we may always revisit that. However, certainly the experienced capital cost in the market are significantly below 6%, and I think we're also focused principally on generating cash and meeting those sorts of targets and hoping to focus investors there as well.

Also can you comment a little bit on cash generation, especially considering that you have a safe harbor goal now that might require somewhere around $100 million of cash I think I calculate?

Hi, Michael. So it's Edward again. So in my section, we describe this a little bit. We expect equity capital deployed against the safe harbor strategy to be about $25 million. It's possible it could be more or less at exactly December 31 based on the exact inflows and outflows of payments in and out of the facility, because that will be a busy time of year for us. But we do have - we do expect to close here in the quarter a significantly high LTV facility to finance the equipment that we are purchasing in support of that safe harbor program.

So maybe to - I might add to that or address that. So the cash generation target of $100 million would exclude that $25 million, that $25 million investment, and so we would show you that specific add back line. And then in terms of just as we've described it historically, we believe that that's a repeatable - this is a repeatable target for us annually.

Well, that's great. And one last question about the Comcast deal, just wondering if you hit the Q3 targets 6,000 customers, I believe it was, and does this changed the targets for December and going forward?

We do not expect Comcast to reach the equity warrant piece of the contract. As we've been discussing in previous quarters, they for their own competitive reasons haven't really pushed that into their core business, so it's really been operating as a sort of siloed business development program. And we have really deemphasized it, we just think that there are - we're seeing lots of demand in attractive acquisition channels. So, you will not see that as it doesn't represent any material amount of installations and I wouldn't expect to see that going forward.

Okay. Thank you very much.

We wouldn't expect any dilution from that agreement.

And your next question comes from the line of Joe Osha with JMP Securities. Please go ahead.

There are a couple of questions. First, not to beat the safe harbor horse too much, could I hear the equity capital number? Can you give us a sense as to what the gross capital deployment is going to be to cover that 500 megawatts?

Joe, it's Ed. Fair question. We are going to be satisfying the safe harbor requirement for all projects using the 5% prong. We will be doing that in a variety of different methods and expect to be describing the details around that including the financing facility on our next call.

And you could track - the 500 megawatts, you could back away on - with the average asset.

And might you guys be using the physical work standard as part of that?

We do not anticipate using any physical work standard.

Second question kind of seems like you guys are settling into a pre-flip plus subordinated debt follow up in the fourth quarter and then a post-flip in the second quarter, sort of cadence. Is that - when I think about 2020, can I sort of expect the same profile of transactions over the course of the year?

Great question, Joe. So absolutely we have been active with both pre-flip and post-flip transactions this year. And over a multi-year period, I would expect that to be the case. And next year, we would probably do approximately two such transactions. Whether or not we do another refinancing next year or 2021 is undecided, so I wouldn't want to guarantee that at this point, and again, we can talk more about that on the 2020 call.

All right. Cool. And then last - last question, you saw some Bay Area CCA is talking about going out to some - sort of some behind the meter storage I guess firming? And then there's this big CPUC all sources solicitation, which I suspect is utility scale, but that might sort of flow through to CCA's come with you guys as well. So I'm just wondering how you guys are thinking about the opportunity for grid services revenue in the context of all of this chaos here in the state.

Yes, Joe, that's a great question. I think actually the CCAs are potentially stepping into a leadership role in thinking both about the delivery of renewables and resiliency. And I think part of that is just that sort of in their mission to do, and part of it is obviously they are not distracted by a bankruptcy and headlines and the political situation that PG&E is in. And so we do think there will be increasing opportunities to work with CCAs on solar and solar plus storage, both for resiliency purposes, but also just for regular capacity, which obviously is related. And so we haven't made any announcements on that of late, but there are discussions underway, and I would expect over the coming year there will potentially be more to talk about that.

I would say, and we have of course announced the Oakland - the program with Oakland, which we talked about last quarter. And I think we're pursuing a two-pronged approach here. One is just let's just go direct to consumers and deliver a superior service with Brightbox product. And then at the same time work the regulatory and the partnerships to make sure that we're leveraging those assets for the benefit of everybody and valuing all the services and setting up the Brightboxes to actually contribute all the services they can. So we expect that the direct to consumer route is probably the least friction, you know, you get that going fast and then parallel, as we get our footprint increased you can't ignore us anymore. We can provide a lot of services to the CCAs and to the IOUs that are more cost effective than the traditional centralized way of doing things.

And your next question comes from the line of Eric Lee with Bank of America. Please go ahead.

Can you hear me? So just a quick question around expectations for growth in NPV into 2020 and beyond. Could you just talk a bit about efforts to mitigate full year '19 specific headwinds that are impacting guidance? And how should we think about - I know, you talked about 15% to 20% growth into 20-plus and I mean could you clarify around NPV as well. Should we expect normalization maybe towards the $1.15 again? Thanks.

Great question. We - as we described, the growth rate and the orders, is the 15% to 20% in Q3 and Q4. We don't see any reason why that would subside. We are not in position to give any formal 2020 guidance at this stage. That will be in the next call. And so piggybacking on my answer for Brian's question, we're putting into place all of the blocking and tackling to make sure that we have the capacity, and so we think that's - it wasn't overnight improvement, but we expect in a couple of quarters we will be caught up, so we'll see some backlog into Q1, but we should be caught up directionally by then.

And could you talk about the NPV expectations in terms of...

Yes. NPV. Sure, sure. All right. Yes. So the NPV is depressed this quarter because of that mismatch. So as we start to deliver the growth in Q4, you're going to see it above $1, and so we would expect that it would normalize above $1 into those historical rates.

And could you just clarify again on a full year 2019 NPV guidance. I know you guys put out a $1 per watt plus, but I believe Bob, if you could clarify, you made a comment about towards full year 2018's NPV?

Yes. So I think we've said above $1 is for the full year is the official guidance. And my comment was that I thought it - we would approach near last year's overall NPV for the full year.

And one last question for me before I pass it on. Could you just briefly talk about drivers of that backlog growth, be it from retail homebuilder partnerships, etc.? Thank you.

Sure. It's been really across all of our acquisition channels. So it's - we're a multi-channel business. It's one of our competitive advantages. So it's across our customer referrals, our digital marketing, our retail presence, our channel partners. And as I've said on multiple calls, the new home, and the new homebuilders is a slower build, it's a meaningful policy because it normalize the solar, it makes it more exposed to people, but it's not a meaningful size of our installed megawatts or installed sale or even bookings at this stage. So nothing meaningful moved around this quarter versus previous one.

And your next question - and your next question comes from the line of Sophie Karp with KeyBanc. Please go ahead.

Just a question on the share buyback program. Obviously, that's something that's new to you and what makes you - what gives you confidence that you are at the right ways to start something like that now where you are the company?

So, it's Ed. So I think we have been talking about share buyback program for some time. It's been a important topic for a while. It's come up on calls, and I think that the consideration that we've had in the past have included uncertainty around the safe harbor side of the program and the equity capital necessary to execute it. And with that in the rear view mirror with the sustained growth of the business and cash generation and with the amount of capital that we have on the balance sheet today, all of those things sort of came together, I think in this Board discussion to give everyone the enthusiasm to launch such a program and begin building that month of the company.

Very good. Thank you. And one more for me if I could. The labor market shortages mentioned, it just doesn't seem like something that's moved into [Technical Difficulty] on it's own like sort of having the concession right, but I'm sure you can find pockets of [Technical Difficulty] locally and maybe it's high unemployment. Is there an option at all, just sort of create this mobile workforce if you will and train people from this region and they [Technical Difficulty].

So I will just repeat the question, I believe that your comment is that the labor market shortage of 8% are there creative opportunity to produce a mobile workforce. We're - so one I would say, yes, they do. We do believe though that we can be a preferred employer with our national scale with our training programs without career development and so while again you're going to see 9% growth quarter-on-quarter to Q4. So you see some progress against that, and we were really faced with this just a quarter ago. So, at our scale, it's hard to turn it around immediately, but I would also say our scale is not that huge, so we're - we have 600 open positions, so with the right blocking and tackling with our market position, we believe that's achievable.

And your next question comes from the line of Philip Shen with ROTH Capital Partner. Please go ahead.

I'd like to explore the labor topic a little bit more. I know we've touched on this a bunch, and you've mentioned that you're confident in resolving this in a couple of quarters. I think last quarter you were confident in resolving this as well before Q4 and so our checks with the industry suggests it is incredibly tight out there, you do have 600 physicians, more than 600 to fill. So I know your long-term goal is to grow 15% to 20%, and with your guidance for Q4, I think you're going to grow maybe 11% year-over-year in 2019 versus your prior guide of 16%, 18% year-over-year growth. One of your peers is growing 18% and the other one growing 30%. I know you're not going to provide official guidance for next quarter. But can you comment directionally on your 2020 outlook, could we see something similar to 2019 where it's sub 15% growth because of this labor issue. And then also as it relates to your confidence, what would need to happen in order for this to be longer than a couple of quarters for example and what kind of probability might that be?

So well I would just point you to a couple of numbers to give more confident. So one, if you just look trailing 12 months the growth in our megawatts deployed was 20%. So it's a share taking number versus any of the peer companies. Secondly, I think I would point to the sequential growth from Q3 to Q4 where the sequential growth in the quarter is 9%. So if you just look at that as a indication of some of the momentum in the business, that would support the type of growth rates that you're talking about. So that's what gives us some confidence there. We also - the seasonality will help as well to Brian Lee's question, and then we are also - not only do we have the levers of our direct hiring, but we also have the third-party, and so there is more time for us to put in place programs with third parties for a sustainable business for them. So it's a lot of blocking and tackling, but again we're operating at a scale that's bigger than our peers. But again, it's not - it's a scale that is 100s, not 1000s of people, and so it's an executional challenge and we think that the Q3 to Q4 growth rate should provide some confidence that the momentum is going in the right direction.

Shifting gears to your contracted value, it's down to $331 million this quarter. I think it's down 25% year-to-date. How do we - how should we think about or how do you think about this line trending ahead, do you think the contracted value can grow near term. And over the past year, you've deployed by at leased year to date nearly 300 megawatts, and this is in contrast with the contracted value going down. So this suggests that you are selling assets and maybe even residual equity, are you selling the equity slices in these assets and if you can comment on that overall outlook for that line item. That would be great. Thanks.

Sure. Sure, Phil. This is Ed. So great questions and a few things I would like to share on the topic. So the first one, we haven't made any asset sales. And when we think about net earning assets, we really think about it in concert with cash as a first measure. And our cash position is up $100 million - over $100 million over the trailing 12-month period and that's despite the fact we have been making very significant working capital investments. So for instance to the earlier comments on the call, all of the sales that we've incurred that have not yet become installed affect cash, but do not benefit net earning assets. If you look on the balance sheet, you'll see construction and process is also up $45 million year-to-date, so that's further investments. And so, actually we think when you look at cash and net earning assets together, it's quite positive story. I would also mention, and this gets to the 6% discount rate that we had actual interest rates being where they are, and with the finance execution that we have been achieving, we can actually realize more than 100% of contracted net earning assets. So it would be possible to do no refinancings, sell no assets, grow cash significantly and actually see contracted net earning assets decline because at a 6% discount rate, it's not really appropriately mark to market, if you used to 5% discount rate to examine net earning assets, it would be $405 million higher, about half of which is in the contracted period. So we think that that altogether is a very attractive story for the company and for cash generation. And absent, obviously remarking everything in the materials, it may not, it may under sell the actual performance of the business.

Thanks, Ed. One last one, can you provide us an update on your plans around the new home build markets? For example, are you guys partnering with roofing contractors? Or do you feel like you can go direct to the builders? Our check suggest that you might be partnering with Citadel Roofing which has healthy market share in California as a pass to the builders. Can you expand on this topic and just provide some color there? Thanks.

Thank you. Yes, we are pursuing both. Again that's one of the advantages of our business models that we have our direct efforts as well as our partnership platform, so we did last month announced partnership for new homes with Citadel, which is one of California's largest roofing companies. And we remain engaged with conversations or have been contracted with half of the top 10 homebuilders in California. So again, as I said in the past, the way these relationship typically work. And if you get awarded a community or two, you prove yourself to get awarded more. So it's a slow build, but we like the progress that we've made to get in there and prove ourselves that were high quality partner, plus we will continue to pursue these partnerships with Citadel and others. I would also add that the safe harbor adds an interesting competitive advantage to this as well. And I believe with our scale, we're safe harboring the largest number of megawatts. And so for the builders who really prefer the solar as a service business model since it doesn't require any upfront capital, there is a sustainable and durable advantage for us that will persist for the next four years - four years plus with the 10% credit in that market.

And your final question comes from the line of Colin Rusch with Oppenheimer. Please go ahead.

Can you talk about the available capacity you have on the energy storage side to meet the needs of the demand and are you supply constrained at all at this point?

In terms of the physical hardware, we are not supply constrained on the batteries. So this again though it overlaps with the markets where we have installation constraints. So it's the same conversation we've been having in the previous conversations. But in terms of the batteries themselves, we are not constrained there.

And then just as you look at the technology landscape and moving towards virtual power plants and other services that you can provide, are you seeing meaningful evolution in technology and a shift in terms of what you would want to include in the portfolio. Obviously, you guys have been pretty good about managing vendor risk, but I'm wondering if there is maybe a shift in terms of how you think about technology exposure and technology needs as you move into the next phase of the business?

I think we're excited about all the innovation that's happened in the batteries. I mean that's a tailwind. We have not seen those price reductions happened, but when we look at the landscape out there, there is - with electric vehicles coming and the amount of innovation that's happening here, there are many suppliers working on the next generation of batteries, which will be easier to install cheaper to install higher capacity. And so those are all on the come. So I would say that we're excited about that. The product that we have today works. It's been tested through the power shutoff as we said. It's financially attractive, but it's only getting better.

And I'm showing no further questions at this time, I would now like to turn the conference back to Lynn for closing remarks.

Thank you, everybody. Hope you have a lovely evening.

And this concludes today's conference call. Thank you for your participation and have a wonderful day. You may all disconnect.