Sunrun Inc. Q4 FY2024 Earnings Call

Good afternoon, and welcome to Sunrun's Fourth Quarter and Full-year 2024 Earnings Conference Call. Please note that this call is being recorded and that one hour has been allocated for the call, including the Q&A session. I will now turn the call over to Patrick Jobin, Sunrun's Investor Relations Officer.

Thank you, Operator. Before we begin, please note that certain remarks we will make on this 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 note that these statements are being made as of today, and we disclaim any obligation to update or revise them. On the call today are Mary Powell, Sunrun's CEO; Danny Abajian, Sunrun's CFO; and Paul Dickson, Sunrun's President and Chief Revenue Officer. A presentation is available on Sunrun's investor relations website, along with supplemental materials. An audio replay of today's call, along with a copy of today's prepared remarks and transcript including Q&A will be posted to Sunrun's investor relations website shortly after the call. We have allocated 60 minutes for today's call, including the question and answer session. And now let me turn the call over to Mary.

Thank you, Patrick. And thank you all for joining us today. The fourth quarter was an exceptionally strong quarter for Sunrun and our execution positioned us well for 2025. We are delivering high-quality growth, generating meaningful cash, increasing our book value of deployed systems and paying down our parent debt. We are poised to further improve our operating and financial results, and deliver a very strong 2025 with meaningful cash generation. In 2024, we adapted to the rapid increase in interest rates, innovated through changes in state regulations, built a robust supply chain with strong domestic content focus, and remained steadfast in the face of irrational behavior from several industry participants. We are improving in every dimension, focusing on fast, effective execution, delivering strong financial and operating results, gaining share in a disciplined way, and building a long-term foundation of valuable grid resources. Executing on our plan does not require equity funding. In 2024, we optimized our product mix, prioritized the highest value geographies and routes to market with an intense focus on cost efficiency. At the same time, we increased storage attachment rates resulting in the highest net subscriber values Sunrun has ever reported. We have now posted positive cash generation for three consecutive quarters and expect to do so in every quarter throughout 2025, including the first quarter, which is seasonally the weakest. We have allocated excess cash to pay down our parent debt by $186 million since Q1 of last year, while making strategic long-term investments in AI to lower costs, streamline operations and create a differentiated customer experience. We also allocated excess cash to execute our end-of-year safe harbor equipment purchases to mitigate what we view as unlikely, but still potential, policy changes. The fundamental long-term demand drivers for our business are incredibly strong and unrelated to any political party affiliation. Americans want greater energy independence and control of their lives and their pocketbooks. The country also needs more power from all sources to fuel rapid growth in electrification and data centers, and our growing fleet of energy resources will be part of the solution. For these reasons, it is no surprise that support for the energy we provide spans across all party lines. Turning to more specifics for the quarter, in Q4, we grew contracted total value generated, or the aggregate net contracted value of systems installed in the quarter, using capital costs observed in Q4 by 125% compared to the prior year, and 48% compared to the prior quarter. We did this by growing our customer additions sequentially, and by increasing subscriber values from higher battery attachment rates and ITC realization, while holding our creation costs flat. Cash generation was $34 million in the quarter. We elected to invest $18 million of working capital in safe harbor equipment, which lowered our cash generation result in the quarter. In Q4, we also hit all-time highs for storage attachment rates and capacity installed. We installed storage for 62% of our new customers, an increase of 17 percentage points from a year ago. We installed 392 megawatt hours of storage in Q4, up 78% from a year ago. Our fleet of networked storage capacity has reached 2.5 gigawatt hours with over 156,000 storage systems installed. We continue to advance programs that generate value for customers, the grid and Sunrun. We have 16 grid service programs active across the country, with over 20,000 customers participating. During 2024, Sunrun's virtual power plants successfully supported power grids across the country with a combined instantaneous peak of nearly 80 megawatts, a capacity greater than many traditional fossil-fuel power plants. Sunrun is leading in establishing a platform to turn homes and vehicles into smart, controllable load that can be dispatched into, and improve the electric grid. I want to spend a minute on what we are seeing in recent industry data. We don't manage to market share. We view our leading position in the industry as a natural long-term result of pursuing a customer-first, disciplined growth strategy. There have been periods with irrational competitive behavior, such as pricing and terms loan providers offered a few years ago, and more recently, pricing and terms being offered by certain financing-only new entrants, but our view is that a focus on the fundamentals and first-rate execution always prevails in the long term. We lead with the best customer experience, underwrite healthy and financially sound business, and grow in a sustainable strategic way. We have seen some new entrants become more rational in recent periods, while others continue to scale with uneconomic, cash-consuming activities. We have seen our share of residential storage installations expand to over 50% in the U.S., while residential solar installations nationwide picked up significantly in the last few quarters, from 13% in Q1 to 19% in Q4. I'm pleased to see these trends, but I'm more pleased that we are doing it in a way that is consistently generating cash and delighting our customers. Sunrun is well positioned to drive meaningful value for shareholders in 2025 and beyond. The grid continues to become less reliable and more expensive. Consumers are demanding more energy independence and choice, and technology advancements continue to unlock more opportunities. Our primary focus is furthering our differentiation, launching additional products and services to expand customer lifetime values, and remaining the disciplined, margin and customer-focused industry leader, growing cash generation in the business for years to come. I know we are living in uncertain times, and no one can predict the future perfectly. But what we can do is continue building an incredibly resilient and efficient organization that can pivot and respond to whatever is thrown at it. I recall just a few years ago investors were skeptical because Sunrun had negative cash generation and was facing large regulatory changes in California, massive increases in interest rates, and a challenging supply chain. Sunrun not only managed to adapt to those pressures, but has now started to generate significant cash on a recurring basis, with higher rates, while operating under NEM3, and navigating the various supply chain dynamics. This is the team that knows how to focus on first-rate execution and lead this industry. Before handing it over to Danny, I want to take a moment to share how Sunrun employees responded during the devastating Los Angeles wildfires in January. As soon as high winds and wildfire threats emerged, our team initiated our planned response to support customers and employees. In an emergency like this, the homes we serve become critical infrastructure in impacted communities, supporting both our customers and the communities they live in. Batteries were automatically adjusted to maximize backup power ahead of widespread blackouts. When I visited our Los Angeles teams and customers during that time, I heard numerous stories of how Sunrun customer homes provided essential power and a safe haven for so many who were impacted by this tragedy. These events highlight the urgent need to more safely generate and deliver energy to customers, and to have onsite power generation and storage systems providing critical power during emergencies. Demand for our storage offering remains robust following this event. With that, let me turn the call over to Danny for our financial update.

Thank you, Mary. Today I will cover our operating and financial performance in the quarter along with an update on our capital markets activities and outlook. Turning first to the results for the quarter on slide 10, we have now installed over 156,000 solar and storage systems, with storage attachment rates reaching 62% of installations during the quarter. We expect storage attachment rates to remain around this level or slightly higher for the next few quarters. This higher mix of storage continues to drive net subscriber values higher. During the quarter, we installed 392 megawatt hours of storage capacity, well above the high end of our guidance, and an increase of 78% compared to the same quarter last year. Our total networked storage capacity is now above 2.5 gigawatt-hours. In the fourth quarter, solar energy capacity installed was approximately 242 megawatts, within our guidance range of 240 to 250 megawatts, and an increase of approximately 7% compared to the prior year. Customer additions were approximately 32,900, including approximately 30,700 subscriber additions. Our subscription mix remained at 96% of deployments in the period. Customer additions with storage was approximately 20,400 in the quarter, an increase of 50% compared to the same quarter last year. We ended Q4 with approximately one million customers and 889,000 subscribers, representing 7.5 gigawatts of networked solar energy capacity, a 13% increase year-over-year. Our subscribers generate significant recurring revenue, with most under 20 or 25-year contracts for the clean energy we provide. At the end of Q4, our Annual Recurring Revenue, or ARR, stood at over $1.6 billion, up 23% over the same period last year. We had an average contract life remaining of nearly 18 years. Turning to slide 10, in Q4, subscriber value was approximately $55,800 and creation cost was approximately $36,600, delivering a net subscriber value of $19,177. This strong result was from higher battery attachment rates, a higher average investment tax credit level, and sequential growth in volumes leading to improved fixed cost absorption. Our Q4 subscriber value and net subscriber value reflect a blended investment tax credit of 39.8%. We realized stronger-than-expected achievement in the 2024 low to middle-income ITC adder allocation process, which provided an approximate $750 benefit to our reported subscriber value in Q4. Qualification for the domestic content ITC adder is picking up, although at a slower ramp within our Affiliate Partner segment. Our blended Investment tax credit was at approximately 42% for January installations and we expect this level to increase further to 45% later in 2025. Total value generated, which is net subscriber value multiplied by the number of subscriber additions in the period, was $589 million in the fourth quarter. Our present value-based metrics are presented using a 6% discount rate, but our financial underwriting already accounts for our current cost of capital, which was approximately 7.3% in Q4. At a 7.3% discount rate, net subscriber value was approximately $14,400 and total value generated was $441 million. Excluding the non-contracted portion of subscriber value, but still adjusting for a 7.3% discount rate, contracted net subscriber value was approximately $11,600 and total value generated was $357 million, an increase of 125% compared to the prior year. On slide 11 you can see our progress increasing subscriber value through higher-value mix and higher ITC levels, while keeping creation costs largely flat, generating expanded net subscriber values. Efficiency improvements and hardware cost declines, coupled with operating cost leverage from sequential volume growth, have largely offset the increased costs associated with higher storage attachment rates. Turning now to gross and net earning assets and our balance sheet on slide 13, gross earning assets were $17.8 billion at the end of the fourth quarter. Gross earning assets is the measure of cash flows we expect to receive from subscribers over time, net of operating and maintenance costs, distributions to tax equity partners, and distributions to project equity financing partners, all discounted at a 6% unlevered capital cost. Net earning assets were $6.8 billion at the end of the fourth quarter, up $536 million from the prior quarter. Net earning assets is gross earning assets, plus cash, less all debt. Net earning assets does not include inventory, other construction in progress assets or any net derivative assets related to interest rate hedges, all of which represent additional value. The value creation upside we expect from future grid service opportunities and selling additional products and services to our customer base are not reflected in these metrics. In our prudent risk management approach, we programmatically enter into interest rate hedges to insulate our capital costs from adverse near-term fluctuations. The vast majority of our debt is either fixed-coupon long-dated securities, or floating rate loans that have been hedged with interest rate swaps. As such, we do not adjust the discount rate used in net earning assets to match current capital costs for new installations. Turning to our capital markets activities, Sunrun's industry-leading performance as an originator and servicer of residential solar assets continues to provide deep access to attractively priced capital. As of today, closed transactions and executed term sheets provide us with expected tax equity capacity to fund over 500 megawatts of projects for subscribers beyond what was deployed through the fourth quarter. Thus far in 2025 we have added more than $1.3 billion in tax equity, resulting in this strong runway. We also have over $680 million in unused commitments available in our non-recourse senior revolving warehouse loan after our January securitization. This unused amount would fund approximately 230 megawatts of projects for subscribers. Our strong debt capital runway allows us to be selective in timing term-out transactions. In January, we priced the industry's second largest securitization, behind only our own transaction from June of last year. The oversubscribed transaction was structured with three separate classes of A rated notes, only two of which were publicly offered. The weighted average spread of the notes was 197 basis points, which was an improvement of approximately 38 basis points from our prior securitization in September. Similar to prior transactions, we raised additional subordinated non-recourse debt financing, which increased the cumulative advance rate, as measured against our contracted subscriber value metric, to above 80%. When we think about our balance sheet, we prioritize a strong cash position and use of asset-level non-recourse debt financing. This strategy provides the lowest cost capital to finance cash-flow producing assets backed by highly creditworthy consumers, and is designed to avoid the use of parent capital to fund our recurring origination activity. Cash generation was $34 million in Q4, the third consecutive quarter of positive cash generation. Cash generation would have been approximately $66 million had it not been for a few factors. First, we decided to invest $18 million in cash for safe harbor equipment purchases in late Q4. Second, our Affiliate Partners experienced a slower ramp in domestic content ITC adder qualification. These two primary factors, along with other minor working capital timing differences, collectively represented over $32 million in reductions to cash generation for the period. During the fourth quarter, we executed a safe harbor program to insulate various tax policy risks. The program was executed in a very capital-efficient way, securing $350 million in equipment purchases while only consuming about $18 million in net working capital. These purchases provide risk mitigation for volumes throughout 2025 for solar projects and midway through 2025 for storage projects. We will explore additional safe harbor initiatives if circumstances warrant in the future, and we intend to maintain availability of non-equity capital dedicated for this purpose. We have a strong balance sheet with no near-term corporate debt maturities. We ended the quarter with $947 million in total cash. During the fourth quarter, we repurchased $126 million in principal of our 2026 Convertible Notes at a discount. As of the end of 2024, we had only $8 million in principal outstanding of these notes, which we plan to repurchase in 2025. Since March 2024 we have paid down recourse debt by $186 million by repurchasing our 2026 convertible notes and reducing borrowings under our recourse working capital facility. We expect to further pay down $100 million or more in recourse debt in 2025. Aside from the $8 million outstanding of our 2026 convertible notes, we have no recourse debt maturities until March 2027. We have no parent capital needs at this time. Over time, we will explore further capital allocation options to maximize shareholder value, based on market conditions and long-term outlook. Turning now to our financial outlook, the underpenetrated nature of our industry gives us confidence we can sustain robust growth throughout this decade. In this strong long-term demand backdrop, our priority is to generate cash by continuing to increase customer values through growing our mix of higher-value products and by keeping our costs low. Our margin-focused growth is yielding strong results and provides a high growth outlook for aggregate value creation, which will translate into cash generation and growth in our book value of deployed systems, or net earning assets. Turning to slides 17 and 18, before I share our specific guidance for Q1 and the full-year 2025, I want to detail a few of the key metrics we will report and guide to commencing with our Q1 2025 release that we believe align with our strategy. Over a year ago, we started reporting subscriber value and net subscriber value pro forma for the market cost of capital we observed each period and used to make our financial underwriting decisions. This additional disclosure showed our ability to substantially grow unit margins even as capital costs remained elevated and fluctuated. Importantly, we also directly addressed critiques about our use of a fixed 6% discount rate in the higher capital cost environment. Going forward, we will report subscriber value, net subscriber value, total value generated, and any similar metrics derived from subscriber value, using only a floating discount rate that reflects market-observed cost of capital for each period. Gross earning assets, our book value measure, will continue to use a fixed discount rate. As I noted, because the vast majority of our customer cash flows are not subject to floating rate exposure, adjusting the discount rate each quarter is not appropriate. Continuing to increase our aggregate value creation correlates with growth in cash generation over time. Accordingly, we will start guiding to aggregate value creation metrics, while moving away from guiding to specific solar and storage deployment volumes and unit margins each period. We will continue to report and provide commentary on deployments and unit margins, including our optimization between the two, so that analysts and investors can continue to track the fundamental building blocks in our business. On our next call, we will provide guidance on the following primary metrics: first, aggregate subscriber value, which is subscriber value multiplied by the number of subscriber additions in a period; second, contracted net value creation, which is the contracted-only portion of aggregate subscriber value conservatively excluding non-contracted value, less aggregate creation costs; and third, cash generation. On slides 19 and 20, we detail our guidance. Strong value creation will allow us to deliver cash generation of $40 to $50 million in Q1, which will be our fourth consecutive quarter of positive cash generation. Underpinning our Q1 cash generation guidance, storage installations are expected to grow at a robust pace, while solar installations are expected to be approximately flat compared to the prior year, with higher growth in our direct business than our Affiliate Partner business. In Q1, storage capacity installed is expected to be in a range of 265 to 275 megawatt hours, and solar capacity installed is expected to be in a range of 170 to 180 megawatts. For the full-year 2025, we expect cash generation to be in a range of $200 to $500 million. This is a revision from our prior guidance of $350 to $600 million, driven by a slower ramp in domestic content ITC adders in our Affiliate Partner business, higher capital cost assumptions, and slightly lower volume expectations, partially offset by higher storage mix. On slide 20, we outline the assumptions and sensitivities related to key variables that would affect our achievement of our 2025 outlook. We expect a 44% weighted average ITC level in 2025, and further underpinning our guidance are assumptions of 7.5% to 8% average cost of project-level capital, battery attachment rates around 66%, and slight improvements to the timing of tax credit transfers as that market further matures. Our cash generation outlook does not reflect additional safe harbor equipment purchases. We expect solar install volumes to be approximately flat next year. As we achieve cash generation, we will continue to allocate excess unrestricted cash to deleverage, with a target to pay down parent recourse debt by $100 million or more by the end of 2025. We are committed to a capital allocation strategy beyond this initial deleveraging period that drives significant shareholder value. With that, let me turn it back to Mary.

Thanks, Danny. I appreciate the work of the entire Sunrun team. At our scale, even with more modest growth in new additions, we are adding over 100,000 customers a year, which is double-digit growth to our fleet, and with 66% battery attachment rates, that's well over a gigawatt-hour of valuable storage capacity, or the peak capacity of a nuclear plant on an annual basis. The strategic shift we undertook nearly two years ago to emphasize high-quality growth is yielding strong results in terms of repeatable and meaningful cash generation along with providing customers with a greater sense of independence, stability and security in their own homes. With that, operator, let's open the line for questions.

Thank you. We will now conduct a question-and-answer session. Our first question comes from Praneeth Satish of Wells Fargo. Please proceed with your question.

Thanks. Good evening. I wanted to start on the safe harbor. Maybe this is a simplistic way to look at this. But if I take the $350 million of safe harbor that you did and divide by 5% I get to $7 billion. That kind of seems like you could cover a few years' worth of solar and storage installations. I'm trying to square that with the commentary you made on how the safe harbor will cover, I think, solar installed for one year and storage for half a year.

Yes. Hey, it's Danny. I can help bridge that. We said in the prepared remarks it's about 12 months for solar deployments and approximately half the year for storage deployments. One element of the bridge is that with the amount of equipment purchases and the ticket price, it's not a perfect optimization for every project to exactly 5%. So the simple division would overstate the amount of coverage. Also, the amount of aggregate value against which it applies is the fair market value of projects. You should be looking at aggregate system value created over an annual period to bridge that difference. But it is roughly six months for batteries and about 12 months for solar-only projects.

Got it. That's helpful. Secondly, on the guidance, you're guiding to $200 million to $500 million of cash generation in 2025. You're committing to pay down $100 million of recourse debt, basically the working capital facility. That leaves a good amount of unallocated cash generation. Could you walk us through your priorities for deploying that additional cash and why not pay down more debt?

Yes. Priority is to continue to deleverage. As a deleveraging target, we're looking at a range of 1.5 to 3x free cash flow multiple, which for us would use cash generation. It's important to build multiple quarters of trailing cash generation as we do that, and continue the path of deleveraging. We're already multiple quarters into that path; achieving Q1 guidance would make four consecutive quarters of positive cash generation. We want to continue using this period to de-lever the balance sheet to within those targets, which is about a one-year outlook. Beyond that, there could be more deleveraging or substantially more than $100 million. We view $100 million as the floor. The ultimate priority is to strengthen the balance sheet during this period. As we get closer to our deleveraging targets, capital allocation beyond that period will come into focus and will be geared toward maximizing shareholder value.

Got it. Thank you.

Thank you. Our next question comes from the line of Philip Shen with ROTH Capital Partners, LLC. Please proceed with your question.

Hey, all. Congrats on your solid execution, cash generation, debt paydown, and stable performance overall during this challenging time. This stands in contrast with some peers in the industry who are struggling. I wanted to see if you could comment on the tax equity and upfront funding dynamics. It seems like things may be slowing down on the front end, especially following the election. Can you give some color on this? And importantly, how are you managing through a potential lengthening of the tax equity payment terms? Thanks.

Yes. On the prepared remarks we talked about $1.3 billion in tax equity added to our runway this year. If we include debt, we've had a busy start to the year raising capital and front-ending capital raises. That's $2 billion or more in aggregate if you add the two together. On the tax equity piece specifically, we're continuing to see the re-emergence of certain traditional tax equity buyers who might have been less active for a period. Traditional tax equity continues to participate in the hybrid transaction format. We've seen a broadening of the transfer credit buyer universe, with very large corporates increasing in the mix. Our investor universe is broadening and deal activity has been quite active at the front end of the year.

Right. As that buyer universe broadens, and with uncertainty around the IRA, have you seen payment terms change? Traditional tax equity investors syndicating deals may bring in newer players who might be less experienced and skittish about policy. How are you managing that? Also, on domestic content, last quarter you talked about Powerwall 3 not having shortages for you. Tesla recently shared new allocations for Q2. Are you getting the full allocation you expected? Thanks.

If you track our past commentary on the tax credit transfer market, there have been impacts to the price of credits we sell, and those impacts are already reflected in the system. Low to mid-90s cents per credit basis continues to be the price, and we're expecting potential for upside. Regarding tax policy uncertainty, people are generally comfortable with current law for in-calendar year 2025 tax credit sales and are underwriting those credits. So, we're not seeing any noticeable impact from that uncertainty.

I'll add on Powerwall supply: generally in great shape. We're steadily raising our guidance, and Tesla in particular remains a strong partner for us at generally keeping up with demand. We do have other partners in our fleet and portfolio that we use, and they have aligned supply chains with very little issues.

Great. Thanks, guys. Keep up the good work, and I'll pass it on.

Thanks.

Thank you. Our next question comes from the line of Maheep Mandloi with Mizuho Securities. Please proceed with your question.

Hey, good evening. Thanks for taking the questions, nice to see this cash generation hitting at $200 including that $18 million. Maybe one question on the guidance for '25. You talked about solar being slightly flattish. Is that due to your Affiliate Partners or a broader market slowdown or more competition with other leasing companies? Any color would be great.

Thank you for the question. Our volume outcome is a bottoms-up go-to-market approach. Our direct business is seeing solid growth. We are seeing less growth in Affiliate Partners. As you know, we shifted to a storage-first, margin-focused strategy that's generating cash. We feel we're growing market share and the data clearly indicates this.

Got it. On top of that, you mentioned one reason for reduced cash generation in '25 was a slow ramp in domestic content, which you noted relates to Affiliate Partners. Could you elaborate? Is that partners getting less domestic equipment or batteries or solar or anything specific?

Yes, exactly. There are challenges obtaining and qualifying domestic content hardware. As the rules evolve and clarity comes, operationalizing processes to qualify can be challenging for some smaller partners. That has impacted the ramp in domestic content qualification for Affiliate partners.

Good. Thank you.

Thank you. Our next question comes from the line of Colin Rusch with Oppenheimer. Please proceed with your question.

Thanks so much. Can you talk a little bit about the labor pool you're seeing right now and shifts in terms of any impact from immigration law or other folks exiting the business and being able to pick up new folks?

Thanks for the question. We're not seeing any labor impact changes. Sunrun repeatedly comes out as one of the best companies to work for. We have a strong pipeline to support our needs across the business. We're feeling really good in that arena.

On the second part of the question, as others slow down in this space, we are picking up talent. People see Sunrun as a safe haven and a place to build a long, stable career. On the sales front and installation front, we see people who have been out of the industry migrating to Sunrun.

Great.

Thank you. Our next question comes from the line of Dylan Nassano with Wolfe Research. Please proceed with your question.

Hey, good afternoon, everyone.

Hey, Dylan.

Sales and marketing seems to be one of the meaningful tailwinds for creation costs, which were flat in the quarter. Can you talk about conditions and competitive dynamics and how that factors into how you're paying commissions?

One area of focus has been standardization and speed in our operations business. Our operations team is the best in the industry and the fastest and most efficient they've ever been. As salespeople evaluate where they want to sell, the experience their customers get at Sunrun is first class. That helps us achieve commission leverage by providing a superior operations experience. Second, our product and being a storage-first business matters. Competing on price against utility rates is different than selling resiliency, battery backup, and future revenue sources through virtual power plants. More sophisticated salespeople recognize they can generate higher-value assets that earn more attractive commissions but create good economies of scale for us on a per-unit basis.

Got it. And on tariffs, the administration seems to be keeping everyone on their toes. Specifically for Sunrun, I assume exposure would flow through the snap-and-wrap business in terms of exposure to tariffs, whether China, Canada, or Mexico. Can you speak to any exposure you might have?

I'll address that at a high level. There have been various tariffs affecting the industry since 2012. Hardware is about a third of our total costs. We estimate an aggregate cost of about $0.20 per watt across elements, which equates to about a 13% increase to overall hardware costs. When you translate that to the overall capital creation cost stack, it's about a 4% increase in overall costs. A large portion of that has already been baked into our expectations. With pricing related to our safe harbor purchases already locked in, there is good mitigation for cost impacts this year. Ultimately, in 2026, this could be a few percentage points of potential impact, and we'll continue to grind costs down to be positioned to grow cash generation beyond 2025.

Great. Thank you. I'll pass it on.

Thank you. Our next question comes from the line of Brian Lee with Goldman Sachs. Please proceed with your question.

Hey, guys. This is Tyler Bisset on for Brian. Thanks for taking our questions. First, on your updated key assumptions for the different cash generation metrics, can you discuss what drivers led you to revise those? Is it just higher costs you're seeing or something else?

In the planning exercise, the ITC realization of 44% reflects a delayed near-term ramp, mainly related to the Affiliate Partner segment. We expect to reach 45% later in 2025, but conservatively plan at 44% for the calendar year. On cost of capital, we used 7.3% for Q4 actuals and planned a bit more conservatively, given volatility in rates. Battery attachment rates reflect updating to a normal run rate. We also provided commentary on volume and how that has moved from past outlooks.

Great, super helpful. On safe harboring, you spent $18 million in cash in Q4 to secure the $350 million. Should we expect continued cash deployment for that incrementally in the first half?

Not as a one-time activity. It will likely look more like run-rate activity through the year. There is consumption of equipment through the year, with cash timing of monetization and installs occurring concurrently with equipment payments for committed purchases. The one-time activity we called out in Q4 will run out over the year. Any future safe harbor activity would be incremental and we haven't planned for additional safe harbor purchases in the numbers, so there could be future impacts if we take on more safe harbor purchases.

Great. Thank you very much.

Thank you. Our next question comes from the line of Tim Moore with ClearStreet. Please proceed with your question.

Thanks so much. Investors are starting to appreciate your cash generation and focusing on that metric. With your guidance commentary on flat solar energy capacity installations versus robust growth in battery energy storage, and factoring in new home sales as a driver this year, can you provide any color on what you think revenue growth could be? Is upper single-digit growth for the year reasonable?

From a top-line revenue perspective, revenue should grow faster than units because we're creating higher-value units. Storage attachment rate growth, focusing on highest-value markets, and de-prioritization of solar-only all support that. Holding creation costs flat enables margin expansion and reduction in cost as a percent of revenue, correlating with cash generation. Our new metrics on aggregate value creation will help illustrate how top-line growth is not just units but higher-value units and margin expansion.

That's helpful. On irrational competitive behavior, you mentioned some new entrants are more rational and others are not. Can you give a flavor of how that behavior has changed? If it was a 5 out of 10 last summer, has it improved or worsened in recent months?

I would say it's relatively stable. When one actor who is pricing irrationally unwinds, another may appear and fill that spot with volume. The market share that is overpaying for assets remains but the identities of those players can change. So it's largely stable in terms of the percent of the market exhibiting those behaviors.

Great. That's very helpful. I appreciate that.

Our next question comes from the line of Vikram Bagri with Citibank. Please proceed with your question.

Hi, thanks for taking the question. Going back to the safe harbor equipment, are you able to quantify whether you'll face any higher inventory costs on those modules and storage that you're safe harboring this year? Is there any incremental warehousing costs that you might face on that?

You can look at the Q4 inventory balance which increased by about $60 million. So there is a little bit higher carrying, but that number is not $350 million. It doesn't show up as a big front-ended impact on inventory and warehouse costs. We executed the program in a capital-efficient manner using third-party capital to fund it, which implies some interest costs. The larger share of incremental cost is related to financing charges rather than holding costs, and we expect to be quite efficient on the holding costs.

Got it. One follow-up: what was the rationale for having a longer lead time on modules as opposed to storage for the safe harbor?

It's based on relevant availability in the market: one year of modules being available and one year of batteries not being as available. That availability dynamic informed the decision.

Okay. Thank you.

And that concludes the time that has been allocated for Q&A. You may now disconnect.