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Presentation

Operator: Good morning and welcome to Sunnova’s fourth quarter and full-year 2022 earnings conference call. Today’s call is being recorded and we have allocated an hour for prepared remarks and question and answer. At this time, I would like to turn the conference over to Rodney McMahan, Vice President, Investor Relations at Sunnova. Thank you. Please go ahead.

Rodney McMahan: Thank you, operator. Before we begin, please note during today’s call we will make forward-looking statements that are subject to various risks and uncertainties that are described in our slide presentation, earnings press release, and our 2022 form 10-K. Please see those documents for additional information regarding those factors that may affect these forward-looking statements. Also, we will reference certain non-GAAP measures during today’s call. Please refer to the appendix of our presentation as well as the earnings press release for the appropriate GAAP to non-GAAP reconciliations and cautionary disclosures. On the call today are John Berger, Sunnova’s Chairman and Chief Executive Officer and Robert Lane, Executive Vice President and Chief Financial Officer. I will now turn the call over to John.

William Berger: Good morning and thank you for joining us. Sunnova is in the best position we have ever been in, thanks to our Energy-as-a-Service business model and strong balance sheet. While others have cautioned about slowdowns in growth, demand for our energy services has never been stronger. Sunnova’s ability to provide customers with lower energy costs, higher reliability, and energy independence, all while offering a wide array of service offerings and unparalleled customer service, has allowed us to actively take market share and expand our total addressable market. On Slide 3 is a summary of our financial metrics for full-year 2022. Both Adjusted EBITDA and the principal and interest we collect from solar loans fell within our most recent full-year guidance ranges.

Slide 4 showcases the continued growth in Sunnova’s customers, battery penetration, and dealer network. During the fourth quarter, we placed a record 33,000 customers into service, which brought our total customer additions in 2022 to 87,000 and brought our total solar power generation under management to 1.8 gigawatts. These full-year customer additions represented a 62% customer growth rate year-over-year and equaled the midpoint of our guidance. Included in our fourth quarter customer additions were approximately 6,900 high-margin service-only customers. While most in the industry have ignored existing solar customers in need of repairs, we see great value in these orphaned customers as they require little to no capital, create opportunities for future upsells, leverage our extensive service footprint, and are immediately additive and highly accretive to our adjusted EBITDA.

We expect continued strong growth in this customer class as those non-Sunnova systems that were sold without a service agreement age across the country. We have seen the strong demand for our energy services carry into the new year as customer originations last month were approximately 125% higher than in January of last year, a trend that continues. While investors may be concerned that growing macroeconomic challenges could weaken residential solar growth, our business model has enabled us to navigate those challenges while also increasing our market share and total addressable market through our Sunnova Adaptive HomeTM and Sunnova Adaptive BusinessTM offerings. Additionally, our battery penetration rate continues to grow and reached 15.2% as of December 31, 2022, inclusive of over 2,500 battery retrofits we have performed life-to-date.

In the fourth quarter, we further eclipsed our year-end target of dealers, sub-dealers, and new homes installers, ending the year with well in excess of 1,000 dealers. Finally, we have updated our customer contract life and expected cash inflows. As of December 31, 2022, the weighted average contract life remaining on our customer contracts equaled 22.3 years and expected cash inflows from those customers over the next 12-months increased to half a billion dollars, an increase of 30% from December 31, 2021. Our ability to deliver on these metrics, despite various macroeconomic headwinds and significant growth investments, is a testament to the strength of our Energy-as-a-Service business model and our unwavering focus on long-term contracted cash flows.

I will now hand the call over to Rob, who will walk you through our financial highlights.

Robert Lane: Thank you, John. Starting on Slide 6, you will see the continuous improvement in our financial results over the past several years. Our 2022 revenue was over five times greater than our 2018 revenue, while over the same period, adjusted EBITDA nearly tripled, and the principal and interest we collected from solar loans increased by more than a factor of ten. Slide 7 summarizes our 2022 financing activity and current liquidity position. The financing transactions completed in 2022 included $552 million in tax equity funds, $1.1 billion in asset backed securitizations, $600 million of convertible debt, a $575 million loan warehouse restructuring, and a $690 million warehouse restructuring for our leases and power purchase agreements.

While our November 2022 securitization priced at a yield above prior securitizations, our weighted average cost of debt at issuance remains in the 400 basis points range at 4.5%. Additionally, more recent data points indicate that the cost of capital is potentially stabilizing for our industry while monopoly utility rates have continued to increase, giving us and our dealers headroom to expand our unlevered returns. Included in our $664 million of liquidity as of December 31, 2022, are both our restricted and unrestricted cash, as well as the available collateralized liquidity we could draw upon from our tax equity and warehouse credit facilities. Given available unencumbered assets as of December 31, 2022, this available collateralized liquidity equaled $118 million.

Beyond that, subject to available collateral, we had $316 million of additional capacity in our warehouses and open tax equity funds at year-end. Combined, these amounts represent nearly $1 billion of liquidity available exclusive of any additional tax equity funds, securitization closures, in the money interest rate hedges, or further warehouse expansions in 2023. On Slide 8 you will see our fully burdened unlevered return on new origination increased to 10% as of December 31, 2022, based on a trailing 12-months. On a quarter-to-date basis, this return equaled 11% as of December 31, 2022, an increase of 230 basis points since December 31, 2021. The implied spread for the trailing 12-months remained unchanged from the prior quarter as the increase in our fully burdened unlevered return was offset by a higher weighted average cost of debt, primarily driven by our November 2022 securitization.

Our current view of the capital markets suggests that the implied spread today has increased back to above 500 basis points, and we expect this spread to approach 600 basis points in the coming months. Slide 9 reflects the strong growth we have seen in our Gross Contracted Customer Value and Net Contracted Customer Value, or NCCV. At a 4% discount rate, wherein we originated our Triple-Double Triple plan, NCCV was $2.9 billion, an increase of 37% compared to December 31, 2021. Our December 31, 2022 NCCV at this discount rate equates to approximately $10,300 per customer and $25.02 per share. As of December 31, 2022, NCCV was $2.3 billion discounted at 6%, an increase of 42% compared to December 31, 2021. Our December 31, 2022 NCCV at this discount rate equates to approximately $8,200 per customer and $20.01 per share.

Our commitment to service allows us to benefit from low default and delinquency rates. This is not a new or unintentional phenomenon, rather it is the foundation of our business model. Currently, we are seeing approximately 25 basis points in value loss from net defaults, while the market assumes this loss rate to be closer to 120 basis points. This disconnect between reality and market assumptions directly benefits us as we have elected to retain the underlying contracted cash flows, meaning that the NCCV we actually realize in cash is above the discounted value, especially at higher discount rates. In the ten plus years Sunnova has been in business, our total capital loss for all systems is only $100 million, which represents less than 2% of cumulative capital deployed over those ten-years.

This compares quite favorably to the recent KBRA listed average of 1.4% for solar loans, which would have translated to a 14% cumulative capital loss for our peers taken as a whole over the same period. On Slide 10 you will see our NCCV per share as of our IPO date and each subsequent year-end compared to Sunnova’s share price as of the same day. While our NCCV per share has approximately doubled since our IPO, with over half of this value creation coming in 2022, our equity has not responded. In fact, even though our business model has created significant operating leverage and long-term contracted cash flows, shares of Sunnova recently have been trading, and continue to trade, well below our NCCV per share. This means our equity value is reflecting negative value for growth, our platform, and the customer option value we retain.

On Slide 11 we have taken a different approach to our valuation by referencing our stock price as a multiple of Adjusted EBITDA plus principal and interest from solar loans. Even though our key financial metrics have grown significantly, our valuation clearly has not followed suit. As at the end of 2022 shares of Sunnova were trading at a multiple lower than at the end of any of the previous years’ post IPO. This is all despite solid execution as a public company, rapid growth, and the passage of the Inflation Reduction Act. Slides 13 through 15 provide our detailed 2023 guidance and liquidity forecast issued during Sunnova’s Analyst Day and our major metric growth plan, the Triple-Double Triple. Given the strong demand we continue to see for our energy services, accompanied by our robust backlog and the insight we have into our future financial results from retaining our long-term contracted cash flows, we can confidently reaffirm our full-year 2023 guidance as well as our Triple-Double Triple Plan.

We expect to capture 10% of our 2023 adjusted EBITDA together with the principal interest we collect from solar loans in the first quarter, increasing to 20% in Q2, 30% in Q3, and 40% in Q4. We expect our 2023 customer additions to occur more evenly with 45% of additions occurring during the first half of the year. I will now turn the call back over to John.

William Berger: Thanks, Rob. Consumer energy service demands have quickly evolved over the last few years, and we have seen what used to be a simple solar sale shift in the consumers’ mind from that of a product purchase of panels on a roof, to a more sophisticated, technology-enabled service purchase. We continue to bring new technologies, such as batteries, load managers, electric vehicle chargers, quiet generators, and other hardware from various manufacturers together. We are integrating these technologies from various manufacturers in a way that delivers a superior energy service for the stationary and transportation energy needs of homeowners and businesses. We have increasingly seen more home and business owners acknowledge the inherent value of the energy services that Sunnova provides resulting in continued strong demand.

Illustrated on Slide 17, Sunnova’s Energy-as-a-Service business model, which encompasses our Adaptive Home, Business and Community platforms, our large network of dealers, and our access to best-in-class equipment manufacturers, is allowing us to scale at an increasing rate. By supplying consumers with best-in-market solutions that are supported by our Sunnova software platform and up to 25-years of Sunnova Protect service, we continue to pick up additional market share from single product and service-constrained companies and expand our total addressable market. On Slide 18 you will see Sunnova’s U.S. residential market coverage. We currently offer services in 54 U.S. states and territories. Sunnova has an extensive and growing footprint, and we are confident in our ability to reach comprehensive national coverage by 2024 with the broadest Energy-as-a-Service portfolio in the industry.

We believe that energy technologies should be integrated together through software and prompt service response to deliver a more reliable power service at a better price. Sunnova offers solutions that complement the energy sale and create additional pathways to value creation, allowing us to deepen our service relationships over time while increasing our share of wallet and overall NCCV per customer. This extends to our Sunnova Protect and Repair services and aggregation sales and is supported by our open approach to all forms of contractors and financing. The Sunnova portfolio is comprehensive and growing, and you should expect to see additional innovation from us in the months ahead. Turning to Slide 19, Sunnova’s commercial business continues to see significant market expansion and project pipeline growth, including demand for microgrids, electric vehicle charging, and resiliency solutions.

Escalating utility rates have further increased demand for Sunnova’s Adaptive Business offerings as business owners increasingly seek greater savings on operating expenses in a high interest rate environment. We will continue to expand Sunnova’s business markets to mirror our residential markets coverage. Indeed, Sunnova continues to execute across the board on our Energy-as-a-Service business model, we continue to take market share and increase our total addressable market, thus we are confident in our ability to meet or exceed our 2023 guidance targets. With that, operator, please open the line for questions.

Operator: And our first question today comes from Philip Shen from ROTH Capital. Philip please go ahead, your line is open.

Philip Shen: Everyone thanks for taking my questions. John, you said, originations were up 125% year-over-year in January, and you highlighted that this trend continues. You also maintained your 2023 customer growth guide. How much upside do you think there could be to that 35% year of year growth, where are you seeing that strength, which states and any states with weakness and then ultimately, with the lease loan mix in the originations what are you seeing there and do you expect that mix to shift in 2023? Where do you think this ends up in Q4 of this year?

William Berger: Hey, Phil, this is John. Lots of questions there, so let’s see if I catch then all. First, yes, the growth is extremely strong. There is no doubt about that. And what I would say is, is that we did have a I would say a vigorous debate about raising guidance on growth and decided to wait for at least the next quarter, the Q1 call give us another 60-days or so. If this does continue then we will readdress guidance at that point in time. But the growth is very heavy. In terms of where are we seeing it? I would say it is fair to say the Northeast mid-Atlantic is on fire, in the sense of demand. It has been very, very heavy. And it is not a recent phenomenon. It is been over the last four to five months. But we are also seeing some pretty good growth in Florida, Texas and across the mid part – mid-continent of the country as well.

We have never had a big presence in California. And frankly, that is not been a place where we picked up any incremental other than in terms of the overall growth rate of the company is obviously very high. So we continue to grow share out there. And when we do expect to pick more up especially after NIM 3.0 is put in place, just given our Energy-as-a-Service model versus a product sale industry that is dominated out there. In terms of lease and loan, we have definitely seen on our solar, if you will, transactions that don’t include some of the other pieces of the Energy-as-a-Service model, we have generators, batteries and many load management, EV chargers, et cetera. We have seen a decided shift to at least I would say in that kind of core part of the business with solar, a 60/40 split.

So we feel like that will move 65, 75, lease PPA to loan. However, I want to strongly caution that the other parts of our business that make up an energy service to the customer are typically dominated by loans. It can be for instance, batteries and generators and other services in products, load management, EV charging, et cetera and we are seeing explosive growth in those areas as a lot of customers don’t have those technologies, they are buying EVs, for instance. And so, we do want to caution that we think that there is still good growth in the loan side of the business as well. But overall, it is impressive growth. I think, it is very clear why we are experiencing the growth. The business has changed. The industry has changed. And the NIM 3.0 is actually a benefit to the service providers.

I think everybody has heard that now. I think our voice will be the loudest as we are the most focused and the biggest as an energy service company. And when you look at the sale of a service, it is a lot more complex. It is not a product sale. And that is something that goes to exactly what we are. And there is a lot of equipment out there. I think it is fair to say we are swimming in equipment as an industry at this point in time. And as you pointed out, and I ratified it as others have the loan-to-lease. And there is not many lease PPA providers out there that have the capability and balance sheet and financing capability to execute on that. So, we are in a very good spot, a really good spot. And as I said in my opening remarks, we have never been in a stronger position.

Philip Shen: Great. Thanks John. Great color there. My follow-up here is on new dealers. And we have been tracking the need for – and want of dealers to shift over to a lease platform over the past few months. Can you talk about your ability to onboard these new dealers in 2023? How many more could you add or have your inbounds from these new dealers accelerated in the past few months? What are your approval rates for these dealers, and could they be a source of upside to 2023 that people may not be thinking about? How much more upside could there be to customer additions from these dealers? Thanks.

William Berger: Yes. There is no question that we are seeing a huge influx of dealers. I would also say there is other industries such as I guess a broad description would be home automation with the load management. They have a lot of contractors that want to come in and provide entire Energy-as-a-Service model. Generator, contractors, obviously, they have got freed up capacity here over the last few months. And they are very interested in selling the entire bundle in services Sunnova provides. So there is a lot more sourcing of different types of labor out there and we are plugging and we have built a software platform and continue to do so. I would say that, software is really a weapon. And it is something that we all be increasingly focused on.

The service providers is what is your software capabilities, how can you include and incorporate all the different types of contractors that exist out there because there is many, many different models and they all have their niches and work in their own way. And we are seeing – I will give you a specific example. We had our dealer summit. And as a Founder, I would tell you I was blown away and this was about four-weeks or so ago, but just the sheer attendance. It was over four times what we had last year. I think there was a lot of good news that you and maybe others picked up on that. Everybody was quite impressed with what we have. We have a lot of work to do, but we are seeing a lot of interest in what we have to provide. So I think there is tremendous upside in the dealer growth number and that will continue to provide an additional lift on our growth.

Philip Shen: Great. Thanks, John. I will pass it on.

William Berger: Thank you.

Operator: The next question comes from Julien Dumoulin-Smith from Bank of America. Julien, please go ahead. Your line is open.

Julien Dumoulin-Smith: Hey, guys. Thank you so much. Appreciate the time of the opportunity to connect. Nicely done again. Just first up, service customer mix. Can you guys talk a little bit about how you are expecting that to trend through the quarter this year? Can you talk a little bit about what the economics of those customers sort of i.e. Like what are the various sources of these service customers, if you will. Just a little bit of the backdrop there. And then altogether also a little bit of mix of your customer origination regionally, as well if you can comment, given your growth expectations.

William Berger: Hey Julien, this is John. Yes, we are not going to break out the different types of services we offer at a contract is more than we have done in the – which I think is a lot, maybe too much in the back of the appendix in our slides. What I would say is that, we continue to see explosive growth in the service-only business. There is a aging fleet out there. There is some equipment that needs to be replaced. I think that is something that is not discussed a lot that there is – and it doesn’t mean, it is bad equipment, it just means that there is failure rates out there. And nobody is focused on it. The entire industry has been built on the new customer. I mean, the entire industry, the equipment, all of the other competitors we have, the loan only providers, the contractors, everybody.

And we are seeing a huge demand for customers as those power rates go up from utilities to have their system online 8,760 hours in a year. It is really not difficult. The power rate is a lot higher in the monopoly, and it keeps getting higher. So customers want that service on from Sunnova or are there other providers, if there are other product providers, if you will and so they call us to get repaired. In terms of the profitability, we are targeting that 50% gross margin and adjusted EBITDA per transaction. I wouldn’t say, we get all of it there, but that is where we are targeting. We do get quite a bit there. So they are pretty profitable customers and we still see a tremendous amount of demand and growth and we will continue to build out our software capability and our logistics capability both in supply chain and the actual our technicians that go out there and get things fixed for customers get them back online, where they can have a better energy service at a better price.

Julien Dumoulin-Smith: Got it. But you don’t have a specific expectation on, hey, out of the 120 for this year, we are going to do X amount of service arrangements versus more traditional type of customer contract at this point, you don’t want to set that expectation. Maybe the other one, the related one would be gain on sale type composition within your 2023 guide, what you would share at this point on expectations?

William Berger: Yes, I will turn that over to Rob.

Robert Lane: Yes, as you know, we hit our OCF positive back in 2021, which meant that the cash flow from the operating assets was more than covering the debt service and operating costs at that point. So, at the past two years, we have been using, again, on sale and accelerated payments to complement our recurring cash flows. You have seen this in our inventory sales. You have seen this in – we have some of the new homes customers who opt to go straight into a purchase of a system. So if we look ahead to 2023 and we are looking at the customer cash flows from the cash and direct sales inventory sales, direct service, new home sales, workflow activities, loan prepayments as well. I would probably put that in there. And ITC transferability that is allowed under IRA.

We are looking at that to be about 24% give-or-take of our customer cash inflows compared to about 17% is what we had in 2022. So, there is a bit of a pickup there as a total percentage. But it is really just continuing a trend that we had already started in 2021 and accelerated back into 2022.

Julien Dumoulin-Smith: Got it. Alright guys so much, thank you.

William Berger: Thanks Julien.

Operator: The next question is from Brian Lee from Goldman Sachs. Brian your line is open, please go ahead.

Brian Lee: Hey guys, good morning. Thanks for taking the questions. I guess on the guidance here, appreciate some of the seasonality and the cadence. But I had a question just if you look historically you had more, like 30% of EBITDA and P&L showing up in 4Q of each year. You are guiding the much more seasonal, the higher 40% for 2023. Kind of walk us through that, maybe the puts and takes and does that create more risk versus prior years given the higher back end waiting just wondering how you have the visibility here into the latter half of the year, especially 4Q given the high waiting there? And then I had a follow-up.

William Berger: Yes Brian this is John. I will answer the part of the question then turn it over to Rob to answer the remaining part. I want to first point out that the additions customer additions are more evenly weighted this year, and that is directly attributable to that. We have got either in service customers at this point, which are well ahead of the quarter plan, so far, and I expect that trend to continue or in the backlog well over 50% of the customers that we expect in our guidance at our midpoint already for this year. So I think that front end loading of the customers that we expect for our guidance plan is, part of the answer of this is that those cash flows will eventually catch up in the back half, but there is some other moving pieces as well or pieces, and I will let Rob address those.

Robert Lane: Yes, I mean, there is some stuff that we are front loading a little bit of some of our investments, and some of the stuff that we are working on for the full-year-end of the first quarter. And traditionally, we sort of spread those out a little bit more, but we felt it was in important to try to get some stuff done in the first quarter that we are going to have to expense just from an operating – just falls down into the operating expense. The second one is that some of the gain on sale pieces that we have already got in place are going to actually occur in the second half of the year. And so that is got a little bit of that skew. But generally speaking, I would say that a lot of what we have seen is an increase also in the pace of our prepayments, those have been accelerating.

And so, we actually did some of that late last year. But as we have seen that start to accelerate and as we have been continuing to originate higher interest rate loans the shaping of those CPR curves, the prepayment rates on those curves shift some of it into the second half of the year as well. So it is a combination of a lot of different things.

Brian Lee: I appreciate that color. That is super helpful. And then maybe just to stay on the guidance topic for a moment. And again, kind of a math related question, if you look at the45/55 split, you are talking about, I think, it is by design what you are alluding to in terms of the customer editions. But when you look at the year-on-your comp it means you are doing about 65% growth in the first half, 20% growth in the second half. And then, if my math is right, just given how strong your 4Q that just reported for end of 2022, and it seems like on a year-on-your basis, you may not even be growing in 4Q on customer additions exiting this year. I fall this math is correct. And so, maybe what am I missing there, it seems like a lot of your backlog is getting drawn down here in the first half.

You are going to have a fairly modest growth rate exiting the year. Just any early thoughts on 2024, I guess given that cadence you are sort of implying based on the guidance. Thanks guys.

William Berger: Yes. I would say Brian, it goes back to Phil’s question is maybe like in terms of when you look at the plan, and I think it is conservative, and I would tell you that there is no way that we don’t grow in Q4 year-over-year.

Brian Lee: Alright, fair enough. I will take it offline, thanks guys.

Operator: The next question is from Mark Strouse from JP Morgan. Mark please go ahead, your line is open.

Mark Strouse: Yes, good morning and thanks for taking our questions. Rob, I wanted to go back to your comments about the spreads. You are saying that you think today that they could be over 500 basis points getting to 600 basis per approaching 600 basis points maybe over the coming months. Just what provides the confidence inputting that statement out there, and how much of that is driven by the unlevered returns increasing versus the cost of capital decreasing?

Robert Lane: Yes. I mean, the first couple prints that we saw this year in the capital markets were decidedly better than what we had seen at the end of last year. So part of that is a tightening of the spreads, even with the slight increase in the base rates. But most of it is really the targeted fully burden unlevered return. There is just so much headroom that the utilities are providing us. We have been able to take advantage of some of that, pardon me with the dealers. Part of it also is a combination of the product suite. As we are adding more and more services, we are able to generally get higher margins based on a broader service offering that we are providing to the customer. So that is also helping increase the fully burden unlevered return.

As we look at the fully burdened number of return, one of the things that sort of endemic in it is that, you spread across that burden across the capital deployment base. So the larger the amount of capital that you are actually deploying over a period, generally speaking, the less burdensome that full burden is becoming. And just given the high rate of acceleration that we are still finding in our sales and in the types of sales that we are making, that continues to go up. One thing that sort of gets buried a little bit in the customer count is, all the upsells that we are getting from customer. And the up sales are some of our most profitable sales, but we are not counting that customer again. So when we go and say, hey, here is a customer, they were maybe a generator customer to becoming – now they are becoming a solar customer, but not having to reacquire that customer, which is really the most expensive part of the actual of the sort of denominator, if you will, of the fully burdened unlevered return.

So a lot of what we are seeing with continuing to build-on and add-on customers has been adding to that fully burdened unlevered return as we go along. And I would say sort of the last thing is that, even though we are here in the first quarter, and when we look at sort of the seasonality of our fully burdened unlevered return, we are still seeing that fully burdened unlevered return entering the year really about the sort of the same strength levels without seeing some of the things that add on to that a fully burdened unlevered return. Some of the market segments that tend to be a little bit more seasonal, haven’t even started kicking in yet, really in earnest, but they are starting to pick up. So we have a lot of faith in that burdened unlevered return continuing to push up and to grow and certainly we expect that to be – we would love to see that get into its awkward adolescence and teenage years if we possibly could, but we are seeing really a lot strength in the fully burdened unlevered return and that more so than the stabilization of the capital markets is where we are seeing that opportunity for the spread.

William Berger: Mark, this is John. Just to highlight, we have done price increases already in the last few weeks. We will do more in the coming days, and more after that, is what I anticipate. So we are continuing to seeing and exercising pricing power.

Mark Strouse: Got it. Okay. Thank you both. Just a real quick modeling question, Rob. The inventory sales numbers ticked up this quarter. How should we think about that and what is embedded in your guidance for 2023?

Robert Lane: The inventory sales number I think for the fourth quarter is pretty indicative of what we are expecting more or less for the year pretty much at that pace. The inventory sales tend to be a little bit more seasonal as well mostly because a lot of it follows the installations in our more battery rich areas. And sort of if you could see, the battery penetration rate as that continues to grow and the acceleration of the battery penetration rate that is going to reflect the sales of that equipment because the dealers want it in a just in time basis. They are not looking to hold a whole bunch of inventory. And so I think that is the way to sort of think about the shaping, but the magnitude of fourth quarter is pretty, pretty representative, I would say, of where we expect to be on a full-year basis.

And it is not – as you know, it is a profitable piece of our business. It is not really where we are seeing the margin being driven necessarily as much as we are in other areas. It is just a nice little compliment to begin on sale.

Mark Strouse: Okay. Thanks very much.

William Berger: Thanks Mark.

Operator: The next question comes from Corinne Blanchard from Deutsche Bank. Kareem, your line is now open. Please go ahead.

Corinne Blanchard: Hey. Good morning everyone. Just maybe if you can comment or provide any more color on the battery attachment rate and where you see it coming maybe over the next two quarter?

William Berger: Yes Corinne this is John. There is seasonality in some of our markets, typically on the islands Puerto Rico’s included in that. We do see quite a bit of seasonality with the holiday vacation schedule shall we say. And that definitely does provide as those mark – as that market continues to grow. We as everybody knows, we have been in Puerto Rico now for 10-years and really we are the first and by far the largest player service provider on the island have deep commitment to that island in that community. And that does provide some seasonality in the storage attachment rate. I do think the NIM 3.0 in California will start to pick up a battery attachment rate quite significantly here later this year. And candidly, I think that the price declines in that we see that will happen in the ESS products will certainly help incent demand.

Before you ask it, I do see that any equipment, and this is certainly our assumption, if it doesn’t happen then that is upside. But we are assuming that all the equipment price declines that we are seeing and expect to see across the board will endure to the benefit of our dealers. So, that I think, will all whether they choose to pass some of that along to the customers, I would suspect so. But that will incent more storage demand as well.

Corinne Blanchard: Great, thank you. And my other question would be, did you include any of the II or the ITC other into your guidance or is it still something that you are waiting to get more clarity from the department or the II?

William Berger: Yes, we are actually waiting to get more clarity, I would say, especially when it comes to the LMI adders. We really we are really not expecting any of that to come in into 2023. We are looking at that as much more of a 2024 phenomenon. Based on the recent guidance that was put out, which we felt was unfortunately not very friendly to consumers. But I guess consumers – LMI consumers will just have to wait another year. We do have a little bit on the domestic content that is in there, but most of it is really just based on the 30% ITC. So obviously, there is upside, and as we get more guidance we will plan for that upside. It goes back a little bit even more to Mark’s question. I think that, we could – if we get more guidance, we could certainly see even more uplift in our expectations for the fully burdened level returns.

Corinne Blanchard: Great, thank you.

Operator: The next question comes from Maheep Mandloi with Crédit Suisse. Maheep your line is now open, please go ahead.

Maheep Mandloi: Just a question on the – this quarter but how should we think about the cadence through the rest of the year for 2023? Especially looks like the guidance Q1 sequential Q4 should expect reduction there and eventually, can you €“ that 600 basis points is just what you talked about?

William Berger: Yes Maheep, this is John. I would say that you, we continue to see strength here, and Rob ranked reference to it. Some of our markets that are a little more seasonal, that we are just now starting to see impact are a little more profitable. And we expect that will start to continue or put some upwards pressure on the unlevered return here over the next few weeks. How much of that falls into Q1 versus Q2 and beyond? Don’t know. The price increases that we have done, so this quarter late last year, and will do this quarter will definitely have a material impact on the unlevered returns. So, I would say that we will continue to see movement upwards. I don’t have, a lot of visibility as far as right now is about how much upwards, but we do expect to see that the unlevered returns would continue to move upwards from that 11%.

Maheep Mandloi: Great. Thanks. And sorry if I missed this but did you talk about your service-only customer mix for the full year embedded in the guidance there?

William Berger: Yes, we did. It was a previous question, and it was Julien’s question. We are not going to break that out. I think, we have got enough data back there too much I think most people and investors think. But what I will tell you is regardless of the type of customer or what we sell to that customer, whether it is an upsell, whether it is a solar, solar plus storage generator, battery only, and you name it, we are energy as a service provider. And the metric that I look at and make sure that we are and keeping ourselves honest as far as value creation is NCCV per share and NCCV per customers another metric that is obviously very much related to that. And as long as NCCV per share is going up at whatever discount rate you pick, we are creating value and we are creating a large amount of value.

And I think it would be a good exercise for analysts and investors to go take a look at the contracted cash at whatever discount rate they want to use, divide it by the number of shares out there. It would be an interesting insightful comparison amongst us and some of our peers. You will find that we dominate on the contracted cash on a per share basis and per customer basis. And so that is including all types of customers, all types, and we don’t duplicate the customer once. As Rob just mentioned, once we sell you your unique customer, as we continue to upsell, we do not count those as additional customers, because that is obviously a single customer. So NCCD per share focus on that. That is the value creation. And then adjusted EBITDA plus P&I gives you a very good sense and investor’s sense of the operating leverage we are creating.

Maheep Mandloi: Got it, I appreciate that and I will stop there. Thanks.

William Berger: Thanks.

Operator: The next question comes from Ben Kallo from Baird. Ben your line is open, please go ahead.

Benjamin Kallo: Great, thanks guys for taking my question, good morning. So, in the liquidity forecast for 2023, you have debt proceeds of tax equity 900 million. And I just wonder, as you have moved to lease PPA, maybe Rob, how much progress you guys have made on that number, and if there is any constraints there? Then I have a follow up.

Robert Lane: Yes. We closed five tax equity funds in the fourth quarter. So we feel pretty good. We are working on two expansions of existing funds. Right now, we have a number of term sheets in front of us. We have a number of other discussions for additional tax equity. We have folks who do perpetual funds that we have already got lined up. One thing that has been interesting has been on the transferability that there continues to be a lot of new folks who want to – who express some interest in coming and in doing some stuff on the transferability side. What has been very hardening to me is that, there are a number of folks who do have significant tax capacity out there, who have been very happy with us in maybe a toe dip fund, maybe $50 million in a prior year who want to come back and do much larger funds this year.

And we have tried to make sure that, we have a diverse amount of capital providers in there, coming into our funds, that is really inured to our benefit. My accounting folks really, they don’t love having to do a bunch of different HLBV accounting, but that is the price that you pay and my hats always off to those guys. So we are going to – we feel very good about that, about that position, about the tax equity availability and probably, I would say, we have probably never been in a stronger position as far as tax equity availability. I think that in an environment like the one that we are in right now with the IRA and with the expansion, you have really increase interest in folks, who might otherwise not have entered the market. But at the same time, they want to go with established players in the space and there is really only a few of us that they can really get that comfort around that have all the engineering, that have the controls in place, that have the reporting capabilities, so that folks feel very comfortable that, what they are getting is a legitimate tax credit that they can monetize and won’t have to worry about recapture.

Benjamin Kallo: Thank you. In the weeks here, but the customer acquisition costs ticked up in the quarter. Could you just talk through that?

Robert Lane: Yes. I mean, just one of the many legacy metrics that are out there, pardon me, in part, because you really just used to have one or two markets and everybody was a PV only customer and back then that was probably a pretty good market. As we are adding more and more services per customer and we are doing more where we are doing the sales to existing customers, but not really adding on another customer into the denominator. You can continue to see that tick up. So if we are just talking about someone putting six KW panels up on their roof in a cookie cutter fashion, that is certainly going to help the number come down. That is not our typical customer. We are seeing bigger systems. We are seeing batteries. We are seeing as we add more and more services.

As John mentioned, EV chargers, main panel upgrades that folks actually need to get in a lot of cases when they add on solar and storage folks who want to add a generator for belt and suspenders whatever it is. We are just seeing the average ticket price go up. And then that is actually driving back to the earlier comments. I was talking about fully burdened unlevered return that is you have more committed capital, you are spreading across that sort of same cost base. That helps to push up the fully burdened unlevered return as well. So we would expect to see that actually continue to rise. And I would call it an antiquated metric. But I would say, it is actually indicating something different this time around, which is the health of the industry and really the health and the benefit of having multiple services that we can provide to a single customer.

Benjamin Kallo: Got it. Last one, John. On Page 19, the go-to-market says selectively pursuing large opportunities. Could you just walk us through that, what you are thinking about there, I know you have guys have done a lot on partnerships and such – and then you have done acquisition or two, but what that means there? Thank you.

William Berger: This is addressing the business markets division that we have in that. We have seen a lot tremendous amount of traction there. We have closed on some customers and we have a very healthy and growing pipeline. The returns are quite nice. And when we look at as far as the other partnerships and ways to go to market, there is a number of partnerships that we have in the works right now. I think you saw the recent USAA announcement from us, expect more of these types announcements and I guess. And I’m going to assume that buried into that question is something about international. Yes, we are going to go international. We are going to do this in a methodical fashion, but we will fulfill our name as Sunnova Energy International. We will do it.

Benjamin Kallo: Thank you.

Operator: The next question comes from Ameet Thakkar from BMO Capital Markets. Ameet your line is open, please go ahead.

Ameet Thakkar: Hi good morning guys, thanks for taking my question. Rob, I was just wondering, the $2.4 billion of non-recourse debt borrowing for the year, should we kind of assume sort of the same proportion of securitizations in the ABS market that you did in 2022 as part of the 1.7 billion that you got done?

Robert Lane: Yes, that is right way to think about it.

Ameet Thakkar: Okay. And then, just back to the guidance on the customer account growth, I was just wondering if you could kind of give us a little bit of sense on the proportion of, of that growth that is kind of from on a same store basis from your existing dealer network versus an expansion of the dealer network?

William Berger: Yes, that is not something we are going to break out, this John, by the way. But I would say that, our existing dealers continue to grow at a pace that surprises me. But I would say that a good chunk are new dealers. Now, some of these dealers in most cases, they take a while to really ramp up. So a lot of these that we already had and ramping them up maybe as far back as Q2 of last year are really starting to hit stride of a Q1 of obviously of this year. So I don’t – if I gave you a number, it would just be a guess. I’m not going to do that. We only give numbers out that we are certain about. So, I would – I’m not answering your question, but I would say that it is definitely, we are still seeing a lot of surprising growth out of our existing dealers.

One thing I will add to try to give you something is that we are continuing to sign up exclusivity agreements at a blistering pace. That is something that a lot more of our partners want and want that certainty. They want the broadest product portfolio in the entire industry by far. And that the biggest geographic footprint in the industry by far. And they can also now get in access into the business markets if they want to do that, and they can’t get that anywhere else as well. So, we have got a lot to offer. The software can use to be something that is becoming more and more powerful. And whether it is a loan lease or a PPA or all the other products we have, we have it for you. So, and we invite you to come over if you are a great contractor, treat customers fairly and do great service.

We want to be partnered with you.

Ameet Thakkar: Thank you.

Operator: The next question is from Sean Morgan from Evercore. Sean your line is open. Please go ahead.

Sean Morgan: Hey, thanks guys. I mean, we talked a little bit on Puerto Rico before, and I think John, we have kind of talked about how sometimes prep with maybe not the most consistent service has been kind of a solar ambassador for you in a real – strength for Nova. So I’m curious, this public-private partnership with another U.S. public company, do you think that is going to have any impact on sort of the sales strength you have had historically in Puerto Rico or do you kind of do this as just going to be a continuation of your strong book of business down therewith maybe some minor modifications?

William Berger: Yes. Sean. What I would say is that there inherent in our service is that we match generation to the load on site. There is no way physically for any centralized power provider to beat that reliability. And so we feel quite comfortable that reliability as a whole and macro trend is going to continue, and certainly continue there in Puerto Rico. I think, the company you are referring to, I think is a very well run company. I think, they will do a great job. We look forward to working with them, and provide better energy service to the island and to the community of Puerto Rico. So any way we can help, we are certainly here to do that. I would also offer up that, as recently as over the last few days, there are many other states outside the territory of Puerto Rico, which is obviously a part of the United States that have power reliability problems that are pretty extreme and of the same sort.

And one of those is here in Texas as well. So I would say that our demand is not for our service is certainly not limited to Puerto Rico or any other island. And we see that demand trend not only continuing for better energy service at a better price, but accelerating.

Sean Morgan: Okay, thanks John. And this one probably may be best suited to Rob, but it is sort of an accounting matching question on the ITC. And I know, we are still waiting from for treasury guidance on some of this, but when you start recognizing systems with the ITC attached, is because – is that because it – if there is a tax sort of implication to it, do you book it in the following tax year or will you be booking ITC credits sort of in real time as you are recognizing revenue on systems?

Robert Lane: So, we have always booked it, pardon me, in real time. We remember we are consolidating onto our books as well. And then we are deconsolidating the partnership side of it through NCI. So, if somebody’s receiving the tax credit in that tax year, it gets sort of taken in, and then taken back out through the NCI. But it is always recognized in the year in which the asset is placed into service. Now, we have also have historical times where in the past we had not been using tax equity back several years ago. We have built up significant, ITC credits that we still have as a company. And those are actually good for never – next several years. But the credit gets recognized in the year in which the system is placed into service. Same as it would be for the homeowner, by the way in the loan. So, it is the year that their system is placed in the service is the year that they get their tax credit.

Sean Morgan: And the cash, I guess, would be recognized when, from the homeowners perspective, that you guys file their taxes, right now?

Robert Lane: Correct. But we have – for us it depends on the tax equity fund. So some tax equity funds allow us to fund at different stages along the way, and then their IRRs make it calculated based on that when that gets, put in – when we actually bring the cash in. Often times, the cash in. I’m getting really wonky here, so my apologies everybody on the call. But some of that cash goes into restricted cash, where it gets held until it reaches the next stage, so they have to fund at a certain point. Anyone who is investing in a tax equity fund and once the tax credit has to be an investor at a certain percentage prior to the date that the asset itself goes into service. So they can’t just say and they can’t just be an IOU, they actually have to put cash up.

Often times that gets put into restricted cash and then ends up getting released when the asset is placed into service. So if you look at the different types of flip structures that we have, I would say, generally speaking, you will find that, the yield flip structures are more willing to fund earlier and some of the calendar flip structures will tend to – some of them will fund earlier, some of them will fund only a percentage like say 20% prior to the asset going into service and the rest immediately upon the asset going into service.

Sean Morgan: Okay. Thanks. That is really helpful.

Operator: The next question comes from Pavel Molchanov from Raymond James. Pavel your line is open, please go ahead.

Pavel Molchanov: Thanks for taking the question. John, you mentioned, and I’m quoting, we are swinging in components and hardware that is quite a big change versus a year ago. What do you attribute that to?

William Berger: Every cycle or every market has a cycle and there is equipment cycles. We have dealt with that in the industry. I think a lot of investors and others have not experienced an equipment cycle and it is pretty normal just like an interest rate cycle, where a lot of us that have been alive never experienced interest rates going up as much as they have. So I think it is just normal. And there will be overtime winners and losers in the equipment side. But the number of manufacturers of high-quality gear is tremendously increased. We have greatly value our partners and I will leave it to them to make commentary as far as if they are individually taking market share or not. But, look, do some just rudimentary calling around, I think some of this is a big part of the fear of demand in the industry.

Every contractor has a chalk full warehouse of equipment of all type. We do have our warehouses, all the equipment sold by the way, but we have it as well. We are seeing it in distributors and it is across the board and more is coming. With the IRA incentives you have to produce here in the United States no matter what the supply-demand picture is for that – whether it is a panel inverter or ESS. So it is just to state the facts, nothing but the facts is, there is a lot of equipment out there and more is coming. And I think that is obviously very good for consumers, very good for demand for us and our service peers and it is a big reason, why I think people a lot of investors, so demand was flat missed it, as far as if you look at the demand that the service providers like us and our two peers are saying it, that they are seeing out there, that is a big reason for the miss.

You are looking at the wrong data point.

Pavel Molchanov: Let me follow-up on the commercial market. Historically, you have given guidance as customer additions, and if some of these new commercial customers are 10, 50, a hundred times what a residential system would be in scale, how is that going to change the way you guide?

William Berger: Right now, it is not going to change. We don’t anticipate a change. And we continue to see that our residential business, particularly with our models energy as a service, with all the different services and products that we can offer is going to continue to be a very large portion of our business and certainly isn’t our guidance. So right now it is not a material, if that changes over the next couple of years or so, we will revisit that. But right now, we don’t see it changing the way that we guide.

Pavel Molchanov: Okay. Thanks very much.

William Berger: Thank you.

Operator: The next question is from Abhishek Sinha from Northland Capital. Your line is now open, please go ahead.

Abhishek Sinha: Hi thanks for squeezing me in. Just one quick, we talked about the tax equity funding. I’m just curious how big of a project like in megawatt could be funded by tax equity availability that you have right now?

Robert Lane: What we have right now, we will probably fund most of what we have during the year and what we have for term sheets and everything else. We will, we will fund at least the rest and into 2024. It is about the same position we were in last year.

Abhishek Sinha: Okay. And quickly on any comment on the G&A progression, how do you see that in 2023, 2024 as you progressing to a couple of years?

William Berger: I’m sorry, the G&A progression?

Abhishek Sinha: Yes, sir.

Robert Lane: So, like the OpEx, we are going to expect to see that on a, on a per customer basis – have a little bit of fluctuation. If you go back to sort of the first, I think it was under Brian’s question when he was asking about the shaping and why did we expect to have a little bit more adjust EBITDA in the latter half of the year and a little bit less in the first half of the year. And I said part of it was some stuff that we are going to be doing that has to be expensed in the first quarter. But generally speaking, as we go on to later into the year, would you expect the G&A to come down relative to the size of the size of the adjusted EBITDA, together with the P&I. But we are a rapidly growing company, we are investing in service offerings and that takes people that takes equipment.

And while we expect to continue to create operating leverage and we expect to continue to create customer – sorry, I’m sorry. Customer value we will expect that we will have an increase of G&A but not an acceleration of G&A. It will continue to decelerate.

Abhishek Sinha: Got it, sure. Thank you. That is all I have.

Operator: The next question is from Ryan Levine from Citi. Ryan your line is open, please go ahead.

Ryan Levine: Thank you for taking my question. Follow-up on Puerto Rico, appreciate the caller on the prep agreement. But can you speak to if the company is pursuing any of the billion dollar Puerto Rico energy resilience relief package from the DOE, or how that could impact the outlook for the company?

William Berger: I would think that anything of that sort given our strong position and market share and just part of the community for that number of years over 10-yearsis something that we would certainly be involved in. I don’t think it is appropriate for us to comment on any sort of transactions or potential transactions or discussions that we may or may not be in.

Ryan Levine: Okay. Appreciate the color. And then just lastly, in terms of kind of distributed generation connection issues that or just in terms of hook-ups for electricity, for end retail customers, are you seeing any impacts for delays from the utilities and is that impacting your outlook in any of your jurisdictions or any of your locations for growth for your resources?

William Berger: Yes. That is a great question. Certainly, we would’ve grown even more last year had it not been for anti-competitive behavior and anti-consumer behavior by a number of these utilities. We are addressing them with the respective public utility commission as we find more and more of this type of behavior. I would think at some point in time, maybe the federal government would be interested in the anti-competitive and anti-consumer behavior that these companies are showing and doing. And so, we have seen a pickup in some of these areas as that those public utility commissioners have done a great job of intervening on the behalf of consumers and changing that behavior. But it is going to be an ongoing war. I mean, it just to make them do the right thing is something we spend a lot of time on.

And I’m proud to say our government affair steam is the best in the industry, and is doing a really good job of highlighting this for the commissioners across the country. And we will get it done. We will figure it out how to get them – the utilities do be consumer friendly. But it is an effort each and every day.

Ryan Levine: I appreciate the color. Thank you.

Operator: We have no further questions at this time, so I will hand the call back to John Berger for concluding remarks.

William Berger: The industry has changed. Consumers buy a better energy service at a better price, not a product. We have, and we will continue to expand our addressable market and take market share. Thank you for joining us.

Operator: This concludes today’s call. Thank you very much for your attendance. You may now disconnect your lines.