Sunnova Energy International Inc (NOVA) 2021 Q1 法說會逐字稿

Good morning, and welcome to Sunnova's First Quarter 2021 Earnings Conference Call. Today's call is being recorded. (Operator Instructions) 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.

Thank you, operator, and good morning, everyone. Yesterday, we released our earnings press release and posted a slide presentation to the Investor Relations portion of our website, which will be referenced during this call. Joining me today are John Berger, Sunnova's Chairman and Chief Executive Officer; and Robert Lane, Executive Vice President and Chief Financial Officer.

Before we begin, let me remind everyone that this call may contain certain statements that -- forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about future expectations, beliefs, estimates, plans and prospects. Such statements are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in our press releases and filings with the Securities and Exchange Commission. We do not undertake any duty to update such forward-looking statements.

Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in our earnings release.

I will now turn the call over to John.

Thank you, Rodney. Good morning, and thank you for joining us.

2021 is off to an excellent start, thanks to strong Q1 results, the quick closing of the SunStreet acquisition and our continued ability to grow faster than the overall market. Sunnova is well positioned for an exciting year ahead, which includes delivering on its reaffirmed full year 2021 guidance.

On Slide 3, you will see the details of our strong operational results where we grew our customer base, increased both our battery penetration and attachment rates and continued to expand our dealer network.

Our customer growth remains healthy as we've added 8,900 customers in the first quarter of 2021. This is before any contributions from the SunStreet acquisition, which closed on April 1.

On storage, we continue to see strong demand as frustrated homeowners seek out more reliable and resilient energy solutions to combat outdated and ineffective power grids. As discussed during our last earnings call, this demand outpaced available inventory in the second half of 2020, resulting in an industry-wide supply constraint in energy storage systems. However, these constraints began to subside in Q1, resulting in an increase in our battery attachment rate on origination from 19% in Q4 2020 to 23% in Q1 2021.

With this strong customer focus on reliability and resiliency, we continue to see an increasing penetration rate of storage on our full base. Our penetration rate now sits at 10.5% as of March 31, 2021, more than double where it stood just 1 year ago. We expect this rate to rise even further and could see it reach as high as the mid to upper teens by the end of the year on an expected customer base of roughly $200,000.

This exceptional growth is fueled by our over 500 dedicated dealers and sub-dealers, driven by the attractiveness of the Sunnova network -- we anticipate our dealer count to grow even further in the coming quarters and be at or near 1,000 by the end of 2022.

Finally, on this slide, we've added information on customer contract life and expected cash flows. As of March 31, 2021, the weighted average contract life remaining on our customer contracts equaled 22.4 years, while the cash inflows we expect to receive over the next 12 months, taking into account only our existing customer base of 116,400, stands at $266 million or $2,285 per customer.

Turning to Slide 4. We provide a summary of our Q1 2021 financial results. In our Q4 2020 earnings call, we noted that we expected to capture approximately 15% of both our full year 2021 adjusted EBITDA and principal and interest from solar loans in the first quarter. I am pleased to report we exceeded that target, as actual Q1 2021 results were all ahead of that goal. As expected, our cash flow results were negative for the quarter due to the typical seasonality of our business as well as the impact of large annual cash expenses exclusive to Q1. We continue to anticipate large year-over-year growth in adjusted operating cash flow for full year 2021 as well as maintain a breakeven midpoint on our recurring operating cash flow, so investors should expect these results to be positive for the balance of the year.

On Slide 5, we provide a summary of our full year adjusted EBITDA and the principal and interest we received on our solar loans from the past few years, including our guidance estimate for 2021. As you can see, we've experienced significant growth in these key financial metrics, with adjusted EBITDA expected to double between 2018 and 2021 and solar loan P&I to increase 7x over the same time period. This rapid growth, together with the anticipated issuance of a nonamortizing green bond at the corporate level, should translate directly into a significant increase in recurring operating cash flow in the coming years.

On Slide 6, you will see both our gross contracted customer value, or GCCV, and our net contracted customer value, or NCCV, are experiencing significant increases year-over-year. Using what is now a conservative discount rate of 4%, NCCV increased from $1.2 billion on March 31, 2020, to $1.8 billion on March 31, 2021. This equates to roughly $16.62 per share as of March 31, 2021, which is approximately a 15% increase from March 31, 2020. We continue to see NCCV per customer and services per customer trending higher.

The NCCV per share calculation is relatively straightforward. It excludes any value for growth renewals or upsells, given that these cash flows are financed almost entirely with debt, whose interest rate would continue to lower and presently sits below the 4% discount rate used to calculate NCCV. We view this as a metric that is well below any reasonable valuation floor for our common shares. As such, we encourage investors to consider other valuation methodologies such as those that utilize cash flow metrics or consider attaching a multiple to a forward estimate of our adjusted EBITDA and the principal and interest we received on solar loans.

Although these metrics, especially NCCV, varying growth quarter-to-quarter due to financing transactions, onetime items and growth intensity, we do expect these metrics to grow at or above the rate of our customer growth when viewed over several years. The growth in adjusted EBITDA and the P&I from our solar loans should trend higher than the customer growth once meter replacement spend ends and growth investment abates in the coming years.

Earlier this month, Sunnova published its inaugural ESG report, detailing the company's strategy and performance on material ESG themes. As noted on Slide 7, this report is aligned with the leading ESG frameworks, including the Sustainability Accounting Standards Board and the United Nations Sustainable Development Goals.

As I have said from the beginning, I founded Sunnova to deliver a better energy service at a better price and to make a positive difference in the lives of our customers, community and the world. I firmly believe that we have a moral imperative to make the world a better place for future generations. And at Sunnova, we intend to do just that by leading to a cleaner and more sustainable energy future.

Since inception, through the end of 2020, Sunnova Systems have generated 2.4 billion kilowatt hours of clean energy, resulting in 1.7 million metric tons of CO2 avoided. Not only did our systems help address climate change and avoid pollution, but they also provide our customers with affordable and reliable power that they can feel good about. While we believe that our core business is fundamentally more environmentally sustainable than the old energy paradigm, we also believe it's important to not rest on our environmental strengths alone but to also focus on being a good corporate citizen and making a positive difference in the communities where we operate.

We are proud to support high-quality and good-paying jobs in both Houston and across the United States and its territories. In addition to supporting green jobs, we've also supported our communities in times of need such as after Hurricane Maria struck Puerto Rico. In the aftermath, Sunnova was there to support power service recovery efforts by donating panels and batteries to families and nonprofits in need. To this day, we remain by far the largest residential solar and storage service provider on the island.

We are also committed to upholding strong corporate governance practices and conducting business the right way as our core values of service, synergy and sustainability underpin our corporate culture. We look forward to continuing our work on ESG, and we'll continue to communicate our progress over time. We welcome your feedback on our first report as we enhance our strategies for long-term ESG performance.

I will now turn the call over to Rob to walk you through our financial results, our recent financing activities and our guidance in greater detail.

Thank you, John. Turning to Slide 9, you will see the momentum we have gained in our first quarter results over the past few years.

For instance, Q1 2021 revenues are up 55% from Q1 2019. While over the same period, adjusted EBITDA, [principal] and interest received on solar loans increased by 58% and 237%, respectively.

As John noted earlier, Q1 historically generates negative adjusted and recurring operating cash flows, which you can see reflected on this slide. However, the year-over-year trend remains up and to the right as we gain operating leverage.

Slide 10 summarizes our recent financing activity. The 2021 financing transactions completed to date include our first solar loan securitization of the year in February that was sized at $189 million and a weighted average blended yield of just over 2%. Other financing activity included a loan warehouse restructuring of $350 million and $75 million in new closed tax equity funds. We have additional commitments of approximately $500 million of tax equity that we expect to close in the near future.

We will continue to work with lenders to properly finance the company with the goal of increasing near-term cash flow to the corporate balance sheet. To facilitate this, we remain focused on the issuance of a green bond within the next few months, which should help turn our strong adjusted EBITDA and P&I growth into strong recurring operating cash flow.

Our total cash balance as of March 31, 2021, was $263.5 million, up from $169.2 million at March 31, 2020, but below our all-time quarter-end high of $377.9 million at December 31, 2020. This decline since the end of last year was primarily driven by over $30 million in securitized debt paydowns; intentional underbuying on our warehouse facilities; the timing of tax equity contributions relative to fund-specific construction milestones; the overall seasonality of cash flows, as previously discussed; and a high level of EPC spend, fueled by our robust growth that made up approximately 84% of the company's total cash outflows for the quarter. In summary, this change in cash primarily reflects our usage of working capital to facilitate our high rate of growth.

On Slide 11, we provide additional color around unit economics. As you will see, our fully burdened unlevered return on new origination was 8.9% as of March 31, 2021, based on a trailing 12 months, while a similarly calculated weighted average cost of debt was 3.1%. This resulted in a trailing 12-month implied spread of 5.8% as of Q1 2021, above the 5.1% spread for full year 2020.

As a technology-enabled service company, we focus on the long-term relationships we have with our customers, which serves as both our value driver and cash flow engine.

Looking at our margins across all services and service contracts, we estimate that net of allocated overhead, we achieved approximately 60% of our net spread from financing our service contracts and approximately the remaining 40% from all our other service offerings. We have seen this split move more towards a lower percentage generated from the financing of customer contracts as the number of and contributions from Sunnova's nonfinancing services grows and expands, a trend we expect to continue for the foreseeable future. We estimate that we achieved a gross margin of 50% on our service revenues.

While unit economics can fluctuate quarter-to-quarter, we expect to continue to see improving fully burdened unlevered returns. This is true regardless of any average system size, regional mix or even contract mix, such as the shift that we are currently seeing away from leases and PPAs to more loans. As we have noted on numerous occasions, we are finance contract type agnostic and are thus just as happy to add a customer under a loan contract as we are a lease or PPA. Furthermore, no matter what type of contract a customer chooses, all customers benefit from the peace of mind that comes with Sunnova Protect, Sunnova's comprehensive service solution.

Additionally, we will also target similar or greater returns on any new service offerings that become available, such as electric vehicle and secondary generation, which are expected to launch by the end of this year.

On Slide 13, you will see our guidance ranges, which remain unchanged from when they were raised in our last earnings call. We continue to be highly confident in our ability to hit our 2021 targets, thanks to the inherent predictability in our business model and stronger-than-expected first quarter results.

As of March 31, 2021, approximately 86% of the midpoint of our 2021 targeted revenue and solar loan P&I are already contracted to existing customers as of that same day.

As we forecasted, the SunStreet acquisition closed at the very beginning of Q2, and thus, we continue to anticipate 9,000 customers added in 2021 through our new home business. Additionally, as of March 31, 2021, we have spent approximately $4 million of the anticipated $30 million in integration and transaction costs we expect to spend over the next few years associated with SunStreet.

In our last earnings call, we estimated that our adjusted EBITDA and the principal and interest we received on solar loans will increase by 75% in 2022 compared with the midpoints of our 2021 guidance. I'm happy to report that after our most recent forecast update, we now estimate this increase will be closer to 80%.

We are also maintaining our year-over-year increase in customer growth of 40% for 2022 over our 2021 levels, although we were becoming increasingly more constructive on our 2022 growth.

Finally, we remain focused on bringing down our cost on a per system basis, which we did in the first quarter of 2021, and expect to continue to do so in the coming quarters. As such, even with meter replacement costs of $10.5 million in 2021 and [$9 million] in 2022. We continue to expect a 25% reduction in adjusted operating expense per system between 2020 and 2022.

I will now turn the call back over to John.

Thanks, Rob. Until recently, our industry was dominated by a solar-only sale that primarily focused on saving homeowners money as compared to the centralized monopoly power rates.

Storage and the increasing consumer demand for a more reliable and resilient power service has catalyzed our industry to move towards an integrated multiple technology solution sale. This is the wireless power service that we've been building for a number of years and to which the industry as a whole is beginning to pivot towards. To serve customers with a wireless power solution and make it as efficient and worry-free as possible is a significant technological, logistical and operational undertaking. Sunnova has been and is continuing to invest in software capabilities that enable services to be delivered to consumers.

In addition, platform companies such as Sunnova are providing an increasing amount of services and scalability to originators, installers and closely partnering with the best equipment innovators and providers in the world to create and deliver these integrated technology services to homeowners.

We have woven these software and service capabilities together to create an interconnected platform that we call the Sunnova Network. As we attain an increasing amount of scale, we can better utilize the Sunnova Network's combination of software and services to enable certain aggregation capabilities and to create additional value for not only our customers but also our dealers and equipment partners.

It is this cohesion of the 3 components: software, services and aggregation, that creates tremendous value for our dealers, equipment partners, and most importantly, our customers. Sunnova, along with its dealer and equipment partners are increasingly building bigger moats against competitors, including the existing centralized utilities. Our unique capitalization strategy has also reached a major tipping point that will produce greater cash flow to the shareholders of Sunnova.

Since our founding, we have focused on doing what was right over the long term. And now that patience and investment is paying off with significant competitive advantages and greater cash flows for years to come.

With that, operator, please open the line for questions.

(Operator Instructions) Your First question is from Kashy Harrison with Simmons Energy.

Great start to the year. So I'll start with the big one. A few days ago, Enphase indicated that they're going to have issues meeting demand throughout 2021 due to chip shortages, and this has weighed on the sector, just given the potential for bottleneck. Can you help us just provide some context around your supply chain, what gives you the confidence that you can hit your numbers for the rest of the year? Maybe anything surrounding the amount of inverters you have on your inventory backlog or storage systems and what you're hearing from all your major suppliers. Any context at all would be great.

Certainly. Thanks for the question. First and foremost, I wanted to point out that we were the first ones, way back in July of last year, to signal that there was supply chain problems and specifically in the energy storage system area. I think it took several months for others to recognize that.

On our last earnings call in late February, we said that we saw those constraints freeing up a bit, specifically on energy storage system. However, if you'll recall, at the end of the year -- of last year rather, and through the first quarter, we did express that we thought there might be a little bit of tightness in the inverter supply marketplace and maybe specifically 1 or 2 players, if you will, and providers.

I would say that what we did there is that we have a fairly significant safe harbor inventory of inverters. We did stockpile a lot of those quite a bit, and we have them. And we also stockpiled quite a bit of energy storage systems, and we have those.

We also, again, anticipating this issue, further purchased more inverters in anticipation of something going wrong. As recently as a few weeks ago, I didn't think anything would go wrong. It appears that there is at least a bit of difficulty with at least one supplier, and we're pretty covered in that regard.

So we also have a very large purchasing power, as I'm sure a couple of my other competitors do as well, and anything else that we would need [to] get, but we have plenty. And indeed, I look at this as an opportunity to drop some of our inventory down because we're quite confident, especially listening to President Biden's address to the nation last night, that the Ford ITC extension around 30% will get extended at some point here in the coming months.

In addition to that, on the energy storage system, which has been our problem, we do see, and this is very recent information, that our anticipation of a loosening of that, again, if you recall back to the Q4 earnings call a couple of months ago, we thought that the energy storage system market would loosen up in terms of supply towards the end of this Q2, beginning of Q3. I am pleased to report that we are seeing that possibly loosen earlier and in particular, with one partner, and we see that loosening happening in the next 3 to 4 weeks. There'll be a couple of weeks of delivery time to our various locations around the world, around the country. But we're also seeing quite a bit of new very well-managed, very competent firms such -- and partners of ours such as Generac, is ramping up quite significantly, innovating their product quite aggressively. Enphase has done so as well. And I would note that Patrick made a comment that he doesn't see any problems there with the in-charge system. And indeed, we have a lot of those already in place and moving towards our previously sold storage customers.

In addition to that, we're anticipating SolarEdge to launch their product out here in the next few weeks as well, although Zvi can certainly cover that in his earnings call.

So all in all, we actually see the supply chain situation improving. We have prepared for what we thought would be the bumps in the road quite more than adequately. And we actually are quite optimistic, and we don't see this getting in the way of anything that we have planned to do in the coming quarters.

And Kashy, if I can just add real quick, on the 10-Q that was filed this morning under the inventory note on Page 11, we've actually broken out the ESS and modules and inverters that we have within our inventory. And you can see that we still have quite a few of both. And that modules and -- sorry, modules and inverters is a lot more weighted towards inverters. So that's our safe harbor, in addition to those other purchases that John had referenced.

That's excellent color. Appreciate it. And then my second set of questions around California. Just curious if you're seeing any demand pull forward associated with the uncertainty surrounding net energy metering.

And then maybe not quite related to that, but are you also seeing interest from homebuilders other than Lennar in using the SunStreet platform that could help you further penetrate the new homes market? And I'll leave it there.

Thank you. On the California question, no, we're not seeing pull forward yet and wouldn't have expected to. And again, we expect that process to maybe take a little bit longer time to work itself out, probably -- certainly at the very end of this year for the commission -- California Public Utility Commission to make a decision, maybe even early next year.

The other part of that, of course, is that we expect that the leaders of California will recognize that the amount of good-paying jobs and so much progress has been made. And really, California has done an excellent job of leading the country. Everybody knows this in a clean energy world, which obviously is now just dominating the entire country, and as we move forward and really rapidly transform our energy industry into a clean and more reliable energy system. And so we see that the California NIM process will end in the right way. And so I don't anticipate that there will be any part of demand pull forward, but that's certainly something we wouldn't expect to see until much later this year, if any.

On the second, yes, we've had several wins of late. It didn't take long to close on that acquisition, and we already had several big wins. Most of these homes, I think, would come later in this year, just given the build cycle times and into 2022. It's one of the key reasons why we're starting to get very, very constructive on 2022 growth. And so yes, it's already directly paying off, or we're making more wins, and we certainly expect to see a lot more wins as we fully integrate the SunStreet platform into the Sunnova platform.

Your next question is from Philip Shen with ROTH Capital.

As it relates to the growth rates, you're targeting just about 100% year-over-year in '21. Q1 came in lighter. So I was wondering if you might be able to share how you expect customer additions to trend in Q2 and 3. And to what degree do you think we could see upside to that '21 growth rate, given the rate at which you're adding dealers?

Just to cover off real quick the rate, Phil, I think that when we had done our first quarter -- our year-end call, we guided that we expected about 30% of the customer adds to happen in the first and second quarter, and about 70% of the customer adds to happen in the third and fourth quarter. I think we're still very much on track for that given where we came in this quarter and given the trajectory.

As far as upside opportunities, I'll probably let John cover that. But I think that we actually came in very much where folks were expecting and, actually, ahead of where most of the consensus was.

Yes. I would say that we're actually trending more towards the 35, 65, maybe even a little better weighting on that. So I'd say we're in decent -- we're in pretty good shape.

I don't want to comment anymore on '21 growth. It's already pretty heavy. Quite candidly, I don't really see that's reflected in our equity. And I don't think there's any point of pushing it up further. We're seeing a lot of strong growth. We're seeing a lot of growth in areas, more specifically in services offered per customer, whether it's new additional technologies, generators, EV charging, load managers, a bunch of these technology that we laid out in our third quarter 2020 call. And we simply are rushing as fast as we can to get those implemented, put into nice products, make sure we have the appropriate licensing, get those out to our dealers, train them up how to sell and how to install, and that just takes a lot of time. It's a huge operational lift and it takes some time.

And again, we're seeing these opportunities pull forward. And so again, as we look to 2022, we're getting very, very constructive. So that's all I'll say about growth. And hopefully, we continue to execute and the investors will appreciate that growth rate.

Great. My second question here is around unit economics. It looks like you were able to expand those economics in the implied spread nicely to 5.8% from 5.1% in the year-ago period -- actually in the Q4 period on a trailing 12-month basis.

But in your footnote there, you highlight that I think the spread is even greater. So I was wondering if you could talk about kind of the Q1 expansion and then also what you might see in terms of that implied spread ahead. I think you talked about the fully burdened unlevered return expanding as well. So anything on a forward-looking basis would be great.

Sure, Phil. Yes. So if you look at our last year, 2020, it was roughly about 510 basis points of spread. And we certainly see that much higher. We are seeing our unlevered returns, and a bit of a surprise, but continue to be fairly strong, and we don't see any dissipation in that.

We also achieved a record low and then a lot of our other competitors followed up. So it wasn't a one-hit wonder, so to speak, just a couple of weeks later in the midst of, I would add, the worst bond market performance, I think, since the early 1980s. So the risk-free certainly did not have the impact -- negative impact.

And so if you took that spread that is increased towards 9% and higher, and you have a 2 -- call it, low 2s cost of capital all the way through 100% of the fully burdened cost, you start to get something that's closer with a 7 handle on it, so to speak.

I think that the best way to do this is to look at a trailing 12 months, both Rob and I have looked at this and said there's some volatility with the issuance of securitizations (inaudible) and timing of financings and so on. And so I think that's a better way of looking at things. And so that gives us also a more conservative standpoint to be able to look ahead, and say, yes, we think these returns either stay here or move higher. And we're quite confident that we can move higher in the coming quarters. So we're doing very well on that. And I would say that, that is a bit of a surprise, how strong those spreads continue to be.

Your next question is from Brian Lee with Goldman Sachs.

Kudos on a good execution here. John, maybe just a follow-up on that. I know you guys are focused on the spreads, and rightfully so, that's the right way to represent increasing value of the business model. But you guys have historically talked about net contracted customer value per customer. I didn't see that in the slide this time. I might have missed it, but you usually disclose them way in the back. Was that left out deliberately? You said, I think, in the call that the numbers have moved up. Could you give us some sense of where those are and how they've been trending here?

I don't think we had actually listed out the net contracted customer value per customer. We certainly have the numbers in there. We have the number of customers, and we have the NCCV. But I don't think we'd actually run that calculation in the back of the book. That being said, it still continues on trend to be very strong.

Now if you take a look at what we expect to happen on a per customer basis going forward, there's going to be some stuff in there that changes that a little bit. Recall that for SunStreet, we're going to pick up about 35,000 customers to 45,000 customers, that we're going to actually bring into that denominator that we're just providing the service for at this point and that we expect to have a lot more opportunities with. And in addition to that, we're going to have the new homebuild customers, which typically have smaller systems and typically have systems that don't have batteries attached to them. So that's going to change that NCCV per customer metric as well.

I think what we're really concentrated on is how we can continue to raise the NCCV per share at the same time and then come back to the SunStreet customers and raise the NCCV per customer on them as we do on a look-forward basis.

But yes, that isn't a number that was taken out. The only number that we took out, and we did, in fact, preview this last time and say, in fact, that we were, was the net system value per customer. Again, for the same reasons that we had mentioned last time that it doesn't really make sense when you're trying to look across geographies, when you're trying to compare different system sizes, when you're trying to compare systems with storage, systems without, different types of tax equity and the like. So we felt that was, again, sort of an archaic metric for the industry. But if you still need the NCCV per customer, you definitely have the 2 numbers on these -- on Page 29, you can run that back.

Yes. And I think -- Brian, I think, roughly -- I think it's roughly about just south of $16,000 per customer.

And just to be clear, as we laid out previously, by 2025, we still see the number of services per customer getting towards in that range of 7, and that NCCV per customer being roughly in the $18,000 to $20,000 range as a target. So that's still the same even with the acquisition.

Okay, that's great. I apologize, I [don't know] semantics. I was actually speaking to that metric around the net system value per customer, but I appreciate the additional context there.

Maybe as a follow-up and also on the unit economics, the creation cost leveled off a bit here. They were actually down a decent amount in leases on a quarter-on-quarter basis. I know this jumps around a bit, but is this mix? Or what kind of drove those dynamics? Are you seeing some cost savings? And where are those coming from?

Really, the primary driver is as we grow, just getting more and more operating leverage, scaling. We talked about this for a few years, right, Brian, is that we grow the business up, we just scale the cost. And as we continue to have this rapid growth, we're going to continue to scale the cost out, and we've laid out what that cost reduction looks like.

I think in the forward years, once you start taking out onetime items like meter replacements and so forth, you'll see an even bigger pickup. I think probably a more simplistic way of looking at that is, as I mentioned in our opening comments, the adjusted EBITDA, plus our principal and interest from our solar loans or loans, that should continue to trend much higher. And over time, you should expect to see that trend higher than the customer growth.

And you've seen that. We've done that in a few quarters, even over a year or so before we went public. And we're sort of experiencing such a high rate of growth right now. There's about a year lag in spending, as I've talked about previously. But as -- again, as you move forward and you get bigger and bigger, the law of numbers, right, and talk about the forward years, you would see that growth investment, et cetera, slow down, abates, as I made in my comments, and these onetime items drop out, and you'll see even higher operating leverage that's already embedded into the company right now. So we're quite big and, really, certain of moving forward with increasing our operating leverage.

Okay. That's great. And maybe if I could just squeeze one last one in, on the financing side. The refinancing, you guys have kind of been telegraphing this for Q2. We're there now in terms of timing. Can you give us a bit of sense around maybe more specific timing, and then the magnitude of what you're thinking of doing there and what sort of cost of capital you think you can achieve versus what you will be refinancing and taking off the books?

I think it's pretty clear that we've been targeting our earlier securitization, that there's definitely opportunity there. If you take a look at any of our first 3 securitizations, the cost of capital there is well, well above 2x or more, above what we can achieve in the market today.

And then sort of regular cadence, you could see that we tend to do a securitization on the TPO side. It's been accelerating, certainly, over time. We did about 1 year, moving up to 2 a year. I think that with -- if you're looking at that, you should still expect to see something here by the mid-summer, certainly not earlier than that.

The market still remains very strong. And one thing that we're really happy with, and you saw this not only in our securitization but in the ones that immediately followed, is that there continues to be compression on the spread. So that even with interest rates having a little bit of volatility to them, the overall rate that we're able to achieve in the market is still fantastic. And that's because of, a, just this overall recognition that this asset class has more resilience than just about any other; and b, that the service level that we are providing, especially being really the only ones providing this high level of service on loans, is keeping the customer happy and paying, and that -- those low-default delinquency rates are really being recognized by the market.

Yes. And Brian, I would just add real quickly to that is that it wouldn't upset us in the least bit to see the risk-free move up here 20, 30 basis points or whatever. And why is that? That seems a curious comment.

Well, it's because, as we've laid out in the previous call, we do have hedges in place. And those hedges, once we break them and trim out the debt, that means money upfront we will collect because they're in the money.

And then on the other piece of this, to build on what Rob was saying, is that it's very difficult when the risk-free was plummeting like it was last year, to get that spread, that risk premium spread to compress. It actually expands, if you look at this time last year, right?

And so as the risk free moves up, what you're seeing, and you saw this in February, and we expect that to continue as you would see the risk premium compress because, again, most investors in the ABS market are absolute yield investors.

And so what that means is, that's how you make money, is having that risk premium compressed, and that's what Rob was saying, and we continue to see that.

So we actually are not upset in the least bit to see the risk-free move up here even as much as it's done over the last few months. And if it moves up a little bit more, that's not a problem. And it's actually, the way Rob and I laid it out, a little bit of a benefit to us.

Your next question is from Ben Kallo with Baird.

So a few questions. If the dealer network [could add] up, can you just remind us, there was a big pickup there, and just remind us kind of the percentage of exclusive relationships there. And then maybe, John, just what's driving, first, for you guys to keep tying dealers up? That's my first question.

Yes, certainly. I think we've -- honestly, I have lost track of how many exclusive relationships we have. We continue to see and escalate in terms of request for those and signing of those quite a lot. And they have -- each of them are slightly different transactions or documents, depending upon the requirements of that dealer. But it is a very large part of our network.

And I think the practical reality is this is where the industry is trending towards. I've talked about this for a number of years. It just makes sense. Look, if we're not the right home for you, go marry up with other service provider and platform. But the idea about moving in between the service providers and platforms is just -- it's not realistic.

As the industry becomes more of an integrated technology solution sales, we laid out, and we've been more specific on Slides 15 and 16, and hopefully, it helps investors really understand what we're talking about.

And again, I don't see this as unique to us, necessarily. Our competitors would probably set themselves up and see this as very much in the same way. But it's driving more of the requirements of software and services to these dealers. So more and more, as this becomes more complex and you want to offer a simple solution to the customer, it's becoming stickier and stickier with the dealers.

Now why do they come to us? Well, aside from charisma or anything else that my folks have, not me, but my folks, I think it's pretty clear. It's -- we're dedicated. I think we're not going to compete with our dealers. We have everything invested in them to be successful, and they know that. We have the widest equipment partnerships in terms of the best technology, the best partnership. This firm partners well. We play well with others, and that's been very, very helpful. And I see that continuing to be a big part of the value that we provide our dealers.

These software tools that we have, we're about to, in the next few weeks and months, we are going to launch out a number of big, huge steps in software capabilities for our dealers across the board, whether it starts in the origination side, all the way into commissioning and making sure that the equipment is done and turned over properly. And when you look at the capitalization strategy of the company, it gives them a lot of peace of mind. They're going to get paid.

As we, again, go towards and being very close and issuing the green bond, start flowing more and more cash to the equity, that also gives them peace of mind that they're going to get paid and they have the ability to marry up, if you will, over the long term.

So each of these -- I don't think I'll take the time, obviously, to go through all this in aggregation services as we continue to provide a lot of value there, especially on the storage side of things to our dealers. Each of these is a huge network and a huge value set that goes to our dealers. And in many ways, this is very unique to us.

Now we've got to continue to work hard, continue to push on this and continue to innovate, whether it's software and services and our aggregation capabilities. But I feel very good about where we're sitting, competitive wise, and you're right, it is driving a lot of a very large amount of dealer growth. And for the first time, we feel very, very comfortable of saying, "Look, given our trend, we see this doubling on a fairly large number of 500 by the end of next year." I think that this is astounding growth and goes to our point about pointing towards our growth rate.

Great. That's my third question. My second question, though, just on the green bond. Could you just maybe talk a little bit about that, then within your guidance, if that's clear at all in any of your metrics on the green bond?

We haven't really talked too much about it. I think that we don't want to get too far ahead of it. What I would say is that anything we would do in that area would be accretive to our primary metrics, especially to the recurring operating cash flow.

It still remains something that we want to be prepared for, deliver for, that we do still very much intend to do. But I don't want to get out ahead of my skis here. But it is a big focus of mine. And part of the point is that it would be very accretive to ROCF. But the other part is that by retaining the cash flows, we're really the only ones in that position to be able to go out to the market and do something of that nature. So again, don't want to, don't want to get out ahead, but it's still very much a focus of what we're trying to work on.

So my third question is about getting out ahead from your skis. So you guys throw out your 2022 numbers for all of us, who have been following solar for a long time, we can look at that as reckless. But I guess it's also better visibility than anyone else has. So I guess why do you do that? Can you give those -- that kind of forward visibility there? And just maybe just from a high level, what gives you confidence to start throwing out 2022 numbers?

Yes. I think, first of all, in our financial metrics were adjusted EBITDA plus the principal and interest from our customer loans and cash flow metrics. Right now, at the end of March 31, I think we have 86% of our cash flows locked in for the year.

And so, look, I wouldn't say that we just mail it in and be done with it. We certainly, with this high rate of growth, we've got to manage the expense side of the equation quite carefully. But we do have a huge amount of visibility on the financial metrics across the board because of our very conservative capitalization strategy.

And so when you do gain on sale, nothing wrong with that, but it does have a lot more volatility to it. So our belief is that investors, over time, will appreciate the stability of the financial metrics, the conservatism that the company has been set up with.

And I would point out that if you go back and you were to go look at late 2018, early 2019 before our IPO and you were to look forward in time and look at all these metrics, we've exceeded them. And that, again, goes to the stability and conservative nature of the way that the company is set up. And again, I hope investors start to appreciate that.

As far as [the dealers], that can vary. It does vary more. But again, we're counting a customer when they go in service and the rest of the industry, I think, is doing very early stage or equipment installed, which is fine. But it will lead to more volatility in the quarters ahead and not as much certainty. And so a lot of what we have right now, and we're looking forward, certainly, for this quarter and even next quarter is we already have it in hand. And so that has been giving us a lot more stability and predictability and then having a lot of our dealers. And having good plans as far as the software building and other capabilities and new technologies, new products. We have the ability to integrate not only lease and PPA, but loans and do to create some very innovative products out there. And again, it's creating a stickiness factor with dealers, and it's something that we continue to be able to look at to have that kind of stability with those exclusivity and arrangements with our dealers and more and more, like I said earlier, want those exclusive relationships with those.

So it's just setting ourselves up and it's taking the pain in the short term, focusing on the long term and making sure we're set up in a way that we can give more predictability to investors.

Great. And just for the record, I wasn't calling you guys reckless. I was saying that we would think that was reckless.

Yes. No, I appreciate that, and I appreciate that. Look, I mean, I want to make sure, Ben, that -- look, do I make sure that it's something in focus of me and the rest of the management team and the Board. We constantly are looking at this and pushing. This is not easy. This is not easy. .

But we have a great strategy. We've been conservative on how we set the company up. And that's been painful in the front end, I can tell you. But over the long term, I just permanently believe doing what's right in the long term and being conservative is going to pay off.

Your next question is from Julien Dumoulin-Smith with Bank of America Securities.

Maybe if I can pick up off of that last dealer conversation here. Given the expectations to double by year-end '22, what does that mean about implications continued customer addition growth into '23? I know you said you were cautious to give too much incremental on customer growth. But clearly, the implication of just annualizing the 1,000 dealer target by year-end '22 should have pretty sizable indications on '23 compounding growth, right?

Well, now forecasting into 2023, to Ben's comment, probably is reckless for me to do that at this point. But look, I understand running a valuation analysis of the company you look at. Yes, it obviously is going to have a positive knock-on impact to growth. And I don't want to get into what that is. But you should definitely look at that as a positive impact on growth.

And I would also add, and becoming just as important is the launching of new service products, upsell opportunities to our existing customer base. And we just simply cannot get all of that out the door fast enough and really up and running against a huge operational lift. And we just see enormous amount of opportunities. Grid services, we're running flat out. Microgrids, that's something that I thought would take a while. We're getting inbounds like crazy from folks like, "We want to do this. We want to do this project."

And then you got generators, you've got EV chargers, you've got load managers. All this stuff is coming so fast. And that's going to have knock-on implications, particularly into 2022 and beyond, upselling more services, making more margin, more revenue per customer on both the existing customers and new customers.

So we -- again, we laid it out in the Q3 call last year that we're growing and seeing a lot more opportunities to grow both on the per customer basis, old and new, and then on the overall customer growth.

Got it. And then if I can pivot back to that inventory and supply question here, can you elaborate a little bit more, especially on the supply side and storage, considering Tesla's commentary about shifting away from providing power walls to third parties? Just talk about the overall mix and [stability]. And then more importantly, perhaps, how does this reconcile against your overall attach rates and the year-end penetration targets to the mid-upper teens if you will?

Yes. To our knowledge, and it's very recent, I think that the relationship there with Tesla is very good. It's something that we value, and I think they value it as well.

I would say that we're not aware that they will not sell to grid partners like ourselves. And so we continue to take delivery of units and expect delivery of units and, again, value the relationship there. I think that was mostly a commentary that Mr. Musk made on not selling his service part of the business without batteries. And I applaud him on that.

And I think that's exactly that's where we think everything is going to go, I think faster than people think. I do think we're going to need to see some price declines in the ESSes in the coming couple of years or so to really get that penetration rate up there. But I think we're going to get it.

And I think the point is, I laid it out on answering the first question, which is we have a lot more partners on the ESS side. SolarEdge is coming to market and we know that they're going to have a good product, a very well-run company, good partner. And Generac is continuing to do a lot of great things that innovate their product road map. And what they're doing is just -- it's unbelievable. And they're going to have a lot of new products out there. Enphase is doing a phenomenal job. So there's going to be a lot more availability just period out there. But I think that's great. And I think Elon would agree, having a lot -- there's a lot to do. There's a lot of business out there. And we want to do what's right and make the energy system convert over because we have a climate emergency. We have a major humanitarian crisis that we need to solve, and there's plenty to do. And so we see a lot of different partnerships, and they're bringing new products and they're innovating those products rather quickly.

So overall, there's no way that we're not in a better situation in terms of this company and speak to that in the coming 3 to 6 months on ESSes than we've ever been.

With no firm year in commitment?

Firm year commitments in what, Julien?

Total penetration by year-end?

Well, I've talked about it in the commentary about penetration rate moving from the 10.5% to kind of mid- to upper teens. That is something about as close as what we'll get at this point to move in and consider the new home market, which is going to have a little bit of a slower uptake, possibly. Maybe I'm wrong on that. On storage penetration, we're certainly going to push it. But we don't know how exactly all that math will work out.

I will tell you that including yesterday and the last few weeks, our storage penetration rate is moving right back up very smartly from the 23% and pushing into the 30s. So I think we're in good shape. And I think that the guidance I gave out, there's probably better than anybody else is willing to give. And again, to do anything more than that, I think, would be a bit reckless on my part.

Your next question is from Michael Weinstein with Credit Suisse.

Okay. So a lot of my questions have been answered, but maybe you could talk a little bit about the -- if you look at the fully burdened return or IRR of 8.9%, right, trailing 12 months. If you look at the first quarter alone, it's 9.1%. I think that's a decline from fourth quarter of 9.7%. Is there something you could talk about there about what's driving the reduction?

Yes, it really is -- there's a lot that influence that on a quarter-to-quarter basis. It could be the structure in the terms of certain tax equity funds over others. It could be the geographic mix. It could be the difference of mix of different products and so forth. So again, I think what Rob and I are looking towards is just say, look at the trailing 12 months, and that gives you the general trend, of -- focus on that."

But look, I'm proud of the 9.1%, I'd tell you that. I mean, I didn't see that one coming. And again, who knows, at this point in time, could that move back up? Possibly. But 9.1% is pretty (expletive) good. And again, and point to trailing 12 months, I think we give investors the best visibility to the overall spread.

Yes. I'm going to go ahead and take that. I mean we want to -- what we don't want to do is to have the deployment into a particular tax equity fund or if we're doing more loans or leases or if we have a big boon in one state or territory, to make that go up or down and then point to it and say, "Aha, that's the number right there." We really want to look at it on an overall company basis and over a broad enough period of time that we can actually get some insights out of that number.

Makes sense. And I think you said something earlier about with green bonds that your advantage is that you have -- you're retaining the cash flows, right, the green bond. Is that -- what does that mean in terms of ABS and tax equity usage going forward? Is that going to be less?

I think we still look to the ABS market. We still look to the tax equity market. I think that where there's some advantage is really how we do some of that structuring within the ABS market. And again, your firm, as you know, we do a lot with them. So really looking forward to continuing working with them on optimizing those structures.

Got you. And in terms of the dealer landscape, you're projecting about 1,000 next year. What is the -- what's the total addressable dealer market out there? How many dealers are there? How many sub-dealers are there? At what point does Sunnova University really have to kick up the gear?

Well, we still have a ways to go, we think. And I would say that there's thousands out there. Certainly, if you do the math and several thousands. So -- and they're growing in number. And I'm seeing -- continuously seeing new names and some folks leave others and start their own and so on. And that's just normal, not just this industry, but whether it's cellular, telephony, satellite, cable television, home security, et cetera.

So we see ample opportunity, really do. And at the same time, we're going to -- we're getting very serious about -- and diligent with Sunnova U. So we want to -- we want to create more. We need a lot more. Let's get even more growth in the outer years.

Got you. One last question. On Slide 23, looking at cash assets, there's a dip there in the latest quarter. And this is a number that steadily grows over time.

Just wondering, I mean, if you look at total cash, including construction in progress and inventory, that fell basically $100 million in the quarter. What's driving that number?

There's a couple of different things that are going on there. One, we had a restructuring of one of our credit facilities that released a lot of cash that have been held in reserve. So we had some significant reserves in one of our credit facilities that we were able to get released. We lowered some of the debt ball. We're not -- we didn't borrow 100%, close to 100% of our facilities, which we tend to do up at month end. So that was there.

The first quarter is usually going to be a quarter where you're going to see some fall anyway from the prior quarter. And in fact, if you look back historically, the first quarter is always a little lower than prior quarters. But when we have more and more securitizations, the ROCF impact is going to be greater in that, that we paid off $30 million worth of debt in that first quarter in that securitization debt.

And then the final thing is that we really started ramping up on our EPC. So I say the final thing that, that really is the biggest one. We were ramping up a lot, and we expect to continue to be able to put those into facilities, which should help us catch up a little bit on cash.

I mean really, we keep talking about this, but it's probably a really good point worth reiterating, is that if we take a look at what moves that cash number are -- we're originating assets on a fully burdened basis at or above breakeven. And we are moving to ROCF positive. And that's really all the movements of cash with the exception of just working capital. And that's probably the only thing that's going to be moving around a little bit from quarter-to-quarter. This is just one of those quarters where it ended up being down a little bit just because of the big uptick in new opportunities.

Got you. So it sounds like a lot of just lumpiness and timing more than anything else.

Well, welcome to the solar business, a lot of lumpiness, in fact.

That's capital [in the] energy business, yes.

Sorry, that was my 2-year-old in the background there, screaming, very excited about solar these days.

We're going to take his question. Ask him if he has any.

Your next question is from Mark Strouse with JPMorgan.

Just wanted to go back to your comment about EV chargers being available later this year. Can you just kind of clarify for us what your expectations are for the cadence of new hardware offerings, whether it be EV chargers or generators over the foreseeable future? And how we should think about the value for customer ramping over time with that? Is there kind of a learning period that you're expecting where people are fine-tuning the sales and the installation process, and then the value really kicks in 1, 2, 3, 4 quarters later? What are you expecting there?

Yes. It's a good question. What I've said in the past is that I thought most of these would be in the 2022 and beyond time frame. What we're seeing now from customers is that they want it now.

I mean I can't tell you how many times I've even had friends come in and say, "I want solar storage and a generator." And what they don't know task force is a load manager as well, and then they come back and say, "Oh, by the way, I've just bought an EV. So throw the charger in there." And then they say, "Well, I want you to run it all. The service and all that. I don't want to worry about it. I want the uptime, and I want to pay this bill, and that's it."

And that's complex. I mean, to put all those different pieces together and productize that offering in those integration of technologies across multiple manufacturers, I think, is the most realistic way of looking at this. And so that can take -- that will definitely take a long time. Whether you're developing your software platform to launch those products out, you got to think about you're doing across multiple states. You got to adhere to their individual licensing requirements and so forth and the legal language on the contracts. Then you've got a PPA, you've got a lease, you've got a loan, you've got all the different tenures of the loans and so forth. So there's a lot there.

And we're launching our products. We've been doing it for at least 3 years, but we continue to see more and more opportunity to launch even newer products out the door even faster. And we continue to build up our quite extensive IT capabilities in terms of personnel and people, and we're hiring like crazy for those positions and have been doing so for the last couple of years.

And so all that leads to is that we're trying to get these out instead of 2022 towards the end of the year, as we talked about. But will it take some time to knock the rest off and get the appreciable amount of the dealer network really moving? Sure, it will. And so right now, we haven't really been able to factor that into our growth plans, but we know it's going to hit sometime later this year and 2022 versus my previous expectations are really starting to hit kind of late '22 and '23 and beyond.

Your next question is from Pavel Molchanov with Raymond James.

You've touched several times already on the landscape of rising interest rates. Maybe I'll just ask this kind of a very high level. At what point would the broader yield environment get to a point where you would have to say it's getting tough for solar leasing is that a 3% 10-year treasury, 4%, 5%? What's the magic number?

Yes. I think at the end of the day, I think it would be foolhardy to take a magic number though. At the end, we can all -- and not just Sunnova, but we'll all adjust our pricing, whether the financing arrangement that the customer chooses is a lease or a PPA or a loan, we'll adjust our pricing accordingly to the risk-free market, as you would expect us to do.

And then as we're going through and we're issuing the term securitizations and then down the road here with a corporate bond, those are long-term debt issuance. And so we don't really worry too much about a movement in the risk-free in that regard because we've locked in our cost of debt and the term of debt that we, for the most part, need.

And I would say that your competitor -- or our competitor rather is the utilities. One of their biggest cost inputs is interest, right? And so their costs are going to go up. And again, when I look at this, and I've been in the power business now, hard to believe, 25 years, a quarter of a century. And I will tell you, I see no reason for power rates to drop. Zero. I see nothing but reasons for them to go up, and that's included in there as interest rates.

And so the price to beat is just getting easier and easier to beat, frankly. And as they pile on more and more costs, that's creating more and more of an upward pressure in rates. And so again, that gets a wider and wider spread because that's the way you want to look at it, especially as our equipment costs, mainly batteries, ESSes drop in the coming years or continue to drop. All this goes to a point where they're actually widening.

So I think a risk-free move and, certainly, if you look at even the risk-free move that we had over the last few months, really crimped the refinancing demand in the mortgage market, right, and potentially even the ability to buy homes. I think anything north of like 3% on the 10-year is going to cause real broad economic damage that would be the least of your concerns as far as what our cost of capital would. But simply put, we'll adjust to it. There is no rate that you would pick that would be really a problem, and we're terming out our debt obligations, and we're doing so at record low rates even despite the pretty significant move up here. So we feel, again, we feel quite comfortable about it.

Speaking of utilities, in the 90 days or so since the last earnings call, we have joint application by the California utilities to the regulator for new grid connection fees for solar households. Any comment on those?

Well, I don't think that they're good for the people of California, and it's pretty clear. And if they really cared about serving low-, moderate-income customers and other customers that may have challenging credit rates, we certainly will take the same subsidy that they have in terms of credit backstop from the state. We'll certainly take that. We'll certainly work in the leadership of California. In some ways, we already are, but happy to step that up significantly to address those folks if that's truly what they care about. I think it's really more of an anticompetitive move than an anticonsumer move.

And again, I don't think that it's going to stand. I don't think the leadership in California is going to want to really crush a very bright spot for their economy and for the consumers of California.

Your next question is from Sophie Karp with KeyBanc.

Most of the questions have been answered. I just also wanted to ask you a philosophical question, but about the numbers that you guys put out. So you're adjusting out credit loss provisions out of your EBITDA figure. As loans grow bigger as a part of your mix, as you hinted, does that make sense to maybe adjust that loss provision that you've taken to match more closely the real numbers? Or if it is already critical to match, does it make sense to also to take it out of your adjusted EBITDA and kind of present the numbers that way? Just curious to hear your thoughts on that.

Yes, Sophie, and that's a great question. I mean keep in mind that CECL is trying to take your full credit losses for the entire 25 years in one slug as soon as you originate the loan. One of the things that we've been doing is realizing that -- and this is really a great credit to our credit and collections team, is that we continue to do better than sort of where our expectations and our modeling has been. But if you want to say, well, where are we taking it out? Well, it's being taken out in the actual solar loan P&I.

So every quarter, we're actually realizing it on a cash basis, and that's why we present adjusted EBITDA together with the solar loan P&I, is to give you that full picture. So that is noncash. CECL is noncash, but where it comes and it gets realized is in what we actually produce in solar loan P&I.

If there's a default, we're not collecting. If there's a delinquency, we're not collecting there. So it's already fully baked into the numbers that we show on a cash basis.

Thanks, Sophie. One comment to build on that is we did see in this last quarter, really surprising amount of very good delinquency and default numbers. So that continues to trend much better loan payoffs, continue to trend much higher than we expected. So things are very good on the credit front.

And if everybody recalls where we were this time last year, I mean amazing how well our credit team and collections team has done just a phenomenal job.

Your next question is from Richard Tullis with Capital One Securities.

Two quick questions, hopefully. John, on, I guess, the large U.S. utility reported recently, and it sounded like on part of the call comments, that they were looking to get a little bit more aggressive on the solar front. I guess it's mainly PPAs initially. How do you view the current competitive landscape for the solar providers in relation to the utilities? I know you talked a little bit in your opening comments about building moats. But how do you see the landscape at this point?

Yes. I would, obviously, and think it's best for the consumers of the country to make sure that they have a choice. And if they have a choice, then I think that if your focus is on this business, which is materially different. Again, I've operated -- I've traded power across the entire country. I've operated a utility system from the control room. I understand how the centralized power system works, I think, better than anybody in our part of the industry, and it's materially different. And it doesn't mean that they can't be successful, but we're totally focused on this as well as competitors.

And so I think that I would certainly respect -- I think I know who you're referring to. I highly respect them as a company, but it needs to (inaudible) be in terms of the competition provided on the competitive side, not the monopoly side of the equation. I think that's very, very damaging to the consumers of the country. People need choices. We need competition.

The competitive landscape, increasingly, very quickly, we're moving to a service provider. I mean that's something we've been talking about for a number of years. We're there. Simply just offering out one financial product or something of that nature is not competitive enough.

And you look at what Tesla is doing, obviously, with SunPower, SunRun and ourselves, I think that's a very good competitive landscape that obviously continues to get smaller. It certainly got smaller last year. We've made it even smaller with our acquisition of SunStreet. And so I think that the scale and operating leverage that you need -- and again, I laid out the logistical and operational and the financial complexity that goes into what our business is, it's a huge, huge lift. And I think that, that's going to be a -- I know it is a very daunting task no matter how big you are, and it's not -- doesn't mean that it can't be pulled off, but it's a very daunting task.

That's helpful. And just lastly, with Sunnova being based in Texas, following the winter storm Uri in February, how much additional solar and storage business could be generated, say, over the next 2 years just from the storm compared to your prior thoughts? And how many of the 250,000 Lennar homes roughly are located in the Texas area that also could provide an uplift?

I think most of the homes that Lennar has built focus in the California area and some other states, but they do have a good presence in Texas. And so I don't know what the breakout is. But it's certainly something that will be available to us, and we're ramping that up right now as far as creating a lead generation for our dealers and such.

In terms of -- we've definitely seen a storage attachment rate move up on Texas, and we continue to see a lot of demand.

The other thing that's happened that's well-known is there's a lot of outages. There's increasing amount of power failures in the utilities and, certainly, even my house -- luckily I've got Sunnova service, that frequency and the fear -- and keep in mind, what we just went through at Texas, that was the easy season, winter. Now it gets hard. You've got storm season, particularly sitting here in Houston on the coast. And you've got the cooling season or the hot summer that's coming.

There's going to be some more problems. I don't know if it will be this year or next year, but there's more problems coming, and people know that. And they're going out looking for solutions. And we're here and they're coming to us. So I see nothing but upward pressure on the growth rate in Texas and that we -- and consumers of Texas, the people in Texas constantly get reminded, "You know what, I really should call Sunnova and get a better energy service."

Your next question is from Sean Morgan with Evercore.

In terms of the 66 dealers you guys added in Q1, what's the thought process there? Are you adding mostly an existing kind of strong geographies, California New Jersey? Or is there economy of scale that you kind of weigh versus maybe becoming a new incumbent and expanding into new states and territories? And sort of how do you balance those kind of factors?

Yes. So we made an announcement a few days ago on entering, I think, Ohio and North Carolina, and we have others on deck here. So we are expanding geographies this year. And that was a pull forward just based on demand from some prospective dealers. And we're going to continue to do that.

But the preponderance of our growth focus is on the existing areas. However, as we continue to add new states, that kind of becomes a self-fulfilling prophecy, right. There's only 50 states in the union plus the territories. If you keep adding them, eventually, it'll just all be about the existing territories, if we look towards the international market.

So right now, most of our focus is on the existing areas and continues to be. I think the southern part of the United States and the middle part of the United States is an area of particular focus on us, and we're seeing a lot of ability and interest there from dealers. Some are new firms as well. And I think that's where you'll see a lot more of our state additions, if you will, in the coming months.

Okay. And just a quick follow-up on -- the G&A was up a little bit this quarter, and I think there may have been some acquisition costs that could be backed out of that. But when you're integrating the SunStreet over the next couple of quarters, do you expect that, that Q1 to be sort of a run rate, or do you -- is that kind of some anomalous first quarter items in that, that we maybe haven't been realized and we'll see going forward?

Yes. There's a little bit of both in there. I mean I think that there are going to be some acquisition and integration costs. Clearly, we're bringing on some additional G&A here with SunStreet as well, that we had already had baked into the numbers that we had here in the quarter for the full year. And there are a few other things that are in there, like the CECL provision that Sophie had talked about that are noncash.

But one of the bigger ones was -- just had to do with a first quarter phenomenon, having to do with the vesting of stock options. So a lot of that really didn't even flow through the -- end up being backed out of the P&L. Anyway, it's more of refinancing charge and ends up being treated on the cash flow statement as a financing -- as a cost of financing.

So you'll see that. I think when we get to the first quarter, as many of you know, we received, as part of our compensation stock, I think just about everyone here would rather receive more stock relative to other forms of compensation, given the opportunity. And -- but that's just going to flow through as a noncash charge on the P&L in the first quarter when we reach the vesting anniversaries.

Okay. While we're on this topic of the stock, that $3.3 million at closing for SunStreet, that's going to hit April 1, so that will be second quarter item?

Yes, sir.

At this time, there are no further questions. I would like to turn the call back over to John Berger for any closing remarks.

Thank you. I first want to pause briefly and say something. Tom Werner of SunPower is going to retire in a few days, and he has given 18 years to the industry. And I think too often, especially our part of the industry, it's too vicious in competition. And certainly, everybody knows that we're competitive. We're competitors together, and I'm just as competitive as they come. But at the same time, I think we need to be respectful with each other. And I have a high degree of respect for Tom and everything that he's done. And just wanted to let him know, and for everybody here at Sunnova, Houston and across the country, we're tipping our hat to him and very appreciative for everything that he's done for us and our industry. Over his 18 years of his life he's dedicated and wish him the best in the years to come.

We want to thank our dealers, our equipment partners, our employees and most of all, our customers for a great quarter and building to what is obviously an even better coming execution over the next few quarters and next few years. The world of energy is changing at an accelerating pace. And this company is focused on delivering and creating bigger moats and greater cash flows. Look forward to hearing and talking to everybody on the next second quarter call. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.