Sunrun Inc (RUN) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the SunRun second-quarter FY15 earning results conference call.

(Operator Instructions)

As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Nicole Noutsios, Investor Relations.

Ma'am, you may begin.

Thank you, and good afternoon.

On the call today are Lynn Jurich, SunRun's CEO, Ed Fenster, SunRun's Chairman, and Bob Komin, our CFO.

Our press release was issued after the close of market today, and is posted on our website.

This conference call is being broadcast live via an audio webcast, and following the call, an audio replay will be available on our website.

In addition, along with the audio, we are webcasting our slides.

Please note that some remarks we make on the call constitute forward-looking statements.

This includes statements related to financial and operating guidance, and expectations for our third quarter and full year 2015, momentum in our business and business strategies, expected cost reduction, expectations for project value and NPV, the ability to raise debt and tax equity, planned investments including products, services, sales and facilities.

These statements reflect our best judgment based on factors currently known to us, and actual events or results may differ materially.

Please refer to the documents we filed with the SEC, including the Form 8-K filed with today's press release.

Those documents contain risks and other factors that may cause our actual results to differ from those contained in our forward-looking statements.

Our SEC filings are available on the Investor Relations section of the Company's website and on the SEC's website.

These forward-looking statements are being made as of today, and we disclaim any obligation to update or revise these statements.

In this call, if this call is reviewed after today, the information presented during this call may not contain current or accurate information.

With that, I will turn it over to Lynn.

Hi, thank you for joining us for our first earnings call as a public company.

We are excited to share our achievements and mission to provide homeowners with clean, affordable solar energy and a best-in-class customer experience.

We established significant momentum in our growth and cost reduction efforts this quarter, and we hope you'll come away from today's call with an appreciation for how our mission translate into value creation for the shareholders.

In the second quarter, we deployed 42.4 megawatts representing a 76% organic improvement year over year.

To support our growth in the back half of the year, we booked to 61.2 megawatts net of cancellations, a 59% increase over the first quarter.

On the cost reduction side, we removed $0.28 per watt from our cost back, a 6% cost reduction in just one quarter, as we start to realize scale benefits and efficiencies faster than planned.

Our differentiated customer experience is our proudest achievement.

We built the industry's second largest residential customer base with approximately 87,000 customers, and our goal is to create the industry's most valuable and most satisfied customer base.

We believe we've already had leading unit project values and system size, and combined with our cost reduction efforts, we are on our way to achieving leading customer net present values, while continuing to deliver meaningful savings to our customers.

NPV created in the quarter was $37.2 million, compared to $23.3 million in Q1, a 60% increase.

We have achieved this NPV growth as a result of accelerated cost declines, and this early cost reduction sets the stage for continued NPV growth in the coming quarters.

We've delivered this rapid growth without sacrificing our dedication to quality.

We maintain a terrific safety record, high-quality workmanship, and leading customer net promoter score.

Our open platform business model allows homeowners to access our services through three channels, direct-to-consumer, solar partnership and strategic partnership.

Over the past 1 1/2 year, we have built out a diversified lead and sales mix through our direct-to-consumer business.

We also contract with more than 60 diverse solar organizations that sell and/or build systems on our behalf, as well strategic partners who provide access to the large, existing customer bases.

We train all of our partners to uphold our brand, customer experience, and quality standards, and we empower them with a dedicated SunRun account representative.

In the second quarter, we entered three new states and expanded our operations and reach in three others.

Factoring in sales partners, retail stores, SunRun sales branches, acquisition marketing partners and tools, we now reach homeowners from over 1,000 points of distribution in 15 states, across the entire spectrum of ways homeowners go consider and go solar.

We go to market with an explicit open platform to allow our solar and sales partners to grow with SunRun.

We provide our partners with our proprietary software, BrightPath, and access to our global procurement infrastructure, customer sourcing tools, brand building and more.

New partners in 2015 range from regional solar operators and sales companies, to Comcast to Ambit, a nationwide leader in the retail energy sector.

Retail partners include Costco, The Home Depot and Best Buy, and each have expanded markets and store count with us in the quarter.

Beyond growth, we are also keenly focused on cost reductions, and we are ahead of plan on reducing unit costs in the quarter.

We reduced our total creation costs to $4.08 per watt, from $4.36 in the prior quarter.

This improvement reflects overall growth in volumes well ahead of costs as we continue to benefit from the leverage in the model.

Compared to the same quarter last year, our direct-to-consumer business grew 2 X, and the number of installations built by SunRun grew by nearly 3X.

With these strong results, we are on track to exit the year with a cost structure in our direct business that is competitive with other scale companies.

We believe the overall business will have a cost structure in 2017, that allows for healthy net present values, even in the potential 10% IDC environment.

Furthermore, we benefit from a long-term cost advantage from our platform investment, through our assets such as CEE, AEE and SnapNrack.

We've delivered these cost reductions, even as we continue to invest in the platform.

We have a view towards long-term growth, differentiation and share gains, and leading NPV in this nascent market.

In April, we acquired Clean Energy Experts, or CEE, the number one digital lead acquisition company in our industry.

We have successfully integrated them, and continue to grow and serve the entire industry.

We have also made substantial improvements in BrightPath's point of sale software and processes to both better engage delight prospective customers and improve sales rep productivity.

SnapNrack, our fast, safe, and beautiful racking system continues to perform well, with approximately 150% year-over-year growth and increasing market share.

Consistent with our open platform strategy, we sell SnapNrack to a broad dealer base.

AEE, our procurement and fulfillment business also continues to grow at above market rate.

With customers in all 50 states, we love the visibility these businesses give us into new markets and potential partners outside of SunRun's current footprint.

We are committed to delivering the industry's most valuable and satisfied customer base.

All customers, regardless of whether or not they are sold by SunRun or a partner, enjoy a fantastic experience tightly managed by SunRun.

We built a customer-centric culture, in which our entire sales force and partner base is accustomed to delivering the right customized price.

Our pricing model delivers savings, while optimizing project level return.

We believe this strategy is working, and will deliver meaningful advantages over the coming years.

As proof, we believe we have leading contract value, system size and project value, and that these metrics demonstrate the effectiveness of our approach.

The performance of our existing customer base has remained strong.

Over the last eight years, we have offered our products to customers over a range of FICO scores.

Even as we have expanded our eligible customer pool, we have still collected 99% of expected billings.

We have also completed thousands of home transfers, and have achieved 99% of originally expected value in the process.

Now I will turn the call over to Ed, our Chairman, to provide an overview of our capital availability and structure

Thanks, Lynn.

We believe that our ability to raise debt and tax equity has been a strength of the Company.

As of June 30, we had raised enough tax equity fund the installation of $3.1 billion in market value of solar energy systems.

As of today, we have a pipeline of approximately 215 megawatts of undeployed tax equity capacity.

We also entered into a $205 million secured working capital facility in April.

And finally, we completed our IPO, of course, in August, raising approximately $220 million in net proceeds.

Over the last few years, we have demonstrated an ability to tap debt markets for flexible low-cost and high advance rate debt capital, at rates significantly below the industry's standard 6% discount rate.

In July, we completed a $111 million asset-backed securitization, with a 4.5% weighted average interest rate.

We believe our integrated capital structure is more durable and flexible, than a bifurcated yieldco debtco structure, with better shareholder long-term alignment.

Given the importance of capital costs and availability to our Business, we closely monitor interest rates, and actively manage interest rate risk.

As is well-known, debt markets are expecting short-term interest rates to rise slowly, but steadily in the coming years, beginning as soon as next quarter.

The two key futures rate that we monitor, are the seven-year swap rate, which sets the floor for our long-term debt costs, and the 20-year treasury, which sets the floor for our retained value discount rate.

We are pleased to share that these interest rate futures as of September 2016, a year in advance of today, are on average less than 10 basis points higher than that actual rates we were experiencing at June 30, 2015, the close of last quarter, and the date on which we priced our last securitization.

The combined effect of such an increase in each rate, would theoretically cost us less than $0.02 in net present value per watt.

Finally, we note that tax equity costs have been generally either uncorrelated to, or even inversely correlated to interest rates.

There are two reasons for this.

First, accelerated depreciation, a tax shield becomes more valuable as short-term rates increase.

And two, increased bank profits in times of higher interest rates increases tax equity supply.

With that, I am going to hand the call over to Bob, our CFO, to provide a financial review

Thanks, Ed.

In Q2, we made tremendous progress growing bookings and deployments, and driving our unit creation costs down significantly.

Our estimated project value of $5 per watt for deployed systems represents the value of upfront and future payments by customers, upfront benefits received from utilities and state incentives, as well as the present value of net proceeds from tax equity investors.

Like estimated retained value, project value excludes substantially all value from SRECs.

These are incremental to the presented project value figures.

While Q2 project value held flat at approximately $5, creation costs declined $0.28 per watt, delivering strong unit NPV growth of 39% in the quarter.

Over the prior several quarters, we have been investing heavily to support 2X to 3X growth in our direct business.

These investments inflated our blended creation cost per watt, as we added capacity in all areas of our business, with our creation cost per watch peaking since we acquired REC in Q1 2015.

As volumes grew in Q2, we began to more fully utilize our capacity, we increased our efficiency, and we saw significant reductions in installed sales and marketing and G&A unit costs.

Our creation costs consists of installation, sales and marketing, and general administrative costs.

We then subtract the gross margin from our solar energy system and product sales, which was $0.09 in Q2 to arrive at our total creation cost.

Solar energy system and product sales consist of revenues from our AEE, SnapNRack and cash system sales.

Beginning in the second quarter, we also included revenues from our CEE acquisition.

Our creation costs represents a blend of costs from our direct and partner channels, and was $4.08 in Q2, down from $4.36 in Q1.

All components of creation costs improved in the quarter.

Blended install cost per watt declined $0.11 to $3.07 per watt.

Sales and marketing costs declined $0.08 to $0.69 per watt.

Total G&A expense was flat with Q1, with added scale contributing to driving the cost per watt down $0.05 to $0.42.

Systems built by SunRun had installation costs of $2.51 per watt in the quarter.

We believe that our SunRun built costs will see significant declines in the back half of the year, as we realize leverage from our 3X growth.

We also expect to realize labor cost savings from the first half of the year to the back half of the year due to increased productivity, as well as declining costs of inverters and modules.

In terms of cycle time, our technology and workflow management investments and process improvements are driving our cycle times down dramatically.

In California, nearly half of our projects are now built within 50 days from customer signature.

As we continue to scale in the second half of 2015, we expect to see continued improvement in our cost structure per watt, and we expect our direct business will be cost competitive with the other scale companies in the industry.

We are pleased with NPV per watt level we have achieved in Q2.

At $0.92 per watt, we beat our Q4 NPV per watt target this quarter.

NPV per watt is the difference between our project value and creation costs.

As before, this $0.92 per watt excludes substantially all value from SRECs.

It also excludes the real benefits of debt leverage, as our actual debt is priced significantly below the 6% assumed discount rate.

Project value is sensitive to several factors, including the average kilowatt rate at which we sell our solar service in each market, and the success of our customer targeting strategy.

We expect quarterly NPV creation will continue to grow as volume grows, although we do not expect continued increases in NPV per watt over the next few quarters.

Because we expect meaningful continued cost reductions, offset by lower project values in the near-term, there may be some modest volatility in NPV per watt.

We expect declines in project values as we expand into lower value markets, and as our channel business is outgrown by our direct business, which is both lower project value, and in the second half, lower costs.

As of June 30, 2015, our estimated retained value was over $1.2 billion.

On a net basis, after subtracting our net debt and liabilities related to our lease pass-through financing obligations, our net retained value comes to $808 million, which excludes the proceeds from the IPO.

Again, this figure excludes substantially all value from SRECs.

Estimated retained value represents the cash flows discounted at 6% that we expect to receive from homeowners pursuant to customer agreements, net of estimated cash distributions to investors in consolidated joint ventures, and the estimated operating, maintenance and administrative expenses for systems contracted as of the measurement date.

The calculation of retained value assumes that all customers renew or purchase their systems at the end of the initial 20-year term, at a price equal to a 10% discount to the customer's year 20 rate.

However, the renewal or purchase price we assume in retained value represents a 37% discount to the estimated contractual rate we could charge customers.

This difference is the result of two factors.

First, our contract allow us to renew at a 10% discount to the utility rate, rather than the year 20 SunRun rate.

And second, our contracts are priced below today's utility rate, with an escalator which is set below the expected energy inflation rate.

For the third quarter of 2015, we expect deployments to be 54 megawatts to 55 megawatts, which would be approximately 80% organic growth year over year.

For the full-year 2015, we expect deployments to be in the range of 205 megawatts.

Now let me turn the call back to Lynn

Thanks, Bob.

We are excited to be a public company, and know this brings us one step closer to our goal of creating a planet run by the sun.

We think we have the industry's strongest team, and I want to thank our employees and customers for their continued support.

While we are a new public company, we have a proven track record through multiple financial cycles, and regulatory change over eight years.

Looking back, our original vision is being realized even faster than we expected, and this is still the beginning.

Thank you for joining us today.

We'll now open up the call for questions.

(Operator Instructions)

Patrick Jobin, Credit Suisse.

Hi, thanks for taking the question, and welcome to the public markets.

First question, just an outlook for cost structure.

Lynn, are you still thinking about a kind of $0.80 cost structure reduction by year end?

And then, I've a few follow-ups.

Sure.

Thanks, Patrick.

We're excited to be doing this for the first time.

So I appreciate the question.

Yes, absolutely.

So the -- that cost reduction for the year is about right.

I think, if you look at the comments that Bob made in his prepared comments, if you look at the NPV trend, we're really pleased with where it ended up in Q2.

It actually ended up in place where, our Q4 target.

And so, what we expect to happen through the rest of the year is that both project values and that cost will continue to decline.

And they will decline roughly in step with each other, but again there might be some quarter variation in that, from quarter to quarter.

And really the reason for that is, as we really deliberately shift our -- the mix of our Business more towards our direct business, and as we start to diversify into new space, both those actions have the result of delivering lower project values.

But they also come with lower cost and diversification.

So it's -- we believe the right move.

So that's how we expect it to roughly trend, and we will definitely to continue to provide outlooks, underlying that NPV trend going forward

Got it.

So just roughly, you are still comfortable being with $0.90 rough level of NPV year end 2015?

That sounds about right, yes, Patrick

Okay.

And then, just a follow-up item here, on a housekeeping nature, you changed the cost structure calculation.

It seems just to be related to IDC to better match, what you'd constitute a booking, is that correct?

Hi, this is Bob.

Yes, that's --Patrick, you are right.

What we did is, IDCs get capitalized on the balance sheet, and before, we were including them immediately in solar assets.

And what they really represent a portion of it, was a prepayment before the deployment of the related assets, so we had a mismatch.

And we were recognizing the expense before the related deployment.

So we decided to clean that up, and we re-classed -- and it's a net neutral re-class on the balance sheet, but we've re-classed some of those costs to pre-paid, until their assets are deployed

Got it.

It makes sense And last question for me, you recently announced a new loan product.

How significant do you think the loan product could be for the second half mix on, from volumes?

And I assume you're going to account for those systems as a sale, so it won't impact your project value number for the leased systems?

Is that right?

That is -- you are correct, Patrick, in how we account for it.

So the loan product is something that we have had all along.

So we've had loan product that we have been selling for a 1 1/2 year.

We are just continuing to innovate.

And the release you saw, is our latest innovation in that loan product.

We still see the vast majority of customers wanting to choose a lease or PPA when that option is available to them.

So we don't expect that the mix will change materially.

And again, you are right in terms of it not influencing project value, because it would be in other category as you've mentioned

Great, thanks, and nice work this quarter

Thanks, Patrick.

Brian Lee, Goldman Sachs.

Hey, everyone.

Thanks for taking the questions.

I just had a couple of them.

One on the growth, if I look at your implied sequential growth for Q3 in bookings and installs, it's just modestly behind your larger peers.

So was just wondering if you could talk to what dynamics might be driving that, and if you see the growth rate matching, or exceeding peers going forward?

And then, what the drivers of that might be?

Sure, absolutely.

So, Brian, we're really excited about the growth.

We think we have a good story to tell there.

So if you remember our businesses had both the direct and partner component to it.

If you look at the growth we are realizing in that direct business, it is well above market peers.

So as we reference, in the direct-to-consumer sales business, it's north of 100% year-over-year.

And on the construction side, on the installation side, we are north of 3X in that business.

So those growth rates are significant and share-grabbing.

The partner business grows a little slower.

It still delivers strong growth, and we like that business, because it is a very capital efficient business for us, and really helps us reach consumers and more distribution points.

So when you wash those two growth rates together, you are seeing our sort of year-over-year growth rates at roughly, 70% to 80%.

And we believe that is right in line with where folks are.

And as that direct business continues to take share, it will lift that overall growth rate a bit.

Okay.

No, that's very helpful.

Related to that, Lynn, can you quantify what the mix -- I know you provided some growth rate figures, but can you actually quantify what the direct versus channel volume percentage was in the quarter?

And then, how you would expect it to trend over the next several quarters?

I think you made some qualitative comments, or Bob made some qualitative comments around it.

And then maybe lastly, on the same topic, just if you could just speak to, what you think the 2016 mix might look like?

Sure.

Good question.

We -- the way it's trending right now, it's about roughly half and half.

And as that direct business is growing faster again, it may take more share there.

One of the things that is important to note, is that there is a little gray area in it.

It's not quite as black and white, in what is direct versus what is partner, as we get smarter at utilization market by market.

So for example, sometimes it makes sense in a geography for us to sell it, but not install, and sometimes vice versa.

So there is a little more overlap gray area, as we get more sophisticated in terms of how we maximize our utilization.

So it's not going to be a real meaningful delineation, we don't believe.

And it's also important to note that both business lines, we managed to roughly the same sort of NPVs.

So what we are really managing to across both -- across the business is a target project value cost back and an NPV.

And we will continue to look market by market at what's the most effective way to yield those results

Okay.

Fair enough.

Last one for me now, and I will get back in the queue.

Just now with the NEM 2.0 process underway in California, the initial proposals are out there, and obviously, Task has had their say about the three IOUs that are also out there.

So wondering if your policy folks have any updated thoughts in terms of potential outcomes?

And then to expand on that, if we were to assume a worst case scenario, that the IOU proposals are adopted, how does the strategy for you evolve in California?

Hey, Brian, this is Ed.

I appreciate the question.

I think, starting at a high level, the California regulatory environment has been incredibly supportive of solar.

For instance, the CPUC just completed a rate restructuring in California that significantly increased the addressable market size.

They also imposed no fixed charges, despite express authorization from the legislature to do so.

It is also the case, certain utilities in the state aren't in really the good graces of their regulators.

Although you are correct, that utilities like PG&E have filed to make dramatic changes to net metering, we do not believe those requests will be granted.

We expect the CPUC is going to do the right thing, as they have before.

In fact, a very key commissioner has been quoted publicly, as saying that with the now completed rate reform, there is very little to talk about in terms of NEM or altering NEM.

So we feel very confident as to the future of NEM in California, and I think a worst case scenario and a base case scenario, look very much the same.

Okay.

Thank you.

Thanks, Brian

Krish Shankar, Bank of America.

Yes, hi.

Thanks for taking my questions.

I had a few of them.

First, I just want to follow up on the NEM part.

What percentage of your customer base in Q2 was your premium customers?

And how do you expect those trends to continue, if there are any changes to the net metering argument?

Sure.

Thanks, Krish.

This is Lynn.

For those of you that are as not familiar with our model, what we try to do, is we have a dynamic pricing model, that we believe targets higher value customers.

The way we set that, is first and foremost, this is the early stages of the industry, and so we want a competitive offer, and a competitive price for most of all customers.

And then, we look market by market, and call it, the top quartile of the most attractive roofs.

We will price those at a lower than market rate to win a disproportionate percentage of those customers.

So those would be in your definition, they are premium type customers.

So that would be sort of your call it roughly, top quartile market by market.

And then, the handful of customers that have less attractive roofs and savings potential, we will price a little higher than the average market price.

Sometimes we will win those, and sometimes competitors will.

But we believe that that leads overall to more customers, and at a higher project value for us.

So that's how I would -- that's how we set the rules for that pricing, and we suspect that, that sustains going forward

Got you.

Got it.

All right.

And then a follow-up, what kind of cost targets are you targeting in 2017, both for your direct business and your partner's cost structure?

And also, along the same lines, what are the IRRs you own today, and what do you think your IRR would be in 2017 in a 10% IDC environment?

Sure,.

A great question, and one that's I'm sure on many people's minds including ours.

By 2017, we expect to be in a cost structure place that looks similar to what the other scale companies have put forward.

So something, in the 2.50[%] range.

The way we get there may be different channels, the direct versus the partner business, just based on what we experienced historically.

In the direct business, we are seeing steady declines quarter by quarter, and will march down by that level by 2017.

In the channel business, what is interesting is that, in many cases our channel is already under -- all-in, under $3 a watt.

And so, it's in markets where they have to be, to make the numbers clear.

So we have very good confidence, that the channel can sustain and support and earn a margin at those lower cost structures.

But the dynamic that happens is, in markets that have higher revenue potential, they are able to charge a premium in those markets.

And so, then if you think about what the NPV trends will be going forward, just to hit on your second question, we expect -- as you know in this quarter, we reached $0.92 of NPV.

We've done our bottom set market by market analysis.

In 2017, our projection is that we will lose around -- let's call it $0.30 a watt in NPV by that time.

And so, that gives you sort of a directional way to think about it, and we will continue to provide some insight into that as we get closer.

I think the other thing to note, is that these subsidy reductions are nothing new to us.

We've been in this business for eight years.

And when we first started in California, we had a $3 per watt subsidy, so we planned for these subsidy declines.

We delivered growth through them before, and this is not a -- it's nothing we haven't seen, or planned for in the past.

Got it.

That's very helpful.

Thanks a lot, Lynn.

Thanks, Ed.

Thank you.

(Operator Instructions)

Mahesh Sanganeria, Robert W. Baird.

RBC Capital Markets.

So a quick question.

I just want to follow up on the costs, and also, Bob, you pointed out some volatility we might expect in NPV.

Can you clarify a little bit more, the drivers for the volatility, because I was thinking that your project value will pretty much track the cost reduction?

Sure.

I will take that one, thank you.

Yes, they will track fairly in line.

Now what we'll see, what we did see in Q2 was faster cost reductions than we expected.

So as we said, we already hit our NPV target for the end of the year in Q2.

So what that means is that, in the next quarter, what we are going to see is, we are going to see some declines in project value, again given that's mainly due to mix shift, geo mix shift, as well as shift, both into the -- from the channel business to the direct business, which also brings with it lower cost.

So what you're going to see next quarter is our -- is something that is likely slightly less in NPV per watt next quarter, but you are going to see the aggregate NPV be a nice steady growth again, versus the Q2.

Then you will see it stabilize for the year, at similar levels to where it is right now

Okay.

That's very helpful.

And then, one more question probably to, for Ed.

We've seen some dislocation in the market in terms of the capital raising, particularly with the yieldco model.

I was just wondering if you are seeing anything on your side?

If you are hearing that capital raising might become challenging?

If you could comment on that, that would be helpful?

Hey, great question.

No, on our side, the capital structure universe, we have not seen that.

In fact, we're in the market currently working on a large debt transaction for which there is a lot of interest, more interest even then in the last transaction.

Our tax equity pipeline is, as I mentioned earlier is strong, so we feel very good about the capital availability there.

The integrated model, when we raise capital, we are just providing returns to debt and tax equity investors.

They don't need to make any terminal value assumptions, or assumptions as to earnings growth, or other things that have been causing volatility in the yieldco market.

And so, I think those factors that have been causing volatility in the yieldco market, have not spilled over into the debt or the tax equity markets.

That's helpful.

Thank you very much

Matt Tucker, KeyBanc Capital Markets.

Hi, good afternoon.

Congratulations on a nice quarter, and on the IPO.

First, I was hoping you could elaborate a little bit on what drove the faster-than-expected cost reductions?

I know Bob broke out some of the components.

It sounded like a lot of it was spreading costs across higher volumes than you had expected.

But are there any specific actions, or cost categories you can highlight, where you were able to do better than expected?

Hi, Matt.

Thanks for the question.

I think it was -- it was really just what Bob highlighted.

So if you look at the investment we made over the last five quarters, it's been pretty significant in terms of both expanding our capabilities, as well as our capacity.

And what we are seeing now, is that build out is primarily done.

We have all the talent, all the technology we need, and we are just really starting to scale.

And so, it was really just, I think it was good execution in terms of seeing those efficiencies and that scale faster than we expected.

As I mentioned earlier, we do continue that -- those -- that leverage continues through the end of the year, as we continue to grow

Great.

Thanks, Lynn.

And then, I was going to ask -- you had alluded to the direct business overtaking the channel business.

But it sounds like, if you are 50/50 now, that we should assume the mix increasingly shifts towards the direct business going forward, because that's growing faster?

One, is that correct?

And two, where would you expect the mix to be in 2017?

Sure.

Thanks for the question.

I think that is the trend, that is the current trend.

I think, we do look at this market by market, so it does vary.

It does vary, and there is some variability that we can't predict.

I think one of the interesting things that is happening on the partner side, that might really provide a lot of growth there, is we are increasingly starting to see big scale players try to enter this market.

So these retail energy providers, people like Comcast, and these guys are looking at the market, and say, I want to enter.

This is an attractive segment, but I don't have any of the operating infrastructure to do it.

And so, these types of partners, we think have a ton of promise for both growth, as well as lower acquisition costs going forward.

And because we are the only Company with this open platform that absorbs those type of businesses, we disproportionately are winning those business development opportunities.

So we believe there is a chance that that partner business growth really picks up, due to those types of partnerships.

But you are correct, in terms of the current 50/50 mix, with direct growing faster.

Great.

Thanks, Lynn.

My other questions were asked and answered.

Great.

Thanks, Matt

Ben Kallo, Robert W. Baird.

Hi, thanks for taking my question.

Hey, Lynn, when you look ahead to extending the direct business, do you see any constraints on installation crews?

And specifically, how do you approach hiring for 2016, which should be a boom year, and then onward?

Thanks

Yes, a great question.

So we think we are very well-positioned there.

So again, we've made the investment.

We made the investment.

So if you just about how hard it is to go a -- from building 10 megawatts to 200 megawatts, and then going from 200 to 400.

It is much easier going from 200 to 400.

So it's a play book now for us.

We have the talent, we have the infrastructure, and so we know how to do that well

And are there any specific states where it is more difficult from your experience, than others?

There are, absolutely.

And in fact, that's why we love the diversification from the partner model as well.

There are certainly some states, where it is more cost effective and more timely to work with a local partner.

And so, in those states, we're disproportionately more partner-oriented.

And so, I think we're unique in our ability to make that call market by market

Okay.

Great.

Thank you

Thank you.

This concludes our question and answer session.

I would now like to turn the call back over to Lynn Jurich for closing remarks

Thank you, everyone.

We really want to thank our 87,000 customers, and all the SunRunners that support them.

We couldn't do it without you.

So we look forward to updating you all again in a couple of months, and thanks for your attention this afternoon.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude today's program.

You may all disconnect.