Sunrun Inc. Aktie

Good afternoon, and welcome to Sunrun's Second Quarter 2026 Earnings Conference Call. Please note that this call is being recorded and that the 1 hour has been allotted for the call, including the Q&A session. [Operator Instructions]

I will now turn the call over to Patrick Jobin, Sunrun's Investor Relations Officer. Please go ahead.

Thank you, Latanya. Before we begin, please note that certain remarks we will make on this call constitute forward-looking statements related to the expected future results of our company, including our Q3 and full year 2026 financial outlook and other statements that are not historical in nature, are predictive in nature or depend upon or refer to future events or conditions, such as our expectations, estimates, predictions, strategies, beliefs or other statements that may be considered forward-looking. Though we believe these statements reflect our best judgment based on factors currently known to us, actual results may differ materially or adversely. Please refer to the company's filings with the SEC for a more inclusive discussion of risks and other factors that may cause our actual results to differ from projections made in any forward-looking statements. Please also note, these statements are being made as of today, and we disclaim any obligation to update or revise them.

Please note, during this earnings call, we may refer to certain non-GAAP measures, including cash generation, creation costs reflected in operating expenses and creation costs reflected in capital expenditures, which are not measures prepared in accordance with U.S. GAAP. These non-GAAP measures are being presented because we believe they provide investors with a means of evaluating and understanding how the company's management evaluates the company's operating performance. Reconciliation of these measures can be found in our earnings press release and other investor materials available on the company's Investor Relations website and accompanying this webcast. These non-GAAP measures should not be considered in isolation from, as substitutes for or superior to, financial measures prepared in accordance with U.S. GAAP.

On the call today are Mary Powell, Sunrun's CEO; Danny Abajian, Sunrun's CFO; and Paul Dickson, Sunrun's President and Chief Revenue Officer.

A presentation is available on Sunrun's Investor Relations website along with supplemental accompanying materials. An audio replay of today's call, along with a copy of today's prepared remarks and transcript, including Q&A, will be posted to Sunrun's Investor Relations website shortly after the call.

Now let me turn the call over to Mary.

Thank you, Patrick, and thank you all for joining us today. Sunrun is successfully executing a transition towards our direct business, which has higher margins, better customer satisfaction and better credit profiles. We had positive cash generation in the quarter while executing a sizable safe harbor investment. We are delivering award-winning customer experience and laying the foundation for durable, high-margin growth in the periods ahead. We resumed strong growth in sales activities in recent months and expect to be exiting the year growing by over 10%. This tees us up well for a very strong 2027.

Sunrun's energy assets are at the center of a power sector that is in need of energy capacity and where speed to power is critical. Sunrun now has over 4.6 gigawatt hours of storage capacity installed across the country and is the largest residential independent power producer. America needs more power faster than the traditional grid can deliver it, and Sunrun is well situated to meet that need.

On to our Q2 results. We continue to generate strong demand for our storage offering and set a new record in Q2, reaching a 74% attachment rate. This equates to the installation of over 15,500 battery systems in Q2. Aggregate subscriber value for Q2 was nearly $1.2 billion, near the top end of our guidance range of $1.1 billion to $1.2 billion. In the quarter, we produced positive cash generation of $45 million when excluding $22 million of equipment safe harbor investments. Excluding safe harbor investments, we have produced positive cash generation in the first half of the year and $428 million of cash generation over the last 2 years.

We are adjusting our full year guidance to $200 million to $375 million versus our prior range of $250 million to $450 million. This is being driven by 3 things. First, we are further reducing our outlook for volume originated through our affiliate channel due to deliberate reductions we made and the bankruptcy of Freedom Forever. Second, the ramp of sales activities and the process of onboarding new reps took more time than expected. This transition towards a higher direct mix carries more front-loaded costs but higher long-term margins. Third, we are reflecting a higher capital cost as interest rates have inched up over the last few months.

Our monthly sales trends in our direct business have inflected in June and July, turning positive, with monthly sales growth exceeding 10% compared to the prior year. We are confident we will return to robust growth in our direct business. Danny will further address guidance shortly.

Strategically, Sunrun is executing well, building a base of valuable energy assets. At the end of Q2, we had installed more than 266,000 storage plus solar systems, representing approximately 4.6 gigawatt hours of networked storage capacity. We are creating a formidable network of flexible dispatchable power at a rapid pace. Sunrun added more than 1 gigawatt hour of storage capacity and dispatched more than 700 megawatts of power over the last 12 months. This is equivalent to dozens of peaker plants. The assets we have already deployed today represent over $500 million in grid services present value.

Sunrun's distributed power plants are on track to generate approximately $40 million in GAAP gross revenue and greater than $10 million in operating margin in 2026 with substantial growth expected in the years ahead. We remain on track to reach our goal to over 10 gigawatt hours of dispatchable capacity online by the end of 2028, more than doubling from current levels, and we expect revenue to grow materially faster as we continue to secure commercial opportunities for the fleet we have built.

Conversations with potential offtakers have inflected materially in just the last few months. Our large scale of dispatchable resources and development engine that is growing this fleet at a rapid pace is opening the doors to monetize these resources through utility partnerships, direct energy market participation, retail electricity providers and large load users such as data center hyperscalers. Sunrun is well positioned in a market that is structurally short power and where speed to power is a critical bottleneck. To this end, in June, we announced a framework with Renew Home and Tesla to bring over 16 gigawatts of home energy resources to hyperscalers, deployable in months without the land, transmission or interconnection burden of traditional generation. In July, we launched a distributed AI compute pilot, using our home footprint not just as a power resource, but as an edge compute platform. Commercial momentum is accelerating as the market turns to us with the scale, assets and customer relationships that would otherwise take years and billions of dollars to replicate.

We remain sharply focused on growing our direct business. It's our highest margin business. It's where we have the most control over the full life cycle customer experience and compliance amid increased regulatory complexity, and our vertically integrated approach allows us to drive competitive advantage. Earlier this year, we shared that we expected volumes in our direct business to grow. Volume growth in our direct business is ramping from negative growth in Q1 to double-digit growth exiting this year. This results in full year growth of low single digits. Over the past few quarters, as the broader market has gone through turmoil, we have had the opportunity to bring on some of the best talent in the industry. Our sales force has grown by over 1,500 people year-to-date, far outpacing what is seasonally typical as we backfill what was a deliberate reduction in sales capacity in mid-2025 due to tax bill uncertainty as we position for growth. Importantly, this hiring is response to demand signals we're seeing for our battery offerings.

Some of the talent we are onboarding from the industry is taking more time to acclimate to selling our more sophisticated product. We are being deliberate about that ramp, and we are building out our capacity to expertly guide customers through complex rate environments while presenting our full suite of advanced offerings. By holding our expanded team to the industry's highest standards for customer experience and operational quality, we are focused on achieving durable, profitable growth.

New customer growth is only 1 lever. Increasingly, we're focused on unlocking value from the customers and assets we already have. Our distributed power plant business is a good example of this, monetizing capacity we've already installed and turning existing systems into a recurring high-margin revenue stream with no incremental acquisition cost. As we grow customer participation in these programs and broaden monetization into data centers, grid edge applications and capacity markets, we expect this to become a larger contributor to cash generation over time.

We're seeing a similar dynamic play out in add-on batteries. As resiliency becomes a bigger priority for homeowners, existing solar-only customers and even homeowners without solar are increasingly choosing to add storage to their homes. We installed nearly 1,200 add-on batteries during Q2, and momentum is accelerating as we explore various new offerings and markets. Between distributed power plant programs and add-on batteries, we're building substantial recurring cash flow streams that are additive to our core origination business.

Before handing it over to Danny, I want to take a moment to celebrate some of our people who truly embrace our customer-first service mentality. For this quarter, I want to specifically highlight Sunrun's service organization. In Q2, we launched Lighthouse, turning our best-in-class service capabilities for Sunrun customers into an opportunity to also serve non-Sunrun customers. Our service organization is well positioned to drive additional recurring cash flow growth. Connor and our regional service managers, thank you for the customer-focused execution that makes this possible.

Thank you, Mary. We added nearly 21,000 customers in Q2, with average system sizes up 2% from Q1. We achieved a 74% storage attachment rate in Q2, up 1 point from Q1. Our volume performance in Q2 continued to be impacted by the transition we are strategically undertaking to grow in our direct business while reducing volume through our affiliate channel by applying more stringent requirements. In our direct business, volumes were up by more than 20% from Q1 and back to nearly flat year-over-year.

We have rapidly expanded our sales force and productivity metrics continue to improve as new sales talent adapts to Sunrun's customer-focused and margin-driven approach. We expect year-over-year volume growth in our direct business to resume in the third quarter with second half growth exceeding 10% versus the prior year. Our monthly sales trends in our direct business have inflected in June and July with monthly sales growth exceeding 10% compared to the prior year.

Affiliate volume was down 30% in Q2 compared to Q1 and down more than 70% year-over-year, driven by both by our decisions to scale back our affiliate partnerships and by continued challenges in the dealer ecosystem. This includes the impact of the bankruptcy of our partner, Freedom Forever. We now expect volumes from the affiliate channel to be down greater than 60% for the full year and for our direct business volumes to represent greater than 85% of our total origination volume for the year. We remain confident in our actions to reduce affiliate volumes given the growing divergence in origination quality, customer experience and margin profiles between our direct and affiliate businesses.

Aggregate contracted subscriber value was $1.1 billion in Q2. On a unit basis, contracted subscriber value was approximately $55,000, up 10% year-over-year, driven by higher system sizes, a higher storage attachment rate, a higher average ITC level and lower capital costs. We estimate upfront proceeds will be approximately $52,000 per subscriber after applying an advance rate of 94% against aggregate contracted subscriber value.

We estimate upfront net subscriber value of approximately $2,000, representing a margin as a percent of contracted subscriber value of approximately 4%. This figure was lower this quarter, owing primarily to timing effects, including more front-loaded costs from our transition toward a higher direct mix. We expect this margin to increase next quarter.

I'd like to spend a brief moment on changes to metrics. You will note that Sunrun no longer reports aggregate creation costs, a previously reported non-GAAP metric. We have introduced 2 new non-GAAP metrics, creation costs reflected in operating expenses and creation costs reflected in capital expenditures. Furthermore, Sunrun no longer reports aggregate net value creation metrics, including net value creation, contracted net value creation and upfront value creation. These changes are a result of the comment letter, which is now resolved. We will continue to report unit volumes and unit economics, which we believe are important operating measures for investors to track our business. These metrics are additive to and not a replacement of GAAP results.

Cash generation was $23 million in Q2 or $45 million, excluding the $22 million net investments in equipment safe harboring. Cash generation is a non-GAAP metric. Please reference the earnings release and other associated Investor Relations materials published today for a reconciliation to its most directly comparable GAAP measure, cash provided by operating activities.

Turning now to our activity in the capital markets. Sunrun is executing well. We closed multiple tax equity funds and ITC transfer agreements during the second quarter, and we have built a strong pipeline of transactions we expect will close in the second half. As we move through the year, corporate tax equity investors have largely completed their 2025 tax credit purchases and have gained better clarity on their 2026 tax appetite. Corporate tax credit buying activity has followed, a continuation of the momentum we described last quarter.

ITC pricing during the quarter remained relatively stable compared to Q1, with transfer deal pricing ranging from the high $0.80 to low $0.90 range. Treasury guidance on FEOC ownership restrictions remains outstanding. And once published, we expect that the subset of multinational tax equity investors awaiting this guidance will emerge from the sidelines, further improving ITC pricing.

As of today, closed transactions and executed term sheets provide us with expected tax equity capacity or equivalent to fund approximately 1,000 megawatts of projects for subscribers beyond what was deployed through the second quarter. We also have over $840 million in unused commitments available in our nonrecourse senior revolving warehouse loan to fund over 340 megawatts of projects for retained subscribers as of the end of Q2.

Year-to-date, we have raised approximately $1.5 billion in nonrecourse asset level debt financing. We recently priced a $267 million public securitization, our second transaction of the year at a spread of 200 basis points, a 20 basis point improvement from our most recent transaction in Q2. We expect additional securitization activity during the second half of the year. Approximately 32% of our subscriber additions in Q2 were monetized through the non-retained or partially retained model. As a reminder, proceeds from these transactions are equal to or better than our on-balance sheet retained monetization while also providing simpler GAAP treatment and further diversification of capital sources. Under the joint venture structure, we retain a share of long-term cash flows along with grid services and the ability to cross-sell customers.

Turning to our outlook on Slide 23. We are revising our aggregate subscriber value guidance to a range of $4.6 billion to $4.9 billion for the full year compared to our prior guidance of $4.8 billion to $5.2 billion. We are revising our cash generation guidance to a range of $200 million to $375 million for the full year before investments in safe harbor equipment of between $50 million and $100 million. We have reduced our volume outlook for the full year, principally driven by a reduction to our affiliate volume and a slower sales ramp in our direct business than we initially forecasted as we undergo the transition towards more direct -- more growth in our direct business. In our direct business, we expect second half installation growth of more than 10% compared to the prior year, setting us up well as we enter 2027.

In our affiliate route, we expect installation volume to be down more than 60% this year. In addition to these volume trends, sustained higher interest rates have also modestly impacted cash generation. We expect to continue to allocate cash generation to reduce parent leverage. In the coming quarters, we will evaluate additional value-accretive capital allocation strategies depending on the market environment and our outlook.

Operator, you can now open the line for questions.

[Operator Instructions] The first question is from Brian Lee with Goldman Sachs.

Maybe, Danny, since you ended the call with your remarks, a question for you first. You mentioned the recent ABS transaction, congrats on that 200 basis point spread. I think that's the tightest we've seen in maybe 1.5 years or so, maybe even longer. Can you kind of speak to the financing environment? I know you're talking about a little bit of a pinch here in terms of higher cost of capital, maybe that's just all the base rate. But how should we just generally think about cost of capital trends from here on out through the rest of the year? And then any visibility? I know you kind of alluded to everyone's full up on '26, but what are you kind of thinking early read into '27 from that vantage point?

Yes. Great question. And we did notice a difference in participation levels, depth of order book. We've been in constant communication. Obviously, directly interfacing with investors. So the overall tone in the capital markets has been quite good. Overall kind of participation from an asset class standpoint, I think we've always been getting the confidence. I think last year was a year where several more people waited until this year to participate, and we're definitely seeing that in the results here.

I would focus on -- from an overall all-in cost of capital standpoint, we've seen some spread benefit. We've also seen increase in base rates taken together, we still see cost of capital modestly higher than we were expecting coming into the year. But obviously, from an overall like capital availability standpoint and enabling what we have planned for the rest of the year, very positive signals from the ABS market.

The other part of capital markets for us is the ITC transfer market, which has also been active. I think we noted last quarter, there was an improvement of price that largely held this quarter based on the transaction activity we've seen and are currently seeing in our pipeline. And we also remain optimistic there. As we noted in the remarks, like FEOC guidance comes out, that would only be additive to the market in terms of boosting participation where we see participation already at a healthy place.

Okay. Helpful color. I appreciate that. And then maybe a bigger picture question. I don't know if this one is maybe for Mary. Just thoughts on the battery storage opportunity. Obviously, you guys have pushed hard on that and been very successful. I'd be curious, any thoughts on potentially diversifying maybe going larger scale? There have been some recent reports about a pure-play peer in the battery space, the valuation delta versus you seems pretty stark. So wondering at a high level, if you're contemplating any strategy shifts or opportunities to sort of target other end markets given you've got quite a bit of traction and scale already. So curious if you're thinking broader about the battery opportunity.

Yes. Brian, nice to chat with you. Yes. I mean, I think as I said in my remarks, we are at a really interesting inflection point in terms of the value of the storage-first strategy that we adopted, as you know, many years ago. I mean, we are sitting on top of 4.6 gigawatt hours. And yes, there are some new entrants that, again, are after the same thing that we've already built, and we're already sitting at a -- we are sitting at the largest scale in the United States from a residential perspective. So as I say, we are the nation's largest residential independent power producer. And because of the importance of speed to power right now and because of the importance of the demand, particularly from AI, but let's be real, there was already demand and challenges from a grid perspective that were already in place a number of years ago that, that has just added to the importance of speed to power, meeting the need, particularly, I would say, in the next 5 years.

And so, we're really well positioned. We're seeing, as I mentioned, an acceleration of the conversations that we're having, not just an acceleration of conversations with commercial partners, but I would say a very varied list of commercial partners. So I think we're in a great position to monetize the value of these assets for the company. And of course, that also brings some value for customers as well.

The next question comes from Praneeth Satish with Wells Fargo.

I guess just drilling down on tax equity and pricing there. It sounds like it may have softened a little bit from last quarter in the high 80s, 90s versus low 90s last quarter, if I remember correctly, your comments. So I guess the question is, how do you expect pricing to trend over the balance of the year? It looks like final FEOC clarity may not arrive until even 2027. So is the outlook for pricing, do you expect it to be stable or potentially some further pressure? And then what kind of assumptions are assumed in the revised guidance around tax equity pricing?

Yes. I would say it stayed stable to Q1. So we are giving a range of high 80s to low 90s. So that's not implying any sort of change from last period. Pricing has held. To answer the question on future direction, we saw this year kind of get -- there was a start of activity after some people were paused due to tax appetite uncertainty. We've certainly seen 2025 volume mostly or entirely clear the market. And then we've seen focus turned heavily to 2026 as people have been working sequentially themselves in their own tax planning. So velocity volume has picked up. We're seeing that. We're experiencing that ourselves. We're reading about that as it gets reported in the market.

So a lot of focus on '26, which means as you get towards the back half, you're in the back half of the year, urgency for both counterparties picks up to get your '26 activity done. And what's noted was a little bit lower pricing in Q2 generally in the market. Our pricing held. A lot of what drove that seems to have been related to lots of smaller transactions getting done, subscale, maybe different quality getting done at different prices or different types of assets. But we haven't seen a difference in price in our transactions and more activity should unlock higher price. We expect modestly higher for the year, maybe flat to modestly higher, just to be a little bit conservatively grounded there.

Got you. That's helpful. Maybe switching gears. So on the distributed AI node strategy, I guess the first question there is how quickly can you move from pilot to commercial deployment?

And then maybe just on the financing strategy and funding model, should we expect the GPU investments to sit on the balance sheet? Or would you look to bring in third-party capital? I mean, I know it's probably small numbers, but they add up pretty quickly if you're funding the GPUs. So just trying to unpack that.

Yes. Thanks for the question. We're excited about innovation and exploring the power of distributed compute because, again, we sit on the largest number of customers and homes across the country where people generate and store their own power. And so, it's a really interesting way to think about creating value, both for Sunrun and from a customer perspective. So again, it is a pilot, and we expect to learn a lot from it. We do expect to learn a lot within a few months.

But Paul, why don't you talk a little bit more about the distributed compute pilot and then take that other question on the funding and how we're thinking about it?

Yes, for sure. So I think one of the things we know we have is, a lot of customers with controllable power, and we can allocate that power to flow through a meter, and we've got this Flex product that generates a bunch of excess power. And so allocating those electrons to the highest return is something that we're constantly thinking about. And when you look at the value of using those electrons to power a GPU in someone's home versus the alternative, the returns to us are really, really attractive. So we're excited about the economics of it.

We've got, as you know, over 1 million host customers today with our solar and/or solar and storage offerings. And so, upon the announcement, we saw a really great surge of inbound customers calling saying they're interested and we'd like to host these sites. And so, we see a really low CAC opportunity and then leveraging our existing service. So we see a lot of opportunities to have a very low entry point into a pilot and into an initial scale.

Around the question on financing, we have a lot of experience in financing assets, and I think rolling this into a similar type structure is something that would be really natural for us as we scale the product. But I think as Mary says or said, over the next couple of months, we'll be expanding the pilot working through it and making decisions from there.

The next question comes from Maheep Mandloi with Mizuho.

Just want to understand the cash generation range over here, or the puts and takes on that for you guys. And as we kind of go into next year, could you expect the similar second half run rate for cash generation?

So starting with volume as a driver, we noted that we've inflected in terms of growth in the direct business. So we're seeing sales up 10% year-over-year, and we expect back half volumes in the direct business to be up similarly, more than 10% year-over-year and getting the whole year to a low single-digit growth in the direct business. And now that's offset by the contraction of more than 60% in the affiliate business. So that through the year should levelize. And we implied we would be carrying unit volume growth in the next year. We're not guiding to 2027 at this point, but the volume trends are positive.

Obviously, we noted cost of capital was a little bit of a modest headwind. But generally, as we grow scale, we do expect fixed cost absorption and more efficiency and productivity in the business. And some of the kind of near-term unit margin contraction you're seeing is just related to the speed of the ramp on the direct side, and that should largely be behind us as well as we get to the end of the year. So it's all positive indicators for what we carry into 2027.

Appreciate it. And just a follow-up just on the cost side, the latest news on potential tariffs on 232 and others in the works over here. Do you see enough levers in terms of like utility bills going up or are we going to pass it down to the end customers? Or how do you see that in '27, '28?

Sorry, just to clarify, was that as to the impact on our cost structure or utility rates? I just want to make sure I heard that correctly.

No, your cost structure in terms of the solar equipment costs and what flexibility do you see next year to pass that down?

I got it. Yes. So it's a minimal impact to us. We have been increasingly buying domestic on the module side. I'll remind you, costs are about 1/3 of our cost structure. And I think this is a modest impact to a portion of that 1/3. So I think we could -- we feel like we could absorb it. We have been buying more domestic. And we've also hedged a little bit in terms of our planning for the year in terms of equipment costs. So I think we feel like we could easily absorb that.

The next question comes from Colin Rusch with Oppenheimer.

Could you talk a little bit about the cadence and the rate of conversion on the sales pipeline? Are you seeing an increase in conversion rate? Or is that starting to trend a little bit differently?

Yes, great question. So we're -- we've onboarded, as we've kind of talked about, we're growing our direct business quite aggressively. Since the beginning of the year, we brought on over 1,500 new salespeople. And we're seeing those new salespeople carry with them kind of the traditional conversion rates that a new salesperson brings with them as they come into the business and growing and ramping those numbers as we would expect. And in our core kind of like offerings to customers, we see conversion rates flat to up and are optimistic as we continue to refine these new salespeople and get them into our business, even higher conversions.

Okay. That's super helpful. And then thinking about the portfolio of energy storage assets, can you talk a little bit about any sort of network effect that you're starting to see in terms of monetization and how we should think about year-to-year variability in revenue from the portfolio of energy storage that you've got under management?

So I think as I mentioned, for this year, it looks -- we're projecting $40 million in GAAP gross revenue and $10 million to the bottom line. And as we look to the future years, I mean, frankly, it's hard to see a scenario where that value doesn't continue to incrementally and materially grow. We have traditionally focused on, I would say, utility relationships, regulatory programs and some favorable market rules like we have in some states to monetize the value of these assets for the grid and for customers and for Sunrun. And that has just -- the opportunities are just continuing to increase, both in the context of conversations directly with hyperscalers, some through our partnership with Tesla and Renew, some in the context of REPs. So again, we have materially grown the number of conversations, opportunities and frankly, deals that we're working on. So the outlook is very strong.

The next question comes from Philip Shen with ROTH Capital.

First one is a follow-up on the AI compute pilot. Just was wondering if you might be able to share what the conversations with hyperscalers or potential customers to this asset base are going? And is there interest there? Are they excited about it as it's a highly differentiated offering and something that they may not be used to? Or is it something that's a little bit foreign and it might take some time?

So just curious, as a second part to that question, do we expect to see commercialization in '27? Or is it more of a '28 thing? I know I think Praneeth asked, but I may have missed the answer.

Nice to hear you, Phil. I think it's hard to say until we complete our pilot. So again, we're doing our pilot. It's hard to say on the commercialization and the revenue opportunity being '27, whether it would end up being like second half '27, '28 until we complete our pilot. So that will be, as Paul mentioned, over the next couple of months.

In the context of who would participate with us, I would say, first and foremost, there is a distributed compute marketplace. So that is right there, there is already a way to like access the market to get value over GPUs in homes. So that's not something that we have to develop in order to monetize the value of these. But putting that aside for a second, there are then also those that are in the distributed compute space where it might make more sense to actually work on direct deals with them in a way that makes more sense than accessing the marketplace. So there's really a couple of different ways to go after it, but there is already an existing distributed compute marketplace.

Great. I appreciate the color. And then shifting over to your share price, after hours, it's looking like it's going into the high single digits. So I wanted to check in on your latest view on buybacks as it relates to share price, given how much -- how low the stock has gone, it seems like an interesting and attractive opportunity.

Yes. I think as we've said, we are so focused on building a great company. And I would point to what we've already done in the context of generating over $400 million of cash in the last couple of years. We also have been focused on, again, growing our direct business that has higher margins, better asset profile, better customer profile and will be really valuable as we build the company to the future as well the distributed power plant activities as we just talked about. So all of that puts us in a strong position to continue to pay down debt and to hit the ratios and then explore the opportunities for value creation for our shareholders. So nothing has changed in that regard. We are very focused on creating value over time for our shareholders.

The next question comes from Sophie Karp with KeyBanc Capital.

I'm curious to get your take on the emerging, I guess, technology in the U.S. is plug-in solar panels that several states have adopted so far and the certification of them nationally may be upcoming. And kind of how do you see that interacting with your business opportunities, particularly on the lower end?

Sophie, this is Mary. Are you talking about -- are you referring to like what is known as balcony solar? I want to make sure we understand your question.

Maybe that's the term, yes. Plug-in solar panels you have balcony and otherwise suitable for single family homes, too.

Yes. I mean, it certainly is an -- like from my perspective, it's a very interesting opportunity to continue to expand the total addressable market for what I would call generation and storage that can foundationally change your relationship with energy, which plug-in panels can't do, obviously. I mean, I think I read a recent article in the New York Times where somebody cited, they were excited because I think they were going to be saving about $5 a month. So it's just a very, very different product than our sophisticated product. But one of the things I love about it is it's raising awareness level because I think so many of those folks that then will say, "Oh, geez, I'm going to plug in a panel here and get some benefit." It almost becomes a gateway, a teaser product for people who really want to embrace more energy independence, home control, resilience.

So again, as we've moved particularly to a storage-first company, it's just a very, very different value proposition. But like so many things, of course, we pay attention, and we're excited about anything that excites the market about the power of solar energy.

Thank you. Ladies and gentlemen, we want to thank you for your participation on behalf of Sunrun. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.

Good afternoon, and welcome to Sunrun's First Quarter 2026 Earnings Conference Call. Please note that this call is being recorded and that 1 hour has been allocated for the call, including the Q&A session. 

[Operator Instructions] 

I will now turn the call over to Patrick Jobin, Sunrun's Investor Relations. Thank you. Please go ahead.

Thank you, Julian. Before we begin, please note that certain remarks we will make on this call constitute forward-looking statements related to the expected future results of our company, including our Q2 and full year 2026 financial outlook and other statements that are not historical in nature, are predictive in nature or depend upon or refer to future events or conditions, such as our expectations, estimates, predictions, strategies, beliefs or other statements that may be considered forward-looking.

Although we believe these statements reflect our best judgment based on factors currently known to us, actual results may differ materially and adversely. 

Please refer to the company's filings with the SEC for a more inclusive discussion of risks and other factors that may cause our actual results to differ from projections made in any forward-looking statements.

Please also note that these statements are being made as of today, and we disclaim any obligation to update or revise them.

Please note that during this conference call, we may refer to certain non-GAAP measures, including cash generation and aggregate creation costs, which are not measures prepared in accordance with U.S. GAAP. 

These non-GAAP measures are being presented because we believe they provide investors with a means of evaluating and understanding how the company's management evaluates the company's operating performance.

Reconciliation of these measures can be found in our earnings press release and other investor materials available on the company's Investor Relations website.

These non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with U.S. GAAP. 

On the call today are Mary Powell, Sunrun's CEO; Danny Abajian, Sunrun's CFO; and Paul Dickson, Sunrun's President and Chief Revenue Officer.

A presentation is available on Sunrun's Investor Relations website along with supplemental materials. An audio replay of today's call, along with a copy of today's prepared remarks and transcript, including Q&A, will be posted to Sunrun's Investor Relations website shortly after the call.

And now let me turn the call over to Mary.

Thank you, Patrick, and thank you all for joining us today. At Sunrun, we are busy rapidly ramping sales and operations to fulfill the surging customer demand we have generated for our offering.

Sunrun is solidifying and expanding its leadership position as the nation's largest residential distributed power plant developer and operator.

Our addressable market is no longer solar-driven savings. It is America's need for power to fuel our economy. Our strategy is working. 

In Q4, we told you we had reached an inflection point. Today, we're here to tell you that the momentum we built is holding and accelerating.

In a market environment that continues to test many participants, our scale, our vertically integrated model, our product strategy, and our relentless focus on execution and customer experience are proving to be genuine, durable competitive advantages.

Put simply, we believe the market dislocations occurring around us present opportunities for us to extend our lead and accelerate profitable, high-quality growth. 

Let me start with our Q1 results. We added approximately 19,000 customers in Q1, and our storage attachment rate increased again to 73%, reflecting our continued commitment to a storage-first strategy as we build the nation's largest distributed power plant.

Aggregate subscriber value for Q1 was $1.1 billion, above our guidance range of $850 million to $950 million. Contracted net value creation was $108 million, near the high end of our guided range of $25 million to $125 million.

Cash generation came in at negative $31 million when excluding equipment safe harbor investments. 

We chose to shift certain project finance transaction activity from Q1 into Q2, negatively impacting our cash generation for Q1. We remain on track for our full-year guidance of $250 million to $450 million. 

Danny will walk you through the details of the financials in a moment, but I want to give you the strategic picture first. 

When we closed 2025, we had installed more than 237,000 solar plus storage systems and approximately 4 gigawatt-hours of network storage capacity.

In Q1, that number grew to 4.3 gigawatt-hours. Our fleet of dispatchable storage has grown by over 50% compared to the prior year. That is not just a metric. It is infrastructure.

It is really distributed dispatchable power woven into American homes and the energy system, and it is something no one else in this industry has at our scale. 

This is the business we have been building, not a company that sells solar panels, but a company that operates critical energy infrastructure that stabilizes the grid and provides customers with price certainty and backup power.

In a moment of unprecedented electricity demand driven by AI data centers and electrification, coupled with an aging grid, that distinction has never mattered more. 

I want to spend a moment on the dynamic industry environment we are operating in. Sunrun is incredibly well-positioned to capitalize on and extend our lead in the industry.

The changes happening in the industry are difficult for many companies to navigate, but we believe that they play directly to Sunrun's strengths. 

Let me hit the big changes in the industry and our position. First, the consumer ITC under Section 25D of the tax code associated with cash purchases or loan financing sunsets at the end of December.

Many smaller dealers and some of our affiliate partners that have significant volume dependent on the 25D tax credit have suffered significant volume declines this year.

Sunrun's origination volume is almost entirely subscriptions, and thus, we are not seeing similar impacts from changes to the 25D tax credit. 

Second, utility rate structures have become increasingly complex, and customer value propositions hinge on and can be expanded by storage that is properly designed and actively managed to ensure consumer value.

We believe that our vertically integrated model has allowed us to provide the best customer experience and offerings. We train our sales force and operations teams and ensure end-to-end alignment.

This is one of the reasons we have very deliberately shifted our growth mix towards our direct business. 

Third, the regulatory complexity of navigating domestic content and Fiat rules is increasing. We believe that our experience and scale give us tremendous advantages to navigate these items from equipment, procurement, logistics, and compliance. 

Fourth, we have focused on margins and cash generation, well ahead of others in the industry. This allows us to operate with a strong balance sheet that has low parent recourse leverage, enabling us to strategically invest in profitable growth and make the right long-term business decisions from a position of strength. 

Our balance sheet strength, along with our large-scale operations, has also afforded us the ability to prudently invest in safe harboring, enabling maximum ITC levels through 2030. 

Sunrun's end-to-end visibility, our vertical integration, and our sophisticated capital markets experience are precisely what allow us to drive competitive advantages and thrive. 

We are leaning in during this moment of industry change. We are seeing strong momentum in direct sales force recruiting. We are matching direct sales momentum with ramping up our direct installation capacity, enabling us to approach year-over-year growth in overall installations later this year.

We hired more than 1,000 people in sales year-to-date who are excited to be part of our growth trajectory.

We are onboarding hundreds more, representing some of the best talent in the industry, from sales dealers who have recognized Sunrun's sustainable approach and appreciate our customer experience focus. 

These talented sales representatives understand that the shifts in industry have made the dealer model unstable and unattractive. We are driving strong, profitable growth with expanding margins for new customers.

We are also deep into our strategy of building capital-light sources of recurring cash flows that are independent of new customer origination.

We will be monetizing our base of customers and providing at-scale resources to the grid. We plan to also offer these services to orphaned customers across the industry.

We expect these recurring cash flows to scale and augment our cash generation growth in the coming years.

Our full-year 2026 guidance remains intact, and we are excited about our long-term growth trajectory. I want to close by returning to what I believe most deeply about this company and this moment.

America needs more power, and Americans want more independence and control. The proliferation of AI data centers, the electrification of transportation and homes, and the decarbonization of the grid all of these demand new solutions.

The answer is not going to come from a single large plant that takes years and years to build. Instead, we believe distributed, intelligent, flexible resources deployed into homes and communities today will be a meaningful part of the solution. That is Sunrun.

We have over 1.1 million customers across the country. We have the largest residential battery fleet in the country. We are dispatching energy to the grid.

We are protecting families from outages, and we are doing all of this while generating meaningful cash, paying down debt, and building a balance sheet that gives us flexibility to invest in the future.

Before handing it over to Danny, I also want to take a moment to celebrate some of our people who truly embrace our customer-first and service-focused mentality.

This quarter, I specifically want to call out our team members in Hawaii. As we all saw, Hawaii experienced severe and catastrophic flooding this past March, affecting thousands of residents, including many Sunrun customers.

Over a dozen of our team members in Hawaii, ranging from electricians to installers to sales leaders, spent many hours assisting in recovery efforts on the island of O'ahu. I'm so thankful for their contributions.

Darius, Kelton, Chad, and all our Hawaii team members, Mahalo, we are incredibly proud to have you representing Sunrun.

Danny, over to you.

Thank you, Mary.

Our Q1 volume performance exceeded our expectations as we expanded our sales force and increased productivity at a robust clip. We added nearly 19,000 customers this quarter, with average system sizes up 5% from Q4 and a 73% storage attachment rate, up two points from Q4.

While customer additions are down year-over-year given the effects of reduced lead generation and sales activities in mid-2025 around the budget bill and our decision to reduce affiliate partner volume, early funnel sales activities this year have seen an inflection point toward growth.

Based on the strong sales in our direct business, we are on track to resume overall year-over-year growth in installations later this year.

To provide some more color on early-stage activities in our direct business, our active sales force has grown over 20% since the start of the year, and March saw over 30% growth in sales bookings month-on-month.

These trends are outpacing the typical ramps we have seen at this point in prior years. Importantly, this growth is occurring in higher-value geographies and with our desired product mix.

Aggregate contracted subscriber value was $980 million in Q1. On a unit basis, contracted subscriber value was up 14% year-over-year, driven by higher system sizes, a higher storage attachment rate, a higher average ITC level, and lower capital costs.

Aggregate creation costs were $872 million in Q1.

On a unit basis, creation costs were 18% higher year-over-year, driven by higher system sizes, higher storage attachment rate, and adverse fixed cost absorption from lower volumes.

Upfront net value creation was $91 million in Q1, or approximately 9% of aggregate contracted subscriber value. This represents the cash margin we expect to obtain on systems, and their tax attributes are monetized before working capital and recourse debt interest costs.

On a unit basis, upfront net subscriber value was $5,136, up over $4,000 per subscriber compared to the prior year.

Cash generation was negative $59 million in Q1, or negative $31 million, excluding the $28 million net investment in equipment safe harboring.

Cash generation was lower than our guidance due to our decision to shift certain project finance transaction activity from Q1 into Q2. We repaid $92 million of recourse debt in Q1, ending the quarter with $680 million of unrestricted cash and $626 million of parent recourse debt.

Turning now to our activity in the capital markets. Investor demand for Sunrun's assets remains strong. We have executed and closed several traditional and hybrid tax equity funds and tax credit transfer agreements so far this year and have developed a pipeline of several transactions we expect will close during Q2.

Corporate ITC buyers and traditional tax equity investors are actively engaging in their 2026 tax planning, and we are capturing a broadening base of investors.

According to industry data, approximately 27% of Fortune 1000 companies purchased tax credits in 2025 in a market that grew nearly 50% from 2024.

Tax credit investment has become a common practice for hundreds of corporate treasurers and CFOs who are generating savings and reducing their corporate tax rates, and we expect more of them to catch on this year.

Market activity has picked up considerably since the second half of 2025, when tax law changes created temporary tax planning uncertainty. The pickup in activity has also driven modest recovery in market pricing for ITCs.

Certain multinational tax equity investors have paused 2026 activity as they await Treasury guidance on Fiat ownership restrictions to confirm that their capital structure does not present any complications.

The broader universe of tax credit investors is not impacted by ownership restrictions and remains active. We have built a supply chain and operating process for full FIC compliance.

Through today, we have raised $774 million in nonrecourse asset-level debt financing year-to-date. The publicly placed tranche of our recent $584 million securitization priced at a spread of 220 basis points, a 20-basis point improvement from our most recent transactions in Q3 of last year.

As of today, closed transactions and executed term sheets, inclusive of agreements related to non-retained or partially retained subscribers, provide us with expected tax equity capacity or equivalent to fund approximately 1,000 megawatts of projects for subscribers beyond what was deployed through the first quarter.

We also have over $675 million in unused commitments available in our nonrecourse senior revolving warehouse loan to fund over 250 megawatts of projects for retained subscribers as of the end of Q1, pro forma to reflect the announced securitization.

Approximately 23% of our subscriber additions in Q1 were monetized through the non-retained or partially retained model.

As a reminder, proceeds from these transactions are equal to or better than our on-balance-sheet retained monetization while also providing simpler GAAP treatment and further diversification of capital sources.

Under the joint venture structure, we retain a share of long-term cash flows along with grid services and the ability to cross-sell customers.

Turning to our outlook on Slide 23. We are reiterating all of our 2026 full-year guidance. We expect strong volume growth in our direct business and to produce cash generation of $250 million to $450 million for the year, excluding the use of approximately $50 million to $100 million related to equipment safe harbor investments.

We expect to continue to allocate cash generation to reduce parent leverage and make final equipment safe harbor investments.

In the coming quarters, we will evaluate additional value-accretive capital allocation strategies depending on the market environment and our outlook.

Operator, you can now open the line for questions.

[Operator Instructions]

And our first question comes from the line of Philip Shen with ROTH Capital Partners.

First one is on that tax equity pause, Danny, that you mentioned earlier. I just wanted to understand what the impacts on your business is or are.

My guess is you guys have been able to pivot away to other sources of capital or funding. But ultimately, this can drive the cost of funding higher.

And as a result, do you see any impacts on your volumes? I know you maintained your full-year guide, but the reality is, I guess it is impacting the wider market.

You guys did cut affiliate volumes down 40% year-over-year a quarter ago. So, is the bigger impact more with the affiliates business, and you guys have everything buttoned up for the direct business?

Yes. I would say maybe there are two different questions in there. I don't know that they're necessarily related if you're tying them together.

I think I would say, starting with the go-to-market approach, there's a strategy decision to lean into the direct business for all the reasons we articulated.

I'd say that's pretty much independent of our observations of conditions in the capital markets. So, those two aren't necessarily linked, perhaps in the way you did in your question. So, I would say, pull those apart.

We've talked a lot about the go-to-market approach. On the capital market side, I'd say I wouldn't categorically refer to it as a pause in the market. Certainly, there have been a few who have paused their activity in doing transactions in the market.

We did see, as we noted on the last call, a slowdown in activity in the market in late '25 second half of '25. We noted that there were a few cents per credit in terms of pricing impact that we had been seeing.

So we've noted in the past that low-90s-area dollar-per-credit pricing has moved into the high 80s.

And we also noted here in the remarks that we've seen a modest recovery, I would say a partial recovery, as the market activity has picked up early this year. I think people on the corporate buyer side worked sequentially to resume their buying activity.

Now, once they have clarity on what they need for '25, the appetite has been there. It's now clear to them what that appetite is, and they've been procuring the credits. And as they've completed their exercise for '25, they have swiftly moved into filling their needs for 2026.

It's been noted widely that there are a few players in the market who have paused over FERC restrictions. And I would say that's not related to our supply chain.

That's related to the ownership side of FERC restrictions, and frankly, they want to be certain of their qualification in terms of the purchaser of the credits before they resume their activity.

But that characterizes a rather small portion of the market. That does feed into the supply-demand fundamentals in the market that have led to modestly lower pricing, and again, we're seeing a nice recovery building.

And that does have us feeling quite confident about matching that with the volume trajectory and the demand we're seeing. We feel nicely balanced there overall.

Shifting over to the Freedom Forever bankruptcy. Historically, I think you guys did work with them. So, I was wondering if you guys can talk about the exposure that you guys have there, if any?

And then ultimately, when did you guys cut off Freedom from your affiliate network? Was it back during the Q4 call? Or was it done perhaps earlier?

Yes, great question. So our partnership with Freedom has declined in volume programmatically over the last three years and gotten to a place where we have relatively little exposure or ongoing new sales generation with them.

So, from a run-rate perspective, quite small.

I think just to emphasize on your first point, to be amply clear, the dislocation between our strategy on deemphasizing affiliate partner business and ramping up our internal business is not driven by capital.

We're raising capital, and we're growing that internal business swiftly, as Mary highlighted, and we're seeing robust growth in that area.

So, it really is a focus on becoming an organization that has control over more aspects of the business that we think is paramount as we transition to be a distributed power player and build and own those assets.

I'll let Danny talk specifically about any of the financial exposure.

Yes. I'd say well-managed, as we have participated in the affiliate partner space for nearly two decades. So, we've had lots of safeguards to manage our financial exposure regardless of the partner.

I'd say the nature of the exposure is related to projects that are in flight. They may have been installed but not fully interconnected. And so there is an exercise of working through the in-flight pipeline for us, and that's how we think about the exposure.

I think a lot of that is operational in nature. And because we are vertically integrated, should we need to step in and complete the installation, we could also do that. So we have more direct control over the outcome. But apart from that, I'm not going to disclose specific figures here on the call.

Our next question comes from the line of Colin Rusch with Oppenheimer & Co.

I just want to get into some of the assumptions on the net subscriber value. Obviously, a little fewer megawatts get amortized over the OpEx, which gets amortized over that pretty clearly.

But having a little bit higher percentage of noncontracted value, I just want to understand the underlying assumptions around that and what's driving some of that value capture?

Are you doing the comparison sequentially, just so I follow which numbers you're looking at, so I can address that?

I'm just looking at the almost $6,000 of noncontracted net subscriber value, which is substantially more than what we've seen historically. I'm just trying to understand.

Yes. So we've noticed there are a few factors at play. Some of it is system characteristics. Some of it is mixed.

So system sizes are larger. You'll note that in the metrics. The storage attachment rate is higher. Less impactful on the renewal, but the overall average ITC level is higher. So, we had more domestic content qualification in the period.

That will range a little bit here for the balance of the year. I'd say most notably, you'll see some fluctuation across the last several quarters related to the retained and non-retained mix. And I think that would be the biggest driver of the noncontracted value, but it's a big driver overall.

And of course, the discount rate will fluctuate. I'd say those are the key drivers to the top-line subscriber value numbers and specifically to the noncontracted value.

You'll also see some sequential impacts or year-over-year impacts on the creation cost side, where I would say it's most heavily driven by lower fixed-cost absorption in the period, which is related to the volume decline we've seen sequentially over the last few quarters, which, as we noted, we expect to inflect, and we'll gain a lot of that back.

There are also some mixed effects on the cost side as we mix shift towards our direct business away from the affiliate business, there are some lagging costs that are blending up the creation cost figure that's weighing us in period, and that drag should alleviate over the coming few quarters.

Then, looking at the market, we're obviously going through a pretty substantial shift in terms of end market dynamics with competition as well as where some of these crews are.

I'm just curious what the most prominent gating factors are for you guys right now in terms of megawatt growth? Is it sourcing deals? Is it construction availability? Or is it tax equity availability? I just want to understand how you're managing some of those limitations.

Yes. Great question. This is Mary. Yes, again, we are ramping meaningful profitable growth. Our access to capital to support it is strong.

Our whole approach is an extension of what we've been doing now for years, which is very sharply focused on where we can do that in a way that has the best customer experience with the highest profitable margins in the business and also, at the same time, do it in a way where we are positioned really strongly from a distributed power plant perspective.

I think just adding to that, I would say, as Mary articulated formerly on calls, we've been appropriately, I think, selective around hiring and onboarding sales talent to generate more volume in profitable markets at returns that are attractive and trying to be thoughtful around attracting the best talent that we can.

And I think some of that talent swirled around with the 25D expiration and looked at different homes, some with us, some with other players.

The market turmoil that's taken place over the last several months with different finance shops pulling back, changing pay, adjusting, exiting the space, and then several installation shops struggling, going out of business, closing up their shops.

More and more of the sales talent that's thoughtful and analyzing the market is realizing the unsustainable and unattractive nature of the dynamics of that business, and we're starting to see more and more of that business flow to us.

So, where previously we've been a bit cautious around the internal growth and said it will be steady, we're starting to see pretty steep upticks in that and are growing increasingly bullish on approaching later in this year's year-over-year growth overall, absorbing all of the dealer decline and seeing attractive growth in the internal direct business.

And our next question comes from the line of Brian Lee with Goldman Sachs.

Danny, going back to some of your comments around tax equity, I know that's been a key focus for the market and investors since your commentary from last quarter.

So curious, it does sound like on the margin, you're seeing some improvement in trends. You quantified it in terms of pricing and how it's a systematic pause here. It's maybe just a few lenders that are holding off.

But is that a fair assessment of your view of the market today versus where it was at the end of last year and maybe early this year? And then how much does tax equity availability and/or cost play into your view of the low and high end of the range for cash generation this year?

Yes. So, your recap and how you characterized it, I think I agree with that, was spot on. I think we're seeing more and more buyer activity pick up.

I would say that there's a bit of a narrow focus here on the tax credit transfer market. And if we stay there for a second, that market was $28 billion in 2024, $42 billion in 2025, and it grew that much despite there being a wide noting of there being a slowdown in that market.

So it still overcame all of that and had a 50% year-over-year growth rate.

And it's still only 27% penetrated in the Fortune 1000. And to add a little bit more color, when you look at who bought in '23 and '24, there was an 80% repeat rate for them being buyers in 2025 again.

So, what's been proven out in the data so far is that once you start doing this, your tendency to repeat it is very high.

The entry cost is also a little bit high as a corporate Treasurer, CFO in a non-related industry, just learning how to do this. Once you overcome that hurdle, it's something that becomes part of your planning and is in the process of going mainstream.

I think that is visible to us as we observe this now with 3 years of data.

The amount of last year's unsold credits exiting '25 was half as much as it was for exiting '24. So, all the trends there are positive. And that's why we see research and market forecasts indicating that we might see full price recovery, where the second half of this year might have pricing that's as high as the first half of last year.

So just to add all of that color there.

Then I would say, in addition, we've built a pretty broad base of investors going back to a narrow focus on tax credit transfers. That's a big piece.

We have the non-retained asset sale monetization transactions, and that's been a pretty significant part of our mix. And on the tax equity side, we're still doing traditional structures, even traditional structures with new investors entirely and using pref equity structures.

So, we built a pretty broad base of capital. So we further diversified it through the period of market slowdown. We saw through enough transactions, obviously, to get '25 done. And now our focus is looking forward to '26.

And then any thoughts just on low-to-high-end ranges of cash outlook for this year, what's embedded in the tax equity availability and cost side?

It's still $25 million per penny of, on a dollar per credit basis, $25 million per penny, plus or minus.

And our next question comes from the line of Praneeth Satish with Wells Fargo.

So, just maybe, just so I understand it correctly. So Q1 cash generation was impacted by a shift of financing into Q2, I guess, due to the disruptions in the tax equity market.

Can you help frame, I guess, how much volume got shifted and maybe what Q1 cash generation would have looked like absent that shift in timing?

Then, when you look at Q2, now that we're here in May, can you give us a sense of how far along you are in terms of proceeding with those transactions that you've shifted from Q1 into Q2?

Yes. So the negative $31 million is the number that excludes the Safe Harbor investment of $2.

So, on a pro forma basis, starting from negative $31 million, you would have to believe that $31 million or more of a draw from a fund that closed earlier would have taken us to break-even into positive territory. So that would be the gap.

I would say, just to clarify a part of your question there, the delay is not related to a slowdown in the market.

I think we've always noted it's inherent to transactions that some close before the quarter, some close after, and deals need to be right, all deals need to be right to close it all. And I think that's the nature by which I'd characterize that.

I think again, we could see lumpiness in the result over the quarters. Obviously, our job is to keep transactions tightly on the calendar. Sometimes we do.

Sometimes we might see it straddle quarter ends. And I think we're generally fine with that when we zoom out, look over a rolling 4-quarter period, we want to have a high magnitude of cash generation. I think that's what we're looking for the whole year.

And maybe just switching gears. So if I look at fleet servicing costs, they've been trending down quite a bit over the last few years, including this quarter.

Can you talk about what's been driving those reductions? And then, whether you expect those costs to continue to decline or if you're kind of nearing more of a natural floor there?

Yes. Thanks for that observation. Yes, it's the result of having a team that has been relentlessly focused on how to improve the experience and service for customers while doing it in a way where we, frankly, leverage our scale, our capabilities as the largest installer in the country, and continue to have a focus on driving down costs.

And also, we've done a lot, as I know we've highlighted before, in terms of having a team that can really help us leverage AI to get to next-click improvements that again drive down the cost.

So we're really pleased with what we've seen, and we expect to still see more improvements in the coming months and years.

And our next question comes from [Technical Difficulty].

Danny, I think you gave a number of the 1,000 megawatts of closed transactions and executed term sheets.

Can you just speak to the mix within that tax equity pipeline between the different buckets that you're speaking of? So corporate buyers, like big multinational financial institutions, that kind of thing?

In terms of the investor mix, very large global institutions through to more specialized domestic players.

Like on the ITC buyer side, that spans across all industries at this point. So I could give you lots of examples of companies that are not traditionally even tied into the solar space at this point.

So would you say those corporate buyers are a bigger part of the mix today? And if so, could you just give us a sense of how much that could be?

Yes. So we noted 23% of the systems were sold into the non-retained model. So that's quantified, and that's a single investor acquiring assets in a JV structure.

And apart from that, there's a mix of traditional and hybrid tax equity funds where sometimes the tax credit purchase is stapled with the same investor who is participating in the fund.

Sometimes it's a hybrid where we are selling out tax credits to the ITC transfer market. And then there's an emerging set of pref equity type JV structures, such as what we announced in a press release with Cannon Armstrong last quarter.

I think that's another transaction mode that gives you a flavor of the type of investor. I think there'd be more of that. And in those transaction types, there's also the ITC transfer activity going out to the same market that spans all industries at this point.

And our next question comes from the line of [Technical Difficulty].

A couple of different things here. First, can you talk about the nature of the change in the partnership a little bit more? Does that impact anything around your cash flow and cash?

Obviously, you reiterate guidance, et cetera. Just can you talk a little bit about that and the strategic decision on why to do it now? Can you elaborate on that?

And then I'll throw in the second one. Mary, you talked about the success you're having in the direct business. Is there any change in your strategy and how you're going to market here?

You've got the new sales talent in the door. It's ramping up nicely, as you say earlier in the Q&A. How are you doing it differently this time, if at all? I'm just curious about how you're shaping the sales tactics at all versus the affiliate channel.

Can you just clarify on the first part of your question, which partnership are you referencing?

Yes, apologies. On the financing side, you all's JV structure here. When you think about retaining the cash flows here and any changes, how does that impact your cash guide?

So I'll go on that, and Paul will handle the growth piece. So we have the same things that we've disclosed in the past.

So there's the non-retained model that's with an energy infrastructure investor. And then there's the Hannan joint venture transaction that we also talked about.

I think more diversification into those transactions could occur as well. So I think structurally, we like the efficiencies of those transactions. The economics of those transactions are all in a very similar range.

I would say we've noted very specifically that upfront proceeds look very similar in the non-retained model as they do in the retained model. We said that and maintain that. And all of that is assumed in the $250 million to $450 million guide.

And then on the market dynamics, I think the major thing I think that's important is understanding the market itself. And I think people have tried to categorize consumer demand.

I think, generally, I would summarize consumer demand as being unaware. And so consumers are sitting there, generally unaware that this solution exists.

As we ramp up and deliver salespeople to educate Americans about this alternative option, we continue to see the same take rates, the same adoption, the same excitement, and have seen nothing but that continue to accelerate.

The real change in that has come from us selling a solar savings product years ago to being critical infrastructure and going to a customer, saying, we can insulate you against price uncertainty caused by these energy shortages, and we can give you resiliency with a battery, insulating them against power outages, and combining that with it actually being a grid infrastructure resource.

The market for this is, I would question back, does America need more power, and is dispatchable power useful? And that is the market that we're really serving.

And so, approaching it that way, and kind of candidly, changing the way we train our salespeople and the value proposition, how it's delivered, has been an evolution over the last 24 months.

And we're seeing better success now, higher take rates, and more of those consumers that we go and approach accepting and adopting the product.

So we're seeing a lot of efficiency pickups as a result of that. But that dynamic change has taken place slowly over the last several quarters.

I think, just generally looking at the growth, I would say Sunrun has been focused on being stable, being sustainable, and underwriting assets correctly.

As the market outside us continues to see more turmoil, the stability of Sunrun becomes more attractive, and more people are flowing into that program.

It's Mary. I would just say, layering on that, like simply put, it has become what we sell has become more sophisticated.

Policy changes have gotten more sophisticated. And meeting customer needs requires a company like Sunrun that's very, very focused on the customer and has sophisticated capabilities around training the sales force and ensuring that we provide the best fit for customers.

So again, as we said on the last call, we continue to make strategic changes to make sure that we're delivering world-class NPS to customers.

We're delivering the right product in the right way, program the right way for them, both for the consumer and for the grid. And what we're finding is that we can scale that really significantly and effectively in the direct business, and that's why you've seen us focus on it.

And our next question comes from the line of Maheep Mandloi with Mizuho.

I think just mostly on the tax equity side. Maybe separately, just on the products going forward, is there a possibility you could see just selling a battery storage product somewhat similar to what we've seen in Texas with 25, 50-kilowatt-hour batteries with utilities over there?

Any opportunities on that end you're seeing in the market?

Yes. So we've launched our stand-alone battery offering, and it's being received extremely well.

We sold thousands of units, and as that continues to grow in size and scale, we'll probably start providing more reporting on it in the future.

I look forward to that. And maybe just like one housekeeping just on the recourse debt. So, the plan is still to get to 2x below the cash generation, or are there any plans to pay down even further than that?

Yes. I think we'll get to that number, if not a little bit through it, by the end of the year. And so we're on track for that. That goal hasn't changed.

Obviously, we had a big payment down in this year's Q1. So we've started the year pretty well on that dimension, and we expect to see more pay down before the end of the year, but I think we're trending towards that less than 2x total parent debt to trailing four-quarter cash generation multiple.

And our next question comes from the line of Robert Zalper with Raymond James.

I think on your last call, you said across the portfolio, you've experienced roughly 75 basis points of annual net defaults. How has that been trending since the last call?

Yes. I think we've been seeing across the board, I would say, starting with the macro piece.

We've been seeing a little bit of a credit cycle, just consumer performance degradation. I think we've been looking at -- I would say nothing different as far as the ranges we've been seeing.

There's a pretty there's a range based on different markets, different average FICO profiles or FICO bands, and some of our affiliate and non-affiliate mix is also changing.

I think we see an elevation, frankly, of default rates with a greater affiliate mix and some of the market mix implications. So we've been looking at an initial period of a couple of years where default rates look elevated.

And then the annual default rates start to fall as we get through early-on issues on the customer-facing service delivery side. I think that's had an impact.

As it was noted, our service costs are down more than 30% year-over-year, but that's also with greatly improved SLAs. That's certainly related to some degree.

Now we're all in the less than 1% per year territory, so very small, but we've seen elevation recently, and we have lots of reasons to believe that those will also be coming down and are generally contained.

And then, as it relates to your renewal rate assumptions, if you have 75 basis points of net defaults annually, so roughly 20% over a 25-year life. Like, how could you have renewal rates in excess of 80% if that is the case?

Yes. On Slide 30, I'll point you there. We have given you the -- just at the very top, what the default rate affected, I guess that's uncontracted.

On the renewal piece, I'd say it's not linear. So, just go back for a second. We have that on the contracted piece. We do not have it on the non-contracted piece on the sensitivity table, just to be clear.

So then you're assuming a renewal rate. I'll remind you that the contract says we can renew at a 10% discount to the then-current utility rate. That's generally across our contracts.

Whereas our renewal rate assumption in these tables assumes that we are renewing at x-percent of our year '25, for example, our year '25 Sunrun solar rate.

And if we had initial savings and utility rate inflation was far outpacing our annual rate of increase, we would be pretty well discounted to the expected utility rate out in the future.

So I think that mathematically, you should be able to get to these rates even assuming a lot of customer attrition. But I'd also note that even where we see an annual default rate, that's really the amount we bill and the amount we collect.

And for many customers where we don't collect for some period of time, there's a high correlation with them being in the process of, for a subset of them, going through a foreclosure or a short sale.

Ultimately, somebody buys that home, and they're a creditworthy obligor, and they resume payments. So it's not a full attrition rate either.

And our next question comes from the line of Vikram Bagri with Citi.

I apologize for that. Just one quick question, but a difficult question. You're certainly more sophisticated in raising and recycling capital than the average TPO.

You've seen a lot of stress in the market with a few blowups. There was a discussion about another one this morning by one of the suppliers. Where do you see your market share next year or at the end of this year?

I guess I'm asking if the TPO market as a whole in the U.S. grows or shrinks after the dust settles on safe harbor, the tax equity, and your guidance.

Fully understanding that you manage your business for profitable growth. I'm just curious how you see the state of the market today and how it evolves. And based on that view, would you layer on more safe harbors?

If you see an opportunity to gain more market share given the hiring you've done, would you layer on more safe harbors because there's an opportunity to gain market share?

Yes. So today, Sunrun represents 1/3 of the subscription volumes in the United States for solar products.

We are more than 50% of the storage market across the country as well. And so, on those two metrics, just a short answer, we anticipate them going up and continuing to grow as we execute our strategy.

I think we will continue to see consolidation in the space and be the recipient of that consolidation.

You mentioned safe harbor, so let me hit on that as well. So with our $50 million to $100 million of use of cash for safe harbor activity this year, where we have a July 4 deadline. That's one year from the date of bill passage.

As we complete that exercise, we will have safely harbored the use of the solar ITC out through 2030 with a combination of vendors.

We note that in the deck, numerous vendors with different strategies, with redundancy built in and with some buffer for growth, which I think gives us a window of opportunity to play the market opportunity.

And as Paul noted, that should lead to the enablement of market share capture over time, especially as you look at the 25D credit no longer being there, a lot of the demand that's still there for solar will access it via our product.

And then, just the operational fulfillment, there were some questions throughout the call here. There's lots of very good coordination across, like at a very, very geographically specific level.

We get to see how many retail stores are staffed, generating leads. We get to see how many new reps are selling at the door.

We have the exact signal we need to know how much to go hire on an existing platform that is already at scale and can grow in a very cost-efficient manner. So the pull-through on the fulfillment is more of a coordination task. We don't see bottlenecks to that.

And with that, ladies and gentlemen, this does conclude our question-and-answer session as well as today's conference call.

We thank you for your participation, and you may disconnect your lines at this time and have a wonderful rest of your day.

Greetings, and welcome to the Sunrun Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Patrick Jobin, Investor Relations. Thank you, sir. You may begin.

Thank you, Maria.

Before we begin, please note that certain remarks we will make on this call constitute forward-looking statements related to the expected future results of our company, including our 2026 financial outlook and other statements that are not historical in nature or predictive in nature or depend upon or refer to future events or conditions, such as our expectations, estimates, predictions, strategies, beliefs or other statements that may be considered forward-looking. Although we believe these statements reflect our best judgment based on factors currently known to us, actual results may differ materially and adversely.

Please refer to the company's filings with the SEC for a more inclusive discussion of risks and other factors that may cause our actual results to differ from projections made in any forward-looking statements. Please also note these statements are being made as of today, and we disclaim any obligation to update or revise them.

Please note, during this earnings call, we may refer to certain non-GAAP measures, including cash generation and aggregate creation costs, which are not measures prepared in accordance with U.S. GAAP. These non-GAAP measures are being presented because we believe they provide investors with means of evaluating and understanding how the company's management evaluates the company's operating performance.

Reconciliation of these measures can be found in our earnings press release and other investor materials available on the company's Investor Relations website. These non-GAAP measures should not be considered in isolation from, as substitutes for or superior to financial measures prepared in accordance with U.S. GAAP.

On the call today are Mary Powell, Sunrun's CEO; Danny Abajian, Sunrun's CFO; and Paul Dickson, Sunrun's President and Chief Revenue Officer.

The presentation is available on Sunrun's Investor Relations website along with supplemental materials. An audio replay of today's call, along with a copy of today's prepared remarks and transcript, including Q&A, will be posted to Sunrun's Investor Relations website shortly after the call.

Now let me turn the call over to Mary.

Thank you, Patrick, and thank you all for joining us today. Sunrun continues to deliver strong operating and financial results. Our disciplined growth strategy focused on our role as a critical energy system player, while creating healthy margins is paying off. The heart of our strategy is providing a richer and more meaningful customer experience by providing generation and storage capabilities, and then utilizing those resources to create the nation's leading residential power producer, leveraging our assets as a distributed power plant.

We are providing American families peace of mind with predictable, affordable and reliable energy, which is particularly welcomed in an environment where utility costs are rising rapidly, and the grid is proving time and again to be unreliable in the face of extreme weather and increased demand.

We have built a base of incredibly valuable grid resources that are helping to improve our country's energy system and meet the growing energy capacity challenges. Just last year, we dispatched 425 megawatts to the grid, equivalent to the peaking capacity in some states. Our growth each year is equivalent to adding a moderate-sized utility to our fleet, in addition to dispatchable generation capabilities of 1.5 gigawatt hours added in 2025.

In 2025, we demonstrated our value in the face of significant uncertainty surrounding passage of the 2025 budget bill. This process served as a powerful catalyst for us to help legislators and their constituents recognize that distributed storage plus solar is not just a preference, but of strategic importance to meet America's energy needs. We emerged in a stronger position, focused on higher-value storage-first offerings and building upon our domestically focused supply chain.

To that end, in 2025, we continue to prioritize growing our customer base in an optimized disciplined way, focusing on product mix and the highest value routes to market and geographies. We increased our storage attachment rates to 71% exiting the year, up 9 percentage points from the prior year. At the same time, we also remain focused on being the absolute best in the business on customer experience, while simultaneously unlocking additional cost efficiencies as we leveraged AI and streamlined operations.

As shown on Slide 5, this margin-focused strategy resulted in the highest subscriber values we have ever reported and drove strong upfront unit margins with upfront net subscriber value exceeding $3,200 per subscriber addition in 2025.

Sunrun reached an inflection point in 2025 in terms of our financial performance. We oriented our business to generate strong upfront returns and to structurally generate cash. In 2025, Sunrun delivered $377 million of cash generation and paid down approximately $150 million of parent level recourse debt. We expect to continue to build on this momentum and drive meaningful value to shareholders in 2026 and beyond.

Turning to Slide 6. I want to spend a minute on Sunrun's strategic priorities for 2026. We will continue to lead in our efforts to be the best in the energy business, delivering sophisticated energy offerings and a strong customer experience, while building the nation's leading distributed power plant. We plan to expand our storage attachment rate on our path to being American's choice for greater energy independence and control.

Over the course of the last few years, we have dramatically improved our vertically integrated Sunrun direct business, achieving Net Promoter Scores that rival some top-tier brands. We have executed amazing pivots to make our products and sales force the best in navigating increasingly complex utility rate structures and selling an entirely different offering centered around dispatchable storage.

We believe that we will deliver robust growth in 2026 at higher margins and stellar quality in Sunrun's direct business, which already represents over 2/3 of our volume. We expect high single-digit to low double-digit growth in our Sunrun direct business this year.

We recently decided to reduce our volume through affiliate channels, which we expect will lower affiliate volumes by over 40% in 2026, leading to slight declines in overall volumes. We made these changes because our direct business provides greater customer experience and operational control to manage regulatory and compliance complexity, resulting in stronger customer credit profiles, higher margins and better strategic alignment with our long-term objectives.

The increasing complexity of sales processes, utility rate structures, storage integration, distributed power plants and ITC compliance requires ever-increasing standards of training for our employees on our best-in-class products and operations. Today, very few industry participants are able to execute in this landscape to our standards.

We will continue to value and work with partners that meet our rigorous standards and further our strategic objectives. To put it simply, complexity, control and end-to-end visibility add to Sunrun's competitive advantages. We will continue to expand our work as a distributed power plant, designing our approach by market with the best possible products and services for our customers and generating additional value as our assets get leveraged as a grid resource.

Our team launched innovative customer products that provide enhanced value and further differentiate Sunrun. In 2025, we launched Flex, which has now reached thousands of installs per quarter. In 2026, we will aim to further accelerate innovation, focusing on expanding our lead as the largest distributed power plant operator.

As you can see on Slide 7, our nation needs more power to meet the demands coming from the AI and data center revolution. Many of our top markets have already experienced exponential growth in retail electricity prices and face an uncertain future as it relates to affordable and reliable energy. By aggregating our growing fleet of dispatchable storage and home solar, Sunrun is building the next generation of power plants to deliver the critical energy our customers and the U.S. grid urgently requires.

Importantly, we can scale these resources quickly as opposed to traditional utility solutions that can take years or even decades to bring online. This fleet of storage provides important resiliency benefits to our customers. The value of this was recently highlighted yet again during Winter Storm Fern. As widespread grid outages swept across the U.S., Sunrun kept the power flowing for our storage customers, delivering uninterrupted energy for these households.

Detailed on Slide 8, over the course of 2025, our 237,000 storage customers faced over 650,000 unique outages. In many cases, customers had enough stored energy to power through outages that lasted days. We have already reached a sizable scale with over 4 gigawatt hours of dispatchable energy. Over the last year, our customers participated in 18 active programs across the country that provided 425 megawatts of peak power capacity.

During 2025, Sunrun generated tens of millions of dollars of revenue for dispatching energy onto the grid, and we expect to expand this in 2026 as we grow our battery base, increase customer participation and diversify into new power plant programs. Our customers are also directly financially benefiting from participation in these programs.

In Q4, Sunrun announced a partnership with NRG, pairing Sunrun storage and solar offerings with optimized rate plans through NRG's retail electric provider. We believe that we will be a meaningful contributor to NRG's goal of creating a 1 gigawatt distributed power plant by 2035. Uptake by existing and new Sunrun customers has been strong, and our batteries under the program have already delivered energy back to the grid during multiple dispatch events. We look forward to scaling this program in a meaningful way in 2026.

This is in addition to the programs we have already launched with other retail energy providers such as Tesla, providing a more sophisticated solution for customers in Texas as we design products that integrate retail electricity plans with solar and storage subscriptions. Retail electricity providers are seeing the benefits they can derive from these partnerships while customers receive better value. We expect to launch additional partnerships in 2026.

Our priority is to deliver strong financial results. We believe that our margin-focused growth strategy will continue to produce meaningful cash generation. This is delivered through innovations in how we operate and how we finance our growth. We expect to lean even more into our AI and technology capabilities this year.

At Sunrun, AI is foundational to how we are transforming the business to an energy generation and dispatch company, in addition to unlocking further cost efficiencies and enhancing the customer experience. At the same time, we aim to continue to strengthen and diversify our capital sources to fund growth through new innovative structures with strategic partners.

We have deployed various structures to accelerate investment in distributed energy resources. First, we are pleased to announce we evolved the asset sale structure we launched in Q3 into something even more strategic between both parties, forming a new joint venture partnership to acquire and finance residential storage and solar energy assets.

This was the initial intent of the parties. The partnership not only provides efficient capital formation, it provides preferred returns for the infrastructure investor, while Sunrun retains a long-term share of project cash flows and maintains the customer relationship and cross-selling opportunities. The partnership also envisions accelerating distributed power plant development across the country.

Additionally, in Q4, we entered into a new partnership with Hannon Armstrong. This innovative structure is a first of a kind for residential storage and solar financing. We expect this will drive a more efficient and lower overall weighted average cost of project capital.

Before handing it over to Danny, I want to take a moment to celebrate some of our people who truly embrace energy independence and the desire to connect customers to a more secure way to power their lives. I specifically want to call out our leading installation teams in Houston, Texas. Higher power prices and the prevalence of extreme weather events has highlighted our value proposition in Texas, where we give our customers peace of mind by offering them the ultimate in reliability and the ability to power the grid when needed.

Our Houston sales and install teams have been exemplary in advancing this mission and are a critical piece in supporting 25% year-on-year growth in the Texas market. Further, they are executing at strong levels of efficiency with excellent customer satisfaction. Ricky and all the Houston installation team members, Let's Go Texas, and thank you.

All right. Now I'll turn the call over to Danny for the financial update and outlook.

Thank you, Mary. The Sunhine team executed well in Q4, both operationally and in our financing activities. Subscriber additions were approximately 25,000 in Q4, bringing the full year subscriber additions to 108,000, approximately flat from the prior year. Compared to the prior year, we increased our storage attachment rate by 9 percentage points to 71%, allowing us to grow storage capacity installed by 26%.

Average system size grew by 4%, leading to similar growth in solar capacity installed. This margin-focused disciplined growth strategy allowed us to generate meaningful cash. In the fourth quarter, we increased sales of newly originated assets to the financing structure we launched in Q3 that results in upfront revenue. In the fourth quarter, approximately half of our subscriber additions were monetized through this vehicle, while the remaining half was monetized through our traditional on-balance sheet structures. This represents an increase from 10% of our mix being monetized through this arrangement in the third quarter.

As a result, GAAP revenue, gross profit and operating income were meaningfully higher in the period. Also as a result, our reported non-GAAP value creation metrics were lower in Q4 as these metrics do not include future cash flows from these customers, even though we maintain a service relationship, rights to grid services and ability to cross-sell and upsell these customers over time. The diversification of funding sources is prudent for our scale, carries improved and simpler GAAP results and generates equal or better upfront cash on our originations.

Further, as Mary noted earlier, we have transitioned this asset sale relationship into a strategic joint venture. Going forward, we expect to maintain a share of long-term customer cash flows under the partnership structure, which will maximize value and have a less dilutive effect on our subscriber value and other value creation metrics. The GAAP accounting clarity and benefits will be maintained under this new partnership structure. We expect the mix of non-retained or partially retained subscribers to decline in Q1 and to continue to remain a part of our diversified funding mix in the quarters ahead.

Turning to the unit level results for the quarter on Slide 14. Subscriber value was approximately $50,200; a 2% decrease compared to the prior year. We increased our store attachment rate by 9 percentage points and benefited from a 42% weighted average ITC level, an increase of 3 percentage points from Q4 of last year.

Subscriber value reflects a 7.1% discount rate this period. These positive project attributes were offset by the dilution from the asset sale activity I discussed earlier. Creation costs increased 8% compared to the prior year. The increase is primarily attributable to larger system sizes and a higher storage attachment rate requiring more hardware and associated labor costs. This resulted in a 7% year-over-year increase in installation cost per subscriber.

We experienced 4% higher sales and marketing cost per subscriber addition. G&A was elevated in Q4, primarily owing to financing transaction-related costs along with less fixed cost absorption. These factors led to a $3,800 decrease in net subscriber value year-over-year to approximately $9,100.

Turning now to aggregate results on Slide 15. These results are the average unit margins multiplied by the number of units. Starting on the top line, aggregate subscriber value was $1.3 billion in the fourth quarter, an 18% decrease from the prior year. Aggregate creation costs were $1 billion, which includes all CapEx and asset origination OpEx, including overhead expenses.

Our Q4 contracted net value creation was $176 million. This reflects a net margin of approximately 14% of aggregate contracted subscriber value. This figure is lower than last year, primarily due to the shift toward asset sale financing mix. Slide 16 breaks down the unit level economics and aggregate economics on a contracted-only basis, along with the main underlying drivers.

Turning now to Slide 17. For retained subscribers reflected on our consolidated balance sheet, we raised nonrecourse capital against the value of the systems. This includes tax equity and asset-backed debt, along with receiving cash from subscribers opting for prepaid leases and from governments and utilities under incentive programs.

As discussed earlier, we now also received proceeds from the full or partial sale of a portion of newly deployed systems, and we refer to the related subscribers as non-retained or partially retained subscribers. We estimate these upfront sources of cash called aggregate upfront proceeds will be approximately $1.1 billion for subscriber additions in Q4, representing an advance rate of approximately 91% of the aggregate contracted subscriber value, an increase of 5 percentage points year-over-year.

When we deduct our aggregate creation cost of $1 billion from the aggregate upfront proceeds, we are left with an expected upfront net value creation of approximately $69 million. This figure excludes any value from our equity position in the assets over time, including potential asset refinancing proceeds and cash flows from other sources such as grid services, repowering or renewals, or upside from Flex electricity consumption above the contracted minimum. Though upfront net value creation is different from cash generation due to working capital and other items, it is a strong indicator of cash generation over time.

Proceeds realized from retained subscribers in the quarter were $829 million with $542 million from tax equity, $214 million from nonrecourse debt and $74 million from customer prepayments and upfront incentives. Aggregate upfront proceeds differ from proceeds realized from retained subscribers due to the former being an estimate for all subscriber additions in the period and the latter being the proceeds received only against retained subscriber additions that may also have occurred in a different period.

Sunrun also recorded revenue of $569 million from the sale of non-retained or partially retained subscribers, which is not included in the realized proceeds figure. Cash generation was $187 million in Q4 and $377 million for the full year 2025.

Turning now to Slide 20 for a brief update on our capital markets activities. Sunrun's industry-leading performance as an originator and servicer of residential storage and solar continues to provide deep access to attractively priced capital and has enabled us to build a strong diversity of funding sources.

During 2025, we added $2.7 billion in traditional and hybrid tax equity. We raised $2.8 billion in nonrecourse project debt, and we recorded revenue of $684 million from the sale of non-retained or partially retained subscribers.

As of today, closed transactions and executed term sheets, inclusive of agreements related to non-retained or partially retained subscribers provide us with expected tax equity capacity or equivalent to fund approximately 499 megawatts of projects for subscribers beyond what was deployed through the fourth quarter.

Our transaction activity in the tax equity market increased considerably during the second half of last year, and we have developed a strong pipeline of transactions, which would secure the remainder of our 2026 needs with corporate ITC buyers and traditional tax equity investors engaging in their 2026 planning. We also have over $600 million in unused commitments available in our nonrecourse senior revolving warehouse loan to fund over 230 megawatts of projects for retained subscribers as of the end of Q4.

Our recent amendment to the warehouse loan extends its availability period through 2029 and maturity date to 2030, upside this commitment by $70 million and incorporated the new component in the borrowing base that provide partial advances against expected future ITC proceeds. Our strong debt capital runway has allowed us to be selective in timing term-out transactions.

We did not go to the securitization market during the fourth quarter following a very active Q3 in which Sunrun priced 3 transactions. The securitization market has shown favorable conditions so far this year, and we expect to place several transactions in the market this year.

As noted earlier, in Q4, Sunrun increased its mix of outright sales of newly originated assets, representing 51% of subscriber additions during the quarter. As these sales are recognized as upfront revenue, the benefit to our GAAP financials was immediately felt during the quarter as Sunrun posted positive operating profit, net income and cash flow from operations.

In Q4, we also closed a new innovative joint venture with Hannon Armstrong Sustainable Infrastructure Capital, or HASI. The partnership is expected to ultimately finance over 300 megawatts of capacity across more than 40,000 homes across the country. HASI will invest up to $500 million over an 18-month period into the joint venture, which is a structured equity investment that monetizes a portion of the long-term customer cash flows, while enabling Sunrun to retain a significant long-term ownership position and greater flexibility in structuring an efficient capital stack. We anticipate this will allow aggregate proceeds that are equal to or better than our traditional financing arrangements.

On the parent capital side, we continue to pay down recourse debt, paying down $81 million during the fourth quarter and $148 million during full year 2025. During the quarter, we amended our recourse working capital facility to extend the facility's maturity date by 1-year to March 2028. The amendment additionally provides for further reductions in commitments in line with our goal of continued reduction of parent recourse debt as we deliver significant cash generation.

With this amendment and the full payoff of our 2026 convertible notes earlier this month, we have no recourse debt maturities until March 2028. Over the course of 2025, we also increased our unrestricted cash balance by $248 million and grew net earning assets by $1.8 billion.

Turning now to our outlook on Slide 22. We're positioned to grow volume in our direct business by high single to low double digits in 2026, expecting Q1 to mark the low point, followed by strong sequential growth during the year. We are confident that our ability to execute through complexity in our vertically integrated model will enable this growth. At the same time, growing complexity of execution, as examples, integrating storage, navigating evolving utility rate structures, operating distributed power plants and compliance with ITC rules means that very few companies in the affiliate universe today are able to meet our stringent requirements.

As a result, we made a proactive decision to dramatically reduce affiliate partner volumes by over 40% in 2026, which will impact our results. In addition to these volume trends, budget bill and tariff uncertainty last year resulted in us reducing direct sales activity in certain routes and geographies in order to increase our mix toward higher unit margins, which cut volumes during the second half of 2025 and into early 2026. Now with an even stronger base of unit margins and resolution of some of these uncertainties, we have expanded certain sales activities and expect strong sequential volume and margin growth through the year.

For the full year 2025, we expect aggregate subscriber value to be between $4.8 billion and $5.2 billion. We expect contracted net value creation to be in a range of $650 million to $1.05 billion. The year-over-year decline in these value creation metrics is driven by lower volume and the dilutive effects from a higher mix of assets sold to the infrastructure investor or financed through our new joint venture together.

It is important to note, however, that we do not expect the higher asset sale or JV mix to dilute upfront net subscriber value and cash generation because this activity also drives our average advance rate higher. We expect the impact from asset sales to reduce under the joint venture structure and for year-over-year comparisons to improve during the second half of this year.

We expect cash generation to be between $250 million to $450 million for the full year. In addition to the volume and mix factors I noted, we expect key drivers to include lower proceeds from ITC transfers due to lower prices and higher insurance costs and higher solar module prices, offset partially by continued operational efficiency improvements.

Incremental ITC safe harboring investments are not included in our cash generation outlook. We are working to finalize plans to execute additional safe harbor investments prior to the early July deadline. This year's activity would augment the activities we undertook last year, to further extend our coverage through 2030, provide a buffer for more growth and diversify our approaches and equipment use to maximize flexibility around system configurations when the equipment is utilized. We estimate cash allocation to these activities may be in the range of $50 million to $100 million, a figure we will update once our plans are final.

For the first quarter, we expect aggregate subscriber value to be approximately $850 million to $950 million. We expect contracted net value creation to be between $25 million and $125 million in Q1. Incremental to the factors I just mentioned, the expected decline is driven by adverse fixed cost absorption in what is typically the lowest volume quarter of the year.

We expect cash generation to increase sequentially throughout the year following our typical seasonal pattern and financing activity cadence. We expect Q1 to be positive, but timing for execution of project financing transactions scheduled for March will influence the Q1 outcome. We expect to repay over $100 million in our parent recourse debt in 2026 and to be below our target recourse leverage of 2x cash generation. Over time, we will explore further capital allocation options to maximize shareholder value based on market conditions and our long-term outlook.

Operator, let's open the line for questions.

[Operator Instructions] Our first question comes from Brian Lee with Goldman Sachs.

Kudos on the cash generation here and the guidance for 2026. You're implying basically a stable guidance range for cash gen as the range you started with in 2025. I know in the past, you've kind of given us a bridge with cash gen drivers, lower interest rates, higher ITC weighting, more storage, et cetera. I mean it seems like the drivers are in place for cash gen to go higher. Maybe the offset there is less volume. But can you kind of speak to some of the moving pieces around cash gen maybe not having more upside off the range you started with in '25?

Sure, Brian. Nice to talk to you. We still have the typical factors. The primary variables we've talked about in the past include interest rates, the ITC percentage, the storage attachment rate. I'll go through a few details, particular to 2026 as we try to bridge the year-over-year comparison.

So we did talk a bit about volume on the call. So some factors in play there with modest growth in the Sunrun direct side, contraction on the affiliate side. So that is a net negative effect on volume that kind of bears into the comparison. I would say the other factors, a little bit of, I would say, on a year-on-year comp, a little bit of overperformance in '25 relative to our expectation. That was small items that were favorable in timing in 2025.

More largely speaking, we've taken a slightly lower view on potential ITC pricing in the market, some supply/demand dynamics largely across the market, weighing down pricing. We've incorporated into the forecast. We're also seeing higher insurance costs as the insurance market is also dealing with the increase in amount of insurance volume. And then equipment prices are also weighing as we continue to shift to domestic. I would say those are the primary factors impacting the year-over-year bridge.

That's super helpful color. I appreciate that. And then just a follow-up on this -- the asset sales model, I know it's kind of -- it's new, and we're all trying to get a handle on how to model this, but it jumped around a lot here in the past 2 quarters. It sounds like you might have a bit more of a view on kind of the mix into '26. Is there sort of an average level it should trend at quarter-to-quarter? And is that kind of 40,000 homes capacity under the HASI JV maybe indicative of the volume under that structure you'd be doing in 2026?

So there are a couple of structures. There's the asset sale that we talked about last quarter. That is now -- so that picked up considerably from 10% to about 50% from Q3 to Q4. That will continue to move around. But I think we generally expect a decline from a 50% level. But quarter-to-quarter, as has been typical in all tax equity funds, you'll see some fluctuations. Some periods will have fund recently closed with maybe more elevated allocation and sometimes there will be a different funding mix.

But generally, we expect that activity now in the joint venture format to remain in our mix for the year at a lower level from the more recent pace of 50%. Separate from that, we announced in early January, the Q4 closing of the partnership with Hannon Armstrong. That is also in a joint venture format that is different and incremental to the mix of the other JV we just talked about, and both will be -- part of the meaningful part of our mix for the balance of the year.

And I would say just to layer on to that, longer range, it is our intent to continue to utilize structures like that as part of the overall diversification of funding sources and evolving structures to gain and unlock more efficiency and capital cost.

Our next question comes from Moses Sutton with BNP Paribas.

Congrats on the great end to 2025. On the retained versus the non-retained assets, just a little more on that. How should we think of the mix, let's take it beyond Brian's question, like if you're looking beyond 2026 and you're thinking strategically, if tax credit monetization metrics get, I don't know, easier with retained advance rates maybe back to 88% or 90%, I assume you'd go back and do more retained. So how should we think of that?

And then are you going to disclose the available capacity you have in dollar terms for non-retained asset sales like on a forward basis, the same way you talk about tax equity and availability and capacity on the -- for the forward quarters?

Yes. So retained and non-retained, we are giving runway disclosure. I think when you look at the tax equity or tax credit capacity that includes -- certainly includes both. Just to hit a little bit of that.

It's not broken out, but we will certainly involve a mix of both retained and non-retained. And I'd just say just to comment on -- in terms of the asset sales, like the non-retained piece, the asset sales, joint ventures that present with that sort of treatment as well, we like having it be a part of our mix and as part of a broader mix that will still include traditional tax equity, hybrid tax equity and accessing the tax credit transfer market in a very meaningful way.

So the other benefits on transaction simplicity, right, involving full stack capital, the deconsolidation, at least partially leading to a better clarity of GAAP presentation as well as improved results on GAAP dynamics. I think just to name a few benefits of that transaction in terms of the asset sale.

In terms of the other partnership with Hannon Armstrong, that will still consolidate. That will still access tax credit transfers that will still access the ABS market. That is an innovation relative to more traditional tax equity and hybrid structures and that will also be part of the mix. So I'd say the mix is evolving. And certainly, there are more tools to access the capital markets in more efficient ways.

As far as specific breakouts, I don't think we'll be providing a longer-range outlook of specific mix other than to say what I just said to Brian, which is 50% was the level we hit in Q4. In terms of that asset sale transaction structure overall for the year, we expect that to come down.

Our next question comes from Ameet Thakkar with BMO Capital Markets.

Just on the cash gen outlook for the year for 2026, I think your press release talks about that it excludes some potential safe harbor investments. Did your cash gen kind of numbers for 2025 actually already net those out? And if you do kind of move forward with those investments, can you just kind of give us an idea of the magnitude on how much that might kind of impact kind of the cash gen figure thereafter?

Yes. So we have it in a $50 million to $100 million range for the whole year. So I'll just note a little bit more on the activity just to have the texture.

The 2026 activity will give us the ability to safe harbor up to 4 tax years that follow 2026, which gets us through the end of 2030, in terms of the extension of runway of safe harbor activity. We expect to -- we have done some to start the year. We expect to do more before the July deadline because we're in the process of finalizing those plans, some of which are quite advanced, we do want to complete the activity before we share a specific number. But right now, we have it in a range of $50 million to $100 million of cash allocation out of our cash for the year.

And how much was it in 2025 that impacted your -- I guess, your actual cash gen from kind of the safe harbor activities you engaged in last year?

Yes. Yes. So the 2025 activity was -- we said capital light. I don't think we've detailed the exact number, but $50 million to $100 million more specific. But in relation to that, we'd say capital light in 2025.

Our next question comes from Chris Dendrinos with RBC Capital Markets.

I guess I wanted to just ask about the demand environment and how you're kind of seeing the TPO, non-TPO, I guess, maybe more of the non-TPO market play out? And is that turning into an opportunity for you all to take more customers? And then maybe just on the affiliate side of things, I mean, previously, I guess, they were a partner, but now would you consider them a bit more of a competitor? And is there an opportunity to take share there as well?

Yes. So as the 25D market wound down, I think there was some consideration that, that volume would immediately flow to us. And we've kind of articulated previously; the cohort of organizations that typically sold under the loan model have tried to migrate to the most simple sales processes and the highest paying partners.

And so as we've been talking about more complex rate environments, ever-increasing complexity around compliance and the need for improved controls and fiscal responsibility, we've seen that, that volume has largely migrated to other places. As we watch that play out, we anticipate seeing the same thing that we've seen play out time and time again over the last 2 years.

The financing shops that attract volume by focusing more on simplicity of underwriting or lack of underwriting and excessive pay typically don't last long, and those people eventually, we anticipate will migrate if they want to stay in the industry to a place that's been investing heavily around controls, prudent financial processes and deep training on complex rate environments and a focus on evolving into an independent power producer, thoughtfully underwriting these distributed assets.

That's it for me.

Our next question comes from Philip Shen with ROTH Capital Partners.

As a follow-up to that last point, talking about the complexity with everything that's happening. The [ FIAC ] rules or guidelines came out recently. It seems like that wasn't enough. We need more clarity on PFEs and FIEs and so forth. And so there was an article out from Bloomberg about how certain large tax equity investors, I think JPMorgan was named, may have paused some investments in tax equity. And you said in your prepared remarks that compliance with ITC rules was important or part of the package of tax equity and so forth.

Just was wondering if you guys could give us some color on the challenges that you're seeing for resi solar out there because of the delayed release of the [ FIAC ] guidelines? And then how you guys specifically are navigating it? And do you see risk that there could be even challenges for you guys if the [ FIAC ] rules take longer than expected to come out. So let's say it's after the midterms, for example, which is a possibility.

And then this also impacts the transfer market. And so I know you guys have these other structures, which are fantastic and unique, but I was wondering if you could talk through these impacts from the delayed [ FIAC ] guidelines.

Nice to hear from you. This is Mary. I'll take it and then pass it to Danny to talk a little bit more on the market side.

But I mean, make no mistake, really, how we're seeing this is really, frankly, right now, playing to Sunrun's strength in the business. Like Sunrun is the sophisticated vertically integrated player that has end-to-end visibility. And we have gotten, I think, really good at making complex work in a way for consumers that's very powerful and then also really helps us as we think about building out our distributed power plants.

The initial guidance that we just got actually was from a Sunrun perspective, exactly what we were expecting and fit. You're right, it didn't provide very specific guidance on the -- for financers. But the reality is everybody always knew there was going to then be this next rule-making process. So make no mistake, like this first phase was exactly what we expected. It came out in a positive way for Sunrun. And yes, to your point, we are really pleased with the strategic partnerships we've developed and how we've diversified our capital structure.

But Danny, why don't you take it a little bit more on the specifics there that [ he ] was also after.

Sure. Our view on the -- I'll start with the [ FIAC ] considerations, and then I'll go into the dynamics in the tax equity and the tax credit transfer market.

So on the [ FIAC ], we view it as incrementally helpful and also confirmatory to some of our expectations on what the rules and approaches would be under the material assistance portions as it relates to [ FIAC ]. What we did not get as many who follow this know, is further clarity on prohibited foreign entity and foreign influence entity rules, which are the piece that's forthcoming.

And that relates to where you started your question, which is some participants in the market awaiting more clear rules on entity level considerations before they put more dollars into tax credits effectively. So that has sidelined a few people. I would say then going to the broader conditions in the tax credit -- overall tax equity space, the market was a bit of a mixed story last year. If you look at the kind of the ultimate headlines, the tax credit transfer space grew by in the magnitude of 50% year-over-year from 2024.

So there continues to be growth in the tax equity market. Some of the tax effects of the budget bill did ease corporate appetite in the second half of the year for tax credits. And I would say, in the second half of the year, it was a tighter market in terms of supply/demand, dollars continue to flow very adequately for us. But what we started to see and led us to expectations for this year was a softening up of price expectations in that market, given the supply-demand fundamentals, but at a $50 billion-plus type scale when you consider the tax credit transfer market and the traditional tax equity space.

There is a lot of capital that was put to work, but also obviously, a proliferation of the number of types of credits and demand. So it kept that market kind of tightly balanced between supply and demand with a little bit more slowness in the second half of the year. But I would say, at the same time, we were able to manage an acceleration in our activity in the second half of the year, and that culminated with that we had a 499-megawatt kind of number in the script here on our tax equity monthly.

So the net-net is like lower pricing, some people not yet coming back to the market, but plenty of people having remained active in the market sufficient for our needs. And we expect that to continue. We've made good progress exiting last year in securing more tax equity and into this year and continuing to advance our pipeline as we try to fill out the balance of this year.

Great. Danny and Mary, thank you for that color. I know it's a complex topic and also dynamic.

Shifting to the outlook for shareholder return. I was wondering if you could give an update on the outlook for a potential buyback or the latest in terms of how you're thinking about capital allocation. It likely hasn't changed much, but wanted to get a refresh on that.

Yes. I think it's the same positioning in terms of continuing to pay down parent debt. We said $100 million or more for this year and with an expectation that, that would get us below our overall leverage target that we've been managing towards over the last several years. So that kind of in our mind, like marks the completion of the deleveraging period.

But as far as beyond that, I think the same kind of expectation in terms of looking to maximize shareholder return with capital allocation. And this year, in particular, we're also real time going through that exercise we mentioned around finalizing the magnitude of our safe harboring activity, which is a very high returning long-term use of cash.

Our next question comes from Colin Rusch with Oppenheimer.

This is Andre Adams on for Colin. I was just hoping you could quantify on an apples-to-apples basis, how much labor costs increased year-over-year?

We had the installed cost comparison, and I'm just looking for that -- I know I just said the number, we had it in the prepared remarks, but the install cost number up year-over-year. I believe it was 8%, but I just don't want to misquote that.

We did have -- if you are thinking installed labor included in that number, but not detailed is installed labor and equipment taken together. And then we had sales and marketing costs also up 4% year-over-year, but against which we saw a higher storage attachment rate continue to drive up the top line as well to manage to healthy margins.

Great. And...

And the creation cost is the 8% number. That includes everything, just to get that right.

Yes. All right. I appreciate it. And can you just speak on the DPP side about whether utilities are looking to leverage the asset base to drive some grid stability outcomes in addition to kind of basic power availability and how that might vary by geography?

Yes. So depending on the market, we're seeing varied levels of activity, but overall, massive increases in interest in our assets.

When you think about like the next generation of power plant and access to power, it needs to happen quickly. The expansion and growth of AI data center energy consumption is growing rapidly and is pent-up. And so a power plant solution that can be brought online quickly is critical. And so as utilities are realizing the quick deployment nature of our assets, there's growing interest in them.

As we talked about in Mary's remarks, we talked about exciting programs with both NRG and Tesla in the Texas market, for example, where we're essentially pledging assets to those partners to be able to dispatch as needed to be able to stabilize the grid and control costs for consumers.

Yes. And as we said, we have 18 different programs already, and the success of the programs we've had has spurred, as Paul mentioned, a lot of interest, and we're having very -- yes, very interesting talks with a number of partners across the country.

And just to maybe conclude with that point. By the end of 2028, we've communicated we plan to have over 10 gigawatts of dispatchable capacity that's 0.75 million batteries across the country that can be dispatched and have communicated $2,000 net subscriber value per customer on those and are very excited about what we're building out.

Our next question comes from Julien Dumoulin-Smith with Jefferies.

I appreciate it. Look, maybe just to follow-up a little bit on the last one here and press a little bit further.

As you think about the backdrop here, your comments about capital markets at large, how do you think about returning cash here? I just want to press you a little bit. I know at times; there have been conversations about dividends and buybacks and things. But I just want to make sure I'm hearing you very clear about where you stand in terms of being offensive or defensive in the current environment. Has your thinking evolved at all? Obviously, kind of more of a flattish overall cash gen profile?

And any comments you'd make as to what you need to see to kind of get more offensive, if you will, if you want to take a foot forward?

Yes. It's $350 million cash generation at the midpoint. It's $100 million of use to pay down more debt. I think that dynamic taken together by the end of the year has us below the 2x leverage target we had previously communicated several times. And so it's just -- it's a continuation of that and charging towards that over the course of this year. But also there is an implied $250 million of excess once we've dealt with that.

And then we've talked about using a portion of that, that remains on Safe Harbor. So it's getting us closer to the point where we're starting to look, well, what is the capital allocation beyond that -- but that is the established focus for this year. And then beyond that, we start to introduce in our conversations with the topic of shareholder return and go through the relative attractiveness of that.

And we look at balance sheet strength and we go through all the options. But so far, at the moment, the guidance is the $100 million of debt paydown and then further use on safe harbor. That's where we are at the moment.

Got it. And if I can follow-up just real quickly on the financing environment here. Is there a definitive moment that you're looking for that will hopefully open up the tax equity markets more? Or do you not see this playing out that way? I mean I know we were alluding to [ FIAC ] earlier, but is there kind of a catalyst in as much as reenabling these markets? Or is this just a general malaise or widening out of spreads that will persist here? Just curious on how you frame it.

And then separately, related to that, how do you think about should this environment persist moving more structurally in other directions for capital markets? I mean you guys have been very nimble over the years in adapting, and it seems like you are here today again. Just curious on how you would frame the backdrop and your latitudes.

Yes. In terms of going to the most core of the issue is corporate profitability and tax appetite is there, has been there and has been growing. In terms of any single event that serves as a catalyst, we did get the [ FIAC ] guidance. And again, in my prior response, I did say we view that as incrementally helpful and largely confirmatory with what we felt was our approach, and we were confident in this confirms it.

And then in terms of other events, it could be further clarification on the entity level rules. And that would -- to the extent anybody is sideline in the market, that would bring them back in from the sidelines and they are a portion of the market that is already very large. So I would say it's just more of a continuing to build pipeline, execute transactions and build runway. And if you look at our runway, we have extended it very meaningfully from prior quarters. So again, it's not a single event, but you'll see it and notice it over time.

Our next question comes from Maheep Mandloi with Mandloi.

Perfect. Sorry about that. A quick clarification on the buyback. The leverage ratio you're targeting, is that still 2x debt to cash generation is the metric here? Or is that changing in this environment?

2x. And with this year's activity of $100 million -- at least $100 million of paydown, we expect to get through that number, below that number. That's the current outlook on it.

Yes. And just a quick clarification on the creation cost, and I might have missed this earlier. The change between OpEx versus CapEx and OpEx seems more than 60% of the cash generation here. Is that structural? Or should that reverse going forward over here?

That you're noticing the effect there of that 40 percentage point increase in our mix from 10% to 50% from Q3 to Q4 going to asset sale activity on the financing mix is also resulting in a full expensing of -- a greater degree of expensing of asset origination costs that have shifted from previously capitalized into expense. So you're noticing that pickup and that corresponds to the significant pickup in revenue from those asset sales. And that's why you're seeing the pickup in margin, operating income, et cetera.

Our next question comes from Robert Zolper with Raymond James.

What's the significance of changing the default rate measurement in the metric sensitivities?

Yes. I think this is following trends we've been seeing and making sure we're capturing the whole range of sensitivity. We -- the proceeds amounts that we raised on our transactions do have default assumptions being made by capital providers. And it's just to capture the evolving range as we've been seeing and to make sure everybody has the full coverage.

Before we used to -- so the other thing you'll notice in the numbers just as a presentation thing. Previously, we used to show it as cumulative and now we're showing it as annual measures to give more clarity in terms of what you want to model.

Okay. Understood. And I guess on your more seasoned securitizations, which bucket of default rate would they typically fall into?

I'm not sure I follow the question. Like what are our default rates? Is that the...

Exactly. Yes. What are your default rates relative to what you have in the metric sensitivities for your more seasoned securitizations?

Yes. I think it really depends on -- it depends on the asset performance, the vintages, the types -- there is a bit of a spread. I think we've said cumulatively, I don't know if we've put out the recent updates. But certainly, on our deals, the rating agencies do look at it. And we've seen about 50 to 75 basis points on an average, and that's the annual figure.

In the past, we -- again, we've used cumulative figures. So there could be a little bit of a difference in translation when you go back and look at what we've disclosed previously. But on average, it's 50 to 75 basis points. And again, that could vary by FICO score, geography, product, et cetera.

Okay. Very helpful.

The rating agencies take long-term assumptions when they're rating transactions. And generally, when they updated on our performance, they've been able to maintain or in a limited case or 2 upgrade our ratings.

Understood.

We have reached the end of our question-and-answer session, which concludes today's teleconference. You may disconnect your lines at this time. Everyone else has left the call.

Good afternoon, and welcome to Sunrun's Third Quarter Earnings Conference Call. Please note that this call is being recorded and that 1 hour has been allocated for the call, including the question-and-answer session.

[Operator Instructions] I will now turn the call over to your host, Patrick Jobin, Sunrun's Investor Relations Officer. Thank you. You may begin.

Thank you, operator. Before we begin, please note that certain remarks we will make on this call constitute forward-looking statements. Although we believe these statements reflect our best judgment based on factors currently known to us, actual results may differ materially and adversely. Please refer to the company's filings with the SEC for more inclusive risks and other factors that may cause our actual results to differ from projections made in any forward-looking statements. Please also note, these statements are being made as of today, and we disclaim any obligation to update or revise them. Please note during this earnings call, we may refer to certain non-GAAP measures, including cash generation and aggregate creation costs, which are not measures prepared in accordance with U.S. GAAP. .

The non-GAAP measures are being presented because we believe they provide investors with a means of evaluating and understanding how the company's management evaluates the company's operating performance. Reconciliation of these measures can be found in our earnings press release and other investor materials available on the company's Investor Relations website. These non-GAAP measures should not be considered in isolation from, as substitutes for or superior to financial measures prepared in accordance with U.S. GAAP.

On the call today are Mary Powell, Sunrun's CEO; Danny Abajian, Sunrun's CFO; Paul Dickson, Sunrun's President and Chief Revenue Officer. The presentation is available on Sunrun's Investor Relations website along with supplemental materials. An audio replay of today's call, along with a copy of today's prepared remarks and a transcript including Q&A, will be posted to Sunrun's Investor Relations website shortly after the call.

And now let me turn the call over to Mary.

Thank you, Patrick and thank all of you for joining us today. Our strategic focus on providing Americans a way to achieve energy independence is yielding strong results. We are generating cash while growing our customer base. We are continuing to lead the industry with superior energy offerings for homeowners, allowing them to power through grid outages and protect their households from rising energy costs. As demand is growing at the most rapid rate since World War II fueled in large part by AI computing demand, we are also building critical energy infrastructure the country needs. We generated $1.6 billion in top line aggregate subscriber value at the top end of our guidance range, growing 10% year-over-year. Contracted net value creation was $279 million, growing 35% year-over-year. We generated strong profitability through our market-leading position in storage offerings, while also driving significant cost efficiencies and performance improvements across the business.

We reported a solid upfront net subscriber value of over $3,500, a 5-point margin improvement compared to the prior year and represent a 7% margin on contracted subscriber value. In the quarter, we generated $108 million in cash, our sixth consecutive quarter of positive cash generation. Given the timing of transactions, we exceeded the high end of our cash generation guidance range for the quarter. Over the trailing 4 quarters we have generated $224 million in cash. We are on track to meet our annual cash generation guidance and are reiterating the midpoint of our outlook at $350 million. We are reducing these very strong results by remaining disciplined in how we balance margins and growth while innovating and expanding all we provide for our customers. This strategy is yielding strong financial results while growing our base of customers and increasingly valuable energy resource for the grid.

To highlight this, in Q3, we delivered higher unit margins and considerably more cash generation. This will be amplified in Q4 as we set to produce even more cash generation. and we'll do so with our unwavering commitment to high-quality installations and customer experience. Our energy resources are growing rapidly. We have transformed the business to be a provider of independent, reliable energy for homeowners and a formidable independent power producer. Now with 3.7 gigawatt hours of dispatchable energy from our fleet of home batteries and over 80.2 gigawatts of solar generation capacity. As you can see on Slide 6, the country needs more power to meet the demands coming from data centers and AI, as electricity demand is expected to grow by more than 40% over the next 15 years according to a recent study. Our distributed and dispatchable storage and solar resources are contributing to meet this critical energy infrastructure needs. When the generation and storage capabilities of homes are aggregated, they collectively create a powerful, flexible utility-scale resource for the energy system.

We are not playing small scale. We are bringing the power of American homes to the bid and building the next generation of power plants. With over 217,000 storage systems installed, we are now routinely dispatching energy to provide value to the grid, with 17 active programs across the country, provided 416 megawatts of power capacity over the last year. Based on these current activities, we are finding that our prior estimate of 2,000 or more in incremental net present value per participating home is likely conservative. As we continue to scale storage and provide cost-effective utility-scale energy resources back to the grid expect a rapidly growing incremental cash flow stream over the coming years. We expect to have more than 10 gigawatt hours of dispatchable energy online by the end of 2028. Technology improvements and cost reductions achieved by our storage partners over the last few years have helped accelerate adoption.

We continue to leverage the best technologies available and use a diversified set of suppliers to best fit customer needs and meet our price and performance requirements. Our investment in Lunar Energy has helped push innovation across the storage space. Sunrun began scaling the Lunar storage solution in California in Q4 of last year. The Lunar system's modular whole home backup solutions that integrate solar, storage and load control makes this an attractive offering for customer value creation. Lunar is ramping production and we expect to deploy about 10,000 Lunar systems over the next year or so. Our base of customers is also growing rapidly, exceeding 1.1 million customers at end of Q3. Our strategy is to generate strong upfront margins on our customer origination activities and then to create additional value from the long-term nature of our customer relationships. Since launching Flex a year ago, our innovative storage and solar product offering, we have seen tremendous traction.

Flex has further differentiated Sunrun in the market as it provides unique flexibility for customers to use well-priced energy when they need it. Flex also creates a meaningful source of additional recurring cash flow for Sunrun. For home energy systems, the solar generation portion has historically been designed to either match a household's current energy usage or be oversized in anticipation of greater future needs, resulting in either unmet needs as energy usage increases or generating solar energy that is paid for, but not used immediately. Flex removes this uncertainty, offering a solution that fits families needs today and tomorrow. It is a great product that allows customers to pay a minimum monthly amount and then pay for additional energy only when needed. Customers are clearly loving this product as we are seeing Net Promoter Scores over 10 points higher.

The take rate in markets where Flex is offered is already about 40%. Flex is being offered in markets that represent about half of our volume. As expected, the initial cohort of Flex customers are indeed tapping into the well-priced Flex energy. We found that 2/3 of these customers already consumed above their presolar baseline. In current markets, the Flex product includes extra storage, providing more value to the customer. incredibly reliable energy and an even more valuable grid resource along with more recurring cash flows for Sunrun. Another area where we are proving how valuable our long-term customer relationships could be for Sunrun and the grid, is by offering storage to our existing solar-only customers.

We have now installed nearly 2,000 storage systems for these customers. This is growing rapidly, and we expect this activity to accelerate. We are capturing this opportunity by using high-tech, low-cost routes, including our customer app and digital lead channels. We believe this will enable a fantastic value proposition for customers, produce strong and expected upfront margins for Sunrun and serve as an accelerated growth in our distributed power plant capacity.

Our cash generation from new customers is set to grow. And we expect to augment this cash flow with recurring sources from grid service programs, growing Flex adoption and offering valuable solutions like add-on batteries to existing customers through low CAC channels. Before handing the call over to Danny, I want to take a moment to celebrate some of our people who truly embrace energy independence and the desire to connect customers to a more secure way to power their lives. Thank you to our leading direct-to-home sales team in Massachusetts, Boston legacy as well as our top installation team, the Bone. It was so fun being with you all this fall and seeing you all in action. We're incredibly thankful for your team's dedication to customer experience, which has resulted in significant success this year, including record high battery attachment rates in Massachusetts.

Less than a year ago, we made a pivot and focus on storage offerings in Massachusetts, given the increased value proposition for customers and the grid at large and the Sunrun team delivered. Our storage attachment rate on sales in Massachusetts went from under 10% at the start of the year to more than 50% today. Importantly, this is an offering that can drive great value for customers, and we are seeing even higher NPS stores across the state. Mike, Adam and the whole Massachusetts team, thank you.

All right. I'll now turn the call over to Danny for the financial update and outlook.

Thank you, Mary. Turning first to the unit level results for the quarter on Slide 12. Subscriber value was approximately $53,500, an 11% increase compared to the prior year as we saw -- as we increased our storage attachment rate by 10 percentage points to 70%, grew our Flex deployments and benefited from a 42% weighted average ITC level, an increase of 5 percentage points from Q3 of last year. Subscriber value reflects a 7.3% discount rate this period. We maintained cost discipline with creation costs increasing only 4% from the prior year, a smaller increase than the 11% growth in subscriber value. Creation costs increased primarily due to higher battery hardware and associated labor costs from the storage detachment rate increase with 8% higher installation costs on a per subscriber basis versus the prior year. Providing offset, we lowered customer acquisition costs and overhead by 5% on a per subscriber basis. The higher subscriber value and lower creation costs led to a 38% year-over-year growth in net subscriber value to approximately $13,200.

Turning now to aggregate results on Slide 13. These results are the average unit margin multiplied by the number of units. First on the top line, aggregate subscriber value was $1.6 billion in the third quarter, a 10% increase from the prior year. Aggregate creation costs were $1.2 billion, which includes all CapEx and asset origination OpEx, including overhead expenses. Excluding the expected present value from noncontracted or upside cash flows, our contracted net value creation was $279 million, a 35% increase from last year and about $1.21 per share. This level of value creation reflects a net margin of approximately aggregate contracted subscriber value. Slide 14 makes down the unit level economics and aggregate economics on a contracted only basis, along with the main underlying drivers for the increases.

Turning now to Slide 15. The majority of our deployments are retained subscribers that we reflect on our consolidated balance. We raised nonrecourse capital against the value of the systems related to retained subscribers from tax equity, which monetizes the tax credits and the shared cash flows and asset-backed debt, along with receiving cash from subscribers opting for prepaid leases and from governments and utilities under incentive programs. We now also received proceeds from the sale of a portion of newly deployed systems in a new transaction, I will explain later in more detail and we refer to the related subscribers as nonretained or partially retained subscribers. We estimate these upfront sources of cash called aggregate upfront proceeds will be approximately $1.3 billion for subscriber additions in Q3, representing an advance rate of approximately 88% of the aggregate contracted subscriber value.

When we deduct our aggregation costs of $1.2 billion, we are less with an expected upfront net value creation of approximately $106 million. This represents our estimate for the expected net cash from subscriber addition in the period after raising nonrecourse capital and receiving upfront cash from subscribers and incentive programs. as well as receiving proceeds from the sale of nonretained or largely retained subscribers. This figure excludes any value from our equity position on the assets over time, including potential asset refinancing proceeds and cash flows from other sources such as grid services, repowering or renewals or upside from flex electricity consumption above the contracted menu.

No upfront net value creation is different from cash generation due to working capital and other items. It is a strong indicator of cash generation over time. Actual realized proceeds from retained subscribers in the quarter were $1.3 billion, with $525 million from tax equity and $659 million from nonrecourse debt and $90 million from customer prepayments and upfront incentives. Aggregate upfront proceeds realized from retained subscribers due to the former being an estimate for all subscriber additions in the period. and the latter being the proceeds received only against retained subscriber additions that may also have occurred in a different period.

Sunrun also recorded right near of $115 million from the sale of nonretained or partially retained subscribers which is not included in the realized proceeds figure. Cash generation was $108 million in Q3. Turning now to Slide 18 for a brief update on our capital markets activities. Sunrun's industry-leading performance as an originator and servicer of residential storage and solar continues to provide deep access to attractively priced capital. As of today, closed transactions and executed term sheets inclusive of agreements related to nonretained or partially retained subscribers provide us with expected tax equity capacity or equivalent to fund approximately 550 megawatts of projects or subscribers beyond what was deployed for the third quarter. Thus far in 2025, we have added $2.8 billion in traditional and hybrid taxes. And as mentioned earlier, we have recorded revenue of $115 million from the sale of nonretained or partially retain subscribers, resulting in the strong runway.

We also had $111 million in unused commitments available in our nonrecourse senior revolving warehouse loan to fund over 288 megawatts of projects for retained subscribers. Our strong debt capital runway has allowed us to be selective in time and term out transactions. During the third quarter, we raised securitizations, raising approximately $1.4 billion in senior nonrecourse debt. The publicly placed tranche of our most recent $510 million securitization in September priced at a 6.1% yield reflecting a spread of 240 basis points, in line with the spread of our prior securitization that priced in July. Year-to-date, incentives raised approximately $2.8 billion in total nonrecourse debt including $2.4 billion of senior debt across 5 securitizations and additional subordinated financings. These transactions were placed across public and private investor groups including several first-time buyers, demonstrating the strength and expanded diversity of our capital markets access.

In Q3, Sunrun modestly diversified our asset monetization strategy. We complemented our strategy of retaining all newly originated cyber assets on our balance sheet with an alternative structure where we sell a portion of newly originated solar assets to an energy infrastructure investor which generates upfront GAAP revenue, while allowing us to maintain ongoing customer relationships and future value opportunities. The net result on our upfront net subscriber values and ultimate cash generation is similar to the capital structure we have utilized historically. This transaction is a result of increasing interest in the category by strategic energy investors and our strong track record of the high-quality originator along with our desire to improve our GAAP financial reporting and further diversify our sources of capital to fund growth. We have made adjustments to certain key operating metrics to reflect this new construct.

Given this transaction was introduced in Q3, there are no impact on any prior periods. We plan to continue executing both publicly placed transactions and direct placement in the private credit markets to expand our tax equity -- tax credit universe with large corporations and to continue directly selling a portion of our originations. On the parent capital side, we continue to pay down recourse debt, paying down another $17 million during the third quarter, bringing our year-to-date debt repayment of $66 million. We expect to pay down our recourse debt by more to $100 million in 2021. Aside from the [ $5.5 billion ] outstanding of our 2026 convertible notes, we have no recourse as maturities until March 2027. Year-to-date, we have also increased our unrestricted cash balance by $134 million and grown net earning assets by $1.5 billion. Over time, we will explore further capital allocation options to maximize shareholder value based on market conditions and our long-term outlook.

Turning now to our outlook on Slide 20. We are reiterating our guidance for 2025. For the full year, we are reiterating our guidance for aggregate subscriber value to be between $5.7 billion and $6 billion, representing 14% growth at the midpoint. We expect contracted net value creation to be in a range of $1 billion to $1.3 billion, representing a 67% growth at the midpoint. We are reiterating the midpoint while narrowing the range of our cash generation guidance for the year. We expect cash generation to be between $250 million to $450 million. In the fourth quarter, we expect aggregate subscriber value to be approximately $1.3 billion to $1.6 billion. representing a 5% decline at the midpoint and contracted net value creation to be between $182 million and $482 million, representing 6% growth at the midpoint. We expect cash generation to be between $60 million and $260 million, with the range being driven by finance transaction timing and working capital impacts.

Operator, let's open the line for questions.

[Operator Instructions] Our first question comes from Brian Lee with Goldman Sachs.

I had 2 just kind of around the longer-term business. First, Dan, you talked about the diversification of capital sources this quarter. Just curious what first, are you anticipating this to be a much bigger part of the strategy going forward? And then what are kind of the implications for P&L, cash generation as well as -- does this help in any way, clean kind of valuation considerations for assets when you're monetizing through this channel? And then I had a follow-up.

Yes. We expect to continue to use similar structures. Perhaps if we're thinking longer term, perhaps diversified over time, but definitely in the near term, a continuation of the use of what you saw out of us in Q3. I think as far as all of the -- the way it looks on the metrics, so the unit level, key operating metrics, the aggregate value creation metrics end up looking very similar because what typically flow through financing activity now shows up as revenue and what used to be capitalized expense can now be fully expensed in period. It will show up in the system sales growth profit section of the P&L. So there will be an increase, you'll notice in that area of activity which will be overall accretive to the P&L view on a GAAP basis. So there is a parcel simplification in respect of the degree of assets that go into this structure. We'll still have the consolidated tax equity activity as well alongside this, that will certainly continue as well.

Okay. Awesome. That's helpful. And then second question, maybe for Mary. The -- I noticed that the 10 gigawatt hour dispatchable capacity by the end of 2028, you pulled that forward a smidge versus prior, I think you were talking 2029 prior. So you do seem to be growing faster in that part of the business. And you've always talked about it in terms of NPV uplift, but as you're seeing a lot more breadth and scale, are there other monetization opportunities on this capacity going forward, whether it's cash flow, maybe even metrics like EBITDA getting broken out for this part of your model separately. Just trying to think big picture about what that business could ultimately look like as it grows in scale, like it looks like it's targeted to do.

Yes, sure. Nice to hear from you, Brian. So no, we didn't change. I mean we've always said by end of 2028 or early 2029, then we should be at that scale. And yes, you're absolutely right. it absolutely will tie to other forms of value creation for someone who really speaks to the long-term value we see in the customer relationship that we're developing and the recurring forms of revenue that we can have from those customers. So I feel like only just getting started, frankly, Brian. I mean we had 17 programs. We had sizable dispatches. And again, that really led us to call out the fact that we think our 2000 number, the 2000 NPV is probably too conservative. So we're feeling very bullish about this opportunity as a distributed power plant provider.

Our next question comes from Julien Dumoulin-Smith with Jefferies.

Actually, let me just pick up from where Brian left that off Speaking of which, can you speak a little bit to what you're seeing preliminarily on '26 in as much as volumetric expectations across the industry seem to be recovering somewhat. And I'd certainly love to hear how you think not just on '26 but even beyond that into '27 as this new paradigm of TPOs evolves?

Yes. So great to hear for you, Julien. As you know, Julien, we are not guiding to volume. We are very much focused on creating -- focused on margin, creating cash generation and creating really sustainable, long profitable relationships with our customers while we're building on the nation's largest distributed power plant that will also have lots of value for years to come. So that is our focus. At the same time, as I think we've said, for 2025, we expect to be sort of flat to growing slightly. We see 2026 as another year to continue to do what we're doing, which is focus on margins, focus on cash, focus on providing an amazing customer experience and programs that build out our distributed power plant capabilities. the reality is like the volume is there and Sunrun is continuing to be very diligent and I would say, vigilant in how we go after that volume to make sure that we are creating the best experience for customers and the best margin profile for Sunrun.

Excellent. And if I can follow that up, I mean, the core question I wanted to get at here is prepaid leases. I'd love to get your perspective here, certainly generating a lot of sector interest admittedly seems somewhat complementary to what you offer here already. And obviously, you all have something of an offering in this end market already. But how do you see that product offering evolving both for yourselves and across the competitive landscape in '26 and especially in '27? Because I imagine this could very well take some time to get off the ground wherever it's going.

Yes, great question. I think you ended with my first point. I think it will take a little bit of time to get off the ground and going, raising the capital for it at scale. I think will be a constraint for those new entrants. But when I look at what they're trying to accomplish, they essentially have their business model go away. So they're trying to figure out how to play in our business model without being able to play in our business model with direct TPO. So they go through some creative gymnastics to basically finance with a loan, a TPO lease have construct. And so we view it as a more complicated and slightly more confusing consumer offering without advantages.

And we did look at it a couple of years ago and decided not to pursue it for all of those reasons, Julien.

Do you see this as a meaningful competitor though, or alternative just to clarify?

You broke up a little. Can you say that again?

Do you see it as a meaningful alternative or a competitor to your own product offerings as it stands today?

Yes. I think we will see a good portion of the TPO market share transition to that product. I think there is [indiscernible] where our product is not as well suited and or it's a market demographic that we are chasing. So I think it's easier for people to raise that type of capital at small scale and service the long tail. And as you know, our core business model is not focused around servicing several hundred small dealers. It's around our core internal sales routes that we believe are differentiated and a few key core partners that are aligned with our strategy.

Our next question comes from Ameet Thakkar with BMO Capital Markets.

I just -- I appreciate that, I guess, asset monetization just like kind of I guess, a third pillar for the capital raising going forward. But just to kind of clarify, the $115 million of sales this quarter, if we use your definition for cash generation in the second quarter, would cash generation have been negative for Q3?

If you were to assume it did not consume other available capital for the same assets then yes. But the alternative to that structure would have been to draw capital and consume capital from our traditional structure. So I would say this was very much additive and complementary to our sources of financing, but we don't think we would have seen an impact because we would have placed these assets in the more traditional structure than we have done in the past that would have replaced this capital.

Okay. So it's just a definition will change it would have still fallen in one of the other buckets, but you guys just kind of felt like the need to kind of change the definition to reflect that this is a new bucket that wasn't contemplated before.

Think of it as think of it as we have more available sources of diverse capital that we did before that generates kind of -- that generates similar bond line results on cash generation.

Our next question comes from Colin Rusch with Oppenheimer. .

I want to follow up on one of Brian's questions. In terms of the monetization of the storage assets, can you talk about the relative value for portfolios that are a little bit higher density from a geographic perspective versus ones that are a little bit more spread out? Is there a delta between some of those territories?

You're talking about the battery assets that we have in enrolling [indiscernible] service contracts?

Exactly Yes.

Yes. I think what we're seeing right now in that we're enrolled in is largely people take kind of a portfolio view at giving a blended price for access to the assets rather than customization based off of density or grid congesting whatever that may be. I think as these programs mature, we're actually ironically talking about this just recently. I think you will see some price differentiation on well-placed assets over time.

Okay. Great. And then looking into next year, I know you're not guiding, but in terms of some of the supply chain elements and your ability to source at advanced prices, you guys have talked about some of your purchasing power over time. Are you starting to see some leverage from some of that purchasing power as you get into next year and you see some of the demand start to fall away for certain elements of the hardware side?

Yes. It's an interesting question. If you're thinking about the overall market supply/demand in relation to '25, I would say that part has yet to play out, and we really have to see how that goes. There are different dynamics across parts of the supply chain general trend and theme is onshoring of what wasn't previously onshore manufacturing, and that is enabling much more domestic content value to unlock through the bonus ITC adder than the modest cost increases we're seeing, but we are seeing some cost increases. I think generally known in the industry, I would say, most significantly on module pricing as that onshore, we're expecting and anticipating those effects, but we also expect and anticipate them to be net value accretive from a bonus ITC qualification standpoint. But I think as we continue to observe trends, we'll be able to save more, there is a moment of change in the industry that we have to yet live through to understand how that plays out on the other end for '26.

Our next question comes from Vikram Bagri with Citi.

I wanted to start with housekeeping questions on margins first. G&A came in lower than we expected. Where do you see it going forward on a per watt or a per customer basis? And related to that, the Platform Services margin was impressive this quarter. I was wondering what drove that. Was it pull forward of demand? Was it more storage installs? And is this a new normal going forward? Then I have a follow-up.

Which metric in particular was the first part of your question? I just didn't hear that.

G&A.

The G&A [indiscernible].

The G&A overall per customer or per watt basis, you came in at $0.27 at watt. This is 3 or 4 quarters a decline for you on a per watt basis with except 1 quarter. I was wondering where do you see this going? Historically, this number has been under $0.20 a watt. Are you on track to go into that level going forward? Where do you see this [indiscernible] forward on a per watt basis?.

Yes. I would -- I think we are oriented to think of that more on a dollar per unit basis, and we've been hovering in the high 1,000 to 2,000 for several quarters. We have across that time period been increasing top line unit value. So G&A, though on a per customer basis, has trended flat on a percent of customer value basis, just like you'll see on sales and marketing spend have been falling. Now we're getting a margin expansion in the current quarter, G&A per customer fell a little bit about $300 a customer from the prior quarter. and that is operating cost leverage as we build more volume in Q3 going into the seasonal peak. That will move around a little bit through the 4 quarters of the year. But we expect it to stay in this sort of range. .

Got it. And I'm going to ask the other 2 questions in 1 go. The Platform Services margin was impressive. I was wondering what drove that. And then Dan, if you can talk about the puts and takes for the securitization spread of 240 basis points. This has been persistently at that level for a while now. When you look out for the next 12 months, what are some of the puts and takes for the securitization spread?

Great. I'll hit the first part. On the margin expansion, I think it's just a continuation of the prior story, say, again, we got good operating cost leverage, volume growth, seasonal peak. If you look year-over-year, we're seeing the dynamics we've mentioned around storage attachment rate going up. the level of ITC at or qualification going up, interest rates holding reasonably steady. And as we generate higher value systems though we are seeing the costs associated with the storage attach, so the extra materials and installed labor costs are flowing through the creation cost back. But we're generating several points more value north of that and you're getting the margin expansion. So it's just in line with the focus of picking the right go-to-market strategy with the right product offering as you heard in the lead-in from Mary, Massachusetts had a tremendous increase in the storage attach rate that is a contributor.

We see that in 1 market we action it and we see the fruits of our labor show and the margin expansion when we report that out. So I think the goal is to continue that sort of activity throughout the balance of the quarter and 2026. On the securitization side, I would say it's tilted towards more opportunity than risk if you're tracking just the credit spread element. So if we look across the year-to-date so far, we have seen residential solar credit spreads stay elevated in that mid-200 basis point area, while we've seen credit spreads generally across corporate and asset classes to continue to compress to very tight like near all-time type levels. So that is expressing or implying some spread elevation.

And I think we're wearing that for reasons around us relating to peer distressed and some elevated default rates in the [indiscernible] side and some of the uncertainties around policy this year. we view that as an opportunity as we kind of further and further distance out into next year from some of the events this year that drove that up. My estimate is we're probably at least 50 basis points elevated if you correlate our credit spreads to general credit spreads over time, I think there's opportunity there.

[Operator Instructions] Our next question comes from Philip Shen with ROTH Capital Partners.

First one is on capital allocation. In your prepared remarks, you talked about exploring that further to maximize shareholder value through '26, is my guess. And so I was wondering what might be on the table? Is buyback the most likely option, what kind of timing might it be? And what things need to exist, conditions need to exist in order to pursue that?

Great. Yes. You'll notice and others will notice, we've stayed consistent on the objectives around parent debt paydowns. So $100 million or more than $100 million for the calendar year. Year-to-date, we've gotten more than halfway there. And then we've also expressed a longer-range target of having sort of a 2x leverage ratio of total parent debt inclusive of our 2030 converts against trailing cash generation. So we're paying down debt as we're building up the trailing cash generation at some point into next year, those lines should converge. For anything beyond that, whether it involves buybacks, dividends, accruing more cash on hand, pursuing other opportunities, some of them will be board-level discussions. So we're not commenting on those, but we're kind of a near-term focus on execution that will build the path to unlock those conversations.

Great. And then shifting to '26 as it relates to volume. I know you don't want to talk too much about volume, but you do have some perspective in terms of growth for next year relative to the market overall, which might be contracting as a result of the 25D expiration. And so what we're seeing now is that Q3, Q4 pull forward of demand. You guys plan to grow next year. But that said, can you talk to us about the quarterly cadence? And so if there's a bunch of 25D business being pulled forward, does that impact some of your Q1 and/or 2 volumes in a way where the seasonal drop-off in Q1, for example, might be more than normal or more than typical? And if you can provide some color on that kind of quarterly cadence, that would be very helpful.

Yes. I mean I think at a high level, we expect to continue to gain significant share in 2026, given our focus on subscription offerings and our Storage First strategy, and we expect to do it while generating strong financial returns. Our strategy is not to roll over on board a lot of smaller dealers who were historically focused on the loan to cap segment of the market. Our focus is to do exactly what we've talked about, which is to continue to focus on providing a really strong customer experience, really strong value proposition for Sunrun and build out our distributed power plant capabilities.

So as I said earlier, like the volume is there. A part of what you've seen even in what we're doing is we've continued even to pare back in certain segments where it did not hit our margin threshold. So we're going to continue to be a disciplined player focused on customer experience, margins and building out storage while at the same time, we do expect to, again, gain significant share. We're in a really strong position from a market share perspective.

We have reached the end of the question-and-answer session and this concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.