Charlotte Coultrap-Bagg - Director, IR Lynn Jurich - CEO Bob Komin - CFO Edward Fenster - Chairman.

Andrew Hughes - Credit Suisse Brian Lee - Goldman Sachs Krish Sankar - Bank of America Merrill Lynch Julien Dumoulin-Smith - UBS Vishal Shah - Deutsche Bank Matt Tucker - KeyBanc Colin Rusch - Oppenheimer Joseph Osha - JMP Group.

Welcome to the SunRun. Inc Q3 2016 Earnings Conference Call. [Operator Instructions]. Now it is my pleasure to him the conference over to Ms. Charlotte Coultrap-Bagg, Investor Relations. Ma'am the floor is yours..

Thank you everyone for joining us. Before we begin please note that certain remarks we make in this conference call constitute forward-looking statements. This includes but is not limited to statements related to our financial and operating guidance and expectations regarding our business future growth rates and key operating metrics.

Although we believe that these statements reflect our best judgment based on factors currently known to us, forward-looking statements by their nature address matters that are uncertain and actual results may differ materially and adversely.

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

At this call is reviewed after today the information presented during this call may not contain current or accurate information. We will also discuss non-GAAP financial measures which are not prepared in accordance with generally accepted accounting principles.

A reconciliation of GAAP and non-GAAP results is provided in the press release we filed today with our form 8-K on our website. And now let me turn it over to Lynn..

Thank you Charlotte and good afternoon everyone. I'm pleased to share with you SunRun's Q3 financial and operating results. Year-to-date we have taken market share, expanded our unit economics and have kept our cash balance flat at $200 million.

I'm also pleased to raise our deployment guidance for the full-year by 10 megawatts to approximately 285 which reflects our market strength and continuing customer demand for cheaper cleaner energy.

In the quarter, we realized a 43% year-over-year increase in megawatts deployed, a 53% your very increase in net present value creation, a 10% year-over-year improvement in our cost and an improvement in our already leading customer satisfaction scores.

We have achieved these record results by consistently executing on strategies to build the industry's most satisfied and valuable customer base. All despite short-term retail rate uncertainty and negative investor sentiment. We and our customers will help lead the United States inevitable transition to clean energy.

As I've said before, the market size and industry fundamentals support a long-term annual growth rate of more than 20%. And this estimate is informed by only the technology improvements and cost reductions insight today.

In parallel, some of the most important development supporting rooftop solar over the long run are being unappreciated by many observers. First the regulatory market is evolving positively.

Market leaders like California and New York are laying the regulatory foundation for the value provided by distributed solar to enable a lower cost modernized grid. Second, consumer continued to want and demand rooftop solar. As we've been saying for quarters' rooftop solar enjoy strong bipartisan support. 85% of the public and 84% of Republicans.

So we do not see the selection as changing its course. Homeowners go solar as a matter of choice. Furthermore the investment tax credit has been passed by Republican congresses and signed by a Republican President. When it comes to market opportunity state level regulations are really what matters.

On Tuesday even as the state voted Republican in the Senate and Presidential elections Florida voters defeated a ballot measure funded by the utility establishment that spent over $200 million to slow the growth of rooftop solar and less than a year after we are forced to exit Nevada the utility commission has grandfathered existing solar customers and on Tuesday Nevada voters had their first chance to respond with a proposed constitutional amendment to establish a competitive retail electricity market and an overwhelming majority voted for energy choice.

Perhaps most importantly the solar industry employs hundreds of thousands of solar workers across the country adding workers at a rate nearly 12 times faster than the overall economy. Finally, innovation and cost reductions are happening faster than experts have predicted.

We far surpassed our initial forecast of bookings for BrightBox solar plus PV products with hundreds of orders and the terms of our supply agreement with LG for batteries would have been unimaginable just a few quarters ago. As a largest state market California has been a focus this year.

We expect industry growth in California to be approximately 10% in 2016. We are pleased to be taking share in this attractive market with growth in our SunRun managed business by continues to outpace the industry. Our multichannel approach is showing its strength.

Closed industry observers will know that in California the middle tier of the market representing regional sellers has grown this year relative to the longtail and partnering with regional sellers in California and nationally is where we have focused our channel strategy.

Our estimate remains that California has five times more solar ready homes than currently installed and we will continue to be an important market.

Over the next two to three years our SunRun managed solar caustic clients paired with utility rate increases promises to open new states that can double the number of single-family homes in our addressable market. At 20% industry CAGR for 10 years would mean just 15 million solar homes or an estimated 19% of US single-family homes at that point.

In markets like Australia and Hawaii have already reached this level of penetration proving that consumer interest and housing stock supports it at the right value proposition. Another positive trend is that the residential solar industry has repositioned to a more stable and healthier model setting the stage for long-term value creation.

Especially during this time of industry transition, our consistent execution has become a differentiator. Our access to capital and strong liquidity has enabled us the ability to sell the products that customers want. Whether it's through PPAs leases or for cash. We've also been able to reach more customers by expanding our flexible channel model.

As a result we have grown market share with growth in deployments of 52% year to date. Even while pruning certain activities to focus on near-term cash flow positive efforts.

Our strategy of focusing on customer value driving net present value, leveraging our platform through channel partners and at low-cost nonrecourse capital structure is delivering strong results. I'll now turn it over to Bob to be our financial performance..

Thanks Lynn our strategic focus is creating high net present value over the long run through delivering industries most valuable and satisfied customer base. In Q3 we made solid progress against the key financial and operating goals we set for this year.

First NPV, we achieved $1.06 per watt in NPV in Q3 and remain on to meet our goal for the second half of 2016 of achieving our $1 NPV target. This means we would generate about $140 million in aggregate NPV just in the second half of the year. NPV is calculated as project value less creation cost, so let's go through each of the components next.

Project value, Q3 project value of $4.43 per watt was $0.18 per watt or 4% below Q2 and within 2% of our average estimate of approximately $4.50 per watt for this year. As reminder project value is very sensitive to modest changes in geographic channel and tax equity fund mix.

We expect project value will continue to decline slightly over time but caution to decline more although in the short run that can be quarterly fluctuation.

In Q3 total creation cost were $3.37 per watt, an improvement of $0.30 or 8% from Q2 '16 levels this is slightly ahead of the $3.46 per watt target we set for the year and described in our Q1 '16 earnings call and within a few percentage points variation we can see on a quarterly basis due to factors like changes in channel partner mix and the timing of fees related to closing additional project finance transactions.

We expect Q4 creation costs will meet our target for the year. As reminder, our cost stack is not directly comparable to other peers because of our channel partner business. Blended installation cost per watt which includes both solar projects deployed by our channel partners as well as by SunRun decreased by $0.17 from Q2 to $2.63 per watt.

Install cost for systems built by SunRun improved even more to $2.01 per watt a reduction of $0.26 from Q2 and $0.34 year-over-year and is now comparable to other residential solar peers.

We're realizing the benefits of several favorable trends mentioned last quarter including higher utilization of SunRun insulation facilities and infrastructure, increased labor and increased labor cost. We expect SunRun built install cost to be flat in Q4.

In Q3, our sales and marketing cost were $0.64 per watt an improvement of $0.14 or 18% over Q2, this improvement reflects the focus we have previously described on adjusting investment levels and channel mix at the local market level to achieve our near-term net present value goals and optimized for cash flow.

Next G&A cost per watt declined to $0.24 a $0.09 or 27% decrease from Q2. We continue to tightly manage costs in this area which have been largely flat for the last several quarters excluding transaction costs for project financing which we expect to increase in Q4.

Finally when we calculate creation costs we subtract the GAAP gross margin contribution realized from our platform services. This includes our distribution, racking and lead generation businesses as well as solar systems we sell for cash with third-party loans.

We achieved platform services gross margin of $0.15 per watt reduction of 38% or $0.09 over Q2, this reduction was primarily due to lower cash system deployments in the quarter. Installs, in the third quarter deployments were up 43% year-over-year to 80 megawatts.

Through the first three quarters this year we deployed 205 megawatts an increase of 52% over the same period last year. We expect to deploy approximately 80 megawatts in Q4 which would bring us to approximately 285 megawatts for 2016 which is slight raise from our most recent guidance of 270 to 280 megawatts.

A 40% annual growth rate it means we are taking market share. Our channel partner mix grew in the third quarter and we expected to remain at a similar level in the fourth quarter.

We had previously expected a moderate decline in channel partner deployment mix during the year and in the current market environment we are seeing more opportunities that are favorable to work with partners while meeting our NPV goals.

As we previously described this trajectory can fluctuate quarter to quarter since we do not manage a mix target we instead prioritize unit level margin and mutually beneficial outcomes. Our cash and third-party loan mix was 10% somewhat below the 16% Q2 due to lower deployment volume and higher channel partner mix which includes only lease systems.

We’re forecasting cash credit mix to be in the low to midteens in the near-term. As discussed previously we believe our PPA and lease product mix is over 80% better matches consumer preferences and delivers our customers significant value which is one of the reasons we have been able to grow faster than the market in 2016.

In Q3 our net bookings were 79 megawatts up 5 megawatts from Q2. Now let me turn it over to Ed..

Thanks, Bob. We get a lot of questions on how to value our lease systems. We think a good starting point for how to think about it is our upfront nonrecourse finance proceeds which you can calculate from our GAAP financial statements. We continue to expect total nonrecourse proceeds for leased systems of at least 70% to 75% of reported project value.

It's possible we haven't been clear enough about the contemporaneous timing of these receipts and how close they have come to covering our cost even with growth. As such, we want to demonstrate that these proceeds can easily be reconstructed and measured using our GAAP financial statements.

We lay out how to perform these calculations on appendix pages 18 and 19 of our quarterly presentation. You'll see that beginning the first quarter of 2016 we simplified our cash flow statement presentation to make the calculation more straightforward. Further detail on how to do this and how to do the calculation is contained in the appendix.

Finance proceeds are all nonrecourse and from sophisticated lenders who perform significant asset level diligence and priced the risk of their capital at or below 6%. As such, one can safely assume that project value meaningfully exceeds proceeds no matter what equity discount rate you want to use for those cash flows.

From those slides, you can see that the total components of proceeds comes to about $902 million over the trailing 12 month period.

Since we deployed about 237 lease megawatts during the last 12 months, you can calculate that we received about $3.81 a watt or actually more than 75% of project value and in proceeds in that period, because of variations in the timing of proceeds, mix of tax equity and back leverage facilities and use and fees, we have set guidance in the range of 70% to 75%.

We do occasionally see more significant variations for instance in Q4 2015, to the low side and Q1 2016 to the high side but that's not typical. We believe GAAP calculated proceeds represent the fair measure of our ability to generate cash proceeds on a rolling 12 month basis.

However because of the variations I just mentioned we caution against extrapolating from only one or two quarterly periods. Project financing continues to be an area of strength for us.

Our ability to execute on back leverage tax equity and the growth of our corporate revolver has allowed us to maintain a relatively flat cash balance of over $200 million this year. We are sufficiently well-positioned not to need to raise further equity capital to achieve our growth plans.

Including executed term sheets we've project finance, capacity through approximately Q2 2017. Finally, I will close by highlighting that our steady strategy has allowed us consistently to add to our net earning assets which have increased 55% year-over-year.

As a reminder net earning assets are a measure of the value of our solar facilities facility after debt and is further defined in the materials. With that I will turn it back to Lynn for guidance..

Thanks, Ed. As Bob mentioned in Q4 we expect to deploy approximately 80 megawatts with our focus in the back half continuing to be delivery of $1 per watt in customer net present value and we will open it up to questions now and just before we do I do want to clarify one point from earlier in the script.

I believe I said that the utility spent $200 million in the Florida ballot and it's really $20 million. So there you go. We still won but you know who knows. All right, so we will turn it over to questions..

[Operator Instructions]. Our first question comes from the line of Andrew Hughes with Credit Suisse. Your questions please..

Lynn, you discussed some of the evolving state policy landscapes, and you guys have all sort of had to address them.

It does seem as though they are evolving faster and different states pursuing different strategies curious from your point of view it becomes easier to rely on a partner network for sales and installs in that case if these various state policies continue to evolve or do you think the direct business is more advantaged to address some of these issues on a state-by-state basis?.

No, I think first of all I'm glad you point out that state issues. I think one of the reasons why we are so bullish on the long-term growth rates in this industry we are achieving a 20% growth rate this year without a lot of new market expansion.

And we are seeing lot of states want to really bring solar into their communities and with our cost reductions I would see that as a real tailwind in the business as state-level expansion. We are thoughtful about where we invest in our direct resources and where we invest in partner.

I think we are continually getting better at variabilizing our cost in the direct business.

So today I think we're pretty confident that we can move in and out of that direct business and I'm pretty cost-effective way, although again as we said market has been pretty stable for us this year so we look more to answer -- is there a customer segment that’s better reached with a channel partner? Do they have a competitive advantage in their cost structure in that market? It's more about how do you switch together the lowest cost value chain and reach the most customers? So it's really complementary from that standpoint.

and then I would just also offer that overlap rate between when we sell out -- how many of our customers receive a proposal from one of our partners versus our direct business still remains well below 10%, it's very small.

And so again that really is underscoring that this is a fragmented market and so with this channel piece of the business that we have, we are able to reach a broader swap of customers..

And then just in terms of relative success across some of your different sales channels, are you seeing one's with greater success than others? And any that are having higher cancellation rates than others?.

You know, glad you asked that question. As we talked about more on the last called than this call but we have been very deliberate about weeding out any lead channels any markets, any partners that aren't on a path to near term cash flow positive.

So we been quite deliberate in that over the past couple of quarters, and yet we are still able to take share which we are quite proud of. So yes, the more attractive ones are the ones we are pursuing now and everything we are pursuing really hits that investment criteria..

Our next question comes from the line of Brian Lee with Goldman Sachs. Your questions please..

To build on that can you give us some sense of how much percentage on a run rate basis and what your updated thoughts might be and potential declines on that market next year given the election outcomes any potential and follow-up?.

First worth mentioning we operate exclusively or almost exclusively Arizona Public service territory in Arizona and I want to reiterate there will be no changes in that market until July of 2017. And those changes will affect only newly sold customers at that time.

And as such the current rate structure will support installations in Arizona through Q3 and possibly into Q4. Certainly the Arizona corporate commission has said that we should be expecting some form of rate reform at the same time the commissioners have stated they want to preserve a growing market in the state.

But also note that 75% of Arizona Republicans less likely to revote the rooftop market and obviously commissioners in Arizona our elected. So we feel pretty good about the long-term prospects in Arizona and we are increasingly diversified in our customer nationally and feel very good about that risk..

And the follow-up would be around the cost structure here encouraging to see the cost were down pretty significantly. Ahead of most expectations. Can you talk to how much was doing by component cost? Module separately versus how much was driven by labor and overhead? And I'm a little surprised you are guiding to Q4 being flat.

Any color you can provide on why that is not going well and just lastly, how low do think you can drive the cost in 2017 given component prices are trending right now? Thank you..

I will start with the last part first. Where at about $2.

I think when we look forward at where the SunRun managed install cost can grow -- some of it is Jim expect two dollars half is material cost when we look out to 2017, pretty well known that at least on the module side in particular we think we can see the material cost part of the stack, perhaps 20% additional cost reduction there.

We think that on the labor efficiency side, we've grown into our capacity and we've also gotten more efficient. And this year there is been a significant portion of improvement in our cost structure that has come from that combination of efficiency both better utilization and labor cost and efficiency in the hours.

The material cost in 2016 while the contract pricing has come down, it will take us will to work through the inventory which is closer to historical cost a lot of material cost benefit yet most of that will come in the first half of 2017..

I can hit on the megawatt growth but just also getting back to the cost back I think the -- again we want to caution people that only looking at that cost back in isolation, the NPV is really and our view what drives value that's what matters, that's what the equity holders are going to get so if you just look at we have a low-cost playbook, L bloat 51 in certain markets and if we want commercial we would be at that level.

That's our goal, our goal is to drive the NPV market by market. When we look at that revenue side to. Truly understand the value creation. In terms of the megawatt growth in Q4, I'm curious -- surprised that the phrasing of the question a low but. I think the way you phrase it not going down. I think this is our point.

We been saying for quarters, fundamentals are very strong, delivering the growth sometimes people are latching into competitors in the offense a position but the fundamentals are sound and consumers are wanting to adopt this.

The forecast in Q4 as a mentioned 79 megawatts in this quarter and we're getting better turning those megawatts into themselves and we have good visibility into it and that is the demand of the business. We will say that the shape of the year does have seasonality in it.

And so we expect that this year we will expenses income of seasonality we experienced last year which was you have your peak sales period in the summer and the fourth quarter and customers aren't thinking holidays and it comes back. We will expect that shape again this year.

But the 80 megawatts in Q4 is a reflection of the roughly 80 we booked this quarter..

If I misspoke I was referring to a little surprised that you are flattish for Q4..

I see. We will accept that. It is volume--.

Our next question comes from the line of [indiscernible]. Your questions please..

Just wanted to drill down a little further on your sales of course which has come down quite significantly quarter over quarter. Just wondering this is been a challenging point for the industry. Maintaining, where do think you can take it from here maybe in 2017 and into 2017 and beyond..

We think about customer acquisition cost like most businesses in relation to how much value our you're acquiring. This is one of the education points we as an industry need to do better on and Investor Relations page. If you look at that installation cost, I'm going to use abstract numbers here, industry numbers.

$3000 to $6000 customer if you're going to be delivering a contribution margin of $15,000 for the customer, that's where the market is going to be. Because that is the ratio of the business and industry.

First I think there are improvements focus on it, we are going to see more, but it's not out of whack as is often advertised and our view -- so the other industries -- part of why we have been able to see the success of it is the efforts we've made in pruning these more expensive channels and we are going to continue to see that.

As we continue to grow we will see leverage and more of a fixed cost expense and we are getting smarter and smarter at which channels we operate in. We do see that coming down. We do not see coming down significantly because we operate in a market and the customer values are supportive of that kind of acquisition cost..

On the more conceptual -- if I may, something that came up with investors on the election.

Do think it's a possibility may interfere with the standards in the state level and move that against the residential industry?.

That's extremely unlikely. A good legal the net metering periods are deliberately designed to be -- inside the billing periods, that's why for instance in call [indiscernible] customers one annual bill.

That's very deliberately set up to under interstate commerce, not a federal level so I don't perceive that to be something that we are worried about right now..

Our next question comes from the line of Krish Sankar with Bank of America. Your questions please..

I have a few of them first Lynn just to follow-up on your comments.

Historically for you guys on a sequential basis for megawatts installed and seasonality into Q4 and Q1 said could sequentially be down on a basis?.

Are you talking about in terms of insulation?.

Yes..

I think the shape would be the Q4 but Q1 yes the Q4 because you are starting to see the summer still the summer sort of attractive time in Q4 but Q4 but seasonally lower Q1.

And then the other thing the cash obviously that down to ten plus.

Looks like you guys are running well below the rest of the industry it appears as it out of the because most of the cash is through this Mac with any other channel running below the industry or something with [indiscernible] customers?.

I think it is just that when you offer a cash product and eight leased to someone and you don't push them towards one product or the other, they traditionally end up as a lease customer because it's really a better customer offering.

I think there are some people in the market who either from accounting or cash or capital availability reason may be stirring people to one product rather than the other. Specifically to the cash product and that is employing what you see in the marketplace.

It is also the case that through our channel business, we only have leased customers and so that is why we it depresses our mix also..

Had a question on the Arizona front, not many of the solar Companies have much exposure there but some of the regulation has been coming out relatively more pro- utility versus solar.

I had a question even though California is the bigger market for solar, Arizona might be used as a benchmark by other states given that Arizona has more traditionally compared to like the dealer ones in California?.

So we have obviously -- Arizona has had a pitched relationship between the solar Company's and the utilities for years and up until this point, their actually hasn't been a lot of numbers driven.

I think we are going to see some more of that this time around, that generally speaking I still think that nationally, when regulators look for the leaders who are going to figure out the future of solar, and where as a society we want to go, they are more likely to look at a New York or a California tight market probably than they are and Arizona market.

You just look at the staff of the California Public utility commission relative to other utilities commission they have so much more resources the same for New York to try to figure the South and generally we're seeing regulars -- rooftop gets Bomar quickly, uses the existing infrastructure, it generates the most jobs, it is highly popular amongst their customers, and it is cost effective for [indiscernible] so they are supporting it.

I guess I'm not seeing that Rotter trend is coming down in favor of the utilities. Let's take Nevada as example.

It's been overturned and when you see the vote that just happened, people opted for a competitive market and so in the state where a couple calls ago we were talking about is everyone following Nevada now? You actually saw pretty significant backlash against that and reversal on items that plus the fact our two biggest markets that are leaders going distribute double I would argue significantly that's tied behind residential solar not big existing utility model..

Just a final question for Bob, I know based on your definition of cash flow positivity where you cash flow positive in Q3 or if not do still expect to be cash flow positive exiting this year?.

Based on our definition we were not cash flow positive in Q3 and I don't think that we will be in Q4. Our goal has been to get there as soon as we can. We think that we are very, very close to it and we look forward to 2017 hopefully being the time that we can turn the corner..

Our next question comes from the line of Julien Dumoulin-Smith with UBS. Your questions please..

Just a follow-up on the last one if you could actually can you expand a little bit on the cash position? What has shifted such that you no longer expect that to be the case?.

I don't think that we've changed our expectation. It's not that we no longer expect it, we've been working our overall cost structure down on the other side of the equation.

We've been working hard on advanced rates for proceeds, and we need to get to a spot and I think we describe this were not just our external cost stack but also some additional cash items that need to be covered above that. So there is working capital that is not reflected in that.

Remember we have a distribution business and addition to having inventory for our own internal business.

There is also capital investments, there other cost like R&D that don't get picked up in the way the industry looks at the external cost stack so we have some margin above that that we need to cover and then once we are consistently at a place where our from proceeds are than that, that's what we turn structurally cash flow positive in our definition.

We have been getting closer and closer, and we think that it will still be another quarter or a few quarters before we get there..

I want to be really clear on this point because there is maybe a misunderstanding that we were guiding to a specific period of time where we were going to turn cash flow positive. That's not the way we operate the business we continue to look at this is a long-term business for us.

We have a lot of growth areas to invest in cash flow positivity is a goal but if we see investment opportunities and take share like we are right now and really attractive economics that we can manage our liquidity and don't think we need to raise access capital, we're going to do that. So we very deliberately never put a target on it..

Can you expand a little bit on bookings were obviously it is flattish versus deployed, but in terms of new markets etc.

obviously them and positive would you expect to start expanding again? Year-over-year? As you turn into try 17 here and seeing that contributing to accelerating sales or would you be again focused because of the cash considerations and the desire to get to that SCF breakeven metric that you would be focusing your car markets are ready?.

I think we're putting together the plan today. The 2017 plan and I can maybe preempt the question and maybe someone will ask on the 2017 and we are not doing that now.

We are in the process of going through a bottoms up plan to really focus on which market doubling down our existing markets that we like, which markets have a sustainable path to cash flow positive now with our new low-cost playbook and our lower cost structure we will be in the position to be able to expand this new market to hit our growth target and so we will tally all those up and take look at it.

But we are pretty excited about the prospects. We grew 40% this year and a lot of new market expansion and with no Nevada and that is not currently in our plans. It is not a meaningful but there certainly are new large markets..

Just Arizona, do we get that?.

We do not disclose this specific market by market, share mix but we’re well diversified..

Our next question comes from the line of Vishal Shah with Deutsche Bank. Your questions please..

Lynn, can you talk about the PPA pricing trends I know that last year you decided to raise prices you guys thinking along the same lines this year and also your guidance for the second half or NPV was $1 watt which would implied Q4 NPV would go down.

Can you just expand on that please?.

Sure, absolutely so your first question was what was the first question?.

Just the PPV environment..

Okay so the pricing environment has been stable, the -- we raised pricing at the beginning of the year I think as did a couple of other of our peers I think a few of them many have even raised pricing again although we do not believe that that’s the right move in terms of the elasticity.

So it helped, that’s one of the beauties of the industry being a little bit out-of-favor people are pretty disciplined they are focused on a sustainable growth.

I love the language we are hearing out of Elon talking about how you don’t become the market leader by discounting and so I think that all those were really healthy pricing dynamic in the industry. Because remember we are on average 20% to 25% cheaper than the utilities day one so there is an incentive to switch.

So the pricing has helped but we are certainly not counting on any price increases and where building our plan as well around being able to offer lower PPA rates in new markets with a lower cost structure at similar NPVs.

So getting to your NPV question in Q4, we do expect that the year will be a dollar on average so I think you're safe to assume that -- the second half excuse me will be a dollar on average so we would expect in Q4 may come in slightly below that..

Is it a function of mix of channel partner business or what is going on?.

When we look at these sort of numbers these are 2% fluctuations. So they are not there is no operating story to really tell underneath that. You may have a different little bit of a different market mix 2% lower PPA, it's small variance here..

Maybe like 1% actually even on revenue realization..

And one last question just on the California market as DG&E territory. I know 2.0 has slowed on the market.

How are you seeing trends there and then how do see California market evolve especially as some of the other territories [indiscernible] this year?.

Sure. The California market just a studio question I believe there was one month that was down in applications but that it required third just July that was down but its backup to where was previously. So I think that was more of a one-time blip.

The way we think about California is there are five more times the amount of homes that can go solar then there are solar homes today. That does moving food new homes, what's going to happen with the rental market. We only operate in have to state. California is going to be a gross market for us.

When you look at the savings we have a third-party and ourselves we calculated what were the customer savings before and after this Mac in each one of the territories. For PG&E the savings were roughly the same.

So they range between -- these on the slight so you should check the slides for the exact figures but it was between 25% and 30% PG&E ansd in San Diego Gas and Electric Company that moved from 39 savings in the old regime to 35 savings in the new regime. So they are not meaningful changes. So I think California will continue to be a strong market.

California will continue to be a growth market for us. We are taking share their today and -- but there are 49 other states that we are eager to get into too..

Our next question comes from the line of Matt Tucker with KeyBanc. Your questions please..

I appreciated that you address the election results in your prepared commentary and addressed the key ITC policy and pointed out that the state policies are most important.

I just wanted to ask are there any other federal policies that you view is driving your business that could be at risk under a Trump administration? And then with regard to the Clean Power Plan clearly not really implemented yet given it's under court stay and arguably the chances of it being implemented in its current form be diminished, that if it were implemented how much of a driver would that be if at all for residential solar in your view?.

The Clean Power Plan was really a utility scale item that didn't really affect rooftops. In fact, you could easily argue that it could be positive and negative for rooftop, but around the edges it is hard to say but it's certainly not material one way the other.

The only two policies that exist federally that are relevant to us are the ITC and then obviously to a much lesser extent Accelerated Depreciation. We continue to feel good about that.

The bipartisan support is strong and in fact, the renewal that we just went through last year was led by prominent Republicans like Senator Heller, Senator Grassley, Senator Hatch, who is Chairman of the Senate Tax Committee [ph]. So we continue to feel good about the federal situation..

And I think this is an important -- this is a really important point because rooftop solar is very different from other renewable energy sources I think politically and I said this in the script but I think this is worth repeating. Our job growth is 12 times the rest of the economy, 12 times.

These are jobs that are not going to be exported, these are blue collar jobs, these are well-paying jobs. This is massive, this is 200,000 jobs that we have created and the psychology of our customers. First of all most of our customers are Republicans.

The psychology is I want competition, I want freedom from the monopoly, I don’t want people telling me what to do. Rooftop solar is the antiestablishment energy choice, and that's what we offer. It is very of the moment. So I do want to be very clear.

The Clean Power Plan is something very different, that is I think we are talking about the threat there. For us we are creating the exact policy goals that the administration is saying they want to achieve..

And then we have heard a notion out there that maybe in California specifically that the low hanging fruit has been picked in terms of the most creditworthy customers, the most suitable houses for solar, I think numbers you suggested or you presented just was not really the case, but curious what your response is to that concept?.

I think in this fear world people are trying to attach anything to make their negative thesis right, that would be my main assessment, because when you look at the numbers it just don't support it. So I would love for someone to articulate that with numbers. That would be a think a useful exercise.

Just like I would love for some into articulate how are we losing the regulatory battle with numbers. So when we look at the numbers that five times more solar ready homes. We have cut it by all the dimensions. We've already cut it by shaded homes or estimated shaded homes.

We've cut it by only single family homes, so there is no multi-tenants in there, we have cut it by FICO score. We have cut it by all those factors and you still see a lot of growth. The other thing -- I think people are California's a nice profitable long-term market.

You don't want to underestimate that and I think we’re going to continue to take share there, but in California, while you are able to charge a higher PPA rate there is a lot of reasons why your cost might be a little higher. It's smaller system sizes, because people use more energy efficiency.

So we will actually see even if we go to new markets and maybe your PV per watt might be lower but your cost structure is lower as well in new markets and so we are very optimistic about generating these sort of dollar MPV levels across many markets, not just California..

And I just wanted to ask about the LG battery supply agreement. I think you suggested that you were able to secure very attractive terms there.

If maybe you could just expand on that, and then your thoughts on timing of starting to bring that to the mainland maybe what you are looking for in order to do that?.

So both Tesla and LG make excellent storage products and I imagine that will probably be the case with UID shortly as well. When you look at the amount of storage that will be necessary to support the extremely high level of penetration of solar that we expect in the long run, obviously it's important that there be multiple manufacturers.

The quality of the product that we get from LG is great. It also comes with an investment-grade warranty which is fantastic. We still also do love the Tesla power while we are going to continue to install those and we continue to evaluate other options.

We're just excited about is finally for the first time we have quality product, at a low cost being manufactured at scale by a number of Company's who are all rapidly growing their manufacturing capability and rapidly increasing their energy density and rapidly lowering their cost.

So the overall picture there is just awesome and we are very excited to see where it's going to go in 2017.

As to more BrightBox installations, in the continental United dates, we have been trialing that in small numbers, that's probably up on our 2017 list of things to do and there are certainly things that need to be resolved before you'd see mass adoption say in California such as what are the time of use rates exactly, and what might be the value you can really get out of the capacity market and do you strike that with utilities or with the grid operator so there is some work to do there but I think you will definitely be seeing significant continental U.S.

deployments in 2017..

Our next question comes from the line of Colin Rusch with Oppenheimer. Your questions please..

As you look at the potential for a lower corporate tax rate, coming through in the next year or two, heavy started preliminary conversations with your tax equity partners? Obviously there is potentially a very deep pool of tax equity but what are the dynamics that you've started to engage on this point around that issue?.

Sure so in our entire group of tax equity investors we actually only have one who has been constrained by their tax capacity and has told us that -- and they do more like $1 billion than $100 million in tax equity and we are at top of their call list.

So given that we don't really hear from tax equity investors that their constrained by their tax capacity like many finance professionals they are actually constrained by the quality of the transactions and their abilities to close transactions. Not so much by available capital I don't see that as having a material effect.

There certainly is broad-based Republican support for tax reform but it is nevertheless still an impossibly difficult matter and so I don't think it's going to happen altogether too soon but we obviously watch it carefully and are in conversation with people and don't consider it to be a risk to our tax equity capacity..

Okay, and then the follow-up question is really around interest rates obviously there has been a sharp move in terms of treasuries in the last few days and you guys are certainly a yield sensitive entity.

If you look at your portfolio and the levers you have to pull from a financing perspective, what are you expecting in preparing for over the next call it three to four quarters for your debt capacity and some of those financing options that you have on the table?.

Sure, a couple things. Obviously we manage our interest-rate risk carefully we hedge our existing books not for the duration of our loans but for our contracts and we think about that in terms of new business as well.

First I think it's important to note that our current debt facilities are constrained by advanced rate and not coverage ratio and so even if you did have higher interest rates the amount of cash that we would receive in proceeds is unlikely to change.

It would start to reduce slightly the equity retained value cash string [ph] but it wouldn't have an effect on the upfront proceeds. It's also the case that utilities pass-through interest expense to their customers in the form of higher rates and if you actually really see a higher risk to your rate they will also pass-through higher ROE.

So our competitors pass through capital cost and 2/3rds of the cost of residential power is capital assets that are depreciating over 60 years. Finally accelerated depreciation reduces our interest-rate sensitivity.

So because a good chunk of our capital structure is tax equity and not debt, higher interest-rate paradoxically actually makes tax equity more valuable and often lower cost both because it's differing -- the deferral of liability to a bank is worth more when interest rates are higher and then also there is more tax capacity amongst [indiscernible] when there are higher interest-rate.

So all in all we continue to watch it carefully we manage our risk but that’s not something again that is in our top eight things that we focus on right now..

[Operator Instructions]. Our next question comes from the line of Joseph Osha with JMP Group..

Two questions. First looking at what happened with question three in Nevada, I know that's been a little fraught.

Do you think there's any possibility now that you might try and reenter that market?.

I think the current rate structure in Nevada doesn't support rooftop solar market, but there are many potential avenues where that could change either through the legislature or the regulator. To Lynn's point, we haven't baked any of that into our own '17 planning at this point time.

It certainly an it's a potential -- it's something that might happen and it's something that we track carefully, but it's not something that we are planning on..

Not to put too fine a point on it, given the fact that it seems like the tide has turned a bit.

Is there any possibility that you all might try to engage the legislative process there a little bit? Or are you just going to stand back and see how the cards fall?.

We obviously are very engaged in policy nationally, and are active in most states, and also at times with our peer Company's divide and conquer. So it is certainly the case I think the solar energy, the rooftop solar business the industry will be active in Nevada policy and we may or may not be as a Company individually active..

And then the second question you are very apparently taking share and just at a high level I'm curious given the fact that some of your competition seems to be making more noise about trying to go to cash alone, whereas you guys are still very committed to your BPA and lease strategy.

Do you think that’s maybe why you are picking up share? I'm curious as to what read you might have on that..

I think it's probably a factor. It's not all of it but again I want to clarify that we are not committed to the lease strategy. We are committed to giving customers the product that they want and I think that is the difference.

But this is an execution business, this is a what are your distribution channels market by market, what unique customer acquisition channels do you have, how good are you -- how happy is your existing customer base of 100 plus thousand customers in terms of how active referrals are there. There is a number of just execution in this business.

That we believe we have been focused on and that has helped us deliver those growth gains..

Ladies and gentlemen in this concludes our question-and-answer session for today. So now it's my pleasure to hand the conference over to Lynn Jurich, Chief Executive Officer for closing comments and remarks.

Ma'am?.

Thank you everybody and as always if you have -- anybody who owns a home, friends and family send them our way we can save money on your electric bill and SunRun.com so we look forward to speaking with you guys again next quarter. Take care..

Ladies and gentlemen thank you for your participation on today's conference. This does conclude the program and you may all disconnect. Everybody have a wonderful day..