Q4 2023 Sunnova Energy International Inc Earnings Call
Participants
Rodney McMahan; VP, IR; Sunnova Energy International Inc
John Berger; President and CEO; Sunnova Energy International
Robert Lane; Chief Financial Officer, Executive Vice President; Sunnova Energy International Inc
Philip Shen; Analyst; Roth MKM
Praneeth Satish; Analyst; Wells Fargo
Tanner Di Lello; Analyst; Bank of America
Brian Lee; Analyst; Brian Lee
Ben Kallo; Analyst; Robert W. Baird
Joseph Osha; Analyst; Guggenheim Partners
Mark Strouse; Analyst; JP Morgan
Kashy Harrison
Sophie Karp
Pavel Molchanov
William Griffin
Donovan Schafer
Heena Mandloi; Analyst; Mesirow
Dylan Nassano; Analyst; Wolfe Research
Sasha Parfenov; Analyst; BMO Capital Markets
Presentation
Operator
Thank you for your patience, everyone. The Sunnova Q4 full year 2023 earnings conference call will begin shortly. (Operator Instructions) Good morning and welcome to Sunnova's Fourth Quarter and Full Year 2023 earnings conference call. Today's call is being recorded, and we have allocated an hour for prepared remarks on question and answer.
At this time, I would like to turn the conference over to Rodney McMahan, Vice President, Investor Relations. Thank you.
Rodney McMahan
Thank you, operator. Before we begin, please note during today's call, we will make forward-looking statements that are subject to various risks and uncertainties as described in our slide presentation, earnings press release and our 2023 form 10-K. Please see those documents for additional information regarding those factors that may affect these forward-looking statements. Also, we will reference certain non-GAAP measures during today's call. Please refer to the appendix of our presentation as well as the earnings press release for the appropriate GAAP to non-GAAP reconciliations and cautionary disclosures.
On the call today are John Berger, Sunnova's Chairman and Chief Executive Officer; and Robert Lane, Executive Vice President and Chief Financial Officer. I will now turn the call over to John.
John Berger
Good morning, and thank you for joining us. 2023 proved to be a formidable test for the residential solar industry. Macroeconomic challenges and a rapidly evolving landscape meant that companies who are unable to adapt and tackle these challenges head-on have struggled or exited the market. While this unfortunate reality for some may have caused apprehension and generated negative headlines. It also presents a silver lining of reduced competition for adaptable companies like Sonova. We stand apart in this regard, fortified by our scale, robust balance sheet agility and forward-thinking approach, enabling us to not only weather this storm but pick up market share and expand margins in the process.
The past few weeks, we have seen encouraging signs of improved market dynamics beginning to emerge. Tighter risk premiums reflected in our recent securitizations, coupled with an uptick in overall market demand as we transition beyond the seasonally softer period for customer originations paints a more optimistic picture than many perceive to better position Sunnova for the rest of 2024 and beyond.
We have continued to increase our focus on cash generation by pursuing additional margin expansion, exploring potential asset sales and rapidly implementing cost-cutting measures to achieve cost savings. We are continuing to implement a range of initiatives primarily focused on automation driven efficiencies. This strategic approach will enable Sunnova to sustain growth without expanding its headcount.
Additionally, we have initiated an immediate pause in spending related to select growth initiatives such as international expansion. While these initiatives are temporarily on hold, we will remain committed to revisiting them in the future, contingent upon improved market conditions and an improved valuation of Synovus' equity. Factoring in these cost reductions, we now anticipate our revised cost structure will result in a decrease of at least 20% in total adjusted operating expense per customer in 2024.
Slide 3 highlights our growth in customer count, power generation and energy storage under management, battery penetration and expected contracted cash inflows for both 2024 and the remaining life of our customer contracts. During the fourth quarter, we placed over 34,000 customers into service, which brought our total customer count at the end of 2023 to just over 419,000 in our megawatt hours and solar power generation under management, 1,090 megawatt hours and 2.5 gigawatts, respectively.
Turning to slide 4, you will see as of December 31, 2023, the expected cumulative nominal contracted cash inflows associated with our customer contracts over a weighted average remaining life of 22 years. Was $16 billion in 2024. The same contracts are expected to generate $789 million in contracted cash inflows. These inflows are the sum of all expected cash generated from customer lease PPA and long contracts, including those from SRX and grid services in-service as of December 31st, 2023.
Also on this slide, we provide our expectations of levered cash flows, which based only on what was securitized as of December 31, 2023, is expected to be $136 million in 2024 and $4.9 billion on a cumulative nominal basis. Cumulative levered cash flows will continue to grow as new assets are added and will grow on a per annum basis as tax equity flips occur and debt is paid down.
I will now hand the call over to Rob, who will walk you through our financial highlights.
Robert Lane
Thank you, Joe. starting on slide 6, you will see our adjusted EBITDA, together with interest income and principal proceeds equaled $549 million for the year ended 2023, which included a $207 million contribution from investment tax credit for ITC sale, excluding ITC sales 2023 adjusted EBITDA, together with interest income and principal proceeds increased by $58.5 million versus the prior year since most expenses flow through adjusted EBITDA, including those that support our loan business.
We view adjusted EBITDA together with interest income and principal proceeds, a more complete picture of our financial performance. While 2023 ITC sales were heavily back end weighted due to delayed treasury guidance, we expect a more even contribution of this activity in 2024 as we plan to continue utilizing IPC transferability, primarily from new tax equity partnerships to diversify our funding sources.
Slide 7 highlights the Novoste continued ability to efficiently access the capital markets. In 2023, we added $957 million in additional tax equity funds entered into over 1 billion in asset-backed securitizations, closed a $50 million secured revolving credit facility to support procuring and selling inventory to dealers close to $65 million accessory loan facility and issued a second green bond, which together with a modest equity offering, brought in $466 million in additional capital after fees and expenses.
We also expanded our warehouse capacity while securing amendments to keep pace with our origination through February 21 of this year, we have added another 195 million in tax equity and priced to asset securitizations at the tightest spreads we have seen in the past 12, 18 months in our %537 million of liquidity as of December 31, 2023, our both our restricted and unrestricted cash and the available collateralized liquidity we could draw upon from our tax equity and warehouse credit facilities subject to available collateral.
We had 835 million of additional capacity in our warehouses and open tax equity funds. Combined, these amounts represent nearly $.4 billion of liquidity available exclusive of any additional tax equity funds, securitization closures, asset sales in the money interest rate hedges, further warehouse expansions or other sources of liquidity during the year.
On slide 8, you will find a summary of our unit economics as of December 31, 2023. On a trailing 12 months basis, our fully burdened unlevered return on new origination increased to 12%, while our weighted average cost of debt decreased to 6.4% respectively. This resulted in a 5.6% implied spread over the same period, the highest since early 2022.
Slide 9 provides additional information on our unit economics, which have improved and continued to improve into 2024. We now estimate an implied spread on near-term origination of 600 basis points. Overall, our margins have remained stickier than expected, considering the declines we have seen in the weighted average cost of debt. However, we maintain that the long-term expected spread is 500 basis points. Our weighted average cost of debt life to date remains just over 5% as of December 31, 2023. As a reminder, we measure our cost of capital on a yield and issue basis rather than an interest rate basis. As this more fully captures the effects of any discounts, fees and capped call purchases.
Slide 10 reflects the strong growth we have seen on our net contracted customer value or NCCV. at a 6% discount rate and TCV was $3.1 billion an increase of 35% compared to December 31, 2022. Our December 31, 2023. And CCV. at the discount rate was $25.26 per share. This represents a greater than twofold increase since we announced our triple double triple. Even with this significant increase our NTCV. per share ended the year lower than expected, primarily due to the timing of tax equity closures and fourth quarter customer additions coming in slightly below our expectations. At this time, we have elected to reaffirm our 2024 full year guidance.
On slide 12, we will reassess our guidance next quarter once our lower cost structure has had more time to operate. We expect to capture approximately 15% of our 2024 adjusted EBITDA, together with interest income and principal proceeds in the first quarter, increasing to approximately 20% in the second quarter, 30% in the third quarter and 35% in the fourth. Customer additions are expected to be more back-end. Weighted was 15% in the first quarter 25% in the second quarter and the balance evenly distributed over the second half of the year. This is mainly due to our new channels as well as growth in accessory and service only sales. Thus, the back-end weighting will be more driven by accessory loan and service-only customers.
As of December 31, 2023, 90% of the midpoint of our total 2024 targeted customer revenue, interest income and principal proceeds was locked into existing customers as of that same day, respectively.
We have updated our liquidity forecast for 2024 and are introducing guidance for 2025 and 2026, which can be found on slide 13. We now expect to generate enough cash in 2024 to provide the working capital needed to hit our growth target for the year, while keeping our cash position relatively flat. This will be accomplished through a combination of securitizations and sales net of operating costs.
As we exit 2024, we expect to achieve an annual run rate of cash generation between $200 million to $500 million. This significant increase in cash generation beyond 2024 is a reflection of our pricing changes and can be further enhanced towards the top end of the range through improvements in treasury rates, ever-tightening risk premiums and final domestic content guidance.
We are electing to sunset our recurring operating cash flow metric in favor of levered cash flows in response to investor inquiries around not just the cash flows from in-service and securitized assets, but the desire to see the value and cost of our superior customer service model, levered cash flows as a sum of expected residuals from all securitized lease PPA and loan contracts, plus all MSA fees plus expected cash inflows from unpledged extracts and grid services.
As John noted earlier, we have continued to focus on cost reductions. However, one area that will continue to retain its investment is our collections department to ensure we are maintaining our low per annum capital loss rate, which is unchanged at approximately 25 basis points.
Finally, while we forecast no need for corporate capital through 2026 for good housekeeping purposes, we will be putting in place a modest ATM in the coming weeks, and we'll update the market every quarter of any anticipated usage. We have discussed this ATM before. And to be clear, we do not intend to utilize the ATM between now and our next earnings call. The best time to put tools like an ATM in place is when they are, in fact, a luxury and not a necessity.
I will now turn the call back over to John.
John Berger
Thanks, Rob. Sunnova is committed to delivering a comprehensive, sustainable and streamlined approach to energy, financing, servicing and management for our customers. We are an adapted energy services company that has an unwavering focus on innovative technologies, integrated energy solutions and quality control, as evidenced by our investments in our global command center and our adaptive technology center, both designed to optimize our operations and provide our customers with a strong customer experience in a world where perceptions are manipulated.
We know there are people selectively crafting narratives that paint a picture that is far from the truth, but we stand firm in our commitment to focus on transparency and integrity choosing to focus on the facts. For example, on slide 15, you will see as of December 31, 2023, only 0.6% of our customers had an escalated concern, an improvement from 1.1% at the end of 2022. Moreover, in 2023, we saw an 80% improvement in our service response time as the average age of close work quarter went from 96 days as of December 31, 2022 to 19 days as of December 31, 2023. This marked improvement was driven by our investments in our customer service infrastructure, which enhanced and strengthened our customer service levels and capabilities.
2024 will be a year of continued growth and transformation for Sunnova with a continued emphasis on cash generation as a top priority to accomplish this. In addition to expanding margins and the more aggressive cost reductions we mentioned, we will look to leverage asset sales as a more meaningful source of cash generation, coupled with increasing our long-term levered cash flows. Our commitment to prudent capital management and shareholder value creation remains unchanged. We remain dedicated to evaluating ways to deploy our capital with an emphasis on both maximizing returns on capital and exploring opportunities to make returns of capital over time. We will continue to evaluate the optimal allocation of our capital resources and will not hesitate to take advantage of attractive opportunities in the capital markets and in our rapidly changing industry.
As we look to the remainder of 2024 we are excited about what we are seeing. While there is no denying that what we are doing is difficult at the end of the day, we are transforming the energy landscape challenging the status quo and offering customers greater choice to help meet society's ever-increasing energy demands.
With that, operator, please open the line for question. Thank you.
Question and Answer Session
Operator
(Operator Instructions) Philip Shen, Roth MKM.
Philip Shen
Thanks for taking my questions. Hey, John.
Just now you highlighted asset sales a number of times. Can you give some more color on what this means? I know you have a lot of securitized loan assets on balance sheet. My guess is you would not touch any of that? Can you talk through your view of what you would do ahead? Are there any current assets available for sale?
And additionally, what is the magnitude of asset sales in 24 and 25 that is contemplated in your guidance and outlook? Thanks.
John Berger
Yes, Phil, thanks. No, I don't we could possibly look at Pratt's securitizations that probably would be more in the TPO side of things would be my guess. But and we are exploring some some of those. But I think primarily in our plan, it's really the loans both the solar plus loans and the accessory loans. And we've looked to see if we could sell those assets.
I think that's pretty clear that we can't I would expect to see some of those asset sales in the course of this year. It's not even close to the majority of the cash generation that we've laid out. That is primarily through our TPO and securitizing well through our asset cautious, given the spread that we're realizing and have been realizing for the last few quarters starting to come to into play, so to speak, as we move towards being able to securitize these assets primarily in the back half of this year, just given the timing. But it's possible to have that in the latter part of the second quarter and third quarter. So is it primarily on the cash generation side?
Securitization proceeds is assumed. Obviously IDC adders are part of that. And once we get domestic content guidance, those that's why there's a range there. Those cash generation for each securitization could go up meaningfully. We do have a very conservative tax equity or ITC. percentage compared to peers as assumed in this. So it could be quite a bit meaningfully higher than the bottom end of that range. And then that could be supplemented with the loan and accessory loan sales.
Rob, anything to add?
Robert Lane
Well, I mean that pretty much covers it like you said. So we've got some phenomenal long term securitizations with some really good pricing locked in at rates that you can't hit today and with advanced rates that you can't it today. So it wouldn't make sense to really touch most of what we have in our securitizations already.
Philip Shen
Great. Thanks, guys. For shifting over to OpEx, it looks like the adjusted OpEx went up meaningfully in Q4. Clearly you're seeing the benefit of that in your customer service quality metrics. You talked about lowering this by 20% per customer. Can you share what the outlook is specifically for the customer service and sales and marketing line items, which were each quite high on an absolute dollar basis in Q4. Can you talk about how these line items may trend and scale ahead?
Thanks.
John Berger
It feels so some of this is and we've attempted to give more visibility by breaking out direct sales. And that is some of the a good portion of the sales increase. It's still a small small minority of our origination, but it does stand out as far as the sales and marketing growth on the service side, I've talked over the last few quarters about catching up on the service levels that we have promised our customers, we've done that now and then some.
And so we'll be able to once we've cleared that backlog, which we've done will be we're seeing a cost reduction on a per customer basis, that's pretty meaningful. And so you'll see that, as I said, peak in Q4, outside some bonus payments, we paid bonuses to employees in Q1. We are already seeing some pretty meaningful cost reductions this quarter and last few months. I expect that to continue to accelerate in Q2 and beyond, but it's too high. There's no question about it, and we're bringing it down meaningfully and slowing growth.
Clearly, you can see that in the capital budgets we've laid out for 24, 25 and 26. That helps us to meaningfully cut costs as well and then bring in the automation. That's been something we've invested in as part of the spending, a big part of the spending and expect to start realizing some of those efficiencies are a lot of those efficiencies as soon as this quarter.
Philip Shen
Great. Thanks, John. One last one here. You talked about the potential for a modest $100 million ATM. On the one hand, you're saying you don't need corporate capital, but then you have this announcement. Can you share more on your thinking in terms of the rationale and timing and also how you plan to address the upcoming 26 convert maturity?
Thanks.
John Berger
Yes. So like we said in the prepared comments, really this is just good housekeeping, Phil. We've been talking about this publicly since at least the second quarter of last year. We plan to update the Street on our intended use, but we're putting it in place now because we don't intend to use it now. And we frankly, we wish we'd have done it a long time ago. So wouldn't be an issue but it is so we're just making sure to get it done.
The second thing on the converts are paying on the converts is still to be able to refinance both the converts and the high yield bond and then to use the excess cash generation that we're planning on getting over the next few years had to pay down. So first is use cash to pay down. And second is to refinance the second part of it. So between those two, we expect to be able to refinance and lower our overall amount of debt that we have on the balance sheet pro forma for that, I think it was brought up with some of our peers as well. The cost of capital that we have is still really, really low in the timeframe that we have. And this is paper that's not due until 2026, the right time to be addressing and refinancing it is in 2025. But the right time to start preparing for it is now, and that's what we're doing with looking at the cash generation and with other things that we'll look to do along the way to trying to decrease that burden as we get closer to the maturity date.
So first, John, I just wanted to highlight a few things we have the ability to generate levered cash flows off the existing assets. We did not lever all the way through the asset. And so that's providing meaningful cash flow that frankly no one else has. And then we're also generating through securitizations and asset sales. In my answer to your first question, additional cash. And so we have two ways to generate the cash to pay down the debt, and that's what we're focused on. Is it doing just that, John?
Philip Shen
Rob, thanks very much for all the color. I'll pass it on.
Operator
Yes, our next question comes from Praneeth Satish from Wells Fargo. Your line is now open. Please go.
Praneeth Satish
Thanks. Good morning, guys. Just wondering if you could maybe comment at a high level on competition that you're seeing in the financing space, are you seeing any financing only companies offer aggressive or irrational pricing impacting your strategy in any way?
John Berger
Yes, it does, John. We are seeing some of that. I it doesn't last very long. I think there's maybe one player or two in particular that is doing that. But the market I'm surprised been around the market for a while a long time. And I got to say the stickiness on the price increases that we and our peers have been able to put forth as surprised me, too in a positive way.
So I think the market is clearly very healthy. And we always have one or two folks that want to come into the market and then decide to buy market share. We certainly see that now that always ends in the trail of tears. And there's no reason why that that would be any different here.
But it on the margin clearly we're taking share. We continue to we're projecting that out, although slowing growth really to generate the cash. But and so I don't really see it impacting our operations much at all on, we continue to see a surprising amount of pricing power.
Praneeth Satish
Got it. And then I wanted to get your general view of how spreads could trend over the course of 2024, you had a roughly 6% implied spread now, but you'll probably continue to enjoy some tailwinds from declining equipment cost and tax credit. So I guess just holding interest rates constant, would you expect the spread to widen over the next 12 months? Or are there other kind of puts and takes we should consider now?
John Berger
I think it's quite likely it will. And so if you hold the rate constant and we're seeing some reduction in the risk premium, I think that that does continue to come in from what has been what has been historically a really high spread that materialized in 22 and 23. And even without that, though, I think you're hanging in the 6% plus or minus and made me a little bit north word for a couple of quarters or so this year. But again, the price pricing power has been pretty sticky. And I expect that to continue.
Praneeth Satish
Okay. Thank you.
Operator
Our next question comes from Julien Dumoulin-Smith from Bank of America. Your line is now open, please.
Tanner Di Lello
Good morning. This is Tanner on for Julien, but I just wanted to ask a quick question about the EBITDA guide. Is there an assumption for 2024 for gain on sale through loan portfolio monetization? Or is this pure upside and terms of the stated guy and I do expect this opportunity to be predictable in the sense that as we progress through 2024, you could begin to provide a target for asset sales or monetization in the year over a certain period, a certain period of time? Thanks.
John Berger
Yes, that's really upside. I think that as we get more visibility into the market and market appetite, we'll be able to give more information. You could do it really in two ways you can do it lumpy or you can do it to programmatic forward flow type of programs. And I think that now as we enter into those programs, that disclosure will help will help season that guide a little bit.
Tanner Di Lello
All right. Thank you very much.
Operator
Brian Lee from Goldman.
Brian Lee
Hey, guys, good morning. Thanks for taking the questions on and then maybe just a follow-up on the asset sales on if I look at slide or is this one on 13, you've got the 200 million and then $300 million of cash generation in 25 and 26, no asset sales that are being embedded in those forecasts? Correct?
John Berger
Correct. Very little of that on the margin. If you look at some of the loans, there could be something on the margin there, but very little that's primarily if not wholly securitized as well as the leveraged I-Flow's.
Brian Lee
Okay, great. So John, if you are on our base casing and I know asset sales, it sounds like you'd be opportunistic. If you do start to kind of more programmatically, sell down assets and monetize them. Would you your first, I guess, included in the cash generation metric? And then two, how additive could it be? Are we talking like hundreds of millions of dollars a year? What kind of upside to the two to $300 million figures on this slide could could we be talking about iPhone? It does asset sales started to show up?
John Berger
Yes. So if you look at the cash flows that we've laid out, I think for the first time for the first time on slide 4, that shows pretty meaningful as you move forward in time, as we've been talking about the last several earnings calls, cash generation after paying all the debt service off, right and tax equity. So there's that there's a meaningful amount. I mean the cumulative nominal levered cash flows, almost $5 billion. So there's quite a bit there that we could do. And that's another avenue of if we wanted to do it, it makes sense to essentially pay down the corporate debt, whether that say the converts or the or the bonds down the road. So it gives us and again, having these contracted cash flows gives us an enormous amount of optionality.
I think there was anything meaningful. Rob, you can correct me. I think we would break it out for you all to show that but that would be if we did see something that was a material amount. We want to go ahead and call that out there.
Brian Lee
All right. Fair enough. We'll stay tuned on the second question I had was again on this slide. You've got the investment in systems. It's growing kind of like 10% to 15% in 2025 based on these numbers on what sort of growth are you embedding in that forecast for investment? It just seems like there's a lot of cost deflation that we know about happening right now. So the growth in investments seem to see no fairly meaningful unless you're implying. Is there significant growth into 25 next year or maybe there's a mix element in there to just any color there would be helpful on what assumptions are baked into that?
Thanks, guys.
John Berger
Yes, if you look at it, the CapEx, which includes all of our spending on anything that we spend on IT CapEx, our software to deliver our service, our service costs, our overhead, G&A and sales costs. That's all in those numbers. And so when you look at it's roughly about $4.21 billion, 4.84 0.8. And so you're looking at very little to your point 10% to 15% growth from '24 to '25. So we are and then flat from '25, '26, we are being intentionally slowing the CapEx growth.
I have said before in the last earnings call, I like where we were in that four to $5 billion CapEx range. And I just want to sit here and generate some cash at this point, particularly given where our debt's trading corporate debt is trading and where the equity is trading. So I like where we are and we're just going to focus on how do we cut costs and expand margins and generate the cash.
Brian Lee
Yes, John, I guess on I was talking more on like the customer growth side. So you're doing 100, 85 to 100, 95,000 new customer adds this year on that $4.2 billion, $4.3 billion base of investment, presumably 4.8 next year would go a lot further given some of the cost reductions you're making as well as your own cost deflation you're seeing on the hardware side. So trying to get a sense of 10% to 15% growth, you're modest in investment what does that kind of translate to in your growth assumptions for on new customers or however, you're quantifying?
John Berger
Yes. Okay. So we haven't given out obviously customer growth guidance that far out just for this year. So roughly about 190 came in roughly at about one one 42, just a little north of that for last year. And so you can you can obviously the simple math there, roughly about 31% customer growth. The CapEx is roughly about 20% customer growth. And so I do feel like because of our different channels, the strong uptake in battery only sales, upsells and load manager, sales, EV charger, et cetera, and these different channels that we now have, I think that will continue to have our customer count grow a little faster than our CapEx growth. And the other side of that or the reason for that is what you're pointing out is declining equipment costs declining YPC., you basically get more for your buck it per customer. That's also going to contribute to having a little bit higher customer growth and CapEx growth of FNF.
Tanner Di Lello
Makes sense.
I'll pass it on.
Thanks and thanks.
Operator
Ben Kallo from Bart. Your line is now open, please.
Ben Kallo
Hey, good morning, guys. Bob, just real quickly on the asset sales. Just just what are you seeing, John Schwab in the private market and your So how does that impact your decision on sales? Just valuation, if you could talk a little bit about that?
John Berger
Yes.
So we look at the private market pricing, you look at it third party buyers and we look at the securitization market, we put them one out next to the other. And what we see is that they have they have different expectations that can make the pricing of certain loans more attractive for securitization and others more attractive for sale. So really it's an optimization game for us.
And then the other thing that is an impact for us is the healthier channel and that allows us to be able to securitize certain loans that might be flat if we were to sell them, hoping can bring some cash if we elect to securitize them instead. So it really is an optimization game. And we spend a lot of time of my finance team and the pricing team. The marketing team has been a lot of time together to trying to make sure that we're pricing optimally and then we're tranching ultimately for the right as for the right outcome.
Ben Kallo
Thank you, John, you mentioned in your prepared remarks, just the carnage in the marketplace, but that's the right word, but how does that affect you positively or negatively of interest and so negative impact to Badger, but could you just talk about the health of the industry and impacts you?
John Berger
Yes. Yes, I don't think I use that term, Ben. But yes, it's been a challenging year. Yes. Look, obviously, we out executed everybody last year across the value chain and deliver the numbers. And and I think that kudos goes to all the folks at Sunnova and our dealers for really just a great year now we want to focus even more about how do you get a lot more efficient, stay in this range of CapEx of 4 to 5 billion and generate the cash just given where, again, where our corporate debt securities and equity is trading.
And that gets into that, there's an overall clearly negative and cloud over over the industry, whether it's from the debt markets, credit markets or the equity markets or sometimes in the media, we've seen that. So I think that's overall just a unfortunate and cloud that at some point will blow away and because the reality, even when you look at California, which were not big in California that made that point over and over, but just looking at California, I think they're surprising strength there. I know there is the numbers when you run the numbers make a lot of sense why? Because utilities jacked up rates like crazy in the last 12 months and we're continuing to see that across the country.
So you're selling into a industry that is increasing rates despite natural gas prices plummeting to historic lows and orders of 50%, 19%. Just in the last week alone, three major utilities announced rate increases 15% and greater. So selling into that kind of market where you've got despite fuel prices dropping or at least going sideways in the case of oil, it is pretty interesting to do.
And the other side of this, you've got stabilization of cost of capital kind of in the worst side of things, if you will, maybe improvement and you have equipment pricing, that's clearly a declining and then you've got additional incentives through the IRA that are yet to be employed, specifically the domestic content, ITCR. So all of this is if you look at the numbers, you look at what's going on, yes, it's difficult to move when you have a name change that is brought in as significant as what California did and that causes a lot of pain because people need to change innovator. And now you have to sell a battery.
How do you do that, that that just doesn't happen like a light switch people, some people adapt faster than others. And so I think overall, the fundamentals are really good across the industry and the the ability to see that through the headlines, negative headlines is very challenging. What that means for those that continue to execute like Sonova this is a great time. This is the kind of time where you can really gain market share. It's not just us.
Obviously, there's another peer doing it as well and pick up a good business and generate a lot of cash that frankly couldn't do in the heyday when everybody was happy, which seems like a long time ago, but three years ago, or so two, three years ago. So a great time fundamentally and this too, shall pass, but we'll come out the other end of this much, much stronger with new technologies, cheap cheaper storage and better customer service.
Ben Kallo
And if I could sneak one in just Bob, thank you for that. You saw coming into election year. I know we're still early, but how are you judging risk or assessing risk and you had an election year, if you could just talk about that and what your policy before you bet.
John Berger
I'm not trying to stay away from politics. I'm not going to say, you know, who would we prefer and so forth. Look, I think what's interesting is for the first time that I've ever seen this and been as long as I've been in this industry, we don't really need anything. We don't we just need what the IRA. is provided to stay intact largely and when you look at the amount of investment in manufacturing plants and even customer growth in the so-called red states, it's pretty phenomenal.
And I don't think that you can listen to some of the message points, if you will, from some parts of the political spectrum. But at the end of the day, I just don't think that this is going to go away in terms of the IRAN. is provisions.
If anything, just being located in Houston, I will say that there's more activity on the hydrogen and carbon sequestration in our area than I've ever seen by multiples and very large companies, so-called conventional energy, oil and gas, conventional power are now fully engaged in the array. So I think it's I think we're in a we are certainly have energy policy. It's in place. And I don't think regardless of the election outcome that that's going to change.
Thank you.
Operator
Our next question comes from Joseph Osha from Guggenheim Partners. Your line is now.
Joseph Osha
Yes, thanks and good morning, folks. Two questions.
First, I'm wondering if we could drill down maybe a little bit more on the two converts with they are trading at the levels that they're trading at is the plan are really to just sort of pick away at them now with free cash and take the majority of them out when you refi or I'm just wondering if I could get a better sense as to what your plan might be for taking advantage of the prices that those two instruments are trading at? And then I have one other question.
John Berger
Thanks, Joe. This John.
Yes, I mean, we have a lot of optionality.
We have delivered cash flows. And we expect to generate more cash as we securitize and lumber through the cost of the asset with the ITCR.s, et cetera.
As of how do we go about doing this and obviously you pointed out the converts are trading at a very attractive level. It is entirely possible that we do look at buying some of those in of those. What I want to do is we want to execute over the next few weeks and then look to see what our options are and look to see where the market is and then make decisions accordingly.
But we do have a number of options, including as we've answered a couple of questions on this call already, the ability to sell some of those levered cash flow assets that have been paid down debt because they've been in place the securitizations in place for years. So we've got a number of weapons, but it's not lost on us that the debt's trading at a very attractive level and are my primary focus is to make do generate the cash to pay. We pay that debt down and then whatever's left as it makes sense, we can refinance it as Rob said earlier, Rob, anything you want to add to that?
Not only to your point, we just want to be responsible stewards of capital. And at some point that's going to mean repurchasing in the open market and another for parts of the corn. I'm making sure that we continue to just build up cash, but we will we've got optionality between now and later in 2025, which would be the prudent time to go ahead and refinance does note.
Joseph Osha
Okay, thank you.
And then my other question, I wondered are your one of your folks said to me at one point talking about the dealers in making working capital available to dealers that he said have got we are not a hedge.
I'm curious, as you look at your customer adds this year, how it breaks down in terms of new dealers coming onto the platform or existing dealers expanding their footprint, just in the context of some of the pressure that the financial pressure that exists on dealers out there and your emphasis on on preserving working capital and cash?
John Berger
Yes, Joe, yes, there's been a couple of stumbles on some dealers. Quite candidly, we saw those coming because the what we have in terms of processing systems experience. For instance, duration holdbacks is something that's another implemented Years and years ago. It's now become an industry standard given the last couple of years.
So I think it's a clear that we know how to manage that risk better than anybody else period full stop, and we're going to continue to do that. And when you look at where our growth is yes, we have a lot of new dealers coming on board. They are scrubbed a lot very closely on the financial side of things. So we failed quite a few of them.
Joseph Osha
And has that failure rate gone up over the last year?
John Berger
Yes, it has. So we are we do have, if you will, a high-graded dealer versus the entire marketplace or industry, and we're going to continue to do that. But we see very large demand coming from competitors and so forth for dealers to come onboard with us. And we easily replaced any of those that we lost I mean, very easily replaced. So we feel like we're in a good spot financially. We understand the risks, we're managing it and we're seeing the growth and we're high-grading our partners as well as you would expect.
Operator
Our next question comes from Mark Strouse from JPMorgan. Your line is now open.
Mark Strouse
Yes, good morning.
Thanks for taking my questions. Just a couple of quick ones, I think for Rob. So I fully appreciate the greater than 20% reduction that you're targeting in pro forma OpEx in 4Q, though the pro forma OpEx was a bit higher than what I think was implied in the guide.
Can you just kind of talk about what drove that.
And then the second question is just the ITC. sales in your 2024 EBITDA. I think you said on the last call that was going to be about 15% to 20%, correct me if I'm wrong, but just looking for an update there. Thank you.
John Berger
Yes, no, absolutely. So we did the breakout of our adjusted OpEx you could see that in the back of our deck, one of the drivers, some of the increases that adjusted OpEx was the increase in direct sales, and that's really a driver in the second half of the year. And there were other drivers as well. But some of that had to do with part of the year end push that we had part of it as well had to do with some technological improvements. And part of it had to do with what we were doing internally to help move along some with and just some stuff that we have to expense ourselves and don't actually put into EPC that helps to get more systems up built into service.
So a combination of those things, I mean, if you look at the guide, I think we're talking about 20%, give or take as a combination of the adjusted EBITDA plus the P. And I think that we're still looking at that, the base case that we have calls for somewhere around 35 to 40 million of ITC. sales per quarter on a go forward basis, we could certainly exceed that. And that is going to be a function of partially how quickly we're able to deploy our leases and PPAs.
And especially as we get later on into the year on what type of ITC. and tax equity partners we're bringing along the transferability is really opened up this universe to a lot of folks, but we tend to find is that a lot of them like the economics of ITC. transferability. They make a few pennies on the dollar to do the transfer, but then they look at the economics of tax equity and it becomes much more attractive to them. And so our goal is to continue to trade to convert ITC. are buyers into tax equity partners on a go-forward basis.
Operator
Our next question comes from Kashy Harrison from Piper Sandler. Your line is now open.
Kashy Harrison
Yes, good morning and thank you for taking my questions. So my first one is on the liquidity forecast slide. Does this charter to assume a 7% cost of debt? And then can you guys give us a sensitivity framework for changes in the cost of debt to the net change in cash forecast?
John Berger
Yes.
So what I'd say is that this is assuming the current cost of debt environment, we're not we're not assuming any improvement in the risk-free or any improvement in risk premium. Although we are seeing risk risk of a risk premium improvement, it does take into account the cost cuts that John highlighted, and it does take into account our current pricing as well. So we're able to take advantage of better pricing. That's certainly accretive to those numbers generally speaking, I would say that if you look at this capital budget, about every point of additional advance that we would get on our debt would give us somewhere around 45 to $50 million of additional liquidity. And then if you look at advanced rates, I would say that you're probably talking about seven seven points of advance for each point of interest expense. So at each point, each point of interest rate improvement or degradation. So right now, the risk-free came back up to about a book of 4.3. It's come back down since then there's still the belief that it goes down further in the year, if you were to see a one point improvement in the risk free with that, anything else changing, we would equate that to about six or seven points of improvement in advance rate, and that would translate into another at about 45 to $50 million. You could extrapolate out to another 300 million of cash generation whole, assuming that pricing held steady.
One thing cash is John, I would add that the assumption of the ITC. adders. And this is very conservative relative to others, I would say low low 30s all the way across. So any sort of upside potential there with domestic content is going to move that these numbers up quite meaningfully.
Kashy Harrison
I appreciate that it will since you brought it up, can you give us a sensitivity on on the C as well?
I mean, somewhere it was 32 to 40 would be our kind of maximum. It may be too conservative given some other commentary that I would say we haven't considered anything north of 40?
John Berger
Yes.
I mean most this is running at about 32. So if you got up to 40, you would call that a 25% increase in the tax equity proceeds and pretty much everything else, your debt, my debt proceeds would go down, maybe a little bit on that. So call that a net 15% increase that we'd expect to get on on the total tax equity less the any change in the recourse debt. So it's not a lot going to be, call it, 225 to 250 in this capital in this plan. Now there could be other additional guidance and it depends on where we end up deploying. But one thing that's been very gratifying to us is that there does appear to be a really strong push for building domestic content. And there done tends to be an appetite for people to want to use domestic content. We just need to get the final rules and the nature of that, that the rules actually allow us to fully utilize it. So at this point, domestic content is really not even in this plan. This is really a reflection of energy communities more than anything else based on where we are. We're building what we're targeting.
Kashy Harrison
Appreciate all that color and then just my quick follow up question. Spreads are they're back to 600 basis points, which I think is pretty close to where you guys were prior to the Fed beginning to hike and presumably other experienced players in the market are benefiting as well from wider spreads. How do you think about the upper limit specifically? I'm wondering what do you think that point is at which the spreads become so why that competition comes in and then we're back to that 600 range with that 800 to the 900 to 1,000. Just trying to understand when competition comes in and pushes it back to normal like a normalized level?
John Berger
Thank you, Dennis and John, I would say yes, we've been consistent saying that and stated again in our prepared remarks that we believe that the long-term spread is 500 basis points and that's 500 basis points on an unlevered basis. So you obviously lever these assets up and that can be quite meaningful spread. And when you look at our history, we've topped out something at closer to 700 for maybe one quarter, it was above two or three quarters 600 and above.
And so I think somewhere in that 6 to 700 range is probably the peak. And again, we've laid out for years that we felt like it would be 500 to the long-term average. And that I don't see any reason why that wouldn't be the case now is the only reason why it wouldn't be the case, is it more competition drops out of the market for at least a period of time, it could expand further, especially if you get a pretty big decline and the risk-free and more importantly, the risk premiums quite suddenly maybe brought on by a recession or something of that nature. And given our strong paper performance we have seen investors wanted to flock to it versus some of the other paper markets and that could widen it out further than what I've ever seen. But I think right now where we are maybe a little bit more towards 700 is probably what I would consider would be peak.
Operator
Our next question comes from Sophie Karp from KeyBanc.
Your line is now, please.
Sophie Karp
Hi, good morning and thank you for taking my question. I was wondering if you could give us a quick rundown on what different markets in the U.S. look like in the current environment in terms of demand trends and where you see the highest grow geographically and which ones can do you consider unsalable right now and for the foreseeable future.
John Berger
Sophie, this is John. We're seeing pretty strong growth across the board with the exception of California. That's probably I'm certain that it's more about us. Most of our the vast majority of our California businesses are new homes channel, and we do have plans to improve that region and we're so small in that region on the retrofit market that would be pretty easy to increase market share there. The rest of pretty seem pretty strong growth in the islands and those markets have continued to mature and we've been building out and started those markets like Puerto Rico, for instance, your over a decade ago, the Northeast Mid-Atlantic seems to be doing pretty well.
I would say general trend growth, solid growth. And but what we're seeing is a lot of growth in the South and then some of these other states that we've historically never had that much of anything and some of that is going to be enabled by our Home Depot relationship and some of the other dealers that we've been able to bring on. So it's a it's something that we certainly have been a bit surprised about. And that market, I think, went decidedly from loan to TPO fairly quickly and gains continued to gain traction. And so there's just not that many folks out there as you know, with the with a lease or PPA. So that is helpful. And then maybe along the lines on the partnership with Home Depot and other channels, you guys have can you give any thought to addressing structural sales costs for customer acquisition costs, I guess and in your in your markets is the knock on the economics of the U.S. solar spin higher customer acquisition costs are going to eat into that. So I was wondering if you guys have given this and your thoughts and strategically, how can you address that at some point in the future?
Yes, we are actually with retail. We have addressed it. We do have a fundamentally different model. Again, this company is very focused on its dealers and that is what we've built the Company built the Company on, and we're going to continue to have that focus on that business model and then going into the retail channels and specifically, you asked me about Home Depot that is dealer driven. So we have a very different perspective than model than what others have done and are doing in the retail channel it's been very successful for us financially for our dealers financially and for our partner retail partners financially. So we have changed that model up and it is working. And I think I'll take the rest of time.
Operator
Our next question comes from Pavel Molchanov from Raymond James. Your line is now open. Please go.
Pavel Molchanov
Thanks for taking the question at the risk of delving a bit into politics on us, so to speak. You obviously had the letter from the Congressional committee about Healthia that was several months ago. Can we just get an update on that whole loss situation?
John Berger
As for the? Yes, most unfortunate, it's very clear. Politics are at play, but to be clear that that letter was directed at the Department of Energy and the loan program office, not us. Obviously, we're and I mentioned, but we're not subject to any investigation at this point in time. And look, what I would say is I'm just going to focus on having us do a better and better job of serving customers. There's always ways that we can improve our customer service. There's always ways that we can improve our quality control or consumer protection. We've got plans that we've put out put forth about how to improve consumer protection. It mandating service. I think the states and the Fed federal government audit mandate service with a creditworthy companies, service companies like ourselves. We've been calling for that for years. So we're going to focus on doing a better better job for our customer. And again, there's always something we can improve on and we're going to focus on doing that. And we're going to leave the on the noise, shall we say to two others to deal with.
Pavel Molchanov
Okay.
Fair enough. Can I just follow up on M&A? You've been asked a lot about sort of selling assets. I'm curious.
Yes, in the current industry conditions. There are any corporate M&A opportunities for Sunova as a company, particularly when it comes to entering new geographies.
John Berger
It's a good question, and we do see some attractive asset purchases that we're taking a look at. We haven't executed on anything yet, but we have seen that and we see more of it, particularly in the business market side of things that may be pretty interesting to do.
On the terms of the corporate Act, M&A, obviously, we can't comment anything specifically, but right now, I think it's really we have all the growth we need, we need to make sure that the growth comes in at the highest possible cash generation possible. So I'm not really looking to do anything at this point in time, we don't need to it. Candidly, that was one of the reasons just shutting down the international and some of the other moves is we don't need to do it to get the growth that we need to generate the cash. So we just need to we need to stay focused on generating the cash and then doing some of these other things and they'll be there down the road because nobody else is able to really expand and exploit those opportunities right now, either. So I I don't see anything on the horizon but there's always a possibility.
Pavel Molchanov
Thanks very much.
Operator
Our next question comes from William Griffin from UBS. Your line is now open.
William Griffin
Yes, great.
Good morning and thanks for squeezing me in here on my first one, just was wondering if you could touch on O&M costs, how you're seeing those trends relative to what's embedded in your customer value assumptions, particularly in light of your enhancements in response time and service levels that you discussed here?
John Berger
Yes, John, yes, we see the cost per customer coming down rather quickly.
We have been putting a lot of IT in place, new processes. We clearly have a new leadership we brought in over a year ago, and that's been a tremendous improvement. So the way I'd put it is we wanted to get effective the best in the industry at service. We think we have done that now doesn't mean that we can improve to go into that question. I just answered from the gentleman. But yes, we see a lot of opportunity to improve our cost structure on the service side of things, and we're realizing that. So we expect quite a bit quite large decreases in even greater than the 20% on the service cost per customer as we're moving forward, really from here on out, and I'm quite confident we'll achieve those.
Perfect.
William Griffin
And just the last one for me here.
You gave a pretty wide range on the cash generation guidance exiting 2024.
Could you walk us through some of the puts and takes that would get you to the higher end versus lower end of that range.
And then is that going to be more cost of capital driven or more a function of growth.
John Berger
There's a couple of things that will get us there. One is a better ITCR. guidance. If we get the domestic content, there's a significant uplift, we would assume we could get there. The second is if we can continue to see the contraction of the risk-free sorry, the risk premium, we've seen a risk premium come back down, but it's still much, much wider than it was even three, four years ago when this was still a pretty nascent industry and was enjoying very tight margins on the risk premium. And then the third obviously is the risk-free, if that comes in, that's a benefit.
And then finally, I would say it depends on the magnitude of asset sales. If we can accelerate some asset sales, then that would end up being accretive to that cash number as well. And we could frankly, we could blow through the target to I mean, there's nothing that's really keeping it artificially at that number. But we're I'm not trying to be irrationally aspirational with that with that range.
William Griffin
Got the precious time. Thanks very much.
Operator
Donovan Schafer, Northland Capital Markets.
Donovan Schafer
Hey, guys. I want to follow up with I forget who was the someone else asked about customer acquisition costs and and know with the Home Depot and the way you approach that. It sounds like you have proactive actions and measures and things that you take to address it, but I'm curious if you can talk more generally about the overall kind of industry trends there right now.
So I think one ParAllele that comes to mind and it just it just kind of raises this question and makes you kind of contemplate, but you guys are probably the best ones to have an answer in the EV in the market for commercial or sorry, for consumer EVs, there has been sort of slower growth than maybe people are initially thinking the idea that well, you had the early adopters and then maybe some kind of intermediate wave of adopters. And then you have a third or fourth wave is, is it getting a somehow a bit more difficult somehow? And so I'm wondering if there's anything that you guys have seen at all, and that's and if that has had impacts on customer acquisition costs, just any kind of commentary around there?
It would be helpful.
John Berger
Certainly, I think when you look at our overall strategy being an adaptive energy services company, we're selling multiple serve energy services and services to customers. That's been a huge benefit to us in terms of profitable growth, and we expect that to continue. And so specifically as well as storage pricing as battery pricing continues to plummet downwards. And that is enabling us to go back and upsell our existing customer base quite a bit. And you can see that over the years that we've done that better than anybody, frankly, and then we have additional items like EV charging load management that's really coming to bear on this pretty interesting. And some of the the other items that we offer in roofing and generators and all of that is really got a pretty strong uptake.
So I think one, just how do you margin stack and think about expanding the EBITDA per customer, the cash generated per customer. We've been doing that. That goes to our services per customer metric. And so we see a lot of opportunity to really drop our customer acquisition costs, but just minding our current customer base and delivering them better and better services as products come on the market that are better and cheaper, frankly, on the overall organic growth outside adding new customers that continues to be where we're taking market share. And I think some big portion of that is our product set is the widest and the best in the industry. We feel we hear that a lot from our dealers and more people that are more dealers that want to come on board and be our dealer.
And so I think it's really about the products that we offer, the service services become something that not nobody, but us talked about to now everybody's talking about it and how do you have great service, how do you get that power to flow, not just for the first few weeks after the install the first six months of the contract life, if you will, that how do you do that for 25 plus years and having the best service and then being able to sell service only even is expanding the marketplace quite nicely.
So we focus on service we focus on delivering these new products with our OEM partners, focus on delivering better products, hardware cheaper than I think the market will continue to expand and the cost of acquisition will continue to go down. And we're seeing some of that in some of the southern states in the in the middle part of the country states. And so again, there's a lot more good things happening in the marketplace then I think obviously that most to speak up today with regards to the capital markets.
Donovan Schafer
Okay. That's helpful. And then just a follow up if we you guys have always stood out as you have the presence in Puerto Rico on some other islands and even kind of maybe more southern markets and less so say, California compared to some other peers. So I'm wondering in terms of the LMI adder for the IT, the tax credits and the IRR and the energy communities that are you finding like you kind of like luck of the draw like you you're finding out in hindsight, gee whiz, if you like, I look at California in California, you're probably not going to have quite so many low or middle income.
Home owners, you know, you have a lot of low middle income residents in the state, but that property now house prices are so high. And it's not as often you're going to get an overlap between homeownership and somebody sort of physician and associate economic sense, whereas, you know, maybe somewhere like Puerto Rico or parts of Texas or other your other island nations and markets you've been in the past and similar thing with the energy communities. Yes, I'm just curious if I think of oil and gas companies that had so much acreage held by production. And then the whole shale revolution happened. And it was like, oh, my gosh, they're sitting on a goldmine. Yes, they didn't know, are you seeing any like things like that from known geography, just when you look at like LMI and energy communities?
John Berger
Yes, that's an insightful question. The answer is yes, you're right.
Okay. Okay.
Donovan Schafer
Thank you. I appreciate it. I'll address my questions offline.
Operator
[Heena Mandloi, Mesirow].
Heena Mandloi
Hey, thanks for squeezing me in on. Just a question on asset sales versus ATM. And they said none of those are planned into the guidance for 2020. But in your talks today or what you're seeing which look more attractive here and how should we think about asset sale pricing?
We keep hitting low to mid-teens for high-yield tranches from some of the asset it manages, but just curious what how you're thinking about pricing.
John Berger
Thanks. We think about pricing holistically, we think about whole stack pricing and where does it make sense to sell assets and thinking through the entire stack versus the fully burdened unlevered return. And it's not really an either or when we're looking at the ATM and the asset sales the asset sales are a function of what's more attractive to us, what's going to yield a better cash return and better liquidity? Is it an asset sale or is it a full-stack securitization? Or is it a securitization with monetizing the residual the ATM?
Like we said, that's housekeeping. That's not meant to be in there. That's not something we're looking at to be using. This is something that we just said have been saying for a while. It has been a request of the Board for much longer than that that we go ahead and put into place an ATM. And again, good housekeeping and the best time to do it when you don't need to do it.
Heena Mandloi
And then just a question on the guidance here at the end, the prepared remarks, you kind of talked about not changing at this stage and maybe in the next quarter, we'll revisit it. And what's the upside like it's mostly on the the OpEx cuts, anything else we should look for? And and how much of tax credit transferability is in the EBITDA guidance at this stage?
John Berger
Yes, sure. Like I said on the EBITDA guidance, we've got about about 30 to $40 million of ITC. sales per quarter in there. So fairly modest and less than what we had produced this year. We could certainly do much better than that, but it's not a big part of the guidance. And then we have gone through the budget process, but part of what we want to make sure is to see how this market starts to develop to see how we do with lease and PPA growth versus loan growth as well as making sure that we can roll through and grind out a lot of the cost cuts that we've been doing and see what to see, we can get some additional impact and uplift there. So we don't necessarily expect guidance to change, but admittedly, it's pretty wide range out there. So we're hoping to be able to maybe tighten that up a little bit and get a bit more granular there.
Heena Mandloi
I appreciate that.
Thank you.
Dylan Monsanto, Wolfe Research.
Dylan Nassano
Yes, hey, good morning. Thanks through time. Know we're running a bit long here.
So just one quick question for me. So you said on the prepared remarks that you may update 2024 guidance once you see our cost cutting and playing out. We've laid out some upside cases for EBITDA. But I'm also wondering, is there a scenario where customer additions may be a bit lower as we reduced the gross unit growth initiatives. Any elaboration on that comment would be appreciated and Thank you.
John Berger
Is John. Yes, possibly. But I think we feel pretty good about where this range is I would say that we had as we cut our cotton CapEx down from the Q3 call for this year, we clearly had customer additions north of this range in our plan. And so I think we're just coming back into plan. So we feel pretty good about where we are. Again, we have the ability with the accessory channels and the other services to be able to sell more or grow customers faster, as I mentioned earlier, than our CapEx growth.
So right now, we feel pretty good about our trend here we are seeing more and more pickup on growth as the quarter goes on. So that's a quite nice to see for obviously us, but also the industry as well. And so I think we're I think we're going to have a better year overall as an industry than people think. And certainly we're on track to what we feel like is going to be at yet another. It's a record year for us.
Dylan Nassano
Great. Thanks.
Operator
[Sasha Parfenov, BMO Capital Markets].
Sasha Parfenov
Hey, thanks for squeezing me in on. I think in the past you guys kind of targeted a 60% debt to cap ratio, and we've been a little bit north of that the last couple of years.
I was just wondering, it means that ratio you've got more ability to kind of add more leverage given the size and decreasing size of the overall entity or the asset sale is going to be designed to kind of bring you back towards that 60%.
John Berger
And that's kind of what we're kind of trying to drive.
Yes, you're right. So we've been targeting that 55 to 60, and we're about 68 million pegging there for the last few quarters. We're on a long term target is to bring that down in the 55 60. So again, primarily focused on generating cash and paying down debt. So even with selling of assets and monetizing, I would expect to see that be a net reduction of debt it or wouldn't necessarily make that much sense to do. So we're going to bring that down. I think that's a good call out and it's something that clearly it's my thought.
Yes, top focus, but.
Sasha Parfenov
Okay.
And then, Mike, something within kind of the loan portfolio and you guys talked about kind of what sorts of assets would be more, I guess, make more sense for you to kind of potentially look at monetizing. Can you just give us a sense for like how like what's the what's kind of the notional value of that weather loans or TPO on the marginal origination that which has not been securitized yet?
Yes.
John Berger
So we've probably got not quite 1 billion within in service and within our warehouses right now on loans, it probably will generate another, call it 1 billion of net origination over the course of the next 12 months. So that's that your pool of existing assets that we could go after action absent a pickup in loan origination.
Sasha Parfenov
Great.
Thanks pitching that.
Thank you.
Operator
Concludes the Q&A portion of today's call. I will now hand back over to John for any final remarks.
John Berger
Thank you. We are going to continue to aggressively pursue cost cuts to improve our operating leverage. We're going to continue to expand our margins. Most importantly, we're reaching scale and we are prioritizing cash generation.
We look forward to updating you on our execution as we work to deliver excellent energy services to a growing number of customers around the country and to deliver returns to our shareholders.
Operator
Thank you for joining us concludes today's Sonova Fourth Quarter Full Year 2023 earnings conference call. You may now disconnect your lines.
