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Sunrun CFO on the solar innovator’s stellar 2020 performance

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Solar stocks were higher on Wednesday on the prospect of a blue wave that would lead to the Democrats’ control of the U.S. Senate. Sunrun CFO Tom vonReichbauer joins Yahoo Finance Live to discuss his expectations and outlook for the industry, as well as his company’s stock performance — up more than 400% — in 2020.

Video Transcript

- 2020 wrapped up with a number of very interesting trends in the marketplace. One of the hottest spots for investors was the alternative energy space. Clean energy, and certainly, what we've seen in the solar space. Joining us now to discuss is Tom vonReichbauer. He is the CFO of Sunrun, a company in the residential solar space.

Tom, thanks for joining the show this morning. I'd love to begin by talking about what's happened in the solar space broadly from your vantage point. Investors have gotten very excited about the trade this year. What trends have you guys seen breaking your way over the last year to maybe back up some of that?

TOM VONREICHBAUER: Good morning, and thanks for having me. 2020 was really a phenomenal year for beginning the transformation to a renewable and decarbonized energy economy. In the last year, our business transitioned from a business model that was largely oriented around in-person selling to one that we began to sell virtually, engaging with customers in new ways.

I think we really had the right product for the right moment. Customers were spending more time at home, spending more money on home energy use and the ability to go into a solar, and, increasingly, a solar plus storage offering for their home helped them weather that storm in a pretty meaningful way. And in the midst of that, we acquired one of our largest industry counterparts in Vivint solar and now have over 500,000 customers who feel really well set up heading into 2021.

- Obviously, the growth has been really significant when it comes to number of customers. I do want to ask you, though, about earnings because I know that has been tricky in the solar industry broadly. You guys report net earning assets of $1.7 billion. What does that mean? Describe for folks who aren't familiar with that metric because it's not your typical net income metric.

TOM VONREICHBAUER: Yeah, our business, because we generate solar leases for customers that we retain ownership of looked more complicated than many others. It's worth noting, however, that we've been net income positive for several years running in terms of net income to common shareholders. We include some consolidated interest on our balance sheet that make that more complex.

Net earning assets is basically the portion of contracts that we've generated to customers that we've retained ownership of, so we securitize a portion of the contracts that we generate with customers. That's what we call gross earning assets. And then you put the project level debt behind that, that gets you down to net earning assets. So it's a great measure when you combine net earning assets and our cash balance to look at the aggregate value created in any given year.

- Tom, just staying on the profitability front. You've spent extensive time working at Tesla in the finance department, you worked at Google and Nest as their CFO, so you've seen a lot of these emerging businesses. What has to happen in the solar industry for some of the biggest players to drive sustainable profits over the next few years? What flips the light switch on?

TOM VONREICHBAUER: Yeah, I think it's worth noting that we think there's a lot of headroom from where we are today, but we think we have a really solid business that we're beginning from as well. We're in the early days of a transformation that's going to have broad-scale effects on the way energy is produced and consumed in the US. Consumer spend over $200 billion a year on residential electricity, another $100 billion is spent by utilities on CapEx and we're at about 3% penetration into that industry.

So, from there, we've got a ton of incremental customers that can be acquired. Nine out of 10 consumers think they have a strong interest in the expanded use of residential solar. And then, we need to be focused on maintaining cost discipline and driving margin creation. We think the tailwinds behind that, of rising incumbent utility prices, set us up quite well in order to continue to drive costs out of our own cost [INAUDIBLE], but also compete quite well against the consumer's primary alternative, which is a 100-year-old utility in many cases.

- Tom, one would imagine that you're also hoping for a tailwind of some more favorable policy under a Biden administration. Starting with, again, I'm assuming here, you're hoping for an extension of the tax credits that are set to expire at the end of 2023. From a policy perspective, what do you think is coming, in reality, and what would you hope for from this administration?

TOM VONREICHBAUER: Yeah, we applaud Congress for extending the tax credit just in the final weeks of the year. We got a two-year extension on the current 26% level of the solar investment tax credit. We think there's potential for continued expansion or extension beyond that. There's a handful of things that the GOP are doing, thinking about reducing permitting costs and soft costs within the industry, which were very favorable.

And the good news is that politicians on both sides of the aisle are in support of solar, whether that's for reasons of decarbonizing our electrical system or for reasons of meaningful job growth and economic growth in their jurisdictions. The solar industry employs more than a quarter-million people in the US.

It's been a great creator of good quality, high paying jobs, and we think there's a lot of headroom there. So we see support from both sides of the aisle. It certainly has been great to see the Biden administration pushing on a clean energy message, and we think there's much more to come there.

- And Tom, finally, before we let you go, I just want to ask about the stock crazy run in the last year or two. As part of the management team, how cognizant of that are you, and how much does it factor into your thinking around maybe additional acquisitions you could make when you see, again, shares go from basically 10 to 80 just in 18 months or so?

TOM VONREICHBAUER: Yeah, it's great to see. I think people are aware of it. It's fundamentally a recognition of a lot of progress that's been made over the last 13, 14 years here at Sunrun. Getting more credit for a lot of the things we've been saying over the years, our ability to withstand step-downs in the tax credit, reduce our costs, improve our margins.

The fact that we think we can continue to raise project level capital at really low rates. I think we're starting to see that people are getting in tune with the reality of how large this market opportunity is and applying a reasonable multiple to the clear industry leader here, who has a lot of growth in front of it.

So, much more to come. It's great to have that currency in your back pocket, but very focused right now on executing on the Vivint integration. That deal just closed about three months ago, and so a lot of work underway there, and we want to stay focused on the task at hand.