Greetings, welcome to the Sunrun acquisition of Vivint Solar conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference call, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Patrick Jobin of Investor Relations. Please go ahead.
Thank you, operator. Yesterday evening, Sunrun announced it had entered into an agreement to acquire Vivint Solar. The details of this transaction can be found in the press release issued at approximately 10:00 P.M. Eastern Time yesterday, along with an 8-K filed with the SEC. Before we begin, you should be aware that our discussion and responses to your questions may contain forward-looking statements related to Sunrun, Vivint Solar, and the acquisition of Vivint Solar that involve substantial risks, uncertainties, and assumptions that could cause actual results to differ materially from those expressed or implied by such statements.
All statements other than historical facts included in our discussion, including but not limited to statements regarding the timing and closing of the transaction, the potential benefits and financial impact of the transaction, Sunrun's and Vivint Solar's plans, objectives, expectations, and intentions and financial condition, results of operations in the business of Sunrun and Vivint Solar, and any assumptions underlying any of the foregoing are forward-looking statements. Although we believe these statements reflect our best judgment based on factors currently known to us, actual results may differ materially and adversely from those anticipated to reflect circumstances or events that occur after these statements are made.
Please refer to Sunrun's and Vivint Solar's filings with the SEC and the filings that will be made in connection with the transaction with the SEC, including the joint proxy statement/prospectus for more exhaustive discussion of risks or other factors that may cause our actual results to differ from projections made in any forward-looking statements. You may read and copy any reports or other information filed or that will be filed by Sunrun and Vivint Solar at the SEC Public Conference Room in Washington, D.C. Please call the SEC at 1-800-732-0330 for further information or the Public Reference Room. Sunrun and Vivint Solar's filings with the SEC are also available to the public from commercial document retrieval services at the website maintained by the SEC at www.sec.gov. Okay.
The presentation today will use slides which are available on Sunrun's investor relations website at investors.sunrun.com and Vivint Solar's investor relations website at investors.vivintsolar.com as well. On the call today are Lynn Jurich, Sunrun's Co-Founder and CEO, Ed Fenster, Sunrun's Co-Founder and Executive Chairman, Tom vonReichbauer, Sunrun's CFO, and David Bywater, Vivint Solar's CEO. Today's call is open to security analysts, investors, and the media. After the prepared remarks, we will take questions. The operator will provide instructions for the Q&A queue at the conclusion of the prepared remarks. In the interest of time, we ask that you limit yourself to one question and one follow-up during the Q&A session. Let me turn the call over to Lynn.
Thanks, Patrick. I'm excited to share with you this morning that we have reached an agreement to acquire Vivint Solar in an all-stock transaction. The transaction is a stock-for-stock exchange. Vivint Solar shareholders will receive 0.55 shares of Sunrun common stock for each share of Vivint Solar. Pro forma, Vivint Solar shareholders will represent approximately 36% of Sunrun. The enterprise value will be approximately $9.2 billion, with a market capitalization of approximately $4.5 billion. We have big ambitions for what we can accomplish together. The combination will generate consumer and shareholder value through cost synergies of approximately $90 million annually and increase customer reach. As a combined company, we already have nearly 500,000 customers and will be a leading owner of solar assets globally. Despite this meaningful scale, we are just scratching the surface of our opportunity.
Today, only 3% of households have made the transition to home solar, and yet surveys show nearly nine out of 10 people in the U.S. favor expanding the use of solar power. Vivint Solar's experienced direct-to-home consumer acquisition model is complementary to Sunrun's current sales channels. We've been incredibly impressed with David and the team's commitment to the highest quality sales consultation process and installation quality. Together, we will be able to reach more households and raise awareness of the benefits of clean energy with solar and batteries. At a larger scale, with more customers and lower cost structure, Sunrun will be a meaningful contributor to a fully renewable and electrified energy system. Our growing fleet of solar homes and batteries will be networked to provide greater benefits to the grid.
Generating energy at the point it is used reduces the need for dirty energy being produced far away that is increasingly expensive to transmit. With Sunrun's help, our customers have already and will continue to help shut down inefficient carbon-producing power plants. Our 20-plus-year customer relationships offer future opportunities to fully electrify the home through additional products and services. For example, electrical vehicle adoption increases electric demand and offers expanding customer margins through larger solar systems. We will carry the torch as the industry leader to provide the best offerings and to deliver the best customer experience. Turning now to the short term. Both companies are currently tracking above prior expectations and have adjusted well to selling and installing in the COVID environment.
Sunrun's second quarter will beat our previous volume indication of 30% year-over-year decline. Additionally, Q3 is coming back nicely as our order volumes are nearing pre-COVID levels in most markets. Sunrun continues to expect to maintain a strong cash balance and to grow net earning assets in 2020. While we remain cautious on the near-term environment and will always prioritize the health and safety of our field employees and customers, I believe both companies are in a strong position to safely provide essential energy services and will emerge stronger as a result of COVID. Like Sunrun, Vivint Solar has adapted to the current environment, accelerating digital lead generation efforts, and providing a contactless selling and installation experience in most instances. Both companies are emerging stronger from this transition, including setting the foundation for structural cost reductions and improved customer experience.
I'd like to close with thanks to our hardworking and committed Sunrun employees and our excitement to welcome the Vivint Solar team. Sunrun has led the solar industry in diversity and inclusion efforts, career development, and total rewards. As a combined company, we can now offer employees even more opportunities and solidify our position as the best place to work in the solar industry. I would now like to turn the call over to David Bywater, Vivint Solar's CEO.
Thanks, Lynn. Vivint Solar and Sunrun have long shared a common goal to bring clean, affordable, resilient energy to homeowners. I believe that together, we can more rapidly empower families to take a meaningful step toward energy self-sufficiency and play a pivotal role in building energy-resilient communities. It is this opportunity to accelerate the adoption of distributed solar energy and to help modernize our energy infrastructure that makes this combination so appealing. As this process has progressed, it has become increasingly clear that the combination of Vivint Solar and Sunrun is the best way to create value for consumers, shareholders, and our partners. The combination of our two companies will allow us to reach a broader set of customers and accelerate the pace of clean energy adoption and grid modernization. It will also allow us to share best practices in customer service, operations, and installations.
This should result in faster, more efficient, higher-quality installations, which will increase customer satisfaction, as well as reducing costs. As Lynn mentioned in her remarks, we are performing above our prior expectations and have adjusted well to operating in a COVID environment. We have innovated, adjusted, and quickly learned how to serve our customers, providing a contactless selling and installation experience in most instances. Our focus continues to be on providing the best end-to-end customer experience possible, from initial sales consultation through quality installation and superb customer service for the life of the system. I believe that bringing our two companies together will further enhance our capabilities to deliver the most innovative products and services to customers in the industry. I am excited to help lead the integration of the two companies and to facilitate the merging of the best practices from both organizations.
To do this in an orderly, time-expedient manner will be a difficult task that will require the combined efforts from numerous people in both companies. I am confident that we will achieve our desired results and that our customers will quickly realize the benefits of our efforts. I have already reached out to the leaders across Vivint Solar, and they are excited to begin the process and see the end results. Our sales leadership see the opportunities presented by being part of a larger organization that will have a combined broader product set to meet customer desires. Our installation and operation teams are excited by the challenge of serving a much larger customer base and the efficiencies that will be gained.
Together, our two companies will help accelerate the adoption of renewable energy, modernizing our energy infrastructure, and bringing a brighter future to households, the communities in which we operate, and to our shareholders. Let me now turn the call over to Ed.
Thanks, David. Like Lynn and David, I'm so excited about this transformational opportunity. We just have amazing prospects working together to make a bigger impact for our customers as well as society. As Lynn mentioned, we're going to come out of the gate with half a million customers combined. That already makes us the third-largest owner of solar in the country, in any and all segments. At our growth rate, we have a clear path to being number one. We'll be able to raise capital more efficiently. We'll be able to offer better and more affordable products and services to our customers. With more customers and a lower cost structure, we're going to be able to make a big impact shaping the future of our electric system, ensuring that it is renewable, smart, and distributed. As the industry leader, Sunrun has enjoyed capital cost advantages.
By joining arms with Vivint Solar, we expect to further our advantages in two ways. First, we'll be even more regular issuers of debt securities, which should drive down our capital costs. Second, with our combined size, we will more easily appeal to investors with enormous minimum check sizes, such as pension funds, who often enjoy a lower cost for capital. Over time, these advantages will benefit our customers and shareholders while allowing us to accelerate the adoption of affordable, renewable energy. I'm also excited about the pro forma capitalization of the company. Both companies already have strong balance sheets, and combined will be even stronger as we optimize our project finance activities across a larger platform and asset base. Both companies enjoy strong project finance runways.
We shared in May that Sunrun's prearranged financings provide capital to fund at above 90% of contracted project value, approximately 220 megawatts of leased projects. We subsequently raised additional tax equity, again, at materially the same terms as pre-COVID, taking our prearranged committed project finance capital to approximately 250 megawatts of high advance capital for leased projects. This is measured as beyond what we had deployed at Q1. Vivint also has closed recent debt and tax equity commitments and has 185 megawatts of high advance capital arranged as of the end of June. I believe we can lower the cost of capital further and accelerate the adoption of residential solar. With that, I'll turn the call over to Tom.
Thanks, Ed. I'm excited by the magnitude of synergies we can realize through this acquisition, which will allow the combined company to operate more efficiently and reduce the cost to the consumer of going solar. As a result of similarities in our businesses, we expect to deliver meaningful cost synergies estimated at $90 million on an annual basis. We see opportunities across the entire cost stack. Let me highlight a few examples to make this more tangible. First, more than 95% of Vivint's branches are in overlapping locations with ours, with more than half of those within 10 miles of our location. Between consolidating into one of the existing branches or moving into a new right-sized location for each area, we believe we can eliminate approximately one-third of the total locations between the two companies. This would allow us to save on rent and branch overhead expenses, for instance.
Second, we will be able to eliminate redundant spending through IT platform consolidation in areas like our ERP, CRM, and HR information systems. Within these areas, we're equally excited by the opportunity to design and build the right tools for the future of Sunrun as part of this cost reduction effort. Third, we see opportunity to deliver cost benefits by scaling our proprietary racking technology to a larger number of customers, as well as through improved sourcing capabilities within the solar and storage supply chains. Finally, we will see scale benefits from shared corporate functions, including accounting, HR, legal, and policy, in addition to the costs associated with being a public company.
Some of these costs will have a long tail due to existing agreements, and it may take 18 months to deliver the entire run rate savings of approximately $90 million, but we expect to see meaningful savings within 12 months. We expect to spend approximately $100 million in one-time integration costs and accelerated investments in R&D and technology to deliver the annual recurring benefit of $90 million. In addition to cost synergies, it's worth reinforcing a number of other benefits to increase value creation from our larger scale. The potential to sell batteries to existing solar customers, including Vivint Solar's nearly 200,000 customers. A larger footprint of solar and battery assets increases the value of what we bring to our grid services partnerships and should strengthen our ability to deliver considerable value in that business. We'll see increased efficiency in capital raising.
Finally, the opportunity to build an even stronger and more recognizable consumer brand in residential energy services. Now we'll open the call for Q&A from analysts, investors, and media. Operator, please provide instructions to join the Q&A queue. As a reminder, please limit yourself to one question and one follow-up.
Thank you. We'll now be conducting a question and answer session. If you'd like to be placed into question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. Once again, ladies and gentlemen, that's star one if you'd like to be placed into question queue. One moment, please, while we poll for questions. We do ask you ask one question and one follow-up. Our first question today is coming from Brian Lee from Goldman Sachs. Your line is now live.
Hey, everyone. Good morning. Thanks for taking the questions. Congrats on the deal. First question I had was just on the overlap in direct-to-home. How much of Sunrun's customer originations come from this channel versus Vivint's today? How do you guys think about this as a viable or valuable channel given the COVID pandemic uncertainties? I had a follow-up.
Thanks, Brian. I'll take that one. I'm sure David may want to augment. It's incredibly complementary. We have almost no direct-to-home exposure through our Sunrun sales force. That's one of the reasons why we are so excited about the two companies coming together, is that we think it's particularly on the sales side, I think it's definitely a one plus one equals three situation. One of the reasons we got even more excited about it is we have been tested through this COVID time period. Both companies have exhibited incredible resilience and pivoted to digital, to more entrepreneurial working of their networks. A bunch of efforts that will be improvements to customer acquisition costs going forward that we were forced into. Both companies are delivering above where we expected. We think it's a very important sales model.
We think that it got even more durable through this test by really pushing people to be more digitally and hence more cost effectively. We're pretty excited. David, did you want to add anything to that?
No, I think you captured it really well. It's just the logical fit. I think Lynn and I have talked so many times about how these things fit together so well. The complementary nature of the respective strengths of each organization is like, it's almost like a storybook, where you'd design this and put it together if you were the master planner here. That's exactly what's happened here. I think our sales force, where direct-to-home is the vast majority of our sales. We have incredible competency in that capability around just how we sell the productivity of our efforts. Our team is so excited for the combined strength.
You think about the additional products and services that we'll be able to integrate into our selling efforts and how we can delight the customer base even more, both the installed customer base and the prospective customer base. I echo what Lynn said. We're delighted with the logical and emotional benefits of this combination, and we think it's going to be really well received by all shareholders.
Okay, great. Maybe this one's more for Tom, assuming most of the $90 million shows up in your unit economics, it implies, I guess about $0.15 lower cost per watt from realizing the synergies. Is there any reason we don't see that come through penny to penny on the cost per watt metrics? What does it mean for one, the ongoing NPV per watt generation, and then two, beyond the immediate synergies, what organic cost reduction do you guys think you can achieve annually under the new combined entity? Thanks.
Yeah. While we're not providing sort of detailed line item perspective on where all those costs will show up, there's obviously a lot of benefit across the entire cost stack. I think after we get through the period of one-time integration costs, you'll be able to see that clearly flowing through our results. On top of that, as we had alluded to on the last call, we saw the potential for roughly $2,000 per customer of cost reductions over the coming time. We're still in a cautious position with respect to COVID, and so not updating any guidance there, but remain confident in our ability to deliver both on that and on the new $90 million target.
Thanks. Our next question today is coming from Julien Dumoulin-Smith from Bank of America. Your line is now live.
Hey, good morning, [Keith], and congratulations to you all. Well done. Perhaps just following up on the last question here, if I can. With respect to the $90 million, again, I know you don't want to get into too much detail, but can you really dig into at least just some of the buckets that we should be expecting? I know Brian was trying to ask if this is going to show up and where it was going to show up in the geography for financials. Even a broader question would be just what are the buckets that you're allocating to get to that 90, if you can help break it out? The subsequent follow-up here would be: how do you think about the financing synergies that are potentially realized in this separate and beyond from the $90 million?
If you can talk to that, whether in the context of refinancing or re-upping existing commitments, et cetera. I'll leave it there.
Happy to give a bit of color and then we'll have Ed offer some commentary on the financing side. Within that, as I alluded to in some of the comments earlier, we see opportunities up and down the entire cost stack. A couple of examples we highlighted there around fixed costs within our branch operations. We see opportunities potentially within the supply chain itself on direct material costs. The increased volume and throughput through our branch footprint will also lead to better utilization of cost there and improved efficiency on some of the variable costs related to install. Further down, there's similar benefits within our sales and marketing efforts through increased density and throughput within a given region. Even further down, looking at a lot of the structural fixed costs within G&A, we see big opportunities.
I hit on a couple of those around IT and technology spending, some of the fixed costs related with being a public company, and sort of other corporate functions. Ed, you want to hit the financing side?
Yeah.
Yeah. Great. It's a great question. We expect financing synergies to come in a few areas, sort of regular way financings, just general leverage, finance is an area of high operating leverage, and then also on the refinancing side. In sort of the regular way financings, some of the key benefits which I alluded to in my comments earlier, are that we're able to increase in certain areas of our capital activities the sizes of transactions, which will make them more appealing to certain of the world's largest investors, which heretofore their minimum check sizes have potentially been larger than the typical transactions that even we've been able to accomplish. Particularly in the senior debt markets and probably most specifically in the ABS market, lenders reward frequent standardized issuances in those markets.
The ability to do more transactions that are a little bit larger and that have commonality in their structure and their customer contracts should lower our cost of capital in that area. Obviously, the project finance activities of both businesses have historically and going forward would expect to benefit from enormous operating leverage just in terms of the costs are fixed per transaction size. Very few things in the world scale as efficiently as capital matters. Finally, also on the refinancing side, yes, the scale of all of that becomes larger. The ability to transact on those sorts of transactions has less lag time. We expect to see improvements on that side of the capital activities as well.
Got it. No definitive timeline on that financing activity per se? That's clearly not included in the 90?
There's obviously, I would say a very, very small percentage of that is in the 90. Anything that comes in the form of lower actual interest costs or things like that would be in addition to the 90.
Thanks, guys.
Thank you. Our next question is coming from Michael Weinstein from Credit Suisse. Your line is now live.
Hi, guys. Hey.
Morning.
Hey, good morning.
Good morning.
Can you sort of indicate what is the total combined OpEx and CapEx for the combined companies, and how does that $90 million figure compare to that? Just trying to get a sense of the size of the cost cutting.
Yeah. The $90 million is roughly 4% of the combined company's total spend, which is partly why we feel very confident in the positioning of $90 million right now.
Great. Is it coming mostly from OpEx, I'm assuming, or is it mostly CapEx?
This is definitely heavier on the OpEx side.
I'm assuming that by combining two companies, you're really not getting a lot of cost savings on the actual system costs, right? I mean, downside system or module type costs or installation costs. It's mostly on G&A? Would that be a fair characterization?
There's definitely more in G&A, there are things on the operational side. An example we touched on a bit earlier is scaling our proprietary racking technology. This is something that Sunrun had built in-house and delivers savings on things like installation labor through a more efficient design. You can see things showing up in non-G&A areas as well. There are going to be some areas for improved sourcing capabilities across the supply chain on modules, inverters, and batteries. We're excited about the opportunity because we're seeing these cost synergies show up in really every element of the entire cost stack.
Maybe.
Michael, this is Lynn. I would just add to that as well. Again, a lot of the cost driver is your sort of density around your local branch which this certainly helps. We're in similar markets, the solar markets of course. Just driving more density through that fixed cost helps as well as more return on advertising and marketing spend.
Maybe you could comment on the timing of the transaction. What's your sense of, is the industry ready for more consolidation? Is this the beginning of a new thing, or is there some reason why consolidation should be happening at this moment?
I think that everybody, for this transaction to us, I can't comment really broadly on what other people's strategy are, but it just felt like now was a perfect time because we have been through the COVID test. Both companies were tested and proven. The businesses are so complementary. There's a mandate to continue to lower costs as we step into a lower ITC environment. The timing. Both companies, I think, have grown to really respect each other and build complementary cultures. It just, for us, this was the right time to pursue this. We can't really comment on what our competitors may be doing.
Okay, great. Thank you very much.
Thank you. Our next question today is coming from Katherine Blunt from Wall Street Journal. Your line is now live.
Hi. Good morning, guys. Congratulations.
Hi, Kat.
Hi. I was hoping you might describe what you're seeing in different markets and how you're navigating different markets as they begin to open up. Are you guys trying to kind of get back to pursuing various in-person ways of selling, at least here in the near term as you sort of push toward a more digital transition, or are you already seeing ways to shift that strategy here in the near term even as things start to open back up?
Yes. What's been consistent is that we are deemed an essential service.
Right.
First and foremost, we follow the local safety guidelines, they can vary a bit from market to market. In the majority of markets right now, we are able to do our in-person selling and install efforts. In some markets.
We still are restricted from that, and we've adapted very well to moving the sales process digitally. The installation process in markets is deemed really an essential service, and it's quite safe because you really have only three to five people on site.
They're primarily outside. They follow safety protocols. In terms of consumers' willingness to engage on this product, the product is also appealing in this environment. People are feeling. They're at home, they're using more energy, they're investing in their home. Even what we're seeing, they have more time, so they're interested in having a conversation about this.
The theme that they want to be able to protect their family and take control of something in a world where everything feels out of control, really strongly resonates. We think that that's where the value proposition of the battery really starts to come in, and this could be a real turning point in terms of people's interest in pairing the solar system with the battery.
Particularly in the California markets with the wildfire season coming up. Again, that's another sort of revenue synergy with the two companies, is that our attachment rate on batteries is higher than Vivint, and that's something that I know their sales team is eager to get out and start selling as well. I would say it's very local how you operate, but we've been able to manage and adapt to each local requirements. Again, we think the value proposition is just only increasing that much more during this time.
Sure. Thank you.
Thank you. Our next question today is coming from Mark Strouse from J.P. Morgan. Your line is now live.
Good morning. Thank you very much for taking our questions. Congrats on the deal. Just curious if you had a chance to vet the deal with any of your existing grid services partners. Do you expect any of those existing deals to be expanded post-deal? Obviously get the long-term play here, just curious for those existing deals that you have when we could potentially see those enlarged.
Absolutely. There's no activity on the existing deals right now other than these are mostly forward-looking deals where we're sort of filling up the demand for whatever the grid services target is. This gives us another tool to add assets into it. I think where this will come into play on the existing deals is when we launch retrofitting, adding batteries to existing solar systems of both companies, and then attaching those to markets where we have grid services programs. I think more exciting, as you alluded to, going forward, we're going to just have that much more scale and ability to deliver significant assets to a utility or to a grid.
Okay. Yep, makes sense. Just a quick follow-up to an earlier question. Is there any change to your dealer strategy? I get the complimentary direct-to-home sales that you're getting with Vivint, but does that impact any of your dealer partners? Are you expecting any churn there?
No, it really doesn't. We think it just enhances the value to our deal partners. Again, given how fragmented this industry is and given the uniqueness of Vivint's direct-to-home sales channel, we see very little overlap currently in terms of Vivint. When we look at how many customers receive a contract from a Sunrun and a Vivint or a Sunrun dealer, very little overlap. We think just, again, the brand benefit and scale benefit, and the additional products and services we're going to be able to invest behind and the lower cost of capital will all be a win for our dealers.
Got it. Okay. Thank you very much.
Thank you. Our next question today is coming from Brian Eckhouse from Bloomberg News. Your line is now live.
Good morning, everybody. Given the huge market share you'll have post-merger in solar leasing, are you concerned about any potential antitrust issues going through the merger?
Hey, Brian. This is Ed. We're confident this transaction is going to be viewed positive for consumers. Obviously, we're cooperating with the regulatory process to work to close it as promptly as possible. It benefits consumers, the industry, our company, utilities, society. There are more than 10,000 solar companies in the U.S. with an industry presence in all 50 states.
There are multitude financing options for folks buying those systems. Even stepping back more broadly, the residential solar industry represents about 2% of electricity generation, which is the key component, frankly, in all of our pricing models, utility pricing. We're just very confident the market opportunity is so large that this is a win for consumers, which is obviously the core focus of those sorts of agencies.
I will note, Brian, I believe you've published many articles about loans and leases competing against each other. In our mindset, I think you agree with that statement based on the prior work that you've delivered, I believe.
Thanks.
Thank you. Our next question today is coming from Philip Shen from ROTH Capital Partners. Your line is now live.
Hi, everyone. This is Justin Clare on for Phil today. Thanks for taking our questions. I guess first off, I was wondering if you could talk about the genesis of the transaction. When did discussions begin? What brought about the starts of those discussions?
I'll take this one, [Farhad's] on mute. It's been, as David mentioned, we've long admired each other's work. We've been partners in industry efforts, so the companies have known each other well for many years. There will be more details in the S-4 filing, but it was just clear that as I mentioned earlier, now with both companies being tested with COVID and proving that out and just where each company's maturity sits in terms of our own operating processes, now felt like the right time to pursue this.
Okay, great.
Yeah, I just want to-
Oh, go ahead.
I just want to echo Justin, what Lynn said. It's interesting because when you grow a company and you're out there trying to really be customer-centric and doing what's right, I think there's been this mutual appreciation. We've watched Sunrun's watched us, and over time, you realize that there is just this, you're always just focused on what's the right thing for the consumer. What's the right answer for your shareholders? What's the right answer for your people? When something is so obvious that you can find two complementary organizations that can just move the needle, a step function on delighting customers more and delighting shareholders more and your people more, and you have an opportunity to finally have a conversation.
You have a common vision, you have a common passion, and you literally say, "This is like a puzzle piece that just makes sense." The first time I really talked with Lynn, we both walked away from that conversation just like, "This could be so powerful." It was so logical. It was just so logical. Anyways, we're so excited about it.
Okay, great. Thank you. One more for us on storage. I was wondering if you could talk more about the opportunity to add storage to Vivint's existing customer base. How many of Vivint's customers do you think you could attach batteries to over what time period? What opportunities and grid services could open up as a result of the larger asset base here?
Well, I'll start first, Lynn, on that one, then you can do.
Yeah, go for it.
follow-up on that one. Sunrun has definitely led the charge on this. They've been just the leader in the industry around storage, around the creative solutions, and helping that just pencil for consumers, and it just made sense. Over this last year, we definitely have gained a lot more traction as a group. We're seeing a much higher adoption today, especially during the COVID period, than we'd ever seen before for our sales force. We think there's a tremendous opportunity, not only on our prospective customers, but on our entire customer base. This is all upside, and I think there's enormous lift that will happen prospectively and looking back to our current customers. Lynn, I'll let you add on to that.
Sure. I do think that the combined company has a half million customers. That's not an insignificant number. Three gigawatts of assets on the balance sheet. There is certainly a big retrofit opportunity there. I think you're going to see the adoption rate vary based on market and just the strength of the value proposition again. In markets like California with wildfires, you're going to see a higher penetration. In markets where we have grid services programs that add value, you'll see a higher penetration. I think it's a little premature to be able to call that since it hasn't been out and commercially available in a scaled way. Stay tuned on that, I think. What we're even more excited about is just the go-forward opportunity.
I think storage is even that much more attractive to add on a new system, just given that there's a lot of efficiencies to installing everything at once. We think the even bigger opportunity is to really offer that product to Vivint's direct-to-home sales force in a bigger way. The bigger opportunity is really in the go-forward business. In terms of the grid services opportunity, on the last call, we discussed that we already have $50 million of pipeline of value in terms of the grid services programs that we have. We talked about conversations we're having in California, where we're starting to see a lot of interest in deploying our assets towards the grid. You're going to just continue to see those conversations come to fruition and develop.
This just gives us one more tool of confidence that we'll be able to deliver a significant number of assets into those programs.
Okay. Thanks, everyone.
Thank you. Our next question is coming from Sophie Karp from KeyBank. Your line is now live.
Hi, good morning. Thank you for taking my question. I was wondering if you could speak to any potential sales cannibalization that we should maybe be thinking of, considering the large overlap. Is there such a thing, or would the sales organizations of both companies be strictly complementary? Thank you.
This is one of the key sources of value. We believe it's very complementary. We do not expect to see cannibalization. I think we have a lot of data to prove that, just with the information we have about how many customers are receiving multiple quotes from each company respectively, and it's quite low.
Great, thank you. Maybe as a follow-up, it seems that the cost synergies number is very conservative, considering, again, the large overlap. Should we think about this as sort of maybe the opening estimate that could increase going forward?
No, we're certainly excited about the potential to find more as we go through this, and have a lot of confidence in the $90 million number that we put out today. As I noted earlier, it's only approximately 4% of the entire cost stack, it's potential that there is more opportunity to be found. We need to get through closing the deal and then working through the integration process, which has a lot of heavy lifting. Feel excited about this and are excited to get to work on finding those synergies.
Is it fair to think about this as sort of the first 18 months run rate, and then you will find more opportunities later down the line?
I think there will be a lot of things that we find as we bring the organizations together where there may be opportunities, but this is the guidance that we're putting out today.
Thank you.
Thank you. Our next question today is coming from Iulia Gheorghiu from Utility Dive. Your line is now live.
Hello. Thank you so much. Congratulations. My question is about the policy efforts and the combined efforts that are going to be coming from the new entity. I was wondering what states has Vivint focused its policy research and outreach on, specifically, and how have those differed maybe in the last five years from where Sunrun has focused their outreach, Sunrun having been very present in California and a bunch of other markets in the U.S.?
Well, I'll tag team with Ed on this. We work really closely with SEIA. We have a very powerful team that has been very active, both at the state level and obviously on the federal level. We've always collaborated as an industry. Ed and I and our team and his team have always looked to collaborate at the state level and the federal level. We're focused in the same areas on the same issues. We've always been very aligned on advancing this platform. I don't think that we necessarily have a differentiated focus state by state because we're in the same states. I think our overall geographical footprint, as we mentioned earlier, has been very tight. We do the same analysis on the states. We know the value proposition by customer, by state, and so there's no surprise that we're in those same states.
I think it's been very collaborative to this point. I think there'll be a common focus going forward. Ed, I'll let you add more commentary on that if you want.
I would echo that. Particularly on the policy side, there's strength in numbers. We collaborate with all sorts of people. In some cases, like our work with Vivint, it's basically perfect alignment. Sometimes there are other groups where it's slightly imperfect, and you help them, and they help you, and it's just sort of the way of that universe. Really, our work with Vivint has been easygoing and collaborative and successful historically. I think that'll be an easy and bright spot going forward.
Great. Can you guys add a little more color to what Vivint's focus was previous to this when it comes to grid services, just when it comes to working with state regulatory commissions and state policies to make sure that there's a space for the distributed side to work with utilities, just because I know that Sunrun has been working on a great number of early-stage projects and in different partnerships like that.
Yeah. As we mentioned earlier, Sunrun's been a leader in this space, and got out early, I think really kind of plowed the farm here for us to see a lot of growth over time. In the last year, we have leaned into that much more, chasing grid services opportunities and working on our battery adoption. We have leaned into it and have been working on it and have had some progress and success. Really here, this is one of the great synergies and one of the great benefits. Another example of where these two companies really complement each other. The work that Sunrun's done has been industry-leading, and it will continue to be industry-leading. We will benefit significantly as we contribute to that, as we adopt more and more batteries, and just support and enable the grid services enablement that will happen and should happen.
I think, yes, totally agree, David. Just to put a finer point on how complementary we think this is. If you look at the core competencies of each respective organization, one of the things that Sunrun has led in, and we were the ones to invent the solar as a service business model in the beginning, as really business model innovators and really trying to be at that intersection of how do you create the most value with your products for the homeowner, for the financial community, for the grid. That's really a core competency of Sunrun. We obviously have the operational chops to support that. David and his team have really focused on tight operation, very successful sales force. That combination together is why we think this is one plus one equals three.
Maybe just to put an even finer point on that, particularly as it relates to grid services. As Lynn mentioned, we've been a pioneer in those sorts of arrangements. Those arrangements typically and often are geographically specific. While one of the areas where we have competence is in structuring and entering into and delivering on those sorts of arrangements, one of the places that Vivint has been so successful with its model is also in targeting and creating localized density in its customer bases. The combination of their path to market, which is well-suited to creating density, and our experience on the grid services side, entering into and creating those arrangements is very synergistic.
Thank you.
Thank you. Our next question today is coming from Moses Sutton from Barclays. Your line is now live.
Hi. Yeah, thanks for taking my questions, and congrats on the announcement. How does the platform margin change? Both businesses have comparable unit metrics once measured equivalently on this part of the business. Just assume it's additive. Any thoughts on cash and product sales? Might you step up efforts on cash sales into the rush related to ITC step downs as we sort of saw already in 4Q19 ?
I could take that one. I think the platform services margin, again, it's going to take a bit of time for the companies to integrate. I don't believe what we would see that proportionally changing much. I think that, again, the platform services margin is the margin from our cash sales, our distribution business, and our racking business. It would stay proportional because Vivint would also avail themselves of those products. No major change there. I think in terms of the cash sales, we don't expect any increase. One of the other benefits of the combined entity and the balance sheet is just our ability to safe harbor and preserve the previous year's tax credit. We think, again, that's just going to tip the value creation scale towards the third party-owned model.
Maybe at the end of the year, there's a little bit of a rush up in terms of the cash sales, but we don't think there will be anything substantial or sustaining.
Looks like the run rate savings announced since COVID plus these merger synergies brings you to over $0.40 per watt, let's say, versus pre-COVID levels. Would you agree that this covers most of the effect of ITC step down relative to 2019 standalone metrics? Is that sort of a fair characterization?
Yes, that's a fair characterization. Again, we're being cautious in terms of what happens with COVID and other restrictions and the time it's going to take to realize those, but those are certainly all achievable and on the roadmap.
Got it. Last one, just to confirm from earlier, 250 megawatts and 185 megawatts respectively, or a total of 435 of total funding ability exists right now for the pro forma combined entity. That's based on pre-synergy cost structure. Is that correct?
Correct.
Thanks.
Thank you. Our next question is coming from Colin Rusch from Oppenheimer. Your line is now live.
Thanks so much. I'll just have a single question here, but it's really about the sales and capital cycle for the business. As you guys are coming out of the adjustment in the sales process and combining the two approaches that the two organizations have taken, can you speak to the expected sales cycle and any acceleration in that? Then as you talked about potentially having larger capital partners involved here, should we be thinking about an accelerated cycle in terms of capital deployment? How big a difference do you think that will make in terms of your overall cost of capital and your ability to capture margin with these customers?
I'll take the first one and then turn it over to Ed. Both companies are very focused on improving cycle times because we do believe that that is a major cost driver in terms of reducing the soft cost bogey that's out there. I don't know that in the short term, I don't know that there's going to be material changes there, but it's a shared strategy, and so we're going to continue to pursue the expedited and online permitting efforts, the operational coordination in order to do this. Again, the density around the branch from the combined company can help with scheduling and other items that will tighten those cycle times. It will be a key KPI and an operational metric that we will watch and improve upon going forward. Ed, I'll turn it over to you on the capital.
Yeah. We would expect again, over time, to realize lower capital costs, I think, as we're able to draw additional investors into the market and do more transactions with existing lenders. Obviously, both companies report our margin numbers as a net present value using a weighted average capital cost. That reporting metric wouldn't show an advantage from lower capital costs. However, cash flow generation and future free cash flow would improve as a result of those lower capital costs. We would expect to see that over the medium term.
Thanks so much. I'll take the rest offline. Thanks.
Thank you. Our next question is coming from Gabe Spivak from Walleye Capital. Your line is now live.
Thanks for taking my question. I was hoping you could comment on whether you believe the combination will help you on either from a technology standpoint or from a procurement standpoint in terms of rolling out battery storage systems to end consumers. I'll leave it there. Thank you. Particularly maybe as it relates to, I guess, the competitive landscape against Tesla Powerwall. Thank you.
Yes, it should certainly help. As David had mentioned, Sunrun has been a leader here. Just if we bring Vivint up to our attach rates, that's already a huge improvement in terms of the battery deployments that we have in our fleet. I think even more forward-looking, just to have greater scale and ability to invest in R&D efforts, our ambitions and our vision for the world is that if we're going to decarbonize, the home needs to more fully electrify. That's a win in terms of our customer values because you add an electric vehicle, you need a bigger solar system. You add electric heating, you need a bigger solar system. We would be in position to be able to offer those as the company that has the 20-year relationship.
The ability to get more leverage off those R&D efforts around product expansions is one of the other opportunities we're excited about. That's more medium-term.
One thing I might just add, obviously, we work with a number of manufacturers, including Tesla on the Powerwall. We do offer that product to our customers among others.
Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments.
Well, appreciate everybody joining us last minute here. We could not be more excited. This has been a long process and a fun one. Dave and myself and the teams are excited to deliver behind this. Thanks for joining us.
Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.