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Edited Transcript of VSLR earnings conference call or presentation 9-May-19 9:00pm GMT

Q1 2019 Vivint Solar Inc Earnings Call

Provo Jun 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Vivint Solar Inc earnings conference call or presentation Thursday, May 9, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dana C. Russell

Vivint Solar, Inc. - CFO & Executive VP

* David H. Bywater

Vivint Solar, Inc. - CEO, President & Director

* Rob Kain

Vivint Solar, Inc. - VP of IR

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Conference Call Participants

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* Brian K. Lee

Goldman Sachs Group Inc., Research Division - VP & Senior Clean Energy Analyst

* Colin William Rusch

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

* Philip Shen

ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst

* Praful Mehta

Citigroup Inc, Research Division - Director

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Presentation

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Operator [1]

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Good afternoon. My name is David and I will be your conference operator today. At this time, I would like to welcome everyone to the Vivint Solar Q1 2019 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. Rob Kain, Vice President of Investor Relations, you may begin your conference.

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Rob Kain, Vivint Solar, Inc. - VP of IR [2]

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Thank you, operator. Good afternoon, everyone and welcome to Vivint Solar's first quarter 2019 financial Results conference call. Joining me today to talk about our financial results are David Bywater, our Chief Executive Officer; and Dana Russell, our Chief Financial Officer. This call is being webcast and a supplemental investor deck is available on the Investor Relations section of the Vivint Solar website at investors.vivintsolar.com.

In addition, we will discussing both GAAP and non-GAAP financial measures during today's call. We have provided non-GAAP to GAAP reconciliations in our earnings press release that was issued earlier today, and this press release is also available on the Investor Relations section of our website. Please note that a replay of this call will be available within a few hours of the call today. After management's remarks, we will host a Q&A session.

During today's call, some of the statements we will be making constitute forward-looking statements within the meaning of the federal securities laws, including statements regarding our guidance and our expectations for our business, finances, operations and markets. Accordingly, we wish to caution you that such statements are just estimates based on current expectations and assumptions regarding future events and business performance and involve risks and uncertainties that could cause actual results to differ materially.

We refer you to the registration statements and periodic reports that we file with the US Securities and Exchange Commission from time to time, which are available on our website, identify important factors that could cause the actual results to differ materially from those contained in our projections and other forward-looking statements. We undertake no obligation and expressly disclaim the obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.

With that, I will turn the call over to David.

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David H. Bywater, Vivint Solar, Inc. - CEO, President & Director [3]

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Thanks, Rob and good afternoon everyone. Let me start by saying we're very pleased with our first quarter results. Since we just released fourth quarter results on March 5th, we will keep our prepared remarks today brief. For the first quarter, we were slightly over the high end of our guidance with approximately 46 megawatts installed versus guidance of 43 megawatts to 45 megawatts.

Our unit cost was at the low end of our guidance at $3.46 versus guidance of $3.45 to $3.52. The steady, but accelerating performance is a tribute to our team of great employees and partners who are passionate about the power of residential solar and our vision of creating a forceful means to offer renewable energy to consumers, while creating economic benefits for shareholders, investors and customers.

We are encouraged by our execution and we continue to focus on running the business in a responsible, disciplined way, while we build a strong organization that we believe will continue to gain momentum and will be a force in the renewable energy landscape for decades to come. Our focus is clear and I want to reiterate our objective to be the leader in the residential solar industry with happy customers, high quality, high-performing solar systems and above-market growth rates and enticing shareholder returns.

Solar is becoming more mainstream and will continue to be magnified as a viable option and a preferred path for consumers for their energy needs. It is encouraging to see the growth of solar as we visit cities in the course of business activities, as well as our personal travels. The increasing visibility and concentration of residential solar in key markets is beginning of what we believe is an irreversible shift in sentiment and mindset on how Americans generate and consume energy.

As we discussed last year, we are actively pursuing and investing in additional channels to reach customers. We believe we are on the right track. As we previously announced, we began operating in select retail locations with Home Depot in the first quarter. I am also happy to announce that we recently signed agreements to operate in select locations with Costco and BJ's Wholesale. We are optimistic that a presence in retail locations will help us to reach additional customers.

This is our first foray into the retail setting, and as such, we expect there to be an investment period as we build infrastructure and programs that allow us to capture customer demand with this route. We are just starting to scale activities in this channel and we do not expect significant volume until the second half of the year, as we adjust and adapt our processes to best fit the needs of this channel. We anticipate other retail relationships with national parties who see solar as a product that benefits their loyal customers and provides a satisfying experience to homeowners.

Our partnerships with homebuilders began to materialize with installs in the first quarter. We are excited about the opportunity to address this market. We are starting to see our investments in this route begin to take shape and we expect a steady ramp up in this channel all of which should increase volume in California. The incremental growth of new construction will add to our other routes and should be quite efficient with standard install processes in concentrated locations aiding in the profitability of our partnership with homebuilders.

We are aware of some slowing in the California housing market, but in relative terms and given that all homebuilder activity will be incremental to our volume, we are excited about the prospects for growth and we continue to enjoy better economics in California than in most other areas in the country. Our inside sales team are providing capabilities that we are relying on to deliver incremental volume and value. This channel augments the direct-to-homes sales activity, and is a group responsible for closing leads generated in our retail channel.

This is a lower cost route to market and is becoming a larger percentage of our customer acquisitions. We are committed to building the infrastructure for the future and are pursuing programs to lower cost which will allow us to open up new markets and to make them a viable option for customers who don't have access to residential solar today.

Inside sales is an area of the business that has grown substantially over the past several quarters and we have increased the capabilities and improved our processes. We are encouraged by the enhancements and are looking for additional ways to magnify the efficiency of this organization. Retail homebuilders and inside sales all provide growing routes to market that have the potential to be more cost effective, high volume and standardized paths to customers.

Independent dealers have been responsible for much of our growth occurring in the residential storage space for the past several years. As we previously discussed, we created a model to embrace dealers who meet certain qualifications to sell for us.

This is also a channel that we have spent a considerable amount of time and energy refining and improving. We are seeing improved activity in this area and the first quarter of 2019 was our best quarter yet. We feel we are achieving the right balance and framework to attract high-quality dealer activity and believe our future portfolio will include many more dealer systems as a result.

Our direct sales organization has been the foundation of our business since the inception of the company in 2011. We continue to adapt and change in this area as well. We have adjusted programs and compensation to compete with others who are vying for the same personnel. This competition has created a situation where over the past several years, we have seen an inflation in customer acquisition costs where more of the economics are passed on to salespeople and the returns in some markets have decreased. This trend continues and competition for direct sales personnel continues to be fierce.

As a result, cost for direct sales teams continue to increase. Therefore, we will continue to see some increase in our overall customer acquisition costs separate from the portion of that cost driven by compensation structure related to our dynamic pricing model.

We do believe that other routes with lower costs are emerging and will continue to expand due to customer awareness of residential solar, the current economic environment and the pending decrease in the tax credits. Direct sales will continue to be a meaningful part of our business. And we will meet market conditions where returns are acceptable while educating consumers, investing in new routes and creating the technology required to capture customer demand.

We believe e-commerce, digital marketing, and enhanced inbound interest will accelerate. And we are investing in building capabilities and expect a ramp-up in these areas, similar to the experience we have seen with retail homebuilders and inside sales. We are committed to creating more efficient direct routes to customers that improve our ability to increase returns and provide [sort of] more customers in new markets.

As we are making these investments, we have done a good job maintaining or increasing our project value with higher system attributes and better margins. We hope to continue this trend, while making significant investments both in maintaining our current programs and investing in new, more efficient routes to market. We will keep you updated as we progress and give you outlooks on our key metrics.

As residential solar becomes more mainstream, we expect consumers will find an e-commerce solution to be a mainstay in researching and obtaining their residential solar systems. We believe in operational processes. We believe that our operational process is the best in the industry. I am proud of our improvements we have made, the trajectory we were on and the value we create compared to our competition. No one should buy a solar system from an organization who is not prepared to maintain and service their systems.

We feel there are far too many systems that do not have a sustainable organization behind them and behind those assets where consumers investors will be left to fend for themselves. Small local dealers don't have the capital commitment or capabilities to operate as a credible provider for a long term as market conditions evolve and systems need maintenance or other service. We understand the evolution necessary to educate consumers and much of this will need to be dictated by financial partners who deploy capital to unqualified parties who may leave consumers exposed.

Our investment over time in quality of installed solar maintenance programs and commitment to customers will translate into more volume as consumers become educated and investors understand the exposure to underperforming assets. We want to be a voice of residential solar space, because we believe we lead the market and are committed to providing the highest quality systems with the best customer experience.

Our overall momentum continues to build. There is a lot to be excited about and we feel we are firmly on track with our expectation to grow at above market growth rates. We are optimistic about the second quarter, as well as the second half of 2019.

With that let me turn the call over to Dana.

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Dana C. Russell, Vivint Solar, Inc. - CFO & Executive VP [4]

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As David discussed, we came in just above the high end of our installation guidance while our unit costs were at the low end. With the focus on the best markets, we continue to see improvement in our system attributes with corresponding improvement in our project values and margins. For the first quarter, our project value was $4.51 per watt, a 17% increase over the same period a year ago. The net present value created or estimated margin was just over $45 million, a 29% improvement over the same period a year ago.

On a unit basis, our net present value per watt was $0.99 for the quarter. We increased our net retained value by $37 million in the quarter. On a per share basis, this represents $9.48, up from $7.65 in the first quarter a year ago. Total revenue for the quarter was $69 million, up 2% from the first quarter of 2018.

Revenue from systems where we retain ownership was approximately $40 million, up 27% from the year-ago period. Revenue from system and product sales in the first quarter was approximately $30 million, down 20% from the year-ago period and reflects the decline of system sales relative to our overall installation volume. We continue to expect system sales to represent 15% to 20% of our volume going forward. We've adopted updated accounting standards for leases and these new standards are reflected in our 2019 financial statements.

Per the accounting standard, the changes have not been applied retroactively to the 2018 financial statements. For comparison purposes, we've included pro forma adjusted 2018 financial statements in our investor materials. Please see our 10-Q filed earlier today with the SEC for a detailed explanation of what has changed.

Our liquidity and financial position remain quite strong. We finished the quarter with $288 million in cash and restricted cash. We have $305 million in unused aggregation facility capacity and $30 million in our forward flow [loan] agreement. At the end of the first quarter, we had about 59 megawatts in committed tax equity capacity.

In addition to having sufficient liquidity reserves, we continue to see a great deal of interest from tax equity and debt investors for residential solar assets. We feel positive about the capital structure of our business and we believe we will remain cash flow positive, given our current business practices before considering using any capital for Safe Harbor purposes. As we discussed on our last call, given our strong financial position we see the Safe Harbor as a unique opportunity to maintain or expand our margins as the ITC begins to set down in 2020. The opportunity does come with cost and potential risk that we're carefully considering.

For instance the equipment that we purchased to extend the ITC could become out-of-date or be purchased at lower prices in the future negating some or all the benefit of the Safe Harbor. We'll provide further information later in the year on our strategy and approach to utilizing the Safe Harbor program.

We expect our second quarter install volume to be between 52 megawatts and 55 megawatts. We're also reiterating our full-year guidance of 15% growth. As discussed, some of this growth will be the result of new channels with retail partners and homebuilders.

We're currently investing in new routes to market and building programs, technology and teams to support homebuilders, retail channels and further investing in dealer programs. Some of this investment is occurring prior to the significant installations from these routes.

We anticipate our second quarter cost per watt to be between $3.32 and $3.40 compared to $3.46 in the first quarter.

With that, I'll turn the call back to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Philip Shen, ROTH Capital Partners.

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Philip Shen, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [2]

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You mentioned some new partnerships which sound quite interesting with BJ's and Costco. Can you talk to us about the potential volumes that could come from this as you guys ramp up? I may have missed this, but how many stores are you contemplating in each one?

And then from an economic standpoint, do you expect to maintain the dollar per watt type NPV or because of the volume that might come through from the stores, you might be willing to take a bit of a discount on the economics.

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David H. Bywater, Vivint Solar, Inc. - CEO, President & Director [3]

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It's David. Yes, we're excited about these new partnerships. Definitely some premier names along with Home Depot. We haven't disclosed the total amount of stores yet, but they will be a nice addition to what we're doing with Home Depot. And we think that the state mix is actually a state mix that we're excited about, around the location.

We haven't talked about -- all we've given on the overall growth is the 15% reiteration for the full year as they ramp in. And then I think we'll see even more lift next year as it helps us continue to have a strong growth trajectory next year.

So we're encouraged. Like we said in our prepared remarks, we're early on. So we're just getting ramped up and we want to do it in a measured way to make sure that we're delighting that partnership and that the economics come on within the bounds that we've set. We think that they're actually very comparable with our other costs.

So we're not doing something here that is -- I think that is inappropriate at all. It's very measured, it's very disciplined and the growth in how we're ramping that, we're doing it in a very measured way, which I think is prudent and appropriate. We want to grow at the right rate, at the right margins and do it in a very controlled manner.

I don't know if you want to add anything to that, Dana?

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Dana C. Russell, Vivint Solar, Inc. - CFO & Executive VP [4]

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I think we're excited about -- as we talked about earlier, Home Depot is sort of the first entry into the retail space. And some of those markets and stores that we're in weren't as favorable, some of the other locations that we have with our direct sales activity in the portfolio mix that we have there. These newer relationships and partnerships have a mix more consistent with those retail relation or the direct sales activity that we have. And the economics should be quite similar, so we don't expect there to be a detriment to net present value per watt as a result of that.

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Philip Shen, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [5]

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Great. Thank you both for that color. It's really helpful. As it relates to California, we're seeing all 3 utilities there talk about and working with the CPUC to increase their return on equity as well as rates could go up by 12%. If that comes to fruition and to pass in California, it seems like it could be an attractive opportunity for you guys.

How would you guys think about that higher income and pricing? Would you focus more on growth or would you perhaps capture more of that economic NPV for your shareholders or is some kind of mix there?

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David H. Bywater, Vivint Solar, Inc. - CEO, President & Director [6]

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Thanks, Philip, for that question. I think it's answered by yes to both. We'll probably do both. First off, you know California's just been absorbing a bunch of shocks lately to the consumer level. So I think for them it just further will drive home that every household should be considering alternatives. And we are the best alternative for them to consider. So I think it bodes well for growth.

As you know we grew substantially in California last year, had tremendous growth, continue to see tremendous growth in California and very pleased with that. I think this will just further put more tailwind into each home considering doing it. And they shouldn't wait. So I think that's actually a context that, that will benefit our growth there in that market.

With regards to what we would do, we'll be very thoughtful about helping consumers save money, also helping economics, we will find that right mix.

But by all means, we'll want to capture the growth at the appropriate rate and help more consumers go solar. So it'll be a thoughtful approach. But our goal is to share with investors as well as consumers if those increases do in fact materialize.

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Philip Shen, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [7]

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Thanks, Dave. I'll jump in with 1 more and I'll pass it on. As relates to your forward flow agreement, I think you have $30 million left on that agreement. And back in the outlook, it seems like that might support your efforts through Q2, maybe a little bit into Q3. But can you talk about how much interest you're seeing from the current funding providers or re-upping on this and also perhaps a new set of capital providers that might be interested in that forward flow structure?

And also one last thing, if you can talk about the timing of when that could come, that would be great.

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David H. Bywater, Vivint Solar, Inc. - CEO, President & Director [8]

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Great. Go ahead, Dana.

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Dana C. Russell, Vivint Solar, Inc. - CFO & Executive VP [9]

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We feel like there's a lot of interest actually in doing another. We certainly would like to do another and the economics have been good for us. And I think the ability to manage our cash flows has been helpful. So from a timing standpoint, I think we're in the throes of negotiating and planning for that right now and that we'll have that announcement there I think coming up here in the near future around that. But I do think that, that's worked out well for us and we expect to continue in that type of relationship and arrangement.

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David H. Bywater, Vivint Solar, Inc. - CEO, President & Director [10]

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And [saving] interest.

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Operator [11]

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Brian Lee, Goldman Sachs.

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Brian K. Lee, Goldman Sachs Group Inc., Research Division - VP & Senior Clean Energy Analyst [12]

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I guess, maybe just on the storage opportunity, any updates there? I know you guys are maybe not emphasizing that to the same degree that some of your peers are. And you had a little bit of a hiccup with the Mercedes-Benz relationship out of the gate. I'm wondering what type of traction you're seeing and strategic efforts you have underway as you move through this year?

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David H. Bywater, Vivint Solar, Inc. - CEO, President & Director [13]

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It's David. We're definitely selling storage. We've always been very focused on making sure that we're saving customers money. And so we're thoughtful about doing that. So we're selling storage in California and Hawaii for sure. That will continue. We're seeing interest grow and we'll see more and more and more of that throughout this year.

So we haven't made it a big, big push right now. We've really been following the customer demand there, and making it be a win-win for them. But I absolutely see it being a much larger part of our portfolio going forward. Our sales teams are asking for it more and more, and we're enabling them to sell it more and more.

So I have all the reason in the world to support it. We're just doing it at the appropriate pace. And there are some consumers that want it, and it's for different reasons than savings and we will accommodate that more and more and more. But happy with our supply chain arrangements, our partnerships and you'll just hear more about it from us Brian, over time. You know our style, our style is we don't talk much before we walk. And when we walk, then we talk about what we've done. And so you'll hear more about that over time.

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Brian K. Lee, Goldman Sachs Group Inc., Research Division - VP & Senior Clean Energy Analyst [14]

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Okay. Fair enough. And then I know you started off the call David, talking about the 3 channels here which you're excited about; retail, homebuilders, inside sales. Can you quantify for us a rough ballpark maybe what percent of volume comes from that today, and where you think that, that mix could be exiting the year, let's say?

And then, I know it sounded like economics aren't different from 1 type of channel to the next, but if we look at the general order of acquisition costs across each of these channels versus your direct and dealer, is there a way to kind of parse out for us how those each stack up against each other just on the acquisition costs themselves?

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David H. Bywater, Vivint Solar, Inc. - CEO, President & Director [15]

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Good question. I mean, I'll start with -- you've heard me, Brian, over time really talk about being customer-centric and we are just really focusing on bringing the right product to the right customer through the right channel at the right price point. And we've really worked on that. If you compare where we were even a year ago versus 2 years ago, I really -- it's hard for me to express how pleased I am with how quickly these channels have been developing, just the innate desire of the market to have options and they're really pleased that we're getting into these spaces.

So I've been really pleased with that. I love how it's developing and I love how we're working to make sure that we're just doing what's right for the customer.

We have not quantified it. For competitive reasons, I won't quantify it, but we do believe -- you've got our overall growth, so you got some clarity there on what it will mean. I'm hoping that and I'm very confident that these are pretty deep wells and that they'll provide us with great growth prospects and also growth optimization over time. And I think the value of having multiple channels is not only the right thing for the consumer, but allows us to optimize over time as well and find the right blend.

So you didn't misread my optimism and my enthusiasm about them and there's still other channels that we're working on right now, that I think are equally exciting and equally valuable to our consumers and to our shareholders. And that will allow us to get into new markets that we're not in today with different cost models.

So I couldn't be more optimistic about our future and the way we're approaching the future with models that work today and that models will -- that will work tomorrow. And that constant evolution and optimization is part of our culture that we have, and we're very open to embracing one of the best answers for our consumer and for the models that work at the appropriate times in this industry.

I don't know, Dana, if you want to add anything to that?

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Dana C. Russell, Vivint Solar, Inc. - CFO & Executive VP [16]

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Well, I think, Brian, one of your questions there was, what does the customer acquisition costs look like in those models and the other routes, and they're all a little different. But we feel like there's an advantage in some of the costs, not just in customer acquisition, but also operational costs as well.

Homebuilders, which we feel like is going very well and attracting a lot of attention in California -- and David talked about that in his prepared remarks there -- that does present some attractive operational efficiencies that we'll benefit from and being able to do things in a standardized way on new construction, which is helpful. So that's good. And it is a bit of a lower customer acquisition model.

Retail, I'd also say some advantages there with the customer acquisition cost. And then I think we also have some standardization and some control through some of those routes which also allow us to assure that the customer communication is of the utmost integrity and quality as well. So that's also one of those things that we feel very good about.

So there's some efficiencies and we're going to continue to work on that, and I think there'll be more color on that in terms of what that means from a mix standpoint. Obviously, the direct door to door mix is still the majority of what we do, the vast majority of what we do, but it as a percentage of what's being done is quite a bit less than it was a couple of years ago. So -- and we'll see that continue to balance out here as these other routes become more prolific.

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Operator [17]

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Praful Mehta, Citigroup.

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Praful Mehta, Citigroup Inc, Research Division - Director [18]

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So maybe we'll start with the system sales side where clearly that -- as you said, you're kind of reducing that side of the business. As that does shrink further, do you see the NPV per watt going up because it's a smaller proportion? And I'm assuming, clearly the system sales have a smaller value per watt? How should we think about that evolving over time?

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Dana C. Russell, Vivint Solar, Inc. - CFO & Executive VP [19]

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Well, I think when we think about system sales, we had a fairly significant emphasis on sales and it's not that we've de-emphasized that. But what we've seen as we've emphasized these Tier 1 markets, especially California, where we've grown so much, system sales were a much lower percentage of what we did there in California. And therefore, the total that we were doing, because there was a migration to California and some of these were Tier 1 markets away from some of the other markets, and we've talked about that fairly extensively. So that was really the reason for those system sales to drop a bit.

In addition, as we've had dealers involved, the preponderance of the dealer activity that we've had has been PPA and lease, and so less system sales there. We believe that as we go forward in the future, that -- and we have changed some pricing on loans that we're rolling out in some markets, not just as a means to balance the portfolio and to attract dealers to do business with us from a loan standpoint as well. And so we think that we will see some rebalance, but we're just going to do what, number 1, meets the needs of the customers, and number 2, where we can be profitable and where we feel like we can create the most value.

In terms of the overall value that we generate or changes as a result of net present value or the other metrics, we don't see that being a considerable shift or change. And we think that we'll be relatively consistent with those measures that we've talked about, that we've put out and that we've talked -- announced today.

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Praful Mehta, Citigroup Inc, Research Division - Director [20]

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Got you. And then on the storage side, again, clearly a big opportunity and you've highlighted that you are focused on it and that continues to grow. And I know you don't want to talk about it too much, but I wanted to just understand, as you think about the storage, is that an opportunity where you go into your existing customer base and they are looking to expand their solutions to add storage to it? Or is this as a part of new installs? Because what I'm trying to understand is how much value can you create and where is that value getting created in the chain? So it'd be helpful to understand that.

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David H. Bywater, Vivint Solar, Inc. - CEO, President & Director [21]

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Yes, I'll take that one, Praful. So the current focus with our storage has been on new additions to our portfolio. And we absolutely look, over time, to bring it to existing customers as well. As the price points drop, you may have to switch out and there might be other costs that you incur to do that. So as the overall system costs come down, it just makes it a easier thing to [palate] from a consumer perspective. We're very open to that and I think that will become just a more economically viable thing for consumers to do as the costs come down.

I know you guys have your models on what the cost of storage will do over time, so that will become -- we have no aversions at all. We'll do that; and we'll do it when the economics pencil for the consumer in mass. But right now our focus has been on new adds.

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Praful Mehta, Citigroup Inc, Research Division - Director [22]

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Got you. And then finally just on the Safe Harbor program that you talked about. I know you're trying to balance how big you want to make it. And you've talked about the risks and the benefits of it. Is there a ballpark range you can give us in terms of how big or small depending on where you come out on your analysis, where you kind of -- how big it could get?

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Dana C. Russell, Vivint Solar, Inc. - CFO & Executive VP [23]

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We're investigating and going through that and trying to determine that for ourselves, and so I think you'll hear more about that in the third quarter. We're certainly running through all the traps and thinking about what the right size and how we'll do that. But we really don't have anything to announce today other than that, we'll continue to digest that and talk about that more in the third quarter.

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Praful Mehta, Citigroup Inc, Research Division - Director [24]

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Understood. And just 1 final clarification. On the Costco and other retail chains that you're continuing to add, the -- is there -- does that lead to a consultation process where the client will interact with your sales team? Or how does that work in terms of like generating leads and the final sale happening with the client?

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David H. Bywater, Vivint Solar, Inc. - CEO, President & Director [25]

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Well, there's in-store, obviously, dialogue and discussion, and then we are facilitating in closing those sales through our inside sales. So it's a combination. There is a in-person in the store and then there is a closing of the sale over the phone. So it's that one-two punch, but there's not a follow-on consultation in the home and associated cost structure with that.

So far I'm really pleased with the economic model there and how it's trending, so I'm very encouraged by that.

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Operator [26]

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(Operator Instructions) Julien Dumoulin-Smith, Bank of America.

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Unidentified Analyst [27]

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It's actually [Eric] on for Julien. So maybe the first thing, I mean obviously you guys posted quite strong NPV for first quarter, especially given seasonality considerations with the $0.99 notably being higher than the $0.96 from 20 -- for full-year '18. Could you discuss a little bit about what's driving the stronger NPV? Is it related to the increased mix of inside sales or just wondering of the dynamics there?

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Dana C. Russell, Vivint Solar, Inc. - CFO & Executive VP [28]

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Well, a lot of that's following along with what we've said in the past that we've changed the economic model in the company a bit, and certainly improved the attributes of the systems creating a little bit more value in those systems. And so that's I think the major driver of that, so that -- we expect that to be stable to maintain that sort of thing. And so -- but that's really where we're seeing the additional value.

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Unidentified Analyst [29]

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Got it. And would it be fair to view it as there should be stronger NPV in subsequent quarters relative to first quarter?

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Dana C. Russell, Vivint Solar, Inc. - CFO & Executive VP [30]

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I think we would have comparable in NPV. I'm not sure -- and we certainly look to improve and we'll see things. And as the cost structure -- as we work on cost structure and work on different operational efficiencies, that would certainly improve. But -- so today, I think we're happy to say that we believe that we can maintain that.

I'm not sure how much that's going to change over time. We talked a little bit about some cost increases in the sales organization and our direct sales, which will impact that a bit, meaning a competition there. That's going to be offset by some increases in volume in some of our Tier 1 markets that we see, and then also mitigated a bit by other customer acquisition models, which are a little lower.

So we'll wait to see how that all settles out. But we think that we're going to maintain a relatively constant metric there at least for the foreseeable future.

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Unidentified Analyst [31]

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Got it. And then another question around potential for SREC monetization beyond the typical three-year forward basis. I know Sunrun recently monetized out a meaningful portion of SREC for some their eligible assets in their existing portfolio. Can you discuss your thoughts on potentially pursuing such a monetization?

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Dana C. Russell, Vivint Solar, Inc. - CFO & Executive VP [32]

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Well, we have monetized some of that in the past, so it's been something that we have done. I don't think that there'd be an acceleration or a significant change to that, you know an expansion.

But -- I don't know; any other thoughts there, Rob?

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Rob Kain, Vivint Solar, Inc. - VP of IR [33]

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I mean, yes, no; it's something we look at -- as you know, Eric, most of our contracts currently are three-year. I think we've got a little bit that are slightly longer than that. You know, yeah like you say the market looks like maybe it's starting to be -- offering longer-term potential hedges or forwards, if you will, for longer term. And it is something we'll take a look at in the future. We'll let you know if anything changes, but right now we would still probably say, yeah, we're primarily looking at the three-year, maybe slightly longer as far as hedging our SREC portfolio.

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Unidentified Analyst [34]

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Got it. That's helpful. And then lastly on Costco and BJ's. Could you talk about the state mix there? Is this presumably different from the state mix with Home Depot? And also on Costco, presumably this is separate from the states that Sunrun is operating in for the chain?

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David H. Bywater, Vivint Solar, Inc. - CEO, President & Director [35]

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Yes, as we mentioned earlier, the state mix from these contracts are more similar to our overall mix, which is a much higher mix of profitable states. So we're very encouraged by this state mix and we think it is very reflective. I mean, as you know, we've grown considerably and shifted our portfolio materially towards the most profitable states. And as you've seen -- you've seen a massive increase in our NPV per watt, and the value of our systems as a result. So these new partners coming on will reflect that more closely, which is very encouraging.

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Operator [36]

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Colin Rusch, Oppenheimer.

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Colin William Rusch, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [37]

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Guys, are you seeing any real material changes in terms of the cycle time to close customers or the velocity of decision-making? Just curious how that's trending as education levels go higher.

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David H. Bywater, Vivint Solar, Inc. - CEO, President & Director [38]

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Colin, not really. It's a little bit faster. A lot of that has been our overall cycle times from knocking on a door, or meeting that customer for the first time or having that first interaction to where we attain solid [PTL]. We've actually seen improvements, but with regards to the consumers, net net, I think it's better. The actual gestation cycle with the consumers, not material.

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Dana C. Russell, Vivint Solar, Inc. - CFO & Executive VP [39]

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One thing I would say though, Colin, as we think through this -- and I'm not sure how much of it's just improvement in our activities. Much more of our activities comes through our inside sales organization. I think we're better at that than we probably used to be and we've got great leadership there and good teams in place.

But I think also the consumers are also becoming more comfortable in some of the geographies, more looking into solar and more comfortable pursuing it without necessarily the same sort of consultative activity that they have had in the past. And I think that's great for the industry. I think we'll continue to see that evolve.

As David mentioned it's probably not changing the cycle times materially, but -- and some of it is maybe a combination that we're getting a little better in some of these routes. But I also think that it's becoming more of a proliferation of customer sentiment and their interest in and their willingness to go in and verify, you know, solar as well.

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Colin William Rusch, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [40]

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Great. And then the next question really is about the investments required for your network operations center to really operate as a virtual power plant. Are you guys ready to go with that or is there some work to do in terms of preparing for that?

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David H. Bywater, Vivint Solar, Inc. - CEO, President & Director [41]

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We saw some work. You know there's still a few pieces of the infrastructure you got to put in place there. So that's still ahead of us and we're working towards it, but it's not there yet.

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Operator [42]

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There are no further questions at this time. And this concludes today's conference call. You may now disconnect.