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Edited Transcript of VSLR earnings conference call or presentation 8-Aug-19 9:00pm GMT

Q2 2019 Vivint Solar Inc Earnings Call

Provo Oct 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Vivint Solar Inc earnings conference call or presentation Thursday, August 8, 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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* Colin William Rusch

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

* Joseph Amil Osha

JMP Securities LLC, Research Division - MD & Senior Research Analyst

* Julien Patrick Dumoulin-Smith

UBS Investment Bank, Research Division - Former Executive Director of Equity Research for Electric Utilities, Alternate Energy & IPPs Group

* Philip Shen

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

* Praful Mehta

Citigroup Inc, Research Division - Director

* Tingjia Yuan

Goldman Sachs Group Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good afternoon. My name is Christine, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Vivint Solar, Inc. Q2 2019 Financial Results Call. (Operator Instructions) Thank you.

Rob Kain, VP, 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 Second 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 Investors section of the Vivint Solar website at investors.vivintsolar.com. In addition, we will be 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. This press release is also available on the Investors section of our website. Please note that a replay of this call will be available within a few hours of the call. 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 and we will file with the US Securities and Exchange Commission from time to time, which are available on our website and 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 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. Good afternoon, everyone. We delivered strong results in the second quarter installing 56 megawatts, which was above the high end of our guidance. This represents 19% growth over the second quarter last year. And for the first half of 2019, we have grown 16% year-over-year. Our momentum continues to build. We are seeing vibrant growth across all of our channels, with particularly strong growth in the first half of this year coming from our internal direct-to-home sales force, our rapidly expanding dealer channel, and our inside sales channel, which continues to be our most cost efficient channel, adding megawatts with good economics in a reliable and controllable manner.

The growth and momentum we are delivering is expected and planned for we are executing a way that continues to build an organization that will provide benefits to consumers of solar energy and lead the revolution of clean power to greater heights. We do not expect the momentum to slow down. We will continue to be prudent and deliberate in how we grow and operate the business. We expect to see greater channel mix benefits from our expanding retail and homebuilder efforts in the latter part of this year, as we have continued to focus efforts and resources into these channels.

In addition to these growth engines, we continue to improve systems, processes and technology to reduce cycle times, improve the customer experience and reduce operating costs. We also continue to work to refine and accelerate our battery offering, now that we are delivering nicely on our operational, financial and sales growth initiatives. There has never been a better time to be at Vivint Solar. Overall, I'm very pleased with our company's progress and the exciting results we're experiencing.

Our direct-to-home sales force historically has been the core of our business. We believe that by introducing additional channels, we can reach more customers and provide flexibility to the business, while over time significantly lowering our customer acquisition costs. These other channels continue to grow as a proportion of our overall and expanding business and represented 26% of our installations in the second quarter. Although we are still early in the process and we know we will have to overcome obstacles as we learn, we believe that we are on the right track. We are now working with 8 of the Top 10 builders in California and are looking forward to the growth that will come from this important channel.

I'm also happy to announce that we recently signed an agreement to operate in select locations with Sam's Clubs. This marks the fourth major retailer that has agreed to work with us in delivering the benefits of residential solar to customers. We are still early in ramping of these channels and exploring what works best for customers, our partners and ourselves. We are just starting to scale actual sales activity and do not expect significant volume until the latter half of this year, as we adjust and adapt our processes that best fit the needs of these channels. We are optimistic that our presence with homebuilders and retail locations will help us to reach additional customers, and we are excited by the opportunities it presents.

Our inside sales teams are providing capabilities that we are relying upon to deliver incremental volume and value. This channel augments our direct-to-home sales force and is the group responsible for closing leads generated by our retail and e-commerce channels. This is becoming a lower cost route to market in a larger percentage of our quarterly installation volume. We are committed to building the infrastructure for the future and are pursuing programs to lower costs, which will allow us to open new markets and become a vital 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 its capabilities and improved our processes. We are encouraged by these enhancements and are looking for additional ways to magnify the efficiency of this organization.

Competition for our direct sales organization has created inflation over the past several years in customer acquisition costs. This trend continues and competition for direct sales personnel continues to be intense. As a result, cost for direct sales teams have increased. Therefore, we have seen and may continue to see some increase in our overall customer acquisition costs, separate from the portion of that cost driven by the compensation structure related to our dynamic pricing model. We do believe that other routes with lower costs are emerging, and we'll continue to expand due to customer awareness of residential solar.

One of the core pillars supporting the growth of renewable energy in United States and residential solar in particular, is the investment tax credits.

As many of you are aware, the ICC will begin to step down beginning next year from its current 30% level to 10% in 2022 for commercial enterprises. On July 25, a bipartisan group of representatives announced the introduction of the Renewable Energy Extension Act that would extend the ITC at 30% for 5 years to promote clean energy investment. A companion bill was also introduced in the Senate. Public polling shows broad support for the growth of solar, regardless of party affiliation. Because Americans value pollution-free power, job creation and energy independence, extending the ITC will enable the solar industry to continue its growth and bring the economic and environmental benefits of renewable solar energy and solar jobs to all regions of America.

Vivint Solar has enabled more than 169,000 American families to benefit from clean affordable energy. And in the process, we have created more than 4,300 direct jobs within the solar, plus many more in the companies that supply our materials and associated services. Solar energy is an economic engine and extending the ITC will enable this industry to continue to growing America's economy and contributing to the transition to a cleaner, more resilient energy infrastructure for tomorrow. Supporting the renewable energy industry through the ITC is a proven and efficient government policy that allows for investment in the future of the country.

Many American families have benefited from the growth of jobs as a result of solar adoption, partially supported by the ITC. In addition, homeowners who have installed solar, energy storage and/or other residential energy upgrades, are enjoying clean energy at an affordable price. The fossil fuel industry has benefited from direct and indirect support for well over a century, and the renewable energy industry that is employing so many Americans, deserves a level-playing field.

Over the coming months, we will be vigorously advocating along with many others for the extension of the ITC that has supported enormous job growth, cheaper cleaner energy and a more resilient grid.

One significant priority for us is continuous improvement of our operational processes. We believe our operational processes are the best in the industry. I am proud of the improvements we have made, the trajectory we are on, and the value we have created compared to our competition. We are relentless in our efforts to be the leader in residential solar operational excellence. We continue to refine processes, audit and verify performance and add resources to assure quality. Our operational efficiency is a competitive advantage and we believe these capabilities will continue to differentiate us in the future.

Our employees take pride in the quality of our installations and the construction services we provide. We have a meaningful quality assurance program. We believe our operational processes culminating with installation, service and maintenance, are among the most cost effective in the industry. Our focus on customer satisfaction and quality are paramount in our thinking and guide our actions. We retain ownership of most of the systems we deploy. We want them to operate and perform as designed and we hold ourselves to stand as we think are unique in the industry, but necessary for long-term profitability and customer satisfaction.

Even though we believe we're the best in the industry and clearly separated from our competition, we know we have room to improve, and we are working to do just that. As we've stated before, no one should buy solar from an organization that is not prepared to maintain and service its systems. There are far too many systems that do not have a sustainable organization maintaining them, leaving consumers and investors to fend for themselves. Small local builders don't have the capital, commitment or capabilities to operate as a credible provider for the long term, as market conditions evolve and systems require 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.

Over time, we believe our investment quality of installed, solid maintenance programs and commitment to customers will translate into more volume as consumers become educated and investors understand there is potential exposure to underperforming assets. We want to be the voice of the residential solar industry because we believe we lead the market in our commitment to providing the highest quality systems with the best customer experience. We are passionate about what we do. Our employees are our greatest resource and we operate well as a team. 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 or above market growth rates in a disciplined and sustained moving pattern.

We not only perform every day, we look for ways to raise the standards, improve performance and operate with integrity. We have executed well in the first half of 2019 and are enthusiastic about the second half of the year and the tremendous opportunities we see before us.

With that, let me turn the call over to Dana to provide additional details on our metrics for the quarter.

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

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As David mentioned, we're encouraged by the performance of the company and the strength of our operating marketplace. We continue to grow and gain momentum in key markets and routes and will remain focused on diversifying our routes to market and creating new opportunities to expand and grow. Our Q2 unit cost of $3.56 per watt was higher than our original guidance mainly due to financing expenses related to new funds that closed in the quarter. We're happy with the execution of our capital markets team and the overall commitment we have from investors. We've worked hard to provide investors with assets and performance they can have confidence in, and we appreciate our relationships with them.

We were able to expedite financing structures at favorable terms and timing. As a result, we incurred some expenses related to financing activities that were anticipated to occur a little later in the year. In addition, there were some onetime expenses related to our new channel initiatives. In total, onetime expenses were $8.7 million in the quarter to provide a better feel for our current expense run rate. Excluding these items, our unit cost for the quarter would have been $3.41. With the focus on our best markets, we continue to see improvement in our system attributes with corresponding improvement in our project values and margins.

For the second quarter, our project value was $4.67 per watt, a 14% increase over the same period a year ago. The net present value created or estimated margin was just over $49 million, a 21% improvement over the same period a year ago. On a unit basis, the net present value per watt was $0.80 -- $0.88 for the quarter. Excluding these onetime expense items would raise the net present value per watt to $1.03 per [share]. We increased our net retained value by $27 million in the quarter. On a per share basis this represents $9.62, up from $8.13 in the second quarter a year ago.

Total revenue for the quarter was $91 million, up 12% over the second quarter of 2018. Revenue from systems, where retained ownership was approximately $63 million, up 16% from the year ago period. Revenue from system of product sales in the second quarter was approximately $27 million, up 5% from the year ago period. We continue to expect system sales to represent 15% to 20% of our volume going forward.

Our liquidity and financial position remained quite strong. We finished the quarter with $278 million in cash and restricted cash. We have a $153 million in undrawn loan capacity between our 2 forward flow agreements. At the end of the second quarter, we had about 186 megawatts in committed tax equity capacity remaining, enough to take us into next year.

Subsequent to quarter end, we entered into a new revolving warehouse agreement with lenders for $325 million, expandable up to $400 million. This new warehouse replaces our existing aggregation facility and serves the purpose of providing back leverage on new systems, until we place them in a longer-term takeout facility. The new facility lowers our cost of debt by 87.5 basis points and significantly increases the amount of upfront proceeds on a per system basis.

As David discussed during his remarks, there was some movement in Congress towards extending the ITC for another 5 years. We will continue to vigorously fight for an extension. We strongly believe it is the right thing for the environment, for American jobs and for the renewables industry. However, it is not definitive that the ITC will be extended this year at any point in the future. To that end, we are continuing to evaluate our safe harbor strategy, attempting to appropriately hedge the possibility of a future extension, equivalent price deflation and contingent technology obsolescence against the possibility of locking in or increasing our current margins with the current level of the ITC.

Moving on, we expect our third quarter installation volume to be between 62 to 65 megawatts. We are also reiterating our full year guidance for 15% or greater growth. We anticipate our third quarter cost per watt will return to a level that more accurately reflects our current run rate and will be between $3.36 and $3.44.

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) Your first question comes from the line of Julien Dumoulin-Smith from Bank of America Merrill Lynch.

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Julien Patrick Dumoulin-Smith, UBS Investment Bank, Research Division - Former Executive Director of Equity Research for Electric Utilities, Alternate Energy & IPPs Group [2]

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Congrats on the results. First, just on the growth side, first and foremost, can we talk about the expectations for the balance of the year? I mean, obviously, doing quite well already 2Q, 3Q looks pretty constructive. When you talk about your 15% guidance for the full year here, how are you thinking about that in the back half? I mean, obviously 3Q looks as if it's closer to 17% and that leaves you with less than 15% for the 4Q. Is that just conservatism or are you expecting a little bit of a slowdown in 4Q for whatever seasonality?

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

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Julien, it's David. Yes, we're super encouraged by how the first half of the year has gone. We have pretty good visibility into Q3, hence the guidance. And that's why we changed. With 15% or greater, you can do your math on what you think that is. We're just conservative in nature as a company, but we're feeling pretty positive. That's going to be 15% -- we know it would be 15%, pretty confident about that, and it should be a potentially higher. So it's trending well. Dana, if want to add anything to that? But that's kind of what we've had on the growth piece.

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

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Well, I think our growth has been great. We've seen some very good momentum with our traditional channels. We're seeing growth in new areas and we're optimistic that growth materializes in all things we talked about with retail homebuilders as well. I think we're still focused on our best markets, our best economic environments and best markets, and we'll continue to emphasize those markets. But we feel very good about the third quarter and that's why we said it's going to be 15% or greater.

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Julien Patrick Dumoulin-Smith, UBS Investment Bank, Research Division - Former Executive Director of Equity Research for Electric Utilities, Alternate Energy & IPPs Group [5]

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Got it. And similarly just, how do you think about NPV into the back half of the year? I mean it looks like your cost per watt guidance would indicate, perhaps a little bit over $1 a watt adjusted. Can you talk a bit about value creation in the back half of the year? It seems pretty favorable, but I'd be curious what your commentary is and maybe let me just stuff a third question here just quickly, any latest thinking on safe harbor, given slightly greater articulation from your peers on -- going into the last 6 months here?

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Dana C. Russell, Vivint Solar, Inc. - CFO & Executive VP [6]

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As far as the value that we created on the system basis or per unit basis, we feel good about that. That value has continued to increase, as a result of emphasis on the best systems in the best markers. And we're hopeful and we think that those trends will continue. So the costs have been slightly higher and we were slightly higher than our guidance if you exclude those onetime items, really as a result of just competing in the marketplace in those best markets and we feel like we've taken share in the better -- in the best economic markets that we -- that we're involved in. And in doing that, we've seen an increase in our attributes, in our profitability on a system basis, and so we feel good about that going forward. Now obviously, this is a dynamic market, things move quickly. In David's prepared remarks, he talked about the competition for our sales talent. We are very happy with and confident in the leadership of our sales organization and our sales professionals, and we've had tremendous success with them in the first half of the year. And we think that will continue, but there is competition there and we expect to meet competition and provide the best environment for our sales professionals to work in, while we also develop other routes to market.

As far as safe harbor goes, we've -- we have begun to do some things around safe harbor. But in the details of that, I think we probably are not going to have a lot of discussion around that in terms of more specifics other than that we're working on. And just as we said in the prepared remarks, we're evaluating the different courses that we can take in, that we have initiated. It is the best thing in the business and it's a bit complicated, Julien. I mean, I think as we evaluate all of the potential upside and downside for taking different actions, I think there is a lot to that. But we have initiated and we've begun some activity around that.

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Operator [7]

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Your next question comes from the line of Praful Mehta from Citigroup.

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Praful Mehta, Citigroup Inc, Research Division - Director [8]

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So maybe just starting with the costs. A little bit of a disappointment with the increase in costs relative to your guide and relative to, I guess, what people expected. So just wanted to understand a little bit. You talked about financing costs and some other onetime items. A little bit more color on exactly what those are and why they showed up now would be helpful.

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David H. Bywater, Vivint Solar, Inc. - CEO, President & Director [9]

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Well, we think that our costs were pretty much in line with what we guided to. So we would have been $0.01 above the range of our cost, excluding those onetime items. And the onetime items were mainly associated with financing activity. It is really the forward flow arrangement that we've entered into in the quarter. So those fees are largely flowed through the quarter, they were fairly substantial. We expected to close that arrangement later -- a little later in the year, it happened earlier, otherwise that would have been part of the guidance that we have given.

But in terms of the overall cost structure, we feel like we are as efficient or more efficient than anyone in the industry. We certainly feel good about our operational activities, we feel good about what we're creating in terms of value. And even where we were up slightly on our customer acquisition costs, those attributes that we created in the system values are higher than where we have been and we feel like as high as anyone in the industry, and that we were delivering great margin on them. So we feel actually quite good about the cost structure.

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Praful Mehta, Citigroup Inc, Research Division - Director [10]

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Got you. So just so I understand, how would you break up the 2 pieces, right? You said, one was the financing which you said was the flow-through agreement where the fees kind of showed up unexpectedly in Q2. But if you can break out the 2 components, how much of the financing fees versus how much was the other onetime item?

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David H. Bywater, Vivint Solar, Inc. - CEO, President & Director [11]

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Most all of it was financing. So there was about $1 million in other activities -- other onetime items, but most of that -- of the $8.7 million, the majority of that was financing fees.

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Praful Mehta, Citigroup Inc, Research Division - Director [12]

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I got you. Okay, so that's helpful. And then just to again under the context…

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

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Praf, one on that one as well as per Dana's remarks, we gave guidance for Q3, it's back to $3.36 to $3.44. So that's our guidance for Q3 until we expect. So you can see it was that onetime blip that we just misadjusted on when it would hit.

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Praful Mehta, Citigroup Inc, Research Division - Director [14]

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Yes. No, I appreciate that. That's helpful context, but then I guess, to understand from a volume perspective, if you do have volumes that are bigger, and clearly you did well in terms of volumes in Q2, and you sound like you're pretty confident on volumes going forward as well, shouldn't that allow you to have some economies of scale and help reduce the cost per watt? How should we think about that?

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Dana C. Russell, Vivint Solar, Inc. - CFO & Executive VP [15]

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I think that's exactly right. The volumes will help us reduce those fixed cost structures and I think we feel quite good about our current equipment cost, those things are quite stable. Where we've seen increases, if there are some increases there, it has really been around the customer acquisition model. Some of that has been investments in these routes to market. So as we have ramped up our inside sales activities, our homebuilder activities, retail channels, those are some investments we're making, where volume will follow and we expect volume as we said in the latter half of the year. So as those volumes begin to kick in, those costs that we're incurring will be offset by that volume and it should lower our cost, our overall cost per watt.

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David H. Bywater, Vivint Solar, Inc. - CEO, President & Director [16]

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Yes, there are some irrational players in the market and we're trying to make sure we have all the channels needed to bring the discipline over time. So those are investments that we're making today. We feel very confident about them. We think they will pay off over time and we're preparing for and working towards bringing a rational thought to the market and trying to bring down the cost of acquisition, which is the right long-term answer for this industry. So we were bold in making those investments today.

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Praful Mehta, Citigroup Inc, Research Division - Director [17]

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Got you. That's great and glad to hear that trajectory. I guess, just quickly on the last point, just a cleanup item. I saw your Q2 cash flow statement and there seemed to be like a big $38 million onetime other noncurrent assets. It might be too specific for you, but in case you know, just wanted to understand what's driving some of that cash outflow in Q2?

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Rob Kain, Vivint Solar, Inc. - VP of IR [18]

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Praful, I think -- this is Rob. I think that's more the accounting adjustment we talked about in Q1. So if you're looking at Q2 relative to Q2 last year, that's related to the adoption, I believe it's ASC 842, required us to move initial -- indirect cost from system sales on the balance sheet down to the other noncurrent assets. If you look in the deck on the Investor site, we've recasted 28 team financials and you'll see the more comparable number there. So it's really just driven by an accounting change.

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David H. Bywater, Vivint Solar, Inc. - CEO, President & Director [19]

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Classification. Yes. It can change because of the classification change. And so if you look at that with that reconciliation, you see that, that really wasn't much of an -- there was no adjustment there really.

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Operator [20]

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Your next question comes from the line of Brian Lee from Goldman Sachs.

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Tingjia Yuan, Goldman Sachs Group Inc., Research Division - Research Analyst [21]

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It's Rebecca Yuan on for Brian. Can you share -- are you seeing any labor constraints. One of your peers had mentioned that as a bottleneck in the near term. So just wondering if that's also impacting your operations or if you're seeing any higher G&A costs due to tight labor markets?

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David H. Bywater, Vivint Solar, Inc. - CEO, President & Director [22]

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It's David, Rebecca. We've executed well in Q1 and Q2. We have been working through those constraints, I think, pretty effectively and finding ways to enable the growth. There is a tighter market for sure and it's a challenge out there, but thus far, we've been able to -- we continue to work really well on our efficiency, how our operation improves, and we have a larger percentage of our installs now happening with 3 and 4 person crews than we ever have in our industry with an increase in the quality. That occurs with that. So we've been pretty innovative on how we go about operational efficiency. It's given us some good momentum to make sure we can install and keep up with our sales momentum.

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

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And we feel Rebecca, like we have the people to meet the numbers that we have talked about in the third quarter where we are in the process of hiring those people. So we don't feel like that's been a constraint for us. We have grown very rapidly in certain markets and I think taking share in markets and ramped up fairly aggressively with operational folks to meet our needs. And we have been quite successful with that thus far. So as far as the constraint goes, there are tight labor markets for sure, but we are not seeing with our business that we've been constrained today as a result of that, and we anticipate to meet those numbers that we talked about in the third quarter, which is substantial growth for us as well, and not having that also be an issue or constraint for us.

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Tingjia Yuan, Goldman Sachs Group Inc., Research Division - Research Analyst [24]

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And then, can you just share your latest thoughts on the storage strategy? Are there other things that you see as more strategically critical that you would focus on before storage?

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

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No, I think for us -- you guys know the story for us. We've been very methodical and disciplined I think along the whole process of this company. Been really pleased with the operational improvements we've made. The expansion of channels was a big priority for us and making sure that we're delighted to have customers kind of across the board, the whole financial structure and how we capitalize the business and the creative solutions we put in place there really have been our main focuses. We think batteries and storage are very important and they're very much the future.

I think that is the next hill that we're all attacking. We've made a lot more progress in the last quarter on that than we had previously, and I expect our momentum to grow. So definitely look forward to updates on that in the coming quarters and I think we will be more elaborate on the details there, but I'm very bullish about where we're positioned now to be able to make and build upon the progress we've actually had the last quarter or 2. And I think we'll step it up here going forward. So that is a focus for us and it is very important.

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Operator [26]

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Your next question comes from the line of Joseph Osha from JMP Securities.

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Joseph Amil Osha, JMP Securities LLC, Research Division - MD & Senior Research Analyst [27]

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So a couple of questions. First, it's interesting you've gotten this aggregation facility redone. You've dropped your cost capital, you've improved the advance rate. I'm wondering if there's any read across there to what the -- how the terms are evolving for some of your take-out financing and what sort of cash realization might look on, on that end. And that -- just mapping from that into a slightly broader question, just wondering how I might think about your cash realization over the course of the next couple of quarters here, because I see the balance did go down from Q1 to Q2.

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

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I think the balance going down was more of a timing thing. We certainly could have drawn more cash and taken out more and beef the cash balance up, had that been a focus for us. The aggregation facility allows us to take -- to monetize more to leverage those assets a little bit more. And so we feel good about that on the front end of the process, which should help us on cash flows as we go forward, which in fact, will leave us a couple of years down the road here, as we begin to put those assets in longer-term facilities with a little less to get or to monetize later on. But I think the trade-off is a good one. We've got a better facility in place with better terms and the monetization of those assets with a little bit more upfront, I think is an advantage to us.

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Joseph Amil Osha, JMP Securities LLC, Research Division - MD & Senior Research Analyst [29]

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Okay. And then on the back of that, obviously you did the swap or the deal middle of last year. When might we see you out in the securitization market again?

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Rob Kain, Vivint Solar, Inc. - VP of IR [30]

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It'd be spring to summer kind of time frame. So this is for next year. We are still pretty consistent there. I mean with the new ag facility in place it might slow a couple of months more a little bit more towards summer from spring, but that kind of timeframe is still what we're thinking -- what our thoughts are.

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Joseph Amil Osha, JMP Securities LLC, Research Division - MD & Senior Research Analyst [31]

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Second question, wondering if I can just get some thoughts from you on what the economics of this title point for businesses that you've talked about here with the homebuilder engagement, I would assume that probably the origination costs are lower, but price might be lower as well. Just wondering how it looks like that business is going to shape up.

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David H. Bywater, Vivint Solar, Inc. - CEO, President & Director [32]

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Right, we're -- Joe, it's David. We're pretty bullish about it. I think it's actually on the higher end of our profitability unit economics relative to our portfolio. I mean, as you look at the efficiencies that we've gained thus far on the homes that we have installed, and -- not only that, but just you avoid a whole bunch of the electrical upgrades, we're able to put the panels in the most advantageous pieces of the roof, are installed efficiencies where we can put in multiple installs per day with the same crew, is by far the best. We're able to actually reduce a fair bit of the permitting costs. So there is a whole bunch of efficiencies that we're able to accomplish with that channel that puts it on the higher end of our portfolio mix.

Hence, that's why we're encouraged by the progress we've made there and the backlog we've got going into 2020 for next year. We're also very encouraged by the conversations we're having. They love the fact that we own our own install teams. They absolutely love the discipline we bring around quality and so they compare us with others. And these partners get how we run our business, and they really value it. So not only do we think we're well positioned, not only we are very happy with the progress we've made in a very short period of time, because this has not been a historical focus for us, but we're also very encouraged by the momentum we've got going forward. So it's a good market, it's a new market, it's a profitable market and it aligns nicely with our relative strengths.

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Joseph Amil Osha, JMP Securities LLC, Research Division - MD & Senior Research Analyst [33]

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Okay. And then last one from me before I go away. We've seen your peer make a lot of noise about some of these capacity deals with IOUs and BCAs and whatnot. I'm wondering if that -- we might see you all start to invest more in that element of your storage strategy as well?

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David H. Bywater, Vivint Solar, Inc. - CEO, President & Director [34]

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Yes, we're a little behind them on that, but as we turn our focus to it, what if we turn our focus, do we make good progress on? So as I mentioned earlier on the battery stuff and services and all of those partnerships, it's in front of us and we'll announce at the right time what we're doing and the progress we're making, but at this point I'll reserve that and not elaborate.

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Operator [35]

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Your next question comes from the line of Philip Shen from ROTH Capital Partners.

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Philip Shen, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [36]

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First one is on partners. Was wondering if you could expand a bit more on BJs and Costco specifically and how they're ramping? In the last call, you talked about volumes in the back half. Could we see some volume in Q3 from either 1 of these partners, and if so, can you comment on what that volume could be, or do you expect it to be much more Q4 loaded?

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Dana C. Russell, Vivint Solar, Inc. - CFO & Executive VP [37]

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We're actually seeing volume today. So it's not like it's not happening, but I think the momentum we believe is going to continue to build as we ramp people and processes and build those organizations out. And we do think it's more towards the latter half of the year we'll see substantial volumes. So it's not that we're not seeing some volumes today, we are, and we're -- this is kind of, as we talked about on our last quarter's call, this was our first foray into the retail space. We announced a number of partners that we are working with, and we feel like it's going well, but it's going to be a little later in the year before we're expecting meaningful volume there.

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Philip Shen, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [38]

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And David, you commented a lot on the ITC extension. Can you give a -- your sense of what the probability might be of an extension either this year or next year before the elections? Or do you think -- what I've heard is the probability increases meaningfully after the elections, and obviously depending on how the elections go in 2020, but what kind of chance does the industry have in getting this past before the elections?

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David H. Bywater, Vivint Solar, Inc. - CEO, President & Director [39]

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Well, I'm an optimist. Obviously, it drives me and I believe that we will get a pass. I don't know, probability on it, it's anyone's guess. I do think it's unlikely this year, I hope I'm wrong, we'll work hard. I would love it to happen before the elections, that would be fantastic. But we're preparing for the scenario where that will not be the case and we'll be protected against that. It's just -- it's so funny because it's such an illogical debate to be having. When you have 90% of Americans saying, please do more so, not less, and we're supposed to be a constituent-driven government, it's just shocking to me that there's even a debate. So like we've worked out in the state level, when we get the consumers and voters involved, then the politicians listen.

So there's never been something I know of where you have so much common support across the country for this to continue and the disparity between us and the subsidies have lasted for so long in other industries, right. This is just the right thing to do. So I'm hoping that prevails, I think it would. If it happens, it will happen next year. I hope it will happen sooner, but we're planning on it. We're planning on it other way. Having late next year or not happening, we'll work to hedge our bets as best we can.

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Philip Shen, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [40]

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As it relates to the modules and securing them, some of our recent conversations with industry players suggest it's getting really tight now in terms of module availability. What kind of risk do you think there is to your implied Q4 guide based on not being able to secure enough modules?

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Dana C. Russell, Vivint Solar, Inc. - CFO & Executive VP [41]

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I think the market certainly is tightening up, and we are seeing instances where pricing's been elevated a bit, especially for folks who don't deliver the kind of volumes that we have and the relationships that we have. We feel quite good about our ability to have products. So we certainly purchase and purchased ahead and we've done some purchases, and done it and made some contractual commitments for panels that have extended past Q4. So we don't think that there is an issue with having product to meet our needs through 2019.

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Philip Shen, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [42]

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One last question from me. I believe you guys are completely standardized on the 20-year lease. What do you guys -- do you have any 25-year leases in PPA or PPAs? If not, are you exploring this at all? What are your thoughts on potentially shifting that lease longer?

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Dana C. Russell, Vivint Solar, Inc. - CFO & Executive VP [43]

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Well, we know that there is a list. We do deliver a longer-term lease. We have not been -- we've been on a 20-year contractual period and we think that, that makes the most sense. We certainly will continue to evaluate longer-term structures and other products that make sense, especially if it’s in the management facility through the company that’s making more sense. But today, we felt like the best product and the one that delivers the best value for consumers, has been the 20-year program. And so I think for the most part, we plan on sticking with that.

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Operator [44]

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Your next question comes from the line of Colin Rusch from Oppenheimer.

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Colin William Rusch, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [45]

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Guys, could you talk a little bit about the normalized G&A spend as we go forward? Is there some meaningful leverage there, or is that going to scale up as you scale up?

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Dana C. Russell, Vivint Solar, Inc. - CFO & Executive VP [46]

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We won't have any significant ramp ups in G&A expense. There will be some as we develop more programs, as we have more volume. There'll be some, but it certainly won't scale proportionate to volume increases or things like that. So we feel pretty good about the expense structure. I think we've talked about making some investments in e-commerce and in other elements that we think are valuable for us, that are investments in the future. And those are the kind of things that we will be proactive about, and make investments, because we think it will contribute and help deliver volume in a more affordable way in the future. But we don't see any kind of significant ramp-up in our G&A or back office expenses.

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Colin William Rusch, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [47]

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Okay. And then just, haven't got an update in a while in terms of the sales synergies with the parent company. Are you seeing any real changes in that acceleration deceleration in terms of the benefit you're getting from that relationship?

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David H. Bywater, Vivint Solar, Inc. - CEO, President & Director [48]

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There is no parent company. We are stand-alone. We have a sister company, but not a parent company. We continue to collaborate with Smart Home. They have been a significant source of positive growth for us and we still -- we still have our guys selling both solutions. So there is still heavy commonality and ability to sell both products in both areas. So we're not doing it in big numbers, because most of our guys have been wanting to sell solar, but they do bolt-on additions of Smart Home solutions, and we have a formal relationship and the cross-sell with both groups on lead generation of going both ways. So it's very positive. It's a great relationship, it's one that I value tremendously personally, and we value a lot collectively the organization. So still very, very positive and something I think that's our sales force loves having that relationship to be able to do it both ways.

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Operator [49]

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Thank you. Ladies and gentlemen, this concludes today's conference call. You may now disconnect.