Q3 2019 Earnings Call
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Now I'd like to hand, the call over to your Speaker broad Kane Vice President Investor Relations. Thank you. Please go ahead Sir.
Thank you operator, good afternoon, everyone and welcome to them in solar third quarter 2019 financial results Conference call.
Joining me today to talk about our financial results or Dave a bywater, our chief Executive Officer in Dana Russell, Our Chief Financial Officer. This call is being webcast in a supplemental investor deck is available on the Investor section of the 11 solar website.
Esters dot doesn't solar dot com.
In addition, we will be discussing both GAAP and non-GAAP financial measures during today's call.
Provided non-GAAP the GAAP reconciliations in our earnings press release I was issued earlier today. This press release is also available on Investor 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 the Q and a recession.
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.
Leveraged to caution you that such statements are just estimates based on current expectations and assumptions regarding future events in 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 filed with the U.S. Securities 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 disclaims any obligation to update or revise any forward looking statements, whether as a result of new information future developments or otherwise, but that I turn the call over the David [noise].
Thanks, Rob Good afternoon, everyone. We have continued to execute well.
Installing 65 megawatts in the third quarter, which was at the high end up our guidance. This represents 20% growth over the third quarter of last year, an 18% growth year to date on a customer basis, our growth was 25% year over year.
Demand continues to be robust for residential solar and we believe we are well positioned for a strong finish to the year exceeding the 15% growth guidance. We provided at the started the year.
Our growth is coming across all of our channels, but it is strongest in our inside sales retail and homebuilder channels, which in the third quarter represented 11% of our total volume up 34% sequentially and a 145% year over year. This growth is beginning to scale. This is important as it means these channel.
Those are transitioning from an investment phase two a growth and execution phase.
Currently these channels in aggregate had a profitability measure that is approximately equal to our direct to home and dealer channels as they continue to gain scale. We believe they will provide margins that are significantly better than those of our direct to home and dealer channels. We believe these three channels will continue to grow faster than our direct to home and do a chance.
Sales represented a larger portion over overall volume and allowing us to reach additional customers at lower overall costs.
Our growth is at a level, we expected and have planned for and we are executing in a way. The continues to build an organization that will provide the benefits of residential Florida homeowners and lead the revolution of clean power to greater Heights.
We do not expect the momentum to slowdown we will continue to be prudent and deliberate and how we grow and operate the business. We will continue to invest in and improve our systems processes and technology to reduce cycle times improved customer experience and reduce operating costs I believe.
EBIT has never been a better time to be a debit solar overall I'm very pleased with our company's progress and the exciting results were experiencing.
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.
As I have previously discussed we continue to improve our operational processes, including the efficiency and quality of our installations.
One of the benefits of this focus on efficiency as it allows us to use smaller installation crews, which is critically important when the labor market is tight.
Although our volume of installations was up 20% year over year, our installation head count was up only 15%.
Our installation efficiency also enables us to continue to meet rising demand.
With what we believed to be the most cost effective high quality installation process in the industry.
Efficient operations alone are not satisfactory and the quality of installation is substandard. The two must go hand in hand, we believe our 86 point checklist, our dedicated quality inspection teams and our compensation policies tied to the quality of installation means customers and investors can rest assured that have driven solar system.
Well performance design. In addition, when installations are done correctly. The first time, we were able to dedicate fewer resources to fixing issues down the road, which allows us to apply more resources to installation.
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 increasingly differentiate us in the future.
I would also like to discuss our sales and marketing process and how we continually strive to provide residential solar customers with information they need in order to make an informed comfortable decision when taking control of their energy future.
We have been sold was founded in 2011, and we've learned a lot in the last eight years. Those lessons include the invaluable feedback we receive from our customers. The foundation of our business, we put the customer first and all we do strive to be a good corporate citizen and a positive force in the industry.
We believe we hold our director door and dealer sales professionals to standards. We think are the highest in the industry. This is true for those who worked directly for us and those who provide sales functions on our behalf. We expect to third party, representing deboned soared to have the same high standards and controls as our internal resources, we continue to refine processes.
And insert checks and balances in ourselves activities to ensure that we have a happy that from customers that has been a concerted effort on our part over the past several years, we have auditor activities renewed and improved our training cooperated with unsolicited the input of regulatory agencies and reinforced our expectations regarding the level of professionalism, which.
We believe sets us apart from a competition.
If a processes circ navigated or GAAP is identified than we work to address the problem satisfied customer improve the controls. We believe every sales organization should adhere to these measures to protect customers and advance the spread of clean energy and energy independence, whether they are direct salesforce for a dealer.
Finally, we continue to gain traction with our storage offerings, primarily in Hawaii in California, we offer new customers the ability to add storage to their contract whether it is a system purchase or we retain ownership, although the numbers of customers requesting storage is still low relative to our overall volume we are seeing a significant increase in customer awareness.
Yes, and have doubled our storage installation sequentially from the second quarter storage is becoming an increasing portion of our business and we believe it will be a material part next year as we expand our scope and efforts.
We are passionate about what we do our employees are British resources, and we operate well as a team. Our overall momentum has continued to build.
There is a lot to be excited about and we feel we're firmly on track with our expectation to grow at or above market growth rates in a disciplined sustainable pattern.
We not only perform everyday we look for ways to raise the standards improved performance and operate with excellence, we are executing well and are enthusiastic about as strong finished 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.
Thanks, David discussed we came in at the high end of our installation guidance is 65 megawatts for the quarter with our focus on the best markets.
We have continued to see improvement in our system attributes with corresponding improvement in our project values and margins.
For the third quarter, a project value was $4.71 per watt and 8% increase over the same period a year ago.
The net present value created or estimated margin was 69 million up 20, 323% improvement over the same period, a year ago and on a unit basis, our net present value per watt was one dollarssix for the quarter.
We continue to create significant value with systems, we installed as we prioritized for overall return.
Rather than a strict focus on cost we believe our estimated margin shows that we're achieving this.
Well the same time growing faster than the overall market.
We believe that although our unit margin can fluctuate from quarter to quarter, we will maintain a margin at or above one dollar per watt on an annual basis.
We increased our net retained value by 89 million in the quarter to 1.3 billion on a per share basis. This represents $10.32 up from $8.57 in the third quarter year ago.
As a reminder, we believe net retained value as we calculated is a good proxy for the asset value of the company.
Our commitment to growing in a sustainable controlled manner can be seen as the asset value of the company increases steadily quarter over quarter.
Our unit cost for the third quarter was $3.48, even though cost of increase we've invested in new sales routes strengthen our position in the most favorable markets improved margin and the overall financial status as a company.
As we have discussed in prior quarters, we will continue to pay competitive rates to our direct sales teams and dealers.
We believe our sales programs management tools culture and incentives provide the most attractive environment for sales professionals in the industry.
We will continue to compete to retain and grow our sales resources in a responsible way.
As volume increases in our inside sales homebuilder retail channels and E. Commerce, we expect to see lower customer acquisition costs as the industry matures.
Although we would like to see cost coming down faster by focusing on our most profitable markets and our installation efficiency, we've been able to maintain our overall margin as measured by net present value per watt at about one dollar.
Total revenue for the quarter was 104 million up 33% over the third quarter of 2018.
Revenue from systems, where we retain ownership was approximately 71 million up 32% from the year ago period revenue from system and product sales in the third quarter was approximately 33 million up 36% from the year ago period.
Revenue from system in product sales does not perfectly track with installation volume that is as it is more dependent on when systems received permission to operate.
We continue to expect system sales to represent approximately 15% of our installation volume going forward.
Our liquidity and financial position remained quite strong we finished the quarter with 344 million in cash unrestricted cash.
There are several factors at play in the increase in our cash balances this quarter.
They include the timing of funding system installs from cash and tax equity partners as well as a better advance rate on the warehouse facility that closed in August .
We have 155 million in unused warehouse facility capacity at 100 million remaining in forward flow debt commitment.
At the end of the third quarter, we had about 126 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 neutral to positive before any capital for safe Harbor purposes.
In our current business practices and growth.
As we discussed on our last call given our strong financial position, we see safe harbor as unique opportunity to maintain or expand our margins as the ITC begins to step down in 2000 in 2020.
This opportunity does come with a cost and potential risks, which we've carefully considered for instance, the equipment that we purchased to extend the ITC could become out of date will be purchased at lower prices in the future negating some or all of the benefit of the safe Harbor.
We're strongly advocating for the extension of the ITC and are cautiously optimistic that it will be extended at sometime in the future and extension of the ITC would also negate the value of any safe Harbor strategy.
We believe we have a safe harbor strategy provides maximum benefit and flexibility, while minimizing upfront capital requirements, the risk of technology obsolescence and equipment price deflation.
Placed orders for 115 megawatts worth of panels, we will use cash on the balance sheet as well as financing expected to close in the fourth quarter to cover these costs.
This purchase allows us to take advantage of the 5% Safe Harbor rule that the IRS has outlined for a portion of next year's volume.
In addition to the 5% Safe Harbor, we intend to preserve the 30% ITC through the phase down of 2020 in 2021 by relying on the significant physical work test as described in section for of IRS notice.
2018 desk 59.
Further requirements of this section of the notice as long as we have begun construction on a system. During 2019 were able to preserve the 30% tax credit as long as the system is placed in service before the end of 2023.
Physical work includes work performed both on and off the project side and by both us and contracted third parties.
This strategy has been successfully used by wind developers with the manufacturing of Transformers satisfying the requirement that physical work has commenced on a wind project.
We believe this strategy will minimize upfront capital requirements protects us against equipment price deflation and reduces the risk of technology obsolescence.
We believe it's a prudent strategy of per se to pursue in conjunction with the 5% Safe Harbor rule to maximize the value of 30% ITC through the majority of 2021.
Turning to our fourth quarter guidance, we expect our install volume to be 64% to 67 megawatts.
We expect our cost per watt to be between $3 and 46 and $3.54.
We're seeing a slightly higher prices for modules, which we believed are caused by the supply constraints due to safe Harbor purchases.
We expect this to dissipate next year as we have contracted for our safe harbor panels at a lower price.
Finally, we expect our net present value per watt to be between one dollar for dollar eight.
We're excited about the progress that we've made and continue to believe that the company in is in a very strong position to take advantage of the significant customer demand for residential solar.
We believe our current growth trend will continue into 2020, and we expect it will grow at or above market growth rates.
We will provide more explicit guidance for 2020 during our fourth quarter call early next year.
With that I'll turn the call back to the operator for questions.
As a reminder to ask a question press star one on your telecom can withdraw your question principal Keith Please standby Paula compiled like today roster.
And our first question comes from Philip Shen with Roth Capital Partners.
Hey, guys. Thanks to the questions first one is on safe Harbor.
Danny just talked about save harboring 115.
On one five megawatts, where the panels.
Roughly does that equate to.
Based on my quick math.
And it could very well be wrong, but is it about a gigawatt that you're trying to safe harbor because it the way I am getting there is playing a 45 cent ASP getting to a dollar value declined by 5% to get to what the project value might might be I guess, that's the $1 billion.
And then divide by 350.
So I guess that would be closer to maybe through the megawatts of.
Safe Harbor.
Volume is that fair.
No I think it's.
Philip it's less than that I think as we as we talked about in the prepared remarks. This the panels get us.
Midway through the year, a little more than that in 2020.
So that portion of the safe Harbor covers part of 2020.
And then we'll have the physical test safe Harbor equipment that will get us the rest of the way through 2020 2020.
Got it and then when you do the physical test work.
Yes, what I think of residential solar I think of it more.
Hello.
And.
And.
So it sounds like you can buy transformer.
And that kind of gives you a mark for another year.
With the safe harboring at the end of 20 and at the end of 2021.
We help you with some volume in Q1 of the subsequent to year.
But it wouldn't really yet you through.
Much of the subsequent here. So if you did 2020, you don't get much into 2021 is that a fairway plant.
No.
The commitment for the.
For the physical test is similar to what we do with the purchase of panels and that we are required upfront to make it commitment.
For specific proprietary item that we began work on contractually.
Have in place in 2019.
That commitment and work commencing in 2019 carries a silver with the commitments that we make for that inventory and that and those particular commitments should curious through 2021.
Okay, great over to on on those.
Let me move on to 2020.
In terms of on.
Growth and I know, you're not going to provide guidance officially but was wondering if you could comment.
Qualitatively on the type of growth that you're seeing.
It sounds like it's still quite good.
But we're we're hearing in the channels.
That or through contacts that we could see very nice growth next year call, 25% year over year.
And pass you guys. If you want to grow assuming that it's economic for you. So would you see something that could be better next year relative to this year.
Can you just comment and general by 2020. Thanks.
The felt as David Yes, what we thought the growth was phenomenal this year growing installations by 25% and our installed megawatts by 20%. So it was really strong year and we continue to really focus on where we grow so like we've always said, we could grow at much higher growth rate, but we choose to be.
Prudent and focused so you increase the sustainability in the strength of the company. So were personally delighted with where we are we think that was well above market growth rate this year, and where we grew and how we grew and the investments. We made we think enable us have a strong growth this year and set us up very well next year.
You know our direct to home is doing a great job and our dealer growth is going great.
And then these new channels that we've been talking about we've met we spent a fair bit this year on the investments in those to get them set up for growth and as I mentioned, we're transitioning from kind of the investment phase to now to the screening phase. So we'll have more channels that are more mature and developed an ever for 2020.
And with the growth from homebuilders and other things, we're very very optimistic as we mentioned.
We believe will grow at or above market for next year.
Everyone has everyone's pontificating, along what that is and will take that information.
As we go through our budgeting process and all of our.
Backlog that we've got and all the strength Weve built we'll have more guidance, obviously, our Q4 installation but.
Qualitatively to answer your question.
Optimistic for sure and we think we're better positioned now than we've ever been to grow how we want to grow.
Grow with strengths and be deliberate and.
In specific and intentional about how we're growing and developing new channels that we think will allow us to grow at a lower cost over time and get to new customers and new states that we haven't built through the past so.
Pretty optimistic.
Great. Thanks, David.
One more if I may I was struggling I am joined the recall so apologies. If you guys commented on this already but can you comment on any labor issues that you might be seeing within your.
Company or with your partners.
Is that a constraint that might be limiting things at all or are you able to kind of Nash.
You know per my prepared remarks.
At this speaks to that we.
We actually delivered just like we thought we would this year.
Our captive model with regards to our install we've done a really good job of engineering capacity through efficiencies and how we go about approaching that as I mentioned in my comments. We grew 2020, 5% on installations, 20% on megawatts, we only grew our insulation salesforce our installation teams by 15%.
So we continue to get greater and greater efficiencies.
And we're able to our folks on quality is allowed us to actually have less rework and focus more on installation. So we're really pleased with that model.
Kind of low cost high quality benefits that we get from it now we at the initial installation, but over the life of that.
Relationship with our customers and we think it's got a very synergistic piece so.
Our their labor constraints out there, yes, there are.
A question is how do you managed through them and what model do you have to take advantage of your strength. So we the but we have as a competitive advantage. We're very pleased with it I'm very pleased with our operational teams.
How they're growing how they are installing another meeting expectations and how would you want it with quality so.
Our model is working well there.
Thanks, David I'll pass it on.
Thank you Philip.
And your next question comes from Brian Lee with Goldman Sachs.
Hey, guys. Thanks for taking the questions I had two of them.
Maybe starting off.
On the plus side the home builder channel it sounds like you're having success there if I do the math.
I would love to just kind of get your thoughts on this if this has the right sort of Zip code.
10% of volumes.
Let's say five six megawatts and then.
If you think there to kind of smaller size homes, not the six or seven kilowatt averages, but more toward the the minimum size that's required in California. It would imply here you are sort of in the ballpark of 1500 homes.
Which I think depending on which forecast you use that would imply.
You are somewhere in the low single digit market share for that particular vertical.
Would you say that fair and then.
As you think about that math, what do you do you have internal targets that you could share around kind of where you think the market share could go for that particular.
And market channel.
Maybe lastly on that topic, just what type of breadth do you have right now with the Chen I know, there's been one or two publicly reported partners. So is this all concentrated with those with those players or are you broader at this point in that channel.
Yes ill start with the last question first.
Brian and then I'll move up the front half of that question.
In the past we've mentioned that we have either the top 10 buildings in the state of California, which continue to work to add to that so we're pleased with relationships that we have and.
And are pleased with the backlog and we've got going into 2020.
And so right now I think.
Well, our math is I think we're a little bit higher than them numbers you have on market share.
Just given what we've already got booked.
And pushing forward, we haven't been more specific to that we have not name names.
On the builders, but were.
We see homebuilders has been a very small percentage of what we've done so far and is just starting to ramp and so I think 85% of what we've got committed already.
We will install the next 12 to 18 months. So we're very pleased with that that will be a nice lift to our growth and we love that channel and we think that channel really appreciates.
Our captive install teams and our focus on quality so.
We think and it's a boom for everyone I think it's.
It's there's plenty to go round there for us in our peers.
But we're very pleased with what we've already got committed and what we're working on to add to that in 2020 and beyond.
Hey, Brian just to clarify to the.
And maybe you have this but the 11% that was the three routes that was homebuilders retail and our inside sales routes.
And so when we think about that the the homebuilders for us.
We have we have had a concentrated effort on homebuilders, where we really feel good about that route.
And we think that the best is coming because there's a lot of commitments there that haven't actually installed and made it through the numbers that we reported in the quarter.
So so that's it that's definitely a growing ralph for us and more opportunity that we feel.
Thats some some.
Will magnify those numbers in 2020.
Okay, great. So the 11% so is that homebuilder the biggest of those three would you say.
It wasn't in 2019.
It was probably the smaller piece like I said most of that.
Is contracted and will be coming on in Q1 Q2 in Q3. So it was probably the smaller part of that 11%.
Yeah.
Fair enough.
And then maybe switching gears here.
This this is the second straight quarter.
The cost per watt came in above guidance in the last quarter with financing costs. This time, it sounds like it's a little bit into.
Sales channel mix.
I guess kind of begs the question of as you're going after growth then you're incorporating all these new sales channels is there anything structural here that making the cost side.
The execution story that more challenging and obviously as we look into guidance for Q, It's also up quarter on quarter.
So just wondering if theres something new going on in the cost side and then maybe.
If you are dealing with.
Something new there any mitigation efforts here, you're sort of contemplating into 2020, thanks guys.
Yes, Brian we actually feel pretty good about the cost structure, we wish the cost structure is lower obviously with customer acquisition costs Thats whats driven our cost structure up but as we've talked about before we're committed.
To being competitive in the marketplace.
And in the past our volumes have been subdued because we'd probably paid at a lower rate than maybe some of our competitors and that at that allowed or incented. Some of our folks to go out there and become dealers or go work for other parties.
We are committed not to allow that to happen. So weve focused on the most profitable markets and we've expanded margins, even though the costs have come up our margins have expanded in our net present value per watt has increased so we feel like we've done it in a responsible way, but we're totally committed to compete in the marketplace not allow the momentum to shift and we.
I've seen the results of that in increased momentum and velocity for the company, we're participating more robustly in those better markets than we ever have we're seeing growth there in a way that is more robust than we've seen in the past and we think that that's a that's a pattern is going to continue as long as we safe Harbor and.
As long as the the overall marketplace is funded the way that it is we're not going to see significant reduction in those costs outside of other channels opening up and coming on and so as we develop e-commerce and other routes to market those will be lower cost as people come directly.
To us.
But when we're competing in them in a market with direct sales, we actually feel pretty good about it as long as the overall economics for those systems justify the expense.
And that's where our commitment is so were slightly above that cost structure, because we performed better and probably had higher growth in some of the more valuable markets than we anticipated.
But the offset was that we produce better margins with better results.
Yes, I'll take the I'll take the growth, which we've done really nicely in the most attractive markets that expand our margins everyday also spend that to now 10 days. So that's prudent growth that's intentional growth and.
And we've been pleased with the fact that.
The attributes improves increase the profitability has increased the margins have increased so those are all good and then just to add on to Dana we're not oblivious to the fact that we are investing as well heavily in 2019 into these other channels that we think we'll grow differentially higher than our other channel.
And we'll be at a lower cost over time, so with equal rebuilds rewards in 2020 and beyond and so we think we've done a good job managing the short term the medium term and planning for long term and.
We think that strategy prudent bearing fruit and.
It's the right thing that investors should be rewarding us for and devaluing. So we stand behind that with great solidarity.
Okay. Appreciate the color thanks, guys.
Thanks, Brian appreciate it.
And our next question comes from the line of Julien Dumoulin Smith with Bank of America Merrill Lynch.
Hi, good afternoon.
Graph to get on the quarter here.
You from year to date.
Additions with the midpoint, implying 18% year over year growth for this year can you talk about growth drivers in the 20, I know, it's a little bit rehashing things, but.
Extends which that.
The in the book, what you've achieved thus far trend is perhaps better than what was originally contemplated can you elaborate a little bit aircraft socket doubled between megawatts and customer growth, because which anything changing its here.
Sure they Julian thanks.
So.
Yes, the the year to date growth right now through three quarters is 18%.
We gave guidance for Q4, which I think will be another 20% plus growth kind of quarter. So the overall full year should be a little bit higher than 18% as we get that last quarter in the book. So it was several percentage points higher than we expected at the beginning of the year. So we're pleased with that.
You know the higher installation.
The more installations at 25% growth on customers. We've continued to grow in some markets that are very valuable for US Hawaii, California, you know continue to grow really well in new England that are a little smaller systems than other markets.
That historically, we buy a larger percentage of our growth coming from so probably the average system size dropped a little bit, but the profitability of those systems.
Are much higher and far outweigh that so once again, we're very pleased with that trade off the growth drivers for next year as we mentioned before our multiple fold our direct our captive direct to home sales force pleased with leadership there. The continued to grow at a good growth rate dealers continue to grow at a nice nice growth quarter over quarter and then.
Bringing on.
Our inside sales has been growing quite a bit E. Commerce has been a big investment for us and we said that suspect will add to our growth next year and then homebuilders as we mentioned.
So its but not installed so that will all come on next year and then finally, our retail channels. The partnerships. We have there will continue to focus on expanding those relationships. So we've got levers now that we havent had in the past, we've really worked to establish them and perfect them in 2009.
Teen and then I think will flex more on each of those levers in 2020 and beyond so we haven't given a specific guidance should on growth for 2020, we've said it will be at or above market growth rates. We think that we've got the ability and the channels in the partnerships and the teams and processes to do that and hence our optimism for 2020.
Dan you want to add is well Julian I think for us and at the beginning of the year. When we gave a 15% growth number maybe we're a little conservative there, but the the barometer the parameters around that growth always for US is how do we balance the growth with profitability we could grow.
And I think its enticing to throw out a big number and then and then be forced to grow in places that you maybe they don't want to grow as badly.
And so we've actually contracted in some markets as we've talked about previously.
Uh huh.
Over the over the prior quarters and then as a result of wanting to focus on more profitable markets now, we could certainly expand that and give out to some pretty big growth numbers, but I think the balance will be we feel good about the growth. We think its responsible growth we think it.
It allows us to focus on that operational effectiveness and efficiency that David talked about we also think that we can invest in some of these new routes and.
We'll learn and be able to open up some other.
Potential markets.
But we think that right now we're in a good pattern as as we mentioned in the prepared remarks, we feel like that sustainable that thats going to continue on and we don't see a shift in that momentum and then the question is.
Where where do we make future investments and how do we want to grow those markets.
Got it excellent can you elaborate a little bit further on the safe Harbor piece here can you clarify hardened 50 megawatt panels purchase and so what did that support exactly just in terms of megawatt rather than talking about years have been even more so you can switch that now we sort of satisfied.
Good.
Hey partner, how do you think about cash on cash on selection, especially next year and use of excess cash flow.
Well, we stated the number megawatts dealing in the prepared remarks was 115 megawatts. So that was that we called out and talked about and.
And so from a panel standpoint from just panels, it's a 115 megawatts.
So, but hopefully that gives the information you need there.
You also asked about the use of cash and sort of the liquidity and what we're doing with that and I think.
Some of that we're using for.
On the off the balance sheet to to purchase equipment.
For Safe Harbor, we talked about financing some of that and using cash for some of that as well.
And I think as we've been talking about we are investing in new routes to market.
And making other investments in the company's so.
But we think even with that aside from what we use for safe Harbor.
In terms of using capital to do that we believe that will be generating cash in a neutral to positive way in terms of the operations of the company and continue to maintain strong liquidity position.
For future operations, So does that answer your questions Julien.
Yes, but not ready to talk about deployment of that positive cash that trajectory.
More importantly.
Yes.
Oh.
No not no.
Not at this time.
Okay, Alright, fair enough with and I'll leave it there and I'll turn it over thank you guys very much.
Thanks Julie.
Just wanted to clear one thing.
I'm sorry on Julians question, though just to be clear I think.
It was a combination of the 5% and the physical test.
At the Safe Harbor Julien It goes it goes well into 2021, it's not just a 115 panels in 2020. So it's the combination of that strategy that we believe gets us the extension of the ITC well into 2021, not just partially the 2020 I just when I listen to your comments are identified that look confusion there. So.
I'm sorry go ahead. Operator next question. Thank you. Our next question comes from Praful Mehta with Citigroup.
Thanks, So much high guys.
Hello.
Hi, So maybe just first to clean up question when I looked at your cost for walk calculation you seem to have included a one time expense that you backed out both from sales and marketing as well as from DNA any confrontational color around what that onetime expenses.
Yes.
Hey problem. This is rob the onetime.
Added to the settlement of a lawsuit in California.
Part of that effects.
Sales commissions and and required us to change the way we booked at all that kind of step you'll see the details in the in the Q on FCC filing, but cost related to that the settlement of that lawsuit.
Okay and that was both broken up into both sales and marketing and DNA.
Correct correct, the part that that's related to.
Sales commissions that are now considered earned is the part that is coming off in the sales and marketing line and flowed through the sales and marketing expenses. The rest of that settlement flowed through DNA as a legal expense and again the total there and the discussion of that Selmo is in and the Q.
Okay. That's helpful and then secondly.
On California, as you know that's a lot going on in California.
The psps saw the.
Dan or just station has been quite active in California. So.
I just wanted to get a sense or how you think that market has been evolving from your perspective, and how much opportunity do you see given comments around 510 years of Psps in California.
How big an opportunity it is and how do you think you can kind of maximize that opportunity there.
Well I'll take that one profit as David.
Yes, we continue to we have consistently grown and we see taking share in California now for several years.
We do very very well in California, and it's been one of our fastest growing markets now for quite some time. So think we've got a really nice market share there and unfortunately for the consumers and Fortunately.
Theres more contextual reasons for them to consider what we do both on the solar as well as the energy storage than ever on so.
There has been a heightened heightened.
Desire by consumers to take control and.
Not rely solely upon local utilities the brown out so it's.
It has been it's been a very busy season I.
I said unfortunately for folks why that's happening.
But if it's accelerating their efforts to.
Consider this solution.
Yeah, that's what's happening right now so.
And it's been hitting all of our channels.
All of our channels, whether its retailers inside sales, whether it's our direct to home clearly the homebuilders would be was being driven outside of those is exhaustion is.
Shocks, but.
Yes, we still see very strong demand plus just the general desire of consumers to do something they want to get off the sidelines and they want to help actually engage in doing environmental friendly things and so.
What we've always said from the day one.
Why we love the residential market is because we're able to help consumers become co investors and solution and right now for a variety of reasons. They are more focused on doing that than ever and with its beneficial I don't think it's just this year I don't think it's just 2020 I think that these these.
Challenges happening right now in California people are looking for long term solutions and we think is going to be a pretty sustained heightened desire to do something and go solar and good solar storage solutions in their homes and we think that.
It will really drive growth for quite some time.
Yes, hi, Thanks very helpful color that I appreciate that and then finally on storage I was encouraged to hear the focus on storage and the renewed focus on storage.
Any particular paler on firstly, how do those costs and returns look and do you kind of look at it but then the kind of platform will foster walk or do you look at it separately from a cost undertones perspective, and and how do you see that growth opportunity kind of flowing separate from the installation of the solar panels itself.
Well, yes so.
As we've always said, we're always focused on doing things that are customer centric and there are customers, who do it because they save money. It's a really good position, obviously in Hawaii, and in California, and growing more and more parts in new England.
There are those who do it for other reasons.
But they just want that backup they want to bullet proof their future.
They want to counter.
Just concerns we have several folks who sent us letters about the fires in the shutdowns that really benefited from those battery. So there's a whole bunch of reasons and a growing I want people adopt it.
We've always been very prudent about our growth and rollout of battery. So it is accelerating which is good.
And we love the Optionality that it provides us.
It's whatever assumptions you want to make on the drivers if thats accretive or neutral you can be very super aggressive on that and justify being very accretive or you need more conservative and having to be kind of unit economic neutral for us we think theres enormous optionality there.
As we continue to drive forward.
With helping those consumers have that solution, where it makes sense and the future approaches, we'll chase around grid services and.
Other optional.
Uplift for the company at the end of the day, we believe that we have a platform and this platform will allow us to bring all of the solutions behind the meter to our consumers.
We think that that coupled with how we sell and how we service and how we install and own that relationship over time.
With our own captive cells and install teams.
We think that over time as long as we always keep them first and foremost in front of us.
We will help them adopt batteries at the right time as well as all the other solutions, we on the meter our goals here for this to be a 30 year relationship.
Just bring all those solutions the right time to them. So very optimistic very encouraged I think you'll see us flex even heavier on this in 2020 and you'll see our attach rates you to accelerate more so.
Want to add anything to that.
That covers it.
That covers.
Thats Super helpful context, and very thoughtful so appreciate it.
Thank you problem.
And our next question comes from Joseph Ashland JMP Securities.
Hi, This is actually Hillary on for Joe Thanks for taking my question.
Looking at.
Different.
Partnerships that you have.
Just kind of give us an update.
Hi, ramping in particular.
Yes.
Sure.
Thanks for the question Hillary appreciate it.
Well, so as we mentioned in the past we have four relationships there.
Home depot.
Sam's Costco and B-j's and.
We're pleased with what's going on we've learned a lot. This year, we've been very measured in how we approached it.
There are.
There is a theres a model there that you sell how you originate in the stores and how we close over the phone.
That we've worked to perfect. Our goal there was to make sure that we are meeting the expectations of our partners and that we earned additional stores and growth over time, so with regards to our expectations in our model.
What we expected to have in 2019, we did very very well.
Hence you probably saw that our overall growth rate was higher than what we expected we were expecting 15% growth and we've done well above that and so that's a function of that channel contributing to our growth rate.
As we look to 2020, we expect that to grow considerably and.
We're just very you guys have you guys have felt our style. We're we we don't talk a lot. We walk first and then we talked about it afterwards and.
We're very optimistic about where we are with those relationships.
Very prudent about our growth we don't want to be at flame in a flame out we want us to be a long sustained successful partnership for them and for us and very pleased with our progress thus far.
Okay. Thanks.
Welcome to little bit.
Hi.
Think about leveraging something different.
Particularly as they start to maturity going into next year.
Think about that.
As you kind of looked.
Yes.
Thanks.
Well I mean first and foremost we look at our new channels says how do you.
The product the right product to the right customer the way they want to purchase it.
So we're trying to be very agnostic on making sure we're not pushing our agenda, but we're pushing the rice solution for our customers, so whether that be the financial product PPA versus purchase versus a lease.
Versus the terms and also the channel in which they desire to procure so we're really trying to make sure that we are doing what the consumers want and being ahead of them. So that were prepared and scaled as they're buying decisions in buying practices mature as well so lets now.
For one I think the second thing the reason why we're optimistic those channels is we're very cognizant of trying to make sure that they can be.
Lower cost channels as well, we're in 22 states I want to be in 50, and the only thing that's really prohibiting me from being in more States Amendment today is a.
We want to do it with strong unit economics be make it a valuable proposition for our customers and make sure our cost allow us to do that successfully so.
We're investing in had invested heavily in 2019 to mature these new channels and we're hopeful and optimistic that allow us to get to more customers in a cost effective way. So it's not only being customer centric, but it's also been a prudent to expand our strategy on how we can get to more customers. Our goal here is not.
To grow at a certain percent our goal is to bring clean energy to every home in America and.
To do that we know we have to have more than one.
One club in our bag, we got to have multiple clubs to win this battle overtime and that means we have.
A very.
Intelligent and diversified go to market strategy to allow us to do that and allow them all to grow and grow in a in a profitable and sustainable way so.
Oh, you want added new that they know that covers.
Well I think for Us where young company, we continue to develop technology, we're working on that we're making investments so.
The more directly that we can influence customers to make good decisions and I think differentiate ourselves I think some of things.
That havent happened in the past that we think is going to benefit the company in the future is the more people understand and know about business solar and sort of the way, we differentiate ourselves with quality.
And efficiency and service after those systems are installed.
The more attractive there'll be and as we develop our AR.
Capabilities with marketing and other e-commerce strategies, the more directly customers can interact with us and that we think is also a huge benefits. So the routes that we have we're working on but it's certainly the end goal that David talked about as being able to influence more customers in more markets and b.
Able to address.
Many more markets than we're in today and Thats and Thats what were trying to accomplish.
Okay.
And our last question comes from Colin Rusch with Oppenheimer.
Thanks, so much guys.
Yes can you give us a sense of the magnitude of new geographies, you're looking to enter in 2020, and how much infrastructure going to have to build out to support that effort.
Hi, Good question Colin.
No.
For the last conversation, we're always looking at new geographies, we all know review them on a regular basis to see if these changed.
Three years ago didn't expect to be in Chicago, Chicago is one of our best markets now.
So we continue to evaluate that on an ongoing basis and it's always a function kind of once again, a channel that allows you to be in that market and.
Cost in economics associated with it I would say with that our majority focus is not necessarily geographic expansion that's really.
Right now its growth within our current markets Theres. So much headroom, we have right now in the markets that were in.
That we're doubling down on that and leveraging our current infrastructure nicely, we continue to see higher utilization.
Of our assets and our resources and we think theres enormous scale opportunity with what we already have so thats probably the majority of our focus is and then we'll continue to be opportunistic.
By new geographies and we'll enter those in the most cost efficient prudent manner as as possible.
And then just on the secondary impact of the PJ any blackouts, so not within the direct service territories, but in other geographies can you give us a sense of what you're seeing.
No. This is early days.
As from education levels inbound inquiries.
Exceptions levels close rates things like that.
Just in terms of.
The order of magnitude of this year.
Greg going down in other areas impacting your ability to sell.
Health systems.
All say as you've seen our growth be higher than we expected.
We have been growing in California, much higher than our growth.
Overall, and so that really strong growth rates in California, the continue to be so and unfortunately portion like I said before.
Given the situation.
Demand is an awareness is just higher.
It's interesting we knock on millions of dollars a year this company and.
In California.
It's the highest penetration outside of Hawaii, I think in the states.
But every door now is a fresh door again, because with time of use and with these black rolling blackouts.
Consumers in the past that didn't purchase whether they were close or from it.
Evaluating that decision and so.
It kind of resets the market and allows you go back and have a conversation again and those conversations today.
Our not only going solar, but it's also considering storage. So it it really has I think kind of rejuvenated. The state and allows you to go back and have a meaningful conversation again and have people reconsider their desire to take action now or not so.
I think it'll be a strong growth for us in 2020 and beyond.
Great. Thanks, so much guys.
Thanks, guys.
Ladies and gentlemen, this concludes the conference call. Thank you for participating and you may now disconnect.