Q1 2020 Earnings Call
And and thoughtful and you know as we get more confidence that things are sticking there's not a resurgence there.
We'll come out with a bit more forceful, but we'll wait and see.
Great. Thanks.
When you think through that trajectory for Q2, three and beyond.
And then you compare that with your sources of liquidity boats for projects as well as just general corporate purposes.
Where do you see if any constraints I know you about you announced arms and tax equity deals.
And.
DBS marketed for me the most part.
Not available to solar I know, it's open back up recently, but were worse.
The source of liquidity that you guys are monitoring.
Our funding that you guys are moving to the closest and.
What are your thoughts wrong that risk. Thanks.
Well I think as we look at the market's a the capital markets are certainly there's there's there's capital available and and we're fortunate to have the reputation and the and the.
Just the operational efficiency sleep efficiency index was that.
People have confidence in us and be able to linzess, muddy and flatness with this and partner with us.
We don't see.
And we're confident we wanted we wanted to talk about in her prepared remarks, even though we had talked about previously haven't ABS and having that done in the first half of the 2020, we certainly expected that and we were days away from having that being completed.
And it was unfortunate because it just disrupted our normal flow of how we would finance operations, we do believe.
That the financing that we're going to receive is is attractive it will be.
A little more expensive than what we would have been doing with an ABS, but still.
A good capital structure for us.
We think that.
That is we're confident enough about it to talk about it and and both David and I mentioned that in our parks. So that provides is a big infusion of capital. We don't see really restraints in terms of the ability to grow and operate like we would.
I have operated had they're not been pandemic. So we can return to growth and be vibrant and grow.
At or beyond market growth rates and be able to function for the foreseeable future. So we feel quite good about it and we hope things return back to a more normal environment.
Soon.
They do that will be an advantage if they don't will still be able to operate in have liquidity.
What I'm excited about Phil is.
As we've gone through this unfortunate pandemic.
You learn a lot about your organization that you.
Generally know it could be done.
And so you know now with every team with the changes they've made.
What we've enabled I'm excited to see how we bring back that growth you better more efficient level. So.
If we even deliver on a quarter what we've done in the last.
Weeks.
You know that that'll be a fun time for US you know we've had a little different strategies and some of our other.
Competitors out there in the <unk> residential solar space, we have taken less upfront in terms of funding on some of the assets a weve.
We've done that as a as a procedure as a as part of our process.
[music].
And so we do have the ability to go out and and leverage these assets and and do you know this is nonrecourse debt as David mentioned in his script.
And so you know we have that we have the ability we have the capital continue to operate.
We'll see how we go forward here, but we feel feel really good about where we currently sit in the opportunities that we have in front of us.
Great appreciate the color one last one if I may.
Over the past couple of months there has been there have been articles about a potential strategic process that you guys me have been involved with or maybe involved with was wondering if you might be able to comment on that in any way specifically.
Was that process.
Recoded and then as a result.
The pandemic it is.
No longer on the table, just curious kind of where things stand there.
[laughter], Phil you always maybe laughed with that question.
We don't comment or speculate I kind of stuff.
Got it okay.
Thanks, guys I'll pass it on.
Thanks, Phil take care.
And our next question comes from the line of Sophie Karp of Keybanc. Please go ahead. Your line is open.
Hi, Good afternoon. Thank you for taking my question.
Hey, Sophie.
Sure as if you could give us anymore color on sort of the efforts to engage a different sales channels. You know as you yourself and your competitors your peers I try and outdoor true online selling et cetera, what kind of traction that you're getting there I guess, what's the conversion rates compared to traditional borden walking.
It's something that you know maybe becoming the permanent part of your mix going forward.
But just kind of curious what youre early experience has been.
Sophie Thanks for the question, it's a great question.
You know you think about it.
It's pretty remarkable that we are what we are on the volume that I've shared earlier in our comments.
Being down around 30% I mean, we were at record levels going into cobot 19.
What we were experiencing.
In the first few weeks of Q1 was kind of almost at our height to the prior year. So were at record levels enough for us to be down about 30% well, we've we've come off the doors. His remark I really think it's quite amazing.
And it speaks to how adaptive organization is and also what we've learned so we've enabled our sales force to move to a fully remote sales process and they canvas virtually and we've done a whole bunch of things I'm sure they're being productive.
And they have made that that that a transformation and.
That's just remarkable and so I think that we've learned a lot I think our salesforce has learned a lot. We have teams I'm almost every one of our markets that are performing higher now than they did before and we have other teams that are performing worse.
But what we're seeing is that if a team will learn the due process apply the tools and do the work they can be as successful as they were before so immense immense.
Lessons learned there and the productivity of our sales professionals going forward I think it's like I always say to our teams guys. It's like a right handed tennis player being able to also play with are left hand equally as well right. So they can sell remotely and on the doors, they're very very powerful.
So that's great we've through our inside sales over the past few years has that grown quite nicely. We've been very disciplined there and we're seeing that it's a much lower customer acquisition costs. So I.
I welcome the remote selling our remote or walk from the leverage that you can get from that to lower your CAC.
And.
We have every intention to have that be a much larger percentage over our overall portfolio, thereby pulling down our weighted average CAC.
In addition to other channels you know we were we were.
We're ramping our retail and it got plant a hold with cobot, but we were about ready to double our retail.
Very attractive markets. So those are all positive things.
Vestments, we made in 2019 and 2020.
We're in channels that we're diversified.
And also Oh, we thought at a really nice customer acquisition profile and so we will continue to do that the switch now in the and the emphasis we have on digital marketing and on E commerce going directly to consumers I think that will also accelerate so all of those channels for us.
You know we've gone from kind of a single channel single product company five years ago to Omnichannel omni product.
We will continue to invest as long as they give us great growth and better economic returns anyone to other Dana.
Well I think the.
The the retail most of the you know the retail activity is close by inside sales. So we've had a big uptick in inside sales even without the retail activity that was previously running through that there's some significant advantages with the ability to monitor.
What's being said to customers to be able to control conversations assuring.
The information that the two way conversations that are happening there and so those are all things that we can build on.
It was in a growth stage before we certainly have seen the exacerbated and increase as a result of the change here in the environment.
We have a great direct salesforce and there certainly confident and capable and they have been successful.
With remote selling that weve, but we really look forward to the expansion of these other channels that like like David said that brings down the weighted cost of acquisition.
Thank you. Thank you.
Thanks Sophie.
Our next question comes on line of Julien Dumoulin Smith.
Big America. Please go ahead your line is open.
Hey, good afternoon, guys. Thanks for the time policies I missed this.
Juggling a lot here.
Can you talk about the shape of FCS as you think about it I mean, you guys talk about a pretty impressive pivot here.
And successful pivoting the Salesforce, what does that mean in terms of FCF translation and I'm also speaking if you don't mind in terms of as you think about this pivot towards digital our their legacy cost that you're thinking about that roll off over time, just good ultimately coming back to that that FCF metric, that's a critical getting about quarters and ended the full year.
And that that the shape of that.
Can you talk about Scf can you just on metric crude and did you say scf well.
You are free cash flow I'm thinking about sort of the cash generation.
Actually if you will be coming back that kind of conversation you were saying FCF Yeltsin here, saying well I don't know that is you've got your F confused with S.. So thanks, Yeah, Oh, sorry, sorry [laughter].
Well when you look at.
It's a good question and it's one that every residential solar company out there is a is trying to manage right. We invest as what we bring in so were in terms of free cash flow. We do as we say we think the best return that we.
We can do is to deploy cash flow and create new systems and do that as quickly as we can in as sustainable balanced way as we can and so we're always going to.
Tried to to to grow.
In a balanced way, but to use our cash flows in a way to deploy systems. So that's the strategy Thats, what we do and that's the emerging markets that we participate in.
And we can enhance that as we lower our cost structure, everyone. When you look at at the cost structure, we reported.
$3 and 80 says Snell our cost structure is higher in the first quarter normally as a result of lower volumes over the year and we would have expected that pre pandemic to have also been the case in 2020 now we probably won't have that occur in 2020.
As a result of the front end of this.
Process being slow down as a result in the pandemic.
When you think about the cost structure and think about customer acquisition costs being somewhere around you know well over a dollar and you look at that trends that we can see that with ourselves than with other with other folks out there.
Which is equates to a third of the cost so in a market where consumers are out there one team and being more encouraged by.
By having an opportunity to get solar save money do all those things that much of the savings as possible isn't being passed onto a consumer today.
We hope that more of that gets passed on to consumers and we hope and believe that more of a can be retained for our shareholders. So the environment that we have.
Allows us and gives an opportunity here as we go forward and as the industry matures you don't see too many mature industry is out there were a third of the cost structure is customer acquisition cost.
We believe that our salespeople should be handsomely rewarded we think that that's a good thing.
We also believe that is unbalanced today in terms of the equipment cost being actually lower.
And the cost of customer acquisition, so thats not going to continue to be in place for long and every company is going to do things to change that model.
To make it more productive.
That gives us an opportunity to enter other markets. It gives us an opportunity to continue to grow.
Yes at greater rates and be able to offer the product in different places when we're offering today. So I think its is fairly simple equation.
We would continue the same strategy, we would continue to deploy our capital.
Balanced way, but to use that capital to grow systems. We think that's that's the best return that we can create that's a strategy that will continue to have and will increase that deployment.
As we see a more efficient process of obtaining customers just allows us to use that cash flow in a way to create more systems.
If I if I can press a little bit further what are you thinking in terms of your own a corporate FCF burn.
And the trajectory for improving there and maybe maybe response there was sort of implicit that did the visibility isn't there, but I'm. Just curious is just across some further.
I don't know for sure what you're asking Julian I mean, when we look at a free cash flow for US. We've we continue the operating model that we have is we use tax equity and other leverage on these assets to pay for the systems and so we take that cash flow and we'd have redeployed that.
And we've been for the most.
Part over the course of the last few years cash flow positive.
With that model in place, we expect that to continue now we expect to use that cash flow in a way to deploy systems.
I'm not sure what other color you're asking for.
No worries.
Perhaps slightly different direction strategically any further thoughts to offer here I mean at risk of Reask income from last quarter here, any any any updated thoughts or or positioning or commentary or color you can add to what's in the media.
No.
Yeah, I thought I'd ask when it comes to the media speculation on that yeah, we have no comment.
All right no where it's at figured I check thank you very much yep.
Thanks, Julien live.
Our next question comes from the line of Brian Lee of Goldman Sachs. Please go ahead. Your line is open.
Hey, I think we're getting the question just hope everyone is doing well.
I guess.
First question and I hopped on late so I apologize if you already covered this but down.
If I look at the slide deck, and you guys breakout quarterly the net.
You know estimated net retained value has been pretty.
Static here at a $10 flat per share for the past couple of quarters and that's following.
Pretty consistent run of growth every quarter for the past couple of years. So wondering.
One lie have we seen a bit of the stagnation here in that in that metric and then to what should we expect kind of going forward here, how does that how does that metric stuck to grow again.
Good question so.
Go ahead, Rob, yes, because they're part of that's just going to be related to the safe Harbor purchase and Q4, given that you know the metric net retained by doesn't reflect any major changes in working.
Working capital so as we start to the.
Go through the safe Harbor purchases and not by new modules, obviously, because we're using the safe harbor ones that increase as cash that will help the net retained value.
And then the process. Some other timing differences just as we tried systems and things like that that will help us in the future quarter. So that should start ticking back up again, but a big when is the $50 million just that we took out of cash in.
Back in December the pay for the Safe Harbor modules.
Okay obviously.
And that that is a good answer for why that's occurred in Q1.
No.
When Rob says that should start ticking up again I think.
All things considered with the pandemic volumes.
You know Rob Rob brought up the cash that you committed to to safe Harbor, but if I look at you know cash overall the on the balance sheet. It it's been declining here.
<unk> <unk> question earlier, you're you're lowest cash balance it. It's really early Pony 18, I'm just wondering what what lawyers forces of liquidity here, particularly in the near term given all the coconut uncertainty and and you know poor demand backdrop, and then you know just as you move through the year, if you're not making.
Any structural changes to the cost structure or nothing nothing fixed is coming out do you think you you'd have to sort of explore other avenues of financing <unk>. Besides the traditional tax equity in that would you look at equity just wondering kind of how you're thinking about the the cashier going forward.
Thanks, right I think we talked a little bit about this early on here and the call you know I think with Joe or I don't remember maybe fill out. The same question work a question about cash flows you know you're prepared remarks, we talked about.
The the normal routine that we would have with an A.B.S. or some other long term financing.
We take have taken less up from in cash flows on our assets than anyone else and so there's a normal process, we've gone through with between tax equity in the aggravation facility. We have been captured the full value that would capture we'd go well with an A.B.S. or some other longer term.
<unk> and we finance those assets and taking a considerable amount of cash or liquidity on those assets a year year now into the process.
That process and we wouldn't be at our low is that process begins to take place a year or so later as we've aggregated. These assets we've had that as a practice in a routine here over the last while so that this was disrupted in the first quarter, where we would have close that actually we were in.
Few days of the closing the fairly significant A.B.S. facility and putting a lot of cash on the balance sheet.
We pivoted and we'll have a different financing structure, but we'll put another hundred and $75 million to $200 million on the balance sheet here in the second quarter or right. In this time frame, we're on the cusp of of having that happened and.
And so the cash balance will be increased we do not expect to go back nor do we feel like we need to go back to the equity markets or have some other infusion of cash for capital that will provide a significant amount of liquidity for us and we feel like we're probably.
Very efficient in the way that we've we've done that now obviously the cash goes farther as your expenses come down and expenses throughout the industry have remained relatively high within the the biggest expense.
For most people being a customer acquisition costs and so that's you know that's certainly on our minds in a project that we're working on.
Said, we feel like we can operate and very well very effectively and be profitable with a in a very sustainable situation here.
As we go forward will work on that capital structure, but we feel like the liquidity is not going to be an issue for us all things considered now we also put a caviar in the <unk> financial statements to say Hey, we're on the cusp of closing maybe yes, it was going to a lot of cash.
And that was disrupted there's a possibility that any transaction could be disrupted but all things considered we feel quite good about the situation. We're in and we expect then the next quarter reporting on a new cash balance where your question may come back again, and say Hey, what are you going to the cash that you have.
[noise], meaning d. returned to shareholders or you know things, so we and our and our answer is gonna be we're gonna deployed that in systems and we're going to add systems, because we think that's the best return for shareholders.
I think I'd appreciate the and the color.
Thanks, Brian <unk>.
[noise] that concludes our Q. and a period there are no for the question I guess in German this concrete stays conference call. Thank you for participating you may now disconnect.
Yeah.
[music].
Yeah.
[music].
Yeah.
[music].