Q2 2019 Earnings Call
This time I would like to welcome everyone to the Vivint Solar Inc. Q2, 2019 financial results call.
All lines have been placed on mute to prevent any background noise.
After the speakers remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press. The pound key. Thank you Rob Kain VP Investor Relations you May begin your conference.
Thank you operator, good afternoon, everyone and welcome to live in solar second quarter 2019 financial results Conference call.
Joining me today to talk about our financial results are Dave Bywater, Our Chief Executive Officer, 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 day, seven solar Dot 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.
The 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 or the call. After managements remarks, we will host a Q and 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 in 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.
Involve risk and uncertainties that could cause actual results to differ materially.
We refer you to the registration statement. Some periodic reports that we will fight with the U.S. Securities and Exchange Commission from time to time, which are available on our web site 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 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.
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 controlled manner.
The growth and momentum we are delivering is expected and planned.
Four we are executing in 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 home brother 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's never been a better time to be at Vivint solar overall, I'm very pleased with our Companys progress and the exciting results we're experiencing.
Our direct to home Salesforce 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 overtime significantly low in 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 eight of the top 10 builders in California and are looking forward to the growth that will come from this important channel.
I am also happy to announce that we recently signed an agreement to operate and select locations with Sams 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 up 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 to best fit the needs of these channels.
We are optimistic that our presence with homebuilders and retail locations.
We will help us to reach additional customers and we are excited about the opportunities their performance.
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 Salesforce 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 and 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 viable option.
For customers, who don't have access to residential solar today.
Inside sales is an area of the business that has grown substantially over the past several quarters.
And we have increased his capabilities and improved our processes.
We are encouraged by these enhancements and are looking forward to 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 the United States and residential solar in particular is the investment tax credits as many of you are aware the ITC will begin to step down the beginning next year from its current current 30% level to 10% and 2022 for commercial enterprises on July 25th a bipartisan group of Representatives announced the introduction of the renewable energy extension Act that would extend the ITC at 30% for five 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 continued 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 a 169000 American families to benefit from clean affordable energy and in the process. We have created more than 43 100 direct jobs of the solar plus many more in the company's a supplier materials and associated services solar energy is an economic engine and extending the ITC will enable us industry to continue to growing American 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 has employed so many americans deserves a level playing field.
Over the coming months, we will vigorously advocating along with many others for the extension of the ITC that is supported enormous job growth cheaper cleaner energy and a more resilient grid.
Once you made a 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're on and the value we have created compared to our competition.
We are relentless in our efforts to be the leader and residential solar operational excellence.
We continue to refine processes audit and verify performance and add resources to ensure 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 deployed we want them to operate and perform as designed and we hold ourselves to Sam's. We think are unique in the industry, but necessary for long term profitability and customer satisfaction.
Even though we believe we are the best in the industry and.
Clearly.
Separated from a 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 it 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 dealers don't have the capital commitment or capabilities to operate as a credible provider for the long term as market conditions evolve and systems required maintenance or the service.
We understand the evolution necessary to educate consumers and much of this will need to be dictated by financial partners, who deployed capital to unqualified parties, who may leave consumers exposed.
Overtime, we believe our investment quality of installed solar maintenance programs and commitment to customers will translate into more volume as consumers become educated and investors understand theres 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 discipline that sustains mumbled 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.
As David mentioned, we are encouraged by the performance of the company and the strength of our offerings in the marketplace. We continue to grow and gain momentum in key markets in routes and we'll 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.
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 is $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 80 cents 88 cents for the quarter.
Excluding these onetime expense items would raise the net present value per watt to one dollarsthree point.
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 were retaining ownership was approximately $63 million up 16% from the year ago period.
Revenue from system the product sales in the second quarter was approximately $27 million up 5% from the year ago period.
We continue to expect system sales represented 15%, 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 $153 million in Undrawn loan capacity between our two 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 subsequent to quarter end, we entered into a new revolving warehouse agreement 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, and a half 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 five years.
We will continue 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're continuing to evaluate our safe Harbor strategy.
Attempting to appropriately hedged the possibility of future extension equipment price deflation and this technology obsolescence against the possibility of.
Locking in or increasing our current margins with their 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 we will be between $3.36 and $3.44.
With that I'll turn the call back to the operator for questions.
Thank you.
At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad, well pause for just a moment compared with Q and a roster.
Thank you. Your first question comes from the line of Julien Dumoulin Smith from Bank of America Merrill Lynch. Your line is open.
Hey, guys good afternoon.
Thanks, Thanks for taking the time and congrats on the results first off just on the growth side first and foremost could we talk about the expectations for the balance of the year I mean, obviously doing quite well are ready to Q3, Q 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 of the year, obviously threeq it looks as if it's closer to 17% and that leaves you with less than 15 for the Fourq or is that just conservatism or are you expecting a little bit of a slowdown for Q for whatever seasonality.
Hey, Julien it's David.
Yes, we're super.
Encouraged by how the first half in years gone.
We have pretty good visibility into Q3, hence the guidance.
And that's why we changed it's 15% or greater you can do your math on what you can get is we're just conservative nature.
As a company, but we're feeling pretty positive that is going to be 15, we know it'll be 15%.
Pretty comfort about that and it should be.
Potentially higher so its trending well.
On days when added into that but thats kind of.
We're proud on the growth piece, 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.
The growth materialize, mostly talked about Weve detailed homebuilders as well.
I think we're still focused on our.
And our best markets, our best economic environments, and best markets and we'll continue to.
To emphasize those markets, but we.
We're we feel very good about the third quarter and that's why we said, it's going to be 15% or greater.
Got it and similarly, just how are you thinking about MTV into the back half of the year I mean, it looks like your costs per watt guidance would indicate perhaps a little bit over a dollar a watt.
Adjusted can you can you talk a little bit of value creation in the back half of the year.
Seems pretty favorable but be curious what your commentary is and maybe let me just stop at third question here So quickly any.
Latest thinking on safe Harbor, given slightly greater articulation from your peers on.
Going into the last six months here.
As far as the value that we create on.
On the system basis or a 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 markets.
And.
And we're hopeful and we think that those trends will continue so the costs have been slightly higher and.
And we were slightly higher than our guidance. If you exclude those onetime items really as a result of just compete in the marketplace in those best markets and we feel like we've taken this year.
In the better.
In the best economic markets that we that were involved in.
And in doing that we've we've seen an increase in our attributes in our in our profitability on a system basis and so we feel.
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 Weve had tremendous success with them in the first half of the year.
And we think that that will continue but theres competition, there and and we expect to.
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.
Began to do some things around safe Harbor.
But in the details of that I think we.
Probably not going to have a lot of discussion around that.
In terms of more specifics.
Other than that we're working hard and just as we said in the prepared remarks, we're evaluating the different courses that we can take in that we.
Have initiated.
To do the best thing in the business and it's a bit complicated Julian I mean I think.
As we evaluate all the potential upside and downside for taking different actions.
I think.
Theres a lot to that but but we have initiated and have begun some activity around that.
All right great guys. Thank you.
Thanks, Julien Thanks Julien.
Your next question comes from the line of Praful Mehta from Citigroup. Your line is open.
Thanks, So much hi, guys.
Hey, Brad.
Hi, Phil maybe just starting with the costs a little bit of a disappointment with the increase in cost relative to your guidance 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.
Well, we we think that our costs were pretty much in line with what we guided to so we would have been one cents above the range of our cost excluding those one time items and the onetime items were mainly associated with financing activities 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 in a little later in the year. It happened earlier, otherwise that would have been part of the guidance that weve 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 those attributes that we created in the system values are higher.
Then 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.
Got you. So just so I understand how would you break up the two pieces right you said mindless the financing, which you said was the flow through agreement fees kind of showed up.
Unexpectedly in Q2, but if you can break out the two components how much of the financing piece was and how much of the other onetime items.
Most all of it was financing. So there was there was about $1 million and other activities other onetime items, but most of that of the $8.7 million. The majority of that was financed.
I got you Okay. So thats helpful. And then just to again and tell contacts and probably yes go ahead problem that one as well as per day in his remarks.
We gave guidance for Q3 its back to 336 to 344 so.
That's our guidance for for Q3, and so we expect to so.
You can see it was that one time blip, we just we dismiss adjusted on when it would hit.
Yes, no I appreciate that that's helpful context.
But then I guess to understand.
From a volume perspective, if you do have volume set up bigger and carrying that you did well in terms of volumes in Q2, when you sound like you're pretty confident on one volumes going forward as well.
Shouldn't that allow you do have some economies of scale and help reduce the cost per watt, how should we think about that.
I think thats exactly right.
The volumes will help us reduce reduce those fixed cost structures.
And and I think we feel.
Quite good about our current equipment cost of those things are quite stable, where we've seen increases if there. If there are some increases there. It has really been around the customer acquisition model. Some of that has been investments in these other 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 more volume will follow and we expect volume as we said in the later 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 costs, our overall cost per watt.
Yes, there are some irrational players in the market and.
We're trying to make sure we have all the channels needed to build bring the discipline over time so.
No those are investments that we're making today, we feel very confident about them, but it will pay off over time and.
You are preparing for and 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 and making those investments today.
Gotcha, Thats and Thats, great and Im glad to hear that trajectory I guess just quickly on the last point just to clean up item.
I saw in your Q2 cash flow statement and that seems to be like a big 38 million one time.
Other non current assets it might be too specific for you, but in case you know just wanted to understand whats driving some of that cash outflow.
In Q2.
Hey, profitable I think this is Rob I think that's more the accounting adjustment we talked about in Q1. So if you're looking at at Q2 relative to Q2 last year that's related to.
The adoption of I believe its ASEAN 42 are required us to move initial indirect cost from.
System sales on the balance sheet down so the other non current assets. If you look in the.
The deck on the Investor site, we've recast to 28 team financials, and you'll see the more comparable number there.
So it's really just driven by an accounting change.
I got you well I appreciate it guys. Thanks, so much just by classification, yes, yes, making the accounting change causes a classification change and so if you if you looked at that.
With that reconciliation you'd see that really wasn't much tonnage there was no adjustment there really.
Understood. Thank you guys.
Your next question comes from the line of Brian Lee from Goldman Sachs. Your line is open.
Hey, guys, it's Rebecca and on for Brian Thanks for taking my questions.
Can you just are you seeing any labor constraints one of your peers had mentioned that the bottleneck in the near term. So just wondering if that's also impacting your operations or if you're seeing any higher g. any cost due to tight labor markets.
As David Rebecca.
We've we've.
Executed well in Q1 and Q2 we.
I 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 Weve Delta, we've we've continued to work really well on our efficiency of our operation improves and we have a larger percentage of our installs now happening with three and four person crews than we ever have in our industry.
With an increase in the quality.
That that occurs with that so we've been pretty innovative on how we go about.
Operational efficiencies, it's given us some.
Some good momentum to make sure we can install and keep up with our sales momentum.
And we feel Rebecca like.
We have the people to to meet the numbers that we've talked about in third quarter or were in the process of hiring those people. So we don't feel like thats been a constraint for us we've gone very rapidly in certain markets.
And I think taken share in markets and ramped up fairly aggressively with operational.
Folks to meet our needs.
And we've been quite successful thus far so as far as a constraint goes there are tight labor markets for sure.
We were not seen with our business that we've been constrained today as a result of that and we anticipate being able 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.
Yes, Okay, that's good to hear.
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 the four storage.
No I think for us.
You guys know 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 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 focus is we think batteries and storage are very important.
And they're very much in the future.
I think that is the next to the 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'll 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 that we actually have had the last quarter or two and I think we'll step it up here going forward. So that is a focus for us and it is very important.
Okay. Thanks, guys.
Thank you Rebecca.
Your next question comes from the line of Joseph Osha from JMP Securities. Your line is open.
Hello there.
Hi.
Joe.
Hi, So a couple of questions first Oh, it's interesting you've gotten this aggregation facility. We done you dropped your cost of capital.
Improved advance rate.
I'm wondering if there's any read across there to what the.
How the terms are evolving for some of your takeout financing and what sort of.
Cash realization might look on on that end and that just.
Mapping from that and just slightly broader question just wondering.
How I might think about your cash realization over the course of the next couple of couple of couple of quarters here, because I see the balanced it go down from Q1 to Q2.
Well, we think the balance going down was more of a timing thing, we certainly could have drawn more cash in and.
Taken out more and and beef the cash balance up has been a focus for us.
The aggregation facility allows us to take.
To monetize more to 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 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.
It 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.
Okay, and then on the back of that obviously you did this whopper deal.
Middle of last year, Mike when might we see you out in the securitization market again.
It'd be spring to summer kind of timeframe.
So next year, we're still pretty consistent there I mean with the New act facility in place it might slip a couple of months more a little bit more towards summer from spring, but that kind of timeframe still still what we're.
Thank you what our thoughts are.
Okay.
Second question wondering if I can just get some thoughts from you on what the economics of his title 0.4.
Businesses that you've talked about here with the homebuilder engagement I would assume that probably the origination costs are lower but pricing might be lower as well just wondering how how it looks like that business is going to shape up.
Why were Jos David.
We're pretty bullish about it I think it's actually on the higher end of our profitability unit economics relative to our our portfolio.
Just look at the efficiencies that we've gained thus far on the homes that we have installed and.
You know not only that but just the you avoid a whole bunch of the electrical upgrades were able to put the panels in the most advantageous pieces of the roof.
Our installed base.
Affiliate 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.
The conversations we're having they 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.
You know.
These partners.
Good how we run our business and they really value. It so not only did we think we're well positioned.
No and we were very happy with the progress we've made.
In a very short period of time, because this has not been 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 it's a new market, it's a profit market and it aligns nicely with our our relative strengths.
Okay, and then last one from me before I go way, we've seen your pure make a lot of noise about some of these capacity deals with U.S.
Ccas immune 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.
Yes, we're a little behind them on that.
But as we turn our focus to it what are we turn our focus to we make good progress on so.
As I mentioned earlier on the battery stuff in grid services and all those partnerships.
Yes, it's in front of us and we'll announce at the right time, what we're doing in the price, we're making but at this point ill reserve that and not elaborate.
Okay. Thank you very much.
Thanks, Joe.
Your next question comes from the line of Philip Shen from Roth Capital Partners. Your line is open.
Hey, guys. Thanks for the question first one is on partners was wondering if you could expand a bit more on b., Jason Cosco, specifically and how they are ramping.
The last call you talked about volumes in the back half.
Could we see some volume in Q3 from either one of these partners and if so can you comment on you know what that volume could be or do you expect that to be much more Q4 loaded.
We're actually seeing volume today.
So it's not like it's not happening, but I think that the.
The momentum we believe is going to continue to build as we ramp people and processes and build those organizations and we do think it's more towards the later half of the year, we'll see substantial volumes. So it's not that we're not seeing some volumes today, we are and where.
Just kind of.
As we talked about on our last quarter's call. This was our first foray into the retail space, we've announced the number.
Of partners that were working with and and we feel like it's going well, but it's the it's going to be a little later in the year before we're we're expecting meaningful volume there.
Great. Thanks Dana.
And David you commented a lot on the ITC extension.
Can you give.
Your sense of what the probability might be.
As an extension either this year or.
Your next year before the elections or where 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.
Well I'm, a I'm an optimist, obviously its a drives me.
And I believe that we will get a pass I don't know the 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 happened before the elections that would be fantastic.
But we are preparing for the scenario that will not be the case.
And we will be protected against that.
You know, it's just it's so funny because it's such an illogical debate to be happy when you have 90% of Americans, saying, please do more solar not less and we're supposed to be a constituent driven.
Government, it's just shocking to me that the Zimmer debate. So like Weve worked on the state level, when we get to the consumers and voters involved.
Then that then the politicians listen so theres never been something I know, where you have so much.
Common support across the country for this to continue and the disparity between us and the subsidies have less lasted for so long and in other industries right. This is just the right thing to do so I'm, hoping that prevails I think if it happens it will happen next year I hope it'll happen sooner, but we're planning on it.
We're planning on it other way happening late next year or.
Or not happening, we'll work to hedge our bets as best we can.
Great. Thanks for the color.
As it relates to modules and securing them some of our recent conversations with.
Industry players suggest.
It's getting a 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.
No I think I think the market certainly is tightening up and we are seeing instances where pricing.
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 product.
Certainly purchase the purchase ahead.
And we've done some purchases.
And gone and made some contractual commitments for panels that have extended past today Q4.
So we don't think that Theres, an issue with having that product.
To meet our needs through 2019.
Great.
One last question for me.
I am I believe you guys are completely standardized on the 20 year lease.
What do you guys do you have any 25 year leases and PA or PPA case.
If not are you exploring this at all.
What are your thoughts on potentially shifting that lease longer.
Well, we know that Theres, others, who do deliver longer term lease we have not been we've been on a 20 year.
Contractual period and.
And we think that that makes the most sense, we certainly will continue to evaluate.
Longer term structures and other products that make sense that.
Especially if it's an advantage.
The company.
Since but.
To date, 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.
Great. Thanks, Dana I'll pass it on.
Your next question comes from the line of Colin Your RASK from Oppenheimer. Your line is open.
Thanks, So much guys can you talk a little bit about the normalized DNA spend as we go forward is there some some meaningful leverage there as that can scale up as you scale up.
We won't have any significant ramp ups in Jena expense there will be.
Some as we develop more programs as we have more volume there will 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.
We that will be proactive about and make investments and 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 DNA or back office expenses.
Okay and then just.
Haven't gotten an update and while on 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 from that relationship.
You know there is no parent company were a standalone.
I have a sister company, but yet not apparent 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's still a heavy.
Commonality and ability to sell both products in both areas. So.
We are 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 in the cross sell with both groups on lead generation.
Going both ways so.
It's very positive it's a great relationship. It's one I value tremendously personally and we value a lot collectively the organization so still very very positive.
And.
And something I think that's our salesforce loves having that relationship to build to do it both ways.
Alright, thanks, guys.
Thank you ladies and gentlemen. This concludes today's conference call you may now disconnect.
Okay.