Sunrun Inc (RUN) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Sunrun Inc.

Q1 2017 Earnings Conference Call.

At this time, all participants are in a listen-only mode.

Later, we'll conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions) As a reminder, this conference may be recorded.

I would now like to turn the conference over to your host, Mr. Patrick Jobin.

Sir, you may begin.

Thank you, operator and thank you to those on the call for joining us today.

Before we begin, please note that certain remarks we will make on this conference call constitute forward-looking statements.

These include, but are not limited to, statements related to our financial and operating guidance and expectations regarding our business, future growth rates, and financial and key operating metrics.

Although we believe these statements reflect our best judgment based on factors currently known to us, actual results may differ materially and adversely.

Please refer to the Company's filings with the SEC for a more inclusive discussion of risks and other factors that may cause our actual results to differ from projections made in any forward-looking statements.

Please also note that these statements are being made as of today and we disclaim any obligation to update or revise them.

If this call is reviewed after today, the information presented during this call may not contain current or accurate information.

On the call today are Lynn Jurich, Sunrun's co-founder and CEO; Bob Komin, Sunrun's CFO; and Ed Fenster, Sunrun's co-founder and Executive Chairman.

The presentation today will use slides which are available on our website at investors.sunrun.com.

And now, let me turn the call over to Lynn.

Thank you, Patrick.

We are pleased to share with you Sunrun's first quarter financial and operating results along with progress against our priorities for 2017.

In the first quarter, we deployed 73 megawatts, up 21% year-over-year, exceeding our guidance by over 5%.

We gained market share, increased deployments, reduced our creation costs, and generated $56 million in net present value.

We have done so while improving unit level economics year-over-year and while maintaining our cash position above $200 million for the seventh consecutive quarter.

Our performance in Q1 and recent trends gives us confidence to reiterate our full 2017 guidance of over 35% growth in NPV, deployment growth of 15% and our cash flow outlook.

I'm pleased with our strong results and our competitive position.

First, our multi-channel business model.

Our channel business provides us with broad reach and leverages cost effective regional installers.

Our direct business allows us to achieve efficiencies in core markets and share best practices with our partners through our platform.

As the largest stand-alone residential solar company, Sunrun is the natural choice for big-box retailers and large consumer brands, which are effective acquisition channels and offer geographic expansion opportunities.

Second, our product suite, we offer products customers want whether it's service agreements, also known as leases or PPAs, loans or cash products.

We enable consumers to save money on their energy bills and purchase cleaner electricity at locked-in predictable rates.

We've already saved our customers over $100 million in our short 10-year history.

Our customers appreciate that our interests are aligned with them over the long run.

We delivered strong financial results this quarter while also making progress against our long-term strategic priorities.

First, our three-pronged partnership with National Grid is off to a great start.

As previously announced, National Grid is contributing $100 million in project equity.

In the quarter, we have started to contribute assets into the fund and just yesterday closed a $195 million non-recourse back leverage facility to complete the capital structure.

The grid services collaboration is progressing and setting the groundwork for additional revenue streams in the future and the early results of the co-marketing pilot are encouraging and we are expanding into more zip codes.

It is clear that forward-thinking utilities and regulators recognize the value distributed energy resources can bring to the country's energy infrastructure.

Second, we lead the industry and continue to innovate with the first zero down solar plus storage as a service offering for residential customers.

Over the last few months, we advanced installations of our BrightBox offering in Hawaii and California.

Sunrun is focused on modernizing our inefficient and dirty $1 trillion energy infrastructure, playing offense and gaining market share.

Our channel enabling platform, innovation with BrightBox, and our capital position builds increasing entry barriers while new markets are opening up to set the stage for continued growth.

I'll now turn the call over to Bob Komin to review Q1 performance in more detail and discuss guidance.

Thanks, Lynn.

In the first quarter, we exceeded our deployment guidance and executed well against our 2017 goals.

NPV was $0.83 per watt in Q1 resulting in aggregate NPV created of $56 million.

This represents 145% growth compared to the prior year.

For the year 2017, we continue to expect to generate $1 per watt in NPV, a 15% improvement to our unit level economics compared to 2016.

We expect the seasonal pattern of NPV to be consistent with prior years, with lower NPV per watt in the first half and gradually increasing throughout the year as volumes increase.

NPV is calculated as project value less creation costs, so let's go through each of the components next.

Q1 project value of $4.21 per watt was $0.20 lower than Q4 principally due to the mix of business in the quarter.

We expect project value to be approximately $4.25 per watt for the year, 5% below 2016, but this decline should be more than offset by cost reductions.

As a reminder, project value is very sensitive to modest changes in geographic, channel, and tax equity fund mix.

We expect project value will continue to decline slightly over time with cost declining more although in the short run, there can be quarterly fluctuations.

Turning now to creation costs on slide nine.

In Q1, total creation costs were $3.38 per watt, an improvement of $0.69 or 17% year-over-year.

Similar to project value, creation cost can fluctuate quarter-to-quarter due to changes in geographic and channel mix and this quarter we saw some benefit to our costs from our mix of business.

As a reminder, our cost stack is not directly comparable to those of peers because of our channel partner business.

Blended installation cost per watt, which includes both solar projects deployed by our channel partners as well as by Sunrun improved by $0.31 or 10% year-over-year to $2.67 per watt.

Install costs for systems built by Sunrun were $2.14 per watt reflecting a $0.22 or 9% year-over-year decline.

We expect installation costs to improve further as we realize more of the benefits of lower panel and inverter prices beginning in Q2.

In Q1, our sales and marketing costs were $0.51 per watt, a 12% improvement from Q4 and a 41% improvement from the prior year primarily driven by channel mix and our focus on the most cost effective customer acquisition channels.

Next, G&A cost per watt was $0.29, a $0.01 increase from Q4.

These costs have been largely flat for the last several quarters.

In 2017, we expect to realize further operating leverage with volume growth exceeding G&A cost increases.

Finally, when we calculate creation costs, we subtract the GAAP gross margin contribution realized from our platform services.

This includes our distribution, racking, and lead generation businesses as well as our solar systems we sell for cash or with a third-party loan.

We achieved platform services gross margin of $0.09 per watt, lower than Q4 due primarily to a lower mix of solar system sales and seasonality in our distribution business.

In the first quarter, deployment increased 21% year-over-year to 73 megawatts, exceeding our guidance of 69 megawatts.

This beat was primarily attributable to an increase in our channel volumes.

The strength and flexibility of our multi-channel platform model continued to serve us well in the current market conditions.

As we've highlighted over the last few quarters, we're seeing more opportunities that are favorable to work with partners while meeting our NPV and cash contribution goals.

As we've previously described, this trajectory can fluctuate quarter-to-quarter since we do not manage to a mix or volume target, we instead prioritize based on unit level margins.

Our cash and third-party loan mix was 7% in Q1, lower than Q4.

We expect this to increase slightly and return to more recent levels of low-to-mid teens.

As discussed previously, we believe our PPA and lease product mix of over 80% better matches consumer preferences and delivers our customers significant value and predictability, which is one of the reasons we've been able to take share.

In Q1, our net bookings were 74 megawatts, an increase of 19% from the prior year.

As a reminder, bookings are calculated net of cancellations.

Our liquidity position remained strong.

We ended Q1 with $204 million in unrestricted cash, the seventh consecutive quarter we've been above $200 million.

Our view that we will be able to maintain or potentially increase our cash position by the end of 2017 without issuing additional equity remains unchanged.

This excludes any strategic opportunities or accelerated market entries beyond our current plan.

As a reminder, the timing of project finance proceeds can vary quarter-to-quarter and our primary objective is to optimize for the lowest long-term cost of capital.

So we focus first and foremost on the best execution of financing, which could impact the timing of our cash balance on a specific quarter-end measurement date.

Moving on to guidance on slide 10.

We remain confident in our growth trajectory with Q2 guidance of 72 megawatts, which reflects approximately 15% year-over-year growth in the first half of 2017.

We are reiterating our guidance of 15% growth for deployments for the year, which is approximately 325 megawatts.

Our principal focus is generating approximately $1 of NPV per watt.

We continue to believe we can generate more than $290 million in aggregate NPV in 2017, a more than 35% increase from the prior year.

Now let me turn it over to Ed.

Thanks, Bob.

Today I wanted to touch on three items.

First, I will discuss how our use of cash equity such as with National Grid impacts our gross and net earning asset figures.

Second, I will summarize the back leverage facility we arranged for the National Grid partnership and report out on what we see as a strong project finance environment generally, and lastly, I will touch on our customer-centric business model and very happy customer base.

Turning first to our installed asset base, we're pleased to report that as of March 31, net earning assets were $1.1 billion reflecting a 35% year-over-year increase.

Net earning assets now totaled $10 per share.

As a reminder, net earning assets represents the present value of cash flows we expect to receive from our fleet of deployed solar systems after deducting our estimated operating and maintenance costs, our project level financing, and distributions to our tax equity partners.

The use of cash equity financing such as the National Grid partnership increases our corporate cash balance versus the use of just nonrecourse debt.

However, with the solar facilities and such partnerships largely monetized upfront, growth in gross and net earning assets will slow as we exclude from these metrics cash flows destined for cash equity partners.

In 2017, we expect to be able to maintain or grow corporate cash while adding to net earning assets.

Lastly, on slide 12, we have again included the table we introduced last quarter, which presents the present value of our renewal cash flows as a function of the number of years of renewal payments received and the per kilowatt hour rate realized in the renewal period.

As you can tell from the table, even very low real PPA rates below even wholesale power prices provide significant present value for Sunrun given our large and growing fleet.

Transitioning to financing activity, yesterday, we closed a $195 million back leverage facility for our partnership with National Grid.

At closing, we partially drew on this credit facility with most of the proceeds being used to repay our existing aggregation facility or return capital to National Grid.

As we continue to place assets into this partnership, we will draw down further on the facility.

As is our customary practice, we entered into 20-year interest rates swaps to predominantly fixed LIBOR for the initial contracted term of the customer agreements.

The swaps we have executed thus far have set in all-in interest rate of 5.1% for the credit facility's seven-year term generating proceeds at the high-end of the 95% to 100% range of contracted project value we discussed last quarter.

This result is before considering the 50% upside sharing arrangement we have with National Grid for refinancings.

We believe the closing of this facility marks a major milestone.

First, this type of back leverage facility has become sufficiently plain vanilla and supported by a large enough number of lenders that we didn't even use a syndication agent to place it.

Second, the combined proceeds we received in this transaction is consistent with our reported contracted project values.

We believe there is a growing market for cash equity and that the proceeds we realized in this transaction can be achieved while offering such investors an attractive return on equity of about 10% even before considering the benefits they may realize from future refinancings.

With this closing, we have committed tax equity, back leverage, and project equity runway into Q4.

We also continue to see robust interest from tax equity investors in providing additional capital to Sunrun.

Turning to my final topic, I wanted to share some metrics that underscore our customer-centric approach towards the business.

Our net promoter score, a best practice measure of customer satisfaction, for the last 12 months has been 69, which is excellent and puts us on par with some of the best companies in the world like Apple, Amazon, and Netflix.

Our NPS score this quarter was the highest we've ever recorded and it is representative of the fact we're always investing in improving our customer experience.

Our customer referral rates have grown sequentially for each of the last four quarters, which is a further sign customers are increasingly pleased with Sunrun.

Our Better Business Bureau rating is an A plus and our product offerings ensure we are naturally aligned with customers.

Not everyone in the industry can make this claim.

For instance, we provide performance guarantees that ensure customers only pay for power delivered and we make the kilowatt hour rate customers pay entirely transparent.

We stand by and service our systems.

For those installers that only sell a system and walk away, customers have no guarantee of the true cost of solar energy received and can be left without a service provider to maintain their system.

We offer customers a low price for solar energy that is fixed for 20 years.

What utility can say that?

We care about having a happy customer base that is generating value from their solar systems.

Our asset performance statistics show it.

Our cumulative loss ratio is less than 1% and in the aggregate, our systems produce more power than we have promised our customers.

Our commitment to best practices also extends to safety and construction quality and importantly, our employees care.

In the quarter, we received an appreciative call from a bystander who reported that on a major South Carolina road, when cars came to a stop, a dog ran out into traffic.

She said, two Sunrun employees jumped out of their vehicle and caught the dog just before it would have been hit by oncoming traffic.

They returned the dog to its owner and drove off to their job site.

These are the sort of people and culture we are proud to have at Sunrun.

We pride ourselves in delivering excellent customer service not just throughout the sales process, but the decades that follow and I'm pleased to report the data support our excellent track record.

I'll now turn the call back over to Lynn for closing remarks.

Thanks Ed.

While we are pleased with Sunrun's performance in Q1, we are even more excited about the tremendous market opportunity in front of us and how Sunrun is positioned.

Operator, please open the line for questions.

(Operator Instructions) Andrew Hughes, Credit Suisse.

I had one on bookings and then one on cash equity.

Just curious on the bookings front, your average turnaround time from bookings to deployment especially now with the sort of more stringent booking definition and then it looks like you need to do about 35 more megawatts in the second half than in the first half to hit guidance.

So is there any -- what should we look for, I guess in the second quarter bookings numbers that give us confidence in your full year targets and what you need to do in the second half?

Sure, so I think your question was -- was your first question, Andrew, on what are the cycle times?

I think to just answer that from the bookings to install right now, we're running at about 20 days is what you're going to see.

So you're going to see the bookings number translate pretty closely into the installs and so you're not probably going to see -- so because this summer season ramped quite a bit too, you're probably going to see some additional bookings in Q3 that will also get installed in the quarter because that timeline is so significant.

We don't believe it's a situation where we would need to post a Q2 bookings number at the exact same amount that we would need to install in Q3 to hit the guidance.

I think we're still planning to deliver the 15% growth here on installs and we really hustled in Q1.

So we did better than expected and that guidance in Q2 keeps us at that 15% year-over-year growth rate for the first half of the year and right on track for the year.

So, as you know, Q3 and Q4 always a lot stronger due to the summer selling season.

So we are confident we have the right channels to achieve that.

That's very helpful and then, I mean you mentioned that the cash equity opportunities look strong.

Curious, first, as you roll these sorts of projects finance runway forward, does the mix of tax equity and cash equity and project deck look any different than it has historically?

Is there more cash equity in that mix?

And then more broadly, have you guys thought at all about going a little bit deeper into your asset base and perhaps selling stakes in operating assets and using that cash to buy back shares or something else along those lines?

Thanks.

Thanks, Andrew.

So, this is Ed.

So first, the ratio of tax equity to back leverage is approximately the same, it hasn't changed very much and continues to have that relationship whether or not it's the case that we use additional cash equity.

In terms of the opportunities for additional cash equity, obviously, we continuously evaluate our capital structure and work to optimize our long-term value and obviously pay attention to our liquidity position as well.

In terms of our overall strategy, I think, we've said on the call that our preference is to continue to grow net earning assets and to grow the cash book of business -- to grow our net earning assets while increasing our corporate cash, excuse me.

So it's certainly possible that we would evaluate or execute certain cash equity transactions in the future, but we haven't made any determinations or statements on it at this time.

Julien Dumoulin, UBS.

Perhaps just to start it with a little bit more of a perfunctory question, I'm curious, obviously the discussion in the media of an investigation, can you comment, I suppose just to give us a little bit more context, 1A, is there something ongoing; and then B, can you give us a little bit more context about how you see cancellations materialize I suppose.

I know you already referenced it a little bit in your opening comments, but perhaps a little more clarity there and then I got a follow-up.

Sure, Julien.

We're glad that you brought it up and actually we view the article that you're referencing as a gift on two dimensions really and I think the first one is that we get to talk about our customer experience, which we're phenomenally proud of and I think the stats speak for themselves with saving our customers $100 million, our NPS score and the percentage of customers coming to us through referrals.

So we think customer experience is going to be a huge differentiator.

We think we're winning on that dimension and so we welcome the opportunity to really talk about that and engage on that dimension with the media and other constituencies.

And I think the second reason why this discussion is important is that we think that the cancellation term is really misleading in our industry and you got to think about the sales process.

The sales process is, you get a customer to sign.

You want the customer to indicate they're very interested because you're going to start spending money on that customer.

So the customer signs, but they sign before you actually go to that -- first of all, they don't put any money down.

Then you go to the house to inspect the site, you consult, you give them the exact savings that they are going to realize and for some customers, they decide that there's too much shading, it doesn't work, their roof might not be appropriate.

So there's a number of reasons why people might fall out.

They might want to wait until they do another home improvement, all of those I think are very natural and to be expected and are part of the process.

So I think when people hear the word cancellation, they jump to, oh no, these customers have installed systems and now they're not paying and they are trying to cancel it.

It's very much not the case.

We believe it's the right sales process to get that upfront signature, but then have a natural fallout through that process.

So that's how it works in practice and I think the other thing that was a little misleading in -- some of the discussion around this is all of the dollars we spend on sales and marketing are recorded in our financial statements.

All of those dollars associated with those customers we record and then the bookings number that we report each quarter [nets out the cancellations].

So I think we just wanted to clarify those couple of points.

In terms of the investigation that you asked about, the scale of our business is really significant.

We'll spend $1 billion in 15 states and we're disrupting huge entrenched competitors.

So we get a ton of attention on us as you might imagine.

So we respond to all inquiries fully and with the utmost transparency.

So everything that's material is in our filings and we are really proud of that high standards that we set for ourselves and our team.

Got it, excellent.

And then another question more on the regulatory side, the Suniva, the 201 filing, I just love to hear your initial thoughts both in terms of [probably there's likelihood] and then more importantly what you gauge the impact to be both in terms of what that would mean for PPA prices needing to improve but also directly for yourselves and your contracted position.

Hi, Julien.

It's Ed, obviously, everyone's favorite topic de jour.

It's the early days in the Suniva trade case and we think it's premature for anyone to be making predictions as to the outcome, but as the major media has put it, the petition was a last-ditch effort to survive by a Chinese-owned company that is asking the US government to fix prices for solar panels.

On the policy side, the International Trade Commission needs to determine among other facts whether Suniva is representative of US manufacturing.

This is a key and necessary finding.

If they do, on the political side, the US Trade Representative and the President have to decide that price controls are appropriate considering additional facts such as that the last time 201 sanctions were imposed in 2002, they had to be repealed prematurely following cross-industry retaliation by other countries and also for instance that 99% of all US solar jobs are downstream.

Even SolarWorld said, and I quote, any action to be taken against unfair trade shall consider all parts of the US solar value chain.

We expect to participate in this rate case both directly and via SEIA.

Although we don't believe our earnings call is the right venue to assert the details of our position, AEE, our distributor, has had significant interaction with Suniva and our experience suggests they are not representative of other US solar manufacturing companies.

As one example, they never met the quality standards necessary to be on our own approved vendor list.

In the event that price controls are imposed, to your question, I would note that panels represent only 10% to 15% of residential solar costs and that we would expect the market pricing would increase in those geographies that support it.

There would also be time ahead of any potential decision to optimize our procurement activities and supply chain prior to the effective date of any determination.

Brian Lee, Goldman Sachs.

I had two of them.

Maybe just start off a follow-up on the earlier cash equity question, it sounds like Ed, you're looking at that sort the financing with a bit of a higher appetite than you might have previously.

Just wondering, are you seeing from the other side of the table a different set of audience numbers in terms of the types of potential investors.

I know, right now its National Grid and they fit into that strategic category.

Are you looking at more strategic in that realm or is it going to be more of the traditional financial institutions that [would be metrics full].

Sure, Brian.

So, it's Ed.

You notice that we continuously evaluate all options for our capital structure and work to maximize our returns over time that could potentially involve further cash equity transactions.

I think we said on the last call and it continues to be the case, we see both strategic and financial interest in these sorts of transactions on similar terms.

So we do see that from both sorts of counterparties.

Okay, fair enough.

And then second question, I'll pass it on is around sales and marketing cost, a pretty steep drop here, which is impressive.

Can you talk to how much of that was mix driven versus kind of like-for-like organic cost reductions and then how we should think about the potential for further reductions as you kind of move through the year.

If you can quantify that to any degree?

Thanks a lot.

Thanks Brian.

So it's both, the answer is both.

There is certainly some mix to more partner business, more channel business, but also the actions we've been taking over the past few years to deliberately focus on channels where we like the unit level economics channel-by-channel market-by-market.

I think we would expect that will tick up a bit through the rest of the year, but again, as I've mentioned in my blog, I think -- these customer acquisition costs of $0.50 to $0.60.

They're really warranted by the value of the customer we're creating.

So we can build a very strong long-term solid cash generating business at that level of acquisition cost and then the market frankly supports that because the value of the customers are there.

Now over time, we're going to work to continue to get that down.

We have ideas and efforts, but for now, I wouldn't expect that there would be significant declines and I wouldn't believe that the market would really support that.

So it sounds like we're in the $0.50 to $0.60 per watt range moving through the next few quarters.

Colin Rusch, Oppenheimer & Co.

Could you guys just talk a little bit about the competitive dynamics between the potential providers for the back leverage facilities.

It would seem that if you're getting checks this size from a single entity that you might feel to start bidding down some of the cost of capital on that front?

Hi, it's Ed.

So I first want to clarify the transaction that we entered into, the $195 million credit facility did involve a reasonably large syndicate of banks.

We just organized the syndicate ourselves.

So it was not a single counterparty who provided the capital to us.

That said, we do see increasing interest in the sector.

It is a strategic decision when the right time to push on terms is.

We have a long view on the market and monitor that situation carefully and obviously do the best to minimize our credit costs, not just this year, but for years to come.

Great and then just looking at equipment prices as you go into the back half of this year, obviously, there's been a fair amount of noise around new entrants in the inverter space, some exits and you guys have talked about that.

Could you just talk about some of the supply chain dynamics, not just with inverters, but with some of the other equipment including racking that you're seeing out there in terms of cost reduction as you go through the balance of the year?

Sure, happy to address that.

I think if you look at our installation costs in the first quarter, we actually in that number didn't realize the kind of material cost reductions that we're expecting for the year.

So I think we talked on the last call a $0.15 kind of number.

We didn't see that yet out of the first quarter just due to inventory and we're going to see that in the second quarter.

So we're really looking forward to future ongoing tailwinds there.

And could you speak specifically to some of the Chinese imports on the inverter side.

Are you starting to see real volumes, are you still testing equipment -- are the delays on expectations around that, just trying to get a sense of that part of the supply chain?

Good question, maybe for the SolarEdge call.

I don't know, we're seeing -- our inverter costs, we would expect we probably see $0.05 to $0.07 for the year.

Krish Sankar, Bank of America Merrill Lynch.

I had a couple of them.

First one either for Ed or Lynn, the second half growth in demand or in your megawatt install, is it primarily coming from just true demand or you seeing any share gains and along the path where is your market share today and I have a follow-up.

Sure, we do expect to see share gains, yes.

So I believe the overall market growth rate projections are in the low teens and we're at 15%.

So as you know it's modest, but it's a solid share gain and I'm sorry, what was the follow-up to that?

Where is your market share today?

The market share today -- I don't have the exact latest figure, but I would say it's just above 10%.

And then I had a follow-up too.

A question for Bob, I'm just kind of curious, you guys have spoken about getting a NPV of $1 a watt for a while now.

I'm just trying to figure out what is the path to that?

Is that primarily cost reduction plus unit volumes or is there some other mechanics behind it?

So certainly, we've talked about getting more installation cost improvement in the back half of this year and a lot of that will happen there.

And we also, if you look at our trajectory for the year in the second half, we are going to have volume growth.

So that certainly helps us across the entire cost stack, not just installation costs.

So when you add that all together, we're comfortable with the dollar NPV for the year and we were there in 2016 as well in the second half.

Vishal Shah, Deutsche Bank.

So first question is on the back leverage and the tax equity market.

There is some uncertainty around the corporate tax rate.

So I'm just curious if in the discussions that you have with some of these lenders, is there any contingency around a change in tax law and who takes the risk in that case?

Good question.

So just backing up for a minute on the corporate taxes generally, we do not see an impact first, I just want to say on tax equity availability especially for Sunrun.

Even in the biggest of years, most tax equity investors are constrained by staffing and underwriting not their own tax capacity and right now our observation is that several large tax equity investors actually appear to be short of their plans for 2017.

And in addition with rising interest rates on a short-term basis, it's not obvious that bank income taxes will decline even if the corporate income tax rate is reduced.

As compared to other tax investments like wind or low-income housing, solar also doesn't carry very much net depreciation benefit.

So it's not very sensitive to changes and so investors aren't that concerned about the proposed changes because they don't have very material effects on the projects.

On pricing, and on terms, that varies on a transaction-by-transaction basis.

Actually, the last term sheet we entered into with a tax equity investor actually had the risk of change in tax law on the tax equity investor, but again, because -- even a reduction to a 20% corporate tax rate would reduce the value of systems by maybe 3%.

It's not that big an issue for people to think through and obviously from our perspective that's a fraction of our annual cost reduction roadmap.

That's great.

And this one other question, I know there's some discussion on the 201 case, but I believe your module costs given that you have some inventory that you carry forward are definitely more than where the market price is today, right.

So I'm just curious to see if your margin costs are above $0.40 whereas the market price is between $0.35 and $0.40, is that a fair assessment?

And then what do you think the NPV would be for a Solar Plus Storage systems relative to your [pure cell] offering, I mean, do you think your NPV per watt would be higher or lower than $1 per watt.

Thank you.

Yes.

Sure, absolutely.

So, yes, we are in Q1, our module cost was higher than your stated range there of $0.35 to $0.40, but we pretty much bled through that and so we're sitting in the exact range that you say.

And then, in terms of the Solar Plus Storage product, yes, as we mentioned on the last call, the NPV is higher than in our standard product, but again, in terms of its impact on the annual financials this year, it will not be substantial.

So on the north of $1 per watt NPV that we're talking about generated in the back half of this year.

That's really not from storage contribution.

That would be upside to that figure.

And the Solar Plus Storage offering, would that be mostly C&I initially and then residential, how does it -- how are you planning to do it?

It's all residential.

We're still completely residential focused.

We've sold as we mentioned over 1,000 of those already and we are the only company we believe that we're offering that as a service.

So we invented -- once again we've been real Innovators on the product side and we offer the Solar Plus Storage BrightBox products through a PPA for consumers, which has proven to be pretty attractive.

(Operator Instructions) Sophie Karp, Guggenheim Securities.

I have a quick question on the mix in the quarter.

It looks like share of cash sales has declined a little bit and kind of curious if this is a trend and how do you see that developing?

And also maybe as a follow-up, how do you think about your positioning versus small mom and pop shops at this point because this appears to be something that people like to talk about?

Hi Sophie, this is Bob.

On the first question, yes, our cash mix was lower than what we've seen.

We were at about 7% in Q1.

We think that it will go back up to where it has been in the last few quarters, which is only a few percentage points higher in the low kind of teen range.

Part of the reason that we think that Q1 was a little behind where it has been is the -- our retail channel is where we generate most of the cash and loan mix in our business and in Q4, it was a seasonally tough quarter for us, the holiday season was not great in general in solar and we're feeling that in installation volume in Q1.

And then on your -- the second point of your question on the longer tail solar installer universe I mean, we have -- that's terrific for us.

I mean that's why we have a multi-channel business.

We've always believed that there are both scale advantages for national players around building a brand, having big business development relationships, procurement, utilization in core markets.

So those advantages exits, but there are also a lot of attractive advantages for small and local business that are more referral based that know their local permitting department and their communities and so we believe that the market would have both.

And for years, we were sort of criticized for that and the story was vertical integration and now the story is, oh, it's all about the long tail and really we believe that the story is more balanced, both have a role and we think that the advantage of that multi-channel model of ours are being borne out through our financial results.

I'm showing no further questions at this time.

Okay.

Well, thank you everyone and we look forward to speaking with you further.

Take care.

Thank you.

Ladies and gentlemen, this does conclude today's conference.

Thank you for your participation and have a wonderful day.

You may all disconnect.