Vivint Solar (VSLR) Q1 2019 Earnings Call Transcript

Vivint Solar (VSLR)
Q1 2019 Earnings Call
May. 09, 2019, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is David, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vivint Solar Q1 2019 financial results conference 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. [Operator instructions] Thank you. Rob Kain, vice president of investor relations, you may begin your conference.

Rob Kain -- Vice President of Investor Relations

Thank you, operator. Good afternoon, everyone, and welcome to Vivint Solar's first-quarter 2019 financial results conference call. Joining me today to talk about our financial results are David Bywater, our chief executive officer and Dana Russell, our chief financial officer. This call is being webcast, and a supplemental investor deck is available on the Investor Relations section of the Vivint Solar website at investors.vivintsolar.com.

In addition, we will be discussing both GAAP and non-GAAP financial measures during today's call. We have provided non-GAAP to GAAP reconciliations in our earnings press release that was issued earlier today, and this press release is also available on the Investor Relations section of our website. Please note that a replay of this call will be available within a few hours of the call today. After management's remarks, we will host a Q&A session.

During today's call, some of the statements we will be making constitute forward-looking statements within the meaning of the Federal Securities Laws, including statements regarding our guidance and our expectations for our business, finances, operations, and markets. Accordingly, we wish to caution you that such statements are just estimates based on current expectations and assumptions regarding future events and business performance, and involve risks and uncertainties that could cause actual results to differ materially. We refer you to the registration statements and periodic reports that we file with the US Securities and Exchange Commission from time-to-time, which are available on our website identifying important factors that could cause the actual results to differ materially from those contained in our projections and other forward-looking statements. We undertake no obligation and expressly disclaim the obligation to update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise.

With that, I will turn the call over to David.

David Bywater -- Chief Executive Officer

Thanks, Rob, and good afternoon everyone. Let me start by saying we're very pleased with our first-quarter results. Since we just released fourth-quarter results on March 5th, we will keep our prepared remarks today brief. For the first quarter, we were slightly over the high end of our guidance with approximately 46 megawatts installed, versus guidance of 43 megawatts to 45 megawatts.

Our unit cost was at the low end of our guidance at $3.46 versus guidance of $3.45 to $3.52. The steady, but accelerating performance, is a tribute to our team of great employees and partners who are passionate about the power of residential solar and our vision of creating a forceful means to offer renewable energy to consumers, while creating economic benefits for shareholders, investors, and customers. We are encouraged by our execution and we continue to focus on running the business in a responsible, disciplined way, while we build a strong organization that, we believe, will continue to gain momentum and will be a force in the renewable energy landscape for decades to come. Our focus is clear, and I want to reiterate our objective, to be the leader in the residential solar industry with happy customers, high quality, high-performing solar systems and above-market growth rates, and enticing shareholder returns.

Solar is becoming more mainstream and will continue to be magnified as a viable option and a preferred path for consumers for their energy needs. It is encouraging to see the growth of solar as we visit cities in the course of business activities, as well as our personal travels. The increasing visibility and concentration of residential solar in key markets is beginning of what we believe is an irreversible shift in sentiment and mindset on how Americans generate and consume energy. As we discussed last year, we are actively pursuing and investing in additional channels to reach customers.

We believe we are on the right track. As we previously announced, we began operating in select retail locations with Home Depot in the first quarter. I am also happy to announce that we recently signed agreements to operate in select locations with Costco and BJ's Wholesale. We are optimistic that a presence in retail locations will help us to reach additional customers.

This is our first foray into the retail setting, and as such, we expect there to be an investment period as we build infrastructure and programs that allow us to capture customer demand with this route. We are just starting to scale activities in this channel and we do not expect significant volume until the second half of the year, as we adjust and adapt our processes to best fit the needs of this channel. We anticipate other retail relationships with national parties who see solar as a product that benefits our loyal customers and provides a satisfying experience to homeowners. Our partnerships with homebuilders began to materialize with installs in the first quarter.

We are excited about the opportunity to address this market. We are starting to see our investments in this route begin to take shape, and we expect a steady ramp up in this channel all of which should increase volume in California. The incremental growth of new construction will add to our other routes and should be quite efficient with standard install processes in concentrated locations aiding in the profitability of our partnership with homebuilders. We are aware of some slowing in the California housing market, but in relative terms and given that all homebuilder activity will be incremental to our volume, we are excited about the prospects for growth, and we continue to enjoy better economics in California than in most other areas in the country.

Our inside sales team are providing capabilities that we are relying on to deliver incremental volume and value. This channel augments the direct-to-homes sales activity, and as a group responsible for closing leads generated in our retail channel. This is a lower cost route to market and is becoming a larger percentage of our customer acquisitions. We are committed to building the infrastructure for the future and are pursuing programs to lower cost which will allow us to open up new markets and to make them 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 the capabilities and improved our processes. We are encouraged by the enhancements and are looking for additional ways to magnify the efficiency of this organization. Retail homebuilders and inside sales all provide growing routes to market that have the potential to be more cost effective, high volume, and standardized paths to customers. Independent dealers have been responsible for much of our growth occurring in the residential storage space for the past several years.

As we previously discussed, we created a model to embrace dealers who meet certain qualifications to sell for us. This is also a channel that we have spent a considerable amount of time and energy refining and improving. We are seeing improved activity in this area, and the first quarter of 2019 was our best quarter yet. We feel we are achieving the right balance and framework to attract high-quality dealer activity and believe our future portfolio will include many more dealer systems as a result.

Our direct sales organization has been the foundation of our business since the inception of the company in 2011. We continue to adapt and change in this area, as well. We have adjusted programs and compensation to compete with others who are vying for the same personnel. This competition has created a situation, where over the past several years, we have seen an inflation in customer acquisition costs where more of the economics are passed on to salespeople and the returns of some markets have decreased.

This trend continues, and competition for direct sales personnel continues to be fierce. As a result, cost for direct sales teams continue to increase. Therefore, we will continue to see some increase in our overall customer acquisition costs separate from the portion of that cost driven by compensation structure related to our dynamic pricing model. We do believe that other routes with lower costs are emerging and will continue to expand due to customer awareness of residential solar, the current economic environment, and the pending decrease in the tax credits.

Direct sales will continue to be a meaningful part of our business, and we will meet market conditions where returns are acceptable, while educating consumers, investing in new routes, and creating the technology required to capture customer demand. We believe e-commerce, digital marketing, and enhanced inbound interest will accelerate, and we are investing and building capabilities and expect a ramp-up in these areas, similar to the experience we have seen with retail homebuilders and inside sales. We are committed to creating more efficient direct routes to customers that improve our ability to increase returns and provide sort of more customers in new markets. As we are making these investments, we have done a good job maintaining or increasing our project value with higher system attributes and better margins.

We hope to continue this trend, while making significant investments both in maintaining our current programs and investing in new, more efficient routes to market. We will keep you updated as we progress and give you outlooks on our key metrics. As residential solar becomes more mainstream, we expect consumers will find an e-commerce solution to be a mainstay in researching and obtaining their residential solar systems. We believe in operational processes.

We believe that our operational process is the best in the industry. I am proud of our improvements we have made, the trajectory we were on, and the value we create compared to our competition. No one should buy a solar system from an organization who is not prepared to maintain and service their systems. We feel there are far too many systems that do not have a sustainable organization behind them and behind those assets where consumers investors will be left to fend for themselves.

Small local dealers don't have the capital commitment or capabilities to operate as a credible provider for long term as market conditions evolve and systems need maintenance or other service. We understand the evolution necessary to educate consumers, and much of this will need to be dictated by financial partners who deploy capital to unqualified parties who may leave consumers exposed. Our investment over time in quality of installed solar maintenance programs and commitment to customers will translate into more volume as consumers become educated and investors understand the exposure to underperforming assets. We want to be a voice of residential solar space because we believe we lead the market and are committed to providing the highest quality systems with the best customer experience.

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 above-market growth rates. We are optimistic about the second quarter, as well as the second half of 2019. With that, let me turn the call over to Dana.

Dana Russell -- Chief Financial Officer

As David discussed, we came in just above the high end of our installation guidance while our unit costs were at the low end. With the focus on the best markets, we continue to see improvement in our system attributes with corresponding improvement in our project values and margins. For the first quarter, our project value was $4.51 per watt, a 17% increase over the same period a year ago. The net present value created or estimated margin was just over 45 million, a 29% improvement over the same period a year ago.

On a unit basis, our net present value per watt was $0.99 for the quarter. We increased our net retained value by 37 million in the quarter. On a per share basis, this represents $9.48, up $7.65 in the first quarter a year ago. Total revenue for the quarter was 69 million, up 2% from the first quarter of 2018.

Revenue from systems where we retain ownership was approximately 40 million, up 27% from the year-ago period. Revenue from system and product sales in the first quarter was approximate 30 million, down 20% from the year-ago period and reflects the decline of system sales relative to our overall installation volume. We continue to expect system sales to represent 15% to 20% of our volume going forward. We've adopted updated accounting standards for leases, and these new standards are reflected in our 2019 financial statements.

Per the accounting standard, the changes have not been applied retroactively to the 2018 financial statements. For comparison purposes, we've included pro forma adjusted 2018 financial statements in our investor materials. Please see our 10-Q filed earlier today with the SEC for a detailed explanation of what has changed. Our liquidity and financial position remain quite strong.

We finished the quarter with 288 million in cash and restricted cash. We have 305 million in unused aggregation facility capacity, and 30 million in our forward flow agreement. At the end of the first quarter, we had about 59 megawatts in committed tax equity capacity. In addition to having sufficient liquidity reserves, we continue to see a great deal of interest from tax equity and debt investors for residential solar assets.

We feel positive about the capital structure of our business, and we believe we will remain cash flow positive, given our current business practices before considering using any capital for safe harbor purposes. As we discussed on our last call, given our strong financial position, we see the safe harbor as a unique opportunity to maintain or expand our margins as the ITC begins to set down in 2020. The opportunity does come with cost and potential risk that we're carefully considering. For instance the equipment that we purchased to extend the ITC could become out-of-date or be purchased at lower prices in the future negating some or all the benefit of the safe harbor.

We'll provide further information later in the year on our strategy and approach to utilizing the safe harbor program. We expect our second-quarter install volume to be between 52 megawatts to 55 megawatts. We're also reiterating our full-year guidance of 15% growth. As discussed, some of this growth will be the result of new channels with retail partners and homebuilders.

We're currently investing in new routes to market and building programs, technology, and teams to support homebuilders, retail channels, and further investing in dealer programs. Some of this investment is occurring prior to the significant installations from these routes. We anticipate our second-quarter cost per watt to be between $3.32 and $3.40, compared to $3.46 in the first quarter. With that, I'll turn the call back to the operator for questions.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from the line of Philip Shen, ROTH Capital Partners. Your line is open.

Philip Shen -- ROTH Capital Partners -- Analyst

Hi, everyone. Thanks for the questions. You mentioned some new partnerships which sound quite interesting with BJ's and Costco. Can you talk to us about the potential volumes that could come from this as you guys ramp up? I may have missed this, but how many stores are you contemplating in each one? And then from an economic standpoint, do you expect to maintain the dollar per watt type NPV, or because of the volume that might come through from the stores, you might be willing to take a bit of a discount on the economics.

David Bywater -- Chief Executive Officer

Phil, this is David. Yes, we're excited about these new partnerships. Definitely some premier names along with Home Depot. We haven't disclosed the total amount of stores yet, but they will be a nice addition to what we're doing with Home Depot.

And we think that the state mix is actually a state mix that we're excited about around location. We haven't talked about -- all we get on the overall growth is the 15% reiteration for the full year as they ramp in, and I think we'll see even more lift next year as it helps us continue to have a strong growth trajectory next year. So we're encouraged. Like we said in our prepared remarks, we're early on.

So we're just getting ramped up, and we want to do it in a measured way to make sure that we're delighting that partnership and the economics come on within the bounds that we've set. We think that they're actually very comparable with our other costs. So we're not doing something here that is -- I think, that is inappropriate at all. It's very measured, it's very disciplined, and the growth in how we're ramping that, we're doing it in a very measured way, which I think is prudent and appropriate.

We want to grow at the right rate, at the right margins and do it in a very controlled manner. Now if you want to add anything to that, Dana?

Dana Russell -- Chief Financial Officer

I think we're excited about -- as we talked about earlier, Home Depot is sort of the first entry into the retail space. And some of those markets and stores that we're in, Warren is favorable -- some of the other locations that we have with our direct sales activity in the portfolio mix that we have there. These newer relationships and partnerships have a mix more consistent with those retail relation -- for the direct sales activity that we have. And the economics should be quite similar, so we don't expect there to be a detriment to net present value per watt as a result of that.

Philip Shen -- ROTH Capital Partners -- Analyst

Great. Thank you, both, for that color. It's really helpful. As it relates to California, we're seeing all three utilities there talk about and working with the CPUC to increase their return on equity, as well as rates could go up by 12%.

If that comes to fruition and to pass in California, it seems like it could be an attractive opportunity for you guys. How would you guys think about that higher income and pricing? Would you focus more on growth or would you perhaps capture more of that -- of that economic NPV for your shareholders? Or is some kind of mix there? Thanks.

David Bywater -- Chief Executive Officer

Thanks for that question. I think it's answered by yes to both. Well, probably to both. First off, you know California's just been absorbing a bunch of shocks lately to the consumer level.

So I think for them, it just further will drive home that every household should be considering alternatives. And we are the best alternative for them to consider. So I think it bodes well for growth. As you know we grew substantially in California last year, had tremendous growth, continued to see tremendous growth in California and very pleased with that.

I think this will just further put more tailwind into each home considering doing it. And they shouldn't wait. So I think that's actually a context that that will benefit our growth there in that market. With regards to what we would do, we'll be very thoughtful about helping consumers save money, also helping economics.

We will find that right mix. But by all means, we'll want to capture the growth at the appropriate rate and help more consumers go solar. So it'll be a thoughtful approach. But our goal is to share with investors, as well as consumers, if those increases do in fact materialize.

Philip Shen -- ROTH Capital Partners -- Analyst

Thanks, Dave. And I'll jump in with one more, and I'll pass it on. As relates to your forward flow agreement, I think you have 30 million left on that agreement. And back in the outlook, it seems like that might support your efforts through Q2, maybe a little bit into Q3.

But can you talk about how much interest you're seeing from the current funding providers or reupping on this and also, perhaps, a new set of capital providers that might be interested in that forward flow structure? And also one last thing, if you can talk about the timing of when that could come, that would be great. Thanks.

Dana Russell -- Chief Financial Officer

Go ahead.

David Bywater -- Chief Executive Officer

We feel like there's a lot of interest actually in doing another. We certainly would like to do another, and the economics have been good for us. And I think the ability to manage our cash flows has been helpful. So from a timing standpoint, I think we're in the throes of negotiating and planning for that right now.

And that we'll have that announcement there, I think, coming up here in the near future around that. But I do think that that's worked out well for us, and we expect to continue in that type of relationship and arrangement.

Dana Russell -- Chief Financial Officer

Thanks, Philip.

Operator

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

Brian Lee -- Goldman Sachs -- Analyst

Hey, guys. Thanks for taking the questions. I guess, maybe just on the storage opportunity, any updates there? I know you guys are maybe not emphasizing that to the same degree that some of your peers are, and you had a little bit of a hiccup with the Mercedes Benz relationship out of the gate. I'm wondering what type of traction you're seeing and strategic efforts you have under way as you move through this year?

David Bywater -- Chief Executive Officer

Hey, Brian. It's David. We're definitely selling storage. We've always been very focused on making sure that we're saving customers' money.

And so we're thoughtful about doing that. So we're selling storage in California and Hawaii for sure. That will continue. We're seeing interest grow, and we'll see more and more and more of that throughout this year.

So we haven't made it a big, big push right now. We've really been falling to customer demand there, and making it be a win-win for them, but I absolutely see it being a much larger part of our portfolio going forward. Our sales teams are asking for more and more, and we're enabling them to sell it more and more. So I have all the reason in the world to support it.

We're just doing that at the appropriate pace. And there are some consumers that want it, and it's for different reasons and savings. And we will accommodate that more and more and more. But happy with our supply chain arrangements, our partnerships, and you'll just hear more about it from us Brian, over time.

You know our style. Our style is we don't talk much before we walk. And when we walk, then we talk about what we've done. And so you'll hear more about that over time.

Brian Lee -- Goldman Sachs -- Analyst

OK. Fair enough. And then I know you started off the call, David, talking about the three channels here which you're excited about; retail, homebuilders, inside sales. Can you quantify for us a rough ballpark maybe what percent of volume comes from that today, and where you think that that mix could be exiting the year, let's say? And then, I know it sounded like economics aren't different from one type of channel to the next, but if we look at the general order of acquisition costs across each of these channels versus your direct and dealer, is there a way to kind of parse out for us how those each stack up against each other just on the acquisition costs themselves? Thanks.

David Bywater -- Chief Executive Officer

Good question. I'll start with -- you've heard me Brian, over time really talk about being customer-centric, and we are just really focusing on bringing the right product to the right customer through the right channel at the right price point. And we've really worked on that. If you compare where we were even a year ago versus two years ago, I really -- it's hard for me to express how pleased I am with how quickly these channels have been developing, just the innate desire of the market to have options, and they're really pleased that we're getting into these spaces.

So I've been really pleased with that. I love how it's developing, and I love how we're working to make sure that we're just doing what's right for the customer. We have not quantified it. For competitive reasons, I won't quantify it, but we do believe -- you've got our overall growth, so you got some clarity there on what we mean.

I'm hoping that, and I'm very confident, that these are pretty deep wells, and that they'll provide us with great growth prospects and also growth optimization over time. And I think the value of having multiple channels is not the right thing for the consumer, but allows us to optimize over time, as well, and find the right blend. So you didn't misread my optimism and my enthusiasm about them. And there's still other channels that we're working on right now that I think are equally exciting and equally valuable to our consumers and to our shareholders.

And that will allow us to get into new markets that we're not in today with different cost models. So I couldn't be more optimistic about our future and the way we're approaching the future with models that work today and that models will -- that will work tomorrow. And that constant evolution and optimization is part of our culture that we have, and we're very open to embracing one of the best answers for our consumer and for the models that work at the appropriate times in this industry. Dana, do you want to add anything to that?

Dana Russell -- Chief Financial Officer

Well, I think Brian, one of your questions there was, what did the customer acquisition costs look like in those models and the other routes. And they're all a little different. But we feel like there's an advantage in some of the costs, not just in customer acquisition, but also operational costs, as well. Homebuilders, which we feel like is going very well and attracting a lot of attention in California, and David talked about that in his prepared remarks there.

That does present some attractive operational efficiencies that we'll benefit from, and being able to do things in a standardized way on new construction, which is helpful. So that's good. And it is a bit of a lower customer acquisition model. Retail, I'd also say some advantages there with the customer acquisition cost.

And then I think we also have some standardization and some control through some of those routes which also allow us to assure that the customer communication is of the utmost integrity and quality, as well. So that's also one of those things that we feel very good about. So there's some efficiencies and we're going to continue to work on that, and I think there'll be more color on that in terms of what that means from a mixed standpoint. Obviously, the direct door-to-door mix is still the majority of what we do, the vast majority of what we do.

But it as a percentage of what's being done is quite a bit less than it was a couple of years ago. So -- and we'll see that continue to balance out here as these other routes become more prolific.

Brian Lee -- Goldman Sachs -- Analyst

OK. Thanks for the color.

Dana Russell -- Chief Financial Officer

Thanks, Brian.

Operator

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

Praful Mehta -- Citi -- Analyst

Thanks so much. Hi, guys. So maybe we'll start with the system sales side where clearly that -- as you said, you're kind of reducing that side of the business. As that does shrink further, do you see the NPV per watt going up because it's a smaller proportion? And I'm assuming, clearly the system sales have smaller valuable watt.

How should we think about that evolving over time?

David Bywater -- Chief Executive Officer

Well, I think when we think about system sales, we had a fairly significant emphasis on sales, and it's not that we've de-emphasized that, but we've seen as we've emphasized these Tier 1 markets, especially California, where we've grown so much, system sales were a much lower percentage of what we did there in California. And therefore, the total of what we were doing, because there was a migration to California and some of these were Tier 1 markets away from some of the other markets, and we've talked about that fairly extensively. So that was really the reason for those system sales to drop a bit. In addition, as we've had dealers involved, the preponderance of the dealer activity that we've had has been PPA and lease, and so less system sales there.

We believe that as we go forward in the future, that -- and we have changed some pricing on loans that we're rolling out in some markets, not just as a means to balance the portfolio and to attract dealers to do business with us from a loan standpoint, as well. And so we think that we will see some rebalance, but we're just going to do what -- number one, meet the needs of the customers, and number two, where we can be profitable and where we feel like we can create the most value. In terms of the overall value that we generate or changes as a result of net present value of the other metrics, we don't see that being a considerable shift or change. And we think that we'll be relatively consistent with those measures that we've talked about, that we've put out and that we've talked -- announced today.

Praful Mehta -- Citi -- Analyst

Got you. Thanks for that. And then on the storage side, again, clearly a big opportunity, and you've highlighted that you are focused on it and that continues to grow. And I know you don't want to talk about it too much, but I wanted to just understand, as you think about the storage, is that an opportunity when you go into your existing customer base and they are looking to expand their solutions to add storage to it? Or is this as a part of new installs, because what I'm trying to understand is how much value can you create and where is that value getting created in the chain? So it'd be helpful to understand that.

David Bywater -- Chief Executive Officer

Yes, I'll take that one, Praful. So the current focus with our storage has been on new additions to our portfolio. And we absolutely look over time to bring it to existing customers, as well. As the price points drop, you may have to switch out and there might be other costs that you incur to do that.

So as the overall system costs come down, it just makes it a easier thing to pellet from a consumer perspective. We're very open to that, and I think that will become just a more economically viable thing for consumers to do as the costs come down. I know you guys have your models on what the cost of storage will do over time, so that will become -- we have newer versions of that all. We'll do that and we'll do it when the economics pencil for the consumer in mass.

But right now our focus has been on new ads.

Praful Mehta -- Citi -- Analyst

Got you. Thanks for that. And then finally just on the safe harbor program that you talked about. I know you're trying to balance how big you want to make it.

And you've talked about the risks and the benefits of it. Is there a ballpark range you can give us in terms of how big or small depending on where you come out on your analysis, where you kind of -- how big it could get?

David Bywater -- Chief Executive Officer

We're investigating going through that and trying to determine that for ourselves, and so I think you'll hear more about that in the third quarter. We're certainly running through all the traps and thinking about what the right size and how we'll do that, but we really don't have anything to announce today other than we'll continue to digest that and talk about that more in the third quarter.

Praful Mehta -- Citi -- Analyst

Understood. And just one final clarification. On the Costco and other retail chains that you're continuing to add, the -- is there -- does that lead to a consultation process where the client will interact with your sales team, or how does that work in terms of like generating leads and the final sale happening with the client.

David Bywater -- Chief Executive Officer

Well there's in-store I'd say, dialog and discussion, and then we are facilitating in closing those sales through our inside sales. So it's a combination. There is a in-person in the store and then there is a closing of the sale over the phone. So it's that one-two punch, but there's not a follow-on consultation in the home and associated customers with that.

And so far, I'm really pleased with the economic model there and how it's trending, so I'm very encouraged by that. Thanks, Praful.

Praful Mehta -- Citi -- Analyst

Thank you.

Operator

[Operator instructions] Your next question comes from the line of Julien Dumoulin-Smith with Bank of America. Your line is open.

Unknown speaker

Hey, good afternoon, guys. It's actually Eric on for Julien. So maybe the first thing, I mean obviously you guys posted quite strong NPV for first quarter, especially given seasonality considerations with the $0.99 notably being higher than the $0.96 cents from 20 -- for full-year '18. Could you discuss a little bit about what's driving the stronger NPV? Is it related to the increased mix of inside sales or just wondering of the dynamics there?

David Bywater -- Chief Executive Officer

Well, a lot of that's falling along with what we've said in the past that we've changed the economic model in the company a bit, and certainly improved the attributes of the systems creating a little bit more value in those systems. And so that's I think the major driver of that, so that we expect that to be pretty stable to maintain that sort of thing. And so -- but that's really where we're seeing the additional value.

Unknown speaker

Got it. And would it be fair to view it as there should be stronger NPV in subsequent quarters relative to first quarter?

David Bywater -- Chief Executive Officer

I think we would have comparable in NPV. I'm not sure -- and we certainly and we certainly look to improve and we'll see things and as the cost structure -- as we work on cost structure and work on different operational efficiencies, that would certainly improve. But -- so today, I think we're happy to say that we believe that we can maintain that. I'm not sure how much that's going to change over time.

We talked a little bit about some cost increases in the sales organization and our direct sales, which will impact that a bit, meaning a competition there. That's going to be offset by some increases in volume in some of our Tier 1 markets that we see. And then also mitigated a bit by other customer acquisition models, which are a little lower. So we'll wait to see how that all settles out.

But we think that we're going to maintain a relatively constant metric there at least for the foreseeable future.

Unknown speaker

Got it. And then another question around potential for SREC monetization beyond the typical three-year forward basis. I know Sunrun recently monetized out a meaningful portion of SREC for some of their eligible assets in their existing portfolio. Can you discuss your thoughts on potentially pursuing such a monetization?

Dana Russell -- Chief Financial Officer

Well, we have monetized some of that in the past, so it's been something that we have done. I don't -- I think -- I don't think that there'd be an acceleration or a significant change to that, you know an expansion, but -- so are there any other thoughts there, Rob?

Rob Kain -- Vice President of Investor Relations

I mean, yes, it's not something that we look at -- as you know, Eric, most of our contracts currently are three-year. I think we've got a little bit that are slightly longer than that. You know, yeah like you say the market looks like maybe it's starting to be -- offering longer-term potential, hedges or forward, if you will, for a longer term and some will take a look at in the future. We'll let you know if anything changes, but right now we would still probably say, yeah, we're primarily looking at the three-year, maybe slightly longer as far as hedging our SREC portfolio.

Unknown speaker

Got it. That's helpful. And then lastly on Costco and BJ's. Could you talk about the state mix there? Is this presumably different from the state mix with Home Depot? And also on Costco, presumably this is separate from the states that Sunrun is operating in for the chain?

David Bywater -- Chief Executive Officer

Yes, as we mentioned earlier, the state mix from these contracts are more similar to our overall mix, which is a much higher mix of profitable state. So we're very encouraged by this state mix and we think it is very reflective. I mean, as you know, we've grown considerably and shifted our portfolio materially toward the most profitable states. And as you've seen -- you've seen a massive increase in our NPV per watt, and the value of our systems as a result.

So these new partners coming on, will reflect that more closely, which is very encouraging.

Unknown speaker

Got it. That's helpful. Thank you.

David Bywater -- Chief Executive Officer

Thanks, Eric.

Operator

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

Colin Rusch -- Oppenheimer and Company -- Analyst

Thanks a lot. Guys are you seeing any real material changes in terms of the cycle time to close customers or the velocity of decision-making? Just curious how that's trending as education levels go higher.

David Bywater -- Chief Executive Officer

Colin, not really. It's a little bit faster. A lot of that has been our overall cycle times from knocking on the door or meeting that customer for the first time, or having that first interaction to where we install -- We've actually seen improvements, but with regards to the consumers, net-net I think it's better. The actual gestation cycle -- with gestation cycle with the consumers -- not material.

Dana Russell -- Chief Financial Officer

I want to say though Colin, as we think through this, and I'm not sure how much of it's just improvement in our activities. Much more of our activities comes through our inside sales organization. I think we're better at that than we probably used to be, and we've got great leadership there and good teams in place. But I think also the consumers are also becoming more comfortable in some of the geographies, more looking into solar and more comfortable pursuing it without necessarily the same sort of consultative activity that they have had in the past.

And I think that's great for the industry. I think we'll continue to see that evolve. As David mentioned, it's probably not changing the cycle times materially, but -- and some -- maybe a combination that we're getting a little better in some of these routes. But I also think that it's becoming more of a proliferation of customer sentiment and their interest in, and their willingness to go in and verify solar, as well.

Colin Rusch -- Oppenheimer and Company -- Analyst

OK. Great. And then the next question really is about the investments required for your network operations center to really operate as a virtual power plant. Are you guys ready to go with that, or is there some work to do in terms of preparing for that?

David Bywater -- Chief Executive Officer

We saw some work. You know there's still a few pieces of the infrastructure you got to put in place there. So that's still ahead of us and we're walking toward it, but it's not there yet.

Colin Rusch -- Oppenheimer and Company -- Analyst

OK. Thanks a lot, guys. I'll take the rest of it offline.

David Bywater -- Chief Executive Officer

Thanks, Colin.

Operator

[Operator signoff]

Duration: 46 minutes

Call participants:

Rob Kain -- Vice President of Investor Relations

David Bywater -- Chief Executive Officer

Dana Russell -- Chief Financial Officer

Philip Shen -- ROTH Capital Partners -- Analyst

Brian Lee -- Goldman Sachs -- Analyst

Praful Mehta -- Citi -- Analyst

Unknown speaker

Colin Rusch -- Oppenheimer and Company -- Analyst

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