Vivint Solar (VSLR) Q3 2019 Earnings Call Transcript

Vivint Solar (VSLR)
Q3 2019 Earnings Call
Nov 06, 2019, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Vivint Solar Reports third-quarter 2019 results conference call. [Operator instructions]. Please be advised that today's conference is being recorded. [Operator instructions].

I would now like to hand the call over to your speaker, Rob Kain, vice president of investor relations. Thank you. Please go ahead, sir.

Rob Kain -- Vice President of Investor Relations

Thank you, operator. Good afternoon, everyone, and welcome to Vivint Solar's third-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 Investors 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. This 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 of the call.

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 U.S.

Securities and Exchange Commission from time to time, which are available on our website and identify important factors that could cause the actual results to differ materially from those contained in our projections and other forward-looking statements. We undertake no obligation and expressly 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 turn the call over to David.

David Bywater -- Chief Executive Officer

Thanks, Rob. Good afternoon, everyone. We have continued to execute well, installing 65 megawatts in the third quarter, which was at the high end of our guidance. This represents 20% growth over the third quarter of last year and 18% growth year-to-date.

On a customer basis, our growth was 25% year over year. Demand continues to be robust for residential solar, and we believe we are well positioned for a strong finish to the year, exceeding the 15% annual growth guidance we provided at the start of the year. Our growth is coming across all of our channels, but it is strongest in our inside sales, retail and homebuilder channels, which, in the third quarter, represented 11% of our total volume, up 34% sequentially and 145% year over year. This growth is beginning to scale.

This is important as it means these channels are transitioning from an investment phase to a growth and execution phase. Currently, these channels, in aggregate, have a profitability measure that is approximately equal to our direct-to-home and dealer channels. As they continue to gain scale, we believe they will provide margins that are significantly better than those of our direct-to-home and dealer channels. We believe these three channels will continue to grow faster than our direct-to-home and dealer channels, representing a larger portion of our overall volume and allowing us to reach additional customers at lower overall costs.

Our growth is at a level we expected and have planned for, and we are executing in a way that continues to build an organization that will provide the benefits of residential solar to homeowners 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 will continue to invest in and improve our systems, processes and technology to reduce cycle times, improve the customer experience and reduce operating costs.

I believe it has never been a better time to be at Vivint Solar. Overall, I'm very pleased with our company's progress and the exciting results we're experiencing. Our employees take pride in the quality of our installations and the construction services we provide. We have a meaningful quality assurance program.

We believe our operational processes, culminating with installation, service and maintenance are among the most cost-effective in the industry. Our focus on customer satisfaction and quality are paramount in our thinking and guide our actions. As I have previously discussed, we continue to improve our operational processes, including the efficiency and quality of our installations. One of the benefits of this focus on efficiency is it allows us to use smaller installation crews, which is critically important when the labor market is tight.

Although our volume of installations was up 20% year over year, our installation headcount was up only 15%. Our installation efficiency also enables us to continue to meet rising demand with what we believe to be the most cost-effective, high-quality installation process in the industry. Efficient operations alone are not satisfactory if the quality of installation is substandard. The two must go hand-in-hand.

We believe our 86-point checklist, our dedicated quality inspection teams and our compensation policies tied to the quality of installation means customers and investors can rest assured that a Vivint Solar system will perform as designed. In addition, when installations are done correctly the first time, we are able to dedicate fewer resources at fixing issues down the road, which allows us to apply more resources to installation. We are relentless in our efforts to be the leader in residential solar operational excellence. We continue to refine processes, audit and verify performance and add resources to assure quality.

Our operational efficiency is a competitive advantage, and we believe these capabilities will increasingly differentiate us in the future. I would also like to discuss our sales and marketing process and how we continually strive to provide residential solar customers with the information they need in order to make an informed comfortable decision when taking control of their energy future. Vivint Solar was founded in 2011, and we've learned a lot in the last eight years. Those lessons include the invaluable feedback we receive from our customers, the foundation of our business.

We put the customer first in all that we do, strive to be a good corporate citizen and a positive force in the industry. We believe we hold our direct-to-door and dealer sales professionals to standards, we think are the highest in the industry. This is true for those who work directly for us and those who provide sales functions on our behalf. We expect that third-party representing Vivint Solar to have the same high standards and controls as our internal resources.

We continue to refine processes and insert checks and balances in our sales activities to ensure that we have a happy uniform customers. That has been a concerted effort on our part over the past several years. We have audited our activities, renewed and improved our training, cooperated with and solicited the input of regulatory agencies and reinforced our expectations regarding the level of professionalism, which we believe sets us apart from our competition. If a process is circumnavigated or a gap is identified, then we work to address the problem, satisfy the customer and improve the controls.

We believe every sales organization should adhere to these measures to protect customers and advance the spread of clean energy and energy independence, whether they are a direct sales force or a dealer. Finally, we continue to gain traction with our storage offerings, primarily in Hawaii and California. We offer new customers the ability to add storage to their contract, whether it is a system purchase or we retain ownership. Although the number of customers requesting storage is still low relative to our overall volume, we are seeing a significant increase in customer awareness and have doubled our storage installation sequentially from the second quarter.

Storage is becoming an increasing portion of our business and we believe it will be a material part next year as we expand our scope and efforts. We are passionate about what we do. Our employees are our greatest resources, and we operate well as a team, our overall momentum has continued to build. There is a lot to be excited about and we feel we are firmly on track with our expectation to grow at or above market growth rates in a disciplined, sustainable pattern.

We not only perform every day, we look for ways to raise the standards, improve performance, and operate with excellence. We are executing well and are enthusiastic about a strong finish to 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.

Dana Russell -- Chief Financial Officer

As David discussed, we came in at the high end of our installation guidance of 65 megawatts for the quarter. With our focus on the best markets, we have continued to see improvement in our system attributes with corresponding improvement in our project values and margins. For the third quarter, our project value was $4.71 per watt, an 8% increase over the same period a year ago. The net present value created or estimated margin was $69 million, up -- 23% improvement over the same period a year ago.

And on a unit basis, our net present value per watt was $1.06 for the quarter. We continue to create significant value with systems we install as we prioritize for overall return rather than a strict focus on cost. We believe our estimated margin shows that we're achieving this while at the same time, growing faster than the overall market. We believe that although our unit margin can fluctuate from quarter to quarter, we will maintain a margin at or above $1 per watt on an annual basis.

We increased our net retained value by $89 million in the quarter to $1.3 billion. On a per-share basis, this represents $10.32, up from $8.57 in the third quarter a year ago. As a reminder, we believe net retained value, as we calculate it, is a good proxy for the asset value of the company. Our commitment to growing in a sustainable, controlled manner can be seen as the asset value of the company increases steadily quarter over quarter.

Our unit cost for the third quarter was $3.48. Even though costs have increased, we've invested in new sales routes, strengthened our position in the most favorable markets, improved margin and the overall financial status of the company. As we have discussed in prior quarters, we will continue to pay competitive rates to our direct sales teams and dealers. We believe our sales programs, management, tools, culture and incentives provide the most attractive environment for sales professionals in the industry.

We will continue to compete to retain and grow our sales resources in a responsible way. As volume increases in our inside sales, homebuilder, retail channels and e-commerce, we expect to see lower customer acquisition cost as the industry matures. Although we would like to see costs coming down faster by focusing on our most profitable markets and our installation efficiency, we have been able to maintain our overall margin as measured by net present value per watt at about $1. Total revenue for the quarter was $104 million, up 33% over the third quarter of 2018.

Revenue from systems where we retain ownership was approximately $71 million, up 32% from the year ago period. Revenue from system and product sales in the third quarter was approximately $33 million, up 36% from the year ago period. Revenue from system and product sales does not perfectly track with installation volume as it is more dependent on when systems receive permission to operate. We continue to expect system sales to represent approximately 15% of our installation volume going forward.

Our liquidity and financial position remained quite strong. We finished the quarter with $344 million in cash and restricted cash. There are several factors at play in the increase in our cash balances this quarter. They include the timing of funding system installs from cash and tax equity partners as well as a better advance rate on the warehouse facility that closed in August.

We have $155 million in unused warehouse facility capacity and $100 million remaining in forward flow debt commitment. At the end of the third quarter, we had about 126 megawatts in committed tax equity capacity. In addition to having sufficient liquidity reserves, we continue to see a great deal of interest from tax equity and debt investors for residential solar assets. We feel positive about the capital structure of our business, and we believe we will remain cash-flow neutral to positive before any capital for safe harbor purposes, given our current business practices and growth.

As we discussed on our last call, given our strong financial position, we see safe harbor as a unique opportunity to maintain or expand our margins as the ITC begins to step down in 2020. This opportunity does come with a cost and potential risks, which we've carefully considered. For instance, the equipment that we purchased to extend the ITC could become out of date or be purchased at lower prices in the future, negating some or all the benefit of the safe harbor. We're strongly advocating for the extension of the ITC and are cautiously optimistic that it will be extended at some time in the future.

An extension of the ITC would also negate the value of any safe harbor strategy. We believe we have a safe harbor strategy that provides maximum benefit and flexibility while minimizing upfront capital requirements, the risk of technology obsolescence and equipment price deflation. We've placed orders for 115 megawatts worth of panels. We will use cash on the balance sheet as well as financing expected to close in the fourth quarter to cover these costs.

This purchase allows us to take advantage of the 5% safe harbor rule that the IRS has outlined for a portion of next year's volume. In addition to the 5% safe harbor, we intend to preserve the 30% ITC through the phase downs of 2020 and 2021 by relying on the significant physical work tests as described in Section 4 of IRS notice 2018-59. For the requirements of this section of the notice, as long as we've begun construction on a system during 2019, we are able to preserve the 30% tax credit as long as the system is placed in service before the end of 2023. Physical work includes work performed both on and off the project site and by both us and contracted third parties.This strategy has been successfully used by wind developers with the manufacturing of transformers, satisfying the requirement that physical work has commenced on a wind project.

We believe this strategy will minimize upfront capital requirements, protects us against equipment price deflation and reduces the risk of technology obsolescence. We believe it's a prudent strategy to pursue in conjunction with the 5% safe harbor rule, to maximize the value of the 30% ITC through the majority of 2021. Turning to our fourth quarter guidance, we expect our installed volume to be 64 to 67 megawatts. We expect our cost per watt to be between $3.46 and $3.54.

We're seeing slightly higher prices for modules, which we believe are caused by the supply constraints due to safe harbor purchases. We expect this to dissipate next year as we have contracted for our safe harbor panels at a lower price. Finally, we expect our net present value per watt to be between $1.04 and $1.08. We're excited about the progress that we've made and continue to believe that the company is in a very strong position to take advantage of the significant customer demand for residential solar.

We believe our current growth trend will continue into 2020, and we expect that we'll grow at or above market growth rates. We will provide more explicit guidance for 2020 during our fourth quarter call early next year. With that, I'll turn the call back to the operator for questions.

Questions & Answers:

Operator

[Operator instructions]. And our first question comes from Philip Shen with ROTH Capital Partners.

Philip Shen -- ROTH Capital Partners -- Analyst

Hey, guys. Thanks for the questions. First one is on safe Harbor. Dana, you Just talked about safe harboring, 115, 1-1-5, megawatts worth of panels.

Roughly, does that equate to -- based on my quick math, and it could well be wrong, but is it about a gigawatt that you're trying to safe harbor? Because the way I'm getting there is I'm implying a $0.45 ASP, getting to the dollar value, dividing by 5%, to get what the project value might be. I guess that would be $1 billion of value and then divided by 3.50%. So I guess that would be closer to maybe 300 megawatts of safe harbor volume. Is that fair?

Dana Russell -- Chief Financial Officer

No, I think it's -- Philip, it's less than that. I think as we've talked about in the prepared remarks, this -- the panels get us midway through the year or a little more than that in 2020. So that portion of the safe harbor covers part of 2020. And then we'll have the physical test of safe harbor equipment that will get us the rest of the way through 2020 and 2021.

Philip Shen -- ROTH Capital Partners -- Analyst

Got it. And then when you do the physical test work, when I think of residential solar, I think of it more as a slow. And -- so it's not like you can buy a transformer, and that kind of gives you a mark for another year with the safe harboring in -- at the end of '20 and at the end of 2021 effectively help you with some volume in Q1 of the subsequent year But it wouldn't really get you through much of the subsequent year. So if you did it for 2020, you won't get much into 2021.

Is that a fair way of putting it?

Dana Russell -- Chief Financial Officer

No. The commitment for the physical test is similar to what we do with the purchase of panels in that we are required upfront to make a commitment for specific proprietary item that we began to work on and contractually have in place in 2019. That commitment and work commencing in 2019 carries us over with the commitments that we make for that inventory. And that -- and those particular commitments should carry us through 2021.

Philip Shen -- ROTH Capital Partners -- Analyst

OK. Great. Over two on those. Let me move on to 2020.

In terms of growth, and I know you're not going to provide guidance officially, but I was wondering if you could comment qualitatively on the type of growth that you're seeing. It sounds like it's still quite good. But we're hearing in the channels that -- or through context that we could see very nice growth next year, call it, 25% year over year. In the past, you guys have said you want to grow, assuming that it's economic for you.

So would you see something that could be better next year relative to this year? What -- can you just comment in general about 2020? Thanks.

David Bywater -- Chief Executive Officer

Phil, this is David. Yes, what we thought the growth was phenomenal this year growing installations by 25%, and our installed megawatts by 20%. So it was a really strong year. And we continue to really focus on where we grow.

So -- like we've always said, we could grow at a much higher growth rate, but we choose to be prudent and focused. So you increase the sustainability and the strength of the company. So we're personally delighted with where we are. We think that was well above market growth rate this year, and where we grew and how we grew and the investments we made, we think enabled us have a strong growth this year and set us up very well next year.

You know, our direct-to-home is doing a great job, and our dealer growth is going great. And then these new channels that we've been talking about, we met -- we spent a fair bet this year on the investments in those to get them set up for growth. And as I mentioned, we're transitioning from kind of the investment phase to now to the scaling phase. So you know, we'll have more channels that are more mature and developed than ever for 2020.

And with the growth from homebuilders and other things, we're very, very optimistic. As we mentioned, we believe we'll grow at or above market for next year. Everyone has -- everyone is pontificating on what that is. And we'll take that information once we go through our budgeting process and all of our backlog that we've got, and all the strength we've built, we'll have more guidance obviously in our Q4 installation, but qualitatively, to answer your question, optimistic for sure.

And we think we're better positioned now than we've ever been to grow how we want to grow, grow with strength, and be deliberate and specific and intentional about how we're growing and developing new channels that we think will allow us to grow at a lower cost over time and get to new customers and new states that we haven't been to in the past. So pretty optimistic.

Philip Shen -- ROTH Capital Partners -- Analyst

Great. One more, if I may. I was juggling. I am juggling three calls.

So apologies if you guys commented on this already, but can you comment on any labor issues that you might be seeing within your company or with your partners? Is that a constraint that might be limiting things at all? Or are you able to kind of master it?

David Bywater -- Chief Executive Officer

Per my prepared remarks, I did speak to that. We actually delivered just like we thought we would this year. Our captive model with regard to our install, we've done a really good job of engineering capacity to efficiencies and how we go about approaching it. As I mentioned in my comments, we grow 25% on installations, 20% on megawatts, we only grew our installation sales force -- our installation teams by 15%.

So we continue to get greater and greater efficiencies and we're able -- our focus on quality has allowed us to actually have less rework, and focus more on installation. So we're really pleased with that model kind of the low-cost, high-quality benefits that we get from it, not only at the initial installation but over the life of that relationship with our customers. And we think it's got a very synergistic piece. So, are there labor constraints out there? Yes, there are.

The question is how do you manage through them and what model do you have to take advantage of your strength? So we think what we have as a competitive advantage, we're very pleased with it. I'm very pleased with our operational teams, how they're growing, how they're installing, how they're meeting expectations and how they're doing it with quality. So our model is working well there.

Philip Shen -- ROTH Capital Partners -- Analyst

Thanks, David. I'll pass it on.

Operator

And your next question comes from Brian Lee with Goldman Sachs.

Brian Lee -- Goldman Sachs -- Analyst

Hey, guys. Thanks for taking the questions. I had two of them. Maybe starting off on the plus side, the homebuilder channel.

Sounds like you're having success there. If I do the math, I would love to just kind of get your thoughts on this, if this is the right sort of zip code. 11% of volumes, let's say, five, six megawatts. And then if you think there are kind of smaller-sized homes, not the six or seven kilowatt averages, but more toward the minimum size that's required in California.

It would imply you're sort of in the ballpark of 1,500 homes which, I think, depending on which forecast you use, that would imply you're somewhere in the low single-digit market share for that particular vertical. Would you say that's fair? And then as you think about that math, what do you -- do you have internal targets that you could share around kind of where you think the market share could go for that particular end-market channel? And then maybe lastly on that topic. Just what type of breadth do you have right now with the channel? I know there's been one or two publicly reported partners. So is this all concentrated with those players? Or are you broader at this point in that channel?

David Bywater -- Chief Executive Officer

Yes, I'll start with the last question first, Brian, and then I'll move up to the front half of that question. In the past, we've mentioned that we have eight of the Top 10 builders in the state of California. We continue to work to add to that. So we're pleased with the relationships that we have and are pleased with the backlog we've got going into 2020.

And so right now I think, well I know, our math is -- I think we're a little bit higher than the numbers you have on market share just given what we've already got booked, and pushing forward. We haven't been more specific to that and we have not named names on the builders, but we think homebuilders has been a very small percentage of what we've done so far, and it's just starting to ramp. And so I think 85% of what we've got committed already, will install in the next 12 to 18 months. So we're very pleased with that.

That will be a nice lift to our growth and we love that channel and we think that channel really appreciates our captive install teams and our focus on quality. So we think -- and it's a boom for everyone. I think it's -- there's plenty to go around there for us and our peers. But we're very pleased with what we've already got committed and what we're working on to add to that in 2020 and beyond.

Dana Russell -- Chief Financial Officer

Brian, just to clarify, too. And maybe you have this, but the 11%, that was the three routes, that was homebuilders, retail and our inside sales routes. And so when we think about that, the homebuilders for us, we have had a concentrated effort on homebuilders where we really feel good about that route. And we think that the best is coming because there's a lot of commitments there that haven't actually installed and made it through the numbers that we reported in the quarter.

So that's definitely a growing route for us and more opportunity that we feel that's some -- will magnify those numbers in 2020.

Brian Lee -- Goldman Sachs -- Analyst

OK. Great. So -- the 11% -- so is the homebuilder the biggest of those three, would you say?

David Bywater -- Chief Executive Officer

It wasn't in 2019. It was probably the smaller piece. Like I said, most of that is contracted and will be coming on in Q1, Q2 and Q3. So it was probably the smaller part of that 11%.

What do you think, Dana?

Dana Russell -- Chief Financial Officer

Yes, fair enough.

Brian Lee -- Goldman Sachs -- Analyst

Fair enough. And then maybe switching gears here. This is the second straight quarter where the cost per watt came in above guidance. In the last quarter, it was financing costs.

This time it sounds like it's a little bit of the sales channel mix. But I guess, kind of begs the question of as you're going after growth and you're incorporating all these new sales channels, is there anything structural here that's making the cost side of the execution story a bit more challenging. And obviously, as we look into guidance for 4Q, it's also up quarter-on-quarter. So just wondering if there is something new going on in the cost side and then maybe if you are dealing with something new there, any mitigation efforts you're sort of contemplating into 2020? Thanks, guys.

Dana Russell -- Chief Financial Officer

Brian, we actually feel pretty good about the cost structure. We wish the cost structure was lower, obviously, with customer acquisition costs. That's what's driven our cost structure up. But as we talked about before, we're committed to being competitive in the marketplace.

And in the past, our volumes have been subdued because we probably paid at a lower rate than maybe some of our competitors and that allowed or incented some of our folks to go out there and become dealers or go work for other parties. We're committed not to allow that to happen. So we focused on the most profitable markets and we've expanded margins. Even though the costs have come up, our margins have expanded and our net present value per watt has increased.

So we feel like we've done it in a responsible way, but we're totally committed to compete in the marketplace and not allow the momentum to shift, and we've seen the results of that in increased momentum and velocity for the company. We're participating more robustly in those better markets than we ever have. We're seeing growth there in a way that is more robust than we've seen in the past. And we think that that's a pattern that's going to continue.

As long as we safe harbor and as long as the overall marketplace is funded the way that it is, we're not going to see significant reduction in those costs outside of other channels opening up and coming on. And so as we develop e-commerce and other routes to market, those will be lower cost, as people come directly to us. But when we're competing in a market with direct sales, we actually feel pretty good about it, as long as the overall economics for those systems justify the expense and that's where our commitment is. So we're slightly above that cost structure because we performed better and probably had higher growth in some of the more valuable markets than we anticipated but the offset was that we produce better margins with better results.

David Bywater -- Chief Executive Officer

Yes. I'll take the growth, which we've done really nicely in the most attractive markets that expand our margins every day. I'll just spend that 10 out of 10 days. So that's prudent growth, that's intentional growth.

And we've been pleased with the fact that the attributes increased, the profitability has increased, the margins have increased. So those are all good. And then just add on to Dana, we're not oblivious to the fact that we are investing as well heavily in 2019 into these other channels that we think will grow differentially higher than our other channels and will be at a lower cost over time. So we think we'll reap those rewards in 2020 and beyond.

And so we think we've done a good job of managing the short term, the medium term, and planning for the long term. And we think, that strategy is prudent, it's bearing fruit and it's the right thing that investors should be rewarding us for and valuing. So we stand behind that with great solidarity.

Brian Lee -- Goldman Sachs -- Analyst

I appreciate the color. Thanks.

Operator

And our next question comes from the line of Julien Dumoulin-Smith with Bank of America Merrill Lynch.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Good afternoon. Congrats again on the quarter here. So given year-to-date trends for new megawatt additions, with the midpoint implying 18% year-over-year growth for this year, can you talk about growth drivers in the '20? I know there is little bit of rehashing things, but to the extent which that at least the -- in the books, what you've achieved thus far? Trend is perhaps better than what was originally contemplated. Can you elaborate a little bit and perhaps talk about the delta between megawatts and customer growth because of which anything's changing here too?

David Bywater -- Chief Executive Officer

Sure. Julien, thanks. So yes, the year-to-date growth right now through three quarters is 18%. We gave guidance for Q4, which I think will be another 20%-plus growth kind of quarter.

So the overall full year should be a little bit higher than 18% as we get that last quarter in the book. So it was several percentage points higher than we expected at the beginning of the year. So we're pleased with that. The higher installation, the more installations at 25% growth on customers, we continue to grow in some markets that are very valuable for us, Hawaii, California, continue to grow really well and New England that are a little bit smaller systems than other markets that historically we buy a larger percentage of our growth coming from.

So probably the average system size dropped a little bit but the profitability of those systems are much higher and far outweigh that. So once again, we're very pleased with that trade-off. The growth drivers for next year, as we mentioned before, are multi-fold, our direct -- our captive direct-to-home sales force, pleased with leadership there, they continue to grow at a good growth rate. Dealers continue to grow at a nice, nice growth quarter over quarter.

And then we're bringing on -- our inside sales has been growing quite a bit. E-commerce has been a big investment for us and we suspect will add to our growth next year. And then homebuilders, as we mentioned, most of it's booked but not installed. So that will all come on next year.

And then finally, our retail channels, the partnerships we have there, we continue to focus on expanding those relationships. So we've got levers now that we haven't had in the past. We've really worked to establish them and perfect them in 2019. And then I think we'll flex more on each of those levers in 2020 and beyond.

So we haven't given a specific guidance yet on growth for 2020, we've said we'll be at or above market growth rates. We think that we've got the ability and the channels and the partnerships and the teams and processes to do that and hence our optimism for 2020. Dana, you want to add anything to that.

Dana Russell -- Chief Financial Officer

Well, Julien, I think for us -- and it's the beginning of the year when we gave a 15% growth number, maybe we're a little conservative there but the barometer or the parameters around that growth always for us is how do we balance the growth with profitability. We could grow, and I think it's enticing to throw out a big number and then be forced to grow in places that you maybe don't want to grow as badly. And so, we've actually contracted in some markets, as we've talked about previously over the over the -- prior quarters, and then as a result of wanting to focus on more profitable markets. Now, we could certainly expand that and give out some pretty big growth numbers, but I think the balance will be, we feel good about the growth.

We think it's responsible growth, we think it allows us to focus on that operational effectiveness and efficiency that David talked about. We also think that we can invest in some of these new routes and we'll learn and be able to open up some other potential markets. But we think that right now we're in a good pattern. As we mentioned in the prepared remarks, we feel like that's sustainable, that that's going to continue on.

And we don't see a shift in that momentum. And then the question is, where do we make future investments? And how do we want to grow those markets?

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Got it. Excellent. And can you elaborate a little bit further on the safe harbor piece here? Just can you clarify the 150 megawatts of panels purchase? And so what does that support exactly just in terms of megawatt, rather than talking about years? And then even more so to the extent which that now we've sort of satisfied broader conversation safe harbor, how do you think about cash flow and cash flow inflection, especially in the next year, and use of excess cash flow?

David Bywater -- Chief Executive Officer

Well, we stated a number of megawatts, Julien, in the prepared remarks, was 115 megawatts. So that was -- that we called out and talked about. And so from a panel standpoint, from just panels, it's 115 megawatts. So hopefully, that gives you the information you need there.

You also asked about the use of cash and sort of the liquidity and what we're doing with that. And I think, some of that, we're using for -- on the -- off the balance sheet to purchase equipment for safe harbor. We talked about financing some of that and using cash for some of that as well. And I think as we've been talking about, we are investing in new routes to market and making other investments in the company.

So -- but we think even with that, aside from what we use for safe harbor, in terms of using capital to do that, we believe that we'll be generating cash in a neutral to positive way in terms of the operations of the company and continue to maintain a strong liquidity position for future operations. So does that answer your questions, Julien?

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Yes, but not ready to talk about deployment of that positive cash flow trajectory, more importantly, your buybacks?

David Bywater -- Chief Executive Officer

No, no. Not at this time. Just going to clear one thing on -- sorry, on Julien's question now, just to be clear, I think it was the combination of the 5% and the physical test that the safe harbor, Julien, it goes well into 2021. It's not just 115 panels in 2020.

So it's the combination of that strategy that we believe gets us the extension of the ITC well into 2021 not just partially into 2020. I just -- when I listened your comments I identified there is a little confusion there.

Operator

Our next question comes from Praful Mehta with Citigroup.

Praful Mehta -- Citi -- Analyst

Thanks so much. Hi, guys. So maybe just first, a cleanup question. When I looked at your cost per watt calculation, you seemed to have included a onetime expense that you've backed out, both from sales and marketing as well as from G&A.

Any clarification or color around what that onetime expense is?

Rob Kain -- Vice President of Investor Relations

Praful, this is Rob. The onetime expense is related to the settlement of a lawsuit in California. Part of that affects sales commissions and required us to change the way we booked it and all that kind of stuff. You'll see the details in the Q on the SEC filing, but costs are related to that, the settlement of that lawsuit.

Praful Mehta -- Citi -- Analyst

Got you. And that was broken up into both sales and marketing and G&A?

Rob Kain -- Vice President of Investor Relations

Correct. Correct. Yes. The part that's related to sales commissions that are now considered earned is the part that's coming off in the sales and marketing line, flows through the sales and marketing expenses.

The rest of that settlement flows through G&A as a legal expense. And again, the total there, and the discussion of that settlement is in the Q.

Praful Mehta -- Citi -- Analyst

Gotcha. That's helpful. And then secondly, on California. As you know, there's a lot going on in California, the PSPS, or the de-energization has been quite active in California.

So I just wanted to get a sense for how you think that market has been evolving from your perspective? And how much opportunity do you see, given comments around 5, 10 years of PSPS in California, how big an opportunity it is? And how do you think you can kind of maximize that opportunity there?

David Bywater -- Chief Executive Officer

Well, I'll take that one. Praful, it's David. Yes, we've continued to -- we have consistently grown and we think taken a share in California now for several years. We do very, very well in California, and it's been one of our fastest-growing markets now for quite some time.

So we've got a really nice market share there. And unfortunately, for the consumers, and fortunately, there's more contextual reasons for them to consider what we do, both on the solar as well as the energy storage than ever. So there's been a heightened desire by consumers to take control and not reliant solely upon local utilities of these brownouts. So it's been a very busy season like I said, unfortunately for folks what they have that's happening, but if it's accelerating their efforts to consider this solution that's what's happening right now.

So -- and it's been hitting all of our channels, all of our channels, whether it's retail, whether it's inside sales, whether it's our direct-to-home. Clearly, the homebuilders was being driven outside of those exogenous shocks. But yes, we still see very strong demand, plus just the general desire of consumers to do something, they want to get off the sideline. And they want to help actually engage in doing environmental-friendly things.

And so -- what we've always said from the day one why we love the residential market is because we're able to help consumers become coinvestors in the solution. And right now, for a variety of reasons, they're more focused on doing that than ever and we think it's beneficial. I don't think it's just this year. I don't think it's just 2020.

I think that these challenges happening right now in California, people are looking for long-term solutions. And we think it's going to be a pretty sustained heightened desire to do something and go solar and get solar storage solutions in their homes and we think that it will drive growth for quite some time.

Praful Mehta -- Citi -- Analyst

Very helpful color there. I appreciate that. And then, finally, on storage, I was encouraged to hear the focus on storage and the renewed focus on storage. Any particular color on, firstly, how do those costs and returns look? And do you kind of look at it within the kind of platform of cost per watt? Or do you look at it separately from cost and returns perspective? And how do you see that growth opportunity kind of flowing separate from the installation of the solar panels itself?

David Bywater -- Chief Executive Officer

Well, yes, so as we've always said, we're always focused on doing things that are customer-centric. And there are customers who do it because they save money, it's a really good position obviously in Hawaii and in California, and growing more and more parts in New England. There are those who do it for other reasons that they just want that backup. They want to bulletproof their future.

They want to counter just concerns. We have several folks who have sent us letters about the fires and the shutdowns that really benefited from those batteries. So there is a whole bunch of reasons and they're growing and more people adopt it. We've always been very prudent about our growth and rollout of batteries.

So it is accelerating which is good. And we love the optionality that it provides us. It's whatever assumption you want to make on the drivers. If that's accretive or neutral, you can be very -- super aggressive on that and justify being very accretive or you can be more conservative and having to be kind of unit-economic neutral.

For us, we think there's enormous optionality there, as we continue to drive forward with helping those consumers have that solution where it makes sense. And the future opportunities will chase around grid services and other optional uplift for the company. At the end of the day, we believe that we have a platform. And this platform will allow us to bring all of the solutions beyond the meter to our consumers.

We think that that coupled with how we sell and how we service and how we install and own that relationship over time with our own captive sales and install teams. We think that over time, as long as we always keep them first and foremost in front of us, we'll help them adopt batteries at the right time as well as all the other solutions beyond the meter. Our goal is here for this to be a 30-year relationship and for us to bring all the solutions at the right time to them. So very optimistic, very encouraged.

I think you'll see us flex even heavier on this in 2020. And you'll see our attach rates even accelerate more. So I don't know if you want to add anything, Dana, to that or that covers it?

Dana Russell -- Chief Financial Officer

That covers it.

Praful Mehta -- Citi -- Analyst

That's super helpful context and very thoughtful. Appreciate it.

Operator

And our next question comes from Joseph Osha with JMP Securities.

Hilary Cauley -- JMP Securities -- Analyst

This is actually Hilary on for Joe. Thanks for taking our questions. Just kind of first looking at the different retail partnerships that you have. I was wondering if you could just kind of give us an update on how those are ramping, and particularly how that's tracking against originally?

David Bywater -- Chief Executive Officer

Thanks for the question, Hillary, I appreciate it. Tracking well, so as we mentioned in the past we have four relationships there, Home Depot, Sam's, Costco and BJ's, and we're pleased with what's going on. We've learned a lot this year, we've been very measured in how we approached it. There are -- there is a model there that you sell how you originate in the stores and how we close over the phone that we've worked to perfect.

Our goal there was to make sure that we are meeting the expectations of our partners, and that we earn additional stores and growth over time. So with regards to our expectations in our model of what we expected to have in 2019, we did very, very well. Hence, you probably saw that our overall growth rate was higher than what we expected. We were expecting 15% growth and we've done well above that.

And so, that's a function of that channel contributing to our growth rate. As we look to 2020, we expect that to grow considerably. And we're just very -- you guys have felt our style, where we don't talk a lot, we walk first and then we talk about it afterwards. And we're very optimistic about where we are with those relationships and it's being very prudent about our growth.

We don't want to be a flame-in and flameout. We want us to be a long sustained, successful partnership for them and for us and very pleased with our progress thus far

Hilary Cauley -- JMP Securities -- Analyst

OK. Thanks. And I was just kind of wondering if you could -- you've already spoken to it a little bit, but how you kind of think about leveraging some of your different channels, particularly as they start to mature as we get into next year? Just kind of how do you think about that and what might work best as you kind of look to enter some of those new markets?

David Bywater -- Chief Executive Officer

Well, I mean, first and foremost, we look at our new channels as, how do you get the product, the right product to the right customer the way they want to purchase it. So we're trying to be very agnostic on making sure we're not pushing our agenda, but we're pushing the right solution for our customers. So whether that be the financial product, a PPA versus a purchase versus a lease versus the terms and also the channel in which they desire to procure. So we are really trying to make sure that we are doing what the consumers want and being ahead of them so that we're prepared and skilled as their buying decisions and buying practices mature as well.

So that's number one. I think the second thing, the reason why we're optimistic about these channels is we're very cognizant of trying to make sure that they can be a lower-cost channels as well. We're in 22 states. I want to be in 50.

And the only thing that's really prohibiting me from being in more states than I'm in today is: a, we want to do it with strong unit economics; b, make it a valuable proposition for our customers and make sure our costs allow us to do that successfully. So we're investing and have invested heavily in 2019 to mature these new channels. And we're hopeful and optimistic that it allow us to get to more customers in a cost-effective way. So it's not only being customer-centric, but it's also being prudent to expand our strategy on how we can get to more customers.

And our goal here is not just to grow at a certain percent. Our goal is to bring clean energy to every home in America. And to do that, we know we have to have more than one club in our bag. We've got to have multiple clubs to win this battle over time.

And that means we have a very intelligent and diversified go-to-market strategy to allow us to do that and allow them all to grow and grow in a profitable and a sustainable way. So I don't know if you want to add anything to that, Dana, or that covers it?

Dana Russell -- Chief Financial Officer

Well, I think for us -- we're a young company. We continue to develop the technology, we're working on that, we're making investments. So the more directly that we can influence customers to make good decisions. And I think differentiate ourselves, I think some of the things that haven't happened in the past that we think is going to benefit the company in the future is that more people understand and know about Vivint Solar and sort of the way we differentiate ourselves with quality and efficiency and service after those systems are installed the more attractive they'll become.

And as we develop our capabilities with marketing and other e-commerce strategies, the more directly customers that can interact with us and that we think is also a huge benefit. So the routes that we have, we're working on, but it's certainly the end goal that David talked about is being able to influence more customers and more markets and be able to address many more markets than we're in today. And that's what we're trying to accomplish

Operator

And our last question comes from Colin Rusch with Oppenheimer.

Colin Rusch -- Oppenheimer and Company -- Analyst

Thanks so much, guys. Can you give us a sense of the magnitude of new geographies you're looking to enter in 2020? And how much infrastructure you're going to have to build out to support that effort?

David Bywater -- Chief Executive Officer

Good question, Colin. Per the last conversation, we're always looking at new geographies. We always review them on a regular basis to see if anything's changed. Three years ago, I didn't expect to be in Chicago.

Chicago is one of our best markets now. So we continue to evaluate that on an ongoing basis. And it's always a function kind of, once again, a channel that allows you to be in that market and the cost and the economics associated with it. I would say with that, our majority focus is not necessarily geographic expansion.

It's really -- right now it's growth within our current markets. There is so much headroom we have right now in the markets that we're in that we're doubling down on that and leveraging our current infrastructure nicely. We continue to see higher utilization of our assets and our resources. And we think there is enormous scale opportunity with what we already have.

So that's probably where the majority of our focus is and then we'll continue to be opportunistic by new geographies and will enter those in the most cost-efficient and prudent manner as possible.

Colin Rusch -- Oppenheimer and Company -- Analyst

Great. And then just on the secondary impact of the PG&E blackouts. So not within the direct-service territories, but in other geographies. Can you give us a sense of what you're seeing? I know this is early days of customer education levels, inbound inquiries, acceptance levels, close rates, things like that.

Just in terms of the order of magnitude of the fear of the grid going down in other areas impacting your ability to sell systems.

David Bywater -- Chief Executive Officer

All I'll say is, you've seen our growth being higher than we expected. We have been growing in California much higher than our growth -- just overall. And so that really strong growth rates in California, they continue to be so. And unfortunately and fortunately, like I said before, given the situation, the demand is -- and awareness is just higher.

It's interesting, we knock on millions of doors a year at this company, and in California, it's the highest penetration outside of Hawaii, I think in the States. But every door now is a fresh door again because with time-of-use and with these -- I mean blackouts, consumers in the past that didn't purchase, whether they were closed-door from it are reevaluating that decision. And so it kind of resets the market and allows you to go back and have a conversation again. And those conversations today are not only going solar, but it's also considering storage.

So it really has I think kind of rejuvenated the state and allows you to go back and have a meaningful conversation again, and have people reconsider their desire to take action now or not. So I think it will be a strong growth for us in 2020 and beyond.

Colin Rusch -- Oppenheimer and Company -- Analyst

Great. Thanks so much guys.

Operator

[Operator signoff]

Duration: 58 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

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Praful Mehta -- Citi -- Analyst

Hilary Cauley -- JMP Securities -- Analyst

Colin Rusch -- Oppenheimer and Company -- Analyst

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