Vivint Solar (VSLR) Q4 2019 Earnings Call Transcript

Vivint Solar (VSLR)
Q4 2019 Earnings Call
Mar 10, 2020, 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's fourth-quarter 2019 results conference call. [Operator instructions] I would now like to hand the conference over to your speaker today, Rob Kain, vice president of investor relations. Thank you. Please go ahead.

Rob Kain -- Vice President of Investor Relations

Thank you, operator. Good afternoon, everyone, and welcome to Vivint Solar's fourth-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 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 risk 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, let me turn the call over to David.

David Bywater -- Chief Executive Officer

Thanks, Rob. Good afternoon and thank you for joining us on our call today. We are pleased to share with you Vivint Solar's fourth-quarter and full-year 2019 financial and operating results, along with our progress against our strategic priorities. We have continued to execute well and finished the year strong.

We installed 66 megawatts for 9,500 customers in the fourth quarter. This represents 22% growth of installed megawatts over the fourth quarter of 2018. For the full year, our growth was 19% as we installed 233 megawatts for almost 34,000 customers. This is a new record for annual volume for the company, which is a proud milestone for us.

However, what we're most proud of is how we are doing this growth. It has not been a growth at all cost mentality that has hurt this industry in the past, rather it is intentional and intelligent growth that focuses on the customer, our employees and our investors. We are growing the best markets with a maniacal focus on installation quality, employee safety and the customer experience. It is this holistic approach, coupled with strong growth that underwrites the pride we have in being part of Vivint Solar.

We remain differentially focused on the most economically attractive markets, which we believe are also the most competitive. To provide you some perspective on our growth in the fourth quarter, our growth in California was up 27% versus the prior year. In Massachusetts, our growth was up 25%, and in Jersey, it was up 57%. We believe our integrated model is succeeding, especially in the most contested markets.

One of our major strategic advantages and why we continue to increase our market share in these highly competitive markets is the Vivint Solar's powerful direct-to-home sales force. We believe we have the most professional, skilled and motivated sales force in the industry. Since the company's inception, we have invested heavily in building the best sales management teams, creating comprehensive training materials, developing very robust sales tools and streamlining our sales processes. Our investment and focus on the Vivint Solar's sales team has resulted in our having what we believe to be the most effective sales team in the residential solar industry.

Our results in the most competitive markets speak for themselves. Coming back to our fourth-quarter results. So our growth is coming across all of our channels but remains strongest in our inside sales, retail and homebuilder channels. In the fourth quarter, these channels represent 13% of our total volume, up 21% sequentially and 146% year over year.

Our inside sales team has been performing especially well with volume growth of 40% year over year. For 2020, we expect those channels to continue to grow faster than our direct-to-home and dealer channels, representing a larger portion of our volume and allowing us to reach additional customers at lower overall costs. Another strategic advantage for Vivint Solar is our installation and operations teams. The vast majority of Vivint Solar's installations are performed by Vivint Solar employees.

Our employees take pride in the quality of our installations and the construction services we provide. We believe our operational processes, culminating with installation, service and maintenance are the most effective in the industry. Our focus on customer satisfaction and quality are paramount in our thinking and guide our actions. Efficient operations alone are not satisfactory, if the quality of the 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 installations means customers and investors can rest assured that a Vivint Solar system will perform as designed. In addition, Vivint installations are done correctly the first time. We're able to dedicate fewer resources to 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 our processes, audit and verify performance and add dedicated resources to assure quality. Our operational efficiency is a competitive advantage, and we believe these capabilities will increasingly differentiate us in the future. Our integrated model allows us to ensure control and consistency and push best practices out across the company in a rapid and predictable manner.

Several noteworthy wins in 2019 include a 17% reduction in our time from installation to PTO. A record low in service of orders on new accounts within 12 months of installation and the overall performance of our fleet at record-high levels with regards to system availability and power generation. These achievements result in happier customers, which is evidenced by what we've seen in high and improving customer satisfaction metrics that we close track across the customer experience. Despite these improvements, we continue to -- we know we can continue to improve.

Continued improvement is the core DNA of our company, and we are excited about what our people will achieve in 2020. Looking forward to the coming year, demand continues to be very robust for residential solar, and we believe we are well-positioned for another strong year in 2020. We will continue to leverage the advantage of our business model and continue to target the most economically profitable markets. Given recent concerns with the coronavirus, we are monitoring and putting the redundancy plans in place where feasible to protect and prepare against potential shocks to our business continuity.

Despite these concerns, we believe we will still grow installed megawatts by 15% to 20%, given the strength of our current pipeline. We believe this growth keeps us at or above the expected 2020 market growth rate. There is the potential to grow faster by more aggressively serving less economically attractive markets. However, chasing this additional growth requires to lower our margin targets or possibly install systems at a loss.

This is something some in the industry have done in the past, growing for growth's sake and has led to a negative consequence for many companies as they've had to resort to equity raises and corporate-level debt to fund this less profitable growth. This is something we're not willing to do. Instead, we remain steadfast in our commitment to be disciplined and pursue profitable growth. 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 solar system, whether it is a system purchase or we retain ownership. All of the customer – also, all of the number of customers requesting storage is still relatively low to our overall volume, we are seeing a significant increase in customer awareness and have doubled our storage installation sequentially from the third quarter. Storage has become an increasing portion of our business, and we believe it will be a material part of our business this year with double-digit attach rates in markets where we offer a storage option. 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 part of Vivint Solar.

Overall, I'm very pleased with our company's progress and the exciting results we're experiencing. With that, let me turn the time 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 upper end of our installation guidance was 66 megawatts in the quarter. Compared to recent quarters, we saw a strong uptick in system sales as customers lock in the value of the 30% ITC by having the system installed in 2019. For the fourth quarter, our system sales were 13 megawatts or about 20% of our volume. Going forward, we believe system sales as a percent of our quarterly installation volume will fall back to the low to mid-double-digit range.

With our focus on our best markets, we've continued to see strong project values for our PPAs and leases. For the fourth quarter, our project value was $4.71 per watt, a 7% increase over the same period a year ago. On an adjusted basis, our net present value created or estimated margin was $62 million. On a unit basis, our adjusted net present value per watt was $0.94.

Since typically, there is a material lag of approximately a quarter between the time we install a system for sale and recognize the revenue from that system, we're reporting an adjusted number to better align the value created with the associated costs. Moving on, we continue to create significant value with each system 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 even as we're investing for growth faster than the overall market. Although our unit margin can fluctuate from quarter to quarter, we believe we'll maintain a margin at approximately $1 per watt on an annual basis.

Our net retained value was $1.2 billion at the end of the fourth quarter. On a per-share basis, this represents approximately $10. Net retained value decreased from the prior quarter as a result of using $50 million in cash from our balance sheet to prepay for safe harbor inventory. As a reminder, we believe net retained value, as we calculated, 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 fourth quarter was $3.54. The increase in our unit costs were due primarily to higher panel pricing in the fourth quarter as supply was constrained due to safe harbor purchases, the addition of new installation crews and investments in new sales channels and corporate infrastructure as we continue to grow. We believe this will benefit our overall cost structure in future periods.

Total revenue for the quarter was $77 million, up 21% over the fourth quarter of 2018. Revenue from systems where we retain ownership was approximately $44 million, up 25% from the year-ago period. Revenue from system and product sales in the fourth quarter was approximately $34 million, up 17% from the year-ago period. Our liquidity and financial position remained quite strong.

We finished the quarter with $256 million in cash and restricted cash. There are several factors at play in the decrease in our cash balances in the quarter relative to the prior quarter. First was the $50 million we used for purchasing safe harbor equipment. Second, with our new asset financing facility, replacing our working capital facility, we chose to reduce our corporate-level debt by a net of $32 million.

At the end of the year, we had approximately $224 million in undrawn capacity in the various debt facilities and approximately 67 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. Subsequent to quarter-end, we entered into a new tax equity partnership that is expected to provide another 28 megawatts of tax equity capacity. We feel positive about capital structure of our business, and we believe we'll remain cash flow neutral to positive given our current business practices and growth rates.

Turning to our first-quarter guidance. We expect the installed volume to be somewhere between 57 to 60 megawatts. We expect our cost per watt to be between $3.68 and $3.75. Our unit costs are typically higher in the first quarter as volume is at a seasonally low point for the year.

We believe our cost structure will decline through the year as volumes increase and we realize more benefit of the investments we're making to enhance growth in our emerging routes to market. For the full year, we expect to grow at 15% to 20%, and we'll continue to update this as the year progresses. We recognize the turmoil and concern with some industries and geographies relating to the upheaval associated with the coronavirus. We are hopeful the residential solar business in the U.S.

avoids significant disruption but are mindful of the potential impact associated with this issue. We have not seen meaningful impacts to the business at this time. We're excited about the progress 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.

With that, I'll turn the call back to the operator for questions.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from Brian Lee with Goldman Sachs. Your line is open. Your next question comes from Philip Shen with ROTH Capital. Your line is open.

Philip Shen -- ROTH Capital Partners -- Analyst

Hey, guys, thanks for the questions. As expected, I think you guys called out the coronavirus as a risk in your 10-K. And I know, Dana, you mentioned that you haven't seen anything meaningful in our checks this week. We're starting to hear of cancellations and lower sales volumes in both the Northeast and in California from separate installers, and this is just the beginning of potentially what could happen.

Just curious if you guys could elaborate on what you guys are seeing and hearing. And how do you expect this to play out?

David Bywater -- Chief Executive Officer

Hey, Philip, this is David. We've looked at our leading indicators, and they're very, very strong. We actually haven't seen anything impact us to this point. So we look at our account generation, we look at our welcome calls, and we haven't seen a dip.

It's actually accelerating. So we're encouraged by that, but we're also measured in that as well. So do I think it would have an impact? I do. Just how big? We're unsure.

Right now, it still looks very, very strong. We've been working on contingency plans on making sure that we can sell service and do everything we've done in the past and doing the very best we can to plan around it. But right now, the demand has actually been holding up quite nicely.

Philip Shen -- ROTH Capital Partners -- Analyst

Great. Thanks. David, you mentioned the redundancy plans and contingency plans. Is that primarily for senior managers? Or if you can elaborate on that, that would be great.

David Bywater -- Chief Executive Officer

Sure. We look at it both in the field on operations. We look at it in the field on sales and then we look at corporate. So here at corporate, the other day, we had our entire IT team all work from home, no blips we've got.

We've got redundancy in our sites, where we actually do all the processing. So nothing's in one site. So we've worked on that and the diversification that we've been doing that for the past year, perfecting that process. We've been working through just remote support of systems and workflows, both in the field and externally, and feeling good about the progress made there.

On the sales front, these folks are dispersed throughout the communities. And so obviously, the coronavirus, where it's hitting and where it's concentrated, you probably have much more adverse reaction versus elsewhere. And we're pretty diversified across the markets we're in. So we're doing the best we can and feel good about what we can control, and we'll continue to monitor and be optimistic but also responsible where we need to be responsible.

Philip Shen -- ROTH Capital Partners -- Analyst

OK. That sounds pretty robust. As it relates to liquidity, Dana, I think you spoke to this a lot in terms of the amount of capacity you have. I was wondering -- I'm sorry if I missed it, but can you comment on how much capacity you have left on the forward flow? I think you guys have $208 million used up now.

And then what are you guys hearing in terms of -- and this just might be too early, but have you had any initial discussions with financing partners to reup facilities? And is there any hesitation from any of the banks or any of those partners?

Dana Russell -- Chief Financial Officer

We sure have had good responses to inquiries about capital. As we mentioned, we're optimistic about it. Tax equity appears to be in a good spot. So everything that we talked about, I think, continue to see robust markets for it.

People are very comfortable and seeking value here. And so I think the assets are performing well. So we just don't really see any barriers at this point to renewing or doing any of the things that we've done in the past. We know there's some upheaval in the markets right now, but we really believe that we're in a good spot and continue to be optimistic about that as well.

So I don't see much in the way of concerns now, and we've reflected that in our prepared remarks.

Philip Shen -- ROTH Capital Partners -- Analyst

Great. Thank you both. Appreciate it. I'll pass it on.

Operator

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

Brian Lee -- Goldman Sachs -- Analyst

Hey, guys.

Dana Russell -- Chief Financial Officer

Very short question on the first introduction there.

Brian Lee -- Goldman Sachs -- Analyst

Yeah. Apologies for the technical difficulties here. We'll get that sorted out. And maybe just to follow up on Joe's question, the financing sounds like you're in a good spot right now.

But just like you're doing with your operational folks in the midst of what is a tough situation right now with all the virus challenges people are facing, do you have contingency plans from a financing standpoint, if credit markets tighten, spreads widen further? Let's say you do need to go outside of the normal wheelhouse for financing. What options would you consider and do you have in place?

Dana Russell -- Chief Financial Officer

Well, Brian, I think as far as contingency plans, we have a variety of vehicles that we have employed in the past, and we continue to employ. We have a lot of undrawn capacity on the current vehicles debt facilities that are in place. So as far as constraints in the near term, you just don't see a lot of constraints there. And we've signed up additional tax equity.

We have others in the pipeline. I think we feel pretty good about it. So we're not just centered in one vehicle or one route in terms of providing capital for us, and I think the markets remain open and pretty strong. We'll see how things go here, and if there are other issues that arise.

But right now, we feel pretty good about the capital structure of the company and the potential for new endorsements and new offerings. So I hope that answers your question.

Brian Lee -- Goldman Sachs -- Analyst

Yes. No, that's helpful. I appreciate the color. And I might have missed this, but a couple, maybe more modeling-related questions.

First, on the net retained value, there was a decline quarter to quarter. If you could maybe walk us through the drivers of that. And then secondarily, the revenue dollars were weaker on higher volume per the system and product sales segment. Just wondering what might have driven that dynamic as well.

Dana Russell -- Chief Financial Officer

Well, on the net retained value, there's a cash component in that. And we used cash, as we talked about with safe harbor and also paying down our working capital facility, so we used some of our cash to pay down some corporate-level debt. And so that's the main impact with net retained value, having a decrease. So not a significant decrease.

And we feel like we're in a biggest position there as well from a cash standpoint. But that's the answer to that question. The second question was, remind me again, Brian, what your second part of your question was.

Brian Lee -- Goldman Sachs -- Analyst

It looked like just revenue dollars were weaker on a higher volume per system product sales, if I look at system product sales, it was like 13 megawatts versus eight to nine in the past few quarters, but your revenue was about the same or weaker.

Dana Russell -- Chief Financial Officer

Yes. The delay or the time frame in between the sale of that system, the installation and collecting those revenues and recording those revenues through the quarter is what's really impacted that, and that's also why we talked about a bit of an adjustment in terms of the net present value as well. So we'll see the benefit of that in the first quarter. In first-quarter results, where we'll see the revenue associated with those system sales.

So it's more of a timing issue than anything, Brian.

David Bywater -- Chief Executive Officer

Brian, we prioritized, especially late in the quarter, our system installs, so kind of across the markets, trying to really make sure we got as many of those installed as possible. That really was the lion's share of what we focused on throughout December, so that's why we saw such a high spike, and that was kind of late in the quarter. It was the right thing to do for customers.

Brian Lee -- Goldman Sachs -- Analyst

Fair enough. I appreciate it. Thanks, guys. I'll take the rest offline.

David Bywater -- Chief Executive Officer

Thanks, Brian.

Operator

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

Colin Rusch -- Oppenheimer and Company -- Analyst

I'm actually more curious about what you're doing on the growth side. So as you look at new geographies, what do you need to see to start moving into some new geographies? And how long do you think it's going to be before you need to do that to support growth?

David Bywater -- Chief Executive Officer

Well, first off, thanks. I appreciate the question, Colin. I think our growth overall has been quite robust. We're really pleased with that.

You look back the last six, seven quarters, we've been posting growth in high teens, low 20s. And so we've had really strong growth in what I call our core markets, not only in our core markets but our most competitive markets. When we think about new geographies, we always do a trade-off, right? Those are usually marginal economics, marginal savings for your customers. And we've always felt like we wanted to dominate the best markets.

And we've done a really good job there. I look back this last year, and we look at some of the interconnection data out there for the industry. And we think we're growing three times or more in some of the key markets like California, Massachusetts, New Jersey and others when you look at just the growth rates versus the industry. So our growth has not been constrained.

And we've been growing quite well in the best markets. Now at the same time, as Dana said, we've been investing heavily in the new channels. We've invested heavily into retail. We've invested heavily into our capabilities around inside sales.

Obviously, we invested heavily into homebuilders and are very pleased with those efforts, and we'll see that volume come in this year. Many of those new models that we're looking at, and also even the models with our direct-to-home, we're pushing toward a lower cost per watt that allows us to expand into new markets. But our play at this point has been dominate in the most competitive and the most valuable markets, make the investments into new channels that we think actually are a lower cost of acquisition, benefit from those channels in our existing markets and then apply them to marginal markets where you have a cost model that allows you to expand and expand with healthy unit economics. So the work we're doing right now around e-commerce will allow us to go into new markets and do so boldly and aggressively as we perfect that process, same thing with our inside sales and our other channels.

So there is a very thought-out plan. There's a very intentional approach here on how we're approaching growth. And once again, our overall growth in the best markets, I think, is better than growth in our marginal markets. And we've always said, people will say, well, you're growing -- you grew 19% last year.

That's a phenomenal way we grew. People will say, well, can you grow more? Yes, we can grow more. We've always said we grow more. But we choose to grow in a sustainable and a deliberate and intelligent manner on how we grow.

Dana, you want to add anything to that or does that kind of cover...

Dana Russell -- Chief Financial Officer

No, I think everything David said -- I would add the -- we touched on this, but the investments that we're making now are being reflected in our cost per watt, and we're realizing accelerating growth in those emerging markets. But we're making an investment. So it is impacting cost per watt and causing cost per watt to be a bit higher in the near term. And we think it's going to pay off a lot down the road.

For the very reasons, Colin you're talking about, new markets have been able to grow offer solar at a very affordable price to customers in emerging markets in a way that makes sense and is economically viable.

Colin Rusch -- Oppenheimer and Company -- Analyst

Great. And then the follow-up is really about cost of capital and your ability to borrow at lower rates. As you guys think about the business and think about your cost of capital and speaking with your lenders and other finance partners, do you start to think about the business at a different discount rate and still capturing some more spread? And can you do some things on your balance sheet to reduce some of the carrying costs on the existing projects?

Dana Russell -- Chief Financial Officer

Well, our facilities that we have in place now are hedged, so we've kind of locked in interest rates on a lot of the activity that's currently in place. We think about doing other capital raising activities here as we go forward, and we'll see what the impacts are with that. And we think that it's likely that we could see some lower interest rates associated with that. But for the most part, we plan on it being relatively stable.

So we think we're in a fairly favorable situation from a cost of capital, that may improve slightly. But we don't see that increasing, or at least, that's not the way we look at it right now. So we think we're in a pretty good situation in terms of the capital structure of the company and think it will be relatively stable as we go forward.

Colin Rusch -- Oppenheimer and Company -- Analyst

All right. Thanks so much, guys.

Operator

Your next question comes from Julien Dumoulin-Smith with Bank of America Merrill Lynch. Your line is open.

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

Hey, good afternoon, team, and thank you so much for the time. Perhaps, first, can we talk strategically a little bit on any efforts and how you think about the business? I mean, I know there's media articles out there, so I would love to hear your latest thinking in any direction, right? I suppose we haven't seen too many strategic thoughts of late in the sector. So I'm curious if this is more asset oriented or more broadly or if there's any commentary you can add. And then I've got a quick follow-up.

Dana Russell -- Chief Financial Officer

From a strategy standpoint, Julien, do you want to point us in any direction there? I mean, is there something that you're...

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

So I was just -- if there was any reaction to media articles out there?

Dana Russell -- Chief Financial Officer

Well, our strategy, as David mentioned, is to continue to do what we've been doing: focus on quality, focus on great markets, focus on continuing to build our sales teams and our sales processes focusing on the new initiatives in the emerging markets. I mean, really, that's our strategy. So there hasn't been a change in the way that we think about the business other than what we've communicated. We continue to be excited about it.

And our strategy go forward is as purposefully as we can under the conditions that David talked about, where we're being responsible and mindful of the economics of the company and build a sustainable organization. So we're extremely happy with our employees with the way the business is running, with the improvements that we've made and the efficiency gains that we have, the productivity of the system. So that continues to be the strategy, and I don't think that we'll have really other comments on that. David, do you want to...

David Bywater -- Chief Executive Officer

Yes. No, I agree completely. I mean, I actually have never been more bullish about the company than I am right now. When you think about everything that Dana said, it's all true.

I mean, operationally, we're performing now at a better level than we've ever performed. I mean, hands down. And our strength there to flex forward is remarkable. From the sell-side generation, I mean, our direct-to-home team is absolutely crushing it.

We have more active head count now than we've ever had in the history of this company. I think they're happy than they've ever been. And we're working hard to continue to delight them. And then at the same time, we've opened up these new channels that we think are very customer-centric, and giving them the products they want and the channels they want, and we're very encouraged by the cost position that puts us in to expand into new geographies.

On the expansion front, we're in new markets. If you think about Chicago or just Illinois in general, and we reentered Hawaii, phenomenal growth rates for us. We're absolutely crushing it right now in Illinois, so we're really pleased with that. And we're just starting on the platform play.

And so now with the attach rates as we now shift and pivot toward bringing additional products to customers that are happier than they've ever been, and we're servicing them we've ever serviced them. I think we've earned their trust and you see it in our growth rates. So we actually feel like we're kind of coming into our own right now and are leaning forward to accelerate and we're super encouraged by that. And we love our integrated model.

We think going forward, the control is something that you guys should put an emphasis on. If you can't prove that you're controlling the sales process and the installation process, I would rethink that because we actually see that control as a key differentiator going forward, and the parties that associate with this industry are putting a premium on it. So we like the cards that we have. We like the cards that we've created, and we're very, very bullish about our strategy and our ability to lean in and execute and create a lot of value.

So Julien, I don't know if that answered your question or not, but...

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

Then I have follow-up on the -- it's fine. Maybe if I could move on just really quickly. With respect to supply contingencies, you guys talked about addressing all sorts of angles on the virus. Obviously, you addressed some of the more corporate angles.

How do you think about ensuring the adequacy of your inventory? And then separately, to the extent that we can dig into the inventory given supply chain concerns, would you potentially be using some of the ITC safe harbored equipment? Or how do you think about that side of the equation rather than focusing on the sales side in the context of the virus implications?

Dana Russell -- Chief Financial Officer

Yes, that's a good question, Julien. I think we do have, as you alluded to there, inventory associated with safe harbor where we stockpiled some inventory, mainly panels. And so we have that available to us. We don't want to have to use those in sales transactions that doesn't benefit the reason why we had the safe harbor.

So for retained ownership activity where we have a PPA or a lease, that's where we're using that safe harbor equipment. And right now, the supply of other equipment looks to be pretty good. We just did a check on that, the other day. It appears that the manufacturers of panels and other equipment seem to be up and running, and the market seem to be available.

If that's impacted or shuts down, it may be that we'd have to use some safe harbored equipment or do something else there. We don't anticipate that. We did see a lag and a delay associated with some activity coming out of China. And now we feel like we're seeing that activity get back up and some momentum beginning to build there, but we don't know exactly what will happen here as the time goes on, but we feel pretty good in the present.

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

Just to clarify, you have not seen an issue from a supply chain perspective yet, right? That's maybe the critical point. Is that you've seen thus far?

Dana Russell -- Chief Financial Officer

Well, what we saw was early on that there was some delays and some activity that was not occurring and some of those factories weren't operating in a way that was allowing us to get the equipment. What we've seen over here the last couple of weeks, is that activity resumed, facilities are back up and operating, something 80%-plus, and we're seeing some increased activity from the people that we've been getting the equipment from. So we're seeing -- we're not seeing a problem -- we're seeing some momentum build there, where we're seeing that activity increase, not decrease. That's the current state, and so that's what we know today.

David Bywater -- Chief Executive Officer

Another way to put it is we -- the cushion that we had and the resumption of activity, we don't anticipate any stock-outs for the growth rates we're talking about. So that could always change, but we check the supply chain and are in constant communication with our vendors. And that's not a huge concern for us. We're feeling pretty good about where we are and the outlook and the flow, and that was a concern.

But we feel really good about where we are given the work we've done and the cushion that we had.

Dana Russell -- Chief Financial Officer

There's only so much that we can control there, Julien, as you know. I mean, we don't manufacture that ourselves, and we did that from third parties, almost all the equipment. We've had relationships that are long relationships with suppliers that we do a lot of business with, and we are a priority for those suppliers. But we'll see how this happens and how this virus affects the world and what other considerations are made.

And I think as far as where we stand in line to other people, I think we are probably in a very good position from a priority standpoint.

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

Thanks for clarifying, guys.

Dana Russell -- Chief Financial Officer

Thank you.

Operator

Our next question comes from Joseph Osha with JMP Securities. Your line is open.

Joseph Osha -- JMP Securities -- Analyst

Hello. Amplifying a little bit on Julien's earlier question and also maybe being a little more specific, you're talking about storage a lot. I'm curious as to whether we might see you look to add some skill sets there. And on a related note, unless I missed it, I don't think I heard a specific storage attach rate number.

Is that something you'd be willing to speak to? And then I've got a follow-up.

David Bywater -- Chief Executive Officer

Hey, Joe, I appreciate the question. Yes, there's no secret. We're behind on storage, so we knew that. It was intentional on our behalf.

We have shifted in the last quarter or two. You've heard from us that we've stepped up our game there. And we're seeing it. We've doubled what we're doing in Q4 over Q3.

That, I put in the prepared remarks. And we said that for this year coming forward, we expect to see double-digit attach rates in the markets that we offer batteries, specifically in Hawaii and California, and you'll see in the Northeast this year. So that's great. I think that we're in the game.

I think we're kind of catching up on the attach rates, and you'll see it be a much bigger piece of our play going forward.

Joseph Osha -- JMP Securities -- Analyst

OK. Second question. You are now sort of the second company we've heard talk about some unreasonable behavior in the market. I'm wondering, obviously, without getting into names, is this aggressiveness coming from other larger companies? Or is this mom-and-pops taking the business to financing platforms? Where are you seeing this pressure coming from?

David Bywater -- Chief Executive Officer

Yes. I mean, if you look at the -- we know it's a very transparent market on what people pay and we pay competitively. And our value proposition always been -- for our sales folks, it's the commission x what is the per rep averages x we always tell them about sustainability. And then you wrap that around kind of the customer experience and then the additional referrals they get as you delight customers.

And so we feel like we're competitive on our pay. There are some players that we look at what they pay, and we think it's irrational. But we really focus to be competitive. We really differentiate on our per rep averages.

We'll compare our per rep averages with a large dealer network that we work with, and we're very, very, very encouraged by how much more our folks sell per rep per month than others and then their confidence around us delivering and the customer experience. And so you put that together, and we don't match what we think is irrational pricing, but our growth rate is very high. And I think we've really delighted our sales force and we're seeing very, very positive things. So they've really looked at that and said, what is the full value proposition for us and where do we want to place our flag personally, and where we want to be and who we think is the most sustainable out there.

So we're encouraged by what we're seeing. We're mindful of what we think is rational versus irrational, and we're doing everything that we think is appropriate to be competitive but also be respectful of sustainability and unit economics.

Dana Russell -- Chief Financial Officer

That cuts across the whole industry, Joe. I mean, when you think about it, we've got players across the industry. Much of the industry is smaller players. And so there is a lot of that.

And I think in order -- we know what it takes to get a return in a market, and we have been disciplined in making sure that we get a return. When we see someone out paying well in excess of what we pay in a market, we know that they either have to cut costs in other areas, or they're not getting the return. And so it's not establishing a long-term sustainable model. We need to be in a long-term sustainable model and pass on savings to customer because that is the ability for us to sustain ourselves.

And if you're not saving customers' money, the ability to retain those customers is a bit problematic. On the cutting the costs, we've invested in our installation and in our quality, and we've increased that over the years, not decreased. So even though we become more efficient, we see a lot of activity out there, and we have requests all the time for people to say, "Hey, so and so installed my system. They're no longer in business.

They're out of business now. Can you guys help us? And would you serve as my system?" So that's part of the element that we see that customers many times are not aware of what they're getting into when they sign a long-term agreement with folks who don't have the wherewithal to sustain them over a long period of time. We don't like that behavior because it's a bad reflection in the industry. It's a bad reflection for customers.

We certainly are a big player. And so we are in contact with regulatory agencies and others who are on protecting consumers, and we want to be proactive in assuring that customers have the best experience possible. So I think if any element in the process is irrational or we're cutting cost because we're paying so much in other areas, and we see that happening, and we're not going to name names in terms of players who are out there, but we certainly do think that as the industry matures and people are more responsible, we hope that continues to evolve because it's better for everyone. And we think that there are parties out there who don't take the same concerns that we have, and it's hard to control quality with hundreds and hundreds of installers out there.

So if you're not doing the same things that we're doing, you're going to have a tough time controlling that quality. And if you're not checking on that and assuring that there is some audit process in place, then you're going to have systems that are faulty. And that's why we invest in those processes to make sure that that's part of our procedures so that we give customers a better long-term experience.

Joseph Osha -- JMP Securities -- Analyst

And I think that kind of leads to the final question, then I'll jump off. I think both of you've talked a lot about being very intentional about your growth and staying focused on returns, which is great. And I look at your cash and the fact that I think would have been up pretty nicely if you hadn't safe harbored and then paid down the recourse debt, which is great. But then your comments for the upcoming year are still pretty cagey.

And so I guess, I'm wondering if your business model is so returns-oriented and so intentional, why is it not generating cash?

Dana Russell -- Chief Financial Officer

Well, we said that we would be neutral to positive. And I guess you're referring to the part where we say neutral, and we do have timing differences from quarter to quarter, where there's quarters that there is more cash. And we'll see some of that activity in the near term here as we get the benefit of system sales that we've completed here at the end of the fourth quarter. We feel good about the process.

We are making investments, and we want to be clear about that. So we are investing in routes in emerging markets in a meaningful way. We're investing in our technology and IT, so that we can do more from an e-commerce standpoint, and so we feel like that's important. Maybe it's a sacrifice of some short-term cash flows, but it's a long-term benefit of the company and the sustainability of the company and the way that the organization is going to continue to evolve.

We really believe that the majority of Americans want access to residential solar. It's beneficial to them and saves the money. And so it's our honest to say how can we best represent those interests by providing a means to get that customer demand in a feasible, meaningful way, and so we're all about that. So that's what we're trying to do, and we're making those investments and we're proud of that, and we'll continue to do that.

But we'll do that in a way that continues to allow us to cash flow the business.

Operator

[Operator signoff]

Duration: 50 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

Colin Rusch -- Oppenheimer and Company -- Analyst

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

Joseph Osha -- JMP Securities -- Analyst

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