Vivint Solar (VSLR) Q1 2020 Earnings Call Transcript

Vivint Solar (VSLR)
Q1 2020 Earnings Call
May 07, 2020, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to the Vivint Solar's first-quarter 2020 financial results conference call. [Operator instructions] I would now like to hand the conference over to your speakers today, Rob Kain, vice president of investor relations. Thank you. Please go ahead, sir.

Rob Kain -- Vice President of Investor Relations

Good afternoon, everyone, and welcome to Vivint Solar's first-quarter 2020 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 in 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. Press release is also available on the Investors section of the website. Please note that a replay of this call will be available within a few hours of the call. 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

Thank you, Rob. Good afternoon, everyone, and thank you for joining us on our call today. We find ourselves in unique times, and I hope that each of you and your families are safe and healthy. I will cover two topics in my prepared remarks.

First is how we performed in Q1, and then how we are successfully navigating through the COVID-19 pandemic and using this crisis to accelerate our pace of change to be even better prepared to compete and win. Let me first address Q1. As a team, we continue to execute well and installed 56 megawatts for over 8,000 customers in the first quarter. This represents 23% growth of installed megawatts over the first quarter of 2019.

We remain focused on the most economically attractive markets and have continued to see strong growth in them. California is still our largest market, and we saw a 10% year-over-year growth there. In several of our other tier-one markets like Massachusetts, New Jersey and Illinois, we saw incredible growth. Massachusetts and New Jersey grew at 83% and 51%, respectively.

In Illinois, which we entered about a year ago, continues to grow exponentially, and it's now one of our largest markets. We delivered project values of $4.69 per watt and our NPV per watt for the quarter was $1.06. We believe our integrated model is succeeding, especially in the most contested markets. We have also continued to make steady progress in our newer channels, our inside sales, retail and homebuilder channels represented over 15% of our installation volume in the first quarter.

Dana will provide some additional color on the quarter during his comments, but regarding Q1, I will wrap up by saying our efforts over the past few years to expand our channels to create value for shareholders and dominate in the most attractive solar markets are materializing nicely. For the rest of my prepared comments, I would like to focus on what we are seeing with COVID-19, how we are adapting, and how we're using this crisis to accelerate our efforts to be well-positioned for the future. We are working through what I hope is the most demanding global challenge of our lifetimes. COVID-19 is having an unprecedented impact on a personal, local, national, and global scale.

For Vivint Solar, the stay-at-home mandates have impacted all of our markets. This happened within weeks of our Q4 earnings call on March 10. At that time, we were growing over 25% and experiencing tremendous summer-like growth during our historical slow months of January, February and March. Our growth was benefiting from record-high active sales reps who choose Vivint Solar over other options, as well as each of our emerging channels seeing strong traction and growth.

Within a few days of that call, our world changed rapidly, and we knew we needed to adjust at an equally rapid pace. In particular, we accepted that COVID-19 was going to be unlike any of the crisis and traditional approaches to crisis management would not be sufficient. We knew that the health of our employees and customers was a primary concern, and we needed to make sure they were protected. We committed on day one to be at the forefront of protecting them by implementing CDC-compliant guidelines and best practices.

We anticipated that there would be a substantial volume disruption in the short-term and preserving cash was critical and that a recovery may not be a quick bounce-back, but may take multiple quarters. And finally, we acknowledge that customers may change behaviors in irreversible ways. We knew that if we took bold actions now, it could set us up for success through the downturn and beyond. We had to adjust how we sold residential solar, not only as individual sales representatives, but as a company.

With these working assumptions, we quickly forged our plan and began to execute. First and foremost, we work to ensure that all of our selling, installing, servicing and back-office work was compliant with CDC protocols and all state and local requirements. We had almost all of our employees at our corporate headquarters working from home within two weeks. We changed all of our selling practices to allow all sales to be completed remotely, and we have provided PPE to our employees in the field.

And as an essential service, all of our installs and service calls were done with aggressive CDC-compliant policies. We ramped up all our daily efforts to ensure all facilities and trucks were sanitized and have had incredible success thus far in keeping our employees safe and healthy. We protect the health of our direct-to-home salespeople and our customers. We stopped selling door-to-door across all of our markets in late March.

In addition, as the markets we serve rapidly adopted stay-at-home mandates, our retail partners temporarily suspended lead generation vendors to operate in their stores. We pivoted very quickly, training our direct-to-home sales force to provide sales consultations on the phone and changed our processes to fully support remote customer contract signing. We also rolled out comprehensive remote training programs to our entire direct-to-home sales force with our self-imposed prohibition on selling to customers in their homes and with the curtailment of our retail channel. We saw the front end of our sales pipeline initially dropped by over 60%, but that is from a very high growth before COVID.

However, since those first few weeks, we have seen steady and material improvement, and we are now currently down about 30% from our pre-COVID sales baseline. Over the past week, we have reentered several markets where direct-to-home is allowed and are closely watching each market and are optimistic that we can get back into most, if not all markets, in the near future. Under our new sales processes, our direct-to-home sales reps will adhere to CDC protocols and all state and local requirements. We have already begun calling back installed teams from furloughs, as our sales volumes have rebounded.

We're very encouraged by our newfound ability of our direct-to-home sales force to sell efficiently, using remote technology, as well as on the doors. It is a powerful one-two punch as we move forward. In addition to the progress we've made with our direct-to-home sales force, we have also seen tremendous advancements in our digital sales efforts and our inside sales organization. We use this time to relaunch our e-commerce site to better allow for direct-to-consumer sales and have seen nearly a 50% increase in our inside sales volume since COVID-19 began.

April was a banner month for the company with digital lead generation, being at record levels by a good margin. We believe that significantly lowering customer acquisition costs is one of the key challenges facing the residential solar industry and our ability to reach more customers. We fully intend to use what we have learned and enabled during this crisis to keep both of these important channels growing rapidly at a much lower customer acquisition cost. In conjunction with our efforts to adapt and advance our sales engines, we also were aggressive on the cost structure as we saw volumes decline rapidly as markets rolled out the stay-at-home mandates.

Consequently, we reduced variable costs commensurate with volume reductions on a real-time basis, market-by-market and department-by-department furloughs. These efforts began with our first furlough happening on March 20, the day after the state of California rolled out its stay at home mandate on March 19. The team also aggressively reduced fixed cost through furloughs, reduction in days worked and through salary reductions at all levels. We've been thoughtful to retain the organizational muscle during the peak of the crisis and to be well-positioned to bounce back and bring back our incredible employees as soon as our bottoms rebound.

Our team has done an amazing job on this effort. Finally, we have pushed through several technological advancements and management processes that are generating improved efficiency levels. One that I'm particularly proud of is our new installation duration tool used with our install teams. This is a native tool that was built to correctly determine the installation work required by considering all variables, including drive time, roof type, tilt, equipment type, crew size, system size, interconnection method, conduit pathways and much, much more.

We consider to be world-class construction bidding and a forecasting tool. This tool has allowed us since late March to see efficiency improvements in panels installed per work hour. We continue to see benefits of our ability to engineer and roll out our best practices across our entire operational footprint, generates industry-leading quality of installs and productivity per man-hour on a scale basis. On the capital side of our business, I believe we have a positive message.

Over the past several years, we have been prudent in our capital structure planning and have the assets available to obtain additional liquidity needed to continue operations for this foreseeable future. Even though our normal regimen of financing our assets has been temporarily disrupted, we believe we are close to finalizing agreements to expand existing debt facilities and obtain new sources of nonrecourse capital. We believe we will be able to raise somewhere between $175 million and $200 million in new liquidity in the near term. We also fundamentally believe the demand for what we're doing is strong and resonates with the customers, even more today than it did before this COVID crisis.

Whether it is saving money, having energy redundancy or doing something about climate change, we believe customers value what we do even more in a down economy and we are better-positioned now than ever to deliver on that demand. In summary, I believe that Vivint Solar is successfully navigating to this crisis. I believe that we have rapidly adapted and prudently managed costs. I believe we have improved our core capabilities as a company to find and sell solar into a very large and receptive market better than we did in pre-COVID.

I believe our prudent capital strategy and go-forward operating plans enables cost and liquidity at this time and beyond. I believe we have not wasted this unfortunate crisis, but used it to become a better company and better prepared for the future. We've done so much in a very short period of time with incredible speed and accuracy of execution. My sincere thanks goes out to everyone at Vivint Solar for all they have done to pivot, adapt, and evolve.

With that, I'll turn it over to Dana to provide more color on our operating and financial activities.

Dana Russell -- Chief Financial Officer

As David discussed, we came in at 56 megawatts for the quarter. Of this, system sales were 6.4 megawatts or about 12% of our volume. We continue to see strong project values for our PPAs and leases. For the first quarter, our project value was $4.69 per watt.

Our net present value created or estimated margin was approximately $60 million. On a unit basis, our net present value per watt was $1.06. Our net retained value was $1.2 billion at the end of the first quarter. This represents an approximately $10 per share.

We believe net retained value, as we calculated, is a good proxy for the asset value of the company. Our unit cost for the first quarter was $3.80, which is slightly higher than we expected as a result of lower-than-planned volumes due to COVID-19. Even though megawatts in the first quarter grew by over 20% year over year, we expect it to be closer to 28% growth and were slowed considerably at the end of the quarter by the pandemic. This disruption limited our expected total growth by several megawatts, which in turn caused our cost per watt to be slightly higher than our guidance.

Prior to the COVID-19, we expected volume in 2020 to significantly increase from 2019. As such, we're in the process of ramping install and operations to facilitate this expected growth. In addition to variable costs associated with sales and operations, our fixed cost structure, including our management, facilities, vehicles and back office was built to manage an average quarterly run rate exceeding 60 megawatts. Given the uncertainty associated with the duration and the severity of the COVID-19 pandemic, we've taken a number of actions across the company to reduce our expenses, lower cash burn and strengthened our liquidity position.

As David mentioned, we expect our second and third quarter run rates to be much lower than our original operating plan. We have acted quickly and decisively to respond to the lower expected volumes by reducing our costs in operations by furloughing workforce and controlling expenses. Our suppliers have been flexible and allowed us to adjust purchase orders, and most of our customer acquisition costs are variable and self-regulating based on the systems installed. With that said, the sudden drop in the sales pipeline left little ability to adjust fixed costs.

We have, however, reduced compensation through salary reductions for management and all levels of corporate employees, furloughed back-office personnel, reduced vehicles and eliminated all nonessential spending. The actions we've taken have reduced our total expense structure by approximately 30% and have helped us manage cash and preserve liquidity. We finished the quarter with $226 million in cash and restricted cash. At the end of the quarter, we had approximately $146 million in undrawn capacity in our various debt facilities.

And as of April 30, we had approximately 52 megawatts in committed tax equity capacity, including the upsize to an existing tax equity partnership mentioned in our recent press release. As we've previously discussed, we expected to refinance assets currently in our warehouse loan facility through an ABS offering in the first half of 2020. This would have freed up capacity in the warehouse for new assets and would have provided additional cash to our balance sheet. However, as the economic severity of COVID-19 became clear, the ABS market essentially closed to new issuance.

As David mentioned, we're fortunate to have a capital structure and asset base that provides us the ability to obtain additional liquidity. We also have performed extremely well and have the reputation and the operational excellence that helps us in a difficult environment. We've moved quickly to replace our expected ABS that was on the cusp of closing late in the first quarter with a different financing structure we expect to close in the second quarter. As David mentioned, this should provide an incremental $175 million to $200 million and allow us to continue without any significant restraints with regards to liquidity beyond the next 12 months.

Although there is always a risk that any transaction can be disrupted as we experienced with the ABS several weeks ago as a result of the pandemic, we believe the options we have are favorable, and we believe the transactions will close this quarter. Total revenue for the first quarter was $91 million, up 31% over the first quarter of 2019. Revenue from systems, where we retain ownership, was approximately $51 million, up 29% from the year-ago period. Revenue from system and product sales in the first quarter was approximately $40 million, up 34% from the year-ago period.

Much of the increase in system and product sales revenue can be attributed to the jump in system sales from the fourth quarter. As a reminder, there is typically some lag between the time we install the system and when we recognize the revenue from that system. Turning to our second-quarter guidance. We expect our install volume to be between 35 to 38 megawatts.

We're withdrawing our annual guidance at this time given the uncertainties in the business due to the COVID-19 pandemic. I want to emphasize how optimistic we are about the future. As unfortunate as the current environment has been, the challenges have helped us expedite changes that give us the confidence in our ability to adapt and increase efficiency. We have seen our inside sales teams improve rapidly.

We've proven we can operate efficiently in remote settings, and we're beginning to see e-commerce get some traction and give us ideas for continued improvement. We believe there's a vibrant U.S. residential solar market. We strive to deliver the best customer experience and be the most sustainable company in the residential solar industry.

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

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Colin Rusch from Oppenheimer. Please go ahead. Your line is open.

Joe Beninati -- Oppenheimer and Company -- Analyst

Hey, guys. It's Joe Beninati on for Colin. Thanks for taking our questions. Can you give a clearer picture on how much of the 2Q install guidance has approved permits in hand already?

David Bywater -- Chief Executive Officer

Have improved permits in hand already. Is that right, Joe?

Joe Beninati -- Oppenheimer and Company -- Analyst

Yes.

David Bywater -- Chief Executive Officer

Well, I think first off, we've been fighting through some of our HGAs being closed. I think at one point, we got up to around 18% that were closed or impacted in some way. That's come down quite a bit. I think we're now in around 13% or 14% is what we're seeing kind of across our HGAs.

And then we've seen -- so that that's a constraint that's improving. We hope that as each of these markets open up more and more that that alleviates even faster. So that would be fantastic because we've got a bunch of stuff that's pending to go through those permitting offices. At the same time, we've seen significant improvements in our front-end volume.

So if you look at our front-end generation almost for the last four weeks, we have seen a 10% to 15% improvement every week. So those two things as they alleviate. I think that we're going to see a much stronger back half of Q2 than obviously, we came into the Q2 on. So that's where you see the guidance that Dana provided.

If you look at that that had us down around 32% to 35% from where we were last year. So the industry is saying it might be 50%, 40%, 30%. We think that where we're going to be is on the lower end of that, and we're feeling pretty good about that as things kind of come to focus as we enter the back half of this quarter.

Dana Russell -- Chief Financial Officer

I'd just add to that, we're nearly halfway through the quarter. We're on track. It's not like we're expecting some big spike at the end of the quarter to hit that guidance number. We feel like the flow of business has been reasonably consistent.

And the majority of what we've talked about in terms of guidance, we do have permits for us. So the expectation is that we feel comfortable about that guidance.

Joe Beninati -- Oppenheimer and Company -- Analyst

Great. And just a follow-up. Can you give some color on the cost of the new tax equity? And just, I guess, a little bit about why you didn't choose to raise more in the last raise?

Rob Kain -- Vice President of Investor Relations

This is Rob. Yes. So on the upsize of the fund, that was strictly just the tax equity investor saying, "Yes. Let's leave the current fund with the existing docs open and just increase their commitment." So no change in pricing at all was done under the terms of existing agreement.

And so, yes, that looked like a reasonable thing to us, we would have done that regardless. As far as additional tax equity, we still see the tax equity markets as being open and very receptive. Our current partners that we've been working with continue to look to do new tax equity with us. So we don't see any real issues on the tax equity front.

Joe Beninati -- Oppenheimer and Company -- Analyst

Great. If I could sneak one more in. I guess, just how do you guys -- I think you've already touched on a little bit in your prepared remarks. But just the trends in sales expense that you see going forward now that you've got a few of these a few weeks with the new processes under your belt.

David Bywater -- Chief Executive Officer

Well, I think that we're encouraged. Clearly, the acceleration of our lower cost of acquisition is very welcome. We look at what we do through our inside sales, through e-commerce and even in our new channels, that cost profile is advantageous to just direct to home. So we're very encouraged by that.

As I mentioned in my comments, we plan on and need to make sure that we don't digress all of the advancements that we're seeing right now. Stay and we build upon them. So as our portfolio continues to shift toward lower-cost acquisition models, which we are accelerating in that we are investing in and that we are promoting, we think the blended cost over time will come down. And that's great.

We think within the industry, as all parties look at it, I think they're also should be looking at how they also bring down those costs. And so I think it will over time. And what's interesting about this pandemic is just the number when we've seen a significant increase in people have come to us through just our organic searches. And so there is a much stronger and growing appetite for consumers to seek out solar independently.

And then through our direct-to-consumer tools, design and begin that process. We welcome that. We think that that will continue to expand. And all of those factors and tailwinds, we think, are beneficial for us, and we welcome it.

And then we're also applying some new tools and some new techniques that I think are improving our ability to advance that. So that's all encouraging. I think it's all encouraging from our point of view.

Dana Russell -- Chief Financial Officer

Yes. I think, Joe, just to follow-up on David's comments there. The industry over the last few years has seen the acceleration of customer acquisition costs. And we know that the environment that we're in and that we're headed toward with the lower ITC will necessitate lowering that customer acquisition cost.

This has been an unfortunate event with COVID-19 and the pandemic, but it's certainly shown us that we can deliver megawatts, and growth in the front end of our volume has been very strong through other activities that have allowed us to just increase the thought process around how we go about obtaining customers. The demand is out there. The nation wants solar. It's increasing, not decreasing and therefore, we ought to be able to find ways to capture customers at a much lower expense.

Now it's hard to quantify that over the next number of weeks or months. But certainly, over the longer term, we expect to see customer acquisition costs come down substantially, and we expect to continue to build technologies that allow us to have customers come directly to us.

Joe Beninati -- Oppenheimer and Company -- Analyst

Thanks, guys.

Operator

Our next question comes from the line of Philip Shen of ROTH Capital Partners. Please go ahead. Your line is open.

Philip Shen -- Roth Capital Partners , LLC -- Analyst

Hey, guys. Thanks for taking the question. First one is on your view beyond Q2. I know you're not providing official guidance, but perhaps you can speak to whether or not you expect Q3 volumes to be higher than Q2 sequentially, do you see growth? Or is there a meaningful risk that it could be lower? Just curious on how you're viewing Q3 assuming no resurgence.

Dana Russell -- Chief Financial Officer

Well, we expect volumes, Phil, to be higher, but we're not going to give guidance around it, and so much is dependent on just what happens here over the next number of weeks. We're seeing good signs, and David can talk to that in terms of maybe resurgence and some opening of some markets where we're able to increase activity. But it's a little early to tell in terms of what the possibilities are there. In the same environment, assuming nothing changes, and assuming that we just go forward from where we're at here without much of a change, we would expect to be up in the third quarter and beyond.

But we also are hopeful that we see the markets open back up and the pandemic mitigated and that we're able to get back to a more normal course of business.

Philip Shen -- Roth Capital Partners , LLC -- Analyst

Great. Can you walk through -- oh, sorry. Go ahead, David.

David Bywater -- Chief Executive Officer

Oh, no. I was just going to equate a few things. I mean, yes, I mean, if you look at where we are now, we're kind of that low 30% of where we were last year. So I think we're kind of on the lower end of what we're forecasting for Q2.

And that means we're still out of retail, and we haven't gone back. We're just barely starting to get back very cautiously with direct to home in certain states that allow it. So yes, to Dana's point, I think if those things open up as we hope, if they are sustained and we get back into all of our channels with the same growth that we were on, we would be very encouraged. But it's just, as we've said, just internally, we didn't expect COVID to hit with the veracity that it hit, and so we're just trying to be measured and thoughtful.

And as we get more confidence, that things are sticking, that there's not a resurgence and that's where we'll come out with the -- we'll be more forceful, but we'll wait and see.

Philip Shen -- Roth Capital Partners , LLC -- Analyst

Great. When you think through that trajectory for Q2, three and beyond, and then you compare that with your sources of liquidity and both for projects, as well as just general corporate purposes, where do you see, if any, constraints? I know you announced some tax equity deals and the ABS market is, for the most part, not available to solar. I know it's opened back up recently. But where is the source of liquidity that you guys are monitoring or funding, that you guys are minding the closest? And what are your thoughts around that risk?

Dana Russell -- Chief Financial Officer

Well, I think as we look at the markets, the capital markets, certainly there's capital available, and we're fortunate to have the reputation and just the operational efficiency and excellence that people have confidence in us and be able to lend us money and finance with us and partner with us. We don't see -- and we're confident. We wanted to talk about in our prepared remarks. Even though we had talked about previously, having the ABS and having that done in the first half of 2020, we certainly expected that, and we were days away from having that being completed.

And it was unfortunate because it disrupted our normal flow of how we would finance operations. We do believe that the financing that we're going to receive is attractive. It will be a little more expensive than what we would have been doing with an ABS, but still a good capital structure for us. We think that we're confident enough about it to talk about it, and both David and I mentioned it in our prepared remarks.

So that provides us a big infusion of capital. We don't see really restraints in terms of the ability to grow and operate like we would have operated, had there not been pandemic. So we can return to growth and be vibrant and grow at or beyond market growth rates and be able to function for the foreseeable future. So we feel quite good about it.

And we hope that things return back to a more normal environment soon. If they do, that will be an advantage. If they don't, we'll still be able to operate and have liquidity.

David Bywater -- Chief Executive Officer

What I'm excited about, Phil, is, as we've gone through this unfortunate pandemic, you learn a lot about your organization that you really know, it could be done. So now with every team with the changes they've made, what we've enabled, I'm excited to see how we bring back that growth even in a more efficient level. So now if we even deliver on a quarter of what we've done in the last 8 weeks, that will be a fun time for us.

Dana Russell -- Chief Financial Officer

We've had a little different strategy than some of our other competitors out there in the residential solar space. We have taken less upfront in terms of funding on some of the assets. We've done that as a procedure as part of our process. And so we do have the ability to go out and leverage these assets and this is nonrecourse debt, as David mentioned in his script.

And so we have the ability, we have the capital and continue to operate. We'll see how we go forward here, but we feel really good about where we currently sit and the opportunities that we have in front of us.

Philip Shen -- Roth Capital Partners , LLC -- Analyst

Great. One last one, if I may. Over the past couple of months, there have been articles about a potential strategic process that you guys may have been involved with or may be involved with. I was wondering if you might be able to comment on that in any way.

Specifically, was that process pre-COVID? And then as a result of the pandemic, it is no longer on the table? Just curious kind of where things stand there.

David Bywater -- Chief Executive Officer

Phil, you always make me laugh with that question. We don't comment or speculate on that kind of stuff.

Philip Shen -- Roth Capital Partners , LLC -- Analyst

Got it. OK. Thanks, guys. I'll pass it on.

David Bywater -- Chief Executive Officer

Thanks, Phil. Take care.

Operator

And our next question comes from the line of Sophie Karp of KeyBanc. Please go ahead. Your line is open.

Sophie Karp -- KeyBanc Capital Markets -- Analyst

Hi. Good afternoon, guys. Thank you for taking my question. I was curious if you could give us any more color on sort of the efforts to engage different sales channels as yourself and your competitors, your peers are trying out virtual, online selling, etc.

What kind of traction are you getting there? I guess, what's the conversion rate compared to traditional door knocking? Is that something that you see that will maybe becoming a permanent part of your mix going forward, a meaningful part of it? I'm just kind of curious what your early experience has been.

David Bywater -- Chief Executive Officer

Sophie, thanks for the question. It's a great question. If you think about it, it's pretty remarkable that we are where we are on the volume that I've shared earlier in our comments, being down around 30%. I mean we were at record levels going into COVID-19.

What we were experiencing in the first few weeks of Q1 was kind of almost at our height of the prior year. So we're at record levels and then for us to be down about 30% when we've come off the doors is remarkable. I really think it's quite amazing. And it speaks to how adaptive our organization is and also what we've learned.

So we've enabled our sales force to move to a fully remote sales process, and they canvass virtually, and we've done a whole bunch of things to help sure they're being productive. And they've made that transformation. And that's just remarkable. And so I think that we've learned a lot.

I think our sales force has learned a lot. We have teams almost at every one of our markets that are performing higher now than they did before, and we have other teams that are performing worse. But what we're seeing is that if a team will learn the new process, buy the tools and do the work, they can be as successful as they were before. And the productivity of our sales professionals going forward, I think it's like -- I always say to our teams, "Guys, it's like a right-handed tennis player being able to also play with their left-hand equally as well.

Right?" So if they can sell remotely and on the doors, they're very, very powerful. So that's great. Through our inside sales over the past few years as that's grown quite nicely, we've been very disciplined there, and we're seeing that it's a much lower customer acquisition cost. So I welcome the remote selling.

I welcome the leverage that you can get that to lower your CAC. And we have every intention to have that be a much larger percentage of our overall portfolio, thereby pulling down our weighted average CAC. In addition to other channels, we're ramping our retail, and it got put on a hold with COVID. But we were about ready to double our retail in very attractive markets.

So those are all positive things. The investments that we made in 2019 and into 2020, we're in channels that were diversified. And also, we thought we had a really nice customer acquisition profile, and so we will continue to do that. The switch now and the emphasis we have on digital marketing and on e-commerce going directly to consumers, I think that will also accelerate.

So all of those channels for us, we've gone from kind of a single channel, single-product company five years ago to omnichannel, omniproduct. We will continue to invest as long as they give us great growth and better economic returns. You want to add there, Dana?

Dana Russell -- Chief Financial Officer

I think the retail, most of the retail activity is closed by inside sales. So we've had a big uptick in inside sales, even without the retail activity that was previously running through that. There's some just significant advantages with the ability to monitor what's being said to customers to be able to control conversations, assuring the information that the two-way conversations that are happening there. And so those are all things that we can build on.

It was in a growth stage before. We certainly have seen that exacerbated and increased as a result of the change here in the environment. We have a great direct sales force, and they're certainly confident and capable, and they have been successful with remote selling. But we really look forward to the expansion of these other channels that, like David said, that brings down the weighted cost of acquisition.

Sophie Karp -- KeyBanc Capital Markets -- Analyst

Thank you.

Operator

And our next question comes from the line of Julien Dumoulin-Smith from Bank of America. Please go ahead. Your line is open.

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

Hey. Good afternoon, guys. Thanks for the time. Apologies if I missed this.

I've been juggling a lot here. Can you talk about the shape of FCF? As you think about it, I mean, you guys talk about a pretty impressive pivot here and successful pivot in the sales force. But what does that mean in terms of FCF translation? And I'm also thinking, if you don't mind, in terms of as you think about this pivot toward digital, are there legacy costs that you're thinking about that roll off over time? But ultimately, coming back to that FCF metric that's so critical as you think about quarters into the full year and the shape of that?

David Bywater -- Chief Executive Officer

Yes. You talked about SCF. Can you just -- I'm not sure if I'm clear. Did you say SCF?

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

Your free cash flow. I'm thinking about sort of the cash generation trajectory, if you will. Coming back to that conversation.

Dana Russell -- Chief Financial Officer

I thought you were saying SCF. I'll be sitting here saying, well, I don't know what that is.

David Bywater -- Chief Executive Officer

You got your f confused with s. Thanks, Julien.

Dana Russell -- Chief Financial Officer

Well, when you look at -- it's a good question, and it's one that every residential solar company out there is trying to manage. Right? We invest as we bring in. So in terms of free cash flow, what we do, as we say, we think the best return that we can do is to deploy cash flow and create new systems and do that as quickly as we can in a sustainable, balanced way as we can. And so we're always going to try to grow in a balanced way, but to use our cash flows in a way to deploy systems.

So that's the strategy. That's what we do. And that's the emerging markets that we participate in, and we can enhance that as we lower our cost structure. Everyone, when you look at it, the cost structure we reported $3.80.

Now our cost structure is higher in the first quarter, normally, as a result of lower volumes over the year, and we would have expected that pre-pandemic to have also been the case in 2020. Now we probably won't have that occur in 2020 as a result of the front end of this process being slowed down as a result of the pandemic. But when you think about the cost structure and think about customer acquisition costs being somewhere around well over $1, and you look at that trend, so we can see that with ourselves and with other folks out there, it equates to a third of the cost. So in a market where consumers are out there wanting and being more encouraged by having an opportunity to get solar, save money, do all those things, that much of the savings that's possible isn't being passed onto a consumer today.

We hope that more of that gets passed on to consumers, and we hope and believe that more of it can be retained for our shareholders. So the environment that we have allows us and gives us an opportunity here as we go forward. And as the industry matures, you don't see too many mature industries out there where a third of the cost structure is customer acquisition cost. We believe that our salespeople should be handsomely rewarded.

We think that that's a good thing. But we also believe that it's unbalanced today in terms of the equipment cost being actually lower than the cost of customer acquisition. So that's not going to continue to be in place for long. And every company is going to do things to change that model to make it more productive.

That gives us an opportunity to enter other markets. It gives us an opportunity to continue to grow at greater rates and be able to offer the product in different places than we're offering it today. So I think it's a fairly simple equation. We would continue the same strategy.

We would continue to deploy our capital in a balanced way, but to use that capital to grow systems. We think that's the best return that we can create. That's a strategy that we'll continue to have. And we'll increase that deployment as we see a more efficient process of attaining customers just allows us to use that cash flow in a way to create more systems.

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

If I can press a little bit further, what are you thinking in terms of your own corporate FCF burn and the trajectory for improvement there? And maybe your response there was sort of implicit that the visibility isn't there, but I'm just curious, just to press on further.

Dana Russell -- Chief Financial Officer

I don't know for sure what you're asking, Julien. I mean when we look at it, free cash flow for us, we've continued -- the operating model that we have is we use tax equity and other leverage on these assets to pay for the systems. And so we take that cash flow and we redeploy that. And we've been, for the most part, over the course of the last few years, cash flow positive with that model in place.

We expect that to continue. Now we expect to use that cash flow in a way to deploy systems. I'm not sure what other color you're asking for.

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

So perhaps to a slightly different direction. Strategically, any further thoughts to offer here? I mean, at risk of reasking from last quarter here, any updated thoughts or positioning or commentary, color you can add to what's in the media?

David Bywater -- Chief Executive Officer

No.

Rob Kain -- Vice President of Investor Relations

When it comes to the media speculation on that, yes, we have no comment.

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

No worries. It's good to check. Thank you all very much.

David Bywater -- Chief Executive Officer

Thanks, Julien.

Operator

And our next question comes from the line of Brian Lee of Goldman Sachs. Please go ahead. Your line is open.

Brian Lee -- Goldman Sachs -- Analyst

Hey, guys. Thanks for taking the question. Hope everyone is doing well. I guess first question, and I hopped on late, so I apologize if you already covered this.

But if I look at the slide deck and you guys break down quarterly the estimated net retained value, it's been pretty static here at $10 flat per share for the past couple of quarters, and that's following a pretty consistent run of growth every quarter for the past couple of years. So wondering, one, why have we seen a bit of a stagnation here in that metric? And then two, what should we expect kind of going forward? How does that metric start to grow again?

Dana Russell -- Chief Financial Officer

Good question. Go ahead, Rob.

Rob Kain -- Vice President of Investor Relations

Yes. No. So I was going to say, a part of that is just going to be related to the safe harbor purchase in Q4 given that the metric, the net retained value doesn't reflect major changes in working capital. So as we start to go through the safe harbor purchases and not buy new modules, obviously, because we're using the safe harbor ones that increases cash.

That will help the net retained value. And then there are also some other timing differences just as we tranche systems and things like that that will help us in the future quarters. So that should start ticking back up again. But a big one is the $50 million just that we took out of cash and back in December to pay for the safe harbor modules.

Dana Russell -- Chief Financial Officer

Obviously, Brian, that is a good answer for why that's occurred in Q1. And Rob says, as should start ticking up again, I think all things considered with the pandemic volumes sort of the environment we're in right now, that statement is a longer-term statement, not a statement for Q2.

Brian Lee -- Goldman Sachs -- Analyst

OK. Fair enough. That makes sense. And then just a second question, Rob brought up the cash that you committed to safe harbor.

But if I look at cash overall on the balance sheet, it's been declining here, I think from the previous question earlier. You addressed your lowest cash balance in sort of early 2018. Just wondering what are your sources of liquidity here, particularly in the near term, given all the COVID uncertainty and poor demand backdrop. And then as you move through the year, if you're not making any structural changes to the cost structure, nothing fixed is coming out.

Do you think you'd have to sort of explore other avenues of financing besides the traditional tax equity and debt, would you look at equity? Just wondering kind of how you're thinking about the cash here going forward?

Dana Russell -- Chief Financial Officer

Thanks, Brian. I think we talked a little bit about this early on here in the call. I think with Joe or I don't remember, maybe Phil asked the same question or a question about cash flows. In our prepared remarks, we talked about the normal routine that we would have with an ABS or some other long-term financing.

We take or have taken less upfront in cash flows on our assets than anyone else. And so there's a normal process that we've gone through with between tax equity and the aggregation facility. We haven't captured the full value that we capture. We go out with an ABS or some of their longer-term facility, and we finance those assets and take in a considerable amount of cash or liquidity on those assets a year, a year and a half, into the process.

That process, and we would be at our low as that process begins to take place a year or so later as we've aggregated these assets. We've had that as a practice in the routine here over the last while. So that was disrupted in the first quarter where we would have closed that. Actually, we were within a few days of closing a fairly significant ABS facility and putting a lot of cash on the balance sheet.

We pivoted, and we'll have a different financing structure, but we'll put another $175 million to $200 million on the balance sheet here in the second quarter or right in this time frame, we're on the cusp of having that happen. And so the cash balance will be increased. We do not expect to go back nor do we feel like we need to go back to the equity markets, perhaps some other infusion of cash or capital, that will provide a significant amount of liquidity for us. And we feel like we're probably very efficient in the way that we've done that.

Now obviously, the cash goes farther as your expenses come down, and expenses throughout the industry have remained relatively high with the biggest expense for most people being customer acquisition costs. And so that's certainly on our minds and a project that we're working on. That said, we feel like we can operate very well, very effectively, and be profitable in a very sustainable situation here. As we go forward, we'll work on that capital structure, but we feel like the liquidity is not going to be an issue for us, all things considered.

Now we also put a caveat in the financial statements to say, hey, we are on the cusp of closing the ABS that was going to have a lot of cash. And that was disrupted. There's a possibility that any transaction could be disrupted. But all things considered, we feel quite good about the situation we're in, and we expect in the next quarter we're reporting on a new cash balance where your question may come back again and say, "Hey, what are you going to do with the cash that you have?" Meaning, do you return to shareholders or other things.

And our answer is going to be, we're going to deploy that in systems, and we're going to add systems because we think that's the best return for shareholders.

Brian Lee -- Goldman Sachs -- Analyst

Thanks, guys. Appreciate the color.

Dana Russell -- Chief Financial Officer

Thanks, Brian.

Operator

[Operator signoff]

Duration: 55 minutes

Call participants:

Rob Kain -- Vice President of Investor Relations

David Bywater -- Chief Executive Officer

Dana Russell -- Chief Financial Officer

Joe Beninati -- Oppenheimer and Company -- Analyst

Philip Shen -- Roth Capital Partners , LLC -- Analyst

Sophie Karp -- KeyBanc Capital Markets -- Analyst

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

Brian Lee -- Goldman Sachs -- Analyst

More VSLR analysis

All earnings call transcripts