NRG Energy Inc (NRG) — Q1 2022 Earnings Call Transcript

Good afternoon, everyone. Thank you for joining us to discuss the results of Vivint Smart Home for the 3 months ended March 31, 2022. Joining me this afternoon are David Bywater, Vivint Smart Home's Chief Executive Officer; and Dale R. Gerard, Vivint's Chief Financial Officer. I would like to begin by reminding everyone that the discussion today may contain forward-looking statements, including with regard to the company's future performance and prospects. Forward-looking statements are inherently subject to risks and uncertainties that could cause actual outcomes or results to differ materially from those indicated in any such statements. We describe some of these risks and uncertainties in the Risk Factors section in our annual report on Form 10-K, which was filed on March 1, 2022, and in other filings we make with the SEC from time to time. The company undertakes no obligation to update or revise publicly any forward-looking statements whether as a result of new information, future events or otherwise. In today's remarks, we will refer to certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP, to the extent available without unreasonable effort, are available in the earnings release and accompanying presentation, which are available in the Investor Relations section of our website. I will now turn the call over to David.

Great. Thank you, Nate, and good afternoon, everyone. We appreciate your ongoing interest in the Vivint story. We continue to work hard every day to earn your confidence and your support. To that end, I am pleased to report that our strong track record of execution as a public company continued through the first quarter of 2022 as we grew total revenue by nearly 15% and adjusted EBITDA by almost 26%. We originated over 66,000 new smart home subscribers, which is a record for the first quarter period. Our last 12-month attrition rate was 11.2%, which was a 15-quarter low and a 60 basis point improvement versus the prior year. We believe our attrition rate is the lowest among national smart home companies by a significant margin. Our improving customer retention is a result of years of work and collaboration to improve the overall credit quality of our customers as well as performance enhancements across our portfolio of products and services. We ended Q1 with net service cost per subscriber near all-time lows, a strong indication that we are operating the business efficiently and effectively while delighting our customers. Our recurring revenue model has proven resilient during challenging economic times. And we believe the peace of mind and security we provide is relevant in any environment. We believe the momentum in the first quarter sets the stage for us to meet our full year targets for total subscribers, revenue and adjusted EBITDA that we communicated to the market in late February. Given the challenges presented by rising interest rates and supply chain constraints, we are lowering the bottom end of our guidance range for free cash flow while leaving the top end of the range unchanged. Dale will speak to the specifics of this change in his remarks. We are focused on redefining the home experience with technology, products and services that create a smarter, greener, safer home, while saving our customers' money every month. Our integrated platform is the core enabler that allows us to deliver on this mission. We process more than 1.1 billion events per day across our subscriber portfolio. Our average customer has about 15 devices in their home and interacts with their system nearly 11 times per day and stays with us for approximately 9 years. Our proprietary platform allows us to not only protect our customers' homes and families, but to make their homes more enjoyable and intelligent as we integrate solutions with artificial intelligence to make smart decisions on their behalf. As we work to also bundle Smart Energy and Smart Insurance, we will leverage our integrated, easy-to-use operating system to help customers save money on their electric bills and insurance premiums. We believe our strategy provides distinct advantages that will allow us to increase the lifetime value of our customers, which in turn should drive strong economic value for our shareholders. We expect that the unit economics of our customers should also improve, further enhancing the cash flow generation of the company and allowing us to reinvest in compelling value-accretive initiatives. We are confident in our strategy as our data indicates that at scale, a customer who bundles smart home with Smart Energy and/or Smart Insurance has a greater lifetime value than a smart home customer alone. Moreover, the lifetime value of a smart home customer increases by $200 to $400 with each additional year they remain on the platform. And we believe that customers who bundle services will remain with us longer than the current 9-year average. We believe our broader platform strategy will further cement Vivint as being in a Category of One. And as we leverage the advantages from our intelligent and integrated platform, we will further extend our leadership in the do-it-for-me smart home segment. Of course, executing on our strategy of making smart homes smarter, leaner and safer requires us to focus on operational excellence, continuous product innovation and a commitment to enhancing the experience of our customers. I am pleased to welcome Rasesh Patel, our new Chief Operating Officer, to the Vivint team. Rasesh will join us in mid-May, and he brings to Vivint over 20 years of experience in building technology service businesses, driving innovation and improving the customer experience, most recently as the Chief Product and Platform Officer of AT&T Business, a segment with $35 billion in annual revenue. He will oversee all of our customer-facing operations as well as our technology and product platform. We look forward to Rasesh helping us refine our approach to expanding the lifetime value of our customers. Turning to our key strategic adjacencies. As one of the first smart home companies to expand into Smart Energy, we are very encouraged by the momentum we saw in the first quarter. Due to the seasonality of our business, we would expect the majority of our sales to come in the back half of the year. And we remain on track to double the 45 megawatts we sold in 2021. Our Vivint sales force and strategic partners who seamlessly bundle a Vivint smart home system with solar are seeing a considerably better sales realization rate than those who are only selling solar. This is an incredible demonstration of the power we bring by offering a bundled solution. And it strikes directly at one of the issues that the solar industry struggles with, wasted upfront costs on the sales of a solar system that never gets installed. Our long-term vision is to combine energy production and consumption into an integrated platform that uses data-infused AI to manage power consumption more intelligently. Our nationwide footprint and ability to install our award-winning smart home solution within a day or 2 of a customer signing up for solar, we believe, is a game-changer for the industry and for our customers. We believe that as we grow and solidify our go-to-market partnerships, we will prove to be a powerful and differentiated combination to grow and retain smart home customers. Even Pack, who I've worked with for several years at Vivint Solar, joined the Vivint leadership team a few months back to lead our smart home energy initiative and manage our relationships with these key partners. I'm confident he is the right person to lead our smart home energy business in this next phase of growth. Surveys show that less than 4% of the addressable homes in the U.S. have adopted solar at this point with our nearly 1.9 million customers across North America. We believe there is a significant opportunity to provide bundled Smart Energy to our existing customers as well as the hundreds of thousands of new subscribers we add to our portfolio every year. Now to briefly discuss our Smart Insurance initiative, we continue to believe that our data-rich platform can help better price the risk of a customer who has a professionally installed and actively monitored smart home system that can potentially mitigate the severity of loss events. We believe Vivint customers present a lower risk than homeowners without a smart home system or with an unmonitored DIY system that was inadequately scoped and poorly installed. We continue to invest in this initiative. In March, we welcomed Ron Davies to a newly created role as the Chief Insurance Officer. In this role, Ron leads all aspects of the Smart Insurance business, including the development of our marketing strategy as well as the process of becoming a Managing General Agent, which will allow us to develop specific homeowner coverages and enables us to provide proprietary insurance offerings. Ron is a proven leader that has showcased his ability to transform and build insurance companies over a career spanning more than 2 decades at universally recognized brands such as Progressive, Allstate and most recently, Safe Auto, which was recently purchased by Allstate. In closing, we're extremely pleased with our performance in the first quarter of 2022, and we're excited about the future. The markets in which we operate are large, they're growing and provide significant headroom for growth. Our business model provides a platform for growth in smart home as well as adjacencies like Smart Energy, Smart Insurance and more. We believe that we'll continue to grow at a much faster rate than our do-it-for-me peers and do so in a profitable way while generating positive free cash flow that we can invest in value-accretive opportunities. With that, I will turn the call over to Dale to further discuss our first quarter results and our outlook for the year.

Thank you, David. Good afternoon, everyone. My comments will reference information in our earnings presentation available in the Investor Relations section of our website at vivint.com prior to this call. After my prepared remarks, we will open the call for a Q&A session. Our key subscriber portfolio metrics continued to perform well, showing year-over-year improvement in the quarter. In the first quarter of 2022, we achieved a 9.6% growth in total subscribers compared to the same period last year, rising from 1.71 million to 1.87 million. Our average monthly recurring revenue per user in the first quarter increased 3.1% year-over-year to $67.87, driven by customers purchasing additional smart home products at the initial point of sale. This trend has been consistent over the past several quarters. The growth in total subscribers and AMRRU contributed to a 12.9% increase in total monthly recurring revenue, which reached $126.5 million, up from $112 million in the prior year. Moving on to revenue and adjusted EBITDA, revenue rose 14.7% to $392.7 million in the first quarter of 2022, benefiting from the double-digit increase in total subscribers, the rise in AMRRU, and a strong contribution from our Smart Energy initiative. We are pleased with the revenue growth in the first quarter and remain on track to meet or exceed our revenue guidance for the full year. Similarly, adjusted EBITDA grew significantly in the first quarter of 2022, totaling $202.3 million, which is a 25.9% increase from the same period last year, resulting in a margin of 51.5%. The scaling of service costs and lower general and administrative expenses primarily drove this year-over-year increase. It’s worth noting that a one-time legal expense in the first quarter of 2021 was a significant factor in the decrease in year-over-year G&A costs. We are satisfied with the growth in adjusted EBITDA and our ability to enhance our adjusted EBITDA margin despite ongoing economic challenges and supply chain issues. Next, I will highlight a few metrics regarding subscriber originations in the first quarter of 2022, which included 8.9% year-over-year growth in our National Inside Sales. We achieved a record installation of 66,734 new subscribers in the first quarter. Additionally, our Smart Energy partnership continues to bring benefits by bundling smart home solutions with solar energy, adding 2,940 new Vivint Smart Home subscribers this quarter. Nearly all new customers paid in full or financed their equipment through one of our financing partners. As discussed in previous earnings calls, we have changed the timing of fees payment to our primary financing partner from over the loan term to upfront. Consequently, we are updating how we report average proceeds collected at point of sale and net subscriber acquisition costs. These metrics will now include the fees paid to our financing partners for all time periods, regardless of whether the fees are paid upfront or over the loan term. After accounting for fees to our financing partners, average proceeds collected increased by $93 from $1,556 for the 12 months ending March 31, 2021, to $1,649 for the same period in 2022. The average proceeds collected at point of sale, excluding finance fees, increased from $2,067 in 2021 to $2,185 in 2022. Next, I will address our net service cost per subscriber and net subscriber acquisition cost per new subscriber for the quarter. We continued to see year-over-year improvement in net service cost per subscriber, decreasing from $10.77 in the first quarter of 2021 to $10.18 in the first quarter of 2022. Our net service cost per subscriber for the first quarter remains near an all-time low, with a strong net service margin of 78.2%. These results reinforce the benefits of Vivint's fully integrated platform, which covers the entire customer journey and allows for continuous improvement in our products and services. Before discussing net subscriber acquisition cost per new subscriber, I want to reiterate that we are now including fees paid to our financing partners in this metric's reporting, irrespective of whether those fees are paid upfront or over the loan term. Including financing fees, our net subscriber acquisition cost per new subscriber for the last 12 months ended March 31, 2022, was $618, slightly up from $577 the prior year, but down from $635 or approximately 50% from the same period in 2019. The modest year-over-year increase was mainly due to higher equipment and housing-related costs. Excluding financing fees, the net subscriber acquisition cost per new subscriber was $82, which is slightly higher than $66 from the previous period but down significantly from $878 in 2019. Our customer financing model, Vivint Flex Pay, has been key in transitioning from cash use and debt to generating cash, reducing debt, and allowing for investments in valuable opportunities for our shareholders. Additionally, I’m pleased to report our attrition rate for the last 12 months. For the period ending March 31, 2022, our attrition rate improved for the eighth consecutive quarter to 11.2%, a 15-quarter low. Our improved underwriting standards along with enhanced product and service performance have significantly contributed to this low attrition rate among national smart home companies. Regarding net cash used in operating activities, we utilized $36.1 million in the first quarter of 2022, an increase of $21.9 million from the first quarter of 2021. This was primarily due to changes in the timing of interest payments linked to our refinancing last year, and changes in the timing of financing fees to our leading financing partner. We ended the quarter with $153.2 million in cash on hand, maintaining a strong liquidity position of about $510 million. In conclusion, we take pride in our consistent execution across key financial and operational metrics, especially since becoming a public company in January 2020. The fundamentals of our business remain robust. We are excited about our momentum as we move into the second quarter and feel optimistic about future opportunities. However, we recognize the ongoing challenges posed by supply chain disruptions, inflation, rising interest rates, and labor dynamics. Considering these factors, we are reaffirming our previous guidance from our fourth quarter of 2021 earnings call regarding total subscribers, revenue, and adjusted EBITDA. We are also lowering the lower end of our free cash flow guidance by $17 million to $50 million while maintaining the upper end at $77 million. We expect to finish the year with total subscribers between 1.95 million and 2 million, total revenue between $1.6 billion and $1.63 billion, adjusted EBITDA between $725 million and $745 million, and free cash flow between $50 million and $77 million. This concludes our prepared remarks for the first quarter. Operator, please open the call for Q&A.

This is Max Gamperl on for Rod. First question would be on just if you could just elaborate on the attrition trends in the quarter and kind of how that compares to your expectations heading into the quarter? And from a longer-term perspective, where we should expect attrition to go from here for the rest of the year and maybe even beyond some of the older cohorts come to an end?

Yes, I'll begin. This is Dale. David, please feel free to add anything. We're observing strong customer retention, which has exceeded our expectations for the first quarter. The frequent interaction with our system—around 11 times a day—indicates that users see value in our offerings and are likely to continue using our services. Over time, we anticipate our product and services will improve, providing more features for customers, which contributes to their desire to stay. Regarding guidance, we expect attrition to be around 12% for the full year, consistent with our earlier projections. We remain cautious due to economic conditions. We also expect an increase in the percentage of customers nearing the end of their contracts as we approach renewals later this year. Currently, 10.2% of customers have reached the end of their initial contract in the last 12 months, and we expect that figure to rise through 2022. Consequently, based on our projections, when more customers reach the end of their term, attrition rates tend to be higher, leading us to maintain our 12% guidance for the year. It's worth noting that our current performance is better than similar conditions in the second quarter of 2018, when attrition was 12.2% to 12.3%. Overall, we're pleased with our performance and believe we will continue to exceed our expectations throughout the year.

I wanted to emphasize that this is a great example of our integrated model. The collaboration between our operations and innovation teams is evident. We take ownership of the product and the intellectual property. It's encouraging to see these teams work together effectively to identify and resolve any issues affecting customer experience. They collaborate closely, which means we are not relying on a disjointed set of solutions from various external sources. Most of what we provide is developed and managed internally. We're very pleased with the outcomes of this integrated approach. So far, things are looking good, and I believe we are significantly ahead of many of our competitors. We take pride in that achievement and will keep striving to expand that advantage.

Got it. That's helpful. And then another question would be, just from a macro perspective, how are you thinking about direct-to-home sales heading into the summer? With COVID largely in the rearview mirror for the first time in, I guess, 2 years, I guess that should probably help your direct-to-home sales, but we also have a tough operating environment with rising labor costs. So wondering about your direct-to-home sales strategy for this year?

Yes. No, great question. Direct-to-home is a very important channel for us. We launched the summer about 2.5, almost 3 weeks ago. We're off to a great start. Actually, we've been very pleased with the first few weeks. They're performing better than we expected. And it's probably one of our best launches in years. So we're very encouraged by that. It's a collaborative sell. It's an informative sell. And so we're very good at this. I think we're best in class at this. We've been doing this for decades now. And our teams know how to sell, where to sell. They're very pleased with the platform and services that we have to offer. And I think our productivity, we're very encouraged what we've seen in the first few weeks. So we're very bullish, and I'm very, very encouraged by the results we've seen. You usually know within the first 4 or 5 weeks of the summer how the summer is going to trend out. And thus far, all the data seems to be a very strong summer for us. So very, very encouraged.

Yes. Having COVID behind us is a great thing, but also, we're seeing the sales productivity hasn't really been hurt by kind of the economic chaos going on. So we're still cautious, but so far, so good. So let's see how a few more weeks stack up, and we'll report in August, but feeling good about it.

So maybe just a quick question on the free cash flow guidance. I was just wondering what takes you to the high end versus the low end of the guidance range. And maybe just a follow-up question there. Like why do we see that impact on the free cash flow, but haven't really seen those headwinds impacting the EBITDA or other line items? So any color there will be helpful as well.

With the increase in interest rates, we have two types of debt. One is the term loan on our balance sheet, and the other, which is more significant, is the Citizens financing that we provide to consumers at 0% APR. As rates rise, the costs associated with this financing will increase, prompting us to forecast what might happen with rates and swap curves. Therefore, based on our current rate observations and expectations for the next few Federal Reserve meetings, we anticipate a greater use of cash than we initially projected at the start of the year. This impact isn't reflected in EBITDA because it affects revenue; the amounts are calculated as gross less fees, and the net is classified as deferred revenue, recognized over about 60 months. Although this could mean an incremental cash increase of $10 million or $20 million depending on how rates change, it is minimal when viewed through the lens of revenue since it gets distributed over five years. While it may not significantly alter revenue in any single period, it will affect cash flow related to new sales. Thus, we're staying aware of economic shifts as interest rates rise more quickly than anticipated. Looking at yield curves over two to three years is important, particularly because most of our Citizens loans are for 60 months. While rates haven’t changed sharply quarter-over-quarter, the cost calculations use longer-term rates, which have risen more than they did when we last updated our guidance.

That's very helpful color. And maybe just on my follow-up. Thanks for that disclosure on the Smart Energy partners and the new subscribers which are generated from that channel. And just given the higher energy prices, it seems to be a strong demand for solar energy. So I was wondering what are you seeing on that front. And how should we think that partnership helping drive accelerated subscriber growth going forward?

Yes. We are seeing some strong demand there. I think the work that the team did 2 years ago, that partnership that we really brought to market last summer, was fortuitous because we knew that there was a strong desire to bundle the 2. We've known that for years. But we really saw the benefits of it at the end of last summer and then throughout this last fall and winter. We have forecast that we will double our megawatts. We may do more than that. We also see that there are some challenges on the solar side. There's some challenges with regards to supply constraints to their own panels that is causing some concern. And so we're also just being realistic around the access to panels there. And there's also financing costs that impact solar, just like there is across all consumer products. But having said that, those headwinds are real. They're similar to what we see on the smart home side. But there is this desire, obviously, to control your energy costs. And I think with the rising cost of petroleum, there are people who are saying, 'Hey, net-net, long term, I want to be able to be in control of that.' And so I think they have that longer vision, and they are pushing forward to adopt solar. There is a strong desire there. And as we mentioned, we're seeing a very much higher pull-through of those sells that actually go to install, which at the end of the day is what really matters when they bundle smart home. We knew from the work that we had done from all of the survey work that there was a strong desire to bundle them. And in fact, in practice, we're seeing a materially higher pull-through rate. So we think we're on to something pretty special, and our partners agree. And so there's a ying and yang and a pro and a con in the current environment. But net-net, we think that the demand for solar will continue to be strong, and the demand to bundle what we have will be even stronger. And those that provide the bundled solution would like the customers even more and provide them more value. And as a result, we think we can actually do a better job in winning in that market space. But yes, it will continue to be very strong in solar.

That's great color. And again, solid results and good to see the great momentum in both subscriber and revenue growth.

Yes. Thank you. It was a great quarter, and we're optimistic for the full year.

I want to congratulate everyone on a really strong quarter across the board. This leads to my question: you experienced a nice upside in the first quarter but maintained your full year guidance. I would like to understand if this decision reflects a conservative approach in your model for the rest of the year due to current circumstances, or if there has been any change in outlook for the remainder of the year. I also have a follow-up question.

Thanks for the question. We're really focusing on being cautious in light of current market conditions. It was a strong first quarter, and as David mentioned, we're optimistic about the full year. However, there are many economic factors that could potentially influence consumer behavior, which we have not observed yet. We're feeling positive about the beginning of the direct-to-home sales season, which is just starting. After five months into the year, we feel confident in our projections. As we progress further into the year and assess the second quarter, we may need to adjust our expectations depending on the evolving circumstances. It’s important for us to be thoughtful about the various challenges out there, particularly with the supply chain. David, feel free to add anything, but from our experience in 2022, it has been tough. Following 2021, we expected supply chain issues to improve, but that hasn't happened. Daily operations remain challenging, as we need to secure components from suppliers and may have to find alternative sources. Labor constraints persist, and disruptions in China have affected our supply chains, particularly for subcomponents used in our products. We do not manufacture finished goods in China, but we rely on many subcomponents from there. Given these disruptions, we cannot predict how long they will last or their potential impact on us. This uncertainty also affects costs, as increased use of air freight and higher labor costs can lead to higher manufacturing expenses. We see numerous challenges ahead, yet we don’t have complete insight into how they might affect us. Consequently, we're maintaining our full-year outlook based on what we currently know and see. David, do you have anything further to add?

I agree. We have someone who manages our direct-to-home operations, and I’ve been speaking with him. This year, we are optimistic about the start of direct-to-home. I mention this because I believe the solutions we are introducing with our sales team resonate with our customers. These bundled offerings connect, and our efforts to make homes safer, more efficient, and more cost-effective are appreciated. We have discussed our company’s roadmap, aiming to deepen our customer relationships to enhance our service margins alongside bundled and additional margins, while creating more value for our customers. Given all of this, we are optimistic about the year, and the first quarter has shown this well. Our direct-to-home efforts will ramp up in the spring and summer, but our inside sales have performed relatively strong. We feel confident in refining and executing our strategy. Our operations teams are continuously improving their execution efficiency. However, I share concerns about the ongoing conflict in Ukraine, oil prices, and supply chain constraints. Interest rates are also uncertain. We believed it wise to maintain our current projections based on what we know. Our aim is to provide you with an accurate assessment. Since our IPO, we have performed well, and we want to maintain that trust.

I appreciate your insights and believe you are on the right track, so well done. For my follow-up, David, I recall you mentioning earlier that customers tend to stay for 9 years. Does this imply that you now expect your long-term attrition rate, which was initially thought to be around 12%, might actually be lower since you're observing customers staying for about 9 years instead of the previous estimate of 7 or 8 years? I want to clarify if this was merely a casual remark or if you believe this indicates a fundamental change in your outlook regarding the long-term attrition rate, potentially being lower than what you anticipated 3, 6, or 9 months ago.

No, Erik, we're very explicit about this. Our aspiration is to turn long-term customers into lifetime customers. It's very aspirational, but our goal is to extend that relationship to 12 or 15 years. A solar relationship lasts 35 years. If we present them with a better insurance solution that they benefit from through their smart home solution, why would they look elsewhere? If we can continue to make their homes more efficient and enjoyable, and they engage with that increasingly, why would they go anywhere else? It is our objective to provide them with value so that their duration with us increases from 9 to 12 to 13 years, which would significantly reduce attrition. I discuss this internally often; we aim to make the entire bundled solution cost less than what they currently pay. By doing that and educating consumers on the value we provide, I genuinely believe we can reduce attrition significantly over time. Mathematically, this extends the relationship. It's interesting that a decade ago, in just the security business, people purchased a system hoping never to use it, uncertain about its operation. We’ve completely changed that. We are aiming for interaction with them every day, reminding them of the value we provide. We often mention 11 interactions per day and hope to increase that to 13 or 15, making us integral to their family life. My wife often complains about me seeing her on our home cameras and talking to her through my phone. I'm engaging with my family in ways I hadn't thought of a year ago. We are constantly seeking ways to become essential to their lives so that they feel they can't live without us. So yes, Erik, I hope that the average customer lifetime continues to increase. Just from the smart home aspect, not including insurance, for every additional year we extend, depending on the package size, adds $200 to $400 more in lifetime value. When we include solar and insurance, my goal is to demonstrate that the lifetime value of the customer is growing positively over time, presenting you as investors with a strong investment opportunity.

So just on 1Q, what kind of drove the big uptick there? Typically seasonally slower. What were some pockets of demand, what regions you saw strength? And then how is competition kind of faring? Are more and more people becoming aware of your brand?

In the first quarter, most of our growth came from inside sales. The seasonality of our direct-to-home sales becomes more pronounced as we diversify our channels, and the strength of direct-to-home sales is particularly noticeable in the second and third quarters, extending into part of the fourth quarter. So, in Q1, the majority of our sales were driven by inside efforts. I believe this is due to several factors. Firstly, our product is improving, and people researching it notice the recognition we've received. We consider ourselves a Category of One because we genuinely believe we offer the best product for the price. Customers seem to recognize this. Our direct-to-home success can be seen in the numerous advertisers and homes displaying our signs, indicating a beneficial relationship between the two. Much of this success stems from our digital marketing effectiveness and brand awareness. We've conducted several surveys regarding our brand recognition, and the results are surprisingly positive given our limited spending on branding. We attribute this to the strong reputation we've built over 20 years, largely through word of mouth, which is the most valuable form of brand awareness. Therefore, this growth is a result of our hard work and is significantly supported by our inside sales, which reflect the product's effectiveness.

Inside sales showed remarkable strength this quarter. We gained nearly 3,000 additional new subscribers from the partnership we established. As David mentioned, the foundation for this was built 18 to 24 months ago and started to materialize in 2021, continuing to develop further in 2022. We acquired almost 3,000 new business accounts in the smart homes sector, through a channel that previously did not exist. We believe there is significant potential here because solar systems are sold year-round. The team has communicated the advantages of bundling, and as we've trained them and they've recognized the benefits, this effort has proven effective. Therefore, the success of inside sales and this newly established channel is noteworthy.

And you see that in the numbers.

I'll begin with Smart Insurance. We're currently in the early stages of developing this business and have sold about 7,000 policies last year. We're continuing to invest in this area as part of our 2022 strategy to establish the managing general agent we're creating. Ron Davies, who we appointed to lead this initiative, has been on board for around two months now. Although it's still early, we firmly believe this will enhance our EBITDA margin and increase the lifetime value of our customers. We will share more detailed information when it's appropriate and we have a clearer understanding of developments. Regarding Smart Energy, the 45 megawatts we achieved last year translates to roughly 5,000 homes. If we double that to 90 megawatts this year, we expect to reach around 9,500 to 10,000 homes and anticipate generating additional value and margins from this venture. There are two components to consider: the revenue from selling solar to customers, which provides us with a margin, and the benefits from our partnership, increasing Vivint Smart Home customers with substantial lifetime value margins. We estimate being able to acquire around 10,000 new smart home subscribers through this initiative. Last year, the 45 megawatts resulted in approximately $45 million to $50 million in revenue, so if we double our output this year, we are looking at projected revenues between $85 million and $95 million. We're currently evaluating our cost structure and although it's still early, we anticipate a margin exceeding 10%. Our aim is to reach the mid- to high teens; however, we are still refining our approach.

On our investments. We're making investments now to make sure that we scale it directly.

Again, I think, Paul, to make sure it's incremental to what we've done today, so it's positive to whatever we've done today in terms of EBITDA we're getting from that. And I think it's really about, as David said previously, it's about the lifetime value of the customer. And if you can take that customer that has a 75% to 80% service margin from the smart home side, you can add incremental revenue that you're getting to net customer related to a solar sale or the annual insurance premiums coming in from that customer, it really expands out, we believe, the lifetime value of that customer.

And pull the margin from smart home in other peers.

That right. It's really quite powerful. We saw some people were saying, hey, the margin is dilutive. And I'm like, you've got to open your aperture. If you're one of this business on your own, you make your investment because you're protecting and elongating and adding and, most importantly, you're adding value to the customer, which makes you a must-own asset. So as you open your aperture and think about value of the customer, defending your base and incrementally adding margin on a very risk-adjusted basis, it is a no-brainer to do. And the way we're doing it in an asset-light friendly way, it's very, very...

First of all, in terms of second quarter, can you talk a little bit about where you see G&A going because you had a dramatic drop in G&A year-over-year sequentially in the first quarter. Where do you see that going in the second quarter?

Yes, we expect an increase from Q1 to Q2. On a year-over-year basis, we anticipate growth in the range of 5% to 6%. We've been focused on maximizing the efficiency of our investments, particularly in G&A, which we view as a crucial allocation of capital. We're committed to ensuring that our G&A spending, whether in finance, legal, or marketing, yields a good return. While we expect some inflationary pressures on core expenses like travel—especially as we begin to travel more for conferences—we are dedicated to maintaining and scaling our G&A effectively.

Can you provide more details about the insurance offering, including your current status in the rollout, whether you plan to outsource it or self-insure your customers, and the overall structure? Additionally, what other offerings might you consider selling through your channel?

Thank you for the question, Brian. I appreciate it. First and foremost, we see this as a platform opportunity, and we're witnessing that unfold both last year and this year. Our ecosystem and the relationships we have with customers are compelling them to ask for additional solutions. The insurance offering is a strong example of that. Over the past 1.5 years, our focus has been on ensuring our relevance to customers. We concentrated on selling policies and establishing the necessary compliance and systems to engage with our 2 million customers effectively. There wasn't anything particularly innovative about this; it was about ensuring we could sell correctly through an agency structure. We are also developing a Managing General Agent (MGA) model, which allows us to utilize our data for underwriting risks with our partners, including reinsurers. Our aim is to leverage the customer data we have to create beneficial products. This year, we plan to expand into three states, starting with our first as an MGA later this summer and hopefully entering two additional states by year-end. Our state selection is influenced by where our partners wish to operate, where we have a strong customer base, and where the risk aligns with our product. It's important to note that this won't significantly impact our financial results over the next one or two years; our current priority is to do everything correctly and methodically with our partners. There's considerable interest because we control the data, but we aren't counting on this initiative to deliver immediate revenue or cash flow improvements. Instead, we are focused on proving value to our customers, which could create a growth avenue in the future. In terms of partnerships, we're collaborating with major industry players to ensure risk management is handled appropriately, relying on their expertise alongside ours. We are staying away from risk areas where we lack confidence and concentrating on leveraging our strengths: the data we possess, our installations, and our service capabilities. Regarding future opportunities, while we've invested in Smart Home, Smart Energy, and Smart Insurance, we also find potential in the aging in place market. We believe we can offer strong products that help individuals age comfortably in their homes, enhancing their quality of life while reducing costs. This is an area we are exploring, and we expect to invest in the future, but for now, we are concentrating on our existing initiatives. The approach may include partnerships or organic growth, and we are still determining how to tackle this market and the timing for it.

We appreciate your interest. We had a great Q1 and are looking forward to a solid year. Our focus is on delighting customers, taking care of our shareholders, and supporting our employees. I want to emphasize how much we value our employees; they are truly exceptional. Customers often praise how well our employees serve them, whether in sales or service, whether over the phone or in their homes. I am grateful for their innovation and the way they support each other, especially during the COVID crisis, and how they treat our customers. Thank you for your time and interest, and we look forward to speaking with you on our next call. Take care.