Tesla Inc (TSLA) — Q3 2015 Earnings Call Transcript

Thank you and good afternoon to everyone joining us today for SolarCity's third quarter 2015 earnings conference call. Leading the presentation today will be a discussion from our Chief Executive Officer, Lyndon Rive, our Chief Technology Officer, Peter Rive, our Chief Operating Officer, Tanguy Serra, as well as our Chief Financial Officer, Brad Buss, after which point in time we will open it up to questions. As a reminder, today's discussion will contain forward-looking statements that involve our views as of today based on information currently available to us. Forward-looking statements should not be considered a guarantee of future performance or results and reflects information that may change over time. Please refer to SolarCity's quarterly shareholder letter issued today, as well as the slides accompanying this presentation and our periodic reports filed with the Securities and Exchange Commission for a discussion of forward-looking statements and the factors and risks that could cause our actual results to differ from these forward-looking statements. We do not undertake any obligation to publicly update or revise any forward-looking statement. In addition, during the course of this call, we'll use a number of specially defined terms relating to our business metrics and financial results, including non-GAAP financial metrics. We refer to the definitions of these terms and the required reconciliation between GAAP and non-GAAP financial metrics included in the shareholder letter issued today as well as the slides accompanying this presentation which are available on our Investor Relations website investors.solarcity.com. With that finally behind us, I would like to introduce SolarCity's Chief Executive Officer, Mr. Lyndon Rive.

Thanks, Aaron. So thanks everybody for joining the call. We are going to try a different format in this call. Instead of going through the slides, you have access to slides. We're going to spend most of the time addressing questions. Before we get to the questions, I want to give a quick company update, and Brad will just discuss some of the updates on finance and Peter will get into discussion on net metering. A quick recap for Q3, we installed 256 megawatts, which is a new record, but slightly lower than our 260 megawatts forecast. Now I'm disappointed in this number, but just to put it in perspective, at our current rate of installation, we installed roughly 2.5 to 3 megawatts a day, so we missed it by 1.5 days or so. All the fundamentals of the business are looking good. Cost reduction is coming down nicely, demand for the products is strong and the economic value we've created this quarter was $239 million, that's quite an amazing number. Looking at the last nine years, the strategy of the company has all been about growth. The reason why we focused on growth is the need to achieve scale. We don't know why you can reduce costs is the scale. For the last nine years, we've been growing roughly 80% to 90%. That is the downside of growing at 80% or 90%, if you have to make investments into the infrastructure today which you'll only recognize the benefit of that investment two to three quarters later. So that needs a cost to that scale. Now that we've achieved scale, we as an executive team and the board have decided to focus on cost reduction and being cash flow positive by the end of 2016. With this new focus, we're going to reduce our growth rates to roughly 40% in 2016. Now for the company, 40% is still a very big growth rate, but this will enable us to focus on profitable installations, the more profitable installations as well as reducing our customer acquisition costs. If you look at our Q3 installed costs, we almost achieved our 2017 goal of $90 a watt, but now that we're investing less into growth, we're going to be updating our 2017 cost goals by the next earnings call. We expect updated cost targets for 2017 and expect a meaningful reduction to our $2.50 a watt by 2017. One thing I want to make clear is this changing focus is not a lack of demand. We expect in Q4 bookings to be greater than Q3 bookings. Normally Q4 is lower than Q3 because of the seasonality you have less selling days, but the demand is strong. And in 2016, we expect the demand to be very strong. When you have an aspiring tax credit or a tax credit going from 30% down from 10%, the customers are going to rush to get in to not miss the opportunity, so we expect demand to be strong in 2016. Now we are actually going to be increasing our pricing in Q1 next year, but we have a small increase depending on stakes; we'll increase roughly $0.25 to $0.01 a kilowatt hour in our leases and PPAs, and essentially matches the escalation of the utility rates. Overall, I'm very excited about the business and the strategy change. We are now at some inflection point, but we're going to become cash flow positive by the end of 2016 and have a cost structure with the business to maintain cash flow positive in 2017 with a 10% accuracy. I'm going to pass it over to Brad.

Thanks, Lyndon. Just a quick couple of comments on Q3. Overall I think we had a very successful quarter with some great results and records that Lyndon touched on, and I just want to emphasize a couple of things. The record economic value creation of $239 million we achieved that was up 22% sequentially with solid IRRs of 12% and that's what fully loaded costs. If you look at it on a project basis like many competitors do, it's much closer to 16%. Also at the end of Q3, we had record gross retained value of $4.4 billion and net retained value of $3.3 billion which is approximately $33 per outstanding share. As far as our PowerCo Available Cash which we introduced in Q2, I just want to explain a couple of timing differences that we tend to see and that you will continue to see going forward. So if you look at just the Q3 number, our PowerCo revenue was a record $95 million and that was due to increased assets in service as well as strong system performance as Q3 tends to be our extremely sunny period. The final PAC just again in Q3 was $19 million, and again that was due mainly from the timing of certain payments for debt and interest that typically happen at a higher level in Q1 and Q3 and the same thing for higher distributions to our tax equity partners. If you now look at things on a trailing 12 months period which we really view as the best measure to see how PACs moving on an annual basis, the PowerCo revenue increased 17% sequentially and the net PAC from operations and prior to any distributions to our tax equity partners and/or debt service increased 7% sequentially. The final PAC was $112 million and it was down 2%, but again that was really due to the timing of the payments related to debt, tax equity and interest as I mentioned and you'll continue to see those fluctuations in Q1 and Q3. I want to just touch real briefly on our financing strategy. I mean there's always been a lot of turmoil in the solar industry as of late and a lot of questions related to financing come up. I think we went to great lengths in our shareholders who have letter as well as the earnings deck to explain that our financing structure for our main products which are leases, PPAs and MyPower loans are very different from some of our peers and obviously very different than some of the current challenges that certain yield curves are facing. The bottom line is that our solar asset financing strategy is very sound and it's focused on tax equity, aggregation facilities and ABS. We have ample room on our main tax equity in eight facilities which really provide the bulk of our year-one cash. In addition, I think as most of you know, we completed our financing with a take up via the ABS market in August and I expect to have a regular cadence from here on. All of our guidance is detailed in the earnings deck for Q4 as well as 2016, but just to ensure that we're all on the same page, I want to let you know that the cash flow breakeven that Lyndon talked about and how we're going to define that. So all of that will come right off of our quarterly financials, and the formula that we're using is the net increase in cash and investments which obviously included securities, etcetera, less net cash provided by equity issuances that comes up the cash well is going to be greater than or equal to zero. So I'll just wrap up there and I'll now turn it over to Pete to cover one of our favorite subjects.

By favorite subjects, you mean net metering?

Correct.

Utilities are positioned to reach out solar is getting a lot of airplay, so I'd like to give you our take on the situation. So despite utility efforts, regulators are rejecting proposals to unfairly penalize solar customers as evidenced by recent sales with Samsung Colorado, New Mexico, and Kansas. Additionally, net metering caps recently extended in New Jersey, New York and the Nevada PUC extended its program through year-end while it will validate the benefits of rooftop solar. It's important to note that a previous study conducted in Nevada showed that the benefit outweighs the revenue shifts. In Arizona, this week we achieved another victory against utilities attempting to have viewed their monopoly positions. In our case against SRP, a judge ruled that the utility must answer in court for the unfair and anticompetitive penalties that it's imposing on solar customers. In Hawaii, which is a very special case with double-digit market penetration and extremely high electricity prices, the PUC issued a new solar tariff which has some good and some bad components to it. Bad was the lack of due process taking effect, but good in that it provides expedited and mandatory interconnection for sources and not back feed onto the grid which essentially breaks as self-supply there. But working on a self-supply solution that could restore Hawaii, it's a high growth market for us at some point. And then maybe in California, California Public Utilities Commission is expected to release their new net metering tariffs in the coming months and this is a very important one for us. In general, we're hopeful of a good outcome for two reasons. First, we believe the benefits of rooftop solar are greater than the revenue shifts and by benefits I mean the ability to avoid distribution and transmission expenses and so on. And then secondly, a decision that ensures continued growth of rooftop solar is required by law. I'm going to quote directly from Assembly Bill 327 and this is in reference to Minnesota. The commission shall do all of the following and then the first points is ensure that the standard contract or tariff made available to eligible customer generators, ensure that customer side of renewable distributed generation continues to grow sustainably. I just want to reemphasize that it is required by law that that happens. So then like I think that if we think about this, it's important that business is not going to go away forever. I think that the utilities will try to impose and going to stop selling it. And over time, it's going to be give and take on both sides. So we are optimistic that in the phase of climate change and the benefits as well as popularity of solar power that their agencies imposed policies that slowed down solar adoption. And with that I'd like to move to the questions and answers of the call.

Operator, can we open it up?

Hey, thanks for taking the question. I guess first question on 2016 guidance. I guess maybe some of the thought process that you guys went through to form the 40% growth from my perspective a meaningful deceleration. Was that guidance impacted by any market demand constraints, policy uncertainty, conservatism building out the organizational capacity, I guess to avoid any underutilized capacity in '17, capital constraints, organizational constraints or any competitive pressures? I just want to better understand some of the motivating factors. Thanks.

Yeah, it's a really good question. Due to couple of areas, first if you look at our current acquisition costs it's around $0.64 a watt, growing at 80% to 90% is that last portion of lost customers, they are really expensive, so we want to reduce acquisition costs so by slowing it down then we can reduce our acquisition costs. The other is the best time to plan for a 10% ITC and optimize the company for a 10% ITC, it's not when you're in the 10% ITC, well it's when you're in the 30% ITC, that's when you want to make the change. If we make this focus in 2017, it's going to be a lot harder to do it then than it is to do it now, so that's another reason why we decided to do it earlier, when we saw the market that we can have at a similar cost and it has to be cash flow positive, to maintain cash flow positive in 2017. And the other point I want to emphasize is, when you're growing at 80% beyond the high acquisition costs, the only way to maintain an 80% growth rate, you have to make big investments, but you're only going to see the results of those investments as two to three quarters later, and so doing that when you know that you have to get to a cost structure where we want to strive to be cash flow positive in 2017 of all the reasons why we decided to reduce the growth rate. And I do want to follow-up with, find companies that are deploying an infrastructure that has 14,000 employees that are growing at 40%.

I believe that is indicating some aspect of revenue growth. I mean it's going to exceed 70%.

Exactly. So it is not a standard 80% growth, but note that 40% is a low growth number, just I wanted to emphasize that.

Got it. And then so just a follow-up, when you think about the sales costs, how wide was that differential between, I guess, that first 40% for growth and the last few customers to get you to that 80%, 90% growth level, how varying is that incremental sales-related cost or how wide is that range?

Hey Patrick, it's Tanguy. I think that's quite wide. Our best method of acquiring customers is through referrals, which are our cheapest customers and the most appreciative. As you analyze the costs, direct energy serves as an excellent acquisition channel. However, as you continue to look at the costs, you have to account for lead payments and closing costs, which are higher. The difference in costs becomes apparent, especially depending on whether you're paying for leads or not.

Thank you.

Thank you. I would like to begin on a positive note. Can you provide insight into your assumptions for NEM 2.0, when you anticipate making a decision, what your baseline assumptions are regarding potential positive and negative surprises, and how this might shape your outlook for the upcoming year?

We anticipated some updates from the PUC in the next couple of months. However, it’s challenging for us to incorporate specific assumptions into our planning. What reassures us is that AB 327 mandates that the tariffs established by the PUC must support the sustainable growth of rooftop solar. For now, we're just making educated guesses, and I prefer to avoid speculation on this matter.

Okay, that's certainly fair. If we can turn to the financing, successfully closing the ABS was a new financing structure for you. Can you expand a little bit more on the future cadence of ABS and particularly where you expect loan to value to trend? Thanks.

Yeah, thank you. So you hit a key point right, so all of our lease structures were leases and PPAs are now weighted which is great and they all have an investment grade rating. The next thing it was end up coming up now truly will be the MyPower loans, and then really all of our products are totally rated. So from a cadence standpoint, remember, so since we have tax equity funds underlying these, we basically still fund up, so once a fund is built up then we have some fairly large funds that tend to have been a year in length. So once they are done, we'll put them right out into the ABS markets right away, so hence we did have a little bit of low, I think as you noticed in this year, but I think you'll see the cadence as soon as these funds are down, they will be coming out the doors. So you'll see much more frequent issuances going forward. And as far as the advance in all rates, they really just depend at the time than market structure, but I would expect the advance rates for leases and PPAs to be fairly stable to what we've seen and probably be getting better when we get into the MyPower situation, since it's a very different chronic with no ITC in it.

Okay, thank you. I'll return back in queue.

Hey guys, thanks for taking my questions. In the last quarter, you guys talked about normalized PAC or PowerCo cash flow of being closer to $166 million. With the variability that we saw in Q3, what do you think the normalized PAC ought to be on a go forward basis?

So again, the normalized, I think that reflected the tax equity distributions added back, right, just a roll on the same page. And I think as I went through hearing in the letter and hopefully people understand that the variability between Q1 and Q3, there are very different timing for all of those payments, right. And we kind of show you by quarter, so you can see that. So I think as we add more debt that obviously goes into the number and your payment still there, but the revenue will move accordingly. So we are not in a position to give you guidance on it at this point, but I would say, year-on-year it's going to continue to grow substantially.

Great, thanks Brad. You guys did a great job on expanding commercial in the quarter. Can you give us some more color on this commercial strength? Is it the small commercial segment that's driving growth as you guys referred to in the last quarter and what kind of mix of commercial can we see in Q4 and as we go through 2016?

I appreciate your question about commercial. It's an important topic for us. In commercial, we've insourced the construction costs using our own crews, and that has been incredibly successful, exceeding our expectations. This has significantly reduced our cost structure in commercial, and I'm genuinely excited about our future commercial costs. As a result, we have been able to build large gram ounces and rooftops at a low cost, which allows us to offer very attractive power prices to our end-customers, which is excellent. The mix primarily includes standard configurations of about 1 megawatt for gram ounces and 500 kilowatts for rooftops, along with some smaller installations, particularly for schools in California.

I guess the mix I was referring to is, and so far as you can share of the guidance for Q4, 290 megawatts, how much of that could be commercial?

I'm looking at Brad and making sure that I'll let him answer the question, so he is saying, yes. So the mix will be somewhere between 70 megawatts and 90 megawatts of commercial in Q4 of installs.

Hey guys. Thanks for taking the questions. I had several actually, maybe a simple one. How should we be thinking about 2017, I guess in the context of this new pivoting strategy, what does it mean for targeting growth beyond the ITC?

Yeah, I still expect to see a growth in 2017, and it would be cash flow positive, so that's the whole pivot I'd add to that, and this is the reason why we're pivoting right now. So we can have a cost structure that we have growth theater in 2017.

Okay, fair enough. I guess since that's a good segue into the next set of questions that I had. On that positive cash flow that you're blending, if I use your installed targets, it seems like you'd have to be down to about 230 per watt of oil and gas by the end of 2016 to get to breakeven based on the cumulative capacity that you're targeting in. So I'm wondering if that's the right read here first of all, and then I had a follow-up on that.

Brian, you know your math is so well, but I don't want to give guidance to see it on the cost.

That you are good at math.

That you are good at math. So I'm not giving guidance on it as you're good at math.

Okay, thank you for the compliment. Maybe I'll hop back to volumes then. On the 2015 outlook, in the shareholder letter you're mentioning some uncertainty around commercial installs in December. So are you actually expecting things to slip into 2016 because I would have figured if all goes according to plan, your original outlook even if it's at the low end, I would have remained intact. So is there anything else that might be falling out here as growth simply slower than you might have thought?

We just don't want to push too hard on the growth, and once again that's higher costs. To maintain this 80% growth in terms of installation had extra costs, so we just wondered that we did that, and then combined with that Tanguy just mentioned on the megawatt strength, you're looking at 20 megawatts swings there on the commercial.

Yeah, it’s very late in the year with weather-related holidays, so there are just a lot of challenges.

Yeah, especially with the production related to the winter in California.

Okay. Fair enough. I'm going to try to squeeze one last one and then I'll jump back in. And back to cash flow when I do the…

One thing is important to me. This is not a demand channel, as Q4 bookings are typically higher than Q3 bookings, which usually doesn’t happen in Q4 due to fewer selling days, making it generally more difficult to achieve.

Okay, no thanks for that clarification, that's good point. Going back to cash flow from the last question and then I'll hop off. You're implying that the breakeven cash flow is at 3.35 gigawatts of cumulative capacity again based on my math which I hope is somewhat accurate. I would imply every gigawatt above that gets you to something around $200 million or $250 million positive EBITDA assuming that's your cost targets or even a bit below or so. I'm not asking you to endorse those numbers, but can you give us a sense of not only what breakeven is which you're articulating here for the first time, but essentially what the EBITDA growth could look like as we scale out in the out years because obviously that's what you're trying to position here for?

Yeah, I think as we complete the cost and everything else, we are deep in our planning process right now, we'll consider that, but there is nothing we're looking to give out right now.

I would use actually as the definition of EBITDA basically the economic value creation of the business which would starting at $39 million in this quarter, alright. So again like when you seem like EBITDA is represented by free cash flow in the periods, but remember simultaneously generating hundreds of millions of dollars in economic value.

Okay. Thanks guys.

Yeah, just take the EBC and replace it with some of the Brian math on the cost, you can do a lot of modeling there.

Hey guys, thanks for taking the question. What sort of financing do you need to complete? The move to become cash flow positive, is that to avoid future equity raises or should we plan on an equity raise at any point here in the near future?

Yeah, so I think as far as completing, if you look at the financing of the fuller systems, right, it's ABS and its aggregation. So I think I went through great pains in the letter basically showing you that P&L of the tax equity is a little different. It is really a tax offer type advice that we've had very strong demand. We've already got the next some months covered and I would expect by the end of the year, we'll have the balance of the year complete and then the aggregates of these are very flexible. So we can help them, we move them as we go to take that as an ABS, that I mentioned we don't actually do much more on this, this coming year, but we would be able to then recycle that back through, so I think those are still at ease are fine. And then from a working capital perspective, we intend to be using the revolvers and the solar bonds.

Got it. And then is there capacity to potentially do higher megawatts to plan in next year or have you guys essentially calculated this is where we want to be this level of growth heading into 2017, so you can better look at the market and judge what you can do about the prevailing dynamics?

Yeah, so our focus is going to be on cost reduction and cash flow positives. If we have the opportunity to grow more and it still meets our primary goals we will, but the primary focus is cost reduction and being cash flow positive.

We do not build our capacity in advance because that would result in idle capacity. Instead, we size our capacity based on the projected megawatts for that month or quarter. We utilize SolarCity University to onboard and train installers and professionals, allowing us to respond to demand. If we want to grow more, we can deploy that capacity in real-time without incurring additional costs.

On the financing, right I mean to Lyndon's point if there is something that's opportunistic or the ITC clarity gets better whatever we will have extra financing, just in case anybody was wanted to go with that.

We opened our California center in Fremont, where we have the 100 megawatt line, we feel very, very good about that. We're excited about what we're seeing coming out of that line. Some of the numbers are ahead of what we thought, something is really, really good. So on the technology front we feel very, very good about where we at. And then on the scaling up of manufacturing, the Buffalo facility is on track so far and we continue to be expecting to be ramping up there in first half of next year.

Whatever it is, we are happy, we're very, very happy with the technology there.

Great, thank you.

Hey good afternoon. Perhaps could you elaborate a little bit on the regional dynamic playing out here with the execution just is it really a northeast spend or just broadly speaking what's drove 3Q and 2016 expectations? Yeah, I'll leave it there for now.

I'm not sure, I understand the question.

Yeah, I mean just, could you go state-by-state, in terms of the execution on getting the megawatts built out, how is it looking? I mean is it really weighted one state versus another?

Our East Coast states are all performing well and experiencing significant growth. California remains our leading state.

California is still number one, the East Coast is rolling quicker, but obviously at a smaller base, so it's a nice number too after California.

Right. But in terms of the sort of the backlog the time to get these things done, is there any differentiation of one lagging more than the other in terms of getting them off the ground?

Yeah, so the average time to install across the portfolio is about 60 days. It's a little bit less in California, a little bit longer in the East Coast, but there are no capacity constraints or anything like that on the East Coast.

We really like the East Coast. Maryland is one of our best markets. If you look at whether it's volume or costs, the East Coast markets are really good for us.

Got it. And just a little bit cutting back to the 2017 number, I don't want to put words too much in your mouth, but you can still have this 1 million customer target. How backend weighted is that to hit that number at this point?

The 1 million customer goal is definitely something that we consider when we're looking at this new focus of absolute cost reduction and being cash flow positive. So I'd say cost reduction and cash flow positive is a higher priority than the 1 million customer goal. Not giving up on the 1 million customer goal, but that's the first priority and then we'll see how things go in '17 and '18 to what we have to do to accelerate to meet the 1 million customer goal, but the focus is cost reduction and cash flow positive.

Alright. And then a better within that, is there an international piece that you're thinking for 1 million customer, I just want to clarify that?

No, no, absolutely the international customers will be counting towards the 1 million customer goal.

Great. And any expectations on where that scaling through to for your '17 growth etcetera, just as you think about that mix?

So Julien, I have to take that. So as you know we brought up in Mexico that's trending exactly as per plan, build costs of Mexico are significantly lower than they were in the U.S. just because the part of the reason is the cost of panels, there is tariff, so the cost of panel is cheaper. The build funds are great. Mexico is on track. And we're continuing to evaluate new markets and we got a couple operators where we think are attractive, which are doing a lot of work upfront, not close to what anything but liking our international place.

Yeah, one other point I'll make on that is, when we look at international markets, for the most part, we're going to create the market. We're going to look at our favorable policies that have to have good sun and high cost of energy. But there is no market we can just go in and get gigawatts worth of capacity to build it. When you're building residential, you're doubling small numbers, then those numbers become bigger and bigger and stop becoming really big. So in terms of customer count, it will be adding to the million, but the majority of that will be in the U.S.

Hey, thanks for taking my questions. I had a couple of them. First, it's very nice to see your focus on cost cuts and the cash flow positiveness. Just curious on the 2016 guidance, would any extension or change in language on the ITC step down change your view on the guidance for next year?

Yeah, just to make it absolute, yeah. This focus is streaming that there is no ITC extension, so this is why we focus on it. If there is an ITC extension, we'll have to relook at the outcome.

Yes, we'll likely to increase volume.

And actually for us it's nice to think it's going to get extended. I think it's a greater probability that it will get extended, but we have to plan for the fact that it doesn't get extended, and if it does get extended, we just have a much healthier business than any of our competitors to capitalize on that extension.

Yeah, and that's a real key. It's like the ability to ramp up sales and operations, it's not like you are bringing a manufacturing plant that you've idled. I mean we'll be able to bring things up very quickly. So I'm not that concerned that we wouldn't be able to sell back up on that.

Got it, alright. And then a follow-up question, do you anticipate earning level IRRs on projects deployed next year in 2016 or do you expect to raise the higher level of tax equity in securitization relative to your costs? And along the same path, if not in 2016, what kind of levered returns do you expect once the tax rate steps down?

If you look at 2016 and assume some lower costs, along with pricing being stable or possibly increasing, those factors are positive indicators. They will enhance the internal rate of return, so the outlook is likely to improve. As for 2017, it's still too early to make any comments.

One year at a time.

Alright. Good afternoon. I wanted to discuss 2017 and consider the competitive landscape for that year. If the ITC has not extended, what impact do you think that would have on smaller competitors?

I mean I think a short answer to that we currently have the best cost structure in the industry, we're going to have an even better cost structure, and if you don't have a really low cost offer that you see expire, you can't be around. So I think that once I see expire is a competitive landscape, and it's going to be completely different and we're taking actions now to make sure that we continue to be the market leader at that point.

If you don't have a low-cost structure in 2017?

A lot of people are going to be extremely challenged to get financed if they don't have the structure to begin with, never mind the availability of that financing.

It's actually one of the primary reasons why I think that 2017 will be a growth year for us, as just we're going to have the lowest cost structure and the best product, so the customers will come to us.

I don't think we need to make any acquisitions. It's not part of our plan to make any acquisitions within the states.

Yeah, within the U.S., yes.

No one else has the scale and resources to integrate it as effectively as simply bringing on 100 or 200 individuals, many of whom would likely be coming from those companies anyway. It is much easier, more cost-effective, and less risky to pursue this approach.

Hey guys. Since I'm towards the end of the call, I'll ask kind of a high-level one, if I may. A year ago the stock was trading at three times retained value. Today it's trading at one times retained value. What do you think went wrong?

I think you mean net retained value?

Net retained value indeed. What's the market not getting?

I'll handle that. It's Peter Rive. It's not even net retained value, look at our economic value that we traded the EVC slide. The company this last quarter generated $239 million of value and it's very close to $1 billion run rate. For it to be where it is right now, I don't know, this is why we'd be focusing on cost, maybe the market doesn't think that we have a cost structure that can work in 2017. This why we focus in this, we'll prove it out in 2016. I hope that helps.

Okay. Given the pivot to a more refocused installation model, does it still make sense for you to be in 19 states, because that number has been pretty consistently increasing almost every quarter?

We will optimize our cost structure to ensure that each location contributes positively to the business. Currently, we are not planning to expand into new states, but we will assess the performance of our existing states to confirm they are generating cash, and for the most part, they are.

Thank you.

Thank you everybody.