NRG Energy, Inc. (NRG) Q1 2022 Earnings Report, Transcript and Summary

Good afternoon. Thank you for attending today's Vivint Smart Home First Quarter 2022 Financial Results Conference Call. My name is Nate, and I will be your moderator for today's call. [Operator Instructions] I'd like to pass the conference over to our host, Nate Stubbs with Vivint. Nate, please go ahead.

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 would join us in mid-May, and he brings to Vivint 20-plus 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 solar industry struggles with, wasted upfront costs on the sales of a solar system that never get 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. And 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 provides 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 refer to information in our earnings presentation that was posted to the Investor Relations section of our website at vivint.com prior to this call. Following my prepared remarks, we will open the call for a Q&A session. Our key subscriber portfolio metrics continued to perform well and showed year-over-year improvement in the quarter. During the first quarter of 2022, we had growth in total subscribers of 9.6% and versus the prior year period, decreasing from 1.71 million to 1.87 million. Our average monthly recurring revenue per user, or AMRRU, in the first quarter increased 3.1% year-over-year to $67.87. The average in AMRRU was driven by customers purchasing incremental smart home products at the initial point of sale, a trend that we have seen over the past several quarters. The year-over-year growth in total subscribers and AMRRU drove a 12.9% increase in total monthly recurring revenue or total MRR. For the first quarter of 2022, total MRR was $126.5 million, up from $112 million reported in the prior year period. Moving on to revenue and adjusted EBITDA. Revenue grew by 14.7% to $392.7 million in the first quarter of 2022. The growth in revenue was attributable to the previously mentioned double-digit increase in total subscribers and the increase in AMRRU as well as a solid contribution from our Smart Energy initiative. We are very pleased with the first quarter's revenue growth, and we remain on track to meet or exceed our revenue guidance for the full year. Like revenue, adjusted EBITDA grew nicely in the first quarter of 2022, finishing at $202.3 million, up 25.9% from the same period in 2021 with a margin of 51.5%. The scaling of service costs and lower G&A expenses were the primary drivers of the 25.9% year-over-year increase. I would note that in the first quarter of 2021, we incurred a onetime legal expense, and this was the primary driver of the decrease in year-over-year G&A cost. We are happy with the growth in adjusted EBITDA and our ability to increase adjusted EBITDA margin in the face of continued economic challenges and supply chain restraints. Next, I will highlight a few metrics on subscriber originations in the first quarter of 2022, led by 8.9% year-over-year growth in our National Inside Sales. We installed a first quarter record of 66,734 new subscribers. Additionally, our Smart Energy partnership continues to show the benefits of bundling smart home with solar, adding 2,940 new Vivint Smart Home subscribers in the quarter. Nearly all of the customers originated in the quarter either paid in full or financed the purchase of their equipment through one of our financing partners. As we have discussed on prior earnings calls, the timing of the payment of fees to our primary financing partner has changed from over the term of the loan to upfront and netted from the gross proceeds received from that partner. Due to this change, we are updating how we report average proceeds collected at point of sale and net subscriber acquisition cost for a new subscriber. These metrics will now include the fees paid to our financing partners for all periods shown, whether the fees are paid over the term of the loan or upfront at the point of sale. Net of fees paid to our financing partners, average proceeds collected grew by $93 from $1,556 in the last 12-month period ended March 31, 2021, to $1,649 in the same period in 2022. Average proceeds collected at point of sale, excluding finance fees, increased from $2,067 in 2021 to $2,185 in 2022. I will next cover our net service cost per subscriber and net subscriber acquisition cost per new subscriber for the quarter. We continued our trend of year-over-year improvement in net service cost per subscriber, dropping 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 remained near an all-time low. Our net service margin retained -- remained strong at 78.2%. These results reinforce the advantage of Vivint's fully integrated platform, which encompasses the entire customer journey as well as the constant feedback loop that enables us to continuously improve the performance of our products and platform. Before I discuss net subscriber acquisition cost per new subscriber, as mentioned earlier, we are now including the fees paid to our financing partners in the reporting of this metric, whether those fees are paid over the term of the loan or upfront at the point of sale. Including financing fees, net subscriber acquisition cost per new subscriber for the last 12 months ended March 31, 2022, was $618, up slightly from $577 in the prior year period, but down $635 or approximately 50% from the same period in 2019. The marginal year-over-year increase was primarily driven by higher equipment and housing-related expenses. Net subscriber acquisition cost per new subscriber, excluding financing fees, was $82, up slightly from $66 in the prior period, but down $878 from the same period in 2019. Our customer financing model, Vivint Flex Pay, has been instrumental in our transition from using cash, taking on debt to grow the business, to producing cash, reducing debt and having the flexibility to invest in new initiatives that we believe will be value accretive for our shareholders. Another metric we are happy to report is our last 12-month attrition rate. For the period ended March 31, 2022, our attrition rate improved for the eighth consecutive quarter to 11.2%, a 15-quarter low. Our enhanced underwriting standards improved product and service performance and the high level of customer engagement with our platform continue to drive what we believe is the lowest attrition rate among national smart home companies. In terms of net cash used in operating activities, we used $31.1 million -- excuse me, $36.1 million during the first quarter of 2022, up $21.9 million from the first quarter of 2021, which was primarily driven by a change in the timing of interest payments due to the refinancing of our debt last year and a change in the timing of financing fees paid to our lead financing partner. We finished the quarter with $153.2 million of cash on hand and a very strong liquidity position of approximately $510 million. In conclusion, we are proud of our consistent execution across our key financial and operational metrics, particularly since becoming a public company in January of 2020. The fundamentals of the business remain strong. We are pleased with our momentum going into the second quarter, and we are bullish about the opportunities that lie ahead of us. We are also aware of the continuing supply chain disruptions, inflationary pressures, rising interest rates and challenging labor dynamics. Taking all of these into consideration, we are reaffirming our original guidance issued during our fourth quarter of 2021 earnings call for total subscribers, revenue and adjusted EBITDA. And we are lowering the bottom end of our guidance range for free cash flow by $17 million to $50 million, while leaving the top end of the range unchanged at $77 million. We expect to end the year with total subscribers within the range of 1.95 million and 2 million, total revenue within the range of $1.6 billion and $1.63 billion, adjusted EBITDA within the range of $725 million and $745 million and free cash flow within the range of $50 million and $77 million. This concludes our prepared remarks for the first quarter. Operator, please open the call for Q&A.

[Operator Instructions] Our first question from Rod Hall with Goldman Sachs.

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 start with that. This is Dale. And then, David, you can jump in here and add anything. I think we're continuing to see attrition or retention of our customers perform really well. They're probably ahead of our -- again, our expectation in the first quarter. But again, we think when you have the interaction 11 times a day that individuals are acting with our system -- interacting with our system, they're using the system, they're finding value in it, they're more likely to keep staying with the system they're paying for. And I think that's what we're seeing. And I think over time, our product and our service also continues to get better, and there's more functionality that they're able to get out of it. And so that's leading to, again, customers that are wanting the system and wanting this service that we provide. In terms of what we see, I think we've said, hey, guidance-wise, we expect attrition to probably be in the 12% range for the full year. And I think that's what we said coming into this year in terms of guidance there. I think we still expect that. We're cautious. I mean there's lots going on with the economy, as you know, Max, and why we think the attrition will continue to perform really well, and we believe it will, I think for guidance-wise, what we said we're expecting. A part of that is we have -- we know that the end of term percentage of customers will go up from where it is today as we go through renewals here later in the year. I think we're at 10.2% of customers that are at their initial end of contract for this last 12-month period. We expect that to go up higher than that as we go through 2022. And so that's why we're saying, hey, based upon the hydraulics, when you have more customers at end of turn, the attrition usually of those cohorts at that point in time or higher, then we expect 12% or somewhere in that range for full year guidance. The one thing I would point out and then, David, you can jump in if there's anything else, is the last time we were at this type -- this low was in, I think, the second quarter of 2018, and we had a -- we have 10.8%, like I said, of customers during the term this period. It was 12.2% or 12.3% at that point. So we've got -- we're performing better across the board. And so we're really excited about where that is and continue to perform better than what we expect. And we continue to think that will happen throughout the year. David, I don't know if you have anything more.

No, I think that point is just I wanted to make. The other thing is, Max, I do think this is a good illustration of the integrated model. I see the collaboration between our operations teams and our innovation teams. And we own the product, we own the IP. And seeing those 2 teams work well together to root cause anything that is causing friction with the customers and how they collaborate to knock down those issues proactively is great to see. And those 2 teams worked really, really well together. It's very close. So it's not this large disparate set of solutions from across a large array of parties. It's -- the majority of it is what we own and do internally. So I think we're really pleased with the results coming from the integrated model. So, so far, so good. And I think as I mentioned in my comments, from everything we can see, I think we're materially ahead of a lot of our peers. And we're proud of that, and we'll continue to work hard to continue to widen that gap.

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.

Our next question goes to Ashish Sabadra with RBC Capital.

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.

Yes. So with the rising interest rates, we have 2 pieces of kind of debt. I would say we have the term loan that's on our balance sheet. And then the bigger component is really the Citizens financing. As you know, we offer that to consumers for 0% APR. And so our costs associated to do that as the rates rise will increase. And so we're trying to do some forecasting there around what we think will happen around rates in the different swap curves. And so that's why we said, hey, based upon where we see rates today and what we expect, the increases will be at the next 2 or 3 or 4 fed meetings. We factored that into kind of our estimates and said, "Hey, we think that there will be potentially a greater use of cash than we originally anticipated when we did our models for the beginning of the year." The reason why you don't see that into like EBITDA, for example, is when that comes through, it comes through as a reduction to revenue. And so as we put it on -- so if you take the gross amount less the fee, that net amounts what we put into deferred revenue and we recognize over, say, 60 months period of the loan. And so while it will be a lot -- could be $10 million, $20 million in incremental cash, depending on what happens with rates here, it's very small when you look at it on a revenue basis because it gets spread out over, I think, about 5 years. So in any one period of time for revenue, it's not going to be material to change the numbers. But on a cash basis, because it's the cash that we get in this period related to those new sales, it will have some impact there. So that's why we're just -- we're being -- realizing what's really happening in the economy. We're seeing these rates go up, and they're going up a lot faster. I think maybe when you look at the yield curves in the out 2, 3 years -- you've got to remember most of our loans we put on the Citizens are 60-month loans. And so that cost, while the rates have not increased that dramatically when you look at it just quarter-over-quarter, 1 year rates, but the calculation used to figure out what our cost is with them, it uses longer-term periods, and those rates have -- went up higher than what they were the last time when we put out 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 -- a 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.

Our next question goes to Erik Woodring with Morgan Stanley.

I just want to echo the congrats, really strong quarter across the board really. So -- and that kind of gets to my question, which is you saw a nice upside in 1Q, kept your full year guidance unchanged. Just want to understand, is that more a function of trying to embed some conservatism in the model for the rest of the year, given what's going on? Or has there been any change in outlook as we think about the remainder of the year? And then I have a follow-up.

Thanks for the question. It's really embedding conservatism. I don't know if it's conservatism or it's being cautious to what we're seeing in the marketplaces, frankly, right? It was a great first quarter. And as David just mentioned, we're bullish on the full year prospect. But we're also -- there's lots of things going on in the economy that we just don't know how consumer behavior, if it will change. We haven't seen it today. And as David -- we're feeling good about the start of the direct-to-home sales season. That's a couple of weeks in. But for where we are today, we're 5 months into the year, I think we feel pretty good saying, "Hey, that's where we think we'll be." And as we get deeper into the year and we get second quarter credit, if there's a need to make any revisions, and I'm sure we will. But it's really just thoughtful about everything that's going on out there. With supply chain, David, you can jump in this, but I think everyone with supply chain in 2022 -- like we went through 2021 and were like, supply chain, you can't get any worse from that or it's going to get better in '22. And we're not. We're still seeing it's -- every day, it's a battle to make sure we got de-commenced from subcomponents and suppliers, and we've got to work then to get those components recommitted or we've got to go out and find other suppliers to bring us those components. You've got -- they've got labor constraints. I think you got China shut down, which is where a lot of subcomponents actually come out of. We don't really manufacture finished goods in China, but a lot of the subcomponents that go into our finished cameras and panels and so forth come out of there. And so after disruption, we don't know what's -- I don't know what's going to -- how long that's going to go on or what that really will look like. And it's not only in just timing, it does, but it's also in cost. There's got to be more cost. They have to use more air freight. It's going to be higher manufacturing costs because they're going to have to use more labor and overtime to catch -- keep the volumes that we need to come into production. So there's just a lot of things out there that we see, but don't have like full visibility to what those could -- how those could impact us. And so that's why we're kind of leaving that full year kind of where it is today from what we know and what we see. David, I don't know if you have to say anything else.

No, I agree. We have a gentleman named [Indiscernible] that runs our direct-to-home. And I've been talking to him. It's interesting, you think about this year, we're encouraged by the start of direct-to-home this year. And the reason why I bring that up is because I think the solutions that we have this year, that we're bringing forth with our sales force to our customers, it resonates. These bundled stations, they resonate. The fact that we're trying to make homes safer, more efficient and also more cost effective, they resonate. We talked about the road map of our company, we're trying to extend how long we are with customers to pull our high service margins we have in our current business plus bundle and incremental margin, and we're trying to create more value for our customers. I mean you take all of that -- and we're encouraged by the year. So -- and Q1 was a great manifestation of that. I mean the work we're doing with our inside sells, our direct-to-home really kicks off in the spring and summer, but our inside sales was relatively strong. So we feel good about the refinement of our strategy and our execution of our strategy. Our operations teams, I mean, they continue to dial in on their ability to execute even in a more leveraged way than they have in the past. So we're encouraged. But yes, to Dale's point, I'm not sure the Ukrainian conflict with Russia, not sure oil price is going to end up. Still I'm concerned about the supply chain constraints. And then interest rates, we have the 3-year curve. Not exactly sure if it goes to try to beat them. So it's that unknown. We just thought it was prudent just the [holds] where we are. And our goal with you guys is give it to you how we see it. We beat -- we've done a really good job performing ever since we did the IPO. We don't want to blow that. We want you to believe in what we say, and that's kind of how we roll. So...

I appreciate all that color, and I think you're taking the right strategy, so kudos to you. Maybe just my follow-up. David, I think you mentioned a comment earlier where you said the customer stays for 9 years. Is that just a subtle hint that you think your long-term attrition rate, which was originally thought to be closer to 12%, could actually be lower than that because you now see customers staying kind of 9 years versus the high end of 7 or 8 years? That was kind of the prior estimation. I just want to make sure if that was just a comment in passing or if that's something that you think has fundamentally changed, where now the long-term attrition rate might now be lower than it was -- than you were thinking maybe 3, 6, 9, 12 months ago?

No, Erik, we're very explicit about this. I mean our aspiration is very much to turn long-term customers into lifetime customers. I mean it's very aspirational. But our goal here is to have it be 12 years, 15 years. A solar relationship is 35 years. If you bring to them a better insurance solution that they benefit from because of their smart home solution, why would they go anywhere else? If we can continue to make their home more efficient today and more enjoyable, and they interact with that whole more and more on, why would they go anywhere else. So it very much is our stated desire and objective to bring them value so that it goes from 9 to 12 to 13, and that would very much reduce attrition. I talk about this internally a fair bit, we're trying to have the entire bundled solution be a lower cost than they have today. And when you do that and you help educate the consumer about the value you're bringing, I really do hope that we're dropping out hundreds of basis points of attrition over time. And by math, you extend that relationship. It's so interesting. 10 years ago, when you were just in the security business, you sold a system and people hoped that they never had to use it. They hope they never got -- had an instance where they had an alarm go off. By default, they never knew if it was really working. And we've completely flipped that. We are trying to drive interaction with them every day. We're reminding them every day of the value that we bring. So we always talk about that 11 times per day. We hope that we can get that to 13 times a day, 15 times a day, where you're so integral into their family. It's so funny, my wife, she hates it. But I will often get on my phone. I will see her on our -- my cameras in the house. And I'll talk to her over the phone, and she's like, David, I hate this, you can now see what I'm doing at home. But I'm interacting with my family at different times if I'm late for dinner. I'll actually -- I'll be having dinner, and I'll be talking to them. There's new ways that I'm interacting with my family that I never thought about a year ago. So we're always trying to think about ways that we can become more central to who they are so that they can't live without us. So yes, very much, Erik, I hope that, that average lifetime continues to go up. And like I said, on just the smart home alone, not even including insurance or so, just the smart home, for every year we extend it, it depends on how big the package is, it's $200 to $400 more of lifetime value. And then when you add in solar and you add in insurance, my goal here is to show you guys over time, the lifetime value of the customer is expanding nicely. So you as investors are saying, wait a minute, this is a superior investment option for us. [Indiscernible] so that's what we're trying to prove to you.

Our next question goes to Paul Chung with JPMorgan.

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?

Well, Paul, it's David. In Q1, most of that was driven through our inside sales. So the seasonality of our direct home, they really kick in as we've diversified our channels. You really see the strength of direct-to-home in Q2 and Q3 and then part of Q4. But -- so really Q1, the majority of that is from inside sales. And I really think that's a function of many things. One, once again, I think our product is getting better. And so that's folks who are researching our product, they're seeing the accolade that we have from our product. We call ourselves a Category of One. We really do think that we have the best product out there for the money. And so I think people see that. The success of our direct-to-home, you see all the advertisers, all the homes that have the signs out front, you know that -- we benefit from that. So there's a symbiotic relationship here between the 2. But that was really around just digital marketing and the effectiveness of that and just the brand awareness. We've done a fair bit of survey work around our brand awareness. It's surprisingly high for how little we spend on brand. And we think that's earned brand. That's from doing this now for 20 years and really earning that on a word-of-mouth basis, which is the most valuable brand awareness you can possibly have. So once again, it's hard earned. And that was really largely from inside sales, which I think stands on the merit of the efficacy of the product.

The other thing I'd just layer in that, too, is inside sales is really, really strong in the quarter. We did pick up almost 3,000 additional new subscribers from that partnership that we've created. As David said, groundwork was laid 18, 24 months ago, really started coming to fruition in '21, and we're continuing to see that really come full circle, so to speak, in 2022. And so we got almost 3,000 new business from smart homes, from a channel that didn't exist previously. And we think there's lots of -- because solar largely sold year around, right? And the team has helped them understand the value of bundling. And as we train them, and they've seen the benefits, that's true, that engine has also helped us, yes. So inside sales and that new channel coming online. Yes, good point.

And you see that in the numbers.

Right, yes. From the solar stuff -- yes, the solar stuff. So nice momentum there. How do we think about kind of the new subs growth relative to the doubling of the megawatts you mentioned and kind of the revenue and margin contribution per sub kind of moving forward on that basis? And then, I guess, the same kind of question for smart insurance, kind of the unit economics per sub there.

Yes. So I'll start with Smart Insurance and work our way back. Paul, this is Dale. We're not really giving out -- we haven't given out. I think we're still very early into the life cycle of the insurance business and building out. I mean we got 7,000 or so sold policies last year. So that's very early, continue to build out. We're spending and investing there. That's one of the investments that we're making in 2022 to build out the MGA that we're working on. Ron has been in place -- Ron Davies, who we brought in to lead, has been in place for 60 days, I think, at this point. So very early there. We think -- we definitely believe it's accretive to our EBITDA margin and definitely drives extended and increased lifetime value of the customer. But we'll give those down when I think it's appropriate, when we have a better feel for what those really look like because there's a lot of movement there still today. I think on the Smart Energy side, I think that 45 megawatts that we did last year would be -- that's probably 5,000 homes or so. So if you double that this year, you get to 90, you're probably in the 9,500 to 10,000 homes. And we believe that we'll be able to drive incremental value and margin out of that business. And then what I think comes -- there's 2 pieces of that, right? There's the revenue that's generated from the selling of that solar to that customer and we get the margin from that. And then there's also, from this partnership, the development and increased Vivint Smart Home customers that have very strong margins in terms of lifetime value. So there's kind of 2 pieces to that. I think we want to make sure we think of it that way. I think we can drive 10,000-ish or more new subs from that, smart home subs. And then you'll have -- last year, I think we said that 45 megawatts was, call it, $45 million to $50 million of revenue. And so you can kind of back in, if we're doubling where we are this year, then we're probably looking at somewhere between, call it, $85 million and $95 million of revenue from that. And then we're still working. It's early. I think we feel good about where our cost structure will come out there. But it's probably a little still early, but I think it will be somewhere north of 10%, what we'd say, as the margin on that. And I think our goal is to get into the mid- to high teens, but there's -- we're still working on that.

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...

Our next question goes to Brian Ruttenbur with Imperial Capital.

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. So sequentially, it will go up from Q1 to Q2, it will go up. I think when you look at it on a year-over-year basis, it's going to be, call it, 5%, 6% growth. So again, one of the things we've really focused on is really trying to drive efficiencies out of the dollars that we're investing. And G&A is an investment. I mean it's like -- it's a capital allocation, like anything else, whether it's new subscribers or technology or products. And so we're really focused on that, Brian, making sure that where we're spending our dollars in G&A, whether that's in finance, legal, marketing, exactly where is it that we're actually getting a return on those dollars. So there will be some year-over-year. I mean there's going to be some -- as you know, Brian, there's going to be some inflationary pressure just on some of the core things that we have in that, whether it's travel. We're starting to see a little bit more travel, David and I have been to conferences and so forth. So there are certain things like that, that we're starting to see. But we're going to try our best to maintain and really drive scale across the G&A.

Okay. Very good. The other question is more macro. It's kind of your road map. Can you talk a little bit more about the insurance offering, where you are now in terms of the rollout, are you going to be farming this out? Are you self-insuring your customers here? How -- what's the structure? And then maybe what other offerings could you potentially be selling through your channel?

Right. Brian, thanks for the question. I'll take that one. So yes, first and foremost, we believe this is a platform play. And we're really seeing that come to fruition last year and then this year. So this ecosystem we have and the home relationship we have with the customers, they're asking us to say, "Hey, bring us other solutions." So we talked about [Indiscernible]. The insurance is a great manifestation of that. So where we are? This last 1.5 years, we really were working on just making sure that we could actually be relevant and the customers [Indiscernible]. We've just been actually just selling policies, reselling policies, just making sure the system is in place, the compliance apparatus to be able to sell to our 2 million customers. And so there wasn't anything terribly creative about that. It was just trying to get the ability to sell correctly through an agency piece. We've been working to actually develop an MGA model, where we can then take the data that we have and underwrite with partners, with a reinsurer to actually be able to have them underwrite a lot of the risks to actually bring data to bear that the customers have on their behalf to underwrite a product that would benefit them. And so this year, our goal is to be into 3 states. We should be into our first state as an MGA later this summer and then hopefully be in 2 more states by the end of the year. And the states we're going into is a function of where our partners want us to go, where we have a large customer base and the risk profile works for our product. So [we want to be thoughtful], Dale mentioned this, this is not be a material piece of our economics probably for a year or 2, what we're trying to do now is just make sure that we do it correctly, methodically working with our partners. There is a very large interest level because we own the data. With our customers, we have the platform. And so we're just making sure we're doing it correctly. We're not relying upon this to be a large revenue lift or a large EBITDA lift or large cash lift or [grain]. We're doing this to be able to prove out value to our customers, and this will be a nice growth engine in the years to come. But most importantly, it's a great manifestation of the platform play [Indiscernible]. The second part of your -- so to answer your question there, Brian, we're partnering with some large, large industry players. We're making sure the risk falls appropriately where it should be, relying upon their expertise and our expertise. We're not trying to play in areas of risk that we're not confident in. We're relying upon them, and we're relying upon what we're really good at to do our part. And that really is the data we have, the installation we have and the servicing we have. And they're helping make sure that we price the risk [Indiscernible]. With regards to where else we can go, we've done a fair bit of work on this, on one of the platforms. We feel right now our plate is pretty full not only with the continued expansion of Smart Home and Smart Energy and Smart Insurance, but also the expansion of channels and how we bring this to market. There's a fair bit on our plate. And for the next 18 to 24 months, we're really digesting and scaling that. But we've mentioned in prior calls that we're interested in aging in place. It's an area and marketplace we think we have a really strong product offering to bring to bear there. And we can really drive out a lot of costs and bring a lot of comfort and value to folks who want to age in their home, where they are happier, healthier and do it in a much more cost-effective way and connect their families. So that's an area that we're doing some work around. And I can see that being an area that we'll probably invest in the future. But right now, we're focused on what we have. And that might be through partnerships -- that may be through partnerships, that may be through organic. And we're still trying to manage exactly how we want to approach that marketplace and when we'll do it. But that's another example of where the platform will most likely go down the road.

All questions have been exhausted. So I will turn the conference back over to David Bywater for closing remarks.

Great. We appreciate you guys' interest. Like I said, I think we had a great Q1. We're looking forward to a solid year. We appreciate you guys' ongoing interest in us. We're focused on delighting the customers, taking care of our shareholders, taking care of our employees. I did want to mention to all of you guys that we really appreciate our employees. We think they're world class. I hear often from our customers how well our employees take care of them, whether it's how they sell or how they service them, whether it's calls over the phone or when they're in their homes, a number of incredible employees. And I appreciate how they innovate. I appreciate how they take care of each other and how they come through this COVID crisis with respect to one another and to [help] each other and how they treat our customers. So once again, thanks for your time and your interest, and we look forward to talking to you guys on our next call. Take care.

That concludes today's Vivint Smart Home First Quarter 2021 Financial Results Conference Call. Thank you for your participation. You can now disconnect your lines.