Q4 2019 Earnings Call
This time all participants are in listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Please be advised the todays conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to Vice President of Investor Relations Bob Okunski.
Thank you Andrew I'd like to welcome everyone to our fourth quarter 2019 earnings conference call on the call today, We will still Lucky review of operations strategy update from time, Warner Our CEO followed by modest.
Well, our CFO, who will review our fourth quarter, two dozen Nike financial results before turning the call back to Tom for guidance.
As a reminder, replay of this call will be available later today on the Investor Relations page of our website.
During today's call we will make forward looking statements that are subject to various risks and uncertainties that are described the safe Harbor slide of today's presentation. Today's press release, our 2018 10-K quarterly reports on form 10-Q. Please see those documents for additional information regarding those factors that may affect these forward looking statements.
So to answer this call. We have also posted instead of Powerpoint slides, which will reference during the call on the events and presentations page of our Investor Relations website in the same location. We have also posted a supplemental data sheet detailing some of our other historical metrics.
With that I would like to turn the call over to Tom Werner CEO Sunpower Tom.
Thanks, Bob and thank you for joining us on this call. We will provide an overview of our fourth quarter in 2019 performance and update you on our strategic transformation.
Let's start with a recap of 2019 in an update on our proposed maxion transaction. Please turn to slide three.
We entered 2019 with the goal of fundamentally transforming our business, while improving financial performance and strengthening our balance sheet.
Successfully achieved these goals first we announced the proposed spin off.
As far maxion business to shareholders any transaction that will provide significant capital for future growth.
We believe this will unlock meaningful shareholder value and allow maxion continue to expand their share a rapidly growing global DG business.
Our decision to exit the power plant development business and focus on the DG market is bearing fruit as we recorded record global DG Sharon exit 2019.
Also simplified our financial model and executed plans to monetize non core assets nearby de levering, our balance sheet and improving liquidity.
Additionally, during 2019, we executed on several critical new product development initiatives, including our new Maxion five technology.
Further improvements to our helix commercial offering the initial launch of our equinox residential storage system and the ramp of our key 19 technology in Oregon.
Our success in streamlining our opex help improve profitability and our focus on working capital management significantly enhanced our liquidity.
We are progressing we improved our financial performance throughout the year in ended the year, but there were 420 million in cash, including our recent capital raised as well as retiring more than 30 million in convertible debt this quarter.
Our strategic focus on DG markets drove year over year DG shipment growth.
75% and subsequent share growth and many key markets.
I'd now like to provide a quick status okay.
The proposed spin out actually I'm solar please turn to slide four.
First we continue to see further progress in relation to our initial 20 are finally last quarter.
Also regulatory approvals for the transaction are in process, including antitrust review and FCC re registration all of which.
Remain on track for a Q2 20 close.
Additionally, we are close to finalizing the details relating to our Singapore headquarters and expect to ramp hiring in the second quarter to support operations as a Standalone company.
Jeff largely is also making progress in putting together the maxion executive management team and recently announced the Hari Joann Solomon as Maxion CFO.
In summary, we are.
Currently on track to complete the maxion spin at transaction in the second quarter.
Now let me cover our segment performance first Sps, Please turn to slide five.
Sps delivered.
Essential revenue and megawatt group across both business units in our channels business strong demand drove 50% sequential revenue growth with record installation volume.
Residential megawatts volume increased 20% quarter over quarter strong demand for our industry, leading a series panels.
Extra cash loan and lease across our residential business was in line with forecast.
We continued to build on our industry leadership position new phones with approximately 825, new home communities going like in the second half of 2019 among.
Our backlog is now over 45000 homes, we expect our new homes volume to grow over 50% this year.
Finally, we continue to beta test, our equinox storage solution Archie installing pull from our dealer network for this product.
And see you know I, we maintained our number one share position.
Origination team is executing well as we booked 25 megawatts of new projects during the quarter.
However, our project developed deployment execution instead a disappointing.
As a result, we are undertaking several initiatives in our commercial direct business that we believe will drive stronger financial performance.
Finally, our human storage solution continues to gain traction with the pipeline now exceed 175 megawatts in average attach rates of 35%.
We were also recently awarded our largest seen nice storage project to date 20 megawatt power battery system for the Chevron lost Hills project Solar project.
I'd now like to discuss Sunpower technologies fourth quarter performance, Please turn to slide six.
SPT delivered very strong execution in Q4, beating financial targets across the board, including volume revenue margin EBITDA cash flow.
DG shipping growth in particular was extremely strong up over 90% year on year, well balanced geographically.
Operationally our fab in my care teams delivered significant cost in working capital improvements, our branding or actually on five technology full output.
As Pts Q4 results capped at very strong 2019.
Overall shipment growth of 80% continued penetration of key DG market.
For commercialization of vaccine five technology.
And it returned to solid financial performance, please turn to slide seven.
Last November we announced or strategic decision to create to market, leading independent pure play companies, New South tower and Max Chancellor technologies.
I'd like to highlight the strategic advantage is each company and why both are well positioned for future growth.
First new Sunpower, please turn to slide eight.
As a focused pure play DG energy company Sunpower will be position to capitalize on that fast growing market for solar plus storage leveraging an extremely powerful solar platform, we've been developing for many years.
With the largest installed base and U.S. residential and commercial market.
More than 500 channel partners in a leadership position in new onto commercial truck.
New Sunpower will be the largest north American downstream DG solar pure play.
This transaction will allow sunpower to accelerate investment into critical initiatives to expand profitability, including expanded storage in services offerings, both the residential commercial markets.
Well as digital products to lower customer acquisition costs and improve customer satisfaction.
We have also already taken a number of steps to rationalize operating expenses shifting to a leverage TPC model in our CFO.
Direct business and utilizing our deep experience in project finance to lower capital across.
Finally, we remain committed to improving liquidity de leveraging our balance sheet.
We expect that new sunpower to be cash flow positive in the second half from 2020.
In our driving toward being recourse debt free within three years.
Now, let me highlight some of our initiatives within the individual Sps business units, Please turn to slide nine.
In channels, our strategy is to drive margin expansion across our residential and commercial given the network, including four key initiatives first we will focus on further increasing our channel footprint through the addition of new dealers growing our share of account. This role is entering new states given our son.
Vessel system cost reduction initiatives.
Second we plan to leverage our leading position in new homes to the expansion of current partnerships, especially in California, where we expect strong demand growth due to the new homes mandate.
For example, we recently signed an exclusive to year agreement with toll brothers to be there solar provider for all their communities in California.
Third we will increasingly attached he likes and equinox stores to our commercial and residential solar systems, which enhances revenue and margins. Finally, we expect a further reduction in cost of capital for our leases through our son strong partnership.
Moving on to commercial direct on slide 10.
We have a significant opportunity in the commercial direct market as many corporations are expanding your green energy procurement activities for instance, Microsoft is setting aside a billion dollars to deploy renewables reduce their carbon footprint.
We are well positioned to capitalize and this trend by virtue of our number one position in this market.
We continue to see strong demand in our commercial business 2019 awards of more than $500 million 26 megawatts of bookings in Q4 and continued bookings strength into the first quarter of this year.
However, as I mentioned earlier, we continue to face challenges on the project execution side curb commercial direct which is directly into the art EBITDAR results.
These challenges are primarily related to project delays as a result, we've implemented a number of changes, including moving more projects to external LPC partners.
Further reducing fixed cost.
Reorganizing leadership.
And focusing our bookings on margin rather than volume.
As a result of these initiatives, we expect to return to profitability in the second half of this year.
Please turn to slide 11 rollout, where I'll review why the Maxion solar team is excited about their future process prospects as a standalone company.
First we actually had solar will operate the leading global dealer channel focusing on residential and light commercial applications.
Ill provide some further details on this key advantage shortly but the teams DG sales growth in Q4 and full year 2019, clearly demonstrates the power of this go to market model.
Going forward, we expect that Maxine Solars global channel footprint will continue to drive growth.
TG segment enable expansion of our product offering to adjacent technology in specific markets.
Technology leadership boards.
Whilst maxion sold it to claim the high grant with respect to product positioning and in terms support premium as keys, we intend to maintain this high ground via Unparallel IP portfolio deep innovation pipeline.
Finally, we are focused on scaling our industry, leading technology with increasing capital efficiency, including repurchasing existing fabs more productive new technology and using manufacturing partnerships such as our P series Hsp the joint ventures.
A lot will expand briefly on each of these key success drivers.
Let's turn to slide 12, which shows maxion global DG market footprint.
Actually and solar currently generates over 70% of its revenue outside the U.S. and operates what we believed to be the solar Industrys largest global dealer network with direct sales to over 1000 installers in nine countries not including the U.S. further coverage through a.
One key emergency merging and adjacent markets.
Actually on solar has a leading global.
Go to market channel.
We had been developing our European dealer channel since 2008, and having to mature network in place to capitalize on increasingly Sterling policy support result market parade.
The Americas snacks Chancellor has a very strong go to market partner in the form of Sps, serving the U.S. in Canada and Maxion is actively building out a dealer network in Mexico to address what we feel is an exciting DG market opportunity there.
APAC, we have a solid channel footprint in Australia, and Japan, both of which are well established gigawatts scale PG markets driven by favorable customer economics.
We are highly focused on further expansion of our global TG channel with particular near term emphasis in Latin America and APAC.
Please turn to slide 13.
As previously mentioned.
As I mentioned previously technology leadership is a key factor in our ability to differentiate axiom solar products.
Maintain channel stickiness and achieve premium mass piece. This slide shows how the competitive landscape landscape has evolved recently with respect to solar panel efficiency since 2018, the transition to monitor PERC technology by many of the commodity suppliers has led to an increase in average solar panel.
All efficiency on the order of around one percentage point to slightly more than 19%.
During the same period, we began converting our legacy vaccines two lines to our hardware efficiency backend five process.
Currently laying the groundwork to commercialize our next generation.
Matt can't technology, with yet higher levels of performance.
I'd see technology strategy is to maintain a relative performance lead of around 20% versus commodity products. This performance gap created significant market differentiation and enables premium pricing.
Now let me cover our capacity expansion plans, please turn to slide 14.
2019 shipments totaled 2.5 gigawatt split evenly between IVC and P series.
This slide shows how we plan to almost double capacity by the end of 2021.
First we are de bottlenecking fab for a while to allow for expansion of maxion three.
To over 500 megawatts of capacity secondly, we're converting our legacy Maxine two lines and Fabthree from actually on five.
Funding from Tcs is part of that Maxion solar spin off transaction will allow conversion or further lines. We expect to have form actually on five line players in place by the end of 2021 with the capacity of around one gigawatt.
The combination of seasonality initiatives in factory in for roughly tripled capacity to produce our highest margin products can drive product group.
Profit growth.
Currently our Hs PB JV slated to expand P series capacity by three Gigawatts, increasing total capacity to around five Gigawatts R. P series supply allocations mid JV, therefore increased to over three gigawatts capacity expansion churn.
This slide will be achieved with a total capex expenditure, which is a small fraction of the investment in our legacy Fabs.
We've dramatically improved our historical.
Capital productivity via a combination of process innovation reuse of existing pads and use of a fab light manufacturing partnership model for our P series technology.
Finally with respect to.
With respect to the new Corona fried fibrous. We currently expect minimal impact in Q1 and are actively working jointly with our JV partner Hs PV to mitigate the disruption we will continue to closely monitoring the situation with respect to our supply chain and JV operations.
Provide an update on possible longer term impact for the year on our next earnings call or sooner.
Slide 15, we list.
Summary of the key long term initiatives, we feel well position each company for long term future success.
With that I would like turning the call over in mining to review the financials on it thanks, Tom I'd like to stock our by spending a few minutes discussing a perspectives in 2019, please turn to slide 16.
2019, or the pivotal year for the company as we successfully executed a number of strategic initiatives improved profitability and set the stage for future growth, we improved EBITDA approximately 70% versus 2018 after adjusting for NCR related to the accounting finance it into lease portfolio and.
Section go one thats a differently, we improved operating cash performance, but at least overhead and continue to de lever the balance.
We also achieved Google goes improve financial transparency for investors and transition go much simpler cash based model.
First we have two strong sort of businesses position for success in Sps and industry, leading goodies nation engines can residential in CNS remains strong and both entity you have a good pipeline positions. Additionally, we are seeing solid demand from a financing partners for this pipeline, which should translate into decreasing cost of cap.
SPD also exceeded plan posting that it got shipment for the year. This was primarily due to an ability to rapidly expand internationally do footprint and that amplified maxion, five and pcvs product throughout the year.
I'd now like to discuss the financial results for the quarter piece can displace everything.
Overall, our non-GAAP revenue was about a year and prior quarter as it is also strong execution and SPP and I'd Incidentally business Sps revenue grew more than 50% sequentially with particular strength in at incidents in China Imputing record bookings for SPD, we shipped approximately eight.
Hundred megawatts, another that caught and above an outlook.
Consolidated non-GAAP gross margin was 29% Sps gross margin was up sequentially driven by improved performance in residential however, as Tom mentioned why that would is nation engine commercial direct business remains strong project deployment execution was below expectations, we have implemented a number of.
Initiative, and now expect that commercial business could have done to profitability in the second half of 2020 SPP gross margin was higher than forecast on NPS volumes strong BD demand and the benefit from the previously disclose sale of legacy utility scale project.
Non-GAAP Opex was 17 million for the quarter up from $68 million in the current quarter due to investment in R&D Maxion side, and Mexican six development, along with investments for our storage offering for the we achieved a basket of less than $270 million in Opex and expect a decent.
The reduction in Twentytwenty, we'll split.
Capex for the quarter was $12 million consistent with unmatched five rapid fab feet with US second line now in production as a reminder, post split we expect that new Sunpower that had a minimal capex needs and maxion sort of capex will be more than covered by available liquidity and enhanced capital efficiency.
Adjusted EBITDA was $72 million and up approximately $30 million sequentially. We saw significant EBITDA improvement in the fourth quarter benefiting from a strong backlog increased volumes of NTT and a margin benefit attributable to sale of certain legacy bogged down project.
Both place we remain confident that both companies will reach that grew 21 target markets I would now like to discuss the financial highlights at the quarter slightly.
We posted solid financial performance for the quarter with significant volume at EBITDA growth was this pride quarter and private. Additionally, our consolidated 2090 EBITDA number does not include the impact of roughly 15 million margin associated with the safe Harbor abandonment go.
That will be released in 2020 and 23, one as its installer Unitas adventure and commercial projects.
In Sps.
It's an engine business posted record revenue and megawatt for the quarter that Q4 2019 performance of the business gives us confidence in achieving the exit 2020 to EBITDA run rate of approximately $95 million, putting new sunpower that'd be had articulated in November transaction presentation.
For the quarter CNN DDIC business was a drag on an EBITDA as it missed forecast and more than $10 billion SPD. We continue to ramp both maxion side and Beefeaters technologies with strong shipments of both products for the quarter, both beam maxion, we'll be continuing the conversion of maxion.
Two technology, the Mexican five which improves the EBITDA run rate business going into 2021.
Finally, we further strengthened our balance sheet during the quarter. You were pleased to report that we ended the year to with $250 million in cash excluding capital raise and exceeding that earlier and if your forecast of more than 200 million goes.
Given our Q4 capital raise and improving cash performance. We are confident of addressing a 2021 can words, having already that died more than $30 million of these bonds last month.
I'd now like to provide an upbeat on a cash forecast for the balance of the Keystone to slide nine.
On the left hand side, Chuck we did our immediate gasco moves for the fourth quarter of 2090 for the fourth quarter. We met on both have been gasco positive at the Bu level and Nvidia with more than 200 million gallons of cash balance finally, we remain confident that both new sunpower and maxion.
It'd be better capitalized boost the proposed spin for new Sanbolic, we are thought to be being met recourse debt of less than four times EBITDA exiting 2020 and plan to be veecos that fee within approximately three years of the blasting based on the strength of improving operating performance gas from Sunpower was 2000.
19 balance sheet gastro seats to Sunpower from Maxion transaction, the potential monetization of Enphase shares and remaining noncore asset sales. Finally, as we have discussed we expect that axiom solar related the spin, but a very strong about it.
Before turning the call ordered gong to be filled up or 2020 guidance I would like to highlight our EBITDA growth through the years as well as how we expect to see greedily immunity in that business in 2020 deals done gone to slide 20.
As we can see under left hand side of the page, we expect to both strong EBITDA growth in 2020 with EBITDA growth exceeding 50% when comparing to 2019 and this follows approximately 70% growth in 2019, but John underwrite highlights I'd expected EBITDA performance book Q1 and Q4.
For as a percent be dokey EBITDA midpoint guidance as you can see we expect between the attitude to improve significantly over prior year given out existing backlog and strong DG market fundamentals why further de risking the second half of the Dan I would have done to call back to don't guide.
Thanks mining.
I would now like to cover our guidance for the first quarter in fiscal year 2020.
Please note our guidance is for that company Presplit split. So we have provided 2020 guidance on a post split pro forma basis, a table in the appendix.
As a reminder, first quarter guidance reflects the impact that seasonality in our business as well as commercial direct project timing.
We will also continue to evaluate the potential impact of the Corona fibrous on our full year guidance. Please turn to slide 21.
The company's first quarter 2020 guidance is as follows revenue of 435.
To 470 million on a GAAP and non-GAAP basis, GAAP gross margins are 3% to 6% and net loss of 85 to somebody bought it to 70.
On a non-GAAP basis, the company expects gross margin is 9% to 12% adjusted EBIT.
Negative 15 to breakeven megawatt recognized in the range at 520 to 570.
On slide 22.
Companies' fiscal year 2020, GAAP and non-GAAP guidance is as follows revenue of 2.1 to 2.3 billion on a GAAP and non-GAAP basis Gigawatts recognize is expected to be in the range of 2.5 to 2.75, Gigawatts non-GAAP operational expense.
<unk> expenses of less than 260 million in capital expenditures of approximately 100 million.
Finally, the midpoint of the company's fiscal year 2020, adjusted EBITDA is unchanged there we have widened the range slightly.
Given the restructuring or commercial direct business, which we see contributing approximately 5 million EBITDA for 2020.
We now see 2020 adjusted EBITDA between 125 and argued 75 million.
In summary, Q4 was a solid quarter for the company, which we executed on our strategic initiatives and positioning the company for a strong profitable performance going into 2020.
I'd like to turn the call over for questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
Withdraw your question press the pound key.
Please standby well be coupled the Q and a roster.
[music].
Yes.
Andrew there.
Yes. Our first question comes from the line of Brian Lee with Goldman Sachs. Your line is now open.
Pardon me. Our next question comes from Atlanta, Michael Weinstein.
With credit Suisse.
Hi, guys can you hear me.
Yes sure.
Okay great.
Hey can you maybe just to expand a little bit about the what are the execution problems that you're having a commercial director.
Well.
Obviously, you expected to have them fixed by the end of.
Yes.
What the.
Delay in fixing them as what they are.
Oh My Sue.
Hi, This is Tom as they said my prepared remarks.
The.
Origination part of the commercial base is doing great in fact in fourth quarter.
Excellent bookings and awards awards, where we've been selected and ultimately we booked.
26 megawatts or projects and on the other ended that spectrum.
The value chain, we're adding stores to more and more system. So that's working great. What's not working grade is perfecting the projects in executing on them.
We had an unusual number of projects that were delayed by virtue of.
Permits or interconnection issues.
And then.
Anytime there is of the way that means we have fixed costs that are under absorbed and we have to deploy and redeploy.
So the primary issue has been project delays on in some cases those delays the way we contracted resulted in some ltd.
Importantly, we've taken a lot action in the last month.
That would improve the execution part of that value chain.
Lowering our fixed costs that we have less under absorption issue. If there is a project are way.
The restructuring contracts to realize liable for ltvs on things that we shouldn't be liable for.
That.
We've had to clean up.
And then we've reorganized stood at.
The probability of delay is reduced because we've integrated the development team in with the execution team.
Sure we've reduced the likelihood of further delays will see the benefit of all those actions starting in Q2, we expect to have the first half actually breakeven after a positive Q2 and certainly the second part.
In a brief breakeven condition.
Is that the primary driver being cash flow positive.
For me.
I think we could be cash flow positive with.
The commercial business at breakeven.
And then of course, then it could you only gets better from there.
The biggest driver with your commercial businesses the momentum of the company would be is when you look at their channels business performance or channels business. In Q4 was outstanding I comes in the new year really strong we're expecting EBIT.
Growth in that business is more than doubling.
This year compared to 2019, the SPT business has been turned around concurred attorney 18, So as we fix commercial and you think of the new split companies. The momentum we have with a fixed commercial the other two already there so commercial once we get there.
So long winded answer to yes, I tried cash flow positive greater really drives the momentum for EBITDA profitability and significant cash flow causative thereafter.
I think I just want my question I think you said that impact to the client of ours is built into guidance for this year and Im just wondering what could you break that out during the call. It.
Yes, I'll just add color right. We just had a couple sentences on it and of course, it's evolving real time.
There are some shortages within China.
The kind of course was trying to supply chain supplies all of solar.
And there are sure. She says we have seen it earned glassen modules predominantly.
Those are factories that are running at 100%.
Factories are coming back online they have the secondary challenge that logistics within China.
Ben are.
Challenged because some of the logistic auctions had been reduced that too is evolving.
And it's our understanding either current or fiber is good things.
Perhaps are there's positive sign swarming so.
If those positive signs continue in the trends of the factories coming online in logistics being improved we expect to manage through this and hold guidance as we guided today.
Thank you.
Thank you and as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound Keith.
Our next question comes from the line of Brian Lee with Goldman Sachs.
Hey, guys. Thanks for taking the questions sorry about earlier can you can you hear me.
Yes.
Thanks, I guess first up just.
On the updated EBITDA guidance.
For 2020 here, obviously, it's a little bit wider 5 million on the low end 5 billion on the Iran. Commercial at least when I when I listen to the call.
Like the narrative has done a lot worse I might have missed this but what what sort of embedded in your EBITDA for commercial prior and what's embedded there and if I take that into the context of the overall guidance for the us not moving a ton does that.
Now that you're.
Your little bit more positive on the residential side and things that actually improve their to offset some of the drag happening, especially the maybe some of the moving parts.
Helpless.
Parts to where you're not.
Sure.
All right so.
Thanks for your question, Brian and this is Tom I'll take this.
So for the year, yes were.
And I were.
Hi, expecting even better performing Charlie the channels business are planning and betters performance out of the channels business ended the year quite strong it's profitable in Q1.
And it's growing.
It has the tailwind to be Bernard storage in the back half a year. So were very positive on the channels business. The commercial business can be size this way.
Hi.
We expect EBITDA between somewhere between zero and 10 or 15.
And given the performance in Q3 in Q4 mining I decided to put in extra five on either end simply because of bad we fully expected manage this business back to upgrade the breakeven condition going into the second half a year in which case in at that time world.
I just guidance appropriately good answer your question. She has channels is doing great by the way so is SPT.
Yes.
Okay. That's great appreciate the color and then maybe that just squeeze that two to two more here and I'll pass it on.
On the spinoff transaction here I know you talked about being on track for Q2 can you provide a little bit of granularity as to sort of what milestones.
You have achieved since November when you first announced it and then kind of what what's still on the schedule here before we get to the Q2 completion of the spin and then.
Second one would be on more housekeeping the SPT gross margin if we exclude the legacy assets do you have that number I believe you had talked last quarter about $20 million of revenue on the legacy asset sales, if we strip that out what's the Queen gross margin for the segment and is there any.
Additional asset sales expected in in 2020 that wouldn't that margins. Thanks guys.
Okay on their cleanup thought things I've mine, who cover that SPP gross margin other asset sales I will take the opportunity to indicate though that.
If you take outs asset sales our EBIT.
Core business that is being split is well over doubling year on year and has great momentum and I broke it out in the previous answer as PTT channels are doing very well and commercials will be on an upward trend.
In regards to the split I'll see if you think congestion.
Add anything that I might have missed on goods.
During the critical path is antitrust approvals, probably China will date that we do already have a couple why antitrust approvals in favorably.
On in so.
Our partner in China of course, it's giving us indications that the timeline.
And that that is what.
Basically the expected data that plus four weeks is what we're indicating to you.
Second thing is we're raising debt to match the equity investment I, we want to have that dead materially raise prior to this way.
And now we'll take has helped to a very similar timeframe. So those are the two things in the critical path in terms of some of what's gotten done on the transactional let Jeff cover some of that if say in terms of.
Background filings 20 outs were were to plan and certainly set up there to split the many of the timeline. Tom described we're also setting up domiciled in Singapore and.
Getting all that set up hiring for the board members executive staff at all that's going to plan as well.
Okay, just on the gross margin normalization normalizing for no.
The sale under development asset SPP gross margin would be roughly 18%. That's a few hundred basis points higher than prior quarter on an apples to apples basis. So the business is performing extremely well and coming to Frank when he would be Trent.
Okay helpful guys.
As Brian.
Thank you next question comes from the line of Philip Shen with Roth Capital Partners.
Hey, guys. Thanks for the questions first one is on your Sps resi business.
Nine megawatts.
For full year 19.
Can you give us.
Specifics on how much you expect that segment to grow in.
2020.
If you strip out.
Some.
Our.
Megawatts.
Maybe a 17% to 20% growth.
No the market is doing well.
Yes, and 25% growth in 2020.
So just wanted to see.
How that growth is doing for you guys. Thanks.
Yes, so, let's just say could comment and turn it to norm Taf, who runs that business.
Of course, we've got great momentum and that business and.
We're managing to profitable growth. So our we're careful not to grow just to grow in as we add equinox. He gets really important because we expect that to really.
Hence there can be as much as a 25% improvement per watt when it is the cash.
Yes. Thanks.
Thanks, Phil So he has to add some color to that I just want a megawatt sneak one you mentioned see hard numbers you quoted are independent CRC bars on other incremental 120 megawatts call a growing quite at that.
Next year as well.
Growth wise.
Current forecast on the make let's see if this is what roughly what she said 17% to 20% I will also like to point out that revenue is growing faster than megawatts quite significantly. So our expectation is that we'll be ahead of our model, which is between tenant 20% or is it.
We expect to be alexy data revenue basis.
Great. Thanks, Don and I guess, what I was doing was.
Taking the Sps channels megawatt guidance of 434, and then subtracting out 100, plus megawatts there to get to that 17 to 20, but it sounds like you're affirming that 17 20 for.
Line and specifically.
As a follow up there can you speak to the attach rate.
For resi storage that we might see so let's say.
Resi megawatts ends up being closer to 320.
Megawatts in the year, what kind of attach rate first ready stores, specifically could we see in the year. Thanks.
Yes, no evidence of that.
This will be certainly the backend loaded side I would say our confidence attach rates is increasing because of demand isn't a poll is stronger than I think we had thought a quarter ago.
It's early for us to be able to tell you what specific is going to be the now we're thinking that.
In Q4, we could be north of 20% attached for for their desire to even higher than that which.
Originally we had a smaller player that just because we didnt.
Product ramp right and I'm still struggling to some extent, but every time, we look at it tomorrow accomplished become the detached which can be very high.
Great one of the things we are hearing the channel is that one of the bottlenecks.
Storage right now might be electrician LIBOR.
To what degree do you think that.
You guys or your dealers are experiencing that and.
It seems like the demand is strong, but then it might be mitigated by that.
Actual bottleneck.
Yes, I can comment on that.
It is something that is a concern out there I wouldn't say one thing it positions us very well is that we have an extremely loyal dealer network with that capacity being really exclusive to us for when they are designing in solar plus storage applications. So while we still may be limited frankly by just the mountain.
That channel, we have the ability of those two.
Have a loyal networks, we think gives us great opportunity and at the rates that were since we're ramping we don't expect that to me only impact how material impact our growth.
Next year that can be vigorously city airport, but we don't think that's going to affect our business. Phil Let me add to that remember its equinox story, that's important because its design dialysis.
And to have two boxes.
And that's less than almost any other offering which makes it easier to install and one of the things were perfecting is your perfecting maybe overstated, but improving during the beta.
Phase is at the time to install.
Greetings standard methods for our deals and we're doing that.
On a go forward basis with our dealers.
So it's helpful scenario that shortage because here, we can design in our improvements and were in fact doing that and there are other points of differentiation repair equinox storage that I think you're going to find really interesting going forward.
Great. Thank you Tom Thanks.
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Thank you and our next question comes from the line Okay.
With Raymond James.
Thanks for taking the question, let me ask kind of kind of a macro one about the market. This is.
First conversation sense congrats.
For the White house, perhaps blocked solar ITC extension last December despite the industry. Its strong effort to get it extended what do you think went wrong with getting that done and could anything change in 2020.
On I'll take that and I would say.
Hi, there is constructive trial are.
Understanding is there risk constructive talks up until.
The and although this happens it's been our experience with.
Tax bills.
Our observation with tax bills and.
Things degraded and there is a separation towards the end.
On given that it's an election year were less optimistic this year.
On a change that does not mean that Allison CIO or not doing our best effort to have.
Some moderation on me I've reduction, but were less optimistic given that it's a margin here.
Okay and one more on the policy front. There is obviously talk in Washington, right now about potentially.
Spending or modifying the section till one tariff your thoughts on that.
Sure the ITC.
Yes, Hi, TC just had their hearings December fast. So it is not just a couple of months ago are they issued a report.
Basically a synopsis of what happened at the hearing idle issue their recommendation in early March.
And did if I were to educated speculate I.
I would think.
There will be on change Terence.
On.
Hi to our wine tariffs and I'm optimistic that the tariff rate quota on solar cells, we'd be addressed.
Potentially increase because one of deposits out are there to on tariffs and spend a dramatic increase in module production in America and of course that can happen if you can't get solar cells. So.
I would my educated guesses or wouldn't expect to change.
The next couple of years until one in hopefully action on the tier Q for solar cells.
Appreciate it.
Thanks.
Thank you.
Good question comes from the line of Jeff Osborne with Cowen and company.
Good afternoon, guys. A couple quick ones I might have missed did you disclose the safe harbor amount either and megawatts or dollars spent.
Yes so.
Let me try and be able to talk about couple of hundred megawatts of hip hop I'd be are on track to that most to fit.
Came in and so.
Second half of 2019, there's a little bit of victory Lane in first quarter still color to another 2019 save hybrids, we have a modest amount to safe harbor built in our 2020 forecast that something that we'll be evaluating.
Over the next quarter or so and that could have an impact and if it did if anything I would educate forecasted.
Favorable impact.
But.
Either not significant or not something we're ready to commit to yet, but nonetheless, we have a modest amount for safe Harbor for 2021.
Got it than two other quick ones.
The aquinox storage when does that come out of beta Tom or when do you expect to start selling.
I'll, let Norton take that Oh, Hey, Jeff Snobs.
So that the product goes.
Well come out of beta in key to haul start.
Selling more broadly late Q2, so what we've done a beta testing is.
Right into procedures to install and improving sort of standardizing the install also norm and his team has made the decision.
To upgrade what we're going to raise in terms of the scalability of the offering.
Based on feedback, we've gotten and we think that it makes sense not to ever BRAF right away just to come out with me.
Ladies shrub so it'll be an.
Route or an updated version of what we had originally talked about picking back up more load within the home.
Lastly, I had Tom was on on the SPT side can you just touch on what you're seeing in Europe, and the six or seven countries that you operate in general trends by country would be helpful.
Sure I mean, what Jeff waters take that.
So by and large for us in Europe over the course of 2019, we saw solid rate growth in Europe over 80% gross.
And.
It's in a country by country basis, we we tend to see a pretty strong pretty uniformly across of the probably double digit number a company could we sell the countries that we sell in so.
I don't know that I would call any out as being specifically strong, but they are I would say very receptive consumers, especially on the residential side of there are very receptive to our maxion family products.
So we're expecting for 2020 to see double digit growth out of Europe.
And continue to build out the degrade dealer channel that we have there.
Yes, Jeff I'd say, yes.
There are places in Europe, where were particularly strong weve historically historical strength in Benelux as an example, I.
Scandinavian countries are actually doing quite well and of course, Jeff and his team great channels in.
Japan, and Australia, both of which are growing quite well for us as well so those would be a few I'd point to.
Perfect. Thanks.
Thank you, Okay, we're going to take one more analyst and time that person's questions. If there's plural.
Our last question.
Calling.
And.
Thanks, So much guys can you talk a little bit about the pricing dynamics on the energy storage solutions, how sensitive are customers at this point and how much press you know pricing power do you feel like you have going through the balance of the you're not going to follow up.
Okay, I, what norm ticker Hi, Tom I.
I think there so it's still early but from a.
Market perspective, we see that pricing on the storage being.
Leased margin equivalent if not margin accretive.
I also like to emphasize that when it really does for US has significantly improved the revenue per customer so well.
It doesn't just how additive gross margin lowers our cost of sales.
Revenues for the same customer right now I will tell you. The are part of the reason for what Tom indicated that we are offering them maybe more extendibility. The product is there are indications are that the demand for bigger batteries and what we originally.
And that also helps margins because you amortize the installation costs over more megawatt hours.
And so we're anticipating.
Bigger historic installs that we were originally.
Great and then just on the product side.
Certainly there's an awful lot going on with battery chemistry at this point you know as you guys look at the applications and the potential for.
One cost reduction into.
Product cycles, what are you expecting in terms of your ability to drive costs out of the supply chain as well as evolve with emerging chemistries that are coming to market.
Yes.
Great question I think it's I'd like to point on strategically we have focused on an architecture, which is battery agnostic, meaning we can ride will be a we believe engager.
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Essentially core.
Nationwide or worldwide really drive down pricing of battery technology as you driven more by the market than us. So that has been key to our strategies to the cell technology can be can be replaced with other sells into our software control.
So.
I think right now the cost we see are as good or better than what we had forecasted we expect that overtime those with the team to come down we'll be able take advantage of that.
Alright, thanks, so much guys.
Okay. Thank you Carl and then thank you all for client and we really appreciate it we look forward to our Q2 called with you.
Ladies and gentlemen, this concludes today's conference call. Thank God dissipating you may now disconnect.
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