Q3 2021 SunPower Corp Earnings Call

November 3, 2021

Good day, and thank you for standing by and welcome to Sunpower Corporation's third Okay. 2021 results conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

During the session you will need to press star one on your telephone.

Any further assistance please press star zero.

And the conference I'll, let you speak today, Michael Weinstein head of Investor Relations. Please go ahead.

I would like to welcome everyone to our third quarter 2021 earnings conference call on the call today, we will start with comments from Peter Pharisee CEO of Sunpower, who will provide a summary of third quarter highlights discuss our strategic growth and investment plans. Following Peter's comments amount of C. L. Sunpower CFO will then review our third quarter.

Financial results as well as providing updates to our guidance as a reminder, a replay of the call will be available later today on the Investor Relations page of our website.

We see these documents for additional information regarding those factors that may affect these forward looking statements also we will reference certain non-GAAP metrics today on today's call. Please refer to the appendix of our presentation as well as today's earnings press release for appropriate GAAP to non-GAAP reconciliations finally to enhance the call. We also posted a set of Powerpoint slides.

Which we will reference during this 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 additional historical metrics with that I'd like to turn the call over to Peter Pharisee CEO of Sunpower Peter.

Thanks, Mike and good afternoon, everyone I'd like to take a moment and welcome the newest members of the Sunpower team from Blue Raymond Solar now joining us for their first public earnings call.

We are very excited to have them on board as we continue to expand our presence across more states and deeper into all segments of the residential market.

I told you last month, we view the acquisition of Blue Raven is an important step towards growing the company geographically and providing our customers with the best possible experience in the industry.

As we will discuss further in a few minutes. We are building on this acquisition with four important investments occur.

Across the organization through 2022.

Building a world class customer experience number two expanding our product offering number three growing our sales footprint and four expanding and upgrading our customer financing options.

Over the past few years, you've been with us through several major restructuring events and strategic changes.

I am pleased to report we have found our footing.

With a streamlined company and our healthiest balance sheet in years, we are now going on offense to grow our business across a vast mostly untapped residential tam.

Please turn to slide number four.

Some power's third quarter financial results were in line with our October 5th update residential demand remains strong with 29% customer growth in the quarter versus last year, and we remain on track for $100 million bookings run rate for sunbelt by year end.

As we consider our options for the CIS business, we continue to view prospects for this business is bright for the right owner due to the robust bookings and federal policy tailwind.

As expected we have received indications of strong interest in the business from multiple outside parties, we expect to be able to update you further on our strategic decision process before the end of the year.

As we've discussed before the recent acquisition of Blue or even solar increased our geographic exposure beyond California to 50% of annualized sales. We continue to target further meaningful sales diversification through 2022 and beyond with a combination of organic growth initiatives.

That would achieve our goals and enhance shareholder value.

We are also building our capabilities to offer customers, new financial options more integrated product offerings and the best customer experience in the industry.

Towards these ends we've made three key senior leader hires more on our newest executive team members later in this presentation.

We are also delighted to announce that Sunpower was selected to participate in the department of Energy's connected communities demonstration program, which we think will highlight the value of distributed solar and storage is a grid service.

Finally last month, we are proud to announce Sunpower is 25 by 'twenty five initiatives to support solar to under represented communities more on that in a minute.

Please turn to slide number five.

Our core residential business is growing fast with 14200, new customers added in Q3, 29% growth versus last year.

We also have a quarter's worth of backlog at 117 megawatts.

<unk> doubled of the Q3 2020 backlog.

And robust top of the funnel activity with record lead generation and three times the number of appointments generated versus 2020.

This brings the total residential installed base to 390000 customers before adding another 20000 customers from last month's acquisition of Blue Ravens solar.

We also point towards the significant contribution from the new home segment.

With 5700 customers added in the quarter and with visibility towards as many as 58000 more in the pipeline including multifamily.

We recently announced a multiyear agreement with national luxury homebuilder toll brothers to be their exclusive solar provider in California, with a terrific opportunity for expansion to other states.

With the industry's most experienced and respected homebuilding division sunpower as a preferred solar and storage partner for over 20 of the top ranked U S homebuilders with additional national and regional agreements regularly being added.

Residential gross margin for the quarter was 24% up nearly 50 basis points sequentially and more than 600 basis points year over year we.

We remain on track to exit 2021 at the residential run rate greater than 70 per watt.

The increase continues to be driven by a lower cost of capital and the continuing conversion and mix from component sales to higher margin full system sales, which totaled approximately 55% of residential installations for the quarter.

We also continue to make terrific progress with sunbelt.

<unk> sales business saw an attach rate of 27% in the quarter and our dealers continue to ramp up sales. We exited Q3 at a bookings run rate of $80 million and remain on track for $100 million bookings run rate by year end.

Please turn to slide number six.

Among our highest priorities we are committed to grow the sales of sunpower across more territory and market segments. We're doing this in three ways number one we are hiring and investing in our dealers and direct sales channels.

We added nearly 200 and nearly 180 new dealers this quarter.

Our acquisition of Blue Raven Solar last month helped boost our sales profile across more than 14 states with minimal overlap with our existing dealer network. This increased.

Geographic footprint outside of California to 50% of annualized sales and we continue to investigate additional residential growth opportunities.

We're also focused on new direct sales channel penetration, including working with online energy consulting platforms, and finally, introducing more product offerings two weeks ago, We announced an agreement with homebuilder. The new home company to include the full complement of Sunpower equipment in all 72 home.

<unk> within their newest community, including an equinox solar system, Sunbelt storage and a wall box EV charger that can be configured as a comprehensive home energy management system.

The toll brothers agreement I mentioned earlier also includes both solar and storage options.

Please turn to slide number seven.

Last month, we disclosed our plan to redeploy $35 million of proceeds from the sale of our Enphase holdings back into incremental investments that will lead to higher sales growth and gross margin.

Here, we are previewing three of the major categories of investments number one we're developing a much wider and more cost effective array of comprehensive customer financing options originated by us directly rather than through third party lenders for both component and system sales.

Loans and leases would continue to be kept off balance sheet.

Loan servicing will eventually be handled through our unified my Sunpower App, where we intend to reduce the friction of loan applications with a 40% reduction in click through and a 66% reduction in payment processing time.

We are also investing in new product development to capture more market share increase Tam.

Such as low cost yet high efficiency high value solar panels targeted for the mass market segments.

We're also planning on introducing larger battery systems that will add more features and capabilities and finally, the use of our wall box EV EV charger products as a standard offering along with battery storage.

More studies have shown that approximately 20% 30% of EV purchasers ultimately go on to buy a home solar system as well. So in addition to the direct value generated by the equipment sales, we view EV charging as a potentially important method of solar lead generation.

Finally, we're investing to improve the customer experience through best in class service and support.

Which I view as the foundation for customer Trust and loyalty and ultimately drive.

Lower customer acquisition costs over time.

We are targeting net promoter scores over 50, an indicator that belongs to the most loved consumer brands and best companies in the World. We're also funding digital and tech support for the creation of the mice Sunpower application that dealers will use from everything from design to sales to customer financing.

Removing as much friction from the process as possible.

We plan to discuss more detail on all of these categories and much more in analyst day that we're planning on holding in Q1 of 2022.

Please turn to slide number eight.

To make these critical innovations happen, let me take a moment to introduce you to the newest members of our executive team.

I'll start with Jason Mcrae, who is our new EVP for financial products and is leading the effort to create our own customer financing operation. He comes to US from capital Group, where he was chief data officer for investment research, but before that he's a fellow Amazon alone where I worked with Jason when he was the general manager of the Amazon lending.

And director of Research Science, Jason also spent seven years at Morgan Stanley as global co head of credit solutions. He is a world class financial products leader.

Number two we also welcomed <unk> Coleman as our new Chief product Officer, Nate comes to us with more than 20 years of experience in the solar industry. Most recently he was senior director of advanced products that Sunrun, where he led product development roadmap and new product introductions for residential solar energy storage and <unk>.

Certification programs Nate was with Sunpower earlier in his career. So we are welcoming back to the family will come back to me and.

And finally number three newly Murphy joined our team she leads customer care and comes to us from wafer on Amazon, where she headed up Amazon Web services global customer care services team and the worldwide vendor support organization teams for over seven years. She has also a bank of America Lob, where she was SVP head of customer.

Contact.

<unk> is a world class customer care leader and we are grateful to have her leading our teams.

Overall, very fortunate to have new adjacent and Nate on board as we transform sunpower into the premier option for residential solar solutions.

Let's turn to slide number nine.

Continuing with the good news I am very pleased to announce that Sunpower has been chosen to participate in the department of Energy's connected communities grid services demonstration project, we are partnering with Kb home, the University of California, Irvine Schneider electric and Southern California Edison.

To develop two new all electric micro grid tiered home communities with more than 230 homes participating.

Ultimately, we see the successful application of Sunpower equipment, bringing grid service benefits worth as much as $200 per year to each customer.

Please turn to slide number 10.

In September we were very proud to announce our 25 by 'twenty five justice diversity equity and inclusion initiative to ensure that the benefits of clean energy are extended to underrepresented communities with a more diverse workforce and an equally diverse network of dealers and subcontractors under.

The initiative one of our goals is to extend the Sunpower World class customer experience for people, who live in historically underrepresented communities targeting a buildup to 25% of our residential customer base. This includes the provision of a no interest loan solar system to low income customers.

As part of our plan to rollout more and newer lower cost financing options to every.

Before I close my remarks, let me make a few comments about NIM in California.

For decades, California has led the nation when it comes to accelerating consumer solar and battery storage adoption.

We are proud of this leadership, having worked with governor Brown Schwarzenegger newsome across our 35 year history of doing business and being headquartered in the state.

Governor Newsom in particular has a long history of supporting and advocating for consumer solar starting with the programs. He established when he served as mayor of San Francisco.

However, the net energy metering changes proposed by the utilities as part of the state's review process would be a major step backwards amounting to attacks on consumers, who deploy solar and battery storage on their homes and businesses.

Distributed solar systems are clearly going to be a major part of the solution for California's stated carbon reduction goals and are critical to a more resilient power system.

Large scale centralized systems are only part of the solution.

Centralized systems rely upon overhead electric transmission lines that increase the risk of wildfires and are subject to curtailment and underground lines that are up to six times more expensive.

We must encourage electric consumers to adopt more at home solutions not less.

Our top priority is to expand electricity bill savings and resiliency benefits of distributed solar and battery storage, we encourage and expect covered our new some of the California public utilities Commission to share that priority and then make the right decision for Californians in accordance.

With that said I'd like to turn the call overall the call over to module CL CFO of Sunpower Mani Thanks Peter.

Please turn to slide 12.

We have provided our consolidated financial results and select metric.

I put quarter results are in line with the update that we had provided on October 5th with $17 $5 million of adjusted EBITDA that includes $8 million of loss and the <unk> solutions segment, primarily from project schedule delays and higher labor and supply chain costs.

We saw 100% year on year growth in adjusted EBITDA consolidated <unk> and 18% growth in revenue driven by residential business with TNF solutions and light commercial business revenues behind prior year.

Why is revenue in the CIS business is driven by project mix and timing.

Mentioned in our last earnings call. We view life commercial is an important beta service versus a core growth platform and are increasingly allocating more capital into the business.

In our residential business, we are seeing exceptional performance in top of funnel lead generation activity and a third quarter gross margin performance of 24% up 600 basis points improvement over prior year.

While we experienced some of the same modest labor challenges.

The rest of the industry, our business model with approximately 800 dealer relationships helped insulate us from much of that effect and along with our partners, we were able to generate high gross margins and drive sequential and year on year.

We recognized 92 megawatts investigation in line with our guidance with a healthy bookings performance in the third quarter at 188 megawatts up 36% from prior year.

Our balance sheet is the healthiest thing years without net recourse debt down to $154 million.

At the end of third quarter significantly lower than five yet and we still have ability to monetize another $2 5 million of Enphase shares through the next 18 months.

Strong balance sheet provides us with new opportunities that were previously unavailable to us, including the ability to finance growth investments at a lower cost of capital and access to lower cost asset level financing for our loan and lease offerings.

We expect to see the cost of capital for loans and leases continue to decline below five 5%.

<unk> fourth quarter and <unk> two.

Please turn to slide 13 for a discussion of our forward outlook.

To provide additional clarity to investors, we are providing separate guidance for CIS and legacy business segments for the fourth quarter 2021.

Fourth quarter GAAP revenue for Sunpower, excluding CIS and legacy business is $330 million $280 million and adjusted.

EBITDA is 28 million to $46 million.

Separately for the CIS and legacy business fourth quarter revenue guidance is $31 million to 40.

<unk> $41 million and adjusted EBITDA is negative $10 million to negative $5 million.

With supply chain impact and project schedule delays, including many that are customer driven similarly to that experienced more broadly throughout the industry and in the third quarter.

CIS business expect to sequentially grow pipeline and is focused on generating breakeven operating cash in the fourth quarter.

Fourth quarter GAAP net income, which includes all segments is negative 5% to positive $15 million.

For the full year 2021, adjusted EBITDA for surface, Sunpower, including Cif and legacy business is below the prior guidance of $110 million $130 million.

Primarily due to project schedules.

As mentioned in the October 5th, albeit call. It also in the process of evaluating strategic options for the CIS business and expect to provide an update in the fourth quarter 2021.

Sunpower residential business continues to be strong and we expect sequential growth in volume and margins to continue in the fourth quarter.

Consistent with our prior guidance, we expect 345 to 375 megawatts recognized for the full year 2021, with 55000 to 60000, new residential customers and exiting 2021 at a greater than 70 cents of work gross margin run rate.

Looking further ahead strong residential demand and federal policy, David give us confidence to expect residential volume growth above 35% in 2022 compared to full year 2021.

We also continue to expect full year 2022, adjusted EBITDA for Sunpower, excluding Cif and legacy to be consistent with the comments, we made on the October update call. It decade residential business supports items.

Elliot color of 40% adjusted EBITDA growth above the original 2021 guidance before subtracting $30 million to $35 million of product and investment experience.

Before turning the call to Q&A with debated backed by the same book, making its way through the legislative process to speak let me make a brief comment here on how we view its potential value for sunpower.

Please turn to slide 14.

For illustrative purposes, we calculate that a 10 year extension of section 20, <unk> residential investment tax credit.

At the 30% rate to 2031 could add as much as $6 billion of value to the customer purchases a sunpower residential systems over that period, assuming modest 10% annual customer growth for illustrative purposes.

Since most of our customers purchased their systems.

These benefits.

Flow directly to them, reducing effective selling prices and potentially raising sales growth.

Increased sales of better pricing support we would expect to see a benefit to the company commensurate with the size of the facultative program ultimately enacted.

With that I would like to turn the call over for questions.

At this time in order to ask a question. Please press star one.

Tom.

Tim Let me start from the queue.

Thanks again, everyone for questions.

Our first question comes from Brian.

And then Carlo from Baird you may begin.

Hey, guys.

Thanks for <unk>.

<unk>.

Thanks for the questions.

You bet.

I guess first of all.

You guys short your disclosures and I was just wondering.

Peter.

Do you think.

We have to do it.

Great.

To make it more support.

While you do that.

Okay.

Yeah.

My second question is.

It's around the balance sheet.

Where your stock prices and how do you guys think about.

All of these assets.

Or could change itself evolves.

How do you think about better thank you.

Thanks, Pat I'll, let Marty talk a little bit about our disclosures I think it's our intent to provide great transparency for our investors. So I don't know if theres anything more specifically you could you could mention there.

You didn't see.

We may have lost out on the call. So.

But I just don't know.

Okay.

There used to be like just supplementary metric sheet.

Different pages here.

Yeah.

To give my request as well.

But.

Megawatts.

Across all.

All different parts of the business.

How do you see that yes.

Yes.

And I think if you go to the Investor Relations website, we put the metric treat and their definitions.

What goes on.

On the metrics you can factor.

We've added.

Associated with Davita and breakouts of the megawatts and organize the seat where you can actually see.

Seems like.

Knight commotion and.

New homes megawatts broken out consistent with what you've done in the past so.

All of that disclosure out there on that side.

Yes.

Okay.

Sure.

Okay.

Go ahead.

Okay and then your second question was.

The line wasn't very clear sort of the balance sheet.

How do you think about it.

Yes.

Keep yourself.

On the balance sheet.

So when your stock is.

So.

Sure.

Increasing that.

Stock or other ways, how you guys think about.

Yes, I'm not sure exactly understand your question, but in terms of if you think about our lease and loan business, we're making no changes to how we handle that so that that risk will continue to move off our balance sheet and we will continue to take our share of the economics right at the point of sale in terms of the direction of the business as we go forward.

Third we mentioned, we're considering strategic alternatives for the commercial business will have a report back to you guys on.

Where we come out and how we're thinking about that this quarter. So in a relatively short amount of time, but I think going forward you could expect us to be heavily invested in the residential business and I think the point of my remarks as many of you have been with us during the different transitions, while those transitions are about to be <unk>.

And we're about to focus very heavily on drawing the residential business here in the U S.

So I would look for us to continue to double down on that if it is true that we are headed towards 100 million homes that can save money by adopting solar power and there is a little over 3 million homes that have it today.

I think it's easy to agree this is a huge opportunity for a company like us.

And we're pivoting the company from being a company that only sold solar panels and interacted.

<unk> worked with consumers one time to a company that now sells panels storage EV Chargers smart home panels and once they have a lifetime relationship with their consumer. So we've got a lot of work to do but we've got an enormous opportunity in front of us and we're very optimistic about the future of the company.

Maybe I'll.

I'll sneak one more in just with Bloom Burton.

Is there a channel conflict at all.

I know you guys you guys basically has been.

The dealer network.

I'm wondering how that fits in.

Well. Thank you know it puts it yes. Thanks for the question, but it fits in perfectly we really first of all let me back up we have what we believe is the best dealer network here in the United States. They have been a big part.

Part of our success in our history.

And they will remain a big part of our future. So we have no changes on the dealer front, while we really did with Blue Raven is we managed to purchase.

A large high customer satisfaction high performing company that actually complemented our existing dealer footprint. So if you take a look at blue Raven.

Basically took out the middle of the United States Underpenetrated in solar.

And they went from Utah, all the way across to North Carolina, where we have.

Very few dealers and very little business. So it's all accretive it's a very strong management team and we're very excited to welcome them to the Sunpower family.

Thanks for the question.

Our next question comes from the line of Sean Morgan from Evercore, you may begin.

Hi, guys.

Hey, Sean.

Going back to page 10, I was interested in maybe just digging in a little bit on the traditionally underrepresented communities are there are there federal or state programs either with.

HUD or something.

Some of the state agencies that can allow you guys to kind of penetrate that market sort of below your traditional comfort levels in terms of FICO scores and and if not would you be looking at potentially kind of a lower margin.

So we're very excited we're going to talk a lot more about the details of the program we've put together with Doe.

At our Investor day in Q1, and look forward to walking what's wrong.

Okay. Thanks.

And then just changing gears to the product side.

Wall box units.

It's sort of a newer relationship.

And with the bi directional charging is there any.

I guess risk that the.

The power storage attach rates might be impacted a little bit by people using their car.

Trick vehicle for for energy storage or do you kind of see that as separate ancillary product entirely.

I see them as complementary and I think in our talks with the automotive Oems and right now we're in discussions with almost every OEM on the planet that you can think of I think they also view it the same way at the end of the day, although it's a super intriguing opportunity because the batteries are so large and vehicles to provide whole home back.

You also don't want to power down your vehicle to zero as well so I think the combination of vehicle battery.

Storage battery that we're offering with sunbelt and renewable energy solar power. In this case I think are going to be a way for consumers to really reduce their <unk>.

Dependence upon what are going to.

And it's becoming more and more important for consumers around the nation to do that but I think these things will end up working together the key from my perspective.

You don't see anyone out there today, who is who has gotten the customer experience to be easy and as you might imagine bidirectional charger plus an EV plus your house plus solar.

Potentially complicate unless you can really build software that makes that customer experience very easy.

And I feel like we've got a leg up.

This is this is what I spent like.

13 years doing it Amazon is really figuring out how do you take essentially very complicated, but very valuable experiences and how do you simplify them for the consumer so we're quite excited about the opportunity with wall box and the Oems.

And as we as we May have mentioned that our comments I think the electric vehicle optic slowly here is huge.

$2 $5 million <unk> in 2020, if you believe the projections and it should be $31 million by 2033, and frankly, the grid I can't support that level of electric vehicles. So it's only going to believe if we can get renewable energy and battery storage working so we're going to be able to achieve those.

<unk> of EV sales and really able to achieve some of these climate goals and we have in the U S.

Thanks, Peter Thats pretty illustrative much appreciate it.

Thanks, Sean Thanks, Ron.

Our next question comes from the line kind of cash.

Kashagan Harrison from Piper Sandler you may begin.

Good afternoon, everyone and thank you for taking my questions.

Yes.

Hey, so just the first one just a quick housekeeping question for me.

How many how many megawatts in Q4 associated with the Raven.

Acquisition.

Manav I.

I would say high single digits.

Okay high single digits.

And then.

In the in the presentation, there's a slide there and I think Peter in your prepared remarks, you talked about transitioning from using third party loan products Youre using your own loan products. I was wondering if you could just help us quantify the financial impact from that and that's it for me. Thank you.

Yeah, well first of all let me back up a minute and give you a little bit of context as to why financial products. I think are so critical in the solar business. When you take a look at the research from consumers, who consider solar but ended up not purchasing solar but number one and the number two reason are.

They are worried they can't afford the downpayment and they're worried they can't get qualified for financing options.

So if we expect to achieve our climate goals in the U S. It's critical that we help consumers address both of those issues. We feel like we're best positioned to do that by building a world class financial products business and that's the reason I brought Jason Mcrae onboard. So in terms of the economics I guess a couple of things for you one is as we talk.

About in the presentation.

You think of it this way 35% of our total customers this year.

We'll finance their solar purchased using one of our financial products. The rest is either cash or it's coming from a third party financial product.

Our goal is to make sure that we move the needle on that every year until we get to a 100% we've committed to get to at least 45% in 2022.

The economics, and the financial products business, both for lease and loan.

Just say are very attractive.

They are as attractive as the economics and the hardware part of the business.

And they ended up being spread across the same customer acquisition costs that we have to acquire a new customer. So as we think about lifetime value of a consumer we don't think of it as only being exclusively hardware. We also believe that there will be.

An opportunity for people, who need leases and loans for us to be their financial partner and we plan on incorporating a really great experience for our loan servicing and for loan and lease origination in the mice Sunpower app. So a lot more to come here I'm. So excited to share a lot more with you when we get together in Q1 for our.

Our analyst day.

But this is a big area of focus for us going forward, yes, actually the only thing I'd add to what Peter said.

We've talked about lowering our cost of capital from the five 5%, we have right now and us wanting our financial products.

Helps us do that in district to maintain every 50 basis point reduction in cost of conferences about eight to 10 cents gross margin per watt.

That's helpful. Thank you.

Okay.

Our next question comes from the line of Brian Lee from Goldman Sachs You may begin.

Hey, guys. Thanks for taking the questions.

And maybe I'll apologize in advance I have a couple of sort of more mundane guidance related ones.

There's a number of moving pieces here on the EBITDA guidance for 2021. So if you guys could just maybe help us unpack it a little bit so the prior guidance was basically a $120 million at the midpoint.

I assume at that point it included Cif and legacy.

Thank you hadn't announced any plans to.

To do anything with that strategically so now the midpoint looks like 105 million, excluding CIS and legacy if I look at your disclosure so really the midpoint apples to apples is $85 million.

It looks like CIS, and legacy or a $20 million EBIT drag on the year.

Is that correct I just wanted to make sure we're level setting.

Sort of what's apples to apples on the new guide versus the old guidance.

Yes, it's closer to 90, but.

The Delta is driven by <unk> and then.

Sunpower, excluding CIS and legacy.

105 midpoint.

Yes, okay.

Alright, that's helpful. All right just wanted to make sure I wasn't missing something so then if thats generally right ballpark math 90 million.

Apples to apples can you help with the bridge.

It sounds like there's some incremental T&D spend and then you also mentioned in the disclosures and offset from Blue Raven, but.

How does the how did the 120 go to go to 90.

Outside of CIS and legacy not performing as well as you might have expected originally or is it all just CIS and legacy underperformance.

So as you can.

I mentioned at the site as well all of the Delta between the prior guidance. The current guidance is driven by <unk>.

The rest of the business, excluding that is consistent with our prior guidance.

I was saying is that we have some incremental EBITDA coming from dilutive in acquisition in the fourth quarter.

And that we have utilized we are spending some some opex.

And therefore, the prior guidance related to the rest of the business is the same which is 105 at the midpoint more importantly, what.

What that allows us to do is it allows us to grow significantly in 2022 and 'twenty three.

Which is why we feel it's a good trade off from that perspective.

Okay. That's helpful and last one and I'll pass it on again, just one more on the guidance so for 2022.

Saying that.

The original framework is intact, which is.

The $120 million midpoint, you had prior.

It's going to grow, 40%, which would imply something like $165 million to $170 million.

Than that.

You'd have the incremental $35 million of T&D spend and so we're talking about sort of a reported.

<unk> $38 million to $135 million of EBITDA.

Understood and sort of the actual metric will see in 'twenty two.

Yes, Brian you're thinking about the math correctly looking out a little bit of color one.

The residential business.

No.

Third quarter from our top of the funnel perspective, as well as a <unk>.

Gross margin perspective, so we exited third quarter with.

69% of our gross line can be expected to be around.

70.

One respondent so both the top of the funnel activity as well as the module making.

On our existing book of business gives us confidence from a residential growth perspective, and then additional color district in mind.

Every one of the comments you made in the last October I'll be economy.

<unk> $30 million to $35 million.

Funded from the Enphase protein not from an operating cash.

Okay fair enough. Thanks, a lot guys I'll pass it on.

Thanks Brent.

And our next question will come from the line of Mark Hughes.

Hum.

On the life.

Credit Suisse you may begin.

Okay.

I Hope your line is open.

Your line is on mute please UN mute your phone.

Alright, our next question on soft line of Philip Shen from Roth capital.

They begin.

Hi, everyone. Thanks for taking my questions first one is on the $35 million of incremental investment Peter Thanks for breaking out.

The categories. There I was wondering if you might be able to give us a little more of the $35 million how might that be split between the three groups and then from a cadence standpoint through 2022.

How does that look from a spend.

Perspective in Q by quarter, if you will.

Yeah. So Phil will give you more details in Q1 at the analyst review in terms of how we're thinking about the breakout between these buckets, but I would say all three areas.

Our investments that were interested in making because we're going to see some return within the year and most of these cases, we're going to see an even bigger return in the out years, because we're building something that we think will scale as the business gets bigger and bigger over time.

From a from an.

An investment perspective, I think of 2022.

As a big step up in investment that does scale as the business gets larger so if you if you measured it in some rate like spending per customer you would expect to see that spending get more and more efficient over time and this is one of the big lessons learned for my experience of managing the Amazon marketplace from something very small to something.

That grew to become very large you really have to be thinking long term about how do you make investments in things that scale over time. So for example in financial products, we're going to do a lot of the software building and we're going to do a lot of the infrastructure building in 2022 that software in that infrastructure will use for the <unk>.

Next 50 years.

And that will allow us to at some point continue to lower our cost of capital and easily rollout more and more financial products.

Same thing for the hardware products, we really I think one of the interesting things to me as I joined the company as we're very well positioned for solar in the premium segment.

Our products match up well, we have great market share and I think customers love our products, but the growing segment right now is actually the mass market segment, and we will share our plans with you at the Investor day, but we plan to to absolutely enter the mass market segment and become an aggressive participant in that segment again folk.

<unk> on the highest quality and best value products that are out there. So look forward to sharing more details, but we're very excited about the investments in all three of these areas.

Great. Thanks, Peter just as a follow up on that thread.

You mentioned near term return as well as longer term return on investment can you quantify that in any way.

What metrics are.

How are you quantifying it I guess internally that you might be able to share externally and then.

In terms of the mass market products.

With all the challenges happening in the marketplace with them.

<unk> and new potential ADC DS and things like that.

How are you thinking about that business in a way that might.

Perhaps helping.

Help insulate yourselves from.

Those types of challenges and risks.

Thank you, yes, I will take the second one first so our vision on the product side is to continue to be the leader in the highest quality products, but at a great value. So as we enter the mass market segment, we're not going to enter.

The low quality low price segment, we're going to enter into the high quality high value part of the segment, which is how we are positioned today in the premium segment I think the Sunpower brand and Sunpower customers expect.

The world's best products and they expect to get them at a great value. So our perspective, there won't change and from a sourcing perspective, we're not really interested in taking any risk on the sourcing front. So.

As you think about the areas of China.

Are tied to forced labor, we have no interest in changing.

Our sourcing over to those types of regions. Our panels today are made in Malaysia, and Singapore final assembled in Mexico batteries final assembled here in the U S in Alabama, and Minnesota. So we will have a global footprint that will choose places that we think are economically.

Economically stable and advantageous for our customers and then from a from an efficiency point of view.

We'll share more metrics as we get together for our Investor day, but just as an example, I think software, which is a relatively new topic in the solar industry is an example of something that scales very very well as your business gets gets larger and larger so in other words, you make an investment in software you utilize that.

Software for decades, and decades to come so we will give you. Some examples of the investments we make and how we think they will scale over time and we're looking forward to getting together with you ensuring that in Q1. Thanks.

Thanks for the great. Thanks, Peter Yeah, one more if I may as it relates to acquisitions.

You guys.

Made a splash with blue Raven.

Looking ahead do you think we could see.

Something along similar lines in the near term maybe the next two to four months or maybe within a year.

And then as it relates to dealers you guys had a nice.

Dealer AD number there of 180 and.

In the quarter.

Curious if you expect that to sustain maybe give us a little more color on on those dealers. How you won them and then importantly also how many did you lose so on a net basis what was the add to the total count.

Yes.

So on the on the residential market here in the U S.

As we've talked about the numbers.

It's a I would describe it as kind of a land grab opportunity I mean, just to round up there was a 100 million consumers, who could save money and do something that will make a positive difference in the planet and there's a government tailwind I haven't seen personally in my career those three factors ever come together. So our strategy is going to reflect.

The fact that in a land grab you don't sit back and your heels.

Going forward and we did lean forward with the acquisition of Blue Raymond we have a number of opportunities that I think are attractive in front of us acquisitions are only one of those opportunities. Obviously, we have a number of opportunities where we can also.

Fund ourselves like the ones, we are describing with financial products.

And hardware products and customer experience, so it'll be a combination of both organic and acquisition opportunities, but there's no question that we're going to be a lean forward company here in the residential space and growing very fast.

Our dealer population.

Has growing.

By a large positive margin so far this year I think one of one of the pieces I feel very connected on us when I get a chance to talk to our dealers. There is a connection between us because the business I ran at Amazon the marketplace business, we built software for those small businesses and aren't.

Printers to help them do what they do best and really grow their business fast and make a lot of money that's exactly what we're going to do for our installing dealers here in the U S. We're going to build software that allows them to really focus on what they do best which is really work directly with residential customers and give them a world.

<unk> solar installation experience so that nobody else can match, so I'm really looking forward to growing our installed dealer base.

And being able to to aggressively grow our presence here in the U S.

Great. Thanks, Peter.

Looking forward to learning more about everything at the analyst day as well thanks.

Sounds great we have time for two more questions. Please.

Our next question comes from the line of Mike <unk>.

<unk> from credit Suisse, you may begin.

Hey to smoke now.

Yes, hi.

Perfect. Thanks, a lot and.

Hopefully at the analyst day as in person. So we don't have to deal with.

Hi to challenges.

And I look forward to that as well.

And count on that because we don't we don't want to have to do it over the phone or worrying about so let's hope we're in person.

Things have moved along in the pandemic for sure sorry.

Sorry go ahead.

Yes, no yes.

Going into 2022 of them, but the taas fail.

The next round of Enphase share sales like how should we think about that capital deployment in the near term.

What's the strategy there on the balance sheet.

M&A or anything else how are you.

Well, let me I'll start and then I'll, let <unk> add some more color, but this is the healthiest our balance sheet has either been ever in our history in a long long time so.

That's before the Enphase shares and then we will see what direction, we choose to take with the commercial business, but you are right.

If the strategic direction that we choose would result in a sale that certainly will add even more cash and capital to the balance sheet. So the great news is that.

There are a large list of very exciting investments to make in this business. When you think about the opportunity to help consumers save money and manage their energy in a way that prevent outages and builds resiliency, we've got a huge opportunity in front of us So again I would.

Say stay tuned for more specifics because that's something we've talked about in advance but we.

We certainly are not going to be sitting on the cash wondering what to do we've got we've got a list right now things that were ready to pursue.

The moment that it's right to go pursue them in mining or any other color you want to add.

Couple of things.

One.

I think from a balance sheet perspective.

Our debt to EBITDA ratios are.

Getting to kind of investment grade ratios.

I would just echo what Peter said from a balance sheet point of view on our balance sheet strength perspective, and then I think that we've got a lot of opportunities. Both in terms of investing organically some of its Peter talked about and I think our balance sheet firepower also gives us the ability to get more flexible from a financing perspective and further.

Drive down our cost of capital from the five 5%.

During my prepared remarks in decades.

Create both from a volume perspective, but also from a margin accretion point of view.

Got it and then just.

A quick follow up on the hardware strategy has mostly your technology agnostic.

Except for the battery side, we're kind of making it in house or at least my ear on subcontractors.

So Ian the battery is thought something when it comes to noon.

Move to the recharge of kind of a frame.

Module just.

Outsource it to others.

Any other hardware just kind of interesting for you over here.

Yeah, well a couple of things I think the part that we're committed to own forever.

Is the software layer in the customer experience, so regardless of the choice of hardware technology, sometimes it will be our own and sometimes it will be through a third party. We will always control the software layer in the customer experience and I think if you were to look forward in this business.

Some of these hardware properties are becoming more mature and there's less differentiation I think the differentiation youre going to see going forward is really going to be in the software layers. So we want to make sure that we control and we own the customer experience end to end I think that's also consistent with this idea that we want to have a lifetime value and a lifetime relationship with our.

<unk>.

In terms of the hardware piece, we leave ourselves open for decisions there.

Probably the most important part for US is the vision I named earlier, we only want to sell the highest quality best value products that exist I think if we're able to pull that off whether it's one partner or many partners I think in the end, we're going to create the customer experience is going to that's going to win in this category.

So that's kind of our criteria, whether we do it ourselves or whether we work with a third party will depend in part about.

Work in the customer gets the best product at the best value.

We've got time for one more question one more question before we close.

And then last question.

From the line of Colin Rusch from Oppenheimer.

You may begin.

Hey, guys. This is Kelly on for Colin Thanks for taking our questions.

Hi, John.

Can you speak to incremental efforts you are making on our recruiting perspective, both on with regards to installation teams as well as technology development and how effective those efforts and then what youre seeing in the market for talent.

Yeah.

It's a terrific question as.

As we've all read.

It is it is a very challenging market to recruit.

Positions like software engineers, electricians and installers I think we've been having.

Good success, so far and I think one of the reasons. We're having good success is that we're able to tie the role into this mission.

And one of the most powerful parts about working at this company is the positive sentiment people feel about making a big difference in the world. So for for most people at Sunpower. This is not just a job. This is really kind of a life, calling and submission and being able to appeal to them.

Mission during what's been kind of a year.

Unique time and work history, where a lot of people are stepping back and kind of saying what do I want to do.

And does my work have meaning and purpose I think that's allowed us to actually have some some really good success. So the three executive hires that I spoke about we recruited against the Amazons and the Goldman Sachs.

Lot of other amazing wonderful companies out there. So how did we how did we land. These three executives it's because at the end of the day. There is passionate about the mission as everybody else here at Sunpower.

So I think from a from a recruiting standpoint, we've got another.

12, 15 months of hard work ahead of us, but I think we're pleased with some of the initial results we're seeing so far.

Thanks, Great question critical topic, a big thanks to all of you for your questions today, we can't wait to.

Have our fourth quarter earnings call in February of next year, and then we will send out more details about our in person Investor day, I'm really looking forward to finally getting a chance to see all of you guys in person that will be wonderful and most importantly, I can't wait to.

How do you meet the leaders on our team and get into a lot more details about our future.

I can tell you. This from my perspective. This is down month number seven for me and my excitement continues to grow we've got a very bright future. We found our footing and we're ready to go.

Thanks again for your time.

And this concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Good day, and thank you for standing by and welcome to Sunpower Corporation's third quarter 2010, one results conference call at this time all participants in a listen.

After the Speakers' presentation, there will be a question and answer session.

A question during the session will need to press star one on your telephone.

If you require any further assistance.

Thank you.

I now like to hand, the conference I'll, let you speak today, Michael Weinstein head of Investor Relations. Please go ahead.

I would like to welcome everyone to our third quarter 2021 earnings conference call on the call today, we will start with comments from Peter Pharisee CEO of Sunpower, who will provide a summary of third quarter highlights discuss our strategic growth and investment plans. Following Peter's comments manatee else Sunpower CFO will then review our third.

Quarter financial results as well as provide an update to our guidance as a reminder, a replay of the 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 various are subject to various risks and uncertainties that are described in the safe Harbor slide of today's presentation. Today's press release, our 2020 10-K, and our quarterly reports on Form 10-Q. Please see these documents for additional information regarding those factors that may affect these forward looking statements also we will re.

Certain non-GAAP metric today on today's call. Please refer to the appendix of our presentation as well as today's earnings press release for appropriate GAAP to non-GAAP reconciliations finally to enhance the call. We've also posted a set of Powerpoint slides, which we will reference during this 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 additional historical metrics with that I'd like to turn the call over to Peter Pharisee CEO of Sunpower Peter.

Thanks, Mike and good afternoon, everyone I'd like to take a moment and welcome the newest members of the Sunpower team from Blue Raymond Solar now joining us for their first public earnings call. We are very excited to have them on board as we continue to expand our presence across more states and deeper into all segments of the residential market.

As I told you last month, we view the acquisition of Blue Raven is an important step towards growing the company geographically and providing our customers with the best possible experience in the industry.

As we will discuss further in a few minutes. We are building on this acquisition with four important investments occur.

Across the organization through 2022.

Building a world class customer experience number two expanding our product offering number three growing our sales footprint and four expanding and upgrading our customer financing options.

Over the past few years, you've been with us through several major restructuring events and strategic changes.

I am pleased to report we have found our footing.

With a streamlined company at our healthiest balance sheet in years, we are now going on offense to grow our business across a vast mostly untapped residential tam.

Please turn to slide number four.

So im Power's third quarter financial results were in line with our October 5th update residential demand remains strong with 29% customer growth in the quarter versus last year, and we remain on track for $100 million bookings run rate for sunbelt by year end.

As we consider our options for the CIS business, we continue to view prospects for this business is bright for the right owner due to the robust bookings and federal policy tailwind.

That would achieve our goals and enhance shareholder value.

We are also building our capabilities to offer customers, new financial options more integrated product offerings and the best customer experience in the industry.

Towards these ends we have made three key senior leader hires more on our newest executive team members later in this presentation.

Finally last month, we are proud to announce Sunpower 25 by 'twenty five initiatives to support solar to underrepresented communities more on that in a minute.

Please turn to slide number five.

Our core residential business is growing fast with 14200, new customers added in Q3, 29% growth versus last year.

We also have a quarter's worth of backlog at 170 megawatts.

<unk> doubled of the Q3 2020 backlog.

And robust top of the funnel activity with record lead generation and three times the number of appointments generated versus 2020.

This brings the total residential installed base to 390000 customers before adding another 20000 customers from last month's acquisition of Blue Ravens solar.

We also point towards the significant contribution from the new home segment.

With 5700 customers added in the quarter and with visibility towards as many as 58000 more in the pipeline including multifamily.

Residential gross margin for the quarter was 24% up nearly 50 basis points sequentially and more than 600 basis points year over year we.

We remain on track to exit 2021, and the residential run rate greater than 70 per watt.

We also continue to make terrific progress with sunbelt the dirt.

<unk> sales business saw an attach rate of 27% in the quarter and our dealers continue to ramp up sales. We exited Q3 at a bookings run rate of $80 million and remain on track for 100 million bookings run rate by year end.

Please turn to slide number six.

We added nearly 200, nearly a 180 new dealers this quarter.

Our acquisition of Blue Raymond Solar last month helped boost our sales profile across more than 14 states with minimal overlap with our existing dealer network. This increased.

Geographic footprint outside of California to 50% of annualized sales and we continue to investigate additional residential growth opportunities.

We're also focused on new direct sales channel penetration, including working with online energy consulting platforms, and finally, introducing more product offerings two weeks ago, We announced an agreement with homebuilder in the new home company to include the full complement of Sunpower equipment in all 72 home.

<unk> within their newest community, including an equinox solar system, Sunbelt storage and a wall box EV charger that can be configured as a comprehensive home energy management system.

The toll brothers agreement I mentioned earlier also includes both solar and storage options.

Please turn to slide number seven.

Last month, we disclosed our plan to redeploy $35 million in proceeds from the sale of our Enphase holdings back into incremental investments that will lead to higher sales growth and gross margin.

Here, we're previewing three of the major categories of investments number one we are developing a much wider and more cost effective array of comprehensive customer financing options originated by us directly rather than through third party lenders for both component and system sales.

Loans and leases would continue to be kept off balance sheet.

Loan servicing will eventually be handled through our unified <unk> Sunpower, App, where we intend to reduce the friction of loan applications with a 40% reduction in click through and a 66% reduction in payment processing time.

We are also investing in new product development to capture more market share increase Tam.

Such as low cost yet high efficiency high value solar panels targeted for the mass market segment.

Furthermore, studies have shown that approximately 20% to 30% of EV purchasers ultimately go on to buy a home solar system as well. So in addition to the direct value generated by the equipment sales, we view EV charging as a potentially important method of solar lead generation.

Finally, we're investing to improve the customer experience through best in class service and support which I view as the foundation for customer Trust and loyalty and ultimately drive <unk>.

Lower customer acquisition costs over time.

We are targeting net promoter scores over 50, an indicator that belongs to the most loved consumer brands and best companies in the world.

We are also funding digital and tech support for the creation of the mice Sunpower application that dealers will use from everything from design to sales to customer financing removing as much friction from the process as possible.

We plan to discuss more detail on all of these categories and much more in analyst day that we're planning on holding in Q1 of 2022.

Please turn to slide number eight.

To make these critical innovations happen, let me take a moment to introduce you to the newest members of our executive team.

I'll start with Jason Mcgray, who is our new EVP for financial products and is leading the effort to create our own customer financing operation. He comes to US from capital Group, where he was chief data officer for investment research, but before that he is a fellow Amazon alone where I worked with Jason when he was the general manager of the Amazon lending.

<unk> and director of Research Science, Jason also spent seven years at Morgan Stanley as global co head of credit solutions. He is a world class financial products leader.

Number two we also welcomed they coleman as our new Chief product Officer, Nate comes to us with more than 20 years of experience in the solar industry. Most recently he was senior director of advanced products, and Sunrun, where he led product development roadmap and new product introductions for a residential solar energy storage and <unk>.

Certification programs Nate was with Sunpower earlier in his career. So we are welcoming back to the family welcome back to <unk>.

Contact.

<unk> is a world class customer care leader and we are grateful to have her leading our teams.

Overall, very fortunate to have new adjacent or Nate on board as we transform sunpower ended the premier option for residential solar solutions.

Please turn to slide number nine.

Continue with the good news I am very pleased to announce that Sunpower has been chosen to participate in the department of Energy's connected communities grid services demonstration project, we are partnering with Kb home, the University of California, Irvine Schneider electric and Southern California Edison.

To develop two new all electric micro grid tiered home communities with more than 230 homes participating.

Ultimately, we see the successful application of Sunpower equipment, bringing grid service benefits worth as much as $200 per year to each customer.

Please turn to slide number 10.

As part of our plan to rollout more and newer lower cost financing options to everyone.

Before I close my remarks, let me make a few comments about <unk> in California.

For decades, California has led the nation when it comes to accelerating consumer solar and battery storage adoption.

We are proud of this leadership, having worked with governor Brown Schwarzenegger and new some across our 35 year history of doing business and being headquartered in the state.

Governor New stem in particular has a long history of supporting and advocating for consumer solar starting with the programs. He established when he served as mayor of San Francisco.

Distributed solar systems are clearly going to be a major part of the solution for California savings carbon reduction goals and are critical to our more resilient power system.

Large scale centralized systems are only part of the solution.

These centralized systems rely upon overhead electric transmission lines that increase the risk of wildfires and are subject to curtailment and underground lines that are up to six times more expensive.

We must encourage electric consumers to adopt more at home solution not less.

Our top priority is to expand electricity bill savings and resiliency benefits of distributed solar and battery storage, we encourage and expect governor knew some of the California public utilities Commission to share that priority and they make the right decision for Californians in accordance.

With that said I'd like to turn the call overall the call over to module CL CFO of Sunpower Mani.

Thanks, Peter Please turn to slide 12, we have provided our consolidated financial results and select metric.

Our third quarter results are in line with the update that we had provided on October 5th with $17 5 million of adjusted EBITDA that includes $8 million of loss and the P&I solutions segment, primarily from project schedule delays and higher labor and supply chain costs.

We saw a 100% year on year growth in adjusted EBITDA consolidated <unk> and 18% growth in revenue driven by our residential business with TNF solutions and light commercial business revenues behind prior year.

Revenue in the CIS business is driven by project mix and timing.

As mentioned in our last earnings call, we view light commercial as an important veeva service versus a core growth platform and are increasingly allocating more capital to the residential business.

While we experienced some of the same modest labor challenges affecting the rest of the industry. Our business model with approximately 800 dealer relationships helped insulate us from much of that effect and along with our partners. We were able to generate high gross margins and drive sequential and year on year growth.

We recognized 92 megawatts in residential in line with our guidance with a healthy bookings performance in the third quarter at 188 megawatts up 36% from prior year.

Our balance sheet is the healthiest in years without net fee gross debt down to $154 million.

At the end of third quarter significantly lower than prior year, and we still have ability to monetize on that $2 5 million of Enphase shares through the next 18 months.

We expect to see the cost of capital for loans and leases continue to decline below five 5%.

<unk> fourth quarter and 2022.

Please turn to slide 13 for a discussion of our forward outlook.

To provide additional clarity to investors, we are providing separate guidance for CIS and legacy business segments for the fourth quarter 2021.

Fourth quarter GAAP revenue for Sunpower, excluding CIS and legacy business is $330 million to $280 million in.

And adjusted EBITDA is $28 million to $46 million.

Separately for the CIS and legacy business fourth quarter revenue guidance is $31 million to $41 million and adjusted EBITDA is negative $10 million to negative $5 million.

With supply chain impacts and project schedule delays, including many that are customer driven similarly to that experience more broadly throughout the industry and in the third quarter.

The CIS business expect to sequentially grow pipeline and is focused on generating breakeven operating cash in the fourth quarter.

Fourth quarter GAAP net income, which includes all segments is negative five two positive $15 million.

For the full year 2021, adjusted EBITDA for total sunpower, including Cif and legacy business is below the prior guidance of $110 million.

$130 million.

Primarily due to Cif project schedule.

As mentioned in the October 5th, albeit call. You had also in the process of evaluating strategic options for the CIS business and expect to provide an update in the fourth quarter 2021.

Sunpower residential business continues to be strong and we expect sequential growth in volume and margins to continue in the fourth quarter.

Looking further ahead strong residential demand and federal policy, David give us confidence to expect residential volume growth above 35% in 2022 compared to full year 2021.

We also continue to expect full year 2022, adjusted EBITDA for Sunpower, excluding CIS and legacy to be consistent with the comments. We made on the October 5th update call decades, the residential business supports items.

Color for 40% adjusted EBITDA growth above the original 2021 guidance before subtracting $30 million to $35 million of.

Product and digital investment expense.

Before turning the call to Q&A with debated back better framework, making its way through the legislative process suite, Let me make a brief comment here on how we view its potential value for sunpower.

Please turn to slide 14.

For illustrative purposes, we calculate that a 10 year extension of section 25 residential investment tax credit.

At the 30% rate to 2031 could add as much as $6 billion of value to customer purchases of Sunpower residential systems over the actelion, assuming modest 10% annual customer growth for illustrative purposes.

Since most of our customers purchase their systems these benefits would flow back.

Equity to them, reducing effective selling prices and potentially raising sales growth.

Through increased sales of better pricing support we would expect to see a benefit to the company commensurate with the size of the facultative program ultimately enacted.

With that I would like to turn the call over for questions.

At this time in order to ask a question. Please press star one.

Thanks, Tom.

Tim Let me start from the queue.

Okay. Thanks again, everyone for questions.

Our first question comes from Brian.

Ben <unk> from Baird you may begin.

Yes.

Hey, guys.

Thanks for.

<unk>.

Thanks for the questions.

You bet.

I guess first of all.

Sure.

Short your disclosures and I was just wondering Peter.

Peter.

Is something.

Do you think.

We have to do with it.

Great.

To make it more support or why.

While you do that.

Okay.

Yeah.

My second question is.

Just around the balance sheet.

Where your stock prices and how do you guys think about quality.

Asset.

Or continue to sell that loss.

How do you think.

Yes.

Thanks, Pat I'll, let <unk> talk a little bit about our disclosures I think it's our intent to provide great transparency for our investors. So I don't know if theres anything more specifically you could you could mention there.

You didn't see.

We may have lost out on the call. So could you talk a little bit.

Hello.

There used to be like this supplementary metric sheet.

Five different pages here.

Sure.

Goodbye request.

But meg.

Megawatts.

Across all <unk>.

Different parts of the business.

How do you see that here yeah. So Ben I think if you go to the Investor Relations website put the metric treat ended definitions.

Look those are ongoing.

On the metrics sheet infective, we've added disclosure.

Associated with Davita breakouts of the megawatts and organize the seat where you can actually see things.

<unk> like.

Light commercial and.

New homes megawatts broken out consistent with what you've done in the past so.

<unk>.

All of that excludes that is out there on our website.

Yes.

Okay.

Yes.

Okay.

Go ahead.

And then your second question was.

Your line, we've been very clear so the balance sheet.

How do you think about it.

Yes.

Keep yourself.

On the balance sheet.

So where your stock is.

Sure.

Increasing quite solid stock or other ways, how you guys think about.

We mentioned, we're considering strategic alternatives for the commercial business. We will have a report back to you guys on.

Where we come out and how we're thinking about that this quarter. So in a relatively short amount of time, but I think going forward you could expect us to be heavily invested in the residential business and I think the point of my remarks as many of you have been with us during these different transitions, while those transitions are about to be.

Overall, we're about to focus very heavily on drawing the residential business here in the U S.

So I would look for us to continue to double down on that if it's true that we are headed towards 100 million homes that can save money by adopting solar power and there is a little over 3 million homes that have it today.

I think it's easy to agree this is a huge opportunity for a company like us.

And we're pivoting the company from being a company that only sold solar panels in the interactive.

And then maybe.

I'll sneak one more in just with Blu ray.

Is there a channel conflict at all.

I know you guys are you guys basically embedded.

The dealer network.

Wondering how that fits in.

Well. Thank you Bella assistant yes, thanks for the question, but it fits in perfectly we really first of all let me back up we have what we believe is the best dealer network here in the United States. They have been a big push.

Our success in our history.

And they will remain a big part of our future. So we have no changes on the dealer fund what we really did with Blue Raven is we managed to purchase.

A large high customer satisfaction high performing company that actually complemented our existing dealer footprint. So if you take a look at blue Raven.

Basically took out the middle of the United States Underpenetrated in solar and they went from Utah, all the way across to North Carolina, where we have <unk>.

Very few dealers and very low business. So it's all accretive it's a very strong management team and we're very excited to welcome them to the Sunpower family.

Thanks for the question.

Yes.

Our next question comes from the line of Sean Morgan from Evercore, you may begin.

Hi, guys.

Hey, Sean.

Going back to page 10, I was interested in maybe just digging in a little bit on the traditionally underrepresented communities.

Are there are they are federal.

<unk> programs either with.

HUD or or.

Some of the state agencies that can allow you guys to kind of penetrate that market sort of below your traditional copper levels in terms of FICO scores and and if not would you be looking at potentially kind of a lower margin.

Makes sense on some of those underrepresented communities are able to do that in an economics is kind of consistent with your existing customer base.

Yes, I think.

First of all thanks for the question here I think we're actually Super excited to work with the department of energy on this <unk>.

You probably know through the loan program office.

Talked about $3 $6 billion of loan guarantees and a very large.

Fund of money to make firm for loans for these low income consumers. So in the end when you talk to consumers people want to be they want to be owners, they don't want to be ready for us.

And it is particularly beneficial for low income consumers, who frankly will benefit the most from the energy savings to be owners rather than renters. So we really view it as more of an opportunity for us to really ignite a market segment that may have not been able to participate in solar for another.

Five years or 10 years, so think of it as we think we're really going to be able to increase demand in our segment that wouldn't have been able to participate.

For a while so we're very excited we're going to talk a lot more about the details of the program, we put together with Doe.

At our Investor day in Q1, and look forward to walk in with stroke.

Okay. Thanks.

And then just changing gears to the product side.

The wall box units.

I guess, it's sort of a newer relationship.

And with a bi directional charging is there any I guess risk that.

The power storage attach rates might be impacted a little bit by people using their car their electric vehicle for for energy storage or do you kind of see that as a separate ancillary product entirely.

I see them as complementary and I think in our talks with the automotive Oems and right now we're in discussions with almost every OEM on the planet that you can think of I think they also have used the same way at the end of the day, although it's a silver intriguing opportunity because the batteries are so large vehicles to provide a whole home back.

You also don't want to power down your vehicle to zero as well. So I think the combination of vehicle if a battery.

Storage battery that we're offering with sunbelt and renewable energy solar power in this case, I think youre going to be a way for consumers to really reduce their dependence upon that.

And it's becoming more and more important for consumers around the nation to do that but I think these things will end up working together the key from my perspective.

You don't see anyone out there today, who is who has gotten the customer experience to be easy and as you might imagine is bidirectional charger.

<unk> plus your house plus solar.

<unk> potentially complicated unless you can really build software that makes that customer experience very easy.

And I feel like we've got a leg up because this was this is what I spent like.

13 years doing it Amazon is really figuring out how do you take essentially very complicated, but very valuable experiences how do you simplify them for the consumer so we're quite excited about the opportunity with wall box and the Oems.

And as we as we May have mentioned in our comments I think that's I think the electric vehicle optic fully here is huge.

$2 5 million of these in 2020, if you believe the projections and it should be $31 million by 2033, and frankly, the grid can support that level of electric vehicles. So it's only going to believe if we can get renewable energy and battery storage working that we're going to be able to achieve those.

<unk> of EV sales and really able to achieve some of these climate goals and we have in the U S.

Thanks, Peter Thats pretty illustrative much appreciate it.

Thanks, Sean Thanks, Ron.

Our next question comes from the line Ken.

Ken Kathy Harrison from Piper Sandler.

Again.

Good afternoon, everyone and thank you for taking my questions.

Yes.

Hey, So just the first one just quick housekeeping question for me.

How many how many megawatts in Q4 associated with the new Raven.

Acquisition.

Manav good yes, yes, I would.

I'd say high single digits.

Okay high single digits.

And then.

In the in the presentation, there's a slide there and I think Peter in your prepared remarks, you talked about transitioning from using third party loan products that you're using your own loan products.

Was wondering if you could just help us quantify the financial impact from that and that's it for me. Thank you.

Yes, well first of all let me, let me back up a minute and give you a little bit of context as to why financial products. I think are so critical in the solar business.

When you take a look at the research from consumers who consider solar.

But ended up not purchasing solar but number one and the number two reason or they are worried they can't afford the down payment and they are worried they can't get qualified for financing options. So if we expect to achieve our climate goals in the U S. It's critical that we help consumers address both of those issues, we feel like we're best positioned to do.

Do that by building a world class financial products business and that's the reason I brought Jason Mcrae onboard.

In terms of the economics, I guess, a couple of things for you. One is as we've talked about in the presentation.

If you think of it this way 35% of our total customers. This year will finance their solar purchased using one of our financial products. The rest is either cash or it's coming from a third party financial product.

Our goal is to make sure that we move the needle on that every year until we get to a 100% we've committed to get to at least 45% in 2022.

The economics, and the financial products business, both for lease and loan.

Just say are very attractive.

They are as attractive as the economics and the hardware part of the business.

And they end up being spread across the same customer acquisition costs that we have to acquire a new customer. So as we think about lifetime value of a consumer we don't think of it as only being exclusively hardware. We also believe that there will be.

Our analyst day.

But this is a big area of focus for us going forward, yes, actually the only thing I'd add to what Peter said is.

We've talked about lowering our cost of capital from the five 5%, we have right now and us or wanting our financial products.

Helps us do that and just to maintain a few every 50 basis point reduction in cost of confidence about eight to 10 10, some gross margin per watt.

That's helpful. Thank you.

Okay.

Our next question comes from the line of Brian Lee from Goldman Sachs You may begin.

Hey, guys. Thanks for taking the questions.

And maybe I'll.

Holidays in advance I have a couple of sort of more mundane guidance related ones.

There is a number of moving pieces here on the EBIT guidance for 2021. So if you guys could just maybe help us unpack it a little bit so the prior guidance was basically $120 million at the midpoint.

It's still at that point it included CIS and legacy.

Thank you haven't announced any plans to.

To do anything with that strategically so now the midpoint looks like 105 million, excluding CIS and legacy if I look at your disclosure so really the mid point apples to apples is $85 million.

Since it looks like CIS and legacy or a $20 million EBIT drag on the year.

Is that correct I just want to make sure we're level setting.

Sort of what's apples to apples on the new guide versus the old guidance.

Yes, it's closer to 90, but.

The Delta is driven by Cif and then.

The sunpower, excluding CIS and legacy is 105 midpoint.

Okay.

Alright, that's helpful. All right just wanted to make sure I wasn't missing something so then if thats generally right ballpark math 90 million.

Apples to apples can you help us bridge.

But it sounds like there is some incremental <unk> spend and then you also mentioned in the disclosures and offset from Blue Raven, but.

How does the how did the 120 go then go to 90.

Outside of the legacy not performing as well as you might have expected originally or is it all just Cif and legacy underperformance.

Yes, so as <unk>.

As we mentioned in the site as well all of the Delta between the prior guide in the current guidance is driven by CIS and legacy the rest of the business excluding that is consistent with our prior guidance.

All I'm, saying is that we have some incremental EBITDA coming from dilutive in acquisition in the fourth quarter and that we had utilized we are spending some in some opex.

And therefore, the prior guidance related to the rest of the business is the same which is 105 at the midpoint more importantly, what what that allows us to do is it allows us to grow significantly in 2022 and 'twenty three.

Which is why we feel it's a good tradeoff strong from that perspective.

Okay. That's helpful and last one and I'll pass it on again, just one more on the guidance so for 2022.

Saying that.

The original framework is intact, which is.

The $120 million midpoint, you had prior.

It's going to grow, 40%, which would imply something like a $165 million to $170 million.

And Thats.

You would have an incremental $35 million of T&D spend until we're talking about sort of a reported.

<unk> hundred $30 million to $135 million of EBITDA.

And sort of the actual metric will see appointed.

Yes, Brian you're thinking about the math correctly looking out a little bit of color one.

The residential business had an exceptional.

Third quarter from our top of the funnel perspective, as well as a gross margin perspective, so we exited third quarter with <unk>.

<unk> gross margin than we expected.

70 <unk>.

Good fun, so both the top of the funnel activity as well as the module we are making.

On our existing book of business gives us confidence from a residential growth perspective in 'twenty two and then.

Additional color district in mind.

Have you run into the comments you made in the last October, albeit funded an incremental $30 million to $35 million.

Hundred from the Enphase protein not from an operating cash.

Okay fair enough. Thanks, a lot guys I'll pass it on.

Thanks Brent.

And our next question comes from the line of Matthew.

The corn.

And Deloitte.

From credit Suisse, you may begin.

Your line is open.

Your line is on mute please UN mute your phone.

Alright. Our next question comes from line of Philip Shen from Roth Capital you may begin.

Hi, everyone. Thanks for taking my questions first one is on the $35 million of incremental investment Peter Thanks for breaking out.

How does that look from a spend.

Perspective in Q by quarter, if you will.

Yeah. So Phil we will give you more details in Q1 at the analyst review in terms of how we're thinking about the breakout between these buckets, but I would say all three areas.

From a from.

And investment perspective, I think of 2022.

As a big step up in investment.

That does scale as the business gets larger so if you measured it in some rate like spending per customer you would expect to see that spending get more and more efficient over time and this is one of the big lessons learned for my experience of managing the Amazon marketplace from something very small to something that grew to become very large you really have to be thinking.

Long term about how do you make investments in things that scale over time. So for example in financial products, we're going to do a lot of the software building and we're going to do a lot of the infrastructure building in 2022 that software in that infrastructure, we will use for the next 50 years.

And that will allow us to at some point continue to lower our cost of capital.

<unk> easily rollout more and more financial products same.

Same thing for the hardware products, we really I think one of the interesting things to me as I joined the company as we're very well positioned for solar in the premium segment.

Our products match up well, we have great market share and I think customers love our products, but the growing segment right now is actually the mass market segment.

And we will share our plans with you at the Investor day, but we plan to to absolutely enter the mass market segment and become an aggressive participant in that segment again focused on the highest quality in.

And best value products that are out there. So look forward to sharing more details, but we're very excited about the investments in all three of these areas.

Great. Thanks, Peter just as a follow up on that thread.

Yeah.

You mentioned near term return as well as longer term return on investment can you quantify that in any way.

What metrics are.

How are you quantifying it I guess internally that you might be able to share externally and then.

In terms of the mass market products.

With all the challenges happening in the marketplace with.

<unk>.

And new potential <unk> and things like that.

How are you thinking about that business in a way that might.

Perhaps helped.

Help insulate yourselves from.

Those types of challenges from Chris Thank.

Thank you.

I'll take the second one first so.

Our vision on the product side is to continue to be the leader in the highest quality products, but at a great value. So as we enter the mass market segment, we're not going to enter.

Are tied to forced labor, we have no interest in changing.

Economically stable and advantageous for our customers.

And then from a from an efficiency point of view.

Software for decades, and decades to come so we will give you. Some examples of the investments we make and how we think those scale over time and we're looking forward to getting together with you and sharing that in Q1.

Great. Thanks, Peter.

One more if I may as it relates to acquisitions.

You guys.

Made a splash with blue Raven.

Looking ahead do you think we could see.

Something along similar lines in the near term maybe the next two to four months or maybe within the year.

And then as it relates to dealers you guys had a nice dealer AD number there of 180 and.

In the quarter.

Curious if you expect that to sustain maybe give us a little more color on on those dealers. How you won them and then importantly also.

How many did you lose so on a net basis, what was the add to the total count.

Yeah. So on the on the residential market here in the U S.

As we've talked about the numbers.

It's a I would describe it as kind of a land grab opportunity I mean, just to round up Theres, a 100 million consumers, who could save money and do something that would make a positive difference in the planet and there's a government tailwind I haven't seen personally in my career those three factors ever come together. So our strategy is going to reflect.

The fact that in a land grab you don't sit back and your heels you lean forward and we did lean forward with the acquisition of Blue River. We have a number of opportunities that I think are attractive in front of us acquisitions are only one of those opportunities. Obviously, we have a number of opportunities where we can also.

Fund ourselves like the ones, we are describing with financial products.

Our dealer population.

Has grow in.

By a large positive margin so far this year I think one of the one of the pieces I feel very connected on us when I get a chance to talk to our dealers. There is a connection between us because the business I ran at Amazon in the marketplace business, we built software for those small businesses in onshore.

<unk> printers to help them do what they do best and really grow their business fast and make a lot of money that's exactly what we're going to do for our installing dealers here in the U S. We're going to build software that allows them to really focus on what they do best which is really work directly with residential customers and give them a world class.

Solar installation experience so that nobody else can match, so I'm really looking forward to growing our install dealer base and.

Being able to to aggressively grow our presence here in the U S.

Great. Thanks, Peter.

Looking forward to learning more about everything at the analyst day as well thanks.

Sounds great we have time for two more questions. Please.

Our next question comes from the line of Mike <unk>.

<unk> from credit Suisse, you may begin.

Hey, this is <unk>.

Look now.

Yes, hi.

Perfect. Thanks, a lot and.

Hopefully at the analyst day as in person. So we don't have to deal with.

I have two challenges.

And I look forward to that as well.

Yes.

On that because we don't we don't want to have to do it over the phone or worrying about so let's hope we're in person.

Things have moved along in the pandemic for sure sorry.

Sorry go ahead.

Thank you Doug.

Going into 2022 isn't the Pis fail.

With the next round of Enphase share sales.

Should we think about that capital deployment in the near term.

Okay.

It's either on the balance sheet.

M&A or anything else how are you.

Well, let me I'll start and then I'll, let <unk> add some more color, but this is the healthiest our balance sheet has either been ever in our history in a long long time so.

That's before the Enphase shares and then we will see what direction, we choose to take with the commercial business, but you are right.

If the strategic direction that we choose would result in a sale, that's certainly will add even more cash and capital to the balance sheet. So the great news is that.

There are a large list of very exciting investments to make in this business. When you think about the opportunity to help consumers save money and manage their energy in a way that prevents outages and builds resiliency, we've got a huge opportunity in front of us So again I would.

Say stay tuned for more specifics because thats not something we talk about it in advance but we.

We certainly are not going to be sitting on the cash wondering what to do we've got we've got a list right now things that we are ready to pursue.

The moment that it's right to go pursue them in mining or any other color you want to add.

Couple of things.

One.

I think from a balance sheet perspective.

We have.

Debt to EBITDA ratios on getting to kind of investment grade ratios. So.

Echo to what Peter said from a balance sheet point of view on our balance sheet strength perspective, and then I think that we've got a lot of opportunities. Both in terms of investing organically some of which Peter talked about and I think on balance sheet firepower. It also gives us the ability to get more flexible from a financing perspective and further.

Drive down our cost of capital from the five 5%.

During my prepared remarks in decades.

Both from a volume perspective, but also from a margin accretion point of view.

Got it and then just.

Quick follow up on the hardware strategy has mostly your technology agnostic.

Except for the battery side, we're kind of making it in housing or at least my ear on subcontractors.

So Ian the battery is that something you wouldn't continue.

Move to the EV charging kind of a frame.

Module just.

Outsource it to others.

Any other hardware just kind of interesting for you over here.

Yeah, well a couple of things I think the part that we're committed to own forever.

Tumors.

In terms of the hardware piece, we leave ourselves open for decisions there.

The most important part for US is the vision I named earlier, we only want to sell the highest quality best value products that exist I think if we're able to pull that off whether it's one partner or many partners I think in the end, we're going to create the customer experience is going to that's going to win in this category.

So thats kind of our criteria is whether we do it ourselves or whether we work with a third party will depend in part about.

Where can the customer get the best product at the best value.

We've got time for one more question one more question before we close.

And then.

Last question will be.

From the line of Colin Rusch from Oppenheimer.

You may begin.

Hey, guys, it's Joe on for Colin Thanks for taking our questions.

Hi, John.

Yes.

It's a terrific question as.

As we've all read.

It is it is a very challenging market to recruit.

Positions like software engineers, electricians and installers I think we've been having.

Good success, so far and I think one of the reasons. We're having good success is that we're able to tie the role into this mission.

Mission during what's been kind of a year.

Unique time and work history, where a lot of people are stepping back and kind of saying what do I want to do.

And does my work have meaning and purpose I think thats allowed us to actually have some some really good success. So the three executive hires that I spoke about we recruited against the Amazons and the Goldman Sachs and a lot of other amazing wonderful companies out there. So how did we added we land these three <unk>.

<unk> because at the end of the day there is passionate about the mission as everybody else here at Sunpower.

So I think from a from a recruiting standpoint, we've got another <unk>.

12, 15 months of hard work ahead of us, but I think we're pleased with some of the initial results we're seeing so far.

Thanks, Great question critical topics a big thanks to all of you for your questions today, we can't wait to.

How do you meet the leaders on our team and get into a lot more details about our future.

I can tell you. This from my perspective. This is down month number seven for me and my excitement continues to grow we've got a very bright future. We found our footing and we are ready to go.

Thanks again for your time.

And this concludes today's conference call. Thank you for participating you may now disconnect.

Q3 2021 SunPower Corp Earnings Call

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