Q1 2022 Sunlight Financial Holdings Inc Earnings Call
Greetings and welcome to Sunlight Financial's first quarter 2022 earnings call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Lucia Dempsey, with Investor Relations. Please go ahead.
Greetings and welcome to Sun Life financial first quarter 2022 earnings call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the conference over to your host Lucia Dempsey with Investor Relations. Please go ahead.
Good afternoon and welcome to Sunlight Financial's first quarter 2022 earnings call. After the close of the market today, we announced first quarter 2022 financial results and posted an earnings presentation to our investor relations website at ir.sunlightfinancial.com.
Good afternoon, and welcome to Sun Life Financial's first quarter 2022 earnings call after.
After the close of market today, we announced first quarter 2022 financial results and posted an earnings presentation for <unk>.
Buster Relations website I already got so my financial Dot com.
Before we begin, I'd like to remind everyone that this webcast may contain certain statements that constitute toward looking statements within the meaning of the private securities litigation reform act of 1995. These include remarks about future expectations, belief estimates, plans, and process.
Before we begin I'd like to remind everyone that this webcast may contain certain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These include remarks about future expectations beliefs estimates plans and prospects.
Such statements are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from those indicated or implied by such statements.
Such statements are subject to a variety of risks uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements.
or looking statements include, but are not limited to, sunlight financials expectation or prediction of financial and business performance and conditions and competitive and industry outlook.
But those things include but are not limited to my opinion sort of expectation or predictions of financial and business critical condition.
It is an industry.
Forward-looking statements speak as of the day they are made, are subject to risks, uncertainties, and assumptions, and are not guarantees of performance.
Forward looking statements speak as of the day. They are made are subject to risks uncertainties and assumptions and are not guarantees of performance.
So my financial is under no obligation and expressly disclaims any obligation to update alter or otherwise revise any for looking statements, whether as a result of new information future events or otherwise except as required by law.
So my financial is under no obligation and expressly disclaims any obligation to update or otherwise revise any forward looking statement.
Whether at the original of new information future events or otherwise, except as required by law.
The company also refers participants on this call because it cross-release issued by the company and filed today with the SEC, the supplemental presentation posted to Summit Financial's website and Summit Financial's SEC fire rules for a discussion of the risks that can affect our business.
The company also refers participant on this call the press release filed today with the SEC.
Well, that's a presentation posted to stomach I suppose website and select financial SEC filings for a discussion of the risks that can affect our business.
Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our...
Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance.
The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAP. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found in both our press release and the supplemental presentation.
We can take some of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP I.
A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures can be found in both our press release and the supplemental presentation.
Joining me today are Matt Peteri, Summit Financial's Chief Executive Officer, and Rodney Yoder, Summit's new Chief Financial Officer. Matt will provide an operational update in the quarter, and then Rodney will share additional detail on our financial results. Following these prepared remarks, we will open the call to Q&A.
Joining me today are not metairie financials, Chief Executive Officer, and Rami here at her new Chief Financial Officer that.
Matt will provide an operational update on the quarter and then Rodney will share additional detail on our funding circle.
These prepared remarks, we will open the call.
It is now my pleasure to turn the call over to Matt for Terry.
Thank you, Lucia. And thank you all for joining us as we discussed on Life Financial's first quarter 2022 operational and financial results.
Thank you Lucy and thank you all for joining us as we discuss Sun life Financial's first quarter 2022 operational and financial results.
I'm pleased to report strong first quarter results, which are on track with our expectations for 2020.
I'm pleased to report strong first quarter results, which are on track with our expectations for 2022 as such we are affirming each of our previously provided full year 2022 guidance metrics.
As such, we are affirming each of our previously provided full year 2022 guidance.
In the first quarter, the sunlight funded $593 million of solar and home improvement loans.
In the first quarter sunlight funded $593 million of solar and home improvement Lux.
$8 million higher than the midpoint of our first quarter funded loan guidance of $580 to $590 million.
$8 million higher than the midpoint of our first quarter funded loan guidance.
580 $590 million.
$12 million higher than our funded loans in the first quarter of 2021.
$12 million higher than our funded loans in the first quarter of 2021.
Importantly, this level of volume is in line with typical season outing, where cells and credit approvals Slowed down over the holiday season, driving later installation volumes in the first quarter
Fortunately this level of volume is in line with typical seasonality, where sales and credit approvals slowed down over the holiday season, driving lighter installation volumes in the first quarter.
Home-improved volumes work particularly strong, with $76 million in the first quarter of 2022.
Home improvement volumes were particularly strong with $76 million in the first quarter of 2022.
more than double the first quarter of 2021 volume of $31 million.
More than double the first quarter of 2020 one volume.
$31 million.
While it will take some time for home improvement to become a significant portion of our business, we're excited about this strong growth trajectory, as we drive more business in its rapidly growing $400 billion mark.
While it will take some time for home improvement to become a significant portion of our business. We're excited about the strong growth trajectory as we drive more business in this rapidly growing 400 billion dollar market.
And we're further encouraged by the strength and customer demand we've seen over the last two months as the Omicron wave has receded. That said, we are keeping a watchful eye on the overall macro environment as I'll discuss in greater detail.
And we're further encouraged by the strength in customer demand we've seen over the last two months as the omicron wheat has receded.
That said, we are keeping a watchful eye on the overall macro environment as I'll discuss in greater detail shortly.
Some might continue to perform well on other operational keymecs.
So I'm like continued to perform well on other operational key metrics, we remain a leading financing choice for contractors and homeowners as our Orange platform provides a fast and frictionless process for financing solar installations in home improvement projects.
We remain a leading financing choice for contractors and homeowners. As our orange platform provides a fast and frictionless process for financing solar installations and home improvement projects.
We funded loans for nearly 17,000 borrowers in the first quarter, up 5% from the same period a year ago. Average loans...
We funded loans for nearly 17000 borrowers in the first quarter up 5% from the same period a year ago.
Average loan balances also continue to increase which drives incremental revenue for semi without any additional expense.
which drives incremental revenues for sunlight without any additional expense.
First quarter, 2022, solar loans in particular averaged $44,000. The highest yet for the company and up 12% relative to the first quarter of 2021.
First quarter 2022 solar loans in particular averaged $44000 the highest yet for the company and up 12% relative to the first quarter of 2021.
The light battery attachment rate was 13% in the first quarter of this year. While this is lower than attachment rates we saw in 2021, driven by tighter battery supplies and our contract.
So Mike's battery attachment rate was 13% in the first quarter of this year. While this is lower than attachment rates. We saw in 2021, driven by tighter battery supplies and our contractor mix. We believe that battery storage will continue to provide increasing benefits to homeowners overtime and that are battery attachment rates.
We believe that battery storage will continue to provide increasing benefits to homeowners over time. And that our battery attachment rates will increase as a result, particularly as battery supply shortages have been.
Well increase as a result, particularly has battery supplier shortages upbeat.
We are also pleased to have 80 additional active contractors on our platform in the first quarter of this year. Bringing your total relationships to nearly six...
We were also pleased to have 80 additional active contractors on our platform in the first quarter of this year, bringing our total relationships can you really 16 hungry.
We continue to see rapid growth in our home improvement contractor network as we build brand awareness in that mark.
We continue to see rapid growth in our home improvement contractor network as we build brand awareness in that market.
On the solar side, we're focused on adding new contractors as well, at strengthening loyalty and increasing volume with existing contractors, by building relationships that lead and stars to choose some light first each and every time.
On the solar side, we're focused on adding new contractors as well as strengthening loyalty and increasing volume with existing contractors by building relationships that lead installers to choose somebody first each and every time.
While Rodney will discuss our profitability in more detail, I'd like to share an update on our Strategic Capital Deployment as we continue to operate a capital-life business that generates significant cash.
While Rodney will discuss our profitability in more detail I'd like to share an update on our strategic capital deployment as we continue to operate a capital light business that generates significant cash.
I'm excited to announce that our Board of Directors has approved a share repurchase program under which the company may die back up to $50 million of Class A common shares over the next 18 years.
I'm excited to announce that our board of directors has approved a share repurchase program under which the company may die back up to $50 million of class a common shares over the next 18 months. This program will be funded with excess cash on hand, as well as cash generated from operations.
This program will be funded with excess cash on hand, as well as cash generated from operation.
We believe the program is an attractive use of capital to drive long-term shareholder return while maintaining ample cash on hand to ensure liquidity and execute on our broad stress.
We believe the program is an attractive use of capital to drive long term shareholder return, while maintaining ample cash on hand to ensure liquidity and execute on our growth strategies.
To that end, we also continue to invest in our contractor advances program, where we provide qualified contractors with working capital for sunlight, finance, and installations. We find this to be an effective way to leverage our balance sheet to strengthen...
To that end, we also continued to invest in our contractor advanced This program, where we provide qualified contractors with working capital for sunlight finance installations.
We find this to be an effective way to leverage our balance sheet.
The relationships with our contractor partners.
In the first quarter, we invested in additional $19 million in advance and will continue to allocate capital to this program opportunistically to drive profitable by.
In the first quarter, we invested an additional $19 million in advances and we'll continue to allocate capital to this program Opportunistically to drive profitable volume.
We may also strategically use capital toward M&A app.
We may also strategically use capital towards M&A opportunities and are continually evaluating acquisition opportunities that further enhance our value proposition where that enable us to apply our unique capabilities in adjacent verticals.
and are continually evaluating acquisition opportunities that further enhance our value proposition or then enable us to apply our unique capabilities in adjacent firms.
It's now my pleasure to turn the call over to Rodney Yoder, some like new CFO , who joins me today for his first sunlight financial earn.
It's now my pleasure to turn the call over to Rodney Yoder sound like New CFO , who joins me today for his first saw my financial earnings release.
Thanks, Matt. I'm excited to be here and I've thoroughly enjoyed my first six weeks here at Sun.
Thanks, Matt I'm excited to be here and I've thoroughly enjoyed my first six weeks here at Sun.
sunlight generated total revenue of $30 million in the first quarter of 2022 up 11% from the first quarter of 2021, primarily driven by an increase in platform P margin.
Suddenly generated total revenue of $30 million in the first quarter of 2022.
The 11% from the first quarter of 2021 primarily driven by an increase in platform fee margin.
As we have discussed, our industry leading criticality and capital provider demand for sunlight loans led to increased margin in the second half of last year and into the first quarter of 2022.
As we have discussed our interest.
Leading credit quality and capital provider demand for semiconductors led to increased margin in the second half of last year and into the first quarter of 2022.
Our total platform P this quarter was 4.7% of 50 basis points from 4.2% in the same period last year.
Our total platform fee this quarter was four 7%.
50 basis points from 442% in the same period last year.
direct solar platform fee percentage was even higher at 5.3 percent, up 90 basis points from 4.4 percent in the first quarter of 2021.
Direct solar platform fee percentage was even higher at five 3% up 90 basis points.
Four 4% in the first quarter 2021.
Adjusted net income for the quarter was $4.9 million, for $3 cents, for fully deluded share, for a little $5 to $9.3 million, in the first quarter of 21.
Adjusted net income for the quarter was $4 $9 million or three cents per fully diluted share relative to $9 $3 million and the.
First quarter of 'twenty one.
Adjusted EBITDA for the first quarter was $7.8 million, compared to $11.5 million in the first quarter of 2021.
Adjusted EBITDA for the first quarter was $7 8 million compared to $11 $5 million in the first quarter of 2021 does.
This decrease was driven by higher operational expenses, including approximately $4 million of public company expense that did not incur as a private company in the first quarter of 21.
This decrease was driven by higher operational expenses, including approximately $4 million of public company expense that did not occur as a private company in the first quarter of 'twenty one.
as well as $1.4 million of incremental SG&A and other costs to drive growth in the business.
As well as $1.4 million of incremental SG&A and other cost to drive growth in the business.
was partially else that by increased platform fee revenue relative to higher platform fee margins as I just
This was partially offset by increased platform fee revenue relative to higher platform fee margins as I just discussed.
Due to higher expenses, adjusted even a margin decreased from 42.5% in the first quarter of 2021, 25.9% in the first quarter of 2022.
They had a higher expenses adjusted EBITDA margin decreased from 42, 5% in the first quarter 2021 and 25, 9% in the first quarter of 2022.
However, we expect adjusted even a margin to improve throughout the year as we continue to generate higher revenue relative to a similar cost base, setting us up to drive incremental operating leverage in 23 and beyond.
However, we expect adjusted EBITDA margin to improve throughout the year.
As we continue to generate higher revenue.
Relative to a similar cost base setting us up to drive incremental operating leverage in 'twenty three and beyond.
Fun life continues to operate a profitable business model and generates significant tension.
Sun life continues to operate a profitable business model and generates significant cash flow.
In the first quarter of 2022, free cash flow was $6.5 million, representing an 83% EVA to free cash flow conversion.
In the first quarter of 2022 free cash flow was $6 $5 million, representing an 83%.
The free cash flow conversion rate.
company is also well capitalized and maintains strong liquidity with nearly $70 million of unrestricted cash and cash equips.
The company is also well capitalized and maintain strong liquidity with nearly $70 million of unrestricted cash and cash equivalents.
and only $21 million of short-term debt on the balance sheet.
Late 'twenty, one $9 of short term debt on the balance sheet.
I'm destroying our cash-generated capital-led business model.
Underscoring our cash generative capital light business model.
While free cash flow may fluctuate from quarter to quarter through the various adjustments, we expect to maintain a high conversion rate and the poolay are free cash flow to earn attractive returns to share with purchases, contractor advance.
While free cash flow may fluctuate from quarter to quarter due to various adjustments.
Expect to maintain a high conversion rate and deploy our free cash flow to earn attractive returns through share repurchases contract or advances and or M&A opportunities all of which Matt discussed earlier.
and reminay opportunities, all of which Matt discussed earlier.
I'd also like to provide a short update on our capital provider relations.
I'd also like to provide a short update on our capital provider relationships.
Our ability to execute has always been driven by our funding strategy with long-term capital parts.
Our ability to execute has always been driven by our funding strategy with long term capital partners, which we were able to maintain and grow thanks to our industry industry, leading credit quality.
which we are able to maintain and grow thanks to our industry-leading credit quality.
We are working closely for capital providers and monitor the interest rate environment, and ensure they are receiving high quality assets. We are working closely for capital providers and monitor the interest rate environment, and ensure they are receiving high quality assets.
We're working closely with our capital providers to monitor the interest rate environment and ensure they are receiving high quality assets with attractive returns.
While we are not immune to the impact of rising interest rates, our relationships with the positives and the strong demand for our credit quality reduces our exposure to pricing changes relative to capital markets execution.
We are not immune to the impact of rising interest rates, our relationships with depository and the strong demand for our credit quality reduces our exposure to pricing changes relative to capital markets execution.
We also expect to continue to add in capital providers in the coming quarters in order to expand our access to low cost funding and enhance platform these stability in various market conditions.
We also expect to continue to add and capital providers in the coming quarters.
Order to expand our access to low cost funding and enhanced platform stability in various market conditions.
Before we open up for question and answer, I'd like to turn it back to Matt to provide our perspective on the macro industry environment and outline for the remainder of the year.
Before we open up for question and answer I'd like to turn it back to Matt to provide her perspective on the macro industry environment and outline for the remainder of the year.
Thanks, Rodney. As we discussed on our prior earnings call in March, sunlight has a history of achieving results on this challenging macro-environment.
Thanks Rodney.
We discussed on our prior earnings call on March sunlight has a history of achieving results.
This challenging macro environment.
While the industry is facing a number of macro challenges, we remain focused on our execution and our positioned favorably, particularly relative to our...
While the industry is facing a number of macro challenges we remain focused on our execution and are positioned favorably, particularly relative to our peers.
First, while we saw Omicron related impacts to volume improved in the back half of the first quarter, component availability, labor shortages, and permitting delays have not yet normalized from pre-COVID-19 levels.
First while we saw omicron related impacts the volume improve in the back half of the first quarter component availability labor shortages and permitting delays have not yet normalized from pre COVID-19 levels.
Second, while inflation is having an increasing impact on our industry, with rising installation and equipment costs.
And second while inflation is having an increasing impact on our industry with rising installation and equipment cost.
Some like, fortunately, does not procure equipment, and therefore is not directly exposed to increasing equipment costs. From an industry perspective, though, solar is becoming more competitive due to significant retail rate increases from utilities across the nation, including double-digit rate increases in several-
Unlike unfortunately does not procure quit and therefore not directly exposed to increasing equipment costs from an industry perspective, though solar is becoming more competitive due to significant retail rate increases from utilities across the nation.
<unk> double digit rate increases in several states.
As solar presents a cost savings opportunity relative to these utility price increases, we expect solar and battery storage demand to remain strong.
As solar presents a cost savings opportunity relative to these utility price increases, we expect solar and battery storage demand to remain strong.
Now rising interest rates are having an impact on the broader industry, though initial impacts to sunlight are more muted.
Now rising interest rates are having an impact on the broader industry. The initial impacts to suddenly are more muted.
We intentionally choose to fund our loans primarily by the positories.
We intentionally choose to fund our loans, primarily by depository institutions versus accessing the ABS markets, which provides some protection against this.
versus accessing the ABS markets, which provides some protection.
While rising rates may have some impact, particularly in our indirect channel, our industry leading credit quality and the strength of our capital-provider relationships, enable us to maintain strong demand for our love.
While rising rates may have some impact, particularly in our indirect channel our industry, leading credit quality and the strength of our capital provider relationships enable us to maintain strong demand for our logs.
And lastly, while the recent anti-circumvention paraclet investigation has not yet had an impact on some lights business, we are watching these...
And lastly, while the recent anti circumvention Paragon investigation has not yet had an impact on somebody's business.
We're watching these developments very closely.
Some like doesn't take inventory risk, and our contractor advance program supports our contractor partners in their efforts to secure sufficient inventory to meet the man.
So unlike doesn't take inventory risk and our contractor advanced program supports our contractor partners and their efforts to secure sufficient inventory to meet demand.
On the net metering front, we are encouraged by recent developments in Florida and in California. We see both Governor DeSantis's veto of Florida's net metering bill and the California Public Utility Commission reopening of its net metering docket as positive regulatory developments and further indications of bipartisan support of Seoul.
On the net metering front, we are encouraged by recent developments in Florida and in California, We see both governor to Santos has veto of Florida's net metering Bill and the California Public utility Commission reopening of its net metering docket as positive regulatory developments and further indications of bipartisan support.
Of solar.
Despite these macro challenges, our first quarter performance was in line with our expectations, and we remained on track to meet our full year out.
Despite these macro challenges our first quarter performance was in line with our expectations and we remain on track to meet our full year outlook. It. Therefore, I'm pleased to affirm sunlight 2022 full year guidance ranges as follows.
Therefore, I'm pleased to affirm Sunlight's 2022 Full Your Guidance Ranges as follows.
Total funded loan volume of 2.9 to 3.1 billion dollars.
Total funded loan volume up 2.9 to $3 $1 billion.
Total revenue of $145 to $155 million, and adjusted EBITDA of $55 to $60 million. With that, I'll turn it back. I'll turn it back.
Total revenue of $145 million to $155 million and.
And adjusted EBITDA of $55 million to $60 million.
With that I'll turn it back to the operator for Q&A.
Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question two. You may press star two if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.
Yeah.
At this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Your first question comes from line of the Philipsion with Ross Capital Partners. Please proceed with your question.
Your first question comes from the line of Philip Shen with Roth Capital Partners. Please proceed with your question.
Hi everybody, thanks for taking my questions. First one is on the anti-circumvention case and Matt, I know he just alluded to it just now, but was wondering if you could give us a little more color on whether or not your contractors are experiencing any difficulties.
Hi, everybody. Thanks for taking my questions first one is on.
The anti circumvention case, and Matt I know you just alluded to it just now but I was wondering if you could.
Give us a little more color on whether or not are your contractors are experiencing any difficulty in securing modules.
during modules, have they communicated any challenges to you, or is it really just a price question, meaning they have to pay more for the modules and they have access to the supply of bayonets.
Have they communicated any challenges to you.
Or is it really just a price question, meaning they have to pay more for the modules and to have access to the supply they need to meet their demands can you share what you think might be happening with your customer base. Thanks.
Can you share what you think might be happening with your customer base? Thanks.
Yeah, Phil Thanks for the thanks for the question.
So on the anti-circumvent front, you know, we are watching it very closely. It is early. So far we have not seen any impact of the case on our installers and on our on our results. But as I mentioned it is early. We're mindful that it could have an impact first on price.
So on the anti circumvent front, we are watching it very closely it is early but so far we've not seen any impact of anti of the case on our installers and on our on our results.
It is early we're mindful that it could have an impact first on price.
and the price of equipment. Fortunately for sunlight, we don't take inventory risk, so we don't bear those costs directly. And from a contractor standpoint, and from a broader market standpoint, while the cost of equipment could go up over time, as a result of the case,
The price of equipment Fortunately for sunlight, we don't take inventory risk. So we don't bear those cost directly.
And from a contractor standpoint, and from a broader market standpoint.
While the cost of equipment could go up over time as a result of the case.
Offsetting that is that we've seen significant increases from utilities In their rates and the first quarter somewhere around a 9% plus increase across the country And that's likely before some of the increased costs related to higher commodity Higher cost of commodity
Offsetting that is that we've seen significant increases from utilities.
In their rates and the first quarter somewhere around the 9% plus increase across the country and that's likely before some of the increased costs related to higher commodity.
A higher cost of commodities, so that is on a relative basis, making solar more attractive from an availability standpoint again, well, we'll monitor it closely we're working closely with our partners and as I mentioned in my remarks.
So, you know, that is on a relative basis making solar more attractive. From an availability standpoint, again, we'll monitor it closely. We're working closely with our partners. And as I mentioned in my remarks, one of the benefits of our advanced program is that helps provide working capital to our partners to ensure that they can access.
But one of the benefits of our advanced programs that helps provide working capital to our partners to ensure that they can they can access equipment. So we'll watch it closely and we'll certainly continue to update you as things develop.
So we'll watch it closely and we'll certainly continue to update you as things develop.
Great, thanks, Matt. Shifting years to the rising funding cost.
Great. Thanks, Matt shifting gears to the rising funding costs.
You know, some of our checks suggest that the price sheets that loan companies...
You know our some of our checks.
<unk> suggests that.
The price sheets that loan companies.
issue to their contractors. Haven't really changed too much.
Issue to their contractors havent really changed too much or checks aren't are the.
Our checks aren't the ones we didn't warrant back comprehensive, so just a few conversations, but it suggests...
The ones, we didn't weren't that comprehensive so it's just a few conversations.
But it suggests that you know with the <unk>.
You know, the one, the 20 and 25 year products are still kind of the deal of fees and the rates are still kind of where they were before the ABS movements. I could be wrong on that, but curious if you're seeing that from a competitive standpoint, it importantly.
One the 2020 five year products are still kind of the dealer fees and and the rates are still kind of where they were before the a b S movements I could be wrong on that but curious if you're seeing that from a competitive standpoint, and importantly, you know you're you're not tapping into the ABS market and so I'm guessing you.
You know, you're not tapping into the ABS market and so I'm guessing you guys don't see a meaningful need.
You guys don't see a meaningful need to change your pricing and so I was wondering if you could talk through.
to change your pricing. And so it was one of you can talk through some of the dynamics you're seeing from a competitive standpoint, as well as what that might mean for your business in terms of share and...
Some of the dynamics youre seeing from a competitive standpoint as.
As well as what that might mean for your business in terms of share and opportunity.
Yeah, thanks. It's a great question. So, as we've talked about for a long time, we have a very intentional funding strategy. We partner with most of our funding partners, our depositories, and that helps provide diverse and stable low-cost capital. And then the other thing that we've always talked about is that we focus on having the best credit quality and having high quality origination.
Yeah. Thanks.
Question. So we've as we've talked about for a long time, we have a very intentional funding strategy, we partner with most of our our funding partners, our depository and that helps to provide diverse and stable low cost capital and then the other thing that we've always talked about is that we focus on having the best credit.
Howdy, and having high quality originations and we do that because it benefits us not during the good times, although it does certainly about his thoughts during the good times when we do it because we know that cycles change interest rate cycles change credit cycles change and it provides a real strategic advantage as as there become additional challenges in the market and so because of that thoughtfulness.
And we do that because it benefits us not during the good times, although it does certainly benefit us during the good times, but we do it because we know that cycle change, interest rate cycle change, credit cycle change, and it provides a real strategic advantage as there become additional challenges in the market.
And so because of that thoughtfulness, we think we're really well positioned over the long term.
We think we're really well positioned over the long term.
It doesn't mean that we're immune from rising rates, particularly in our indirect channel, that does have some exposure to market rates. But as you mentioned, fortunately, we were very thoughtful about not building a large ABS program where we would have significant exposure to market rates and the depositories give us much more stable in the birth capital. So we think we're well positioned over the long term.
It doesn't mean that we're immune from from rising rates, particularly particularly in our indirect channel that does have some exposure.
Market rates, but as you mentioned Unfortunately, we were very thoughtful about not building a large ABS program, where we would have significant.
Exposure to market rates, and a depository give us much more stable and diverse capital. So we think we're well positioned over the long term.
And certainly from a quarter to a quarter basis, you could always see things bounced around a little bit in advance.
And certainly from a quarter to quarter basis, you could always see things bounce around a little bit.
just from broader market or because a product makes or contractor makes. But we do think we're very well.
Yeah, just from broader market or because of product mix or contractor mix, but we do think we're very well positioned.
Great, thanks. And then, was one of you could give us a little more color on the Alec for margins.
Great. Thanks, and then I was wondering if you could give us a little more color on the outlook for.
Margins.
Hum.
I think we saw some compression. They stayed, you know, the best here. Then we saw stabilization and then expansion. Given your stable depository funding.
I think yeah, we saw some compression they say you know the past year than we saw stabilization and then expansion.
Given your stable depository.
Our funding cost.
We see that expansion accelerate in the coming quarter.
We see that expansion accelerates in the coming quarters.
Yeah, great question, Phil. Phil, so overall we expect the full year 22 platform fee percentage to exceed that of the full year of 21. As many of the improvements we saw coming through the second half of last year will continue into 22.
Yeah, Great Great question, Phil Philip So overall, we expect the full year 'twenty two platform fee.
Percentage to exceed that of the full year of 'twenty one as many of the improvements we saw coming through the second half of last year will continue into 'twenty two.
I think it's important that I had some context. So first, our margins have some normal variability quarter to quarter as Matt suggested. And that has been driven by product installer mix and capital provider mix as well as a competitive environment. So you shouldn't expect margins to be perfectly consistent.
I think it's important that add some some context. So first our margins have some normal variability quarter to quarter as Matt suggested and that is been being driven by product installer mix and capital provider mix as well as the competitive environment. So you shouldn't expect margins to be perfectly consistent and secondly, we think that we're relatively.
And technically we think that we're relatively well positioned in this rising rate environment, relative to those peers that are relying on the capital markets. So it's likely we will see some impact from rates, especially in our indirect channel, but we feel really good about where we are. Thanks Rodney. Look forward to working with you. Thank you Matt.
Well positioned in this rising rate environment relative to those peers that are relying on the capital markets.
So its likely we will see some impact from rates, especially in our indirect channel, but we feel really good about where we are.
Thanks, Rodney and look forward to working with you are thinking about as well.
Thank you and look forward to working with them.
Your next question comes from one of Aaron Sidinovich with City. Please proceed with your question.
Your next question comes from the line of Erin <unk> with Citi. Please proceed with your question.
Thanks. I just wanted to follow up on the question about funding costs. Are your bank partners asking for rate increases in this environment, or has it, have they not really pushed back in terms of price?
Yes.
Thanks, Mike.
Wanted to follow up on the question about funding costs or are your are your bank partners asking for rate increases in this environment or has it had been not really a pushback in terms of pricing.
Great question, Erin. So we have continuous dialogue with our capital providers, building and maintaining mutually beneficial relationships and agreements. As Matt mentioned, we continue to deliver the highest credit quality in industry. So strong demand remains in both solar and home improvements.
Great question Erin.
So we have continuous dialogue with our catheter providers building and maintaining a mutually beneficial relationships and agreements.
As Matt mentioned, we continued to deliver the highest credit quality in the industry are so strong demand remains in both solar and home improvement.
We're constantly evaluating our pricing in the market with our contractors in order to be as competitive as possible. And as I mentioned earlier, there could be some noise quoted a quarter, but again, you know, we are heavily reliant on our depository institutions and feel good about where we are.
We're constantly evaluating our pricing in the market with our contractors in order to be as competitive as possible.
And as I had mentioned earlier, there could be some noise quarter to quarter, but.
Yeah, we are heavily reliant on our depository institutions and feel good about where we are.
All right, thanks. And then following up on the new buyback that was announced, I think you said it to Renny team month period, you know, looking at the pre-cash flow that you generated, is that kind of an idea of, you know, from a quarter to quarter basis?
Alright, Thanks, and then following up on the the the new buyback that was announced.
I think you said it so over an 18 month period, you know looking at the free cash flow that you generated as it is is that kind of an idea of you know from a quarter to quarter basis.
How much you might think about as being available for buybacks or is this more of a, you know, just in case type of a plan that you may not utilize in nature?
How much you might think about as being available for further buybacks.
Or is this more of a you know.
Just in case type of a of a plant and you may not utilize it near term.
Great question, thanks. So as you mentioned, we've been operating very profitable business that generates a significant amount of free cash flow.
Yeah great.
Great Great question. Thanks So.
So as you mentioned, we've been operating very profitable business that generates a significant amount of free cash flow.
So within that context, the board has authorized this program 50 million over 18 months to address.
So within that context, the board has authorized this program.
$50 million over 18 months to address undervaluation return value to our shareholders and build long term investor support and so we think this program really affords us the flexibility to do that to maximize value has an attractive returns for these levels.
undervaluation, return value to our shareholders and build long-term investor support. And so we think this program really affords us the flexibility to do that, to maximize value, as an attractive return for these levels. The other thing I would say is the size.
The other thing I would say is the size is.
fairly standard given our company size and market dynamics.
Fairly standard given our company size and market dynamics.
Okay. Thank you.
Yeah.
Your next question comes from Mahi Mandloy with Credit Suisse. Please proceed with your question.
Your next question comes from Mohit <unk> with Credit Suisse. Please proceed with your question.
Hi, thank you for taking the questions. This is Chany on behalf of Mahi.
Hi, Thank you for taking the question just Johnny on behalf of the heap you walked us through the adjusted EBIDTA margin impacts from <unk> 21 to <unk> 22.
You walked us through the address of Ibitta margin impact from 1Q21 to 1Q22.
Just wanted to understand how should we think about Adjusted a bit of margin beyond 2022? Could you possibly disaggregate These public company expenses? How do you expect that to evolve and also in terms of your hiring needs?
I just wanted to understand how should we think about adjusted EBITDA margin beyond 2022.
Could you, possibly disaggregate a deep public company expenses, how do you expect that to evolve and also in terms of your hiring needs for 2023 and beyond since you pulled forward. Some of that code can you expect that it would be flat or slightly above for 2023 and beyond and.
for 2023 and beyond. Since you pulled forward some of that growth, can you expect that it would be flat or just slightly above for 2023 and beyond? And finally, like what in your view would be sort of a long-term stable rate for adjusted EBITDA margins?
Finally, like what in your view would be sort of a long term stable rate for adjusted EBITDA margin for this business.
Thank you.
Yeah.
Requestion. Thank you. So as you mentioned our expenses.
Great question. Thank you.
So as you mentioned our expenses.
in the first quarter, we're in line with our expectations. And as you mentioned, we had four million of public company related expenses within the current last year. And I would expect a similar increase when you compare Q2, 21 to Q2, 22.
In the first quarter.
Where we're in line with our expectations.
And as you mentioned, we had $4 million of public company related expenses that didn't occur last year.
And I would expect a similar increase when you compare Q2.
21 to Q2 'twenty two.
And those expenses are, you know, the things that you would expect, you know, that drive the public company expenses, accounting, you know, and so forth to support public company. And we also have year-to-year increases in our S-GNA related to additional costs to drive business growth and some wage inflation. But I do think about this as normalization.
And those expenses are.
Things that you would.
Expect that drive the public company expenses accounting do you know and so forth to support a public company.
And we also have year over year increases in our SG&A related to additional costs to drive business growth and some wage inflation, but I do think about this says is normalization.
to a new expense baseline and expect that are adjusted even a margins will improve in the back after this year and in future periods as our as thick cost remain relatively constant in the context of continued volume growth.
To a new expense baseline.
And expect that our adjusted EBITDA margins will improve in the back half of this year and in future periods as our as fixed cost remained relatively constant in the context of continued volume growth and our operating model our operating leverage continues to take hold.
and our operating model, operating leverage continues to take hold.
This operating leverage that we've talked about consistently is an attractive feature of the business. And we expect that our expenses will grow in much smaller rate than revenue is going forward.
This operating leverage that we've talked about consistently is an attractive feature of the business and we expect that our expenses will grow at much smaller rate than revenues going forward.
Thank you.
Your next question comes from Chris Donat with Piper Sandler. Please proceed with your question.
Your next question comes from Chris Donat with Piper Sandler. Please proceed with your question.
Good afternoon, thanks for taking my questions. First one, just on the higher average solar loan balances, going up about 12% year on year to nearly $44,000, but coming with a lower attachment rate.
Good afternoon, and thanks for taking my questions first.
The first one just on the the higher average solar loan balances you know gone up 12% year on year to nearly $44000.
But coming with the lower attachment rates.
What was driving that increase? Is it something in the costs or dealing in different geographies or are there other factors driving the higher loan balance?
What was driving that increases it.
Something in the the costs or you're dealing in different geographies are there there are other factors driving the.
The higher loan balances.
Thanks, Chris. It's a great question. So as Solar has continued to add value really across the market, it's provided an opportunity for installers to both build larger systems and also provide other services, which help increase the average ticket and ultimately increase our average loan balance. That plus, we do think we're likely seeing some inflation in cost.
Yeah. Thanks, Chris It's a it's a great question so.
So as solar has continued to add value really across the market is providing an opportunity for installers to both build larger systems and also provide other services, which helped increase the average ticket and ultimately increase our average loan balance.
That plus we do think we're likely seeing some inflation in cost and that's getting priced into the higher average ticket. So in some wage inflation actually benefits us in that we're not taking the inventory risk, but we see higher higher balances, which then translate to which then pull through to the bottom line.
and that's getting priced into the higher average ticket. So in some ways inflation actually benefits us in that we're not taking inventory risk, but we see higher balances which then translate to which then pull through the bottom line.
okay and and if you were to see higher attachment rate or attachment rate to rebound from where they are now that should also be favorable to the balances typically right
Okay, and and if you were to see higher attachment rates or attachment rates rebound from where they are now that should also be favorable to balance is typically right.
That's right. So it was unusual in the first quarter from recent trends that attachment rates went down. We don't think that's specific to sunlight as we talk to others in the market. That's a pretty broad trend and it's a result of tighter supply around batteries. So we think as those supply challenges start to resolve themselves, that'll help drive up average ticket as well and it could potentially provide some additional lift.
That's right. So it was unusual in the first quarter from recent trends that attachment rates went down we don't think that's specific to sunlight and as we talked to others in the market you know that that's a pretty broad trend and as a result of tighter supply around batteries. So we think as those supply challenges start to resolve themselves.
That'll help drive up average ticket as well.
Essentially provide some additional lift.
Okay, and then just last for me is curious the comment about
Okay and then just last for me is I'm curious if the comment about.
You launched the your credit five point O and it has higher approval rates.
You launch your Cretif 5.0 and it has higher approval rates.
to me that seems a little counterintuitive given the concerns around the economy or maybe that's a timing issue but um... just wondering uh... with higher approval rates uh... is that a function just so that
To me that seems a little counterintuitive given the concerns around the economy or maybe that's the timing issue, but I'm just wondering.
With higher approval rates are is that a function just of that sort.
sort of cretoscoring or there are other factors that you may be seeing at different mix of customers.
Credit, scoring or are there other factors that you're maybe seeing a different mix of customers, but just curious about higher approval rates, given maybe a less certain environment.
I was curious about higher approval rates, given maybe a less certain environment.
Yeah, absolutely. So we've always been really thoughtful about credit. I have a 25 year consumer credit. 25 years of consumer credit. Rodney has 25 plus years and if you go look across our team, you'll see really deep credit expertise.
Yeah, absolutely. So we've always been really thoughtful about credit you know I have a 25 year consumer credit.
25 years in consumer credit Rodney has 25 plus years and you could go look across our team you'll see really deep credit expertise, we build our credit strategies not based on FICO score alone we use.
We build our credits strategies not based on FICO score alone. We use
hundreds of variables to help drive the ultimate, ultimate credit strategy. And so the result is to identify more goods, more customers who have a very low propensity to go bad. And also identify those that have a higher propensity. When you swap those two out, as our models get better and better over time, when we continue to leverage that data, the net result is we can actually increase our approval rates while maintaining or improving credit costs.
Hundreds of variables to help drive the ultimate the ultimate credit strategy and so the result is to identify more goods more customers who are have a very low propensity to go bad and and also identify those have a higher pretense propensity when you swap those two out as our models get better and better over time, and we continue to leverage that.
That data. The net result is we can actually increase our approval rates, while maintaining or improving credit quality.
So fortunately, we're experiencing the increases in approval rates and the benefits to our contractor network without taking on more risk for our capital providers. Okay, got it. Thanks very much.
Fortunately, we were experiencing the <unk>.
<unk> in approval rates and the benefits to our contractor network without taking on more risk for our capital providers.
Okay got it thanks, very much and welcome Rodney.
Thank you very much I appreciate it.
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Your next question comes from Jeff Osborne with Cowan & Company. Please proceed with your question.
Your next question comes from Jeff Osborne with Cowen and company. Please proceed with your question.
Yeah, good evening. A lot's been addressed, but I don't think you'll give an exact answer on this map, but I was wondering if qualitatively you can touch on what the changes have been over the last six to 12 months as it relates to time from loan approval to glass on the roof. You highlighted a couple things that are sort of challenging the industry in terms of
Hey, good evening, a lot's been addressed but I don't think you'll give an exact answer on this Matt but I was wondering if qualitatively you can touch on what the change.
Change has been over the last six to 12 months as it relates to time from Loma loan approval to to glass on the roof.
You highlighted a couple of things that are sort of challenging the industry in terms of.
Permitting and other delays, but I was curious what you're seeing in that regard.
Yeah. Thanks.
Thanks, Jeff So yeah, we have over the last couple of quarters, we talked about delays from credit approval to loan funding and and system installation, we especially saw that slowdown in the back half of last year and I think last when I when we.
Over the last couple of quarters, we talked about delays from credit approval to loan funding and system installation. We especially saw that slow down in the back half of last year. I think last, when we announced year end earnings in March, I mentioned we saw some green shoots that perhaps it was starting to improve. We do believe we've seen some improvements.
<unk> our year end earnings in March I mentioned, we saw some green shoots that perhaps it was starting to improve I mean, we do we do believe we've seen some improvement.
But it is not yet those installation timelines have not yet returned to what we would consider a historical norm.
But it is not yet those installation timelines have not yet returned to what we would consider historical norms and so when we look at year over year pull through timing and pull through rates are they are materially lower than we had seen historically and that is something that we would expect to improve over time.
And so when we look at year over year, pull through timing and pull through rates, they are, you know, materially lower than we had seen historically. And that is something that we would expect to improve over time as supply chain issues work themselves through. But we're certainly watching that very close.
At supply chain issues work themselves through but we're certainly watching that very closely.
to hear. A couple other quick ones for maybe for Rodney or you Matt, is there a minimum cache balance that you need or feel comfortable with as it relates to the balance sheet? I'm just trying to understand the three uses of cache that you talked about in that process.
Got it that's good to hear a couple of other quick ones.
Maybe for Rodney or you Matt is there a minimum cash balance that you need or feel comfortable with as it relates to the balance sheet I'm just trying to understand that the three uses of cash that you talked about in the presentation here on the call.
So that could go as it relates to creating shareholder value.
Yeah, great question. So, you know, as we mentioned before, and as you know, you know, we've been operating at a very profitable, very profitable rate generating significant amount of free cash flow.
Yeah, Great Great question.
So as we mentioned before and as you know you know we've been operating at a very profitable.
Profitable rate generating significant amount of free cash flow and so I think the size of this program gives us the flexibility.
And so I think the size of this program gives us a flexibility to continue to invest in our contractor advances and continue to grow the business. We will continue to be thoughtful and mindful about, you know, M&A, and so we look at that from time to time.
To continue to invest in our contractor advances continue to grow the business. We will continue to be thoughtful and mindful about you know M&A.
M&A and so we look at that from time to time.
And so now I think it's, it's, the program's really designed to give us flexibility to use our capital for its best investment purpose.
So now I think it's it's the program is really designed to give us flexibility to use our capital for its best investment purpose.
The last one I had is just I think it was six months ago or so. You talked about some initiatives in the non-prime market in terms of new capital providers and a go-to-market strategy there. Could you just give us an update on how that's pand-
Got it and the last one I had is just I think it was six months ago or so you talked about some initiatives in the non prime market in terms of new capital providers and in our go to market strategy. There could you just give us an update on how that's panned out.
Yes, so we announced Stunlight Max, which helped partnering with other capital providers allowed us to substantially increase our credit approval rate.
Yes, so we announced sunlight Max which helped.
Partnering with other capital providers allowed us to substantially increase our credit approval rates and help serve the needs of more customers. I mean, it's been very well received in both solar and especially in in home improvement.
and help serve the needs of more customers. And it's been very well received in both solar and especially in home improvement. We think it's a good example of our credit acumen and using that credit acumen to ensure assets are priced appropriately and get a capital provider an asset with a good risk of just a return and help homeowners go solar or make home improvements and help contractors sell more. So we're pleased with the results so far. Thank you.
We think it's a good example of our credit acumen and using that credit acumen to ensure assets are priced appropriately and get a capital provider an asset with a good risk adjusted return and help help homeowners go solar would make home improvements and how contract or sell more so where we're pleased with the results so far.
Great to hear that's all I had thank you.
Great. Thank you.
Yes.
Ladies and gentlemen, we have reached the end of the question and answer session. And I would like to turn the call back to Mr. Matt Patari.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr. Matt <unk>.
Terry for closing remarks.
Thank you. So we appreciate all of your questions and your continued interest in support of some life financial. Very pleased with our performance thus far. And I'm excited to continue executing on our growth plans as we leverage our capital light, cash-generated business model to provide value for all of our stakeholders. So thank you for joining us this evening and have a great night.
Great. Thank you.
So we appreciate all of your questions and your continued interest and support of Sun life financial I'm very pleased with our performance, thus far and I'm excited to continue executing on our growth plans as we leverage our capital light cash generative business model to provide value for all of our stakeholders. So thank you for joining us this evening and have a great night.
This concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.
This concludes today's conference you may disconnect your lines at this time. Thank you all for your participation.
The.
Okay.
[music].
Yes.