Q3 2022 SunPower Corp Earnings Call
Good morning, welcome to the Sunpower Corporation third quarter 2022 earnings Conference call. At this time, all participants are in a listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
To ask a question at that time, Please press star one one when you touched on the telephone.
As a reminder, today's conference call is being recorded.
I would now electronic arbitrary host Mr. Mike Weinstein, Vice President of Investor Relations at Sunpower Corporation. Thank you Sir you may begin.
Yeah.
Good afternoon, I would like to welcome everyone to our third quarter 2022 earnings Conference call.
On the call today will begin with comments from Peter Pharisee CEO of Sunpower, who will provide an update with third quarter announcements and business highlights followed by our expectations for the remainder of 2022.
Following Peter's comments Guthrie done this somehow as interim CFO will then review our financial results and guidance for the year is.
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 subject to various risks and uncertainties that are described in the safe Harbor slide of today's presentation.
This press release, our 2021 and 10-K and our quarterly reports on Form 10-Q.
Please see those documents for additional information regarding those factors that may affect these forward looking statements.
Also we will reference certain non-GAAP metrics during today's call. Please refer to the appendix of our presentation as well as today's earnings press release for the appropriate GAAP to non-GAAP reconciliations.
To enhance the call we have posted a set of Powerpoint slides tool referenced during this call on the events and presentations page of our Investor Relations website in the same location, we have posted a supplemental data sheet detailing additional historical metrics.
I'd like to turn the call over to Peter Pharisee Sunpower Peter.
Thanks, Mike and good morning, everybody in.
In the third quarter, we continue to break records for customer growth and revenue putting us on track towards the high end of our 2022 guidance for those metrics.
<unk> of our solar and storage systems continues to grow.
Utility rates rise and costs are offset by tax incentives from the inflation reduction Act.
With a balanced approach to pricing growth and profitability, we continue to build a growing market share against peers.
We reported $33 million of adjusted EBITDA this quarter more than the entire first half and 24% higher year over year.
We also turned positive on business unit cash generation this quarter and now hold 397 million cash and equivalents, an under levered balance sheet.
Some powers momentum is building and we feel like we have the wind at our backs.
We are very excited to share with you our accomplishments this past quarter.
As we look forward to building the worlds best residential solar company for both our customers and our investors. Please.
Please turn to slide number four.
I am pleased to report that customer demand continues to be strong and we added 23100, new customers in the quarter at 63% increase year over year that shows a persistent level of strong customer demand for residential solar and for Sunpower specifically.
Revenue also grew at 67% year over year as price increases are offsetting the higher impact.
Product and installation costs.
We continue to see strength across all of our sales channels and note the 113% year over year customer growth from the Sunpower direct channel.
Our backlogs set a new high versus recent quarters at 'twenty 300 retrofit customers.
Importantly, adjusted EBITDA per customer has grown to $2100 before platform investment and we believe we'll be able to achieve our analyst day guidance for 2000 to 2400 for the full year.
Sunbelt energy storage system sales continue to benefit from higher pricing in the third quarter, partially offset by a slightly lower 17% bookings attach rate and the Sunpower direct channel.
Sunpower financial also benefit this quarter as we raise pricing.
Some part of financial reached a 49% bookings attach rate in September and we know that lease offerings have begun to attract renewed customer interest in recent weeks since the passage of the inflation reduction Act.
Many of you have expressed concern about the impact that higher mortgage rates are having new homebuilder partners and the new home segment and.
In the third quarter, new home installations were up 22% year over year.
Backlog stretches out to 33600 homes.
We continue to see important long term strategic value here and we are working to expand our presence beyond California and in the multifamily which is showing strength under the current economic conditions.
We're also pleased to have reached a finalized agreement with dream finders homes to build nearly 400 solar standard homes across five communities in Colorado.
Please turn to slide number five.
I want to highlight the steady acceleration of growth that we've seen both in new customers and revenues year over year.
Even considering the higher cost of borrowing and other price increases the value of residential solar continues to increase versus steeply rising conventional utility bills.
The inflation reduction Act also helps propel this widening value proposition well through the next decade.
Please turn to slide number six.
Progress has not been limited to topline growth as we illustrate here with improving both EBITDA and EBITDA per customer throughout this year.
With $59 million of EBITDA book. This year, we are reiterating our guidance for $90 million to $110 million of adjusted EBITDA for the full year.
Please turn to slide seven.
As the cost of conventional electric fuels remains elevated utility bill inflation continued to accelerate in recent months to 14, 3% year over year.
And 11 states saw increase was greater than 20% year over year in August .
As I noted earlier, the steep raises continue to elevate the value proposition of residential solar which remains one of the most powerful ways to stabilize and reduce home power bills. Despite the rising cost of solar industry supply chain and labor.
Please turn to slide number eight.
We were very proud to announce a new collaborative agreement with general Motors this quarter.
Under the agreement somehow will be the preferred installation partner for level, two and bi directional EV charging equipment.
Most importantly, sunpower will be the exclusive solar provider to all GM customers and we view this as an important new sales channel that capitalizes on the growing interest in rooftop solar that naturally arises from EV ownership.
Nearly 80% of electric vehicle charging occurs at home, typically, adding 40% or more home electric usage per vehicle.
So it's not surprising that some reports of sided nearly 30% to 60% of global EV owners going on to purchase a rooftop solar system.
Residential solar is the best way to help reduce this extra demand with clean energy.
At a preset costs that can reduce stabilize and electric bill for decades.
GM is targeting to reach more than 1 million units of annual EV capacity in North America in 2025.
And some power expects to be there to help this new audience obtain affordable clean energy.
Please turn to slide nine.
In order to serve EV customers Sunpower will build a new more efficient customer experience.
This includes conducting home assessments remotely, allowing everything from pricing scheduling and payment as well as self service tracking to occur quickly with minimal customer effort.
Please turn to slide number 10.
Finally, I will share with you the progress we've made executing against the five pillars of our strategy.
For customer experience Sunpower continues to receive public recognition and media accolades.
They have seen that we were recently ranked the number one home solar installer by CNET and Sunpower continues to be the highest rated solar company in the United States.
For products, we launched new versions of our Sunbelt storage system and when a good housekeeping award this quarter as well.
We also began installing the first U series panels targeting the mass market in Q3.
U series panels are important part of being able to serve this growing consumer demand.
Yeah.
We continue to work closely with first solar on a panel production agreement as you know the inflation reduction act includes benefits to encourage domestic panel sourcing and production.
Accordingly, our discussions with first solar has been evolving to best align the supply chain side of the agreement with those incentives.
I also want to share with you that we are working to beef up our supplies for 2023 and beyond significantly.
Sunpower is also in advanced talks with multiple additional suppliers, including maxion to procure a materially large and diverse portfolio of DC and AC solar modules for 2023 and 2024.
These modules will meet the well known some power quality and reliability standards.
Carry the industry, leading sunpower complete confidence warranty to serve our residential customers across the U S.
For growth, we made new investments in the master dealerships of Renova and empower through our dealer accelerator program.
We solidified a four year nationwide exclusive agreement with dream finders homes to be its exclusive provider of solar and storage solutions.
For digital our engineering teams launched a new real time data visualization tool for dealers that will significantly enhance both the dealer and customer experience.
We've also completed the initial build of software that will allow our systems to communicate with interconnected utilities in preparation for future virtual power plant and demand response participation.
And finally, Sunpower financial continues to increase customer attachments with 94% higher year over year net bookings, even faster than our overall customer growth.
We are seeing lease and PPA bookings growing materially faster at 120% year over year since the passage of the inflation reduction Act.
In summary, our strategy is working with.
With our focus on providing a world class customer experience and industry, leading products, coupled with attractive financing options. We are driving market share gains at a large backlog that will benefit us well into 2023.
I'll now turn it over to Guthrie for more details at our Q3 results Guthrie.
Thank you Peter please turn to slide 12.
I am pleased to be on my first earnings call as interim CFO and I look forward to speaking with all of you and some weeks it's.
As Peter mentioned earlier strong demand and improving EBITDA per customer remains the key theme for Sunpower and the third quarter.
With a month into the fourth quarter under our belt and a healthy looking backlog heading in we continue to feel good about our ability to achieve full year guidance.
For the third quarter, we are reporting $33 million of adjusted EBITDA from $470 million of non-GAAP revenue, an increase of 67% year over year, which continued to accelerate over the 63% year over year growth, we saw in Q2 and a 41% from Q1.
We added 23100, new customers in Q3, a 63% increase year over year that keeps us on track to achieve our 2022 full year guidance.
Adjusted non-GAAP gross margin remained above 20% and the higher cost of equipment labor and shipping were passed along in pricing.
Adjusted EBITDA per customer before platform investment increased $2100 for the quarter as we benefited from the operational leverage gained from rapidly increasing sales.
As we highlighted at the analyst day platform investment of $17 million is primarily products digital and corporate Opex.
Our balance sheet strengthened considerably in Q3 with the sale of another 1 million shares of Enphase stock at around $290 per share.
Our cash and equivalents on hand increased to $397 million, leaving us with only $28 million of net recourse debt provide.
Providing us with a healthy level of flexibility to invest in the business.
We also have $5 million unsold enphase shares remaining at the end of the third quarter.
We are now valuing our ownership lease renewal net retained value in tonnes drawn using a 6% discount rate given the rising cost of debt capital used to support these contracts.
With growth in the portfolio on a sensitivity of approximately $15 million per 25 basis points of discount rate.
And now estimate the value of our stake at around $250 million.
Please turn to slide 13.
We are affirming our guidance for 2022, and our target model for 2025 that we most recently discussed at the analyst day.
Strong customer growth operating leverage and discretionary platform investment all contribute to our confidence in meeting full year EBITDA guidance.
We previously said that our results this year are weighted towards the second half.
We entered the fourth quarter $59 million of EBITDA year to date versus our guidance range of $90 million to $110 million for the full year.
Next I will walk you through an update to the bridge between year to date results and full year guidance for 2000 $2400 of EBITDA per customer.
Please turn to slide 14.
On this slide we highlight updated factors that lead to our 2022 full year guidance for 2000, $2400 EBITDA per customer for our platform investment starting from a base of 90 $850 year to date.
These numbers are rounded for presentation.
First we expect to see continued improvement in gross margin from higher customer pricing to offset cost inflation that will result in a net incremental improvement of 25% to $300 EBITDA per customer for the full year metric.
Second.
Recall that our target model from the analyst day also lithium sunpower financial attach rates grow to a 45% run rate by the end of 2022.
Assuming up to 1000 to $3000 of incremental margin for each customer. We ultimately expect a modest incremental improvement of 25 to $100 EBITDA per customer for the full year.
Third.
We expect continued improvement in sales and marketing opex on a per customer basis, largely as a result of strong customer demand that contributes to operating leverage.
Altogether that nets out to and expect an improvement of roughly 50% to $450 EBITDA per customer for the full year metric bridging the gap between the 90 to $150. We are reporting for the year to date and our annualized guidance for 2022 of 2000 $2400.
As customer acquisition to build into Q4, you should continue to think about our total EBITDA is seasonally weighted towards Q4.
I want to emphasize that this value per customer has the virtue of being cash upfront with no discount required at all.
That excludes the value of an ITC extension that may accrue to us through either increased leasing or cash sale pricing in future years.
It excludes lease renewal value that we owned 2000 strong.
Any future upsell of the battery systems and other equipment and services to prior customers are also excluded.
The point here is that this is a starting point and we are building a base of profitability that we expect to grow for years.
We entered the fourth quarter with continued strong residential demand driven by the tailwind of higher conventional utility bills and the strong support of federal and state incentive program.
We are laser focused on growing our residential market share amounts of debt and cash and balance sheet position that is the best we've seen in years.
We look forward to building on these successes and you're creating the world's best residential solar company together with all of you.
With that operator, I would like to turn the call over for questions.
Thank you again, ladies and gentlemen, if you would like to ask a question. Please press star one on your Touchtone telephone again to ask a question. Please press star one one our first question comes from Kathy Harrison of Piper Sandler Your line is open.
Good morning, all and thank you for taking the questions.
So first one.
Macro policy question, Let's see park last week indicated that there is some oral arguments next week.
Revolving around them three and so just curious what your policy Department are telling you on the timing of our revised proposal.
Yes, Hi, Kashi nice to hear from you.
On California NIM.
Couple of pieces of context, one is.
We do believe that oral arguments will take place. This meeting on the 16th it sounds likely that there'll be some initial revised guidance provided sometime post election day priest 16th.
And then I think as you know there is a period for comments and discussion then there is an opportunity for further revisions and so we'll see how that plays out over time I think are our best understanding I guess I would continue to describe us as cautiously optimistic that the new guidance will be.
The improvement for California solar customers, yes, compared to the guidance that was issued last December and then probably the biggest context, it's important to keep in mind is there's been two major changes since that since that initial guidance. One is california utility prices have risen a great deal.
Since then and I think on page seven of our earnings deck, you saw California up 17% year over year through August that's really hitting consumers hard and it makes the value proposition of solar really attractive and then number two is.
The IRI and the fact that the incentives increased and got extended.
So we'll see what the revised guidance as we will see where the process goes but it's our it's our belief today that.
The impact is likely to be.
Much more minimal than the impact would have been for me the guidance that was issued last December .
Thanks for that color, Peter and then maybe.
As my follow up question. So you reiterated full year 'twenty, a few customer guidance, which implies a sequential decline into <unk> in a meaningful deceleration in year over year growth relative to the last quarter. It doesn't really reconcile to the demand commentary you've made or the year to date results, which suggests.
That demand is running well ahead of your expectations.
And so should we just think about that full year customer guidance as being.
Extremely conservative.
Just curious, what's what's going on with the <unk> customer.
I think it's fair for you to call me out on that but yes, I think the customer guidance. It would be fair to say, it's extremely conservative I think the I think in my comments I said that.
Put us towards the high end of the range.
But I think it's fair to point out that.
We are on track to be at the high end or above the range on customers and on revenue for the full year.
Thank you.
Thank you one moment please.
Our next question comes from the line of Colin Rous for Oppenheimer. Your line is open.
One moment. Our next question comes from the line of Sean Morgan of Evercore. Your line is open.
Hey, Thanks, operator.
So Peter I think one of the interesting aspects of.
Your tenure tenure at Sunpower is sort of this goal towards digital.
Customer acquisition, and being able to sort of drive out some of the costs. So just curious I know we've talked about this kind of offline a little bit, but maybe just some more updates on kind of some tangible steps you guys have been able to sort of achieve over the last three quarters of the year so far.
Zach all of kind of driving out those those customer acquisition cost.
Yeah, Hi, Sean happy to talk about that so.
Think as somewhat new to the industry a couple of years ago I think.
It was surprising I guess it would be the best way to say how high customer acquisition costs are in solar and to some extent it really doesn't make sense to me because the value proposition is so strong we're saving people money and we're helping them make a big positive impact on the planet. So it really felt to me like there was a disconnect.
If we can get that message out we should have people.
This is more hypothetical lined up at our offices to get solar power. So some of the things that we're trying to do we've talked about two things at analyst day that I think youre beginning to see evidence of one is we're excited to explore partnerships.
And that make the customer acquisition process much more efficient. So if you think about someone like Ikea, which is a special brand and attract customers that are more environmentally conscious and we've built us a specific process in our exclusive set of products for them.
We're pleased so far with that partnership than the Big partnership that we announced this quarter with general Motors is really an efficient way to reach people, who as we talked about are very very likely to want not just in EV charger, but they're very likely to want to add solar and storage and we hope many other products and beyond over time so.
<unk> is part one of this and then part two is I.
Still do think that there is an opportunity for us to improve the ROI of our digital marketing spend and from my experience at Amazon I can tell you that this is a combination of software and mathematics, and it's really about getting more and more intelligence built into your bidding algorithms over time, so that you can beat.
To make smarter choices about where do you invest your money.
I think there is still a good amount of opportunity for us to improve there and I'm looking forward to continuing to invest to improve that as we go forward.
Okay. Thanks, and then I think the IRA a lot of people have been sort of focused on the production side.
Benefits, but.
Couple of months now do you what are you sort of thinking about for sort of best case cost.
A recovery for an install.
In terms of ITC benefits with the Adders, Curt I guess I guess, the best case customer scenario.
Yeah, So I think Sean.
It's a little bit premature to come out with a point of view on that for one reason which is.
The U S government is still very much defining what qualifies for those adders and so if I just give you one that's a really good fit for our company which is.
The 10% adder for serving underprivileged communities.
That's one we're still working on destination and it's our understanding that we will get more definition sub.
Sometime in the first quarter. So we're staying close we've provided our comments to the U S. Treasury Department, we've provided our comments to the department of energy and we're really trying to work with them closely to help them define what we think is the appropriate.
Ways to qualify for those adders.
Look for us sometime at the beginning of next year to provide more.
Color on how we're thinking about the impact to our business.
Yes, I would just add we are.
Thanks, John I would just add we are.
Amidst working through this obviously getting clarity, we feel we're very well positioned to be able to monetize and maximize the benefits to the extent that they are applicable.
I think one thing you mentioned, Sean we've talked about on previous calls we're really the only residential solar company thats been different across financial vehicles. So we offer customers cash lease and loan we want them to choose the vehicle that's best for them. If this becomes a more at least heavy business in the U S because of the domestic content.
We really believe we are well positioned to be able to grow our lease business and we've got a very strong loan business. As you know so we feel like we're in a very good position to take advantage of all of the components of the IRA as we go forward.
Okay. Thanks, Peter you guys really appreciate it.
Thank you one moment please.
Our next question comes from the line of Colin Rusch of Oppenheimer <unk> Company. Your line is open.
Thanks, So much guys now can you talk a little bit about the trajectory on.
Energy storage attach rates within within the sales part of the process for you guys.
Yes, so as we've talked about in our opening comments I think we're pleased with our ability to.
Continue to price in our supply chain cost increases on battery storage.
But that has had the impact of slowing the growth of battery sales. So we're still growing sunbelt each quarter, we're selling more and more units every quarter, but our attach rate of server flattened out I would say a bit from the beginning of the year and one of the reasons that I think we're not concerned about it is that we have.
This philosophy of we have.
A desire to have a lifetime relationship with our customers.
Battery storage is something that can be added on at any point during the lifecycle of a home owning clean energy. So if you think about panels, which typically people think about it in a 25 year increments and maybe they think about adding a few but basically once they do the first installation of panels. Many customers are done with.
Battery storage will work very differently, we think increasingly.
We will be able to come back to our existing customer base and be able to.
<unk> offer them incentives to add battery storage over time, so I think the attach rate is kind of a good early signal on how attractive batteries are at the time of purchase but we really believe that we'll still have an opportunity to sell more batteries as we go.
I appreciate that and then if you look at the impact of the Iran.
Economics in new geographies can you talk a little bit about where you're at in terms of evaluating.
Entrance into new geographies, either organically or inorganically.
And when you say new geographies coming more about what you mean there.
So just in different locations Youre, not 50 states right now fully Brian and if.
Youre going to be.
Entering into new large markets or expanding our presence in particular markets.
Yes, well what I would say is we have the highest coverage rate of any residential solar company in the U S across the U S. So we really are in most major markets in most cities and most.
Apis across the U S I think.
The IRA will probably allow us to deepen our relationship with new dealers and new customers and some of these underrepresented communities across the U S. That's where I think it's a really interesting value proposition because the people who probably would benefit the most from the savings in solar are the people.
These are underrepresented communities, but I think the department of energy and somehow are both very passionate about how do we help get solar in the hands of those lower income in underprivileged communities faster. So those are areas that I think the <unk> will allow us expanded faster Catherine do you want to Eddie Yeah, I would just say part of the commentary around ITC Adder is obviously.
The higher ITC as that becomes clarified should allow more attractive.
Pricing on a dollar per kilowatt hour basis, which should open up some market. So thats certainly something that we continue to monitor unexpected.
Increase our aperture glycol.
Alright, I appreciate it thanks.
Thanks, Paul.
Thank you one moment please.
Our next question comes from the line of Brian Lee of Goldman Sachs. Your line is open.
Hey, guys. Good morning, Thanks for taking the questions I just wanted to follow up on.
One of the earlier questions around the gross guidance I know Peter from hearing all your commentary in the way Youre characterizing it.
The customer additions guidance.
We're keeping it intact, but it sounds fairly conservative youre going to be at the high end or even beat it but.
Just wanted to maybe dig into that a little bit just because when I when I look at.
Even you upside in your customer adds guidance for the full year.
It would imply that.
Things are slowing relative to some of your peers I mean.
Our publicly traded peers that both reported.
Sequential growth as well as year on year growth into <unk> for both those peers seem to be.
Well ahead of what you are implying even if I assume you beat your guidance. So just wondering is there anything in the mix or your seasonality or.
Or what have you that might be putting you in a different position here into year end versus some of your peers.
No I think the quick answer is no I think we were conservative.
Not meant to imply any particular slowdown.
We gained we gained quite a bit of market share. This year, we've outgrown our peers.
If I take a look at this quarter, we've outgrown our peers by quite a large margin and I don't anticipate from our point of view I don't know what our peers will be doing but in Q4, I think our our growth will remain healthy.
I think we didn't take up the number but I.
I think as I said in the script, we're going to be at the high end or above.
That.
Customer guidance for the year.
Okay.
That's a fair point you guys have been exceeding peer go throughout the year and so I just thought it was.
Interesting to note that maybe it's not going to be as robust or reverse in <unk>, but I will take that offline.
Yes, Brian to give you some more color if you take a look at the inputs of growth at <unk>.
Comes down to supply and installation capacity, we continue to invest heavily in golf and from an installation capacity standpoint, we're in a position to continue to grow the business pretty strongly in Q4.
So I think the inputs are there in place and we anticipate having.
A good quarter from a customer growth point of view.
Okay. Thank you that's helpful. And then I guess from an input perspective, I mean, you guys have done well throughout the year on supply chain. It sounds like Youre continuing to do well I appreciate the data point around the lease PPA bookings how much robust growth you saw there I guess one of the inputs there.
That all the companies in this space need is obviously capital so can you.
Give us a little bit more sense of where you stand with respect to tax equity capacity, whether it's in dollars or megawatts and then.
I think historically you worked with Hannon Armstrong are you expanding the pool of tax equity players that youre working with now that maybe youre going to see some shift to more PPA and lease product. Thank you.
Yes, Catherine I'll take that one yes, I think so.
We.
We feel very good about our supply of tax equity and other elements of the capital stack to the leaf business, we have capacity well into next year and are in discussions to increase that and feel very strong about our ability to sell our customer needs through financing.
And on the other elements.
I'm sorry, you've obviously had a very solid partner, we continue to work with them.
And.
No.
Major changes there, although obviously, we can explore all avenues as well.
Alright, Thanks, a lot.
Thank you one moment please.
Our next question comes from the line of Philip Shen of Roth. Mr. <unk>. Your line is open.
Hi, everyone and thanks for taking my questions Peter.
Peter I know you haven't given any guidance for 'twenty three.
You guys have a relatively long lead business.
So I was wondering if you could share how you are seeing.
'twenty three shape up maybe you can talk a little bit about Q1 and two.
And also as it relates to your loan and lease versus cash business can you talk about how you expect.
Those segments to shift.
Certainly you've made or recently you've made some nice investments in the loan segment.
Our work suggests that for.
For the industry the loan segment might be slowing down given the <unk>.
Rising rate environment. So I was wondering and you highlighted that your lease growth is nice here.
But if you could talk about how you think the 23.
Overall cash lease versus loan mix evolves that would.
Would be great. Thanks.
Yes.
So 'twenty three I think it's early to provide any any detailed guidance I'll try to give you a little bit of color.
Obviously at the beginning of next year, we will give you our guidance for the full year 2003, but in this business. We do have a pretty good look at the future as we take a look at the upper part of our purchase fall so.
Constantly taking a look at raw leads appointments.
And customers, who signed contracts with us and those are leading indicators of.
How many installations are we going to have as we go forward. The other leading indicator of course is backlog and.
We come into the fourth quarter with another record backlog, both on retrofit homes and new homes.
And I would describe our uplift upper funnel activity is still remaining.
Pretty strong and robust given that the fourth quarter is usually a time, where things slow down a little bit the peak season to customers. Considering solar is kind of end of Q1 through Q2 beginning of summer.
But usually by the fall things began to slow down, but we actually have had pretty strong.
Bookings demand.
This quarter and I think those are the best leading indicators of how things are going to look for Q1 and Q2 of next year. So I read a lot of reports I understand the logic of why people are worried about slowing growth, but that's why we continue to harp upon this issue.
Customers are really making rational decisions here because their energy prices are going up so much. They are really interested in getting solar because it's going to save them money anytime you can save somebody money and help them make a big difference in the world I think you've got a powerful value proposition that has a chance to continue to thrive.
How we're thinking about going forward look and then from a.
Our cash lease and loan standpoint.
I think we're sort of in line with the industry, it's 80% financed and 20% cash.
Our metrics are similar to that of the 80%. That's financed this year up until the recent trend on leases. It has really been a loan business and I think thats being rational because many customers realize it's a better value for them doing long then it is a lease.
However, with the IRS and with the increasing likelihood that there'll be incentives tied to leases and Ppas. We do expect that part of the business to become much more attractive for consumers I think it's probably the area that will allow us to serve some of these underprivileged underrepresented communities.
Effectively and so it's our expectation that we will probably see more balanced growth between lease and loan with probably leases growing faster in the short and medium term and loans slowing.
Slowing down a little bit during that time, but we still think it's really important I think this this iras are really good example of why it's important for our company to be able to be really good at all three.
We have a lifetime relationship with consumers, we're not trying to gouge them on some Liza alone, we really want to help them afford solar and make the experience. So wonderful that they continue to want to purchase products from us over the lifetime relationship that they have with us so our lease and loan products are competitive in the marketplace.
But they're also very consumer friendly.
We want to continue to become.
The World class lease and loan provider, we are through some power financial.
Great. Thanks, Peter you also talked about in your prepared remarks about the U series.
Gaining momentum I was wondering if you could give us some color for next year.
What kind of mix do you think your module supply.
Is between Maxion and then.
Youre non maxion modules.
Our work suggests maybe it was.
Maybe you have relationships with <unk> and Huawei right now and so I was wondering if you could help us understand.
What that mix might look like.
If you have other module vendors that you're working with as well.
Yes. Thank you Phil So let me give you a little bit of context, I would love to talk about the your question in more detail. So if we go back to earlier this year when we changed we changed our contract with vaccine.
One of the important parts of that change was the one way exclusivity. So maxion panels are still exclusive for sunpower, but gave sunpower the ability to seek other panel suppliers and the reason that was so important is that we were already.
Worried about getting enough panel production to serve consumer demand and then consumer demand has continued to expand as you guys know and you can see from our slides throughout the year, so us having that ability to source from other panel suppliers has been a game changer. This year and to give you some color in the fourth quarter.
<unk>.
<unk> 25 percentage of our installations will be panels that are not maxing out panels.
And.
We will also comment that maxion. This year has done a terrific job of giving us more supply than was in our contracts. So they have been doing their best to give as much supply as they can but it's a panel constrained environment all across the globe. So our ability to source from other panel makers.
Made a very big difference this year as you look forward.
I think the IRA is going to be a game changer.
It's going to encourage.
Global panel makers to invest in the U S.
As you know we've had these discussions going on with first solar I know Mark mentioned in his call that they're still really interested in working with us and we feel the same way.
We'd love to expand our relationship with <unk> and then we have negotiations going on with two other large panel makers.
For a very large supply of high quality panels.
That we think are in line with the Sunpower brand and our ability to serve both the premium and mass market, but if you take a look at our business for 2023 will probably be in a position where 50% plus of our panels are coming from panel manufacturers. In addition to maxion and we're very pleased with our maxion part.
<unk> shipped but.
In order to serve consumers, we need to we need supply beyond what Max Ci can provide us and we're excited to work with a number of other panel makers across the world you.
You may have seen last week. There was this an interesting announcement I saw.
Late last week from <unk> about by the end of 'twenty, two theyre going to have a 22, 8% efficiency panel.
We're beginning to see more announcements like that across the globe and so I think.
In the position we're in now we feel like we're going to be.
Really positive position to slipped a couple of good partners.
So our mix and put ourselves in a great position from a P&L point of view.
Great. Thanks for the color.
Thank you one moment please.
Our next question comes from the line of Matt.
Of Raymond James Your line is open.
Thanks for taking the question you mentioned just a minute ago that there was a.
Tight supply of module is around the world.
But when we look at PV insight weekly Prime data it actually shows pretty sharp decline in selling prices <unk> 10 down 10% over the last eight weeks or so.
I'm curious what you make of that and if perhaps you're seeing some loosening in the supply chain.
So I think the yes.
Important context as you might remember earlier this year when there was the department of Commerce investigation.
That basically stopped from.
From our perspective, all new supply of panels from anywhere around the world I think they kind of put the panel industry.
And freeze mode for a number of months.
So once that was.
Solved.
With this two year delay plus the fact that the IRA now is really giving panel makers strong incentives for domestic content.
And I think panel makers are beginning to see how strong the residential market is growing across the world and especially here in the U S.
I really think that youre going to see a number of announcements that are going to they're going to bring more supply.
If it was if it was a buyers if it was a seller's market I guess earlier. This year. It is certainly becoming a little bit more of a buyer's market. I think there is more options available and I think that may also lead to some more attractive pricing.
Okay, and a follow up supply chain question in terms of labor availability on the part of your installation partners are there are any parts of the United States, where you're experiencing.
Labor shortage or anything along those lines.
It's not we have not really seen necessarily a regional issue as much as we've seen.
<unk>.
Two things happening one is the more senior more experienced installers.
Are always more difficult to find and hire because this is an industry. That's growing its capacity rapidly. So there just aren't a lot of people who have experience who are ready to be accrued lead for example, so that's an issue that we're constantly working on how do we.
Higher and develop and build a strong team of people, who we can promote into accrue lead roles all across the U S. And then I think like many.
Other industries, we're constantly.
Working on.
Labor costs and.
So those costs continue to rise and I think we've been able to successfully pass along those costs as part of our prices, but those are the two challenges I think we're really focused on today theyre not necessarily regional challenges there more.
Job level challenges and then cost challenges.
Understood. Thanks.
Thank you one moment please.
Our next question comes from the line of Mohit <unk> of Credit Suisse. Your line is open.
Hey, Thanks, good morning.
Keith.
One question just on the leasing business.
I appreciate the comments on the growth in that business with IL, but just curious on the profitability per customer and one of the things you talked about growth investment and loan origination getting you to that.
The EBITDA profitability.
That change with.
A higher mix of leases.
Loans for Ya.
So mohit the way, we've thought about our financial products.
Is pricing the products in a way that we are.
Able to make.
Similar return between a lease it alone.
And the reason Thats important to do is that if you really want to.
<unk> the best customer experience you want to be indifferent between the financial vehicles, you want to let the customer choose the one that's best for them.
And we really believe strongly as a tenant of our company that we don't force people into contracts for leases or loans that are unfavorable for them. We don't force them into one or the other we really offer them a choice and by offering them. A choice you really you permit them to figure out for their own financial situation.
Chip on their home and all the other factors may consider whats the best vehicle. So we will continue to be able to price our leases and loans in a way, we believe going forward, where we make a.
Very good return on both but the return on both is meant to be similar.
Overtime.
Gotcha, and then just to follow.
Second question on EMEA.
A mix of residential products grew slightly in the quarter versus the last two quarters.
And this is definitely a higher margin product, but just trying to see how we should think about that mix in 'twenty three.
Sorry can you just clarify that because all of our products right now our residential products tell me more about what youre asking.
The mix of residential products was the systems, So I think Chris financial products with 42% of the total.
Shipments of residential shipments in the quarter versus.
38% of the last two quarters.
ICEE ICEE, yet I think the I think the.
We had talked about at the beginning of this year, we had a goal to increase our finance attach rate from 35% of our bookings to 45%.
As we mentioned this quarter, we achieved 48 or 49% bookings attach rates. So we actually met that goal one quarter earlier than.
And then we had planned for and I think as we go forward. We really believe that we're going to continue to be on a ramp of increasing that attach rate each and every quarter and every year as we go forward until either all or nearly all of all the finance business from our customers use us Sunpower financial.
So we're continuing to build a strong products that our dealers like in our customers like.
Continuing to offer more and more options for leases and loans across all states.
And the path. We're on is consistent with what we talked about it.
Analyst day, where we expect to have very high sunpower financial attach rate by 2025.
Got it got it so the systems business should grow product, which is the cash sales.
Strength.
That's fair right.
I think.
Okay.
So, yes, sorry, the cash and cash sales I would say it all depends on which is really the growth of that should really be driven by cut.
Customer demand over time as you look forward as we begin to get more mass adoption of solar in the U S.
I don't think the percent that are financed at 80% will go lower if anything I think it's possible. It will go higher because it's still a big ticket item for most people in the United States.
So very big financial decisions and I think most people feel more comfortable.
<unk> is a leaser alone as we go forward.
I appreciate that.
Thank you we've got time for one more question. Thank you.
Thank you. Our next question comes from the line of Michael Blum of Wells Fargo. Your line is open.
Good morning, and thanks for squeezing me in here.
Just have two quick questions.
Wanted to just go back to the battery attach rate.
Discussion you mentioned youre kind of flattening out here at least for now.
We understand that better would you say that's more of a supply chain issue or is the main bottleneck really installations times, which seems to be one of the main sticking points for the industry right now.
So on.
Batteries.
Two perspectives first of all I think the product itself.
Of which I'm a proud owner of it it's a terrific product it's competitive with the other battery storage solutions that are in the marketplace, but I think the two pieces of feedback we get are from the consumer side.
Is a <unk>.
Pretty large adder to an already expensive solar system. So our battery costs for consumers are 10, 15 20, if you buy these whole home batteries, you can get yourself up to 30 or $40000. So it's a pretty big adder on top of your solar system right at the purchase side, So I think that the.
Cost of the batteries today has slowed the attach rate, even though we're still growing our unit sales quarter over quarter.
We look forward I think one of the things. We're looking forward to is we believe the next generation of batteries will actually be able to to improve our price points quite a bit for consumers.
Talk to you guys more about that in 2023, and we're looking forward to launching our next generation battery.
Sometime at the end of next year and the beginning of 'twenty four and then on the dealer side I think it's I think it is fair feedback that our installation times today are not as good as they could be in that as good as they should be and thats something that.
But we're continuing to work on I think as we architect the next generation battery, we're very much keeping installation efficiency at the very top of our list of things.
Trying to make sure that we get right as we were all just new battery.
Great. That's really good color really appreciate it. Thanks, that's all I had.
Okay. Thanks, I want to thank everyone today for.
For their questions and further time, we're quite excited too.
Try to finish out this year strong we go back I guess to our analyst day at the beginning of the year.
We pledge to you that we would.
Work hard on delivering consistent results and continuing to improve the financial outlook of the company.
We've made some solid progress there and we're looking forward to sharing our Q4 results with you at the beginning of next year. Thanks again.
Thank you ladies and gentlemen, this does conclude today's conference. Thank you all for participating you may now disconnect have a great day.
The conference will begin shortly to raise Johan during Q&A you can dial one one.
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