Q4 2022 SunPower Corp Earnings Call
Thank you for standing by and welcome to Sunpower Corporation's fourth quarter 2022 earnings results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your <unk>.
A phone to remove yourself from the queue simply press Star one one again as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program, Mike Weinstein Vice President My Best Relations. Please go ahead Sir.
Good afternoon, I would like to welcome everyone to our fourth quarter 2022 earnings conference call on the call today, we will begin with comments from Peter Pharisee CEO of Sunpower, who will provide an update with fourth quarter announcements and business highlights followed by commentary on our 2022 accomplishments.
And our expectations for 2023, including specifics on our customer financing and new homes operations.
Following Peter's comments.
Jeffrey Gundlach somehow as interim CFO will then review our financial results and guidance for 2023 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. Today's press release, and our 2020 to Form 10-K and quarterly reports on Form 10-Q. Please.
Please see these 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 reconciliation.
Finally to enhance this call. We've also posted a set of Powerpoint slides, which we will reference during the 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.
With that I'd like to turn the call over to Peter Pharisee CEO of Sunpower Peter.
Yeah.
Thanks, Mike and good afternoon, everyone.
At our analyst day last March we rolled out a new long term strategy focused on residential solar with five strategic pillars, and a set of financial goals for 2025.
2022 was an important and highly successful first step on that journey.
I'm happy to share the progress we've made and our plans to execute on that vision going forward.
In the fourth quarter, we continue to break records for customer growth, finishing the full year above the high end of our 2022 guidance.
We reported $36 million of adjusted EBITDA This quarter of 39% increase versus Q4 of 2021, but finished the year at $95 million.
Business unit cash generation was a positive $41 million in the quarter, leaving us with $377 million cash on hand heading into 2023.
To put this in perspective, some powers net debt at year end.
At the lowest level since we began issuing convertible debt.
After our IPO over 15 years ago.
Our strong performance is due to the dedication of thousands of Sunpower employees and hundreds of Sunpower dealers.
Sunpower team overcame unprecedented supply chain and inflationary challenges to deliver results for our customers and our shareholders.
And I'll acknowledge and thank everyone for their hard work and persistence last year.
Looking ahead to 2023 I'm excited to share with you our plans to accelerate our investment in product digital and financial platforms to keep Sunpower is momentum building.
These investments will ensure that we have the right tools in place to capture market share for many years to come.
We are excited to enter this year with plans to build upon our best in class customer experience.
Create the fastest growing residential solar company in the world.
Please turn to slide number four.
I am pleased to report that customer demand continues to be strong and then we added 23700 new customers in Q4.
This is a 39% increase year over year that now includes the demand from Blue Raven solar in both comparative periods.
Revenue also grew at 42% year over year as price increases continue to offset the higher impact of product and installation costs.
Continuing to see strength across our sales channels was 109% year over year customer growth from the Sunpower direct channel.
Our backlog also ended the year strong with 19000 retrofit customers and another 34000 customers in the new home channel.
Adjusted EBITDA per customer grew to 2300 before platform investment, allowing us to finish the full year at 2100, a result, that's well on track to achieve our target goal for three to 4000 by 2025.
Sunbelt energy storage system sales continued at a steady pace with a 17% bookings attach rate and the Sunpower direct channel.
Changed versus Q3.
We also continue to be growing demand for customer lease products, which increased 55% year over year in the quarter.
Further growth for leasing is expected in 2023 and beyond because of the new tax incentives under the equation reduction.
Sunpower financials, low risk origination model remains customer centric and agnostic towards lease or a loan financing we.
We believe we are well prepared to serve ramping lease demand.
Please turn to slide number five.
In 2022, we saw steady and exceptional progress on our top line growth exceeding the top end of our original 2022 guidance with 48% growth in new customers over the full year, including our highly successful late 2021 acquisition of Blue Raven solar.
Looking forward, we are investing heavily in the people products and systems that will enable sunpower to continue to acquire market share in the years ahead.
The Bottomline is despite higher interest rates and changing state incentive policy of value of residential solar continues to grow.
This value will be buoyed by strong decade of federal incentives under the inflation reduction act and the likelihood of rising utility bills.
Please turn to slide number six.
We finished 2022 with $95 million of adjusted EBITDA at 26% improvement year over year.
With steadily improving levels of EBIT per customer throughout the year.
We expect to see continued year over year improvement in 2023, as well driven by higher pricing power improved attachment rates for Sunpower financial and sunbelt storage and a continuous effort to reduce customer acquisition costs.
Please turn to slide number seven.
Next I'd like to share some of the important progress we made in 2022 as we move forward with the five pillars of our long term strategy.
For customer experience Sunpower remains our number one ranked on solar installer last year, and we continue to make meaningful progress raising our net promoter score by 29% in 2022.
For products, we expanded and extended our contract with vaccine for premium high efficiency solar modules through 2025.
We have also secured additional high quality suppliers for the mainstream market, including Hanwha Q cells from their Dalton, Georgia facility.
We've also added multiple sunbelt storage sizing options, including whole home backup and we have begun work on Thunderbolt version two point out.
All of our products meet the well known some power quality and reliability standards.
Gary the industry, leading sunpower complete confidence warranty to serve our residential customers across the U S.
For growth, we launched the dealer accelerator program to partner with our best dealers to expand into new territories and sell additional products. Our network expanded 28% in 2022 to more than 850 dealerships across the entire U S.
We launched an important collaboration with general motors to be their exclusive supplier of solar systems in the coming years and we are also their preferred EV charger installation partner.
Additionally, we announced home solar with Ikea and exclusive agreement with toll brothers, and California markets as well as our national contract expansion with <unk>.
With digital we continue to improve the customer experience along with launching a new real time data visualization tool for dealers and the initial build of our virtual power plant and demand response software that will ultimately allow our systems to communicate with interconnect and utilities.
And finally, Sunpower financial finished 2022 with lease and loan net bookings, increasing 81% year over year with lease contract bookings ramping up significantly in the second half of the year.
We finished 2022 with a 39% financial bookings attach rate and we are on track to meet our long term target to achieve a 65% to 75% attach rate by 2025.
Please turn to slide number eight.
Conventional electric utility rates have continued to rise sharply.
Over 11% year over year in November despite the moderating cost the key fuels such as natural gas.
Nine states continue to see increase was greater than 20% year over year.
As we've noted the steep rises continue to elevate the value proposition of residential solar is one of the most powerful ways to stabilize home power bills.
Although fuel prices have declined in recent months the Edison Electric Institute is projecting a 20% increase in electric utility capital investment from 2022 to 2024 over the previous three years.
As these investments are recovered through electric bills are value of customer finance rooftop solar is likely to continue rising.
Please turn to slide number nine.
As most of you know, California regulators are preparing to implement new net energy metering roles at April 15th.
Until then customers in the state are eligible to lock into the current <unk>.
<unk> two point overall as long as they submit an interconnection application before that date.
We're currently investing heavily in our California sales and marketing effort as well as the interconnection application process to ensure that as many customers as possible and take advantage of the current rules before the change.
Im pleased to report that we are seeing a significant response in new bookings and backlog as a result of these efforts.
Once the new <unk> rules take effect, we expect the value of battery storage systems to increase materially in California as customers may use their solar generation across more hours of the day by storing power in their battery.
Our own analysis suggests that the nominal payback period for solar only system under NIM three now.
Is eight to 10 years.
But this can be improved to seven to nine years, when a storage system as Adam.
We believe sunpower is well positioned to deliver some vault storage systems to customers with inventory levels entering 2023 that we believe are sufficient to meet stronger demand for the year.
Please turn to slide number 10.
As you may recall from our second quarter presentation, we conveyed and expected sales slowdown for the new home segment due to a slower economic environment affecting the broader homebuilding industry.
Despite this the new home segment reported an impressive Q4, 13% year over year growth rate for customers recognized.
Boosted by our nascent but fast growing multifamily and national sales effort beyond California.
Our 2023 customer growth and adjusted EBIT guidance.
Films are 25% decline in overall, new home sales versus last year, which includes the benefits of rapidly scaling non California.
And multifamily sales overall.
Overall this is the equivalent to the assumption of a 500 basis point reduction in year over year customer growth for Sunpower as a whole.
Longer term there is a widening need up nearly 6 million new homes to satisfy the growing demand for housing in the U S.
We continue to view the new home segment as an important long term strategic asset.
We intend to continue building on our already strong leadership position.
Please turn to slide number 11.
The inflation reduction Act Congress passed in 2022 includes a 10 year extension of the 30% tax credit for solar in addition to a brand new 30% tax credit for Standalone battery storage.
It also includes several important bonus credits and applied our system's lease to customers.
Sunpower stands well positioned to monetize these benefits.
A combination of stronger sales increased pricing power.
Qualification for the bonus credits.
Number one to increase the likelihood that we qualify for the 10% domestic content bonus credit we are adding more domestically sourced PV modules to our supplies for 'twenty three and we expect to bring on additional domestic suppliers in 2024 and beyond.
Number two for the 10% to 20% low income bonus credit Sunpower is building new tools for dealers activating sunpower direct to sell lease and Reconfiguring marketing operations to capture more qualifying customers.
And finally number three for energy community credit were mapping up these communities. So that this bonus can be incorporated into our sales tools and made available to our customers.
Please turn to slide number 12.
As previously noted our low risk financing model is based on the off balance sheet origination of loans and leases for customers.
With similar origination fees for either loan or lease.
We are agnostic and strive to act in the customers' best interest.
As you can see here or at least net bookings continued to grow robustly in the fourth quarter at a rate of 55%.
We expect this trend to continue into 2023 as leases are projected to gain popularity in the coming years due to the bonus tax incentives on the IRR.
To be clear we were.
Welcome This development and we are well prepared to competitively execute on it.
Our all in cost of capital for leasing remains below six 5%, including tax equity with the added advantage of lower interest rates sensitivity across the full capital stack.
We believe that this is at least equal to or better than our peers.
We have ample facilities in place to finance, our growing lease pool through 2023.
One bookings also grew 35% in Q4 and were approximately 78% of the total net bookings in the quarter.
We continue to benefit from more than $2 billion of low cost long term private loan purchase facilities, which are now three to 400 basis points less expensive and the cost of capital provided through asset backed securities market.
The ABS market has been improving of late with spreads tightening 80 to 100 bps in Q1, and we remain well positioned to tap this important source of capital in the future.
Please turn to slide 13.
Before I turn it over to <unk> for the financials I want to share some of the most important product investment efforts, we are undertaking in 2023.
As I mentioned earlier, we are very pleased to have recently extended and expanded our supply agreement for high efficiency premium solar modules for maxion through 2025.
We've also begun taking steps to build up a supply of high quality modules suitable for the mainstream market, including <unk> in their factory in Dalton, Georgia.
We hope to be positioned to qualify for the IRA bonus tax credit applicable belief systems with domestic concept.
Number two we have already begun development work with general Motors bidirectional vehicle to home EV charging system with limited release expected in Q4 of 2023.
As mentioned earlier GM.
May.
Sunpower its exclusive partner for solar and storage projects and we're incredibly excited to be part of this important collaborations.
And finally as I mentioned earlier, we began engineering and design work on the second version of our Sunbelt energy storage system.
<unk> two will include a complete platform upgrade with multiple new features including integration with EV Chargers generators control over multiple loans configurations next generation monitoring and an easier faster installation process.
We are targeting a launch for the second half of 2024.
I'll now turn it over to Guthrie for more details on our Q4 results Godfrey.
Thank you Peter please turn to slide 15.
As Peter mentioned earlier strong 2020 to customer demand and steadily increasing EBITDA per customer support achievement of our long term target model for increasing market share and EBITDA per customer through 2025.
For the fourth quarter, we are reporting $36 million of adjusted EBITDA and $492 million of non-GAAP revenue, an increase of 42% year over year.
We added 23700, new customers in Q4, a 39% increase year over year that now includes blue racer and solar in both periods.
Full year 2022 customer growth was 48%.
Adjusted non-GAAP gross margin continued to remain above 20% as the cost of equipment labor and shipping pass along pricing to customers.
Adjusted EBITDA per customer before platform investments increased to $2300 for the quarter and $2100 for the full year as we benefit from a combination of higher pricing growing origination fee volumes at Sunpower financial and operational leverage gained from increasing sales.
As we highlighted at the analyst day last year platform investment of $18 million for the quarter and $76 million for the full year is primarily products digital and corporate opex.
Our balance sheet is now the healthiest, it's been in years exiting 2022 with $377 million of cash on hand, and only $48 million of net recourse debt.
In January we sold our last remaining <unk> 5 million shares of Enphase equity for approximately $120 million and paid down our entire $425 million convertible debt using a $100 million from our term loan b a range last year and cash on hand.
We begin 2023 with ample liquidity to fund ongoing operations and continue investing in the business, including a $200 million revolver.
We continue to value our ownership of lease renewal net retained value and sunstone using a 6% discount rate.
With growth in the portfolio, we now estimate the value of our stake at about $260 million.
Please turn to slide 16.
As Peter mentioned earlier, we are initiating 2023 guidance today.
We are guiding to a $125 million to $155 million of adjusted EBITDA, driven by 90 to 110000 incremental customers with adjusted EBITDA per customer before platform investment of 20 450 to $2900.
Platform investments continues to be primarily comprised of products digital and corporate operating expense that are preparing the company for future growth and expansion of EBITDA per customer.
On a per customer basis platform investment is projected to peak in 2023, as we reinvest a portion of the significantly higher than expected proceeds from the sale of Enphase shares over the past year.
We are making good progress towards achieving analyst day target model, which includes growing our market share versus peers. While also growing adjusted EBITDA per customer to a range of 3000 to $4000.
While we expect platform investment.
Increasing in future years, we expect it to grow below the rate of customer growth so the rate per customer declining overtime.
As Peter noted earlier, our 2023 EBITDA guidance includes several important assumptions. These include one platform investment that is approximately $55 million above the analyst day target model.
The impact of an approximate 500 basis point reduction to Sunpower as overall customer growth from new homes.
Hi.
The impact of an additional approximate 500 basis point reduction in year over year Sunpower customer growth from the transition to <unk> in California, which includes the impact of installations, resulting from them too.
Orders in Q1.
And for the continued growth for Sunpower financial and battery storage attach rates.
Looking beyond 2023, we see several very positive trends that are expected to help propel our business. These include one.
Recovery for the new home segment, but nevertheless assumes continued pressure on the homebuilder industry from higher mortgage rates.
The higher rate significantly improving solar value potentially accelerating demand and EBITDA per customer.
<unk> continued growth for some that sunpower financial and battery storage attach rates.
Sure.
Form investments that improve the customer experience help reduce customer acquisition costs and capture a growing market share.
We enter 2023 executing our strategy and on track towards the achievement of our long term target model goals with a strong balance sheet and our philosophy of continuous improvement. We are building a platform of assets that will continue to enhance our world class number one ranked total customer experience.
With that operator, I would like to turn the call over for questions.
Certainly ladies and gentlemen, if you have a question at this time. Please press star one one on your telephone.
As a reminder, you can move yourself from the queue by pressing star one again, we'd like to ask that you limit yourself to one question and one follow up you may get back in the queue. As time allows our first question comes from the line of Sean Morgan from Evercore ISI. Your question. Please.
Yeah, Thanks, Peter and team. So one of the things I've been wondering about recently is how domestic content is going to work and in light of the fact that we're starting from a heavily heavily.
Offshore source supply base of materials for for resi and salt So is it going to be a situation where the.
The domestic content adder for the ITC is based on the full value of the system or do you think the government is going to allow.
Certain components of the system to qualify and you could basically do piecemeal.
Credits for for like say items, where maybe in some cases there are no.
Vendors that are really U S based.
So that you could.
Get credit for for domestic content where available.
Yeah, Hey, Sean.
We're super excited about the benefits of the IRA and in particular, the domestic content benefit you talked about and the partnership we have with haniwa for Q cells.
We're cautiously optimistic that those panels will be examples of the kinds of products that would benefit from the IRS.
The final guidance hasn't come out yet, but it's our expectation that will be the total system cost of the equipment and it will have to be above a certain threshold I think the rumors I have heard our 40% domestic content for the total system hardware costs and then if you qualify it provides the.
Across the entire system costs, including installation and labor.
That's the current way, we're modeling and thinking about it but we're waiting for the final guidance and once we achieve that final guidance will we will act accordingly, I think the interesting thing to me is that.
Youre going to see a growth in U S clean energy jobs out of this there is no question about it.
Have had a number of high quality panel manufacturers interested in either expanding their U S operations or adding new U S. Operation. So I think stay tuned here I think there'll be more opportunities for us to grow our domestic content, particularly on PV.
Okay Hanwha Q cells is.
Maybe a good example are.
I'm guessing, probably maybe not sunbelt, but the hanwha if I'm understanding.
Sending their process correctly, a lot of the materials are there supply chain starts kind of abroad and then the assembly.
And correct me if I'm wrong is kind of completed in Dalton, Georgia.
I guess, maybe with some creative transfer pricing they could come up with.
With that system, where they're attributing most of the cost to the labor Assembly here in the U S and that it would qualify.
But how does the how do you think the government is going to sort of treat material cost relative to say I guess a finished product.
Yes, I think Youre thinking Sean is in line with our belief as to how this will play out I think if you want to create jobs here in the U S. Theres, probably some process that maybe evolves over time, but certainly given the way the supply chains are positioned today would makes sense.
In my opinion in our opinion to qualify I'll call. It value added Assembly, which is which is what <unk> was doing in Dalton, Georgia, and I, certainly think that that makes sense, but it certainly is U S jobs and they have an opportunity with the big announcement. They made recently about their expansion to grow U S jobs. So it's our expectation that dose.
Types of products.
Have a good opportunity to qualified and we are.
Great. Thanks, Peter.
Yes.
Thank you one moment for our next question.
And our next question comes from the line of Philip Shen from Roth. Your question. Please.
Hi, everyone. Thanks for taking my questions.
Peter Thanks for sharing all that detail around the lease.
Mix in that shift as we went through 'twenty two.
Ending Q4 with.
<unk>, 5%.
Look through 2023 do you think we've capped out at that 55% zinc.
That can grow meaningfully higher and then historically years ago I used to think of.
Can you talk about your business as being one third cash one.
Thirdly, one of their loan clearly with the low cost of money over the past few years that changed.
Do you think.
Or can you share.
What do you expect maybe the loan mix to be in 'twenty three.
And then what do you think the cash might be and then filing blue ribbon historically, my guess was mostly loans.
Have they had and that group has success shifting the financing.
It will be at least as well thanks.
Yes, Thanks Bill on the.
On your first question about lease.
Where do we think lease will come out in 2023, it's our expectation that as the IRA benefits get defined.
All of those adders that we've talked about in our opening comments are tied to lease so its our expectation that that will make lease even more attractive as we go and so I would expect that 55% to accelerate at some point as we go throughout the year in terms of our mix for.
For color I think we've sort of said.
It's roughly 20% cash 80% financing and last year. It was the beginning of the year 80, 20, low let's call it.
I would anticipate that at some point as the IRA benefits are clear.
And we're at full scale that it'll be probably closer to 50 50 and that may have happened this year and Thats why we feel like we're particularly well positioned is that we're really agnostic we want to do for each individual customer what's best for them and we're the only residential solar company with the philosophy of really looking at what's in the best.
Long term interest of the customer and offering.
The right financing package for them if they choose to finance the product and then so you are correct to point out the Blue Raven has been historically, they've had a little bit of cash, but they've been mostly loan.
And I'm happy to report that we anticipated the need to move over to do more of lease business. Some time and we're working behind the scenes to help.
Help to Blue Raven team be ready to sell lease products.
I anticipate us launching that at some point this year. So we'll share more details on that as we get closer but I think it certainly makes sense given the part of the United States that they are serving I think theres going to be a great opportunity to grow our footprint in those states by having a lease offering as well.
Great. Thanks, Peter and then in terms of their maxion expansion of the relationship congrats on that.
Additional supply that comes with that I think on the Q3 call you guys talked about how <unk> maxion accounted for maybe half of your total module supply my guess is that can be higher.
Now with the additional supply was wondering if you might be able to talk through.
What that could be now and then as it relates to <unk> can you get into how much they might be able to supply in 'twenty three and then in terms of the other vendors I think we've.
Written about how huawei might be another vendor.
Just wondering if you could talk through more about where other module vendors might come in and and.
With your ability to grow through this more challenging time for the rest of the loan market.
Could we see.
See some meaningful we're kind of backing into.
Maybe 440 megawatts.
Maxion in 'twenty, two so that would suggest maybe you guys could maybe not a negative.
What's in 'twenty three.
Which is substantially higher than your.
Officials 'twenty three guidance now.
So how does that gap get bridge.
And ultimately I know your guidance is your guidance.
But my sense is that give you some.
Okay.
Thanks.
Yes, Thanks, Bill So just to rewind back for context for everybody on the call when we redid our supply agreement with Maxion almost at this time last year one of the big benefits for Sunpower was the ability for the first time in our history to seek sourcing from panel partners across the world.
It's been a terrific opportunity.
Having said that we're still pleased to have extended our partnership with maxion.
They make the best premium panels in the World, we're really happy to be partnering with <unk> and.
And expanding and extending that agreement is wonderful for both parties and we hope to be able to work with <unk> in the premium space for many many years to come so.
We're pleased with that in terms of how we're thinking about supply.
Last year was challenging when the when the department of Commerce investigation came out and there was investigations in the ADC VB really the supply.
Dried up across the world. It was very difficult for us to get new supply onboard as quickly as we wanted to and I am happy to report that not only has that changed but we've put ourselves in a position where we have sufficient supply to growth.
Our guidance. This year is meant to be conservative I think there is some uncertainty in the economy and we recognize that but we preserve the opportunity to grow faster by having enough supply and flexible supply agreements to serve that right. Now we're just prepared to talk about our agreement with maxion Q cells.
We have other agreements in the works and I look forward to sharing more details on that with all of you in the months to come thanks for the question Phil.
Yes. Thank you Peter one last quick one NIM three are you seeing the originations picked up now for maybe December lows. They were really we kind of the first three weeks of January .
We're well past that now and so.
Is the acceleration there in a nice way or is it okay, but it could be better what are you seeing thus far.
And then three transition thanks.
Yes, so youre right I think.
The only time last year, where things slowed down on the bookings front, where sort of that mid November to mid December time period. It was hard to know is that because of the election cycle. The economy. The holidays, there's a lot of potential reasons and there we've been paying very very close attention to the first six weeks. So far this year to get a read on where.
Things are at and were very pleased with what demand has looked like really across the country, but in particular, California we.
We had pretty ambitious plans for how much we thought we could grow California in Q1, because we figured that many consumers who would want to try to qualify.
<unk> two point al and I would say, we're exceeding those expectations. So far what's been interesting is that it's been a build week by week. So weak one was good week two was better week three was better and so even if you go through last week week six for us.
It's been building so far and we haven't peaked yet.
You see how we finished the quarter, but I would describe us so far on both California, and frankly, the overall residential solar environment as cautiously optimistic recognizing that six weeks is that long enough to judge this and it's early in the year, but so far we're very pleased with demand.
Great. Thank you so much I'll pass it on Google.
Thank you one moment for our next question.
And our next question comes from the line of Kashi Harrison from Piper Sandler Your question. Please.
Good afternoon, and thank you for taking the questions.
So so first one for me.
My first question is around the customer account.
We expect to add 100000 this year.
What proportion of the 100000.
<unk> is expected to be from California, and then can you speak to how many of these customers have been locked in today under NIM too.
Yes, so total customer count for the year.
At mid point of 100000 think of it as just a.
Provide some color there.
Is the way to think about it would be 50%, California, 30% rest of the country. That's roughly the split we're expecting I think the actual numbers.
Determined frankly by how much.
Business gets pulled into Q1 bookings that we have a chance to install obviously throughout Q2 Q3 Q4. So.
That'll determine.
That percent evolves throughout the year and then.
I'm sorry could you repeat your second question again.
You may have already answered it I was just wondering what proportion of California has been locked in today under NIM to before I would say.
April 14th.
Alright, yes, so we have about the backlog I talked about in the opening comments that really carries us.
Think of it as through Q2 and the beginning of Q3. So all the customers that we're booking now are just adding either additional customers. If we get them done faster to Q2 or helping us fill out our our operations pipeline in Q3, but from a California perspective, I would say.
One of the things we've seen with them previously is that there is a buildup before the change and then after the change takes place things do slow down for a quarter, maybe a quarter or two and so what are the reasons were investing heavily in Q1 to take advantage of this does it just make sense. That's a good business practice to build up a big backlog here in California.
And sort of smooth out our California business over the course of the whole year, it's our expectation by the time, we get back to the fourth quarter that will resume.
More normal growth rates and things will be back on track, particularly as.
Californians take advantage of both the offer for PV plus solar battery.
Thanks, Peter and then my follow up question I was just looking at slide 12 and.
You indicated here that you have a cost of capital that's three to 400 basis points below what were what we saw in the ABS in Q4, and then I guess in January .
Can you can you walk us through why or refresh us on why exactly your cost of capital is so much lower for Sunpower financial and then.
How do you think about alternate about the cost of alternative sources of capital once that 2 billion. You indicated once you originate enough customers to run through that $2 billion.
Sure do you want to take that yes.
Yes.
We're very happy with our sources of capital for both lease and loan I think we are very competitive on both.
To your question is no surround around loan, but on the lease side.
I'm very happy to have.
Capital essentially all of this year's demand most of which comes with fixed income or fixed rates.
Less sensitive to rate exposure on.
On the loan side.
We've part of our partnerships involves different forms of capital and that's the area that we intend to grow.
And diversify and include.
Additional forms of capital will be a director of the ABS market.
Institutional investors.
Banking market things like that so.
We certainly hope to and plan to expand the sources of capital not only from a number of institutions, but types of capital neutral.
The impact what our cost of capital looks like going forward.
Thank you one moment for our next question.
And our next question comes from the line of Joseph Osha from Guggenheim. Your question. Please.
Hi, there. Thanks for taking my questions I wanted to go back to some of the comments that you made on the yes. The additional tax credits I was looking at.
Yes, the guidance that was released earlier this week on energy communities, which I think might best be described as up too.
And I'm wondering as you look at that and think about the process. How long is it going to take you think before.
You have your deal with yourselves really.
Fully equipped to claim these credits apply for equipment and handful that whole process.
That's a great question Joseph.
As you might imagine as an inpatient business leader, we want it done yesterday and I think.
To be fair to the department of Treasury, I think theyre trying to sort out how to provide guidance and meet the needs of many constituents but.
The guidance that came out earlier for both low income in energy communities.
We do believe needs more clarity and needs to be better defined and needs to be more specific what I have met with the department of energy I know how passionate they are about serving low income consumers and U S citizens and the energy community. So I know the intentions are good but it will be difficult for <unk>.
As to act upon without more clarity and that's what we're working on with the department of Treasury right. Now so I still remain cautiously optimistic I know that they care about this and they want to get this right.
To answer your question as directly as I can.
I would say it will probably take another quarter before the clarity is there and it's built into the tools and it's kind of a regular business practice and if we can make that happen sooner that would certainly be our preference.
Okay. Thank you.
And then second.
Second question the return to work.
Kashi was asking.
Really more on the on the lease side you got are you, saying now stop financing and.
Place discovered this year, but as you pointed out the industry seems to be shifting more to.
Third party ownership on a longer term basis. So so as you think about that is there.
There is some perhaps special way that you might come at that given your relationship with hannon or might we see you out there in the ABS market with with lease PPA Securitizations alongside your competitors.
Sure Catherine do you want to cover that.
Of course.
<unk>.
We are we have discussions going in.
But confident in our ability to bring in additional partners across the capital stack should we need them.
Tax equity and debt with the senior debt market as well.
Potential other sources.
Subordinated capital.
Tennant is a wonderful partner.
A lot of runway to continue working with them.
To partner with them to bring in all of the capital so.
I think we continue to evaluate all of the various ways that we can most efficiently monetize their lead business and.
And that could include direct securitization market and could could include other firms as well, but we are confident in our ability to raise sufficient capital to raise it very efficiently.
Okay. So we could see you in the ABS market at some point on the weak side. That's one of the at least one of the potential outcomes.
Certainly one of the potential outcomes for sure.
Okay. Thank you very much.
Okay.
Thank you one moment for our next question.
And our next question comes from the line of Korean Blanchard from Deutsche Bank. Your question. Please.
Hey, good evening, everyone. Thank you for your question question.
One is you could try tahira maybe.
The accounting does conclude expat.
Quarter after quarter, hopefully the EBITDA, maybe not go.
Ralph commentary.
And then.
Second question would be what is bank in the EBITDA guidance like the key taken towards further.
Low range of the guidance in the high ones.
Yes, Thank you Corey so.
Let me go back to 2022 actually I'll start actually with analyst day, I think part of what we laid out over this vision between now and 2025 was heavy investment years.
'twenty, two and 'twenty, three and gaining more business leverage in 'twenty four 'twenty five and we're well on track both from a customer standpoint, and EBIT standpoint in EBITDA per customer standpoint. So we're pleased with 22 and we're looking forward to 'twenty three let me give you some context on the EBITDA and then I'm going to answer your question on the on the.
How do we think about it throughout the year. So last year, we grew EBITDA by 26% as I said in my opening comments.
Midpoint of our guidance. This year is 47% growth so thats quite an acceleration that 2100 bip acceleration.
Frankly is earlier than we would've expected in back at analyst day, and we're excited to have.
That leverage.
Be happening in the business already from a sequencing standpoint.
Even though we don't give quarterly guidance, we did say last year most of it would be backend loaded and that same thing will be true for 2023 last year, we were about 25% EBIT in the first half 75% of the EBITDA in the second half.
We've modeled that exact same EBITDA pattern for this year. So you can you can think of it as 25% and 75 again this year and some context for that is particularly in Q1.
There is some seasonality so Q1 is <unk>.
Smaller than the other three quarters of the year part of that's related to weather in the beginning of the seasonality piece here, but the two unique factors are one we're making a big investment in California purposefully. That's a unique investment that we wouldn't have normally made for one particular quarter and thats really to be smart about helping as many customers.
Qualified for them 2.0 as possible. So those extra expenses will be taking on in Q1, and then also for some context, our best two quarters last year in new homes, where Q1 and Q2 of last year.
Quite a bit of our EBITDA in Q1 from last year was due to new homes and so we've talked about the new homes slowdown of our modest expectations for new homes prop.
Profitability this year so.
Just to give you some color I would say, it's still 25% of the EBITDA Q1, Q2, but we expect Q1 to be pretty modest as we make these investments to build and grow our business for the year.
Thank you.
Yeah, just maybe if you can give any other color on what's baked in the guidance I just think what would it take for you to reach the 150 media I know what can go wrong to reach that 120 <unk>, yes.
Yeah.
Well, we've certainly thought about it as a mix of it is a mix of headwinds and tailwind. That's the reality, it's not a doomsday story, it's not a <unk>.
Strictly positive story on the on the headwinds front, we've talked about new homes in our remarks, we talked about California in them and then obviously, there's this inflation economies factor that's out there that could impact consumer sentiment. The positives are the two we talked about as well, which is the our array is going to be an incremental net benefit this year and rising.
Utility costs have continued to make solar more and more valuable so where we net out on though is we were conservative for both new homes and conservative for California than either one of those two outperforms. Our conservativism that takes you to the 140 and above guidance and then if any.
Those headwinds are stronger headwinds than we are anticipating then were below the $1 40 guidance and I think we feel pretty good about where we're going to be on new homes in California. It's really just is there any kind of unexpected variance in the economy or customer confidence that happens.
Unexpected like that happened that would push us below the 140 and closer to the 125, but.
As I said its way too early to judge after the first six weeks of the year, but I would say so far we're pleased.
Alright, thank you.
Thank you one moment for our next question.
And our next question comes from the line of <unk> current show from Susquehanna Financial Your question. Please.
Hi, good afternoon, thanks for taking the question.
Question about battery attach rates, when we have sort of fully transitioned to.
<unk> three point out can you talk about where do you expect the attach rates to go and also related to that how quickly can you increase your supplies from I think you mentioned low double digit attach rates that you can do now.
Yes. Thank you.
I think if you take a look at where California NIM three pointer.
Oh rules are headed.
Immediately noticed is the battery becomes really really critical so that you can help our consumers.
Take advantage of this dynamic rate structure that California's putting in place and so the battery goes from something that would be helpful for resiliency to something actually critical as part of saving money and that's why the battery plus PV is really likely to become the more standard option. There. So if.
If you take a look at where this has played out and you take a look at a country like Germany, I believe Theyre battery attach rates are now.
Over 70%, 75%. So I think at some point, that's what happens in California, certainly on the new homes front, we're seeing most of our our new homes are PV, plus battery and frankly, more and more our PV plus battery plus EV charger, but I think retrofit homes, I think youll see more and more consumers opting in for that.
Overtime.
Our battery attach rates are.
In the mid teens.
<unk> for our direct channel as we've talked about.
A little disappointed they havent grown faster, but we also take a long term view of the business in other words.
Customer doesn't have to buy a battery at the time of PV installation to have a battery over time and so I also think at some point, we're going to see some growth in California for people, adding batteries because they understand this dynamic rate structure and how important batteries are to take advantage of both that in future DPP program. So in our.
At our analyst day presentation, I think we've talked about getting to a battery attach rate that was.
Maybe closer to 40% or something like that and I would hope in.
Hope, we're expecting California that its probably above that level.
Within the next few years.
Okay. Thanks for that.
A related follow up is when you have the next generation battery available how does your.
Gross margin improved one the battery product.
Yes terrific question I think.
As I as I see the battery market solar battery market across the U S.
It's my understanding that many battery makers struggled to sell batteries profitably I am happy to report that our battery business is profitable.
May not be growing as fast as I wanted to but it is profitable right now and we think we're in a good position from an inventory standpoint, but I think forward looking the sunbelt 2.0, we're going to work on is critical once we re architect the product I think we're actually going to be able to take out a bunch of the cost.
And significantly reduce the time it takes to install and commission and that's what matters to consumers on the cost side, and that's what matters to dealers and installers.
Who are in the field, putting these products.
For customers. So forward looking if you take a look at all the other competitors in the battery space. It's taken them a couple of generations of batteries to get it right.
Have a good solid competitive product today, but not a product that's differentiated I think sunbelt <unk> will be an opportunity for us to really differentiate ourselves in this space and we're very excited about what we're working on behind the scenes. Thank you.
Thanks.
Thank you one moment for our next question.
And our next question comes from the line of Pavel <unk> from Raymond James Your question. Please.
Thanks for taking the question a few show that table of utility rates, having jumped more last year than in the previous decade combined are there any specific.
I think states or geographies that you can point to that have emerged as demand drivers, whereas they were not.
A year ago.
Thanks, Pavel Im not sure I could point necessarily compared to a year ago, but I will say, we have been surprised and delighted by the growth in the northeast part of the country. So if you take a look at that Massachusetts, New York, New Jersey, Connecticut corridor.
Our business there has outgrowing what our expectations would have been.
A lot of that is due to these older really in efficient energy systems, but much of that installed customer base has over time. So I think the northeast is the area, that's probably outgrowing it.
Its normal growth rate due to higher utility prices, but what's interesting is that it is pretty uniform across the U S. I think an average of 11% that really is hitting consumers.
Everyone and we're seeing an increasing amount of feedback people have always wanted to have solar.
Solar prices came down to save money, but I think thats risen on the list of reasons why they purchase and it's a very big focus on the discussions we have with new customers as they come onboard and they really want to make sure that they save money and they save it quickly.
I appreciate that following up.
Now have the lowest unemployment rate in 50 odd years.
Are any of your installers complaining about la.
Labor shortages or rising wage rates and anything along those lines and if so where geographically is that more an issue.
We've been very fortunate and I think part of the reason we've been fortunate with labor is that we are on a special mission to make a positive difference in the world. So I was just out with a number of our installation teams over the past two weeks.
California for those who haven't had a chance to go out and see a customer installation. It's so inspiring I mean customers are delighted and our teams are like professional athletes up there on the roof.
Getting all this hard work done so despite the fact that it's challenging work and the weather conditions vary widely throughout the year.
We really have had an opportunity to being able to hire as we need to hire and stay sufficiently staff one of the things Thats critical for us in our core values is how important safety is and when I'm out in the field that I'm talking to our installers. The number one value that I talk about first is how much.
We care about their safety. So we're constantly making sure they have the best equipment in terms of helmets and no cut clubs, we're constantly doing safety audits to see if we can improve our performance and I think at the end of the day that sincere value of safety. In addition to the mission comes through and I think many people really.
Want to work for a company like Sunpower. So we've been fortunate so far we have not really been impacted by labor shortages beginning of last year. We had a couple of specialty areas that were more difficult to hire four but we were still able to hire.
And stay on plan throughout last year, and so far this year I am cautiously optimistic we'll be able to do the same.
Got it thanks very much that time, yes. Thank you I've got time for one or two more questions. Thank you.
Certainly and possibly our final question for today comes from the line of Ned.
From Wells Fargo. Your question please.
Hey, guys. Thanks for squeezing me in.
<unk> talked about backlog growth due to customers in California rushing to submit their applications before April 15th.
Is there a risk for customers that end up in your backlog to be effectively stolen by other installers offering better terms or faster installation times.
Or is there a mechanism that you have in place to lock in the customers so that.
They remain in your backlog until you get to the installation of their systems, even if that falls in the third quarter.
Yes. Thank you for the question so.
Our customers, who choose sunpower normally choose sunpower, because we have the highest rated customer experience in United States for residential solar and Thats. The combination of the high quality panels the world class.
Tumor confidence warranty and a long history, we have been serving customers well. So it's our expectation that once customers sign up with us in signing a contract.
Will remain with us throughout that time period, one of the things we're trying to do in California is.
Tried to give some good guidance for customers on when their installation could take place.
We know that for customers, who have a more simple installation it is likely that they'll still be able to be installed.
And the next few months, but for those who have more complicated installations and that could include a re roof or a main panel upgrade.
It will it will take us longer to get to those customers as they have a fair amount of work to do on their home before we arrived.
It's our expectation that these customers.
<unk> will remain with Sunpower and we feel very good about the reason they've chosen us to begin with and we think that many of them will stick through us as we work through our backlog.
That makes sense, thanks, very much to everybody today, yes, sorry go ahead, you can finish up.
I just had one quick question on the additional platform investments the $55 million.
In 2023 is this a reflection of previously unforeseen requirements to get to.
To get you to where you want to be or just the accelerating investments to improve the EBITDA per customer.
Accelerating investments to drive more growth and provide more growth opportunities. So the last page I went through in our opening comments. These new panel agreements with GM arrangement. The new battery. We're working on those are examples and then programs like VP and grid services are other examples of things that were quite.
Cited about investing heavily and you really think of this as my role for this company is not just to make sure. We deliver results between now and 2025, but I'm constantly pore pushing back and forth between today and our future.
We're trying to to invest in what I would call seeds of growth.
New business opportunities that by the time, we reached 25 will become material one of the best examples of it is probably <unk>.
It's a business that we're in today on a smaller scale it wont be material this year.
<unk> begin to gain some momentum again in 'twenty, three and 'twenty four but it's the kind of business that we would count on being more material by the time, we get to 2025. So we're being very smart about we have a strong balance sheet.
It's a land grab here in the U S. We're leaning in and Thats all part of our strategy is to lean in and invest and build and grow something special.
Thanks to all of you for all the questions and we look forward to sharing our results and our details with you for a terrific 2023, thanks very much.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
The conference will begin shortly to raise and lower Johan during Q&A you can dial.
One one.
[music].
Okay.