Q1 2023 SunPower Corporation Earnings Call

Speaker 2: Good day and thank you for standing by. Welcome to the SunPower first quarter 2023 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.

Speaker 2: To ask a question during the session, you will need to press TAR 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press TAR 11 again. Please be advised that today's conference is being recorded.

Speaker 2: I would now like to hand the conference over to your speaker today, Mike Weinstein. Please go ahead.

Speaker 3: Good morning. I would like to welcome everyone to our first quarter 2023 Earnings Conference call.

Speaker 3: On today's call, we will begin with comments from Peter Ferrisi, CEO of SunPower, who will provide an update on the first quarter announcements and student highlights, followed by an update on progress toward 2023 guidance, including California sales, backlog, and financing.

Speaker 3: Following Peter's comments, Guthrie Dundas, SunPower Syndrome CFO , will then review our financial results.

Speaker 3: As a reminder, replay of the call will be available later today on the investor relations page of our website.

Speaker 3: 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, our 2023 Form 10-K , and our quarterly reports on Form 10-Q . Please see these documents for additional information regarding those factors that may affect these forward-looking statements. Thank you.

Speaker 3: Also, we were referenced in non-GAP metrics during today's call. Please refer to the appendix of our presentation as well as today's press release for the appropriate gap to non-GAP reconcilations.

Speaker 3: Finally, to enhance this call, we've 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 Ferrisy, CEO of SunPower. Peter? Thanks, Mike, and good morning, everyone.

Speaker 3: I'm pleased to be with all of you to discuss both our Q1 2023 results and the progress we were making on our five-color strategy to build some power into the world's best residential solar company.

Speaker 3: In the first quarter, we continue to show strong customer installation growth that track towards the high end of our full year 2023 guidance of approximately 10 to 30 percent customer growth. We reported $1 million of adjusted eBuds of this quarter with $10 million of business unit cast generation.

Speaker 3: As we highlighted on our last call, adjusted EBITDA was expected to be low this quarter, impacted by higher sales and marketing expense to generate strong bookings volumes in California before the expiration of NEM 2.0 rules on April 15.

Speaker 3: We were also affected by unfavorable California weather conditions throughout Q1 that kept cruise idle, increased costs, and delayed certain installations in the state.

Speaker 3: We expect to catch up in California over the next few quarters. Importantly, we remain confident in our plans to achieve our full year 2022-23 guidance of between $125 million and $155 million of adjusted EBITDA based on 90 to 110,000 new customers and adjusted EBITDA per customer before platform investment between $2,450 and $2,900. $1,500.

Speaker 3: Please turn to slide number 4.

Speaker 3: We added 21,000 new customers in Q1. This is a 27% increase year-over-year. Revenue also grew at 32% year-over-year as price increases continued to offset the impact of higher product and installation costs.

Speaker 3: New Order Bookings grew fastest in our direct channel at 97% year-over-year. With strong bookings growth under them, 2.0 in California, our backlog increased to 23,000 retrofit customers with another 39,000 in the New Homes channel. We expect the backlog to increase further in the coming weeks as many of our dealers continue to enter orders into our system after concentrating upwards solely.

Speaker 3: on customer NEM 2.0 applications in March and April .

Speaker 3: Adjusted even the per customer came in at $1,200 before platform investment, which reflects the special seasonal effect of California sales and marketing expense and the weather we discussed earlier.

Speaker 3: Sunbowl Energy Storage System Sales are showing early signs of strength in California under them 3.0 rules. In recent weeks we are seeing this trending toward the tax rates over 20% in our direct channel in the state. Least demand continues to grow with a 268% increase in contract volumes in Q1. As we noted previously, further growth for leasing is expected in 2023 and beyond.

Speaker 3: due to bonus tax incentives under the inflation reduction act. Some power remains customer-centric and agnostic towards lease or loan financing, and we believe that our current access to capital markets as a top tier installer is a major competitive advantage. Please turn to slide number five. Our Q1 customer growth of 27% year-over-year.

Speaker 3: positions as well to achieve our four-year customer guidance of between 90 and 110,000 customers a 20% growth rate at the midpoint.

Speaker 3: Revenue grew to $443 million, a 32% increase that reflects higher pricing and we believe is indicative of the continued strong value proposition of solar and this inflationary environment.

Speaker 3: revenue grew to $443 million, a 32% increase that reflects higher pricing and we believe is indicative of the contingent strong value proposition of solar and this inflationary environment. Please turn to slide number six.

Speaker 3: We know that demand and sales trends are top of mind for investors lately.

Speaker 3: I want to provide you with an update on California NEM 2.0 results and a preliminary look at early NEM 3.0 trends as well as our refocus sales efforts back to the rest of the country. Now that our successful push for NEM 2.0 customers is completed.

Speaker 3: In California, Q1 retrofit bookings to existing homes were up 135 percent year over year in our direct channels, which outpaced our peers and boosted our market share, resulting in a state backlog that exceeds six months.

Speaker 3: However, with many of the dealers fully engaged on completing them 2.0 interconnection applications for customers in March and April , we expect to continue registering purchase orders and booking into our systems for several more weeks. This means we don't have the full picture of either them 2.0 or them 3.0 impacts until the incoming data is finalized over the next month or two. One area that's not been affected by demand pull forward is battery storage sales.

Speaker 3: We believe these detach rates have the potential to climb higher and that some powers well-positioned deliver sun-volt storage systems to customers with inventory levels entering 2023 that we believe are sufficient to meet stronger demand for the year. In the rest of the country, we continue to see booking strength in the Northeast and the Mid-Atlantic with Q1 gross bookings up over 100% in certain states including Connecticut, Virginia and North Carolina.

Speaker 3: In one of our largest markets, Texas, gross bookings have come on strong up 38% year over year for the quarter.

Speaker 3: To take advantage of the California market in Q1, we focused our sales resources on that state, particularly in our drug channels.

Speaker 3: While this was a factor affecting softer results in Florida and Arizona, this was contemplated within our annual guidance.

Speaker 3: The new home segment has been outperforming our original expectations so far this year.

Speaker 3: We are also seeing rapid growth in the still small but important multi-family statement with Q1 2021-23 bookings exceeding all of that of 2022. The bottom line is that we're off to a solid start for the year coming out of Q1 and we're currently tracking to achieve our four-year customer guidance. Please turn to slide number seven. Conventional electric utility rates are the primary competition for our industry and they have continued to accelerate upward a 15.4% year-over-year in February .

Speaker 3: Despite the moderating bulk of wholesale power, cost of wholesale power, and key fuels, such as natural gas. As you can see on the right, 10 states continue to see increases greater than 20 percent year over year. And states such as Texas and Florida are experiencing rises of 19

Speaker 3: energy bills.

Speaker 3: Although fuel prices have declined in recent months,

Speaker 3: The Addest and 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, we believe the value of customer finance rooftop solar is likely to continue rising.

Speaker 3: Please turn to slide number eight.

Speaker 3: Next, I'll share some of the most important progress we've made in Q1 as we move forward with the five pillars of our long-term strategic plan.

Speaker 3: For customer experience, SunPower remained the number one ranked home solar installer last year, and indicated by our rankings and reviews on various platforms, including Energy, Sage, and Google.

Speaker 3: We'll river the company's newest and now third largest dealer will sell some power panels, storage, EV charging equipment and financial products. With this relationship, some power plans to significantly expand its geographical footprint across Minnesota, Wisconsin and Iowa. In the new home segment, we expand a beyond California to eight new states and lean into our multi-family home business with three new deals in California.

Speaker 3: For digital, we've developed a new scheduling software in the first quarter, which we believe will enable more reliable appointment times and provide customers with real-time tracking of technicians traveling to their site.

Speaker 3: We also updated our digital tools for dealers to make managing inventory faster, easier, and more accurate.

Speaker 3: And finally, Subpower Financial's lease business grew 268% year-over-year in the first quarter to comprise 68% of our Q1 bookings. We expect the lease business to continue growing rapidly in 2023 and beyond because of the favorable tax treatment of the inflation reduction act.

Speaker 3: I want to emphasize the strength of our corporate and customer financing model during the recent period of banking turbulence. As previously noted, our low risk financing model is based on the off-balance sheet of 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 customer's best interests. We recently announced we secured non-recourse financing commitments to fund more than $1 billion of residential solar and storage loans from Handelarm Strong, Credit Agricole, and as of this week KKR.

Speaker 3: Through these transactions, some power financial will continue to provide customers with attractive loan options and tenders up to 25 years for their transition to a cleaner and lower cost future.

Speaker 3: We've also applied for conditional loan guarantees to the U.S. Department of Energy's loan programs office that are designed to make distributed energy resources, including rooftop solar, battery storage, and virtual power plant ready software available to more American homeowners.

Speaker 3: Our least-debt bookings continue to grow robustly with our dealer network leading the way as the value of leasing solar under higher utility rates becomes an increasingly attractive option. Our all-encosted capital for leasing remains below 6.5% including tax equity with the added advantage of lower interest rate sensitivity across the full capital stack. We believe this to be equal are better than our competitors.

Speaker 3: We believe that we will have ample facilities in place to finance a growing lease pool through 2023, and we are in late-stage discussions that aim to close additional funding arrangements for further growth.

Speaker 3: Before I turn it over to Guthrie for the financials, I want to share some exciting news. This week, some powers bring on important senior leadership talent as we welcome Pat Bigotel as our Senior Vice President of Sales.

Speaker 3: With over 20 years of experience, PAD is a highly accomplished leader with improvement track records spanning operations, sales and business development, marketing and brand management for both emerging and large scale organizations.

Speaker 3: Jennifer is an accomplished executive with over two decades of experience leading teams and operations, manufacturing, logistics, and finance. She joins the company from a leading edge robotic technology company that specializes in automating e-commerce order fulfillment, where she served as its chief operating officer and chief financial officer. Prior to this, Dijonston spent 10 years in Amazon and North American Europe , where she held finance and business leadership positions across Amazon fulfillment, Amazon logistics, Amazon Go, and AWS driving operational and financial skill ability across each of the businesses. And on that note, I'll turn it over to Guthrie for more details on our Q&A.

Speaker 3: adjusted EBITDA per customer before platform investment, also declines to $1200 largely as a result of NEM 2.0 sales and marketing expense, weather and the effect of typically lower seasonal installation volumes early in the year.

Speaker 4: We continue to expect a benefit from a combination of higher pricing, growing your origination fees.

Speaker 4: the origination volume at 12th-hour financial and the operational leverage gained from increasing fail.

Speaker 4: As we highlighted at the analyst day last year, platform investment of $24 million for the quarter is primarily products, digital, and corporate objects.

Speaker 4: As a reminder, we completed the sale of our last remaining half-million shares of NFase.holds in January at prices averaging approximately $250 per share. To continue to value our ownership of least renewable, net-retained value in Sunström using a 6% discount rate. With growth in the portfolio, we now estimate the value of our stake at about $270 million. Please turn to slide 13. As Peter mentioned earlier, we are reiterating our 2023 guidance today for $125 to $155 million of adjusted EBITDA, driven by an anticipated $90,000 to $110,000 incremental cost.

Speaker 4: across the country and on the execution of our long-term strategy.

Speaker 4: Looking forward, beyond 2023, we continue to see several positive trends that are expected to help propel our business, including the value added by the Inflation Reduction Act, higher attachment rates for storage and financing, and a potential recovery of new homes in time.

Speaker 4: We continue to build a first-class platform of ethics that we believe delivers the world's best customer experience in the industry.

Speaker 2: With that, operator, I'd like to turn the call over for questions. As a reminder to ask a question, please press tar 11 on your telephone and wait for your name to be announced.

Speaker 2: To destroy your question, please press tar 111 again. Please limit your questions to one question and one follow-up only. Thank you. Please stand by while we'll compile the Q&A roster.

Speaker 2: Our first question comes from the line of Cassie Harrison with Piper's handler of earline is now open.

Speaker 5: Good morning everyone and thanks for taking the question.

Speaker 5: So maybe just the first one surrounding EBITDA. You know, you highlight in the reconciliation, call it $8 million associated with businesses you're exiting. Can you share some color on what's going on there, which businesses you're referring to? It's not settled here. I'm OArrh!

Speaker 5: And then it looks like, you know, EBITDA was light at a million dollars. How do you reconcile, you know, the light Q1 EBITDA with the full year EBITDA target of a $140 million? Yeah, good morning, Cassie. I'll take the second question and then I'll, like, go through the answer to the first question.

Speaker 3: payback and we're not trying to hit a particular number in a particular quarter. We're more focused on the full year and we're more focused on growing shareholder value or the long-term. So when we had an opportunity at Q1 to invest to take advantage of what was demand that exceeded our expectations to California, we did exactly that and we're pleased with that investment.

Speaker 3: And one of the reasons we're pleased with the investment is that the customer acquisition costs were relatively modest for California and the conversion rates were much higher than during a normal cycle. And that's exactly the time as a business that you should be investing to grow that customer base.

Speaker 3: So as we execute one with more than a six month backlog, that's very healthy for the company and it's a super good investment in terms of its return for this year. So even though it's a short term hit to EBIT, it's a long term benefit in terms of being able to get more business and line up more efficient business in California in particular this year.

Speaker 3: I'll also say you heard me mention on the call the weather impact. There was a new word I learned this quarter called atmospheric river. California got hit by quite a few of them. We measure the number of weather days where our crews are impacted, meaning they can't work that day because it didn't save.

We had 76 in Q1 of 2022. We had over 1,000 in Q1 of 23 just to put it in perspective. So even though we work overtime, we work weekends, we actually would have had even higher customer growth in that 27% had we not been impacted by weather.

But weather and investments are two of the bigger pieces. And then I think the third piece I'd highlight is for our dealers, particularly the California dealers, they acted just like we did. This was kind of a unique event in California and Q1, and many of them fully focused their operations, acquiring customers.

helping customers qualify by submitting their interconnection applications. And I think that's the right long-term decision for the business, both for our dealers and both for us. So we expect to see some of the dealer business we would have normally gotten in Q1 come to fruition in Q2 and Q3. Kutra, you want to comment on the first question? Yeah, so the reference to executive businesses, if you recall, we close the sale of RCNI business to total energy slacks.

That's helpful guys, thanks for the color there. And as my follow up and Peter.

you may already have answered this. But on flight 18, you highlight that you have $116 million in cash and you expect to generate positive operating cash during 2023. Looking at the cash flow statement, some power are used about 135 million of operating cash in Q1. And so is the expectation here that as you go to the Q2-3Q4, there's

So that's one factor. There was an investment work in capital that was made in part due to seasonality and in part due to a planned inventory increase in the first quarter. And we expect that to benefit us over the rest of the year in terms of cash impact.

Thank you. Your next question comes from the line of Sean Morgan with Everett Corr, your line is now open. Thanks guys. Regarding Sonia and Beth as you gained, especially with respect to some power director, I realized that.

We're increasing some of the product and digital corporate off-ax related to that program. But this might be a little bit difficult to do. But is there any way to sort of strip out some of that incremental investment and look at what your customer acquisition margins would be on those new more digital customer acquisition versus your, I guess, the old, some part of doing things and what sort of margin.

a creation you're seeing from that new channel, sort of if you sort of strip out all that additional investment that you're realizing currently.

And Sean, just to clarify, you're specifically asking about customer acquisition costs? Yeah, and specifically as it relates to sort of the digitization of the customer acquisition to try and drive up margins.

Yeah, so a couple things I think it's a terrific question. So we as we talked about at our analyst day, one of the areas that we do think we can drive more efficiency in between now and 25 is customer acquisition costs. I've told all of you guys a few times coming from the e-commerce world. It's shocking how much customer acquisition costs are in the solar.

The industry figures, I think I see, are like $4,500, $5,000, which is shocking. It's way too high, and frankly, it's not good for the industry. It's not good for customers to have to pay for that in the end. So a couple of things we've done to drive it down are actually non-digital, and then the biggest effort going forward is on the digital side.

So on the non-digital side, the two things we've done are speed up our partnerships. So the IKEA partnership that's already launched in California, the partnership with General Motors will be launching later this year. Those are really efficient ways to draw new customers with a relatively low customer acquisition cost. And these are customers that are...

I would say highly qualified conversion rate is very high and we like those kind of efficient channels. But the bigger level over time is the one that you mentioned and this is one of the big lessons for my time in Amazon which is how do we invest in the tools that allow us to build software to make digital customer acquisition much more efficient over time. And one of the big things you have to do is you have to build an essentially an experiment machine. How do you really...

One of the things that we do is we actually...

provide a service across all of our channels. So our customer acquisition isn't exclusively for some power direct. We actually acquire customers for our dealers, which they value a great deal. So the benefits that we're driving here really affect all of our channels, including Nell Blue Raven. So the customer acquisition process that we use benefits.

All the channels across the couple. Okay, that's helpful. And then the second question is sort of on the battery attachments. I realize you guys are reclining in terms of the 20%. Because there's still an 80% time.

And I think this is pretty standard. But what I'm wondering is what – in terms of customer capture and stickiness of those systems, if somebody is a customer that gets the initial install from SunPower, what sort of like I guess percentage conversion would SunPower see if they then elect to later add a battery? Is it like 90 percent where it kind of has to work with the existing system? Or –

Is that kind of a thing that would be open to really any dealer that's sort of out there competing in the market to try to sort of sell that secondary battery when it doesn't get attached in the initial install? So two comments I'll make about battery attached. One is we're really quite

cautiously optimistic about what we're seeing in California so far. Obviously we're literally just weeks into this new M3.0 but our battery attest rates we mentioned we think it'll be over 20% the last three weeks have been in our direct channel 2632 and 47.

And the early view that I see from California is system sizes that are actually a little larger than they were in Q1 and battery attach rates that are quite a bit higher than they were in Q1. In terms of how we think about the battery going forward, one of the things we're doing for Sunvolt 2.0 is ensuring that it's backwards compatible so that we can do exactly what you're describing, Sean, which is we really want to be able to have a battery that we can sell to all of our existing customers. So when that launches in the second half of 2024, it's our expectation that we'll be able to cross sell that across our entire customer base. Our current Sunvolt product actually is backwards compatible for the previous one or two generations before...

The solar we're selling now, so it really does apply to most of our customer base. But I think all the batteries we introduce as we go forward have to become backwards compatible because I think customers will be interested in adding batteries for the lifetime of their solar ownership.

Look, I wanted to just jump in and talk about the transit of just the event and customer ads here quickly. First, can you discuss the initial trends on customers from then to them three? I know you couldn't specifically quantify yet, but just emphasis on trends what you're seeing. In theory, shouldn't you be seeing a positive bias to customer guidance here? I know it's unchanged quarter to quarter year, but seems like that would be potential positive and a vision territory. And the related on the sort of value for customer or metric, given the California bias, given the pivot to leases, wouldn't there be an upward bias whether that's the full year number or on a multi-year basis?

Class 2324, given these trends here. Quartor Recorder.

Yeah, thanks Julian. I think if I start with your question on California and the California bias, interestingly enough if you go back to the call we had a few months ago, we gave our guidance of 10 to 30 percent growth for the year, roughly

I think a number of folks were, I'll say skeptical as to whether the industry was going to grow that fast. And I think after Q1, we feel increasingly confident that we'll be within that guidance, and we were pleased that even with the Weather Impract, we were above the midpoint of the guidance closer to the high end of the guidance.

And interestingly enough, I think our share of California is a strength right now. The fact that we have a six-month backlog of NEM 2.0 customers and we're still now booking NEM 3.0 customers means that we're likely to have a really terrific business this year in California. you

I think it's premature to call any kind of potential upside to both customers and EBITDA per customer because the first quarter isn't yet, I think, a good indicator of what the full year looks like. So, you can take a look at a bookings perspective. The heart of the bookings season, if you will, is May through September . So we're really just getting into the thick of it right now. I think we'll have a better view on as their customer upside or EBITDA per customer.

As you think about the interest rate changes that have happened, they've had one for one impact on increasing people's loan payments and you're seeing loans increasingly at higher interest rates which consumers do not find as attractive. Because of the factors we talked about of the interest rates being less of factor in leases throughout the capital fact, leases are actually a little bit more attractive for consumers right now. And so the fact that we're able to pivot and grow so fast is terrific. One of the big milestones that we're hitting is, you know, Blue Raven, I think someone asked on our last call. Blue Raven has traditionally been loan only and we're now pivoting them to move over and they'll be selling their first leases this month.

So we're pleased with Q1 results and we expect at least business to continue to grow throughout the year. Thank you. Thank you. Your next question comes from the line of Ben Kyle that's there. Your line is now open. Hey, good morning. Thanks for taking my question. Maybe first starting just on, you know, banking stress and, and sources of capital and I know congratulations on the KKR deal, but as you look down to your partners and your dealer network.

Could you just talk about the health or the environment there as it pertains to your access of capital? Yeah. So, one of the things I think we're very proud of that is that we really believe we have the highest performing dealer network in the world.

When I talk to dealers at our conferences, it often took them many years to qualify to be a SunPower dealer. So the reason I give you that background in context is that we're not on a dealer growth strategy to acquire as many dealers into our network as possible. We really have a process where we vet their ability to serve customers well.

And as part of that process, we actually very much vet how well they're running their business and how strong their financials are. And then we have a number of things we do with each of our dealers ongoing to ensure that we have proper limits on our credit and that none of our partners get too far out over their skis and they're able to run.

SunPower dealers, particularly our master dealers and the dealers as part of our dealer accelerator program. These are some really terrific business leaders who run their businesses very well. As we look forward, thank you for talking about the KKR deal. We're quite excited to have raised over a billion dollars over the past couple of months to be used as part of our loan program. What's your profile on cryaby?

And in my view, if you ever needed a quarter to see why we believe our strategy is a superior strategy, this was a quarter to see it. We don't have to raise debt on our corporate balance sheet to take on leases and loans on our own balance sheet, which has been a big, big benefit this quarter.

I think you'll see news from us on that within the next quarter or two, but we're really pleased with our ability to get terrific partners on the least side as well. It's just a follow-up and thank you for that. The dealer accelerator you announced, Wolf River, and congratulations on that. Could you just talk about the framework and how you guys approach that with the amount of money that you put into the dealer accelerator program and then how you evaluate your investment in the partners and maybe if you could give us any kind of guidance on how we can do that from the outside. Look in. Thank you. Yeah, thank you Ben. Sounds great. Yes, so Wolf River, we're super excited about this the deal because this is the first dealer accelerator deal with a dealer who's a high performing company.

completely outside the sum power network. So as we've gotten the deal done, and they move their business over to sum power, they're a hundred percent incremental for sum power this year, which is just terrific, and we're very happy to welcome them to the family. The same criteria I talked about before, we spend a lot of time on it. If you talk to the Wolf River,

executive team. We meet with them in person, we go through their customer reviews, we ensure that they have a strong business financially and they have a strong leadership team. And really our goal is to make a modest capital investment in their business to help them grow. So a company that starts in Minnesota but they really want to sort of own the upper Midwest if you will.

They've got great growth and Iowa, great growth and Wisconsin, but you'll see them expand to all those adjacent states. And it's a little bit like Blue Raven, but maybe add a much more efficient investment for us, where it's a modest capital investment, 100% of their financial products and hardware products are exclusively with sunpower.

We expect an ROI on our investment that's, let's say, under three years, most times they're under two years. And as part of the deal, we also take a small equity stake in that company and really, you know, deepen our partnership with them over time. So we're very pleased, we're very picky and the companies we work with are also, frankly, very picky on who they want to work with. So we're just thrilled to work with Wolf River as we go forward.

And we're constantly on the lookout across the US for who are the highest performing, highest quality installers in the US and how do we potentially bring them into the SunPower family.

Thank you. Your next question comes from the line of Tristan Richard Sonowitz, School Ship Bank. Your line is now open.

Both of those states have relatively low residential energy costs traditionally. We talked about in my comments the fact that florids are going up quite a bit, so that may be changing rapidly. But those are both states where our value proposition is a little bit tighter because the alternative is actually a pretty low cost residential energy bill for most consumers there. So given that we've traditionally been selling more premium products and we're just starting to transition to mainstream products, I guess if that's terribly surprising that those would be markets that are a little slower growth for us, then some of the markets like California or the Northeast in particular where residential energy rates are quite high.

And then I think we also acknowledge in Q1, we had this such strong, much higher than our high expectations to manage in California, we did pivot, particularly our direct sales teams and our operations teams to really be able to focus on helping.

California consumers qualify for NEM 2.0. Some of you may know part of the qualification was submitting the interconnection application and getting it approved on time. We took that responsibility very, very seriously. Customer trust for us is the most important thing we think about and work on. So we really did pivot our resources.

to focus on that for California. And as I mentioned in my comments, now we're beginning to refocus again on the full picture of the US. So I do expect that we'll have some recovery this year in Florida in particular, and maybe also Arizona. But I think the rest of the country outside of California, that's why I said for us, it's kind of a mixed story. We had some areas of strength and some areas that we'd like to grow faster too.

Now I appreciate it Peter and then just following on your comment about mainstream products, I mean you talk about 70% lease in the direct channel business in the first quarter and then also your application through the DOE just thinking about how does the product offering change. If you start to access sort of that.

middle income or lower income consumer either through the loan guarantee program or just with a greater share of the lease product over time. Yeah, it's a terrific question. I think I mentioned in the last call about a year ago at this time, it definitely felt like a seller's market on the panel industry. There were very few choices.

It was very challenging to keep up with what was very high demand. And that's flipped the other direction. I think the IRA has quite a bit to do with it. I'm seeing enormous interest in investment here in the U.S. There are a number of companies, QCELLs, Longi, Mission that have already announced great investments and expansions.

But I think for us, we're really thinking about the benefits of working with a number of suppliers who end up pulling together a domestic supply chain end-to-end. And that includes, we continue to have ongoing discussions with First Solar, but there's a number of really terrific panel manufacturers across the world.

that either are here or are building big operations here. And I think as part of the IRA domestic content requirement, even though that guidance hasn't come out yet, it's our expectation that at some point in the future, it may be a couple of years from now, that guidance in order to qualify it.

will require that the panels are using end-to-end components that are made here in the US. So we're constantly looking ahead with our panel partners and trying to anticipate how do we put ourselves in a position where we have a great supply here in the US for lease and a great supply of panels that are made here in the US as well.

Your next question comes from the line of Philip Shatter at the RothmkM. Your line is now open.

Thanks for taking my questions. Peter, as a follow-up to what you just talked about there, you know, module pricing is down for both premium and non-premium modules.

I think you have fixed pricing with Maxion through 23. That said, I was wondering if you're able to take advantage of this pricing release. I think module pricing for the non-premium category might be down 30% from...

Q4 peaks of last year. Can you take advantage of that in 23 or do you have to wait until 24? If you are able to take advantage of that this year, you know, how much gross margin tailwind could that represent? Thanks.

Thanks, Bill. Yeah, I think we have a number of supplier agreements. I'm not going to go into the details supplier by supplier, but we have a number of contracts that we feel like if we've chosen to take a fixed price route are favorable for SunPower. That's why we would choose a fixed cost route if we thought we were locking in a price that would put us in an advantageous position.

And then we have more flexible commercial arrangements with our partners where we think that the economics may change and be in our favor this year. I would not expect given that we you know you think of our supply and our customer demand as having such a strong backlog.

that I don't expect any of the panel price decreases in particular to have an impact on us at the beginning of this year. I think if anything we'll begin to see any benefit of that towards the end of the year. But it is, as I said, I think it's now become more of a buyer's market.

And we're quite excited about the opportunities that we're lining up for the end of 23, but in particular 24 and 25. Thanks Peter, just as a quick follow up on that, if you see that benefit in the back half of 23.

We're quite excited about the opportunities that we're lining up for the end of 23, but in particular 24 and 25. Thanks, Peter. Just as a quick follow up on that, you know, if you see that, then it's in the back half of 23. What kind of margin tailwind could that?

Could it be 100 basis points? Could it be 300? What's the potential benefit? I think it's too soon to speculate. Yeah, it really depends on, you know, there's a number of factors that we recognize revenue. And right now with our backlog, it's really important that we do.

focus on how do we get as many customers installed and approved and permission to operate and ready to go as possible. That backlog, you know, if I use the California number as an example, that six-month backlog carries us really through the end of Q3 and probably into the beginning of Q4.

So I really think that the margin impact this year will be modest if we see any impact. Okay, great, thanks. In terms of my follow up here, as it relates to lease loan cash mix, was wanted to give us a little more detail.

The margin impact this year will be modest if we see any impact. OK, great, thanks. In terms of my follow up here, as it relates to lease loan cash mix, I was wondering if you could give us a little bit more detail on that. I know you're booking.

for your finance part of the business in Q1, looked like it was close to 70%. But historically, I think your cash business has been as much as a third of your overall mix. So can you level set us with Q1?

What was that mix of lease, loan, and cash in terms of megawatts? And then how do you expect that to trend through the year and perhaps even through 2024? Thanks. Yeah. So what was interesting for us is that the amount of cash we're doing in the business pie can be

has been relatively steady in Q1, but also in my first two years here. So it's almost like that's an ongoing, we'll call it order of magnitude, 20%ish that stays roughly fixed throughout the quarters. It goes up and down a little bit, but there's not a lot of movement there. So the 80% that gets financed is really the part that does move around.

is that we can really focus on what's best for our customers and help them find the product that works for them.

So we're pleased if the business ends up, you know, if the finance business becomes almost exclusively leases, as people benefit from the IRA over the next decade, we are in a great position to take advantage of that. And if interest rates come down someday and loans become more attractive again, we're ready to pivot pretty quickly and offer, continue to offer a great set of loan products as well. So...

We're pleased that, you know, we just want there to be more and more customers, more and more consumers here in the US who have access to clean energy and access to solar. So the biggest focus for us is how do we get a larger and larger share of the 110 million households in the US to qualify for a Leisure Loan.

The IRA benefits that are focused on these energy communities and that are focused on low-income residents, those are very much at the top of our mind because our 25 by 25 goals were really a company that's focused on making sure that we provide clean energy to everybody here in the U.S. So we're excited about seeing our financial products expand.

But really, we're most excited about providing more and more access to more consumers across the US. Great, thanks, Peter. Thanks, Philip. Your next question comes from the line of Andrew Perkalko, and more of its family, your line is not open.

Great. Thanks so much for taking my question here. So I just wanted to come back to Cash's question earlier around eBDA contribution over the course of the year. Any guidelines or guidance you can give us in terms of contribution in 2Q, 3Q, and 4Q to help us think through how we should model it over the course of the year? Sure. Thanks. I'll take that.

Yeah, I just expect we've in terms of margin profile of Q1 was on the lighter side. We do expect that to kind of recover by the end of the year just our horn.

Okay, understood. And then last one for me is on battery availability and battery supply chains. It's clear that net metering in California is going to require a decent amount of battery. So just curious on where you stand in terms of battery availability and potentially signing new contracts to increase that supply.

Yeah, well we anticipated this increase in battery attach rate for California, so we came into the year with a strong supply of batteries, and we're still in a great position with Sunvolt to serve what we think the demand will be for the year. We are watching it closely though. The numbers I shared earlier, which again are very, very early days.

But if we would continue to see a tax rates that get it to 20, 30, or 40, we will at some point want to increase our capacity on SunVill 2.0 and or possibly consider adding another battery to our portfolio of products we sell.

So stay tuned on that one. But as of right now, we feel very good about the current supply we have. And if things take off and we have higher battery attachments, we're preparing ourselves to be ready for that as well. Thank you. Thanks, Peter.

Your next question comes from the line of Biju Perian-Charell with Siskayana Financial Group. Your next question comes from Siskayana Open.

Thanks, good morning. Quick question on the gross margin side on four components. Key talks about it. Can you give us some color on the decrease there and how we should expect that to be trying Feature

Yeah, I think Guthrie covered this a couple questions ago, but the 17 percentage gross margin that we started with in Q1 is lower than we would have normally had. A lot of that is due to the weather impact we talked about earlier, which makes our operations less efficient and it really kind of takes

some of that final business that would have really improved our gross margin at the end of the quarter. But we do expect in the year above 20 that's normally the range that we're in. I've got three you want to provide me more color on the gross margin.

Yeah, I mentioned Q1 a little seasonally low for sure as infected by weather. But yeah, over the course of the year we don't anticipate any significant deviation from virus ??? Erpel.

Thanks. Okay, and we've got time for one more question. Thank you. And your last question comes from the line of Brian Lee with Goldman Sachs. Your line is now open. Okay, though, we're coming. Okay, my next question comes from Brian Lee. You've promised me that you'd have ways to improve my style of working, but you can't do that and some of things you wouldn't do the other way, and a couple of things were just in this.

Hey, guys, thanks for squeezing me in. I guess question on involved and then the transition to 2.0 in 2024. It doesn't sound like there's any.

gross margin impact that you're experiencing with the higher attach rates, and I don't think Atsui mentioned that as a part of the gross margin down tick here, Q1, but can you just kind of talk high level about as battery attach rates pick up here, thirty twelve, ninety seven to the forty point mark two control in place.

as you're expecting, what the impact is on a gross margin basis, and then kind of how you think about that as you get to the Sunwell 2.0 product next year. And then I had a follow up.

Sounds good. Yeah, so as I understand it from us considering other options for batteries across the industry, many, many

people who are selling batteries are selling them at a loss. We have chosen not to do that for some vault. I think we've talked about that on previous calls and that may have made our attachments a little lower, but we do have a positive growth margin and we have a...

I call it a modest profit on the Sunbolt batteries we sell, but I don't think even if we get a higher attach rate, it'll have a material impact on our financials for this year because it is a relatively modest product for us from a profitability standpoint. What we really try to focus on is, if you take a look at most of the battery makers, everyone has learned an enormous amount from their first generation battery, and that's exactly what we're doing right now. We're learning a lot from it.

We're learning how to make it easier to install. We're learning how to make it easier for customers to use. We're quite excited about getting more batteries in the marketplace so we can take advantage of VPP opportunities. So as we take a look at SunVault 2.0, I guess what's exciting for us is the battery business is changing pretty dramatically. As battery producers are getting to scale, we're really kind of a value-added assembler, if you will. We own the firmware. We own the software.

but we have key partners who actually provide the actual batteries, the inverters, and all the hardware casing that goes around it. And our expectation is that our Sunnable 2.0 product will not only be profitable, but will actually be able to lower the price point for the consumer and offer multiple options that I think they'll find appealing. So we'll spend some time with all of you before that launch, second half of next year.

take off with consumers because we're all going to be able to hit much more attractive price points than we have historically.

with respect to financing on that product, what you are seeing in terms of tax equity availability and also cost the capital just with some of the ITC bonus adders if you're able to take advantage of that already in your financing. Thank you. Sure, so I don't have the quarter on quarter growth at my fingertips, but sir.

confident in our ability to finance this channel efficiently. We have obviously strong relationships going back many years with current providers and other providers as well. Cost of capital here also is, as Peter mentioned, less sensitive to interest rates. I'd say we remain...

very confident in our ability to ensure that the capital we're bringing on is able to provide efficient pricing for our customers. Terrific. I want to thank all of you for the great questions and the call we had this morning. And I want to give a big shout out to our dealers and our field operations teams and our sales teams.

who had just an incredible job of helping thousands of California consumers qualify for an M2.0 who was really inspiring to see all the great work in the effort. Big welcome to Pat and Jennifer and look forward to talking to all of you next quarter. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect. Have a good day.