SunPower Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the SunPower Third Quarter 2020 Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Bob Okunski, Vice President, Investor Relations. Please go ahead, sir.

Thank you. I'd like to welcome everyone to our third quarter 2020 earnings conference call. On the call today, we'll start out with a strategic overview of the quarter from Tom Werner, CEO of SunPower, followed by Manu Sayal, our CFO, who will review our third quarter 2020 financial results before turning the call back to Tom for guidance. As a reminder, a replay of this 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, our 2019 10-K, and our quarterly reports on Form 10-Q. Please see those documents for additional information regarding those factors that may affect these forward-looking statements. To enhance this call, we have 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 also posted a supplemental data sheet detailing some of our other historical metrics. With that, I'd like to turn the call over to Tom Werner, CEO of SunPower. Tom?

Thanks, Bob, and thank you for joining us. On this call, we will provide an overview of our third quarter performance, as well as a brief update on the performance of our individual business segments. As detailed at our Capital Markets Day, we remain confident that we are well positioned for success going into next year given our strong competitive position, industry-leading solutions, and a strong market. Let's start with a recap of our third quarter performance. Please turn to slide three. We executed well in the third quarter as we exceeded our revenue in EBITDA guidance and completed the spinoff of Maxion to our shareholders. Given our strong Q3 bookings performance, we are raising our Q4 and fiscal year 2020 EBITDA guidance. Our residential and light commercial segment continued to outperform as we saw strong megawatt growth in our residential retrofit and new homes businesses while improving our overall gross margin for the quarter. Finally, we are seeing increased customer demand for our recently launched Sunvault residential storage solution, while working with our new home builder partners to further roll out our One Roof product, which is already being installed in approximately 20 new communities. Our CNI solution segment also performed well, as we were profitable on an adjusted EBITDA basis for the quarter. We added to our backlog with continued strong demand for our Helix storage solution, including being awarded our largest Solar Plus Storage CNI project to date during the quarter. As Manu will discuss later, our efforts to improve liquidity and strengthen our balance sheet are paying off as we increase cash by $90 million in the quarter and expect our business segments to be operating cash flow positive in Q4 and 2021. As a result, we are reviewing options related to our 2021 convert to further deliver our balance sheet. We also took a positive step in relation to our corporate social responsibility programs as we appointed leaders for our ESG and diversity and inclusion programs. We have been a leader in both areas for many years, and this will only accelerate with this new leadership. Finally, remain confident in our 2021 targets from our recent capital markets day, given our Q3 performance, along with significant SunPower tailwinds we see for the next year, including increasing demand for our SunVault and Helix storage solutions, a strong new homes market, and expanding residential gross margins. Now I would like to spend a few minutes talking about our residential and light commercial business segments, or RLC. Please turn to slide four. Our RLC business delivered a very strong quarter, primarily driven by residential retrofit and new homes, as we saw both demand and insulation activity continue to increase through the end of the quarter. Overall, our confidence remains high going into Q4 as customer demand is strong. As discussed at our investor day, our residential gross margins continue to increase as a result of cost improvements, ASP stability, and continuously improving financing. It is important to note that the margin benefit of our recently announced loan and lease financing facilities have not yet impacted our bottom line. We will see some initial impact of these improvements to margin in Q4 2020. with the full benefit being realized in 2021. New homes also perform well, with record quarterly bookings for Q3 resulting in a record backlog of more than 180 megawatts. Our market share remains above 50% with significant interest in our one-roof product from many of our builder partners. We are very positive about the future of Sunvault storage solution. And as we start to install in volume, it will both increase our revenue per customer and be the foundation for future service revenue. For the quarter, we delivered on a number of key Sunvault milestones, including achieving certification for our 13 and 26 kilowatt solutions, as well as beginning the installation ramp at many of our dealer partners. We have a distinct competitive advantage with SunVault, given our smaller footprint, faster install times, and the ability to back up higher power loads. As we highlighted at our Capital Markets Day, we expect SunVault to contribute approximately $100 million in revenue in 2021. I'd now like to highlight some of the key metrics related to how we are building sustainable, structural, competitive advantages with both our customers and our partners. Please turn to slide five. We added more than 10,000 customers during the quarter, bringing our total customer base to more than 335,000 as demand remained strong exiting the second quarter. Our installed base now totals 2.1 gigawatts, and we see significant opportunity to expand our storage and service footprint with these existing customers starting next year. We are also continuing to benefit from our strong marketing platform and virtual selling programs as more than 30% of our partner sales have come from SunPower generated leads across 200 exclusive dealers. Our appointment generation platform is an integral part of our residential platform, increasing our ties with our biggest dealers. Importantly, our rapid and successful transition to online sales is also showing results. It's 85% of all residential volume in Q3 was sold via online or through virtual sales methods. This transition has also materially lowered our overall customer acquisition costs. Finally, as I mentioned earlier, our new homes business continues to outperform. Our current backlog is now 50,000 homes, and the launch of our one roof is going quite well as it has now been deployed in approximately 20 communities in California in its first quarter of availability. We continue to expect more than 50% growth in new homes in 2021. On slide six, we detail the positive trends we are seeing in both residential revenue and gross margins. The chart on the left shows the results of our efforts as revenue trends are improving rapidly since the COVID-driven Q2 trough. Residential installations were up 33% in Q3 versus Q2 and are expected to grow at a similar rate next quarter. We head into 2021 confident that there will be continuing improvement driven by our new lease and loan products new homes, and SunDoll. The chart on the right shows our strong improvement in gross margin in both dollars and on a percentage basis. As you can see, we have achieved year-over-year improvement in gross margin every quarter this year despite the impact from COVID. This improvement is directly tied to executing on our cost reduction programs, quick transition to our successful online model, as well as a lower cost of capital. As a reminder, our gross margin improvement this year does not yet include the full benefits of our recent financings or the full rollout of our Sunvault storage solution. Please turn to slide seven, where I'll provide an update on our CNI solutions business segment. We saw solid results from our CNI solutions team in Q3 as we posted positive adjusted EBITDA for the quarter. Results were primarily driven by systematic improvement in project execution and platform cost reductions. We further added to our $3.5 billion pipeline during the quarter with currently contracted and awarded projects in excess of 275 megawatts. up from 215 megawatts in Q2. Third quarter gross margin per watt came in at more than 25 cents, up 15 cents year over year on 20 megawatts of volume. Given our third quarter performance and execution on our cost initiatives, we remain confident in our ability to meet our target of gross margin per watt of at least 27 cents for the year. Demand for our Helix storage solution remains high with attach rates of about 30 percent in our current backlog. We remain the market leader in commercial storage, and by the end of 2020, we expect to have more than 20 megawatt hours of storage across 25 sites in operation. We also expanded our footprint in the community solar market with a recent award for two projects totaling 13 megawatts. We see community solar as a growth opportunity, capitalizing on our origination capabilities and our helix storage solutions. With that, I'd like to turn the call over to Manu Sial, CFO of SunPower.