SunPower Inc.

Good afternoon. Welcome to SunPower Corporation's fourth quarter 2020 earnings call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. I would now like to turn the call over to Mr. Bob Okunski, Vice President of Investor Relations at SunPower Corporation. Thank you, sir. You may begin.

Thank you. I'd like to welcome everyone to our fourth quarter 2020 earnings conference call. On the call today, we will start off with a strategic summary of the quarter and 2020 performance from Tom Warner, CEO of SunPower, followed by Manu Sayal, our CFO, who will review our fourth quarter 2020 financial results before turning the call back over 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 earnings press release, our 2020 10K, and our quarterly reports on Form 10Q. Please see those documents for additional information regarding those factors that may affect these forward-looking statements. Also, we will reference certain non-GAAP metrics during today's call. Please refer to the appendix of our presentation as well as today's earnings press release for the appropriate GAAP to non-GAAP reconciliations. Finally, to enhance this call, we have posted a set of PowerPoint slides, which we will reference during this 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 additional historical metrics. With that, I'd like to turn the call over to Tom Warner, CEO of SunPower. Tom?

Thanks, Bob, and thank you for joining us. On this call, we will provide an overview of our fourth quarter performance, as well as a brief update on our individual business segments. 2020 was a transformational year for SunPower, as we completed a number of strategic priorities to position the company for success in 2021 and beyond. We are confident that our focus strategy following this successful Maxion split positions us for long-term profitable growth. Please turn to slide three. In Q4, we saw strong residential customer growth, adding 13,000 customers and bringing our installed base to more than 350,000. Commercial demand remained healthy, as well as megawatts rose more than 40% sequentially across both businesses. Unit economics improved as gross margin per watt rose approximately 50% quarter over quarter. Additionally, we also significantly delevered our balance sheet, achieving our net debt target ahead of our analyst day forecast, while also lowering our cost of capital. We also further strengthened our balance sheet through our successful 2021 convert tender, and reduced our net debt to EBITDA ratio to less than 2.5 times. Finally, we exceeded the top end of both our gap net income and adjusted EBITDA guidance. Consumers and businesses continue to seek cleaner, more affordable energy and more resiliency in the face of increased grid outages and shutdowns. These factors, as well as others, are driving strong industry tailwinds. Please turn to slide four. U.S. residential solar growth is set to accelerate over the next five years, driven by the recent extension of the ITC, the increasing affordability of solar, as well as a broader acceptance of solar as an integral part of combating climate change. The new homes market post the California mandate is growing rapidly. We expect our new homes growth rate to exceed 40% over the next few years given our leading market share and strong backlog. As fires and storms challenge the grid and rolling blackouts and shutoffs increase, storage demand continues to rise. We expect to see rapid adoption over the next several years in both commercial and residential markets as storage offers customers improved economics and resiliency to power outages. Finally, we see significant opportunity in the electrification of buildings and transportation. We believe our investments in storage digital solutions and our broad DG services platform will give us a distinct advantage in offering a seamless integration of future energy services, giving customers more control of their energy use and cost. In addition to the strong industry tailwinds I just discussed, we see significant opportunity to drive long-term growth through the expansion of our addressable market. Please turn to slide five. SunPower has long been a leader in the distributed generation solar and storage market, which we expect to grow to a $65 billion market over the next 30 years. As we look to 2021 and beyond, we see three key areas to expand the markets we serve. First, capitalize on increasing demand for front-of-the-meter storage solutions to the CNI segment through continued investment in our Helix storage platform. Second, we are developing new digital services that enable customers with solar and storage to monitor and take control of energy use in their homes and electric vehicles. Finally, we will use our Power of One platform to extend our industry-leading marketing, software, and financial product offerings to capture incremental business from the long tail of solar installers. I'd now like to discuss our top three priorities for this year. Please turn to slide six. First is to execute on our growth plan for 2021, which we expect to drive overall revenue growth of 35% year over year. In residential, we expect to exceed 40 percent revenue growth driven by strong momentum exiting 2020, rapid new homes growth, expansion of our TAM through our direct channel, and accelerating storage sales. In the CNI segment, we expect to deliver 20 percent revenue growth with at least a 10 percent improvement in gross margin per watt as we expand our behind-the-meter in community solar efforts. Our second priority is to improve our profitability through margin expansion. As we discussed at our analyst day last year, in addition to ramping storage in 2021, we see a full year impact of our significantly improved lease and loan financing. This strategic shift from straight cash product sales to more finance products enables more people to adopt solar at highly attractive rates and economics are improving due to our lower cost of capital. Given these trends, we see adjusted EBITDA tripling in 2021 and growing at more than 40% in 2022. Our third priority is to thoughtfully deploy capital for longer-term growth. We plan to leverage innovations occurring in EV and smart home segments to offer additional services to new and existing customers, as well as further investing in our Power of One platform to extend its reach to a wider partner and customer base. Additionally, within the CNI segment, we will expand our Helix software platform to participate in the fast-growing energy as a service market and address front of the meter demand. We are also continuing to further integrate our ESG efforts into our corporate strategy. We are making significant progress on this front and expect to release our 2020 sustainability report this spring. I'll now like to shift to the performance of our individual business segments. Please turn to slide seven. Our residential and light commercial segment continued to outperform as momentum builds in this business. In addition to strong sequential megawatt growth, gross margins rose to 24%, up from 18% in Q3, and is a record since adopting cash-based accounting. Our overall mix between cash, loan, and lease sales remained relatively stable for the quarter. However, starting in Q4, we put in place a number of initiatives that are expected to shift our cash mix over time to more financed and full system sales versus cash equivalent sales. These efforts include our highly successful and expanding loan partnership with TCU, as well as our new lease financing programs, both of which can drive long-term expansion while improving economics for our customers. We are already starting to see this in Q4 as residential value creation rose to 46 cents from 30 cents per watt in the quarter. More on this in a bit. New homes also performed well as sequential megawatts grew more than 40% with strong quarterly bookings resulting in a record backlog of more than 180 megawatts. Our market share remains above 50% with significant interest in our OneRoof and SunVault products from many of our builder partners. Finally, we are very bullish about the future of our SunVault storage solution. With our high-efficiency, completely integrated storage solution, we are uniquely positioned to serve customer needs, drive revenue, and build the foundation for future services. We expect to not only benefit from the sales to new customers, but also through our 350,000 strong customer installed base. For the quarter, we continued the ramp in our dealer channel and saw consistent sales attach rates of 20%. We also saw strong interest in our larger 26 kilowatt hour SunVault solution, raising the incremental revenue per sale above 30% on average. As we highlighted at our Capital Markets Day, we expect SunVault to contribute $100 million in revenue in 2021 and remain confident our supply chain can meet this goal. On slide 8, we are providing a more detailed look at our residential unit economics, which we expect to continue to improve as we go through 2021. We look at residential value creation as margin per watt installed, which can come from storage services or improvements in our financing structures to lower our cost of capital. As we look into 2021 and beyond, we expect our mix of cash versus finance systems to continue to shift towards more finance systems which improves our residential unit economics. We expect about two-thirds of our residential systems to be financed by the end of Q4 2021, driven primarily by growing demand for our attractively priced loans offered through the TCU program and lower cost leases. We continue to invest in digital tools that result in long-term benefits for our dealer partners and customers. Over the past several years, we have built a very robust dealer platform with some of the leading digital marketing and operations solutions that have helped our dealers generate more sales at lower cost. In the future, we plan to incrementally monetize this digital platform by extending some of the elements to long-tail customers. Excluding these digital investments, our Q4 residential OPEX was 20 cents per watt. Moving on to CNI on slide nine. Our CNI solution segment also performed well, and we remain excited about our growth prospects for this business. For the quarter, we posted 8 million in adjusted EBITDA, added to our record pipeline of more than $4 billion, and positioned ourselves to deploy more than 90 megawatts of community solar over the next few years. Gross margin per watt rose to 40 cents, driven by solid execution, increased storage installs, and improved cost structure. We expect gross margin per watt to increase another 10 to 20 percent in 2021. Also, demand for helix storage remains high as Q4 attach rates were above 30 percent while installing 18 megawatt hours for the year. Long term, we believe we are well positioned to capitalize on the rapidly evolving landscape in the CNI space. Please turn to slide 10. The CNI landscape continues to evolve as more and more projects are looking to integrate storage offerings from behind as well as in front of the meter. We are well positioned to capitalize on this trend given our experience, installed base, and industry-leading solar and storage solutions. We are focused on three strategic initiatives that will enable us to significantly expand our CNI TAM. First, continue to serve the behind-the-meter market while laying the foundation for our front-of-the-meter offerings, given our strong origination and development experience. Second, further build on our $4 billion pipeline in both solar and storage by expanding our partner relationships and customer base. And third, leverage our industry-leading technology and experience to add additional functionality to our Helix platform to expand our addressable market. Overall, we remain very excited about the opportunity at CNI going forward. With that, I'd like to turn the call over to Manu Sial. CFO of SunPower.