SunPower Inc.

Good afternoon. Welcome to the SunPower Corporation's second quarter 2021 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question at that time, please press star then 1 on your touch-tone telephone. As a reminder, today's conference call is being recorded. I will now return 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 second quarter 2021 earnings conference call. On the call today, we will start out with comments from Peter Faris, CEO of SunPower, who will provide a summary of the quarter, our strategic view on 2021, as well as an update on our growth initiatives for 2022 and beyond. Following Peter's comments, Manu Sayal, SunPower CFO, will then review our second quarter financial results, as well as provide our 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 are 2020 10K and 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 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 additional historical metrics. With that, I'd like to turn the call over to Peter Farisi, CEO of SunPower. Peter?

Thanks, Bob, and good afternoon to everybody. Before we get into the specifics of the quarter, I want to reiterate how excited I am about the future of SunPower. As I mentioned on our first call together, my first 100 days would center around diving deep into each of our business units, starting with the needs of our customers and working backwards with the goal of earning and keeping customer trust. I can say after these 100 days I'm more confident than ever about the opportunities we have in front of us. Our focus remains on driving a world-class customer experience by investing in strategic areas such as our industry-leading digital and product offerings to make the adoption of solar easy, reliable, and affordable. We believe this long-term approach will position us well going forward as customers look to take greater control of their future energy needs. Please turn to slide four. I'm going to focus my remarks today on four key areas. Number one, our strong Q2 execution and what we are doing to position SunPower to capitalize on the significant long-term solar growth opportunity. Number two, the continuing improvement in our balance sheets. Number three, our increased emphasis on the fast-growing residential market due to the tremendous TAM expansion opportunity. And finally, number four, our strategic initiatives to drive new customer growth while expanding the lifetime value of those customers. These strategic initiatives include, one, creating a world-class customer experience, two, relentlessly providing our customers with the highest quality and best value products in the market. Three, further leveraging and expanding our best-in-class dealer network. And four, continued investment in our industry-leading digital and financial products to innovate on behalf of customers. Please turn to slide number five. I'd now like to provide an overview of our Q2 performance and why we remain confident in our forecast for 2021 as well as our ability to drive growth in 2022 and beyond. We were pleased with our execution in Q2 as we met our revenue and EBITDA guidance and saw strong bookings momentum while further investing in our growth initiatives. Specifically, our Q2 performance was driven by strong residential execution, where we continue to see increasing demand for our industry-leading solar and storage solutions. as Q2 residential bookings rose 67% versus Q2 of last year. New customer ads were also up sequentially and year over year, as we are benefiting from increasing demand in residential solar, dealer expansion, and positive policy tailwinds, benefiting both residential and our commercial and industrial business. Strong execution also led to further improvement in profitability, as overall gross margin increased to 21%, up sequentially as well up 800 basis points versus last year. We continue to execute on our initiatives to convert component sales to full system and loan and lease sales. In Q2, we increased the proportion of full system loan and lease bookings by 500 basis points to 63% of our total buyers. Full system loan and lease sales provide not only better unit economics, but a closer relationship with the end customer than our component sales. These trends give us the confidence in our second half targets while providing better visibility as we look into 2022. We also remain very bullish about the future of our Sunvolt storage solution as demand remains quite high with attach rates reaching 23% in our direct sales channels. As we mentioned last quarter, we took actions to improve the customer experience and have made significant strides in reducing lead times over the past few months. As a result, we expect SunVault growth to accelerate in the second half of the year as we have resumed the full rollout of the product to additional dealers beginning in June. Please turn to slide number six. We've also made significant progress on improving our balance sheet last quarter. And we are pleased to say that our financial foundation is the strongest it has been in our history. We have significantly delivered our balance sheet over the last 24 months. And as of the end of the second quarter, net debt is now below 300 million and we're ahead of our leverage target of less than 2.5 times 2021 EBITDA. Also, we are very comfortable with our liquidity given our cash position and in-phase shares. With strong demand trends, our cost reduction programs, and further margin expansion, we are confident in continuing to drive positive business unit cash flow. In summary, we believe this strong financial position now gives us sufficient capital and business flexibility to invest in the initiatives that will drive long-term growth. Please turn to slide number seven. I'd now like to shift to the performance of our individual business segments. Our residential business continued to outperform as we saw strong new customer growth, margin expansion, and improvement in our SunVault lead times. Specifically, we added 13,000 new customers during the quarter as demand for our industry-leading solutions remains high. This brings our total customer count to over 375,000. Residential gross margin for the quarter was 23%, up 630 basis points year over year, as we benefited from both a lower cost of capital and the continuing shift to system sales. New homes also performed well, as year over year megawatts grew 50% with strong bookings. Our current backlog is now more than 220 megawatts, which now includes our multifamily homes initiatives. And finally, as I mentioned before, demand for SunVault is high. We exited the quarter on a $70 million bookings run rate and expect a rapid ramp in the third quarter. SunVault remains a key driver of our growth starting in the second half of this year. Moving on to our commercial and industrial business, please turn to slide number eight. Our CIS solution segment performed well. Year-to-date revenue grew 13% due to higher volumes with installs up approximately 30% year-over-year, as well as increased storage deployments. For the quarter, we continue to see strong demand trends as we added to our significant backlog now above 260 megawatts of solar. This includes our recent contract for the California Resources Corporation to develop up to 45 megawatts of behind the meter storage projects, including a 12 megawatt project at Mount Postal Oilfield. We continue to see solid demand for onsite storage, as we now have more than 230 megawatts of storage projects under contract or awarded. Finally, we are making strong progress on our commercial growth initiatives, including the expansion of our offsite storage efforts for front of the meter and community solar market. Turning to slide nine, we highlight what we see as some of the key drivers of why we are so bullish on the residential market and why we are increasing our investment in this market. First, we see a very large and growing TAM in the residential space, not only from increased solar demand but also opportunities in adjacent markets as customers look for ways to consolidate and control their energy footprint. Second, as discussed last quarter, we expect solar to benefit from strong policy tailwinds. from the federal level through a potential ITC extension and standalone storage credit, as well as the increasing state-level support for both solar and storage. We believe these tailwinds will materially expand the share of growth from outside of California. Third, we will continue to invest in storage, energy services, and adjacent technology initiatives, including EVs, with our recently announced partnership with Wallbox. We believe that more than 40% of EV customers have solar today, and we are just getting started. More on this opportunity in a bit. Please turn to slide number 10. In summary, our near-term strategic focus will be on those initiatives that we feel offer us the greatest opportunities for growth. First, creating a world-class customer experience by using our best-in-class technology to make the process of buying solar a as easy as it is to buy a book online. Second, focusing on developing and selling the highest performing and most affordable product offering for all segments of the market. This includes a product suite that combines solar storage, EV chargers, and smart home solutions, all driven by clean energy. Third, continuing to expand our world-class dealer network to new markets. with the focus on providing not only a superior customer experience, but also enhanced solutions to our dealers. We will also continue our investments to drive new market penetration, including new states, accessing a greater share of the long-tail market, as well as expanding our direct channel to consumers. Finally, increasing investment in our digital and financial product. We see that upfront costs and financing remain major barriers to solar adoption, and we will therefore continue to develop new financial offerings in order to make the purchase and financing of solar easier. On slide 11, we highlight the advantage of our flexible model to meet the growing demand for an interconnected energy ecosystem. This approach will allow us to acquire customers at any stage of the value chain. For example, we are expanding our focus to EVs and exploring other smart home energy services as we believe we are uniquely positioned to serve these customers with our best-in-class, highest efficient products and services. Customer experience remains a top priority for SunPower in each of these customer segments, and our expanded focus enables us to approach customer value from multiple entry points such as EV, energy services, storage, and solar, with the ability to move up and down the value chains depending on the solution. We believe this strategy enables us to capture more than two times the lifetime customer cash flows compared to solar oil. Before I turn the call over to Manu, I'd like to end by talking about how excited we are about our recently announced partnership with Wallbox. Please turn to slide 12. This partnership will enable us to offer a seamless and simple charging and solar solution for SunPower Solar customers, giving those customers the convenience with adding EV charging while we're already on site. As part of the partnership, we are also Wallbox's preferred solar partner and charging installation partner. This will help us reach additional customers. This agreement is part of our larger strategy to offer customers a fully integrated solar storage and EV solution that provides 100% clean EV charging at home. Both companies will also collaborate on differentiated charging products for the home that will further expand our addressable market. We expect to start rolling out this program the second half of this quarter and are encouraged by the early feedback from both our customers and dealers. With that, I'd like to turn the call over to Manu Sial, CFO of SunPower. Manu?