SunPower Corporation (SPWR) Earnings Call Transcript & Summary

Good morning. I'm Bob Okunski, Head of Investor Relations here at SunPower. And I'd like to welcome everyone to our 2020 Capital Markets Day. We'd also like to thank everyone for joining us during their busy schedule for today's event. We firmly believe that after today, you will have a much better understanding of our strategic positioning, the tremendous opportunity we see in solar, storage and services and why we remain very confident in our long-term success. Before we get started, a few housekeeping items. On Slide 2, you will see our safe harbor statement. We will be making forward-looking statements today that are subject to various risks and uncertainties that are detailed from time to time in our federal filings, including our 2019 10-K, various forms 10-Q, today's guidance press release as well as today's presentation. Please see those documents for those factors that may impact these forward-looking statements. Before we begin, from a Q&A standpoint, obviously, this is virtual. Please use the Q&A tab at the bottom of your Zoom viewer. Our prepared remarks will last a little over 60 minutes. Following the prepared remarks, we will have a formal Q&A session with the executive team. For the Q&A session, please type in your firm, affiliation prior to your question. So I can give proper credit to the questioner. Finally, we have posted a set of slides that we will reference today as well as our new historical metrics sheet on the Investor Relations page of our website under the Events & Presentations tab. On Slide 3 is our agenda for today. And with that, I'd like to turn the proceedings over to Tom Werner, CEO of SunPower. Tom?

Good morning, and thank you for joining us this morning. We really appreciate it. I'm Tom Werner, I'm the CEO of SunPower, and I have been since 2003. You may have noticed my mask. We are at our office in Richmond. We are properly socially distanced, cleaning our hands, wearing our mask, but we thought that would facilitate Q&A better so you can plan your morning, I think an hour and 10 minutes of presentation and then Q&A. So we're going to be very efficient this morning. And as you can see on the screen, today, we have Eric Potts speaking covering the commercial business. We have Norm Taffe, who's going to cover our residential and light commercial business. And Manu Sial, who will -- our CFO, who will cover our financials. When I started 17 years ago, we had a company that was very, very, very focused on one thing. And that one thing was to make mass-produced interdigitated back contact solar cells that were the world's highest efficiency. And we accomplished that largely because of the focus we had, that legacy will be carried forward by Maxeon, an incredibly important partner for the new SunPower. Now when you think about the new SunPower, think about that same focus that gives us the things that you see on the right-hand side of this slide. We're exclusively focused on DG market -- solar DG market in America and Canada. Because of this focus, we expect to grow share and increase margin. That will lead to a lower cost of capital that we can deploy to improve our financial products and make them even more competitive, which we can then apply to the world's best solar systems, storage, and software value-added on that storage. And that software will be end-to-end, enabling our dealers to install our solutions very effectively. And importantly, our customers to have an integrated app to their solar storage and the software value-add on top of that. All of that leads to a profitable, cash-generating, highest in the industry, return on invested capital. Now it's important to give a sense of the market opportunity in front of us. Just to put this in perspective, at least for me, when I started, the entire world's solar industry was 2 gigawatts. This year, the American solar will be 7 or 8x that big this year. And you can see over the next 5 years, residential alone will be 16 gigawatts. This is a massive opportunity for the new SunPower. That's residential only. Think about adding that to commercial, which I'll talk -- I'll give you some statistics on here in a moment. Storage, which we've just begun, and on top of that, software solutions, including services, the market opportunity in front of the new SunPower is really massive. So how would the new SunPower approach that market? In the blue, you see the structure of the new SunPower. And let me talk a little bit about the market segments and the total available market that each segment has. First, residential. Well, we're in California, that's the best state for solar, and you would think that it's significantly penetrated, but 9 out of 10 homes in California don't have solar. Think about that, 9 out of 10 homes, we can still put solar on in California. But it's 98 out of 100 in America, the solar market in America is largely untapped. When we think about new homes, it will triple in the next 3 years, 145 gigawatts. And -- I'm sorry, 300 megawatts. And we have 18 of the top homebuilders. Commercial, 70% of the buildings in America don't have solar. And then storage. We have just begun on storage, 0.3% of California has storage, 0.1% of America has storage attached to solar. The opportunity for storage is immense. And every time we install a Helix storage in commercial; Equinox, SunVault in residential, we increased the installed base that uses our value-added software that currently optimize our customers' builds. In the future will add services. And so on the right-hand side, we see the solutions that underpin this go-to-market strategy. I've already mentioned storage, and I've mentioned a better balance sheet leads to an improved cost of capital, better financial products. And of course, those 2 things mean we'll grow share faster, install more storage and create a service opportunity that will lead to recurring revenue, which is a very important part of how we think, to value and to characterize the new SunPower. So how is SunPower different? The first 4 things on this slide are unique to SunPower. First, we have a simple cash-based P&L. For me, this is kind of like back to the future. When we went public in November of 2005, straight cash-based P&L, easy to understand, revenue growth, gross margin earnings, that's what we'll have with the new SunPower. We are still an innovative company based off originated with high-efficiency IBC cell, but it's in our DNA. So if you think about how we apply that, we are the leader in Helix storage in commercial and that software is ours. In residential, SunVault is our hardware design and our software. And on top of all that, it's our digital platform that runs this for our dealers and our customers. And that's all done by us. And the new SunPower is profitable, cash generating, both growing and the industry's leading return on invested capital because we'll have a small amount of capital deployed and will be profitable, leading to, by far, the best return on invested capital in the industry, and Manu will talk more about that. Lastly, fast-growing EBITDA in our development part of our business, more on that in a moment, and increasing revenue and margin recurring by virtue of more storage deployed and the need for services that go on top of that storage. So now let me end with how we think about valuing the new SunPower with the -- the way to think of split our business apart and the way we'll report our financials. First, the development company. This is the traditional SunPower. This is marketing, designing, implementing and servicing solar systems. This is the business that you'll value-based on growing EBITDA and growing cash. The other part of our business is the power company, sometimes called AssetCo. And you know this because the -- all the analysts on the call model solar companies this way. So we heard you. And so our Powerco or where we put assets is where we'll put -- where you should model our SunStrong -- our retained value in SunStrong. And as we implement more storage, we'll have recurring services. And that recurring revenue will also go in Powerco and expect Eric and Norm to say a few words and Manu, at the end, will bring that all together in terms of a valuation framework. So thank you very much for joining us this morning. And our next speaker is Eric Potts, he runs our commercial business, and I'm thrilled to have him explain his business to you now.

Thank you, Tom. I'm Eric Potts, Head of Commercial Direct business. I've been at SunPower for about 15 years and have been focused on commercial. In the last 9 months, that's been my core focus area. There are 3 things I want to talk to you about today. One, our platform is stabilized. We've reduced our costs, we're operating as an independent business, and we're laser-focused on our customers, our core markets and profitability, which leads me to my second point. We're profitable today. Despite a challenging 2019, Q2, we reported positive EBITDA. And for Q3 and Q4, we're forecasting the same. Based upon this stable, profitable platform, we're looking ahead, which leads me to item number 3. We're positioned for profitable growth tomorrow. We have several short and long-term investment areas. I'm going to talk you today about 2, storage and community solar. But let's talk about the platform. As you can see on the top, we span from end to end for our customers, from origination all the way to operations and maintenance. We are the #1 commercial solar provider and have been for 3 years running. We recently added commercial storage leadership. We've been operating and focused on commercial customers for over 25 years. It's that combination of experience and leadership that separates us from our competition. At the core of our business is our origination and development engine. We're developing complete solutions for a diverse nationwide customer set. Today, we have an over $3.5 billion pipeline, of which $500 million have been awarded, meaning we're bilaterally negotiating with those customers. On top of that pipeline, we have $400 million in contracted projects, ready for execution and setting us up for a strong 2021. Complementing that organization is our project finance team, with over $1.1 billion financed. This team is constantly evolving. As Tom mentioned, we're looking to develop our Powerco and as our balance sheet gets lighter, we'll be looking to not only finance with third-party partners but also consider on balance sheet. One of -- maybe the best example of our focus on profitability, our focus on customers in key markets is the Delaware River Port Authority project in New Jersey. Right now, we're building across 7 sites, a 22-megawatt portfolio in a key market with a key customer vertical. As we move along the customer journey, we get to our installation, operations and maintenance teams. We have made this strategic decision to lighten our footprint, leverage regional nationwide partners to deliver to our customers. That has also allowed us to lower the fixed cost on our P&L. What's core to that strategy, however, is maintaining customer ownership and excellent customer service. And we're doing it. As you can see on the screen, over 2/3 of our bookings are with repeat accounts. That's critical to maintain good business relationships, but more importantly, to be the gateway to future storage and service sales, which may enter into our Powerco in the future. Lastly, SunPower commercial business is about its people. We continue to attract the best people to provide the energy service solution to our customers. Our EBITDA growth is driven by 3 key factors that I'm going to talk about today on the next 3 slides. One, our core C&I platform. We've rightsized the platform. We're leveraging regional partners, and with increased participation from Total with the spin-off of Maxeon and this partner-first approach, we continue to drive costs out of our projects. In the middle, storage and services, this is not just a profit driver for us, it's a growth driver. We're attaching more storage than ever to our solar projects. We also have an opportunity to sell stand-alone storage to our existing customer base. And then lastly, community solar. This is a market which is policy driven, and it's shifting towards SunPower sweet spot, distributed generation deployment of roof, ground and carport solar and storage solutions. On the left-hand side of this chart, what you'll see is 2019, 2020, 2021 as well as the target. This is what we've been focused on when I say we have a stable, profitable platform. As you can see, the gross margin per watt in blue is increasing and the operating expense per watt in orange is decreasing. And in Q2, we crossed that critical threshold, where the blue line, our gross margin, was higher than our operating expenses. We've done that by investing only in mission-critical business needs by leveraging this nationwide group, but most importantly, by increasing our gross margins. We've done that by focusing on key customers and key regions. And as I'll mention on the next slide, the introduction of storage. We are the commercial storage leader. We commissioned our first battery in 2016. We're working with customers -- repeat customers to add solar and to add storage to their existing solar. Our attach rates are tripling year-on-year. And maybe most importantly, we're evolving our storage solution. What started out as a demand charge management solution has grown to include rate arbitrage, resiliency and now microgrids as well. As you can see on the slide, storage contributes over $0.16 per watt of margin incremental to our solar. And you can see it increases year-on-year. That's because we anticipate storage systems to get bigger and to increase in duration as well. Lastly, I want to point out that in our 2020 P&L, our storage attach rate is 11%, that's today. Our pipeline, which has over a 40% attach rate will help us achieve our target model of getting to a 50% attach rate. Commercial storage is one of the fastest-growing market segments, with an over 15% CAGR, we're well positioned based upon our 1.1-gigawatt customer base to take advantage of the stand-alone storage opportunity that exists today. There's no better example than the California self-generation incentive program that took place a few quarters ago. We went out to our diverse customer set in California, primarily public customers, and came to them with a compelling day 1 savings value proposition for stand-alone storage. The result was that our customers and SunPower captured over 40% of the market share of that program. We look forward to more of those programs as stand-alone storage becomes an increasing part of our P&L. Transitioning to community solar. What the chart on the left shows in blue is a traditional behind the meter -- excuse me, the traditional behind-the-meter market size. That's what we've been focused on historically. Going forward, we've opened up the aperture, and we'll be focused on the orange as well. And you can see that, that opens up about 50% of an incremental serviceable market. What does that mean for us and our customers? Traditionally, we've been offering a PPA energy savings behind-the-meter contract. Going forward now, we can offer a front-of-the-meter revenue-generating opportunity. We recently announced a $50 million deal with the Washington D.C. Metro Transit Authority, partnered with Goldman Sachs Renewable Power, where we're taking their underutilized parking lots and turn them into revenue-generating assets. That was critical for the transit authority as they're seeing ridership down and looking for incremental income streams. In addition, as I mentioned, our origination and development team is our strength. We can leverage that existing team with limited incremental investment to take advantage of this incremental 50% market share opportunity. Community solar will have an impact on our 2021 P&L. But will really take shape and show growth into our 2022. In summary, 2020 has been a very solid transition year for the Commercial Direct group. We're -- our business customers are committed to renewable power. Their customers are demanding it, and we're there to service them. Our early investment in commercial storage is paying off as we see our attach rates grow and we see our stand-alone storage opportunities increase. In addition, as I mentioned, community solar is opening up our market opportunity to include an incremental 50% serviceable market. And we have a stable, profitable platform. When you add those things together, we see our attach rate growing, our revenue growing by over 10% and our margins increasing to $0.25 to $0.30 a watt. I wanted to close on the 3 items I started with, that I want to make sure you take away from this presentation. One, the platform is stabilized; two, the business is making money today. And three, because of that, we're positioned for profitable growth tomorrow. Thank you. And I want to hand off now to Norm Taffe, the Head of the Residential and Light Commercial business.

Good morning. I'm pleased to have the opportunity to be here with you today. I have the opportunity to talk about the residential and light commercial business. I'm the Executive Vice President of that organization inside SunPower. And I'm excited to have the chance to talk about the great progress we made over the last couple of years. And I think more importantly, the great opportunity that's in front of us. I want to start my talk by bringing a slide back from the last time, we did an Analyst Day. One thing nice about that when we were actually in person in New York about 18 months ago. And this slide was one of the final slides we presented that day in New York City. The slide represented our residential business target business model for 2021. And what we said at the time is we are making a lot of changes in the way SunPower is operating to focus more on this business and drive more success. We specifically said we had a lot of new products. We had a strong new homes business, and we had storage coming, which would drive our revenue growth. And at the same time, we are making a lot of fundamental improvements to our business that would actually allow us to nearly double our gross margin to over 20%. And then deliver 10% on a simplified cash base accounting EBITDA to the bottom line. Well, I'd like to start today's talk by saying that I'm happy to say, we're not only on track to hit that model in Q4 of this year, but to exceed that model for the full year of 2021 and beyond. So the remainder of my presentation will be split really into 2 different sections. And these 2 sections represent really both our strategy as a company, but also what makes us different really from anybody else in this marketplace. If you look at the graph or the diagram on the left of this page, you see what we describe as our Power of One platform. That platform is how we deliver complete solutions, not just to our customers, but to our dealer partners. It's one of the key things that allows us to drive both dealer loyalty, but also strong gross margins. And I'll explain more about that during the presentation. The graphic on the right there represents the 3 segments where we take that platform and apply it to. Our traditional residential retrofit business, a unique light commercial dealer network business that complements Eric's direct channel in the commercial area. And finally, the very fast-growing new homes market. So let me start and focus on what we call our Power of One platform. SunPower is different in that we invest in all aspects of creating a complete solution for solar energy customers. We invest in products, software, financing, marketing, operations and training. Our intention is to provide customers a comprehensive solution that is designed to work together and is warranted by a single company. It's one of the things that leads us to have the best reviews in the industry, as I'll show you later. It's really what makes SunPower different, it will make what makes our customers love us and it what makes our dealers loyal to us. It's also key to our longer-term strategy to attack the long tail of this market. More than 60% of this market is served by companies that are not the traditional top public companies. And we think having this comprehensive platform gives us a great opportunity to serve that space as well. So let me start working my way around the platform and explain what makes us different as a company. It really all starts with the best products. And kind of, as Tom said at the very beginning, this is really what SunPower was founded on. We have always had the highest efficiency, lowest degradation, highest reliability panel technology, and that is not changing. We're continuing to partner with Maxeon, and we have an exclusive access to that panel technology, and that's very important to our residential customer base and our dealers. But I think if you've been watching SunPower over the last several years, you'll notice we've really expanded the breadth of what we supply those customers. It goes way beyond the panel. We've added mounting structures, microinverters, tons of software for both the design and the customers' monitoring systems, and of course, we're now adding storage. So we take the same attention, the same ingenuity, innovation and apply it to the whole solution, which is really what our customers care about when they buy a solar system. I think it's also instructive, and I'll talk later that more customers own SunPower systems than any other solar technology. One thing we're going to spend a lot of time talking today about, of course, is that the introduction of storage is the most significant, I think, addition to our product platform, really since we brought out the panel originally. We launched our SunVault product just last quarter, and it already had fantastic response. SunVault brings a store capability that's tightly integrated with the whole solar solution. Because we designed it ourselves, we designed the software, the customer experience is one that's completely integrated. Importantly, SunVault actually has more backup power than any other solution in residential market. That means you can back up more of your house in the event of a power shutoff or an outage. At the same time, because we have a single designed-together integrated software package, you can monitor your storage, solar, your overall performance, your energy system all at the same time. And finally, SunVault is beautifully simple. It's a 2-box solution that can be installed indoors or outdoors, and it's a very, very clean, elegant look. While SunVault is an important advantage to our customer base, it's also a great opportunity for SunPower. Because we've integrated the software and the storage together ourselves in our software, it allows us to access customers and create a long-term relationship with those customers that can be the foundation of incremental service revenue over time. More directly, it's a lot more revenue per sale. We estimate that, on average, each of our sales, solar sales going forward, will have more than 30% increased revenue because of storage. And we also have a great opportunity in our existing customer base. SunPower has over 300,000 customers today all of those are opportunities to go back and upgrade their systems with the addition of storage. We're already seeing attach rates above 25%, and we've just started. We expect that number to grow throughout next year. Maybe one of the best examples of why it's good to design your own products. It is a product we just recently introduced called OneRoof. OneRoof is a technology designed specifically for new homes. Because we do our own products, we're able to recognize that in that segment, a different solution is better than a traditional solar solution. If you can imagine in a new home construction, instead of waiting and completing the roof entirely and then installing solar on top of a roof that already exists, a better approach would be during the construction process, put the solar on first and then put the tiles around the solar. It provides much neater in appearance, but more importantly, you're not spending the money on those tiles underneath the panels, which aren't doing you any good. So OneRoof essentially replaces the roof with a pan structure, it becomes a waterproof racking system for the solar, it not only lowers the cost because you remove those tiles but actually installs much faster and it's a much better start -- part of the process when you're doing a new home build. In addition to OneRoof, when we designed SunVault. We had the new homes market in mind as well because it's a critical market for us. SunVault and more [ is ] a perfect combination for the new homes market. The 2-box solution fits in smaller areas, which is often a big issue for new homes, and installations are faster in new homes because you can wire it for backup as you're building the home. Our leadership of products, I think, has been critical for us to take advantage of an important trend in the solar industry. The graphic on the left that you see here shows the ratio of customer ownership to third-party ownership products and solar. This is from Wood Mac. And what it shows is that in 2019, fully 71% of solar sales were actually customer ownership sales, either purchased by cash or loan. This is a big trend from just 3 years prior. The market is shifting toward customer ownership and SunPower is the leader in customer ownership. In fact, in 2019, we had more than 2x the sales, cash and loan purchases of our closest competitor. When people want to own the product, they choose the best. Now while we're very proud that people choose ownership, I would say one of the things that's very important to SunPower, and we've always maintained this attitude, is we are product agnostic when it comes to financial products. We want to make sure the customer chooses the best solution for their situation. So while we are a leader in cash and loan, we also have extensive business in lease, and we focus on having all 3 of those options available to our customers. You may have noticed, we announced just 2 days ago, an extension of our very important partnership with TCU to add a whole suite of low APR loans to our loan portfolio. These new loans that go down to as low as 0.99% interest rate and turns from 10 to 25 years allow customers to actually lower their payments versus their electric bill even more than ever before. It's a huge step forward for customers. It's also super important for SunPower. This new program and our loans, in general, are improving our gross margins by $0.25 a watt going forward. Now not to be outdone, our lease financing team inside SunPower has been very actively working on improving our lease offering as well. We're just a few days away from announcing a significant addition to our lease portfolio, which takes funding well through 2021. Most importantly, it doesn't just provide great lease capability to our customers and our dealer partners, this technology actually increases our gross margins over $0.40 a watt. I would say this is one of the areas since we became much more focused on this space that has really improved our fundamental financials as a company. Advances in financing are playing a big part in driving our increased profitability, but also our increased dealer loyalty. The technology really ties all this together is our industry-leading software. We have made a consistent and ongoing investment in digital priority at SunPower. Digital tools allow us to not only provide the best experience to our customers and our dealer partners, but they also provide a foundation of that relationship with the customer that we can take advantage of over time to add additional service revenue to our business. There's many elements of our software tools. They start with our design tools. The SunPower design studio is well known for being an online tool where people can instantly do their own designs, and that generates a lot of front-end lead opportunities to our business. In the commercial segment, our Helix proposal tool is a great way to do quick, easy designs for our partners in the commercial segment. Very soon, we're going to launch a whole revamp of our monitoring solution called mySunPower, that application will launch in Q4. And it's been designed with storage and solar together from the ground up. That's going to give an easy -- a better interface to our customers and our partners. It also gives our partners a way to monitor their entire fleet in a very simple and fast way. And then lastly, we had introduced something called mySunPower portal early this year, and it couldn't have been at a better time. That portal was one of the reasons we were able to so easily transition to a virtual model when the COVID pandemic hit. More and more of our customers are able to complete the whole transaction online. They get a proposal generation online, they can do their credit agreement and sign it, they can track the progress of their installation. And it turns out to be not only a lower cost effort but a much better customer experience. Digital really permeates our whole effort and this core to our strategy going forward. It drives the front end of our funnel, it lowers our costs, and it's a foundation for that service revenue long term. Probably the fastest-growing piece of the Power of One platform has actually been in the marketing area. We started a much more aggressive online and digital-driven appointment generation program, about 2.5 years ago. And this program has absolutely taken off. This is a program -- and I like to -- I don't like to call it a lead generation because it's really appointment-generation program. And the difference between that is it's not a lead that gets sent to a dealer and they follow up on, it's actually a scheduled appointment with the customer that the dealer in whatever state he comes from shows up and the customer is already prepared to have a discussion on solar. Our dealers are happy to pay for those leads because those leads closed at a much higher than any other leads they get. If you look at the graphic on the bottom left, you can kind of see the success of the program. The bar chart represents the appointments we've generated and sold on a weekly basis this year, while the line shows what we did last year. And you can see despite COVID, we actually did better this year in appointments than even last year. We added something significant to this program in the late summer, and that was SunPower TV. SunPower went on TV for the first time, and we did it at the perfect time. When more of our customers were at home and when media was cheaper. And you can see the immediate impact that had. We started that program in late July. And within 2 weeks, for the first time in our company's history, we generated 1,000 appointments in a single week. And for the 7 weeks after that, we've generated 1,000 appointments or more ever since. Our dealer partners love this. They don't love it just because now they've got a lot more appointments, which they think are great, and they want as many of them as they can get, but it also provides brand coverage and support new local markets. So when they talk to customers, they've heard about our product as well. This is something that has, I think, done even better than we expected, and it's something we're going to continue going forward. You put all that together, and you combine it with outstanding operations, training and support technology, and the result is you have the best customer reviews and customer satisfaction in the industry. If you take a look on the graphic on the left, we are the only 4-star rated public solar provider in the U.S. and that's based on the 6 top solar views sites, Better Business Bureau, Yelp, Consumer Advisers, Google, Solar Reviews, we are significantly above the competition in that. And our industry-leading NPS of 69 is a great level for almost any industry. Bottom line is the best quality drives the best reviews and the best reviews drive the most customer referrals. So let me transition off discussing the platform and talk about how we use that platform in 3 distinct market segments: our residential business, our light commercial business and new homes. Our traditional residential retrofit business is a business we've been in for over 15 years. In fact, we've had an independent dealer model for almost that entire time, and we're very proud of that model. It's grown to be an extraordinarily solid business for us. The chart on the left here shows some of the statistics about our dealer loyalty and that model. Were represented from over 40 states and fully 197 of our over 400 dealers are exclusive dealers to SunPower, means they sell nobody else's solar but ours. Those loyal dealers are loyal because of that platform I talked about, but they're also critical for us because we can make sure that they're the best trained and best-selling -- the best measures to our customers. Now within those exclusive dealers, 35 of them are extra special, those are our master dealers. When I say master dealers, they actually go-to-market as SunPower. So while they'll have maybe their own name on the shirt as well, they'll wear a SunPower shirt and wear -- to use SunPower trucks. This really enables us to kind of have the best of both worlds. We have lower costs because those are independent entrepreneurs that run their own businesses. And at the same time, we're able to extend that brand. Maybe most importantly, this portion of our business is getting bigger and bigger. In fact, this year, fully 50% of our sales to this channel have come from our 35 branded master dealers. I think interestingly, beyond our master dealers, I mentioned our marketing success programs. We're now at a point where more than 30% of our entire sales from this channel are actually coming from SunPower generated leads. So if you think about all the loyalty that may come from parts of the funnel and our products, et cetera, just think about how loyal a dealer is when a fully 1/3 of their business is coming from business that we send to them. That's one of the key elements, one of the ways that this partnership is really a 2-way partnership. Overall, I guess the last thing I'd say is, this business is really booming. In fact, our expectation is our business in the residential retrofit channel is going to grow 30% to 50% in 2021. Now let me talk about our light commercial segment. This is a unique area. This is an area that's very complementary to Eric's business, where he takes commercial solutions to the much larger direct customers. While Eric's team serves marquee names like an Amazon or Target or Apple or companies like that, we really are focused on neighborhood businesses that are much smaller, and they're serviced through this dealer channel. This could be either organizations or companies, churches or local auto dealers. That type of market segment is serviced by this channel really uniquely by SunPower. There's really no other channel like this. What's really nice about this business it doesn't just complement Eric's business in that we can leverage the same technology, we can leverage the storage technology, we can leverage a lot of the mounting technology, the same kind of equipment that's used in Eric's business, but it also leverages our residential dealer base. In fact, 70% of our revenue in this channel comes from dealers that we call combo dealers. They're dealers that service both residential and commercial. It's also very important to our dealer partners because some of our bigger dealer partners really want to be in both businesses. And this SunPower allows them to do that. Last thing I'd say on that side is that this channel is also increasingly adopting our platform technologies. In fact, last year, our Helix mounting system grew by more than 2x in its adoption in the light commercial channel. Going forward, we're going to do more in what I would call vertical markets. A good example is auto dealers. We're now in many, many auto dealers, we're starting to grow that. And we're going to bring the Helix storage capability that Eric's team has innovated down into this segment at smaller levels that are more appropriate for customers in this area. Overall, we expect the light commercial revenue to grow between 5% and 15% in 2021. And last, but certainly not least, I do want to spend a couple of slides talking about the new homes market and our position in that market. You probably know, in California, the new homes market is exploding for solar, driven by the California mandate, which took place -- which really became effective just this year. We've been in the new homes market for a long time and it's been a great market for us, but it's exploding right now. In fact, today, there are 680 active communities, meaning new home developments that are installing SunPower panels. If you think about that, each community is between 75 to 100 homes to give you kind of idea of the scope there. And there's 250 additional homes that haven't started the construction phases that we're under contract for. Beyond that specific opportunity, though, the market is actually going to get bigger and bigger beyond. There's a big move in California elsewhere toward all-electric homes. The reason that's important for solar is the more electricity you put in the home, the more sole you want on the roof. And then storage is another thing that's going to be bigger and bigger in new home space. The 2019 Energy Code added storage and our SunVault solution was just certified to what's called Title 24. That allows builders to take energy credits for implementing storage as well, and that will be a big driver for adoption. And as I said earlier, storage is actually cheaper to install in a new home than it is on a retrofit space. We believe the combination of OneRoof and SunVault is the perfect combination for new homes and will allow us to keep the significant share we have and grow it going forward. Overall, this market is growing over 30% a year as for solar business, and we expect to grow faster than that. To conclude on new homes, one of the most important things here is the relationship with our customer, in this case, the builder. Because we've been in this bit so long, we have an outstanding relationship with the top builders in California. As Tom said earlier, 18 of the top 20 California homebuilders use SunPower. We've had a market share above 50%, and that's something we believe we will continue to maintain. OneRoof is -- lowers cost, looks better on the roof and SunVault adds storage to that capability. Our expectation in the new home space is that we're going to grow revenue between 30% and 50% in 2021. So let me wrap up on a slide coming back kind of to the beginning and talking about our financials. We're very proud that despite the COVID pandemic, despite the fact that affected it our revenue growth, in 2020, we've actually been able to grow our gross margins to more than 30% in the residential segment, and we're actually growing our EBITDA this year, more than 50% despite COVID. In 2021, we expect revenue growth to resume and be quite significant. Overall, for this segment, we believe we'll grow 30% to 50% in revenue, and we expect our gross margins to be above our 20% model for the entire year. With that, I will -- I thank you for the time. I appreciate the chance to talk to you again. And I'll bring up Manu Sial, who is our CFO. Thank you.

Thank you, Norm. Before I begin the finance presentation, I wanted to thank all of you for spending time with us today and also highlight for you that we have posted on the SunPower Investor Relations website historical financial and operations metrics. Let me begin the finance presentation with our 4 key priorities: simple cash-based financials, clean and capital-light balance sheet with a lower cost of capital, consistent operating cash generation at the Devco and future value streams at Powerco beyond day 1 customer contact. We spent the last couple of years, really simplifying our financials and now have a cash-based P&L without adjustments like out of market poly or complicated lease or real estate accounting. We've also spent time in simplifying our balance sheet and now see a path to a net recourse debt of less than $100 million in 2021, with a path to get to less than 0 in 2022. Let me take -- let me walk you through the bridge on how we get our net recourse debt to less than $100 million by next year. We came into 2020 with over $1.1 billion in debt and liabilities. About $300 million of that travels with Maxeon and post-spin, SunPower has no legacy liabilities. We'll utilize our operating cash and the proceeds from the Enphase monetization to repay what's remaining of our 2021 converts and the SEDAR loan by next year. In fact, we bought another $10 million of our 2021 converts this week. That gets us to a gross recourse debt of $425 million by end of next year. By the end of '21, we'll also have unused or unsold Enphase shares and a cash balance of greater than $325 million that results in a net recourse debt of less than $100 million. And that what results in is a balance sheet that has got investment-grade leverage metrics, a much lower cost of capital, and that will enable growth. Staying with the balance sheet, post-spin, SunPower has a capitalized model and what that results in is a significantly higher return on invested capital compared to our peer group. In fact, we expect SunPower to have greater than 25% return on invested capital post-spin, and that will get enhanced by all the growth and margin drivers, Norm and Eric talked about in their presentations. Earlier in the presentation, Tom gave us a way to think about SunPower as Devco and Powerco. I lay out for you now a valuation and a modeling framework around Devco and Powerco. Let's begin with Devco first. SunPower has one of the strongest residential and commercial origination engine with a cash-based P&L. We expect our revenues to grow over 30% in '21 compared to 2020 with residential revenue and margin growing at a faster pace. We also expect our Devco to consistently generate operating cash. SunPower has always centered its business around the customer. You saw that in Norm's presentation where he talked about customer satisfaction and Net Promoter Score. This customer focus allows SunPower to create value streams post day 1 customer contact. All of these value streams will be captured in Powerco, and the revenue and margin coming out of those will be incremental to revenue and EBITDA from Devco. Powerco, as it stands today, is made up of 2 pieces: Net retained value related to our residential leases in our SunStrong joint venture, that's about $400 million and a services pipeline that is about $500 million. We expect both of which to grow next year. We also expect about $50 million of services revenue in 2021 coming out of the Powerco. We'll utilize this Devco Powerco framework to guide us through the rest of the finance presentation. One of the key priorities for us in Devco is to consistently generate positive operating cash flows. In second quarter, we generated cash as a combined company. We expect to generate cash at SunPower in third quarter and starting fourth quarter, we expect to consistently generate positive operating cash flow. Compared to our 2019 metrics, we have significantly made improvements in EBITDA for 2020, and expect to do the same for 2021. Norm and Eric talked about the volume drivers between new product introduction, business tailwinds and time expansion for the large commercial business. I'll cover on the next slide, more details around margin rate expansion and gross margin per watt. We have a highly efficient OpEx structure. What all of that means is a high growth, cash-based EBITDA. We also have a working capital-light model and that gets us to a high operating cash conversion coming off EBITDA. Gross margin per watt of gross margin is one of the particular drivers of our operating cash flow. As you can see from the page, we've made significant improvements in our gross margin per watt and expect to double it in '21 compared to our 2019 performance. We grew our gross margin from 2019 to '21, driven by heavy storage adoption, both in residential and commercial. Norm and Eric are quite excited about that. Operating excellence initiatives that reduce our installation costs as well as improved financing that I'll cover in more detail on the next slide. Most of these operating and financing cost related initiatives have either been completed or are in the process of being completed, and that gives us confidence in achieving our 2021 risk margin per watt. I want to highlight the significant improvement in performance in both our residential business as well as our large commercial when you compare the gross margin per watt between 2019 and 2021 expectation. In fact, for the residential business, we expect to exit 2021 with gross margin per watt of greater than $0.70 a watt. There's a lot of interest in SunPower projects. Let me walk you through the page that shows us resulting lowering of cost of financing coming out of that interest. Starting with the residential loan fees. We expect over 60% reduction in our financing fees given our new arrangement with TechCU. On residential leases, we expect to see lowering of financing costs driven by the efforts of our project financing team. We've also made significant improvements in our structure that results in higher upfront cash flow and a higher gross margin per watt that Norm talked about in his presentation. Not to be outdone, we are seeing significant interest and demand for our large commercial project. And that is resulting in better structures and lower financing costs in the commercial business. SunPower has great relationships in the financing community. And that allows us access to diverse sources of capital, including access to tax equity. And with a significantly improving balance sheet that results in access to lower-cost sources of capital for SunPower. Another important element of our operating cash flow is our operating expenses. We have one of the lowest OpEx per watt amongst our U.S. residential peers largely driven by our dealer model. The spin also results in significant simplification of our overhead structure. For example, our corporate overhead is now about 1.5% of sales. We also expect scale and investments in digital to drive lower OpEx per watt in 2021 when compared to 2020. We invest about 30% of our OpEx in digital and technology that not only drives improvements in our margin and cash and efficiency for our Devco, but also powers growth in our Powerco. I'll spend the next couple of slides in talking more about the Powerco. Just as a reminder, Powerco is the sum of our services pipeline and revenues and the net retained value related to our residential leases in our SunStrong joint venture. Services is a key area of focus for SunPower. Tom, Eric and Norm all talked about it. We have about $500 million in services pipeline as of now. And we are targeting, growing the services pipeline at a rate faster than our Devco growth rate longer term. SunPower has over 300,000 residential customers, over 3 gigawatts in installed base, over 500 residential and commercial dealer base. In addition, we also have access to the installed base of our financing partners. What that allows us to do is to sell storage and adjacent services on a recurring basis to both current SunPower's and non-SunPower customers. All of this give us confidence in our ability to meet the longer-term growth rates for the services business. The second element of Powerco is the net retained value related to our residential leases in our SunStrong joint venture. That part of the portfolio will grow in line with the residential business Norm alluded to that in his presentation. And we expect to create about $500 million in net retained value by 2021 related to our residential leases. In addition to creating $0.5 billion worth of net retained value, we made significant improvements in the structure of our lease funds. And we're getting to a point when put together with our cost improvements, where our senior debt and tax equity is going to more than cover our cost basis. That puts SunPower in a great position with a significantly improving balance sheet and a consistent operating cash-generating model, we expect lowering -- further lowering of financing costs. Let me dimension it for you, for every 100 basis points reduction in cost of cash equity, we should see about $0.04 of gross margin and upfront cash being created for SunPower, some great work being done by the residential and the project finance team. I'll close by providing guidance for 2020. Please note that our 2020 guidance is adjusted for discontinued operations related to the Maxeon spin. We expect to do between 465 and 510 megawatts for the full year 2020. SunPower revenue will be between $1.060 billion and $1.1 billion. Our adjusted EBITDA will be between $20 million and $30 million. That includes between $5 million and $10 million for the services EBITDA. Our SunPower GAAP net income will be between $30 million and $40 million. Also, I would like to affirm our third quarter '20 guidance for SunPower post the Maxeon spin. The top right table shows the pre-spin and the post-spin metrics for megawatts recognized revenue and adjusted EBITDA. In addition, we are seeing a positive quarter-over-quarter trajectory for SunPower in 2020 across our key financial metrics, including adjusted EBITDA, where we expect our adjusted EBITDA to be between $20 million and $30 million in the fourth quarter. That's a great trajectory going into 2021. And coupled with a simple cash-based P&L, a significantly improving balance sheet a Devco that will consistently generate operating cash and increasing revenues and pipeline in the Powerco. With that, I'll hand it back to Tom for closing comments. Thank you.

Well, I think we've seen the value of focus. Think about this, we can do our entire analyst presentation in an hour or 3 minutes, plus or minus. But the value of focus, look at this a radically improved balance sheet that leads to a lower cost of capital and market best financial products. And the tailwinds that SunPower has with SunVault Helix storage, new homes and the value-add that we can put on those systems, leading to a growing Powerco. So we are in a unique position to deliver a profitable cash-generating company that will have the industry's best return on invested capital, and we're thrilled to present that to you today. Next, what we'd like to do is take a 5-minute break. We'll set up chairs here socially distance. We'll take our mask off because we're going to be significantly separated, and we'll do Q&A. So give us a few minutes to set up, please. Thank you so much. [Break]

Welcome, back, everyone. I'd like to begin the executive Q&A session that we have right now. [Operator Instructions] Our first question comes from Eric Lee from Bank of America Merrill Lynch. What is the storage attach rate and average kilowatt for new homes compared to the regular residential system?

Okay. I'll take that, Eric. As far as attach rate on new homes, we've just begun selling, so it's a little bit early to kind of say what we expect it to be. I believe it will be similar to the attach rate we're seeing elsewhere, which is really over 30% right now. And in fact, in the Bay Area, it's closer to 50%. So I don't think there'll be necessarily a difference in attach rate, but I would say it's a little early because we -- those projects take longer, so you have to get in earlier. So we'll learn more about that later. As far as sizes go, we do expect it to be a little bit on the smaller size, although we have our 13-kilowatt single units, and we think is really perfect for new homes. I would tell you in the retrofit space, we expect significant adoption of the 26-kilowatt and bigger. I think in the new home space, we will -- it will be most common that people use a single 13-kilowatt size.

Great. Our next question comes from Ben Kallo from Baird. Would you generally please discuss how you're attracting new dealer partners? And do you provide them capital to get them started?

We do not have a system -- into the second part first, I guess, we don't have a system to provide capital on our dealer partners upfront. We do, in the commercial channel, provide financing support for opportunities. That's something we've been doing through Bank of the West recently. But as far as attracting dealers, i.e. the product a lot is what I talked about in our presentation, our portfolio of what we provide those customers, those dealer partners product-wise, but also financial product-wise. All that's very, very important as well as the marketing support. We have been fortunate to have a very loyal dealing base but not much trouble attracting more dealers either.

Great. Our next question comes from Brian Lee from Goldman Sachs. How do you define your $500 million pipeline for this year? What exactly is embedded in that? And given the $50 million in services revenue forecasted for 2021, does that imply a 10% conversion rate? And how should we think about growth in services revenue annually and whether or not that is higher or lower than EBITDA margins in your other businesses?

So let me say a few words, and then we'll turn it to Manu. First, I want to comment on the last question. Norm addressed how with the Power of One platform, we can address the so-called long tail of smaller dealers. And it's important to note that we are growing share. So the Power of One is working. When we think of services, of course, and Powerco -- that fit in Powerco, the foundation of SunStrong, Manu?

Yes. So Brian, just to take your questions one at a time. So the $500 million of pipeline is basically contracted services related to the SunStrong joint venture as well as our commercial customers base. So that's effectively contracted services. That was question one. In terms of 2021, revenue vis-à-vis our pipeline, 10% to start with. I think that will accelerate as we go through the out years. The growth rate of that business, as I talked about, longer term, will be greater than the growth rate at the Devco.

Great. Our next question comes from Michael Weinstein from Crédit Suisse. What is the time line for your target gross margin per watt and OpEx per watt for your commercial business?

Okay. Eric, do you want to take it?

Sure. Yes. Our target model, which I mentioned, our time line is beyond 2021. We're going to get close to it in '22. We'll be really on top of it in '23.

Our next question comes from Colin Rusch from Oppenheimer. Can you speak about the implications of your cash in lieu of tax equity provisions? For your unit economics and broader financing plans going forward.

So Manu covered our product finance and covered some of what you asked for Colin, I think maybe he can expand in terms of improved balance sheet, tax equity capacity, et cetera.

So I think just from SunPower, as I said, has great financing relationships. From a tax equity access perspective, we have access to 2020 and 2021, our tax equity capacity. You're seeing lowering of both the financing costs come for both residential as well as a large commercial businesses as well as improving structures, both from our tax equity utilization perspective, especially in our commercial business and also in our residential business.

Yes. So I think it's just really important to note that our position on financing products is a lot different than it has been in the last few years. Of course, the foundation for that is the improved balance sheet that Manu has gone through in detail. It's also a renewed focus and Norm went through both -- and Manu went through both our approach with loan and our partnership there with TCU and our lease improving economics. So we've got a combination of things that are happening here that are really positive for our business as we look to the end of '20 into '21.

Great. Next question comes from Phil Shen from ROTH. You indicated that you're going to be offering loans with a 0.99% APR. Can you share with us how you can offer such a low interest rate to customers and still maintain profitability?

Yes. No, happy to. In fact, there's a whole suite of offerings between terms of 10 to 25 years, 0.99% up to like 2.45% or 34.9%. I guess bottom line is the overall interest rates in the market are low. And so we're able to get that financing for our partner and take advantage of very low interest rates, which customers are really moving to more and more. We see loan as the biggest, fastest-growing segment in our overall portfolio. The reason our profitability is actually increasing at the same time we offer these high -- these lower APR loans, is really what Manu showed, which is our upfront financing costs are coming down significantly while we offer that broader portfolio. And so the customers -- while the customers are seeing low-APR, longer-term loans, we're actually able to attract more revenue and more margin from those loans.

And the only thing I'd add is standing behind our loan product is depository capital, which is possibly one of the cheapest sources of capital.

Our next question comes from Julien Dumoulin-Smith from Bank of America. How do you think about ownership versus continued sell down through SunStrong or other structures? Is there a desire to own more of the asset? Or should we assume SunStrong remains the focus of your asset-sharing ownership?

So I'll start, and Manu will probably add a few comments. So it would be fair to say SunStrong still remains our primary focus and similarly in commercial to sell to partners. Having said that, because our balance sheet is dramatically improving, our cost of capital goes down, our expected buyer investor returns should be commensurate with that. So going forward, we have that option. And we may selectively put balance assets on our balance sheet in the Powerco. Primarily though, as we work with our partners, we're going to be more cost effective.

Yes. I think Tom commented well. The only thing I'd add is we're focused on creating value. Julien, I don't know if you picked it up on the chart, but our new resi lease fund gets to $1 a watt value split between the Devco margins and the net retained value.

Our next question comes from John Segrich from Luminus. Can you walk us through how the Hannon Armstrong relation works? Are they obligated to take systems for you? Any changes to how the economics work? Are you going to be selling systems to other partners now? And how does that impact margins?

So let me say a few words, and then I'll turn it to Manu. So Hannon Armstrong is a great partner. We've worked for a long time with them. They've raised incredibly cost-effective capital. They partner with us so that we can benefit from that also that we can have a frictionless relationships, and we're not adding costs, administrative costs. So if that relationship is great, and we expect it to be great going forward. Now in terms of the economics and how we think about that relationship, I'll let Manu say a few words.