SunPower Corporation (NASDAQ:SPWR) Q4 2022 Earnings Conference Call February 15, 2023 5:00 PM ET
Mike Weinstein - Vice President of Investor Relations
Peter Faricy - Chief Executive Officer
Guthrie Dundas - Interim Chief Financial Officer
Conference Call Participants
Sean Morgan - Evercore ISI
Philip Shen - ROTH
Kashy Harrison - Piper Sandler
Joseph Osha - Guggenheim
Corinne Blanchard - Deutsche Bank
Biju Perincheril - Susquehanna Financial
Pavel Molchanov - Raymond James
Ned Baramov - Wells Fargo
Thank you for standing by. Welcome to SunPower Corporation's Fourth Quarter 2022 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's program is being recorded.
And now, I'd like to introduce your host for today's program, Mike Weinstein, Vice President of Investor Relations. Please, go ahead, sir.
Good afternoon. I would like to welcome everyone to our fourth quarter 2022 earnings conference call. On the call today, we will begin with comments from Peter Faricy, CEO of SunPower, who'll provide an update with fourth quarter announcements and business highlights, followed by commentary on our 2022 accomplishments and our expectations for 2023, including specifics on our customer financing and new homes operations. Following Peter's comments, Guthrie Dundas, SunPower's Interim CFO, will then review our financial results and guidance for 2023. As a reminder, a replay of the 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 and our 2022 Form 10-K and quarterly reports on Form 10-Q. Please see these 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've 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 posted a supplemental data sheet detailing additional historical metrics.
With that, I'd like to turn the call over to Peter Faricy, CEO of SunPower. Peter?
Thanks, Mike, and good afternoon, everyone. At our Analyst Day last March, we rolled out a new long-term strategy, focused on residential solar with five strategic pillars and a set of financial goals for 2025. 2022 was an important and highly successful first step on that journey. I'm happy to share the progress we've made and our plans to execute on that vision going forward.
In the fourth quarter, we continue to break records for customer growth, finishing the full year above the high end of our 2022 guidance. We reported $36 million of adjusted EBITDA this quarter, a 39% increase versus Q4 of 2021, to finish the year at $95 million. Business unit cash generation was a positive $41 million in the quarter, leaving us with $377 million cash on hand heading into 2023. To put this in perspective, SunPower's net debt at year-end was at the lowest level since we began issuing convertible debt after our IPO over 15 years ago.
Our strong performance is due to the dedication of thousands of SunPower employees and hundreds of SunPower dealers. The SunPower team overcame unprecedented supply chain and inflationary challenges to deliver results for our customers and our shareholders. I want to acknowledge and thank everyone for their hard work and persistence last year.
Looking ahead to 2023, I'm excited to share with you our plans to accelerate our investment in product, digital, and financial platforms to keep SunPower's momentum building. These investments will ensure that we have the right tools in place to capture market share for many years to come. We are excited to enter this year with plans to build upon our best-in-class customer experience, to create the fastest-growing residential solar company in the world.
Please turn to slide number four. I'm pleased to report that customer demand continues to be strong and that we added 23,700 new customers in Q4. This is a 39% increase year-over-year that now includes the demand from Blue Raven Solar in both comparative periods.
Revenue also grew at 42% year-over-year as price increases continue to offset the higher impact of product and installation costs. We continue to see strength across our sales channels with 109% year-over-year customer growth from the SunPower direct channel.
Our backlog also ended the year strong with 19,000 retrofit customers and another 34,000 customers in the new homes channel.
Adjusted EBITDA per customer grew to $2,300 before platform investment, allowing us to finish the full year at $2,100, a result that's well on track to achieve our target goal for $3,000 to $4,000 by 2025.
SunVault energy storage system sales continued at a steady pace with a 17% bookings attach rate in the SunPower direct channel, unchanged versus Q3. We also continue to be growing demand for customer lease products, which increased 55% year-over-year in the quarter. Further growth for leasing is expected in 2023 and beyond because of the new tax incentives under the Inflation Reduction Act.
SunPower Financial's low-risk origination model remains customer-centric and agnostic towards lease or loan financing. We believe we are well prepared to serve ramping lease demand.
Please turn to slide number five. In 2022, we saw steady and exceptional progress in our topline growth, exceeding the top end of our original 2022 guidance with 48% growth in new customers over the full year, including our highly successful late 2021 acquisition of Blue Raven Solar.
Looking forward, we are investing heavily in the people, products, and systems that will enable SunPower to continue to acquire market share in the years ahead. The bottom-line is despite higher interest rates and changing state incentive policies, the value of residential solar continues to grow. This value will be buoyed by another strong decade of federal incentives under the Inflation Reduction Act and the likelihood of rising utility bills.
Please turn to slide number six. We finished 2022 with $95 million of adjusted EBITDA, a 26% improvement year-over-year, with steadily improving levels of EBITDA per customer throughout the year.
We expect to see continued year-over-year improvement in 2023 as well, driven by higher pricing power, improved attachment rates for SunPower Financial and SunVault storage and a continuous effort to reduce customer acquisition costs.
Please turn to slide number seven. Next, I'd like to share some of the important progress we made in 2022 as we move forward with the five pillars of our long-term strategy.
For customer experience, SunPower remain the number one ranked home solar installer last year, and we continue to make meaningful progress, raising our Net Promoter Score by 29% in 2022.
For products, we expanded and extended our contract with Maxeon for premium, high-efficiency solar modules through 2025. We have also secured additional high-quality supplies for the mainstream market, including Hanwha Q Cells from our Dalton, Georgia facility.
We've also added multiple SunVault storage sizing options, including whole home backup and we have begun work on SunVault version 2.0. All of our products meet the well-known SunPower quality and reliability standards and carry the industry-leading SunPower complete confidence warranty to serve our residential customers across the US.
For growth, we launched the Dealer Accelerator Program to partner with our best dealers to expand into new territories and sell additional products. Our network expanded 28% in 2022 to more than 850 dealerships across the entire US.
We launched an important collaboration with General Motors to be their exclusive supplier of solar systems in the coming years, and we are also their preferred EV charger installation partner. Additionally, we announced Home Solar with IKEA and an exclusive agreement with Toll Brothers in California markets, as well as a national contract extension with KB Home.
For digital, we continue to improve the customer experience, along with launching a new real-time data visualization tool for dealers and the initial build of our virtual power plant and demand response software that will ultimately allow our systems to communicate with interconnected utilities.
And finally, SunPower Financial finished 2022 with leasing loan net bookings increasing 81% year-over-year, with lease contract bookings ramping up significantly in the second half of the year. We finished 2022 with a 39% financial bookings attach rate, and we are on track to meet our long-term target to achieve a 65% to 75% attach rate by 2025.
Please turn to slide number eight. Conventional electric utility rates have continued to rise sharply, over 11% year-over-year in November, despite the moderating cost of key fuels such as natural gas. Nine states continue to see increases greater than 20% year-over-year. As we've noted, these steep rises continue to elevate the value proposition of residential solar as one of the most powerful ways to stabilize home power bills.
Although, fuel prices have declined in recent months, the Edison Electric Institute is projecting a 20% increase in electric utility capital investment from 2022 to 2024 over the previous three years. As these investments are recovered through electric bills, value of customer finance rooftop solar is likely to continue rising.
Please turn to slide number nine. As most of you know, California regulators are preparing to implement new net energy metering rules on April 15. Until then, customers in the state are eligible to lock into the current NEM 2.0 rules as long as they submit an interconnection application before that date.
We are currently investing heavily in our California sales and marketing effort as well as the interconnection application process to ensure that as many customers as possible take advantage of the current rules before the change. I'm pleased to report that we are seeing a significant response in new bookings and backlog as a result of these efforts.
Once the new NEM 3.0 rules take effect, we expect the value of battery storage systems to increase materially in California as customers may use their solar generation across more hours of the day by storing power in their battery.
Our own analysis suggests that the nominal payback period for solar-only system under NEM 3.0 is eight to 10 years, but this can be improved to seven to nine years when storage system is added.
We believe SunPower is well-positioned to deliver SunVault storage systems to customers with inventory levels entering 2023 that we believe are sufficient to meet stronger demand for the year.
Please turn to slide number 10. As you may recall from our second quarter presentation, we conveyed an expected sales slowdown for the New Homes segment due to a slower economic environment affecting the broader homebuilding industry.
Despite this, the New Homes segment reported an impressive Q4, 13% year-over-year growth rate for customers recognized, boosted by our nascent but fast-growing multifamily and national sales efforts beyond California.
Our 2023 customer growth and adjusted EBITDA guidance assumes a 25% decline in overall new home sales versus last year, which includes the benefits of rapidly scaling non-California and multifamily sales. Overall, this is the equivalent to the assumption of a 500 basis point reduction in year-over-year customer growth for SunPower as a whole.
Longer term, there's a widening need of nearly 6 million new homes to satisfy the growing demand for housing in the US. We continue to view the New Homes segment as an important long-term strategic asset where we intend to continue building on our already strong leadership position.
Please turn to slide number 11. The Inflation Reduction Act Congress passed in 2022 includes a 10-year extension of the 30% tax credit for solar, in addition to a brand-new 30% tax credit for stand-alone battery storage. It also includes several important bonus credits that apply to systems leased to customers. SunPower stands well-positioned to monetize these benefits through a combination of stronger sales, increased pricing power, and qualification for the bonus credits.
Number one, to increase the likelihood that we qualify for the 10% domestic content bonus credit, we are adding more domestically sourced PV modules to our supplies for 2023, and we expect to bring on additional domestic suppliers in 2024 and beyond.
Number two, for the 10% to 20% low-income bonus credit, SunPower is building new tools for dealers, activating SunPower direct to sell lease and reconfiguring marketing operations to capture more qualifying customers.
And finally, number three, for energy community credit, we're mapping out these communities so that this bonus can be incorporated into our sales tools and made available to our customers.
Please turn to slide number 12. As previously noted, our low-risk financing model is based on the off-balance sheet origination of loans and leases for customers. With similar origination fees for either loan or lease, we are agnostic and strive to act in the customer's best interest.
As you can see here, our lease net bookings continued to grow robustly in the fourth quarter at a rate of 55%. We expect this trend to continue into 2023, as leases are projected to gain popularity in the coming years due to the bonus tax incentives on the IRA.
To be clear, we welcome this development, and we are well prepared to competitively execute on it. Our all-in cost of capital per leasing remains below 6.5%, including tax equity, with the added advantage of lower interest rate sensitivity across the full capital stack. We believe that this is at least equal to or better than our peers. We have ample facilities in place to finance a growing lease pool through 2023.
Loan bookings also grew 35% in Q4 and were approximately 78% of the total net bookings in the quarter. We continue to benefit from more than $2 billion of low-cost, long-term private loan purchase facilities, which are now 300 to 400 basis points less expensive than the cost of capital provided through asset-backed securities market. The ABS market has been improving of late, with spreads tightening 80 to 100 bps in Q1, and we remain well positioned to tap this important source of capital in the future.
Please turn to slide 13. Before I turn it over to Guthrie for the financials, I want to share some of the most important product investment efforts we are undertaking in 2023. As I mentioned earlier, we are very pleased to have recently extended and expanded our supply agreement for high-efficiency premium solar modules from Maxeon through 2025.
We've also begun taking steps to build up a supply of high-quality modules suitable for the mainstream market, including Hanwha Q Cells in their factory in Dalton, Georgia, that we hope to be positioned to qualify for the IRA bonus tax credit applicable to lease systems with domestic content.
Number two; we've already begun development work with General Motors on a bi-directional vehicle-to-home EV charging system, with a limited release expected in Q4 of 2023. As mentioned earlier, GM has made SunPower its exclusive partner for solar and storage projects, and we're incredibly excited to be part of this important collaboration.
And finally, as I mentioned earlier, we've begun engineering and design work on the second version of our SunVault energy storage system. This V2 will include a complete platform upgrade with multiple new features, including integration with EV chargers and generators, control over multiple load configurations, next-generation monitoring and an easier, faster installation process. We are targeting a launch for the second half of 2024.
I'll now turn it over to Guthrie for more details on our Q4 results. Guthrie?
Thank you, Peter. Please turn to slide 15. As Peter mentioned earlier, strong 2022 customer demand and steadily increasing EBITDA per customer, support achievement of our long-term target model for increasing market share and EBITDA per customer through 2025.
For the fourth quarter, we are reporting $36 million of adjusted EBITDA and $492 million of non-GAAP revenue, an increase of 42% year-over-year. We added 23,700 new customers in Q4, a 39% increase year-over-year that now includes Blue Raven Solar in both periods. Full year 2022 customer growth was 48%.
Adjusted non-GAAP gross margin continued to remain above 20% as the cost of equipment, labor, and shipping is passed along in pricing to customers. Adjusted EBITDA per customer before platform investments increased to $2,300 for the quarter and $2,100 for the full year as we benefit from a combination of higher pricing, growing origination fee volumes at SunPower Financial, and the operational leverage gained from increasing sales.
As we highlighted at the Analyst Day last year, platform investment of $18 million for the quarter and $76 million for the full year is primarily product, digital, and corporate OpEx.
Our balance sheet is now the healthiest it's been in years, exiting 2022 with $377 million of cash on hand and only $48 million of net recourse debt.
In January, we sold our last remaining 0.5 million shares of Enphase equity for approximately $120 million and paid down our entire $425 million convertible debt using $100 million from our term loan we arranged last year and cash on hand. We begin 2023 with ample liquidity to fund ongoing operations and continue investing in the business, including a $200 million revolver.
We continue to value our ownership of lease renewal net retained value in SunStrong using a 6% discount rate. With growth in the portfolio, we now estimate the value of our stake at about $260 million.
Please turn to slide 16. As Peter mentioned earlier, we are initiating 2023 guidance today. We are guiding to $125 million to $155 million of adjusted EBITDA, driven by 90,000 to 110,000 incremental customers with adjusted EBITDA per customer before platform investments of $2,450 to $2,900.
Platform investment continues to be primarily comprised of product, digital, and corporate operating expense that are preparing the company for future growth and the expansion of EBITDA per customer.
On a per customer basis, platform investment is projected to peak in 2023 as we reinvest a portion of the significantly higher-than-expected proceeds from the sale of Enphase shares over the past year. We are making good progress towards achieving our Analyst Day target model, which includes growing our market share versus peers, while also growing adjusted EBITDA per customer to a range of $3,000 to $4,000.
While we expect platform investment continue increasing in future years, we expect us to grow below the rate of customer growth, so the rate per customer declines over time.
As Peter noted earlier, our 2023 EBITDA guidance includes several important assumptions. These include one, platform investment that is approximately $55 million above the Analyst Day target model; two, the impact of an approximate 500 basis point reduction to SunPower's overall customer growth from new homes; three, the impact of an additional approximate 500 basis point reduction in year-over-year SunPower customer growth from the transition to NEM 3.0 in California, which includes the impact of installations resulting from NEM 2.0 orders in Q1; and four, the continued growth for SunPower Financial and battery storage attach rates.
Looking beyond 2023, we see several very positive trends that are expected to help propel our business. These include: one, financial recovery for the New Homes segment, but nevertheless assumes continued pressure on the homebuilder industry from higher mortgage rates; two, the IRA significantly improving solar value, potentially accelerating demand and EBITDA per customer; three, continued growth for SunPower Financial and battery storage attach rates; four, platform investments that improve the customer experience, help reduce customer acquisition costs and capture growing market share.
We entered 2023 executing our strategy and on track towards the achievement of our long-term target model goals. With a strong balance sheet and a philosophy of continuous improvement, we are building a platform of assets that will continue to enhance our world-class number one ranked total customer experience.
With that, operator, I would like to turn the call over for questions.
Certainly. [Operator Instructions] We’d like to ask that you limit yourself to one question and one follow-up. You may get back in the queue as time allows. Our first question comes from the line of Sean Morgan from Evercore ISI. Your question, please.
Yes. Thanks, Peter and team. So one of the things I've been wondering about recently is, how domestic content is going to work in light of the fact that we're starting from heavily, heavily offshore sourced supply base of materials for resi. And so, also, is it going to be a situation where the domestic content adder for the ITC is based on the full value of the system?
Or do you think the government is going to allow, like, certain components of a system to qualify and you could basically do piecemeal credits for, like, say, items where maybe in some cases, there are no vendors that are really US-based, so that you would get credit for domestic content where available.
Yes. Hey, Sean. We're super excited about the benefits of the IRA and in particular, the domestic content benefit you talked about. And the partnership we have with Hanwha for Q Cells, we're cautiously optimistic that those panels will be examples of the kinds of products that would benefit from the IRA.
It's our -- the final guidance hasn't come out yet on this, but it's our expectation that it will be the total system cost of the equipment and it will have to be above a certain threshold. I think the rumors I've heard are 40% domestic content for the total system hardware cost.
And then if you qualify, it provides the benefit across the entire system cost, including installation and labor. So that's the current way we're modeling it and thinking about it, but we're waiting for the final guidance. And once we achieve that final guidance, we'll act accordingly.
I think the interesting thing to me is that, you're going to see a growth in US Clean Energy jobs out of this. There's no question about it. We have had a number of high-quality panel manufacturers interested in either expanding their US operations or adding new US operations. So, I think, its stay tuned here. I think there'll be more opportunities for us to grow our domestic content, particularly on PV.
Okay. I mean, Hanwha Q Cells is maybe a good example or I'm guessing probably maybe not SunVault. But the Hanwha, if I'm understanding their process correctly, a lot of their materials -- or their supply chain starts kind of abroad and then the assembly is -- and correct me if I'm wrong, is kind of completed in Dalton, Georgia. So, I guess maybe with some creative transfer pricing they could come up with a system where they're attributing most of the cost to the labor assembly here in the US and then it would qualify. But how do you think the government is going to sort of treat material costs relative to, say, I guess, a finished product?
Yes, I think you're thinking, Sean, is in line with our belief is how this will play out. I think if you want to create jobs here in the US, there's probably some process that maybe evolves over time. But certainly, given the way the supply chains are positioned today, it would make sense, in my opinion -- in our opinion, to qualify, I'll call it, value-added assembly, which is what Hanwha was doing in Dalton, Georgia.
And I certainly think that, that makes sense. That certainly is US jobs and they have an opportunity with the big announcement they made recently about their expansion to grow US jobs. So, it's our expectation that those types of products have a good opportunity to qualify under the IRA.
Great. Thanks Peter.
Thank you. And our next question comes from the line of Philip Shen from ROTH. Your question please.
Hi everyone. Thanks for taking my questions. Peter, thanks for sharing all that detail around the lease mix and that shift as we went through 2022, ending Q4 with 55%. As you look through 2023, do you think we've capped out at that 55%? Do you think that can grow meaningfully higher?
And then historically, years ago, I used to think and you guys used to talk about your business as being one-third cash, one-third lease, one-third loan, clearly, with the low cost of money over the past few years that changed. Do you think -- or can you share where you expect maybe the loan mix to be in 2023? And then what do you think cash might be?
And then finally, Blue Raven historically, my guess was mostly loans have they had in that group had success shifting the financing to be leased as well? Thanks.
Yes. Thanks Phil. On the -- on your first question about lease, where do we think lease will come out in 2023. It's our expectation that as the IRA benefits get defined, all of those adders that we talked about in our opening comments are tied to lease. So, it's our expectation that, that will make lease even more attractive as we go. And so I would expect that 55% to accelerate at some point as we go throughout the year.
In terms of our mix, for color, I think we've sort of said it's roughly 20% cash, 80% financing. And last year, it was the beginning of the year, 80/20 loan, let's call it. I would anticipate that at some point as the IRA benefits are clear and we're at full scale that it will be probably closer to 50/50, and that may even happen this year.
And that's why we feel like we're particularly well-positioned is that we're really agnostic. We want to do for each individual customer what's best for them. And we're the only residential solar company with the philosophy of really looking out what's in the best long-term interest for the customer and offering them the right financing package for them if they choose to finance the product.
And then so you are correct to point out that Blue Raven has been historically -- they've had a little bit of cash, but they're mostly loan. And I'm happy to report that we anticipated the need to move over to do more lease business in time, and we're working behind the scenes to help the Blue Raven team be ready to sell lease products and I anticipate us launching that at some point this year. So we'll share more details on that as we get closer. But, I think, it certainly makes sense, given the part of the United States that they're serving, I think, there's going to be a great opportunity to grow our footprint in those states by having a lease offering as well.
Great. Thanks, Peter. And then, in terms of your Maxeon expansion of the relationship, congrats on that and additional supply that comes with that. I think, on the Q3 call, you guys talked about how Maxeon can account for maybe half of your total module supply in 2023. My guess is that's going to be higher this -- now with the additional supply, I was wondering if you might be able to talk through what that could be now?
And then, as it relates to Hanwha, can you get into how much they might be able to supply in 2023? And then in terms of the other vendors, I think we've written about how Huawei might be another vendor. Just wondering if you could talk through more about where other module vendors might come in?
And ultimately, with your ability to grow through this more challenging time for the rest of the loan market, could we see some meaningful -- we're kind of backing into maybe 440 megawatts of Maxeon in 2022. And so, that would suggest, maybe you guys could do 900 megawatts in 2023, which is substantially higher than your official 2023 guidance now. And so, how does that gap get bridged. And ultimately, I know your guidance is your guidance, but my sense is there could be some conservatism in that guide. Thanks.
Yes. Thanks, Phil. So just to rewind back for context for everybody on the call, when we redid our supply agreement with Maxeon almost at this time last year, one of the big benefits for SunPower was the ability for the first time in our history to seek sourcing from panel partners across the world, which has been a terrific opportunity.
Having said that, we're still pleased to have extended our partnership with Maxeon. They make the best premium panels in the world. We're really happy to be partnering with them and expanding and extending that agreement is wonderful for both parties, and we hope to be able to work with Maxeon in the premium space for many, many years to come. So we're pleased with that.
In terms of how we're thinking about supply, last year was challenging. When the Department of Commerce investigation came out and there was investigation in the AD/CVD, really the supply dried up across the world, and it was very difficult for us to get new supply on board as quickly as we wanted to. And I'm happy to report that not only has that changed, but we've put ourselves in a position where we have sufficient supply to growth.
And our guidance this year is meant to be conservative. I think there's some uncertainty in the economy, and we recognize that. But we've preserved the opportunity to grow faster by having enough supply and flexible supply agreements to serve that.
Right now, we're just prepared to talk about our agreement with Maxeon and Q Cells, but we have other agreements in the works, and I look forward to sharing more details on that with all of you in the months to come. Thanks for the question, Phil.
Yes. Thank you, Peter. One last quick one. NEM 3.0, are you seeing the originations picked up now from maybe December lows. They were really weak kind of the first three weeks of January. We're well past that now. And so, is the acceleration there in a nice way, or is it okay, but it could be better? What are you seeing thus far in the NEM 3.0 transition? Thanks.
Yes. So you're right. I think the only time last year where things slowed down on the bookings front was sort of that mid-November to mid-December time period. It was hard to know if that because of the election cycle, the economy, the holidays, there's a lot of potential reasons in there.
We've been paying very, very close attention to the first six weeks so far this year to get a read on where things are at. And we're very pleased with what demand has looked like really across the country, but in particular, California.
We had pretty ambitious plans for how much we thought we could grow California because we figured that many consumers would want to try to qualify for NEM 2.0, and I would say we're exceeding those expectations so far.
What's been interesting is that it's been a build week-by-week. So, week one was good, week two was better, week three was better. And so even if you go through last week, week six for us, it's been building so far and we haven't peaked yet.
So, I'm interested to see how we finished the quarter, but I would describe us so far on both California NEM and frankly, the overall residential solar environment as cautiously optimistic, recognizing that six weeks is not long enough to judge this and it's early in the year. But so far, we're very pleased with demand. Thank you.
Great. Thank you so much. I'll pass it on Peter.
Thank you. And our next question comes from the line of Kashy Harrison from Piper Sandler. Your question please.
Good afternoon and thank you for taking the questions. So, first one for me was -- my first question is around the customer account. You expect to add 100,000 this year. What proportion of the 100,000 is expected to be from California? And then can you speak to how many of these customers have been locked in today under NEM 2.0?
Yes. So, total customer accounts for the year at midpoint of 100,000, Think of it as just to provide some color. The easy way to think about it would be 50% California, 50% rest of the country, that's roughly the split we're expecting.
I think the actual numbers will be determined, frankly, by how much business gets pulled into Q1 bookings that we have a chance to install obviously throughout Q2, Q3, Q4. So, that will determine how that percent evolves throughout the year. And then -- I'm sorry, could you repeat your second question again?
I was -- you may have already answered it. I was just wondering what proportion of California has been locked in today under NEM 2.0 before the April 14th?
Sorry, yes. So, we have about -- the backlog I talked about in the opening comments that really carries us. Think of it as through Q2 and the beginning of Q3. So, all the customers that we're booking now are just adding either additional customers, if we get them done faster to Q2 or helping us fill out our operations pipeline in Q3.
But from a California perspective, I would say one of the things we've seen with NEM previously is that there is a buildup before the change. And then after the change takes place, things do slow down for a quarter, maybe a quarter or two.
And so one of the reasons we're investing heavily in Q1 to take advantage of this is it just makes sense. That's a good business practice to build up a big backlog here in California and sort of smooth out our California business over the course of the whole year.
It's our expectation by the time we get back to the fourth quarter that we'll resume more normal growth rates and things will be back on track, particularly as California take advantage of both the offer for PV plus solar battery.
Thanks Peter. And then my follow-up question, I was just looking at slide 12, and you indicated here that you have a cost of capital that 300 to 400 basis points below what we saw in the ABS in Q4 and then, I guess, in January.
Can you walk us through why -- or refresh us on why exactly your cost of capital is so much lower for SunPower Financial. And then, how do you think about -- about the cost of alternative sources of capital once that $2 billion you indicated -- once you originate enough customers to run through that $2 billion?
Sure. Guthrie, do you want to take that?
Yes. So we're very happy with our sources of the capital for both lease and loan. I think we're very competitive on both. I think your question is mostly around loan. But on the lease side, we’re -- I'm very happy to have capital to serve essentially all of this year's demand, most of which comes with fixed income or fixed rates. So it's much less sensitive to rate exposure.
On the loan side, we've -- part of our partnerships involve different forms of capital, and that's an area that we intend to grow and diversify and include additional forms of capital via direct ABS market, institutional investors, the banking market, things like that. So we certainly hope to and plan to expand the sources of capital, not only from number of institutions, but types of capital, which will certainly impact what our cost of capital looks like going forward.
Thank you. One moment for our next question. And our next question comes from the line of Joseph Osha from Guggenheim. Your question, please.
Hi, there. Thanks for taking my questions. I wanted to go back to some of the comments that you made on the additional tax credits. So I was looking after the guidance that was released earlier this week on energy communities, which I think might best be described as obtuse.
And I'm wondering, as you look at that and think about the process, how long is it going to take you think before you have your dealers and yourselves really fully equipped to claim these credits and apply for them and handle that whole process?
That's a great question, Joseph. As you might imagine, as an inpatient business leader, we want it done yesterday. And I think to be fair to the Department of Treasury, I think they're trying to sort out how to provide guidance and meet the needs of many constituents.
But the guidance that came out earlier for both low income and energy communities, we do believe needs more clarity and needs to be better defined and needs to be more specific.
When I have met with the Department of Energy, I know how passionate they are about serving low-income consumers and US citizens in these energy communities. So I know the intentions are good, but it will be difficult for businesses to act upon without more clarity, and that's what we're working on with the Department of Treasury right now.
So I still remain cautiously optimistic. I know that they care about this and they want to get this right. To answer your question as directly as I can, I would say, we'll probably take another quarter before the clarity is there, and it's built in the tools, and it's kind of a regular business practice. And if we can make that happen sooner, that would certainly be our preference.
Okay. Thank you. And then the second question, return to what Kashy was asking, really more on the lease side. You've got -- are you saying enough financing in place to cover this year. But as you pointed out, the industry seems to be shifting more to third-party ownership on a longer term basis. So, as you think about that, is there some, perhaps, special way that you might come at that given your relationship with Hannon, or might we see you out there in the ABS market with lease PPA securitizations alongside your competitors?
Sure. Guthrie, do you want to cover that?
Of course. So, I'd say we are -- we have discussions going and are quite confident in our ability to bring in additional partners across the capital stack should we need them. Tax equity debt -- senior debt market as well as potential other sources of subordinated capital.
Hannon is a wonderful partner and we have a lot of runway to continue working with them to partner with them to bring in all of the capital. So, I think we continue to evaluate all of the various ways that we can most efficiently monetize our lease business and that could include direct securitization market and could include other forms as well, but we're confident in our ability to -- with efficient capital and to raise it very efficiently.
Okay. So, we could see you in the ABS market at some point on the lease side. That's one of the -- at least one of the potential outcomes?
Certainly, one of the potential outcomes for sure.
Okay. Thank you very much.
Thank you. And our next question comes from the line of Corinne Blanchard from Deutsche Bank. Your question please.
Hey good evening everyone. Thank you for -- question. The first one, if you could try to give us maybe the cadence that we could expect quarter-after-quarter for the EBITDA, maybe like your rough commentary?
And then second question would be what is baked in the EBITDA guidance? Like the key taken -- for the low range of the guidance and the high range? Thank you.
Yes. Thank you, Corinne. So, let me go back to 2022, actually, I'll start actually with Analyst Day. I think part of what we laid out over this vision between now and 2025 was heavy investment years in 2022 and 2023 and gaining more business leverage in 2024 and 2025, and we're well on track, both from a customer standpoint and EBITDA standpoint and EBITDA per customer standpoint. So, we're pleased with 2022, and we're looking forward to 2023.
Let me give you some context on the EBITDA and then I'm going to answer your question on the -- how we think about it throughout the year. So, last year, we grew EBITDA at 26%, as I said in my opening comments. The midpoint of our guidance this year is 47% growth. So, that's quite an acceleration. That 2,100 bp acceleration, frankly, is earlier than we would have expected it back at Analyst Day, and we're excited to have that leverage be happening in the business already.
From a sequencing standpoint, even though we don't give quarterly guidance, we did say last year most of it would be back-end loaded and that same thing will be true for 2023. Last year, we were about 25% EBITDA in the first half, 75% of the EBITDA in the second half, and we've modeled that exact same EBITDA pattern for this year. So, you could pick it as 25% and 75% again this year.
And some context for that is particularly in Q1, there is some seasonality. So, Q1 is smaller than the other three quarters of the year. Part of that’s related to weather and the beginning of the seasonality piece here.
But the two unique factors are one, we're making a big investment in California purposefully. That’s a unique investment that wouldn’t have normally made for one particular quarter. And that's really to be smart about helping as many customers qualify for NEM 2.0 as possible. So those extra expenses we’ll be taking on in Q1.
And then also for some context, our best two quarters last year in new homes were Q1 and Q2 of last year. Quite a bit of our EBITDA in Q1 from last year was due to new homes. And so, we've talked about the new home slowdown and our modest expectations for new homes profitability this year. So just to give you some color, I would say, still 25% of the EBITDA in Q1, Q2, but we expect Q1 to be pretty modest as we make these investments to build and grow our business for the year.
Thank you. And, yes, just maybe if you can give any other color on, like, what's baked in the guidance? Like, just like what would it take for you to reach the $150 million, or what can go wrong to reach the $125 million?
Yes. Well, we've sort of thought about it as a mix of -- it is a mix of headwinds and tailwinds. That's the reality. It's not a doomsday story. It's not a strictly positive story. On the headwinds front, we talked about new homes in our remarks. We talked about California NEM. And then obviously, there's this inflation economy factor that's out there that could impact consumer sentiment.
The positives are the two we talked about as well, which is the IRA is going to be an incremental net benefit this year and rising utility costs have continued to make solar more and more valuable. So where we net out on those is, we were conservative for both new homes and conservative for California NEM, is either one of those two outperforms our conservatism, that takes you to the 140 and above guidance.
And then, if any, of those headwinds are stronger headwinds than we're anticipating, then we're below the 140 guidance. And I think, we feel pretty good about where we're going to be on new homes in California NEM. It's really just -- is there any kind of unexpected variance in the economy or customer confidence that happens. If something unexpected like that happened then would push us below the 140 and closer to the 125. But its way -- as I said, it's way too early to judge after the first six weeks of the year. But, I would say, so far, we're pleased.
All right. Thank you.
Thank you. One moment for our next question. And our next question comes from the line of Biju Perincheril from Susquehanna Financial. Your question, please.
Hi. Good afternoon. Thanks for taking the question. Question about battery attach rates. Once we have sort of fully transitioned to NEM 3.0, can you talk about where do you expect the attach rates to go? And also related to that, how quickly can you increase your supplies from, I think, you mentioned low double-digit attach rates that you can do now?
Yes. Thank you. I think if you take a look at where California NEM 3.0 rules are headed, what you immediately noticed is the battery becomes really, really critical, so that you could help consumers take advantage of this dynamic rate structure that California is putting in place.
And so, the battery goes from something that would be helpful for resiliency to something actually critical as part of saving money. And that's why the battery plus PV is really likely to become the more standard option there.
So, if you take a look at where this has played out and you take a look at a country like Germany, I believe their battery attach rates are now over 70%, 75%. So I think at some point, that's what happens in California.
Certainly, on the new homes front, we're seeing most of our new homes are PV plus battery and frankly, more and more a PV plus battery plus EV charger. But I think retrofit homes, I think you'll see more and more consumers opting in for that over time.
Our battery attach rates are in the mid-teens for our direct channel as we talked about. I'm a little disappointed they haven't grown faster, but we also take a long-term view of the business.
In other words, a customer doesn't have to buy a battery at the time of PV installation to have a battery over time. And so I also think at some point, we're going to see some growth in California for people adding batteries as they understand this dynamic rate structure and how important batteries are to take advantage of both that and future VPP program.
So, in our Analyst Day presentation, I think we've talked about getting to a battery attach rate that was maybe closer to 40% or something like that. And I would hope we're expecting California that it's probably above that level within the next few years.
Thanks for that. And then a related follow-up is, when you have the next-generation battery available, how does your gross margin improve on the battery product?
Yes. Terrific question. I think as I see the battery market -- solar battery market across the US, it's my understanding that many battery makers struggle to sell batteries profitably. I'm happy to report that our battery business is profitable. It may not be growing as fast as I wanted to, but it is profitable right now, and we think we're in a good position from an inventory standpoint.
But I think forward-looking, the SunVault 2.0, we're going to work on is critical. Once we re-architect the product, I think we're actually going to be able to take out a bunch of the cost and significantly reduce the time it takes to install and commission. And that's what matters to consumers on the cost side, and that's what matters to dealers and installers who are in the field putting these products in for customers.
So, forward-looking, if you take a look at all the other competitors in the battery space, it's taking them a couple of generations of batteries to get it right. We have a good, solid competitive product today, but not a product that's differentiated I think SunVault 2.0 will be an opportunity for us to really differentiate ourselves in this space, and we're very excited about what we're working on behind the scenes. Thank you.
Thank you. And our next question comes from the line of Pavel Molchanov from Raymond James. Your question please.
Thanks for taking the question. As you saw that table of utility rates having jumped more last year than in the previous decade combined, are there any specific states or geographies that you can point to that have emerged as demand drivers, whereas they were not a year ago?
Thanks Pavel. I'm not sure I can point it necessarily compared to a year ago, but I will say we have been surprised and delighted by the growth in the Northeast part of the country. So, if you take a look at that, Massachusetts, New York, New Jersey, Connecticut corridor, our business there has outgrown what our expectations would have been. And I think a lot of that is due to these older, really inefficient energy systems that much of that installed customer base has over time.
So, I think the Northeast is the area that's probably outgrowing its normal growth rate due to high utility prices. But what's interesting is that it is pretty uniform across the US. I mean, an average of 11% that really is hitting consumers every month. And we're seeing an increasing amount of feedback. People have always wanted to have solar, as solar prices came down to save money. But I think that's risen on the list of reasons why they purchase, and it's a very big focus on the discussions we have with new customers as they come on board. They really want to make sure that they save money and they save it quickly.
Appreciate that. Following up, we now have the lowest unemployment rate in 50-odd years. Are any of your installers complaining about labor shortages or rising wage rates and anything along those lines? And if so, where geographically is that more an issue?
We've been very fortunate. And I think part of the reason we've been fortunate with labor is that we are on a special mission to make a positive difference in the world. So I was just out with a number of our installation teams over the past two weeks throughout California.
For those who haven't had a chance to go out and see a customer installation, it's so inspiring. I mean customers are delighted. And our teams are like professional athletes up there on the roof, getting all this hard work done. So despite the fact that it's challenging work and the weather conditions vary widely throughout the year, we really have had an opportunity to being able to hire as we need to hire and stay sufficiently staffed.
One of the things that's critical for us and our core values is how important safety is. And when I'm out in the field that I'm talking to our installers, the number one value that I talk about first is how much we care about their safety. So we're constantly making sure they have the best equipment in terms of helmets and no cut gloves. We're constantly doing safety audits to see if we can improve our performance.
And I think at the end of the day that sincere value of safety, in addition to the mission, comes through, and I think many people really want to work for a company like SunPower. So we've been fortunate so far. We have not really been impacted by labor shortages.
Beginning of last year, we had a couple of specialty areas that were more difficult to hire for, but we were still able to hire and stay on plan throughout last year. And so far this year, I'm cautiously optimistic we'll be able to do the same.
Got it. Thanks very much.
Yes. Thank you. We've got time for one or two more questions. Thank you.
Certainly. And possibly, our final question for today comes from the line of Ned Baramov from Wells Fargo. Your question, please.
Hi, guys. Thanks for squeezing me in. You talked about backlog growth due to customers in California, rushing to submit their application before April 15. Is there a risk for customers that end up in your backlog to be effectively stolen by other installers offering better terms or faster installation times, or is there a mechanism that you have in place to lock in the customer, so that they remain in your backlog until you get to the installation of their systems, even if that falls in the third quarter?
Yes. Thank you for the question. So our customers who choose SunPower, normally choose SunPower, because we have the highest-rated customer experience in the United States for residential solar. And that's a combination of the high-quality panels, the world-class consumer confidence warranty and the long history we have at serving customers well.
So it's our expectation that once customers sign up with us and sign a contract that they'll remain with us throughout that time period. One of the things we're trying to do in California is try to give some good guidance for customers on when their installation could take place. We know that for customers who have a more simple installation, it is likely that they'll still be able to be installed in the next few months.
But for those who have more complicated installations and that could include a reroof or main panel upgrade, it will take us longer to get to those customers as they have a fair amount of work to do on their home before we arrive.
So, it's our expectation that these customers will remain with SunPower, and we feel very good about the reason they've chosen us to begin with, and we think that many of them will stick through us as we work through our backlog.
That makes sense.
Thanks very much everybody today -- yes. Sorry, go ahead. You can finish up.
I just had one quick question on the additional platform investment, the $55 million in 2023. Is this a reflection of previously unforeseen requirements to get you to where you want to be, or just accelerating investments to improve the EBITDA per customer?
Accelerating investments to drive more growth and provide more growth opportunities. So, the last page I went through in our opening comments, these new panel agreements, the GM arrangement, the new battery we're working on, those are examples and then programs like VVP and grid services are other examples of things that we're quite excited about investing heavily in.
We really think of this as my role for this company is not just to make sure we deliver results between now and 2025. But I'm constantly purposing back and forth between today and our future. And we're trying to invest in what, I would call, seeds of growth, new business opportunities that by the time we reach 2025 will become material.
One of the best examples of it is probably VPP. It's a business that we're in today on a smaller scale. It won't be material this year. It will begin to gain some momentum again in 2023 and 2024, but it's the kind of business that we would count on being more material by the time we get to 2025.
So, we're being very smart about -- we have a strong balance sheet. It's a land grab here in the US. We're leaning in, and that's all part of our strategy is to lean in and invest and build and grow something special.
Big thanks to all of you for all the questions, and we look forward to sharing our results and our details with you for a terrific 2023. Thanks very much.
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.