SunPower Corporation (SPWR) 2021 Q2 法說會逐字稿

Good afternoon.

Welcome to the SunPower Corporation Second Quarter 2021 Earnings Conference Call.

(Operator Instructions) As a reminder, today's conference call is being recorded.

I would now like to turn the call over to Mr. Bob Okunski, Vice President of Investor Relations at SunPower Corporation.

Thank you, sir.

You may begin.

Thank you.

I'd like to welcome everyone to our second quarter 2021 earnings conference call.

On the call today, we will start out with comments from Peter Faricy, CEO of SunPower, who will provide a summary of the quarter, our strategic view on 2021 as well as an update on our growth initiatives for 2022 and beyond.

Following Peter's comments, Manu Sial, SunPower's CFO, will then review our second quarter financial results as well as provide our guidance.

As a reminder, a replay of this call will be available later today on the Investor Relations page of our website.

During today's call, we will make forward-looking statements that are subject to various risks and uncertainties that are described in the safe harbor slide of today's presentation, today's press release, our 2020 10-K and quarterly reports on Form 10-Q.

Please see those documents for additional information regarding those factors that may affect these forward-looking statements.

Also, we will reference certain non-GAAP metrics during today's call.

Please refer to the appendix of our presentation as well as today's earnings press release for the appropriate GAAP to non-GAAP reconciliations.

Finally, to enhance this call, we have also put a set of PowerPoint slides, which we will reference during the call on the Events and Presentations page of our Investor Relations website.

In the same location, we have also posted a supplemental data sheet detailing additional historical metrics.

With that, I'd like to turn the call over to Peter Faricy, CEO of SunPower.

Peter?

Thanks, Bob, and good afternoon to everybody.

Before we get into the specifics of the quarter, I want to reiterate how excited I am about the future of SunPower.

As I mentioned on our first call together, my first 100 days would center around diving deep into each of our business units, starting with the needs of our customers and working backwards with the goal of earning and keeping customer trust.

I can say after these 100 days, I'm more confident than ever about the opportunities we have in front of us.

Our focus remains on driving a world-class customer experience by investing in strategic areas such as our industry-leading digital and product offerings to make the adoption of solar easy, reliable and affordable.

We believe this long-term approach will position us well going forward as customers look to take greater control of their future energy needs.

Please turn to Slide 4. I'm going to focus my remarks today on 4 key areas: number one, our strong Q2 execution and what we are doing to position SunPower to capitalize on the significant long-term solar growth opportunity; number two, the continuing improvement in our balance sheet; number three, our increased emphasis on the fast-growing residential market due to the tremendous TAM expansion opportunity; and finally, number four, our strategic initiatives to drive new customer growth while expanding the lifetime value of those customers.

These strategic initiatives include: one, creating a world-class customer experience; two, relentlessly providing our customers with the highest quality and best value products in the market; three, further leveraging and expanding our best-in-class dealer network; and four, continued investment in our industry-leading digital and financial products to innovate on behalf of customers.

Please turn to Slide #5.

I'd now like to provide an overview of our Q2 performance and why we remain confident in our forecast for 2021 as well as our ability to drive growth in 2022 and beyond.

We were pleased with our execution in Q2 as we met our revenue and EBITDA guidance and saw strong bookings momentum while further investing in our growth initiatives.

Specifically, our Q2 performance was driven by strong residential execution, where we continue to see increasing demand for our industry-leading solar and storage solutions, as Q2 residential bookings rose 67% versus Q2 of last year.

New customer adds were also up sequentially and year-over-year as we are benefiting from increasing demand in residential solar, dealer expansion and positive policy tailwinds, benefiting both residential and our commercial and industrial business.

Strong execution also led to further improvement in profitability as overall gross margin increased to 21%, up sequentially as well up 800 basis points versus last year.

We continue to execute on our initiatives to convert component sales to full system and loan and lease sales.

In Q2, we increased the proportion of full system loan and lease bookings by 500 basis points to 63% of our total volumes.

Full system loan and lease sales provide not only better unit economics but a closer relationship with the end customer than our component sales.

These trends give us the confidence in our second half targets while providing better visibility as we look into 2022.

We also remain very bullish about the future of our SunVault storage solution as demand remains quite high with attach rates reaching 23% in our direct sales channel.

As we mentioned last quarter, we took actions to improve the customer experience and have made significant strides in reducing lead times over the past few months.

As a result, we expect SunVault growth to accelerate in the second half of the year as we have resumed the full rollout of the product to additional dealers beginning in June.

Please turn to Slide #6.

We've also made significant progress in improving our balance sheet last quarter, and we are pleased to say that our financial foundation is the strongest it has been in our history.

We have significantly delevered our balance sheet over the last 24 months.

And as of the end of the second quarter, net debt is now below $300 million and we're ahead of our leverage target of less than 2.5x 2021 EBITDA.

Also, we are very comfortable with our liquidity given our cash position and Enphase shares.

With strong demand trends, our cost reduction programs and further margin expansion, we are confident in continuing to drive positive business unit cash flow.

In summary, we believe this strong financial position now gives us sufficient capital and business flexibility to invest in the initiatives that will drive long-term growth.

Please turn to Slide #7.

I'd now like to shift to the performance of our individual business segments.

Our residential business continued to outperform as we saw strong new customer growth, margin expansion and improvement in our SunVault lead times.

Specifically, we added 13,000 new customers during the quarter as demand for our industry-leading solutions remains high.

This brings our total customer count to over 375,000.

Residential gross margin for the quarter was 23%, up 630 basis points year-over-year as we benefited from both a lower cost of capital and the continuing shift to system sales.

New homes also performed well as year-over-year megawatts grew 50% with strong bookings.

Our current backlog is now more than 220 megawatts, which now includes our multifamily homes initiatives.

And finally, as I mentioned before, demand for SunVault is high.

we exited the quarter on a $70 million bookings run rate and expect a rapid ramp in the third quarter.

SunVault remains a key driver of our growth starting in the second half of this year.

Moving on to our commercial and industrial business.

Please turn to Slide #8.

Our CIS Solutions segment performed well.

Year-to-date revenue grew 13% due to higher volumes with installs up approximately 30% year-over-year as well as increased storage deployments.

For the quarter, we continue to see strong demand trends as we added to our significant backlog now above 260 megawatts of solar.

This includes our recent contract from the California Resources Corporation to develop up to 45 megawatts of behind-the-meter storage projects, including a 12-megawatt project at Mount Poso oilfield.

We continue to see solid demand for on-site storage as we now have more than 230 megawatts of storage projects under contract or awarded.

Finally, we are making strong progress on our commercial growth initiatives, including the expansion of our off-site storage efforts for front of the meter and community solar market.

Turning to Slide 9. We highlight what we see as some of the key drivers of why we are so bullish on the residential market and why we are increasing our investment in this market.

First, we see a very large and growing TAM in the residential space, not only from increased solar demand but also opportunities in adjacent markets as customers look for ways to consolidate and control their energy footprint.

Second, as discussed last quarter, we expect solar to benefit from strong policy tailwinds from the federal level through a potential ITC extension and stand-alone storage credit as well as the increasing state-level support for both solar and storage.

We believe these tailwinds will materially expand the share of growth from outside of California.

Third, we will continue to invest in storage, energy services and adjacent technology initiatives, including EVs with our recently announced partnership with Wallbox.

We believe that more than 40% of EV customers have solar today and we are just getting started.

More on this opportunity in a bit.

Please turn to Slide #10.

In summary, our near-term strategic focus will be on those initiatives that we feel offer us the greatest opportunities for growth.

First, creating a world-class customer experience by using our best-in-class technology to make the process of buying solar as easy as it is to buy a book online.

Second, focusing on developing and selling the highest performing and most affordable product offering for all segments of the market.

This includes a product suite that combines solar, storage, EV chargers and smart home solutions, all driven by clean energy.

Third, continuing to expand our world-class dealer network to new markets with a focus on providing not only a superior customer experience, but also enhance solutions to our dealers.

We will also continue our investments to drive new market penetration, including new states, accessing a greater share of the long tail market as well as expanding our direct channel to consumers.

Finally, increasing investment in our digital and financial products.

We see that upfront costs and financing remain major barriers to solar adoption, and we will, therefore, continue to develop new financial offerings in order to make the purchase and financing of solar easier.

On Slide 11, we highlight the advantage of our flexible model to meet the growing demand for an interconnected energy ecosystem.

This approach will allow us to acquire customers at any stage of the value chain.

For example, we are expanding our focus to EVs and exploring other smart home energy services as we believe we are uniquely positioned to serve these customers with our best-in-class, highest efficient products and services.

Customer experience remains a top priority for SunPower in each of these customer segments.

And our expanded focus enables us to approach customer value from multiple entry points, such as EV, energy services, storage and solar, with the ability to move up and down the value chains depending on the solution.

We believe this strategy enables us to capture more than 2x the lifetime customer cash flows compared to solar alone.

Before I turn the call over to Manu, I'd like to end by talking about how excited we are about our recently announced partnership with Wallbox.

Please turn to Slide 12.

This partnership will enable us to offer a seamless and simple charging and solar solutions for SunPower solar customers, giving those customers the convenience with adding EV charging while we're already on-site.

As part of the partnership, we are also Wallbox's preferred solar partner and charging installation partner.

This will help us reach additional customers.

This agreement is part of our larger strategy to offer customers a fully integrated solar, storage and EV solution that provides 100% clean EV charging at home.

Both companies will also collaborate on differentiated charging products for the home that will further expand our addressable market.

We expect to start rolling out this program in the second half of this quarter and are encouraged by the early feedback from both our customers and dealers.

With that, I'd like to turn the call over to Manu Sial, CFO of SunPower.

Manu?

Thanks, Peter.

Please turn to Slide 14, where we have provided our consolidated financial results and select metrics.

We are pleased with our financial performance for the second quarter as we materially increased adjusted EBITDA compared to last year and drove positive cash flow at the business unit level.

We saw strong demand during the quarter in residential as bookings were up 67% year-over-year.

We're also starting to see the benefit of our dealer expansion efforts as we added 125 new dealers in the first half of the year, bringing our dealer base to more than 700 partners.

In addition, C&I Solutions backlog grew more than 20% versus 2020.

This gives us increased confidence for the balance of 2021, and we expect this trend to continue into 2022 and beyond.

Consolidated Devco non-GAAP gross margin was $0.51 per watt, up approximately 100% versus second quarter of 2020.

Residential gross margin was $0.66 per watt, up sequentially given our cost improvement and supply chain initiatives as well as lowering of our cost of capital.

Non-GAAP OpEx per watt was $0.36.

And if you exclude our investments in digital and products, which we see as more of capital deployment rather than OpEx, OpEx per watt was $0.29.

We are also increasing our digital and product OpEx investments in the second half of the year to fund customer experience initiatives that we believe will enable SunPower TAM expansion and improve long-term cash flows.

We are focused on long-term customer relationships and see residential storage and the addition of our EV partnership as key driver of long-term margin growth with new customers and with our large installed base.

In addition, we launched our loan servicing and combined with our lease servicing capabilities, we will materially improve residential servicing revenue in 2022 and beyond.

We continue to improve our capital efficiency and exceeded our Analyst Day target of a 25% return on invested capital in second quarter 2021.

We also repaid $90 million of recourse debt ahead of Analyst Day target, enabled by business unit cash generation.

We added incremental loan capacity at a lower cost of capital and see further room for improvement in our blended residential cost of capital of 5.5% given our strong balance sheet and project finance initiatives.

As Peter mentioned, our balance sheet strength is a key enabler to drive significant growth and TAM expansion in a fast-growing residential business.

I would now like to discuss our guidance.

Please turn to Slide 15.

For the third quarter, we expect sequential volume and margin improvements in our residential business, with volume expected to grow 40% versus prior year.

Specifically, the company expects third quarter GAAP revenue of $325 million to $375 million and megawatts recognized of 125 megawatts to 150 megawatts.

Third quarter adjusted EBITDA will be in the range of $21 million to $31 million as linearity has significantly improved compared to the previous 2 years.

For fiscal year 2021, our full year adjusted EBITDA guidance remains unchanged and will be in the range of $110 million to $130 million, up 3x versus 2020 and inclusive of up to $10 million of incremental spend on customer experience and digital initiatives that will further accelerate the growth of our residential business in 2022 and beyond.

For fiscal year 2021, the company expects GAAP revenue of $1.41 billion to $1.49 billion and megawatts recognized of 540 megawatts to 610 megawatts.

Residential's megawatt recognized are expected to be in the range of 340 megawatts to 380 megawatts.

Our third quarter and total year 2021 megawatts recognized and revenue guidance includes the impact of C&I Solutions project timing and increasing investment in new residential growth initiatives compared to our light commercial business.

We continue to see strong tailwinds in both our businesses and have increasing confidence in achieving adjusted EBITDA growth of greater than 40% in 2022.

With that, I would like to turn the call over for questions.

(Operator Instructions) Our first question comes from the line of Ben Kallo with Baird.

Peter, I guess you only get a few chances to ask a question like, what are your observations from the first 100 days?

What do you think SunPower and the industry can improve on maybe across the business model?

And then maybe if you want to dive into the different business, residential and commercial.

And then I have a follow-up.

Yes.

Thanks, Ben.

Well, first of all, I think the big surprise for me in my first 100 days is the opportunity not only to accelerate the number of customers but to accelerate the lifetime value for each of those customers.

So if I use the Wallbox partnership as an example, third-party data research would suggest the number of electric vehicles is going to grow from 2.5 million last year to over 30 million at the end of this decade.

40% of those people have solar, and it kind of creates 2 opportunities on the consumer side.

One, how do we help consumers install high-speed chargers because it isn't easy today.

So how do we develop the easiest offer that includes installation and the charger itself, so that as soon as they buy their electric vehicle, they're off and running and ready to go.

But the bigger issue is one that you may be aware of, which is the grid isn't ready for 30 million more electric vehicles by the time we get to the end of the decade.

And we really want to be the company that helps everything get powered by the sun.

How can we help consumers power everything in their life, and that includes their vehicles and their appliances and all of their power needs from the sun.

And in the case of electric vehicles, it's not an option.

It's essential.

So we're really excited about how big the market is as we go forward.

And to me, that partnership is a catalyst for recognizing a pretty big change for SunPower.

Historically, we were primarily focused on solar, and we really had a onetime relationship with the customer.

And as we look forward, we really think this is a game changer for us because we're going to be in solar, storage, EV chargers and beyond and hope to have a lifetime relationship with those consumers.

So very excited about the partnership and very excited about the potential for future growth.

I think your second question, Ben, was about commercial and industrial.

And I'll say, both businesses, we believe, are well positioned for great growth.

I mean, the same conditions, interestingly enough, exists for both.

Solar prices are declining.

Policy incentives are likely to be increasing.

And frankly, there's more demand from both consumers and commercial businesses to change the way they power things.

So we really see both businesses as having great demand.

The reason we talk about in this call our doubling down in residential is really those opportunities are more near term.

They're more right in front of us.

So that's the area we're going to focus on for now.

But we're still very optimistic about the growth potential of both.

And I think, Ben, you said you have one more question as well.

Yes.

Lastly, with your fresh eyes, what do you think about consolidation in this space, the further appetite for consolidation and where do you think it would occur and which parts of the value chain?

Well, our primary focus has really been on customers.

So I would think about acquisition from the standpoint of, if there was an opportunity for us to acquire a product, service or scale that we thought would help us serve customers better, we'd be excited to go do that.

But right now, I think we feel well positioned.

Because this is the strongest balance sheet we've had in our history, we really feel like we're in a very flexible position and an advantageous position, if you will.

We're really well positioned to choose how and where we want to grow as we go forward.

Our next question comes from the line of Brian Lee with Goldman Sachs.

Maybe first one, just on the guidance, maybe this is for Manu.

But the revenue outlook for 2021 at the new range, I think it's coming in a little bit shy of what you had inferred before, I think, 35% year-on-year growth or $1.5 billion plus.

So just wanted to parse that out a little bit.

Just can you walk through the drivers there?

Is it a timing issue?

Are you seeing projects pushing out or getting canceled?

And is this more a reflection of weakness in CIS or is it RLC or can you kind of give us a little bit more color as to the segment exposure?

And then I had a follow-up.

Yes, Brian, I will turn it over to Manu.

But I'll say, as you take a look at our revenue, it is a little bit of 2 different worlds.

On the residential side, we're quite pleased with our revenue growth and the growth prospects as we go forward.

CVAR has been a little slower than we expected and the commercial business has a little bit of lumpiness, as you know, from following it over time.

We're pleased with the backlog as we go forward.

But I'll say, less of that backlog came through in Q2 and more of it will come through in Q3.

Manu, do you want to add some more color to that as well?

Yes.

Brian, I'll make 2 comments.

I think Peter covered it well.

Our residential business is growing quite rapidly year-on-year as well as sequentially with increasing tailwinds.

On the CIS side of the house, while the business has tailwinds, the business has got a mix of projects, and we are seeing some of those projects move into 2022.

More importantly, our EBITDA is really strong on the backs of the residential gross margin.

And that's also allowing us to invest incremental OpEx that will bode really well for both businesses, but specifically residential as we go into '22 and beyond.

Okay.

Fair enough.

And then second question, I guess, related to Peter's comments around having the 2 different segments and kind of different sort of vantage points there.

It seems like that's true of the margin profiles as well.

RLC is tracking above where we would expect it to be.

It seems like maybe there's a new medium to longer-term target that could be achieved there versus CIS kind of hitting lows again.

What should we be thinking about in terms of margin profile for the 2 segments in the back half?

And then specific to RLC, as you see SunVault shipments starting to ramp into 3Q and 4Q, can you speak to the margin impact?

Should we see any sort of near-term headwinds just given this is a newer product, a newer ramp, maybe the full cost achievements haven't been seen there?

But just wanted to flesh that out a bit as well, the impact of SunVault volumes in the back half.

Yes, Brian, let me start off.

I'll give you a quick comment on SunVault, and I'll turn it over to Manu for your 2 different questions on guidance.

So from a SunVault perspective, we're very pleased on the demand side, in particular.

When we talk to both our consumers and dealers, there's a lot of demand for the product right now, and we anticipate that growing as we head into the fall and the winter months given the instability of the grid and some of the examples we had from last year in Texas and beyond.

So that $70 million bookings run rate we exited with, we anticipate exiting Q3 at a $100 million run rate.

And the #1 thing we're focused on is how do we get more and more of our dealers ready to commission more and more SunVault units.

So from a SunVault perspective, it's all systems go, and we're looking forward to good growth the rest of the year.

Manu, do you want to comment a little bit on the guidance for both SunVault and also on the CIS business as well.

Yes.

Let me cover the CIS first, and then I'll cover the resi second, Brian, in that order.

So from a CIS perspective, I think the second quarter margins are reflective of the inherent lumpiness in the business.

We knew that going into the second quarter.

Having said that, I think the business is significantly better year-on-year, both from a top line perspective as well as a margin point of view.

And then more importantly, we expect the CIS business to be profitable in the back half of the year, which you recall is a significant turnaround from the last couple of years.

So that's the CIS business.

From a resi perspective, we're really pleased with the margin performance of the residential business, a sequential increase in our gross margin per watt.

At the Capital Markets Day, we had talked about exiting the year at $0.70 a watt of gross margin.

We're going to be north of that, as I had mentioned in my script, and that bodes really well as you think about the tailwinds this business has in terms of the volume growth going into '22.

Manu, just one more thing on SunVault, Brian.

We're really pleased that most of our SunVault attached sales come along with solar.

And the reason that's important is that in a business like solar, where the customer acquisition costs are relatively high, there's no real incremental customer acquisition cost for a solar add-on.

So from a margin perspective, it's accretive, and we're very pleased with that.

Our next question comes from the line of Maheep Mandloi with Credit Suisse.

Maheep Mandloi here.

Peter, maybe if you can probably talk more about the Wallbox partnership here.

What does that exclusivity entail to either you or Wallbox?

And what do each of you bring to the table?

And how should we think about revenue contribution, maybe if not this year, then probably for next year?

Sure.

Well, both of us have established what I would call a preferred working partnership.

So there's not any exclusivity per se, but we're their preferred installation partner and they're our preferred EV charging partner.

One of the reasons that we're attracted to work with Wallbox is they have a product that's in line with how we think about products.

We really want to offer the highest performance, best value products in the world.

And if you take a look at our solar products through Maxeon, we have the best panels in the world, and we provide great value to consumers.

So we sort of think about every product and service we offer, how do we be the performance leader and the innovation leader and how do we also provide great value at the same time.

So as we look forward with Wallbox, they're also a company that's very focused on innovation.

And as you think about where EV battery storage is going, you begin to see opportunities for two-way chargers.

You begin to see an opportunity for battery storage being not only from a product like SunVault, but in addition, also having the opportunity to leverage your electric vehicle for that as well.

So stay tuned, I would say.

We're working on more parts of the partnership together as we go.

And we're very excited about the opportunity, obviously, in the EV space in total.

Got it.

And maybe just a follow-up, somewhat related on the batteries.

So maybe if you can talk about how much revenue growth do you expect for batteries.

I think the prior guidance was $100 million of revenues for the year.

So where are we on that target?

And you're already at the 25% attachment rate or penetration rates and sort of talking about increased bookings run rate.

So longer term, like what's the penetration rate you're looking for in this industry?

Like are we closer to 50%, 80% or 100%?

Where do you think we should settle down in a few years now?

Well, on SunVault, I guess, a couple of observations.

One is, we did purposely slow down our run rate, as we mentioned last quarter, because we really want to make sure that customers have a great experience and our dealers are well prepared to roll that out.

We will not hit the $100 million for the year, but we're pleased to have that $100 million run rate for the third quarter and for that to continue on through the fourth quarter as we go.

That 23% attach rate from our point of view looks like it's the beginning of a much larger attach rate in time.

And we haven't provided guidance on that and specifics on that.

But when you talk to our dealers who are talking to consumers every single day, it's easy to imagine over the next few years that maybe something like 50% of our customers will want to have storage along with their solar.

So we haven't provided that as guidance, but I think that's kind of a good mental model for you to think about as we go forward.

Our next question comes from the line of Philip Shen with ROTH Capital Partners.

The first one is on SunVault.

Peter or Manu, would it be possible to share what the margin profile on SunVault looks like?

Are you at corporate average for resi or do you think you're below that?

And if so, do you get back to corporate average at some point near term?

Manu, do you want to provide some more color there, please?

Sure.

Phil, I think from a gross margin perspective, you should expect the SunVault margin to be slightly better than our average margins.

And then just because of the operating leverage at the EBITDA level, it should be much stronger than the average residential EBITDA.

Great.

And then I think you guys were talking through guidance with Brian earlier, and you cited projects getting pushed into 2022.

And we know this business is lumpy.

But that said, I was wondering if you could give us a little bit more color on why we're seeing the push out.

Is it driven by that it's tough to get modules these days or maybe trackers or with steel pricing so high or perhaps just general friction with logistics?

Can you talk through how much do you think might have been pushed out into '22?

It seems like a modest amount.

And are you seeing even risk of projects from '22 getting pushed out to '23?

My guess is no, but I figured I'd ask.

Yes, Phil, just to clarify, I think my comment earlier was not about '22.

It was actually things pushed from Q2 to Q3.

And as you know, in the commercial business, this is not unusual to have a backlog like this because these are some of the most complex projects that we operate.

Eric, do you want to give a little bit more color about the specific ones that moved from second quarter to the third quarter and sort of the dynamics behind that?

Sure.

Yes.

We have been working also on the commercial side to add more storage to our solar projects.

Adding that asset has created some utility and permitting delays, which we are working through as this asset becomes more frequent on the grid.

And in addition, we really are working to make sure that we're perfecting the asset, the actual solar and storage project before we begin mobilization, before we sell it.

Really haven't seen much delays from a component perspective, as you mentioned, it really is around the perfection of the asset.

And we'll continue to work on creating greater linearity in our projects moving forward.

Great.

And then one other question.

Peter, I think in your prepared remarks, you talked about the potential for new financial offerings.

I was wondering if you could share what you might have in mind.

Well, I think what we're talking about is when you talk to consumers, 2 of the top reasons they say that solar is difficult is the upfront cost and the lack of financing options.

And the great news for us is, we're indifferent from a consumer perspective.

We favor consumer choice in our financing options.

So we offer consumers a choice of cash, lease and loan.

And we've identified a number of improvements that you'll see us roll out over the course of the next few years to continue to make those products easier and easier and easier, both from a consumer perspective and also from a dealer perspective.

Our goal is to really simplify the solar process and make this a product that everybody in the United States can afford.

So more to follow on that and stay tuned.

We've identified a number of opportunities that we think are a big deal.

Our next question comes from the line of Kashy Harrison with Piper Sandler.

Just a follow-up on 2 interrelated questions.

Today, you're at 23% residential gross margins.

SunVault penetration in your profile will increase.

You have this Wallbox partnership.

And so Peter, I'm just curious, following your 100-day review, do you have a long-term gross margin target for the residential business in mind that investors should be thinking about over the next several years?

On the residential side, as we talked about in the prepared remarks, we're very pleased with the progress we've made in the past couple of years.

And the progress has really got 2 sources.

One is, we've driven tremendous efficiency in our process of serving customers.

And then we've doubled down on financial services.

So those have been the 2 primary areas of margin expansion.

In the core residential business, in my first 100 days, I do see some opportunities for further improvement, but I'd say they're more modest.

They're not going to be quite as large as the big gains we've made these past couple of years.

I think the big opportunity from my view as the new person in the industry is just the lifetime value of the consumer.

As you think about where this is headed, people are going to want everything powered from the sun.

We're at the core of that.

That's what we do.

So whether it's your house, your appliances, your pool, your cars, we're the place that we would like all consumers to trust and work with.

And if you think about something like mySunPower app, which has got such great potential, today, we allow people to make changes in how much they put in their battery storage, but think about all the opportunities we have going forward.

How can we save people more money, how can we make them more and more in control of their energy needs.

So as we look forward, I think the bigger margin opportunity is the margin dollar opportunity, if you will.

From a rate perspective, it may not move dramatically, but I think the margin dollar opportunity here is really attractive.

That's great color.

And as my follow-up, just my second question.

Peter, it's very evident that the business right now is going in the direction of resi.

The margins are better.

The TAM opportunity is better.

In response to an earlier question, you talked about a long-term opportunity perhaps associated with the large commercial business.

I was wondering if you could maybe dig into more detail on the investment thesis associated with maintaining, with keeping this business in the SunPower family.

And when do you expect this business to contribute more meaningfully to EBITDA and cash flow?

Yes.

I think those are very fair questions, by the way.

I think, as I think about the commercial and industrial business, the most attractive part of it is, these are large-scale projects that if you took a long-term view of the United States, we need if we're really going to turn the corner on renewable energy.

It's a requirement.

It's like you can't rely upon only residential, you need residential and commercial to deliver in order to hit the kind of targets we need to make a material difference in the world.

As I take a look at the infrastructure package that's being added to the existing infrastructure bill, it's specifically on the commercial and industrial side, target areas like schools and government buildings where we have been the historic #1 leader in solar without question.

So I think the biggest investment thesis for me is, forward-looking, this is a really attractive business from a growth perspective.

And I think it will probably still, it's a little bit of a different nature than residential.

So we'll still probably have some lumpy period by nature of the fact that it's commercial and industrial.

But I think it's a business that's got tremendous growth prospects as we go forward.

And I think that's the most attractive part of it.

I also want to say, I think we have time for one more question.

We'd love to take one more question as well.

Our final question comes from the line of Pavel with Raymond James.

California is supposedly tracking to provide their new net metering fee, could be within the next 90 days.

I'm curious if you have any expectations or a perspective on what that's going to do in your largest market historically?

Well, first of all, there's been a number of proposals to change the benefits that consumers in California get from solar on net metering.

The most recent set of proposals was failed, I guess, or declined would be the easiest way to say it.

And I think the reason they failed is that they're anti-consumer.

At the end of the day, how could we support something that takes a benefit away from moving to solar power and moving to renewable energy.

We should be doing the opposite across the United States and working arm in arm to move there.

The interesting thing is, in addition to being anti-consumer, it's also a job destroyer.

It's not just us.

We have thousands of employees in California.

Our dealers have thousands of employees in California.

And the renewable energy industry right now is one of the best job growth industries we have in the U.S. So our perspective going forward is, it will be difficult for legislation to pass that's anti-consumer and anti-job.

We really support a number of the components that are part of the federal infrastructure bill and other states have various versions of.

But we support driving more and more of the manufacturing and production of solar to the United States.

And we really support incentives that allow low and middle-income families to make solar more and more affordable.

At the end of the day, there's 100 million homes that could save money today.

The bigger those incentives are, the more likely it is that lower and middle-income families can adopt solar.

And I think that's critical for the future of the United States and it's critical for those families.

So as we go forward, we will work arm in arm with those who want to maintain these incentives for consumers.

And we really believe that, that's the right thing to do as we go forward.

Thank you.

I'll now turn the call back over to management for closing remarks.

Okay.

Thank you, everyone.

And we'll see you at the next earnings call.

Thanks, bye.

Thanks.

Ladies and gentlemen, that concludes today's conference call.

Thank you for your participation.

You may now disconnect.