SunPower Corporation (SPWR) 2020 Q4 法說會逐字稿

Good afternoon. Welcome to SunPower Corporation's Fourth Quarter 2020 Earnings Call. (Operator Instructions)

I would now like to turn the call over to Mr. Bob Okunski, Vice President of Investor Relations at SunPower Corporation. Thank you, sir. You may begin.

Thank you. I'd like to welcome everyone to our fourth quarter 2020 earnings conference call. On the call today, we will start off with a strategic summary of the quarter and 2020 performance from Tom Werner, CEO of SunPower; followed by Manu Sial, our CFO, who will review our fourth quarter 2020 financial results before turning the call back over to Tom for guidance. As a reminder, a replay of this call will be available later today on the Investor Relations page of our website.

During today's call, we will make forward-looking statements that are subject to various risks and uncertainties that are described in the safe harbor slide of today's presentation, today's earnings press release, our 2020 10-K and our 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 posted a set of PowerPoint slides, which we will reference during this call on the Events and Presentations page of our Investor Relations website. In the same location, we have also posted a supplemental data sheet detailing additional historical metrics. With that, I'd like to turn the call over to Tom Werner, CEO of SunPower. Tom?

Thanks, Bob, and thank you for joining us. On this call, we will provide an overview of our fourth quarter performance as well as a brief update on our individual business segments. 2020 was a transformational year for SunPower as we completed a number of strategic priorities to position the company for success in 2021 and beyond. We are confident that our focused strategy following the successful Maxeon split positions us for long-term profitable growth.

Please turn to Slide 3. In Q4, we saw a strong residential customer growth, adding 13,000 customers and bringing our installed base to more than 350,000. Commercial demand remained healthy as well as megawatts rose more than 40% sequentially across both businesses. Unit economics improved as gross margin per watt rose approximately 50% quarter-over-quarter. Additionally, we also significantly delevered our balance sheet, achieving our net debt target ahead of our Analyst Day forecast, while also lowering our cost of capital. We also further strengthened our balance sheet through our successful 2021 convert tender and reduced our net debt-to-EBITDA ratio to less than 2.5x.

Finally, we exceeded the top end of both our GAAP net income and adjusted EBITDA guidance. Consumers and businesses continue to seek cleaner, more affordable energy, more resiliency in the face of increased grid outages and shutdowns. These factors as well as others are driving strong industry tailwinds.

Please turn to Slide 4. U.S. residential solar growth is set to accelerate over the next 5 years, driven by the recent extension of the ITC, the increasing affordability of solar as well as a broader acceptance of solar as an integral part of combating climate change.

The new homes market post the California mandate is growing rapidly. We expect our new homes growth rate to exceed 40% over the next few years, given our leading market share and strong backlog. As fires and storms challenge the grid and rolling blackouts and shutoffs increase, storage demand continues to rise. We expect to see rapid adoption over the next several years in both commercial and residential markets as storage offers customers improved economics and resiliency to power outages.

Finally, we see significant opportunity in the electrification of buildings and transportation. We believe our investments in storage, digital solutions and our broad DG services platform will give us a distinct advantage in offering a seamless integration of future energy services, giving customers more control of their energy use and cost. In addition to the strong industry tailwinds I just discussed, we see significant opportunity to drive long-term growth through the expansion of our addressable market.

Please turn to Slide 5. SunPower has long been a leader in the distributed generation of solar and storage market, which we expect to grow to a $65 billion market over the next 30 years. As we look to 2021 and beyond, we see 3 key areas to expand the markets we serve. First, capitalize on increasing demand for front-of-the-meter storage solutions to the C&I segment through continued investment in our Helix storage platform. Second, we are developing new digital services that enable customers with solar and storage to monitor and take control of energy use in their homes and electric vehicles. Finally, we will use our Power of One platform to extend our industry-leading marketing, software and financial product offerings to capture incremental business from the long tail of solar installers.

I'd now like to discuss our top 3 priorities for this year. Please turn to Slide 6. First is to execute on our growth plan for 2021, which we expect to drive overall revenue growth of 35% year-over-year. In residential, we expect to exceed 40% revenue growth, driven by strong momentum exiting 2020, rapid new homes growth, expansion of our TAM through our direct channel and accelerating storage sales. In the C&I segment, we expect to deliver 20% revenue growth with at least a 10% improvement in gross margin per watt as we expand our behind-the-meter and community solar efforts.

Our second priority is to improve our profitability through margin expansion. As we discussed at our Analyst Day last year, in addition to ramping storage in 2021, we see a full year impact of our significantly improved lease and loan financing. This strategic shift from straight cash product sales to more finance products enables more people to adopt solar, and highly adapt -- attractive rates and economics are improving due to our lower cost of capital. Given these trends, we see adjusted EBITDA tripling in 2021 and growing at more than 40% in 2022.

Our third priority is to thoughtfully deploy capital for longer-term growth. We plan to leverage innovations, creating EV and smart home segments to offer additional services to new and existing customers as well as further investing in our Power of One platform to extend its reach to a wider partner and customer base.

Additionally, within the C&I segment, we will expand our Helix software platform to participate in the fast-growing energy-as-a-service market and address front-of-the-meter demand. We are also continuing to further integrate our ESG efforts into our corporate strategy. We are making significant progress on this front and expect to release our [2020] sustainability report this spring.

I'll now like to shift to the performance of our individual business segments. Please turn to Slide 7. Our residential and light commercial segment continued to outperform as momentum builds in this business. In addition to strong sequential megawatt growth, growth -- gross margins rose to 24%, up from 18% in Q3 and is of record since adopting cash-based accounting.

Our overall mix between cash, loan and lease sales remained relatively stable for the quarter. However, starting in Q4, we put in place a number of initiatives that are expected to shift our cash mix over time to more financed and full system sales versus cash equivalent sales. These efforts include our highly successful and expanding loan partnership with TCU as well as our new lease financing programs, both of which can drive long-term expansion while improving economics for our customers. We are already starting to see this in Q4 as residential value creation rose to $0.46 from $0.30 per watt in the quarter. More on this in a bit.

New homes also performed well as sequential megawatts grew more than 40%, with strong quarterly bookings resulting in a record backlog of more than 180 megawatts. Our market share remains above 50%, with significant interest in our OneRoof and SunVault products from many of our builder partners.

Finally, we are very bullish about the future of our SunVault storage solution. With our high-efficiency, completely integrated storage solution, we are uniquely positioned to serve customer needs, drive revenue and build the foundation for future services. We expect to not only benefit from the sales to new customers, but also through our 350,000 strong customer installed base.

For the quarter, we continued the ramp in our dealer channel, and saw consistent sales attach rates of 20%. We also saw strong interest in our larger 26-kilowatt hour SunVault solution, raising the incremental revenue per sale above 30% on average. As we highlighted at our Capital Markets Day, we expect SunVault to contribute $100 million in revenue in 2021 and remain confident our supply chain can meet this goal.

On Slide 8, we are providing a more detailed look at our residential unit economics, which we expect to continue to improve as we go through 2021. We look at residential value creation as margin per watt installed, which can come from storage, services or improvements in our financing structures to lower our cost of capital. As we look into 2021 and beyond, we expect our mix of cash versus finance systems to continue to shift towards more finance systems, which improves our residential unit economics. We expect about 2/3 of our residential systems to be financed by the end of Q4 2021, driven primarily by growing demand for our attractively priced loans offered through the TCU program and lower cost leases.

We continue to invest in digital tools that result in long-term benefits for our dealer partners and customers. Over the past several years, we have built very robust -- a very robust dealer platform with some of the leading digital marketing and operation solutions that have helped our dealers generate more sales at lower cost. In the future, we plan to incrementally monetize the digital -- this digital platform by extending some of the elements to long tail customers. Excluding these digital investments, our Q4 residential OpEx was $0.20 per watt.

Moving on to C&I on Slide 9. Our C&I Solutions segment also performed well, and we remain excited about our growth prospects for this business. For the quarter, we posted $8 million in adjusted EBITDA, added to our record pipeline of more than $4 billion and position ourselves to deploy more than 90 megawatts of community solar over the next few years.

Gross margin per watt rose to $0.40, driven by solid execution, increased storage installs and improved cost structure. We expect gross margin per watt to increase another 10% to 20% in 2021. Also, demand for Helix storage remains high as Q4 attach rates were above 30% while installing 18 megawatt hours for the year. Long term, we believe we are well positioned to capitalize on the rapidly evolving landscape in the C&I space.

Please turn to Slide 10. The C&I landscape continues to evolve as more and more projects are looking to integrate storage offerings from behind as well as in front of the meter. We are well positioned to capitalize on this trend given our experience, installed base and industry-leading solar and storage solutions.

We are focused on 3 strategic initiatives that will enable us to significantly expand our C&I TAM. First, continue to serve the behind-the-meter market while laying the foundation for our front-of-the-meter offerings, given our strong origination and development experience; second, further build on our $4 billion pipeline in both solar and storage by expanding our partner relationships and customer base; and third, leverage our industry-leading technology and experience to add additional functionality to our Helix platform to expand our addressable market. Overall, we remain very excited about the opportunity in C&I going forward.

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

Thanks, Tom. Please turn to Slide 11, where we have provided our consolidated financial results and select metrics. We are pleased with our financial performance for the fourth quarter as we exceeded our GAAP net income and adjusted EBITDA guidance. Our business units generated cash and we significantly reduced recourse debt.

Moving on to the specifics of the quarter. We saw continued performance in both our segments, and overall megawatts recognized rose more than 40% sequentially with our residential and light commercial segment up 35% sequentially. Our C&I Solutions segment was also up approximately 65% compared to the third quarter. We expect the strong volume trend to continue at least through 2022.

Consolidated non-GAAP gross margin in DevCo was $0.50 per watt and up 50% from $0.34 per watt in third quarter, with residential at $0.64 per watt in fourth quarter. We benefited from improvements in our residential loan and lease economics in the fourth quarter and expect our gross margin per watt improvements in residential to accelerate in 2021 from these initiatives.

Non-GAAP OpEx per watt was $0.27 per watt, down 13% sequentially as we have seen the benefit of cost initiatives and scale. If you exclude our investments in digital and product, which we see as more capital deployment than OpEx, OpEx per watt was $0.21 per watt. As Tom had mentioned, we created $0.46 per watt in residential value in fourth quarter '20 and are driving initiatives to enhance project economics and improve business mix to significantly increase residential value creation for SunPower.

We have a very strong fourth quarter EBITDA run rate going into 2021. While our business is seasonal with a stronger second half performance compared to our first half, we have done significant work in 2020 to improving linearity. We expect a profitable first quarter '21 for both our businesses, where C&I will be less linear given its longer project cycle times.

Our Powerco metrics that we laid out at Capital Markets Day are tracking well with services pipeline that include future revenues from asset management services grew sequentially and was $637 million at the end of fourth quarter, giving us confidence in achieving 2021 revenue targets. The traction in storage that Tom mentioned earlier not only add incremental margin to the system, but along with investments in digital, sets us up well to build out recurring revenue streams.

Also, in order to improve transparency for investors, we are now disclosing SunPower's share of net retained value in our residential leases. For the quarter, our net retained value was $211 million and ahead of forecast. Given increasing strength of our balance sheet, we are committed to lowering our residential cost of capital from the current 6% mentioned in the last earnings call as well as we'll look to increase our share in project economics going forward.

Finally, we ended fourth quarter with significant strength in our balance sheet with materially reduced net debt, driven by business unit cash generation and a successful tender offer for 2021 converts ahead of our Capital Markets Day targets. We expect continued cash generation from our business units through 2021. Given our balance sheet strength and cash model, we expect to further invest in initiatives to expand our total addressable market in 2021 and beyond, build out our digital and software strategy to enable future services while expanding our platform reach to a wider partner and customer base.

With that, I will turn the call back to Tom for our guidance. Tom?

Thanks, Manu. Please turn to Slide 12. The company's first quarter and fiscal year 2021 guidance is as follows. First quarter GAAP revenue of $270 million to $330 million; GAAP net loss of $20 million to $10 million; and megawatt recognized 115 to 145. As we stated at our Capital Markets Day, we expect to be non-GAAP profitable every quarter in 2021. We see first quarter adjusted EBITDA in the range of $10 million to $20 million.

For fiscal year 2021, given the confidence in our business coming into the year, we expect to see a stronger performance than we forecasted at our 2020 Capital Markets Day. The company now expects GAAP revenue growth of approximately 35%; megawatts recognized growth of approximately 25%; and adjusted EBITDA at or better than our previous indications at our Capital Markets Day last year. Finally, given strong industry tailwinds, continued federal policy support as well as increasing demand for its residential and commercial storage solutions, the company expects revenue and adjusted EBITDA growth of more than 40% in 2022.

In summary, Q4 was a solid quarter for the company, and we remain confident that we are well positioned for success for 2021 and beyond. With that, I would like to turn the call over to questions.

(Operator Instructions) Our first question comes from the line of Brian Lee from Goldman Sachs.

Kudos on a solid quarter and year-end. Maybe first on the guidance, I wanted to just try to square something up. I know you guys are raising the revenue view versus the Capital Markets Day. Gross margin sounds like they're doing better as well. But on Slide 6, it says you're going to do 3x the EBITDA in '21 versus 2020. I guess that implies something like $120 million. But you had talked about a greater than 10% EBITDA margin in '21 at the Capital Markets Day. I would assume that's still intact, if not even going higher, given the gross margin view and revenue view here.

So can you kind of square that up, why the adjusted EBITDA margin growth wouldn't be better than that given the 10% view? Or is that -- is there something changing on the margin target there?

So I'll say a few words, and then I'll let Manu comment. There -- it should square up. So we appreciate the question. As you know, really late in the year, we got the investment tax credit extension. And so we got the sort of positive impact of the step-down in 2021 -- I'm sorry, 2020, but then it was extended. So there's -- the impact of the extension is not favorable to both revenue and earnings in 2021, but is a sign of the strength of our business. We're actually thinking to be the same or better, and that gave us confidence to give color on 2022.

In terms of the comparison of margin and EBITDA as a percentage of sales, Manu, do you want to comment?

Yes. I think, Brian, the way to think about it is both our megawatts growth and revenue growth is better than our implied guidance at the Capital Markets Day. Our gross margin is also stronger, specifically in the residential business. So the gross margin rate should be better than what was -- what you derive at from the Capital Markets Day metrics. And that should translate into a stronger EBITDA performance. We can clean up the specifics in the callbacks.

Yes. And Brian, I would only add that there is some level of the incremental OpEx investment for 2022 because we do have the ITC extension. So there's a little bit of incremental investment in some of our marketing for the RLC channel and the community solar effort going into 2022. So there's a little bit of impact from that.

Okay. Fair enough. I'll take that off-line just to kind of square up the numbers. And then just second question, I'll pass it on after this. The new homes opportunity in California, you guys have obviously been very pioneering in terms of leading that vertical. Can you talk a bit more about sort of the visibility here for '21 in the midst of kind of the ongoing pandemic? Has that impacted that opportunity at all?

And then with respect to the Sunnova-Lennar announcement today, just wondering, were you working with Lennar at all? And do you have anything exclusive in your homebuilder relationships? Or could you see a similar arrangement with any of your partners in that channel in the future? Have you contemplated something to that effect at any point?

I'll start the answer to this question, and then I'm going to hand it over to Norm and just say a few things. First, visibility is great. It's inherent to the channel. And we have such long-term relationships with 18 of the top 20 builders that we benefit from that in terms of visibility, but I'll let Norm give any specifics there.

Hats off to Sunnova and Lennar for their transaction. We do not do business with them. We did at inception, like 10 or 15 years ago. But there is no business today. So there's no business lost. And in terms of exclusivity with 18 of the top 20 builders, I might turn to Norm for any specifics and comment on visibility.

Yes. Thanks, Tom. Yes, I would just echo what Tom said. As Tom mentioned, we have 18 of the top 20 builders. Well, 1 of the 2 that's not in the 18, of course, has been Lennar. So we have not done business -- so we don't expect this to impact our business at all. In fact, our new homes business is growing at a terrific clip. We indicated we have record backlog. And interestingly, right now, we're on pace in Q1 to set a bookings record, which is very unusual for what is usually a seasonally weaker quarter in new homes. We actually expect this quarter to end up at a bookings record. So that business is accelerating with us.

We don't have exclusive arrangements with our dealers. I think our strength in that business, frankly, has been 10-year relationships with the top builders who are absolutely confident that SunPower is going to deliver on time and execute. This is very much an execution installation as well as a sales and product business. And so we've always been very successful because we've built up those relationships. They also love the fact we have very high-efficiency panels, so we need less panels per roof. And now they're quite interested in adopting SunVault for storage and solar. So we remain very, very bullish in the new homes business, have excellent visibility to it, and expect it to outgrow our overall business in 2021.

Our next question comes from the line of Michael Weinstein from Crédit Suisse.

I was on mute. Yes. Sorry about that. And in your profit -- your EBITDA growth for 2022, what are you assuming in SunStrong's cost of capital assumptions regarding discount rate for lease value profit per watt?

Okay. Manu, may need a little more clarity there. Manu, you want to go straight to it?

Yes, sure. So Michael, as you -- as we communicated in the last earnings call, our residential cost of capital is 6% for our leases. And then we have a favorable cost of capital for our loans as well, specifically answering your question regarding SunStrong, slight improvement in our cost of capital going in from '21 to '22. I think you will see that improving cost of capital across our financing products for both leases and loans, and that should bear well for margin and also impact favorably the mix of between equipment sales and finance products. As you think about the modeling assumption between '21 and '22, that gives us confidence on increasing EBITDA greater than 40% going into 2022.

And Michael, let me add on. Your pause on mute froze my brain, but it unfroze. The improved cost of capital is not a significant variable going into 2022 and is not necessarily driven by what we expect rates to do. But it's by the actual performance of our leases and loans and further working with our partners to pull out redundancies and cost. Friction -- some friction that still exist, but it's not a significant variable.

All right. And just are you seeing any kind of module constraints on the 180 megawatts of new home demand or the backlog demand? I guess it's more of a Maxeon question, but just curious if there are any constraints on that, especially given the China labor issues that are out there.

Yes. I'll make quick work of that, the answer is no, and that's one of the advantages of the relationship we have. And remember that most of our modules are made, the solar cells are made in either Philippines or Malaysia and assembled in Mexico. And we're in good shape.

Right, but I mean, you're not seeing, I guess, a growing demand for non-Western China modules, right?

I see. There is an element of that, but that's minimal impact on us. And so you'll probably get more color on that when you talk to the Maxeon folks.

Our next question comes from the line of Ben Kallo from Baird.

So just on the digital and product investment, I see it stretching back into last year and then throughout this year. Is this something that we should view as recurring? I apologize if you said this. And then kind of how much of investment should we think about on that line? And then I have a follow-up on a bigger issue.

Okay. Ben, I'll give a little color on it, and I think Norm and Manu may want to say something as well in terms of the amount of spend. Yes, it's recurring, but we expect it to become more efficient. So a lower percentage of revenue. And it's an investment we made when we think of digital, think of customer tools, obviously, that's monitoring in the app that they have and then think of expensive dealer tools as well. And of course, commissioning of the solar system and of the storage system. Just want to give some color. And that investment goes back probably more like 4 or 5 years as we've evolved.

Maybe, Norm, you could take it from here and give some sense of scale and whatever else you want to cover.

Yes. I think that as you said, I think we can see a consistent investment going forward in there, which will be, as we grow, the percentage basis go down. Then the digital tools, we think, are core to what makes us different as well as our product solutions. So obviously, SunVault and the complete solutions, but also the digital tools. It's important to emphasize, a lot of those enable our loan and lease products not just offer tools, but our dealers that our customers can use. But they're one of the key things that really allows us to provide complete solutions to our dealer channel and to the broader marketplace overall.

Great. And my follow-up question, Manu, I think I heard you say that you guys will possibly, because of your balance sheet and maybe because of your stock price, and maybe tell us if that matters, that you're going to take more of the economics of the lease and loan going forward. And could you just maybe expound upon that a little bit?

Yes. So I think the -- maybe the best way to talk through that is, if you look at our Slide 8, that talks about the residential value creation. I think what you'll see is with the improving economics in our leases and loans, we are seeing improving profitability through the year. You can see that on the page. And if you compare that to the value creation coming from our cash products, I think the inherent mix between the 2 allows for creating greater customer value, but also creating greater value for SunPower. And that will impact our mix between just equipment sales and more finance systems. Norm, would you like to add anything?

No. I think the main driver is just -- the only thing I would say is the main driver of the improvement is the fact that we have much better both lease and loan economics that really just impacted Q4 and 2020 really for a full year as our cost of capital is coming down. And that really is driving our -- it's still cash-based economics, but it is getting better and better for lease and loan because of our -- the foundation is much better from a cost perspective.

So it's not about keeping some of the assets on your balance sheet versus not keeping it on your balance sheet per se?

Let me take that, Norm, right? So I think with -- so Ben, I think our interest is twofold. One is to provide the maximum value to the customer and keep customer control, and second is improve our share in the project economics. And I think what a strong balance sheet does is it allows us to play in different structures that allows us greater flexibility in doing both of the things I described, while reducing our cost of capital. That's what a good balance sheet does for us.

Our next question comes from the line of Julien Dumoulin-Smith from Bank of America.

Listen, I'd love to hear more about the storage ramp here. You guys talked about it several times through the prepared remarks. But really, emphasis on availability and just being able to execute given the constraints in the inventory channels, et cetera. I would love to hear a little bit more on that and also the front-of-the-meter comment you guys made as well on Helix.

Okay, Julien. Tom Werner here. I'll say a few words and then turn to Norm, and then I'll come back on front-of-the-meter. We do have Eric Potts so he may say a few words as well. There's various elements. Demand is great on outstripping supply. Second, supply we're good. I'll let Norm go into detail. Third is installation labor. We're ramping -- we're training, and we're able to hire sufficiently. That's sort of a broad overview. Norm, why don't you just take it from here.

Yes, happy to. We are still in the upfront ramp phase. But as Tom said, demand is very, very strong. We are managing the supply chain stuff very closely and watching it closely. Right now, we don't see that limiting our ability to hit our plans this year and the $100 million of incremental revenue that we talked about on the call. So we still think we'll do that, although most of that demand is, of course, at the back half of the year as far as the growth plan goes. So we are watching that closely. Right now, everything looks okay. But it's got the attention certainly of our supply chain organization.

Right now, our demand is strictly been California as far as where we've been installing. We've just opened up sales outside of California. So we expect that to be another driver of growth. And then importantly, later in -- starting in the second quarter, we'll actually release the ability to sell SunVault to our installed base. Right now, it's only sold with new installations, be it either new homes or retrofit customers. But starting in Q2, we'll actually also be able to attack our installed base with SunVault. So, so far so good. The feedback from the dealers and the customers is excellent. We're still at the early part of the ramp, but the product itself is being extremely well received.

And just quickly on front-of-the-meter storage, I'll say really short, few words and turn it to Eric Potts. We started Helix storage 3 years ago. Our software is working great, and we have a strong -- now strong behind-the-meter business that gives us synergies with front-of-the-meter. And I'll let Eric dimension it a little bit.

Sure. Thanks, Tom. Yes. Our origination and development platform really allows us, with our Helix technology, to be able to attack the front-of-the-meter market, which, as you saw in the TAM slide, is sizable. We have about 25 megawatt hours under contract right now, which we plan on building in 2021 and active and growing pipeline of over 400 megawatt hours. So it's an area where we feel like our personnel and our software enable us to enter that market quite competitively.

Right. Excellent. Just a quick clarification, guys, on the last couple here. The drive to 65% you guys have talked about, how exactly do you do that in terms of your go-to-market strategy? Just elaborate on this 12-month target.

Sure. So Norm, the question is a shift in mix to loan and lease. And the one thing I'd say, and then I'm going to turn it to Norm, is we're actually riding with the current. 70-plus percent of the market is cash and loan, and loan economics have improved dramatically. I'm going to turn it to Norm now to expand on that a little bit.

Yes. I think the biggest thing there is we continue to see, even with the ITC extension, even more momentum moving toward loan. And then we've introduced some very attractive loan offerings in the past. I can -- I'll give you a hint, there'll be more of those coming very, very soon, more announcements in that area, low APR loans that really give the customer tremendous economics versus any other alternative. So that's certainly shifting our volume.

We are also working to expand our capabilities of our platform and to push and to essentially make it more economical for our dealer channel to use our lease and loan products going forward. We're making -- those are becoming more and more attractive. We still get better economics, but we're also making sure it's more attractive for our dealer partners to finance the whole solution through us. And that's a concerted effort that we've really started mid last year as our economics got so much better for our finance products. And we expect that trend to continue.

It also reflects the growth of things like new homes where you have a big portion of the market being the kind of the full stack market with lease already. And so we've already -- that also contributes to the growth in the finance portion of our business.

Our next question comes from the line of Jeff Osborne from Cowen & Company.

I just had one follow-up on the -- in front-of-the-meter. Who actually owns those? Is it the corporate customers? Are you retaining those on balance sheet and submitting them into different ISO programs? Can you just flesh out what the business model is there?

Sure. Eric, can you take that?

Yes. I'd say we're still assessing the business model. Our pipeline has a mix of approaches, primarily the ones -- or the ones we have under contract right now. It's not SunPower-owned, it's a customer-owned facility.

Got it. And then, Tom, can you just touch on the C&I visibility for the guidance for the year? Is that fully booked at this point? Or it looked like you're getting off to a slow start in Q1, but I wasn't sure, after the strong Q4, how to think about the momentum through the year.

Yes. Yes. I appreciate that. On -- so we actually had a really strong bookings year in 2020 and ended the year with our best booking quarter of the year and probably our best booking quarter in quite a while. I don't remember the exact percentage going into the year. So I'm going to turn to Eric for that.

It's more of the -- since this is a projects business, it's more timing of projects. And we've seen this profile the last few years, so it's mostly a profile we're comfortable with. And I think it's important that the economics of the business are sustained, even though we've got this sort of ramp throughout the year. Eric, percent backlog?

Roughly 3/4, 75% in backlog, and the remaining 25% have been awarded, and it's now a matter of signing and then constructing those projects.

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

I had some follow-ups on the loan product. Sunlight and Loanpal have been out there for a while. And I know you guys launched this about 6 months ago, and you're having some success. Can you talk about what percentage of your dealer base is using your loan product? And how do you expect that to trend going forward?

Some of our dealer checks suggest the dealers are comfortable sticking with Loanpal and Sunlight. So the economics with your loan offering relative to theirs from our conversation sounds like it's similar. So -- and then there's possibly some challenges with a new launch and so forth. So just curious, how do you guys get -- win the business and get a greater mix of the dealer base onto the loan product?

Norm, why don't you go ahead and take that directly?

Yes, for sure. Well, more than half of our dealers use our loan product in some level. And so there is opportunity to get more of that, but we have very, very good penetration in our dealer channel already with our loan. And part of that is really, one, having a good product offering. And with the addition of TCU, we've broadened our offering significantly with low APR loan, et cetera, which has really helped. And part of it will be continuing to improve that to take more and more of that share. But also part of it is being able to provide that entire service in a unified platform. That's a lot of where the digital investment goes.

Giving our dealer channel the opportunity to offer customers, whether it be cash, loan or lease in the same environment, to be able to do a single credit check to address and choose which of those options make the best sense for them, the more we can provide them an easy path to solving the customer's problem and providing the customer the options they want, the better off we are. And so that's a huge effort for us, is to continue to focus on the digital, making it easier and easier to do business with us and offering more and more products in both lease and loan to increase our share of that financing business. But it's already significant -- we are already a significant supplier of loans to our customer base.

Great. That's really helpful, Norm. Can you help us understand, if you're in over half of the dealers, what percentage of your loan originations -- or of the dealer loan originations is the TCU SunPower product? And back at the Capital Markets Day, you guys talked about a $0.25 per watt improvement in your target by the end of '21. It sounds like you guys might be making good progress to that. Help us understand if you're still on track for that, and perhaps where you are with the goal of hitting $0.25 per watt.

Let me take the second part first. We're well along the way. I would say we're ahead of our plan on delivering that incremental margin per watt. I will tell you that the TCU percentage of our business has exceeded the -- our expectations. And so as far as delivering on that incremental, we're very, very well along, and I think we will probably hit that earlier than we anticipated next year.

On your first one, honestly, I would have to go get that number. I don't know off the top of my head what the percentage of -- what I guess you would say is the low end TAM in our dealer base that is using our loan, I just don't know -- have that off -- I just know the kind of the raw number of dealers using. But I can -- we can follow up and can get that data. I just -- I don't want to make something up. I don't know the number off the top of my head.

Okay. Just as another follow-up here, as it relates to the lease offering, you guys gave that $0.40 per watt goal back at the Capital Markets Day. Are you guys there? Are you making healthy progress on that goal? And can we have a quick update on that as well?

Yes. I think Norm will take that, and he's going to say, probably very similar. Right, Norm?

Yes. Yes, for sure. We're making great progress. Similar thing. The lease, once you improve your lease economics, it takes a little longer to flow through the pipeline because lease has a longer cycle time. But we already, in Q4, started to see the impact of much better lease economics. And again, I would say we were a little bit on the conservative side there relative to what we're able to garner.

Our lease economics have been the most dramatic improvement of all 3 of our platforms over the last year as far as versus where they were, which, of course, is what we were forecasting. And we're well along delivering that improvement that was forecast.

We're going to take 2 more questions -- questioners, and we're going to try to do it pseudo lightning round so we hit the timeframe for everybody. So next question, please.

Our next question comes from the line of Kashy Harrison from Simmons Energy.

I'll keep it quick. First one on operating cash flow, Manu. During Q4, you generated a CFO of, call it, $15 million relative to adjusted EBITDA of $39 million, given us a ratio of just under 40%. Just wondering how we should think about the ratio between operating cash flow and EBITDA guidance for 2021.

Yes. So I think as you think about our fourth quarter operating cash, I think the -- one of the numbers I'd point you to is our 2 operating businesses, the residential business and the C&I business generated about $35 million of operating cash. That is a much higher percentage of the EBITDA that these 2 businesses generated in the fourth quarter.

So what I would do is I would take that ratio, and both businesses should be seeing improving cash performance from EBITDA to cash translation. And I would use that as a way to get to working capital metrics for 2021 or operating cash conversion from EBITDA.

Got it. That's helpful. And then my second question. So it looked like Q4 megawatts recognized were a smidge under the midpoint of guidance. I was just wondering if you could talk about maybe the gap between actuals and expectations. And then looking towards Q1, I was hoping you could help us break up the megawatts into residential, light commercial and C&I. Just how to think about that split between the 3 business lines in Q1?

Sure. The comment I'd make on the megawatt number for fourth quarter is our commercial business has a mix of projects, so some of that megawatt variance to the midpoint was driven off that. I would point out that both the businesses did extremely well from a gross margin and EBITDA perspective. That resulted in above guidance EBITDA.

Then in terms of our megawatt for our first quarter, the breakup between residential, light commercial and C&I is about 85-15. And I would say the light commercial part of the residential business is between 25% and 30%, in line with our guidance.

Last questioner, please.

Our next question is from the line of Pavel Molchanov from Raymond James.

First, just quick housekeeping. Net retained value was barely up during 2020. Any reason for that?

Manu?

So yes, I can help answer that. I think as you look -- as you disaggregated the numbers between fourth quarter '19 and first quarter '20, we realized some cash out of the portfolio for SunPower, and that reduced the retained value. That number went up from first quarter '20 to the end of fourth quarter. So you can see that increase from start of the year to the end of the year. So the year-on-year variance was driven by us extracting cash from the portfolio in first quarter '20. As you look forward to next year, we should be in the $250 million range, in line with what we have committed at the Capital Markets Day.

Okay. A slightly broader question. You alluded to the lack of demand pull-in this year because of the ITC extension. Do you anticipate demand pull-in reemerging in '22?

So of course, that happens in the -- at the end of the year, so at the end of this year. And I would tell you, frankly, I'm optimistic that the ITC would be further extended at 26%. And I think there's early discussions of that being part of an infrastructure bill later this year. And there's also already been proposals that give us something to focus on. So as we look to 2022, no, we didn't build that in.

All right. Thank you so much. We appreciate everybody calling in. Thank you for the questions, and we look forward to our next call with you. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.