Good day, and thank you for standing by. Welcome to the SunPower First Quarter 2023 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]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mike Weinstein. Please go ahead.

Good morning. I would like to welcome everyone to our first quarter 2023 earnings conference call. On the call today, we will begin with comments from Peter Faricy, CEO of SunPower, who will provide an update with first quarter announcements and business highlights, followed by an update on progress toward 2023 guidance, including California sales, backlog and financing. Following Peter's comments, Guthrie Dundas, SunPower's Interim CFO, will then review our financial results. 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, our 2023 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 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 morning, everyone. I'm pleased to be with all of you to discuss both our Q1 2023 results and the progress we are making on our five-pillar strategy to build SunPower into the world's best residential solar company. In the first quarter, we continued to show strong customer installation growth, that tracked towards the high-end of our full year 2023 guidance of approximately 10% to 30% customer growth. We reported $1 million of adjusted EBITDA this quarter, with $10 million of business unit cash generation. As we highlighted on our last call, adjusted EBITDA was expected to be low this quarter impacted by higher sales and marketing expense to generate strong bookings volumes in California before the expiration of NEM 2.0 rules on April 15. We were also affected by unfavorable California weather conditions throughout Q1 that kept cruise idle, increased costs, and delayed certain installations in the state. We expect to catch up in California over the next few quarters. Importantly, we remain confident in our plans to achieve our full year 2023 guidance of between $125 million and $155 million of adjusted EBITDA based on 90,000 to 110,000 new customers and adjusted EBITDA per customer before platform investment of between $2,450 and $2,900. Please turn to Slide #4. We added 21,000 new customers in Q1. This is a 27% increase year-over-year. Revenue also grew at 32% year-over-year, as price increases continue to offset the impact of higher product and installation costs. New order bookings grew fastest in our direct channel at 97% year-over-year. With strong bookings growth under NEM 2.0 in California, our backlog increased to 23,000 retrofit customers, with another 39,000 in the new home channel. We expect the backlog to increase further in the coming weeks, as many of our dealers continue to…

Thank you, Peter. Please turn to Slide 12. For the first quarter, we are reporting $1 million of adjusted EBITDA and $443 million of non-GAAP revenue, an increase of a 32% year-over-year. We added 21,000 new customers in Q1, a 27% increase year-over-year that is tracking above the midpoint of our full year guidance of 90,000 to 110,000 customers. Adjusted non-GAAP gross margin dips 17.1% for the quarter largely the results of challenging weather that resulted in delayed install in our SunPower Direct channel. Adjusted EBITDA per customer before platform investment also declined to $1,200 largely as a result of NEM 2.0 sales and marketing expense, weather and the effect of typically lower seasonal installation volumes earlier in the year. We continue to expect to benefit from a combination of higher pricing growing origination fees, origination volumes at SunPower Financial and the operational leverage gained from increasing sales. As we highlighted at the Analyst Day last year, platform investment of $24 million for the quarter is primarily products, digital and corporate OpEx. Our balance sheet remains lean after the January retirement of convertible debt with $116 million of cash on hand and $77 million of net recourse debt. As a reminder, we completed the sale of our last remaining 0.5 million shares of end stage stock holdings in January, at prices averaging approximately $250 per share. To 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 $270 million. Please turn to Slide 13. As Peter, mentioned earlier, we are reiterating our 2023 guidance today for a $125 million to a $155 million of adjusted EBITDA, driven by an anticipated 90,000 to 110,000 incremental customers with adjusted EBITDA per customer before platform investment of $2,450 to $2,900. Platform investment continues to be primarily comprised of products, digital, corporate operating expense that drive our company towards larger operational scale, growing adjusted EBITDA per customer and a superior customer experience in the years to come. On a per customer basis, platform investment is projected to peak in 2023 as we expect this to grow below the rate of customer growth, so the rate per customer declines over time. With California NEM 2.0 now in the rearview mirror, we are refocusing our efforts across the country and on the execution of our long-term strategy. Looking forward beyond 2023, we continue to see several positive trends that are expected to help propel our business, including the value added by the Inflation Reduction Act, higher attachment rates for storage and financing and a potential recovery of New Homes in time. We continue to build a first class platform of assets that we believe delivers the world's best customer experience in the industry. With that, operator, I'd like to turn the call over for questions.

[Operator Instructions]. Our first question comes from the line of Kashy Harrison with Piper Sandler. Your line is now open.

Good morning, everyone, and thanks for taking the question. So maybe just the first one surrounding EBITDA, you highlight in the reconciliation, call it, $8 million associated with businesses you're exiting. Can you share some color on what's going on there, which businesses you're referring to? And then it looks like EBITDA was light at $1 million, how do you reconcile the light Q1 EBITDA with the full year EBITDA target of $140 million?

Yes, good morning, Kashy. I'll take the second question and then I'll, Guthrie, answer the first one. So, on some color on EBITDA for the full year, one of the things that we believe strongly in is running the business with a long-term perspective. In other words, we're willing to make short-term investments that we now have high ROI and a great payback, and we're not trying to hit a particular number in a particular quarter. We're more focused on the full year and we're more focused growing shareholder value over the long-term. So, we had an opportunity in Q1 to invest to take advantage of, what was demand that exceeded our expectations in California, we did exactly that, and we're pleased with that investment. And one of the reasons we're pleased with the investment is that, customer acquisition costs were relatively modest for California, and the conversion rates were much higher than during a normal cycle, and that's exactly the time as a business that you should be investing to grow that customer base. So, as we execute one with more than a six month backlog, that's very healthy for the company and it's a super good investment in terms of its return for this year. So, even though it's a short-term hit to EBITDA, it's a long-term benefit in terms of being able to get more business and lining up more efficient business in California in particular this year. I'll also say -- you heard me mention on the call the weather impact, there was a new word I learned this quarter called atmospheric river. California got hit by quite a few of them. We measure the number of weather days where our crews are impacted, meaning they can't work that day because it isn't safe. We had 76 in Q1 of 2022. We had over 1,000 in Q1 of '23 just to put it in perspective. So even though we work overtime, we work weekends, we actually would have had even higher customer growth in that 27% had we not been impacted by weather. But weather and investments are two of the bigger pieces, and then I think the third piece I'd highlight is, for our dealers, particularly the California dealers, they acted just like we did. This was kind of a unique event in California in Q1, and many of them fully focused their operations on acquiring customers, helping customers qualify by submitting their interconnection applications, and I think that's the right long-term decision for the business, both for our dealers and both for us. So, we expect to see some of the dealer business we would have normally gotten in Q1 come to fruition in Q2 and Q3. Guthrie, you want to comment on the first question?

Yes. So, the reference to exited businesses if you recall, we closed the sale of our C&I business to TotalEnergies’ last May. And as a result of that, there's a small amount of ongoing obligations that we have that we expect to kind of decrease over the next few quarters and few years. So, the incremental expenses that you're referencing relate to nothing new, but just the ongoing impact of some of those previously exited businesses.

That's helpful, guys. Thanks for the color there. And as my follow-up and Peter, you may already have answered this. But on Slide 18, you highlight that you have $160 million in cash and you expect to generate positive operating cash during 2023. Looking at the cash flow statement, SunPower used about $135 million of operating cash in Q1. And so, is the expectation here that as you go into Q2 through Q4, there's a massive improvement in operating cash because there's less investment or are you maybe defining cash -- are you defining cash generation differently than operating cash flow?

Yes, I'll take that one. So, we’re -- in the definition we're excluding the specific impact of working capital. So that's one factor. There was an investment working capital that was made in part due to seasonality and in part due to a planned inventory increase in the first quarter, and we expect that to benefit us over the rest of the year in terms of cash impact.

Thank you.

Your next question comes from the line of Sean Morgan with Evercore. Your line is now open.

Thanks, guys. Regarding some of the investments you're doing, especially with respect to SunPower Direct, I realized that we're increasing some of the product and digital and corporate OpEx related that program, but -- and this might be a little bit difficult to do, but is there any way to sort of strip-out some of that incremental investment and look at what your customer acquisition margins would be on those new more digital customer acquisition versus your I guess, the old somehow way of doing things and what sort of margin accretion you're seeing from that new channel sort of if you sort of strip-out all that additional investment that you're realizing currently?

And Sean, just to clarify, you're specifically asking about customer acquisition costs.

Yes. And specifically as it relates to sort of the digitization of the customer acquisition to try and drive up margins?

Yes. So, a couple of things. I think it's a terrific question. So, as we talked about at our Analyst Day, one of the areas that we do think we can drive more efficiency in between now and ’25, is customer acquisition costs. I've told all of you guys a few times, coming from the e-commerce world, it's shocking how much customer acquisition costs are in solar. The industry figures -- I think I see are like $4,500, $5,000, which is shocking. It’s way too high, and frankly it's not good for the industry. It's not good for customers to have to pay for that in the end. So, a couple of things we've done to drive it down are actually non-digital and then the biggest effort going forward is on the digital side. So, on the non-digital side, the two things we've done are speed up our partnership. So, the IKEA partnership that's already launched in California, the partnership with General Motors we’ll be launching later this year, those are really efficient ways to draw new customers with a relatively low customer acquisition cost. And these are customers that are, I would say highly qualified. Conversion rate is very high and we like those kind of efficient channels. But the bigger lever overtime is the one that you mentioned, and this is one of the big lessons for my time at Amazon, which is how do we invest in the tools, that allow us to build software to make digital customer acquisition much more efficient over time. And one of the big things you have to do is, you have to build an essentially an experiment machine. How do you really experiment with messages and different ways to attract customers, and you have to build it in a way that it learns by itself and it's able to continue to make better and better investment decisions over time. We've begun to see some of that work this year, but I think we're really going to be seeing the benefits of that in 2024 and 2025. One of the things that we do is, we actually provide a service across all of our channels. So, our customer acquisition isn't exclusively for SunPower Direct. We actually acquire customers for our dealers, which they value a great deal. So, the benefits that we're driving here really affect all of our channels including now Blue Raven. So, the customer acquisition process that we use benefits all the channels across the company.

Okay. That's helpful. And then, second question is sort of on the battery attach rates, I realized you guys are declining in terms of 20% but there's still an 80% of the market and I think this is pretty standard. But what I'm wondering is what -- in terms of customer capture and stickiness of those systems, if somebody is a customer they gets the initial install from SunPower, what sort of -- I guess percentage conversion would SunPower see if they -- then elect to later add a battery? Is it is it like 90% where it's kind of has to work with the existing system, or is that a kind of thing that would be open to really any dealer that's sort of out there competing in the market to try to sort of sell that secondary battery when it doesn't get attached in the initial install?

Yes. So, two comments I'll make about battery attach. One is, we're really quite cautiously optimistic about what we're seeing in California so far. Obviously, we're literally just weeks into this new NEM 3.0, but our battery attach rates -- we mentioned we think it will be over 20%. The last three weeks have been in our Direct channel, 26%, 32% and 47%. So, we're really beginning to see an acceleration in this channel. I think it's way too early to make a conclusion on the shed. It's still really in the process. The numbers are small. So, I want to give the appropriate caveats, but we're really seeing some real momentum on the battery side. And I think for customers in California, I think it will almost be a standard part of the package now. It just makes a lot of sense to include a battery in the system. And the early view that I see from California, is system sizes that are actually a little larger than they were in Q1, and battery attach rates that are quite a bit higher than they were in Q1. In terms of how we think about the battery going forward, one of the things we're doing for SunVault 2.0 is ensuring that it's backwards compatible. So, that we can do exactly what you're describing, Sean, which is we really want to be able to have a battery that we can sell to all of our existing customers. So, when that launches in the second half of 2024, it's our expectation that we'll be able to cross sell that across our entire customer base. Our current SunVault product actually is backwards compatible for the previous one or two generations before the solar we're selling now. So, it really does apply to most of our customer base, but I think all the batteries we introduce as we go forward have to become backward compatible, because I think customers will be interested in adding batteries for the lifetime of their solar option.

Okay. Thanks, Peter.

Your next question comes from the line of Julien Dumoulin-Smith with Bank of America. Your line is now open.

Hey, good morning team. Thank you for the time, Peter and team. Look, I wanted to just jump in and talk about the trends in adjust EBITDA and customers here quickly. First, can you discuss the initial trends on customers from NEM 2.0 to NEM 3.0? I know you couldn't specifically quantify yet, but just emphasis on trends, what you're seeing. In theory, shouldn't you be seeing a positive bias to customer guidance here? I know it's unchanged, quarter-over-quarter here, but it seems like that would be potential positive revision territory. And then related on the sort of value per customer metric, given the California bias, given the pivot to leases, wouldn't there be an upward bias, whether that's the full year number or on a multiyear basis across ‘23, ‘24, given these trends here quarter-over-quarter?

Yes, thanks Julien. I think if I start with your question on California, and the California bias, interestingly enough, if you go back to the call we had a few months ago, we gave our guidance of 10% to 30% growth for the year roughly midpoint 20%, I think a number of folks were, I would say skeptical as to whether the industry was going to grow that fast. And I think after Q1, we feel increasingly confident that, we'll be within that guidance and we were pleased that even with the weather impact, we were above the midpoint of the guidance, closer to the high-end of the guidance. And interestingly enough, I mean, I think our share of California is a strength right now. The fact that we have a six month backlog of NEM 2.0 customers and we're still now booking NEM 3.0 customers means that we're likely to have a really terrific business this year in California. I think it's premature to call any kind of potential upside to both customers and EBITDA per customer because the first quarter isn't yet, I think a good indicator of what the full year looks like. So, if you take a look at a bookings perspective, the heart of the booking season, if you will, is May through September. So, we're really just getting into the thick of it right now. I think we'll have a better view on, is their customer upside or EBITDA per customer upside as we get through the next quarter or two.

Got it. Excellent. And then just when you think about even that lease component here, do you want to talk about lease versus loan and the pivot, and maybe what that does in terms of your attractiveness for potential dealers, etcetera?

Absolutely. Well, one of the things that we're really benefiting from is the fact that we've been agnostic. We've been talking about this for the last couple of years. We've had a strong lease program and a strong loan program, we talked about our ability to pivot quickly. I'm really, really pleased how quickly we pivoted. We did not expect to be honest with you, the kind of growth we had in leases in Q1. And really as we dig into it, I think it's for a very rational reason. Right now on the consumer side, leases are more attractive than loans, as you think about the interest rate changes that have happened, they've had a one for one impact on increasing people's loan payments, and you're seeing loans increasingly at higher interest rates, which consumers do not find as attractive, because of the factors we talked about of the interest rates being lesser factoring leases throughout the capital stack, leases are actually a little bit more attractive for consumers right now. And so the fact that we're able to pivot and grow so fast is terrific. One of the big milestones that we're hitting is Blue Raven, I think someone asked on our last call, Blue Raven has traditionally been loan only, and we're now pivoting them to move over and they'll be selling their first leases this month. So, we're seeing that across a lot of our dealers. It's really -- it's a new kind of sale process for our dealers. So, we're actually doing quite a bit of work to gear up. But I think in the ideal world, our direct channels have always been this way, but I think for our dealers, it's important for them to be able to sell both products. And I think particularly with the IRA adders as we've talked about, everyone's going to have to be really, really good at the lease business. So, we're pleased with Q1 results, and we expect the lease business to continue to grow throughout this year.

Excellent. Thank you, Peter.

Thank you.

Your next question comes from the line of Ben Kallo with Baird. Your line is now open.

Hey, good morning. Thanks for taking my question. Maybe first starting just on your banking stress and sources of capital, and I know congratulations on the KKR deal. But as you look down to your partners and your dealer network, could you just talk about the health or the environment there as it pertains to your access and capital?

Yes. So one of the things, I think we're very proud of that is that, we really believe we have the highest performing dealer network in the world. When I talk to dealers at our conferences, it often took them many years to qualify to be a SunPower dealer. So, the reason I give you that background in context is that, we're not on a dealer growth strategy to acquire as many dealers into our network as possible. We really have a process where we vet their ability to serve customers well. And as part of that process, we actually very much vet how well they're running their business and how strong their financials are. And then we have a number of things we do with each of our dealers ongoing, to ensure that we have proper limits on our credit, and that none of our partners get too far out over their skis and they're able to run their business efficiently and effectively. So, I'm pleased to say we really have had very, very few even during my two years, but even recent, dealers that have been in financial distress or have needed extra support or help. And that's a real credit to all the great entrepreneurs who are SunPower dealers, particularly our master dealers and the dealers as part of our Dealer Accelerator Program. These are some really terrific business leaders who run their businesses very well. As we look forward, thank you for talking about the KKR deal. We're quite excited to have raised over $1 billion over the past couple of months to be used as part of our loan program. And in my view, if you ever needle a quarter to see why we believe our strategy is a superior strategy. This was the quarter…

And just a follow-up and thank you for that. The Dealer Accelerator, you announced Wolf River and congratulations on that. Could you just talk about the framework and how you guys approach that with the amount of money that you put into the Dealer Accelerator Program? And then, how you evaluate your investment into these partners? And maybe if you could give us any kind of guidance on how we can do that from the outside how you’re looking in it? And thank you.

Yes, thank you, Ben, sounds great. Yes. So Wolf River, we're super excited about this, the deal because, this is the first Dealer Accelerator deal with a dealer who's a high performing company completely outside the SunPower network. So, as we've gotten the deal done and they moved their business over to SunPower, they're 100% incremental for SunPower this year, which is just terrific, and we're very happy to welcome them to the family. The same criteria I talked about before, we spend a lot of time on it. If you talk to the Wolf River, executive team, we meet with them in person. We go through their customer reviews. We ensure that they have a strong business financially and that they have a strong leadership team. And really our goal is to make a modest capital investment in their business to help them grow. So, a company that starts in Minnesota, but they really want us sort of own, the upper Midwest, if you will. They've got great growth in Iowa, great growth in Wisconsin, but you'll see them expand to all those adjacent states. And it's a little bit like Blue Raven, but maybe had a much more efficient investment for us, where it's a modest capital investment, a100% of their financial products and hardware products are exclusively with SunPower. We expect an ROI in our investment that's let's say, under three years, most times they're under two years. And as part of the deal, we also take a small equity stake in that company and really deepen our partnership with them overtime. So, we're very pleased. We're very picky and the companies we work with they’re also frankly very picky and who they want to work. So, we're just thrilled to work with Wolf River as we go forward. And we're constantly in-line to lookout across the U.S. for who are the highest performing, highest quality installers in the U.S., and how do we potentially bring them into SunPower family.

Thank you.

Your next question comes from the line of Tristan Richardson with Scotiabank. Your line is now open.

Hi, good morning, guys. Appreciate all the comments, Peter on what you're seeing in the upper Midwest and mid-Atlantic and even Texas. I mean, curious could you go into a little more detail on what you're seeing in Florida and Arizona? I mean, do you see those markets maybe just generally from a demand perspective, not strong or more this was a function of SunPower Direct pushing resources more into California to really capture NEM 2.0?

Yes. Thanks, Tristan, nice to talk to you again. A couple of things, first of all, if you take a look at the industry data, if you take a look -- home analytics, I think is one of the better sources for taking a look at permitting. If you take a look at Q1, Florida and Arizona grew single -- we'll call it low to mid-single digits. So, there is some growth in those states. I think the combination of a couple of things in Q1 were factors in how we performed in those states. So first of all, both of those states have relatively low residential energy costs, traditionally. We talked about in my comments the fact that Florida are going up quite a bit. So, that may be changing rapidly. But those are both states where our value proposition is a little bit tighter, because the alternative is actually a pretty low cost residential energy bill for most consumers there. So, given that we've traditionally been selling more premium products and we're just starting to transition to mainstream products, I guess if that's terribly surprising that those would be markets that are a little slower growth for us, then some of the markets like California or the northeast in particular where residential energy rates are quite high. And then I think we also acknowledge in Q1, we had this such strong much higher than our high expectations demand in California. We did pivot, particularly our direct sales teams and our operations teams to really be able to focus on helping California consumers qualify for NEM 2.0. Some of you may know, part of the qualification was submitting the interconnection application and getting it approved on time. We took that responsibility very, very seriously. Customer trust for us is the most important thing we think about and work on. So we really did pivot our resources to focus on that for California. And as I mentioned in my comments now, we'll begin to refocus again on the full picture of the U.S. So, I do expect that we'll have some recovery this year in Florida in particular and maybe also Arizona. But I think the rest of the country outside of California, that's why I said for us, it's kind of a mix story. We had some areas of strength and some areas that we'd like to grow faster too.

I appreciate it, Peter. And then just following on your comment about mainstream products, I mean, you talked about 70% lease in the direct channel business in the first quarter. And then also your application to the DOE, just thinking about how does the product offering change? If you start to access sort of that middle income or lower income consumer either through the loan guarantee program, or just and with a greater share of the lease product overtime?

Yes. It's a terrific question. I think I mentioned on the last call, about a year ago at this time, it definitely felt like a seller's market on the panel industry. There were very few choices, it was very challenging to keep up with what was very high demand. And that's flipped the other direction, and I think the IRA has quite a bit to do with it. So, I'm seeing enormous interest and investment here in the U.S. There are a number of companies, Q Cells, LONGi, Mission that have already announced great investments and expansions. But I think for us, we're really thinking about the benefits of working with a number of suppliers who end up pulling together a domestic supply chain end-to-end. And that includes, we continue to have ongoing discussions with First Solar, but there's a number of really terrific panel manufacturers across the world, that either are here, or are building big operations here. And I think as part of the IRA, domestic content requirement even though that guidance hasn't come out yet, it's our expectation that at some point in the future, it may be a couple of years from now, that guidance in order to qualify it, for it will require that the panels are using end-to-end components that are made here in the U.S. So, we're constantly looking ahead with our panel partners and trying to anticipate, how do we put ourselves in a position where we have a great supply here in the U.S. for lease and a great supply of panels that are made here in the U.S. as well.

Appreciate it. Thanks Peter.

Your next question comes from the line of Philip Shen with Roth MKM. Your line is now open.

Hi, guys. Thanks for taking my questions. Peter, as a follow-up to, what you just talked about there, module pricing is down for both premium and non-premium modules. I think you have fixed pricing with Maxeon through 2023. That said, I was wondering if you're able to take advantage of this pricing relief, I think module pricing for the non-premium category might be down 30% from Q4 peaks of last year. Can you take advantage of that in 2023 or do you have to wait until 2024? If you are able to take advantage of that this year, how much gross margin tailwind could that represent? Thanks.

Thanks Phil. Yes, I think we have a number of supplier agreements. I'm not going to go into the details supplier-by-supplier, but we have a number of contracts that we feel like if we've chosen to take a fixed price route are favorable for SunPower, that's why we would choose a fixed cost route if we thought we were locking at a price that would put us in the advantageous position. And then we have more flexible commercial arrangements with our partners where we think that the economics may change and be in our favor this year. I would not expect given that we -- you think of our supply and our customer demand as having such a strong backlog, that I don't expect any of the panel price decreases in particular to have an impact on us at the beginning of this year. I think if anything we'll begin to see any benefit of that towards the end of the year. But it is, as I said, I think it's now become more of a buyers-market, and we're quite excited about the opportunities that we're lining up for the end of 2023 and but in particular 2024 and 2025.

Thanks, Peter. Just as a quick follow-up on that. If you see that benefit in the back half of 2023, what kind of margin tailwind could that be? Could it be 100 basis points, could it be 300 basis points, what's the potential benefit?

I think it's too soon to speculate. Yes, it really depends on -- there's a number of factors at where we recognize revenue, and right now with our backlog, it's really important that we do focus on how do we get as many customers installed and approved and permission to operate and eventually go as possible. That backlog, if I use the California number as an example, that six month backlog carries us really through the end of Q3 and probably into the beginning of Q4. So, I really think that the margin impact this year will be modest if we see any impact.

Okay, great. Thanks. In terms of my follow-up here, as it relates to lease loan cash mix, I was wondering if you could give us a little bit more detail on that. I know your bookings for your finance part of the business in Q1 looked like it was close to 70%. But historically, I think your cash business has been as much as a third of your overall mix. So can you level set us with Q1, what was that mix of lease loan and cash in terms of megawatts? And then how do you expect that to trend through the year and perhaps even through 2024? Thanks.

Yes. So, what was interesting for us is that, the amount of cash we're doing in the business has been relatively steady in Q1, but also in my first two years here. So, it's almost like that's an ongoing, we'll call it order of magnitude 20%ish, that stays roughly fixed throughout the quarters. It goes up and down a little bit, but there's not a lot of movement there. So the 80% that gets financed is really the part that does move around. And the share obviously this quarter of leases was much greater than we would have anticipated coming into the quarter compared to loans. And I talked earlier in the call as to why we believe that's the case. But one of the benefits of being indifferent is that, we can really focus on what's best for our customers and help them find the product that works for them. So, we're pleased if the business ends up -- if the finance business becomes almost exclusively leases as people benefit from the IRA over the next decade, we are in a great position to take advantage of that. And if interest rates come down someday and loans become more attractive again, we're ready to pivot pretty quickly and offer -- continue to offer a great set of loan products as well. So, we're pleased that -- we just want there to be more and more customers -- more and more consumers here in the U.S. who have access to clean energy and access to solar. So, the biggest focus for us is, how do we get a larger and larger share of the $110 million households in the U.S. to qualify for a lease or a loan. The IRA benefits that are focused on these energy communities and that are focused on low income residents, those are very much at the top of our mind, because our 25-by-25 goals, we're really a company that's focused on making sure that we provide clean energy to everybody here in the U.S. So we're excited about seeing our financial products expand, but really we're most excited about providing more and more access to more consumers across the U.S.

Great. Thanks, Peter.

Thanks Phil.

Your next question comes from the line of Andrew Percoco with Morgan Stanley. Your line is now open.

Great. Thanks so much for taking my question here. So, just wanted to come back to Kashy’s question earlier around EBITDA contribution over the course of the year, any guidelines or guidance you can give us in terms of contribution in 2Q, 3Q and 4Q just to help us think through how we should model it over the course of the year?

Sure. Thanks. I'll take that. Yes, I'd expect leads in terms of margin profile up Q1 was on the lighter side. We do expect that to kind of recover by the end of the year since our normal historical levels. So, exact profile how that plays out over the year and that's something we give specific guidance on, but we expect the end of the year right around our normal level.

Okay. Understood. And then last one for me is on battery availability and battery supply chains. It's clear that your net metering in California is going to require a decent amount of battery. So, just curious on where you stand in terms of battery availability and potentially signing new contracts to increase that supply?

Yes. Well, we anticipated this increase in battery attach rate for California. So, we came into the year with strong supply of batteries, and we're still in a great position with SunVault to serve, but we think the demand will be for the year. We are watching it closely though. The numbers I shared earlier, which again are very, very early days. But if we would continue to see attach rates that get to 20, 30 or 40, we will at some point want to increase our capacity on SunVault 2.0, and or possibly consider adding another battery to our portfolio of products we sell. So stay tuned on that one. But as of right now, we feel very good about the current supply we have, and if things take off and we have higher battery attach rates, we're preparing ourselves to be ready for that as well. Thank you.

Great. Thanks, Peter.

Your next question comes from the line of Biju Perincheril with Susquehanna Financial Group. Your line is now open.

Thanks. Good morning. Quick question on the gross margin side on four components. Can you talk about -- can you give us some color on the decrease there and how we should expect that to trend. Is that a mix issue or something else?

Yes,I think Guthrie covered this a couple of questions ago, but the 17%ish gross margin that we started within Q1 is lower than we would normally had. A lot of that is due to the weather impact we talked about earlier, which makes our operations less efficient and it really kind of takes off some of that final business that would have really improved our gross margin at the end of the quarter. But we do expect to end the year above 20%, that's normally the range that we're in. Guthrie, do you want to provide any more color on the gross margin?

Yes, I mean, I think as I mentioned Q1 is a little seasonally low for sure as impacted by weather. But yes, over the course of the year, we don't anticipate any significant deviation from prior as Peter mentioned.

Okay. Thanks.

Okay. We've got time for one more question. Thank you.

And your last question comes from the line of Brian Lee with Goldman Sachs. Your line is now open.

Hi, guys. Thanks for squeezing me in. I guess a question on SunVault and then the transition to SunVault 2.0 in 2024. It doesn't sound like there's any gross margin impact that you're experiencing with the higher attach rates? And I don't think Guthrie, mentioned that as part of the gross margin downtick here in Q1. But can you just kind of talk high level about as battery attach rates pick up here as you're expecting what the impact is on a gross margin basis and then kind of how you think about that as you get to the SunVault 2.0 product next year, and then I had a follow-up?

Sounds good. Yes, so as I understand it from us, considering other options for batteries across the industry. Many, many people who are selling batteries are selling them at a loss. We have chosen not to do that for SunVault. I think we've talked about that on previous calls and that may have made our attach rates a little lower, but we do have a positive gross margin and we have a -- I call it a modest profit on the SunVault batteries we sell. But I don't think even if we get a higher attach rate, it will have a material impact on our financials for this year because it is a relatively modest product for us from a profitability standpoint. What we really try to focus on is, if we take a look at most of the battery makers, everyone has learned an enormous amount from their first generation battery and that's exactly what we're doing right now. We're learning a lot from it. We're learning how to make it easier to install. We're learning how to make it easier for customers to use. We're quite excited about getting more batteries in the marketplace so we can take advantage VPP opportunities. So, as we take a look at SunVault 2.0, I guess what's exciting for us is the battery business is changing pretty dramatically. As battery producers are getting to scale, we're really kind of a value-added assembler, if you will, we own the firmware, we own the software, but we have key partners who actually provide the actual batteries, the inverters and all the hardware casing that goes around it. And our expectation is that our SunVault 2.0 product will not only be profitable, but will actually be able to lower the price point for the consumer and offer multiple options that I think they'll find appealing. So, we'll spend some time with all of you before that launch second half of next year, but I think forward looking, we're quite excited about where the battery this is going. From my standpoint, I'm actually seeing more price improvements on batteries that have panels and we're seeing some good price improvements in both areas. But batteries in particular, I think the next generation batteries, you're really going to see the potential for them to take off with consumers because we're all going to be able to hit much more attractive price points than we have historically.

Okay. That's great. I appreciate that. And then just one quick housekeeping one, I know you've seen really good growth here on the SunPower Financial lease volumes. Can you give us a sense of what they grew in Q1 versus Q4? I know you gave the year-on-year number, and then with respect to financing on that product, what you are seeing in terms of equity availability and also cost the capital just with some of the ITC bonus adders if you're able to take advantage of that already in -- can you find anything? Thank you.

Sure. So, I don't have a quarter-on-quarter growth at my fingertips, but certainly what, Peter mentioned at the top of the call and as evidenced by our year-on-year growth that the lease business really -- we plan for it to grow a lot and it exceeded our expectations. So, we're quite pleased there. In terms of availability and cost of capital for lease business, we remain confident in our ability to finance this channel efficiently. We have obviously strong relationships going back many years with current providers and other providers as well. Cost of capital here also as Peter mentioned, less sensitive to interest rates, I'd say, we remain very confident in our ability to ensure that the capital we're bringing on and is able to provide efficient pricing for our customers.

Perfect. I want to thank all of you for the great questions in the call we had this morning, and I want to give a big shout out to our dealers and our field operations teams and our sales teams, who just did an incredible job of helping thousands of California consumers qualify for NEM 2.0. It was really inspiring to see all the great work and the effort. Big welcome to Pat and Jennifer, and look forward to talking to all of you next quarter. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect. Have a good day.