SunPower Corporation (NASDAQ:SPWR) Q2 2021 Results Earnings Conference Call August 3, 2021 4:30 PM ET

Company Participants

Robert Okunski - Vice President, Investor Relations
Peter Faricy - Chief Executive Officer
Manavendra Sial - Executive Vice President and Chief Financial Officer
Eric Potts - Executive Vice President, Commercial Americas

Conference Call Participants

Benjamin Kallo - Robert W. Baird & Co.
Brian Lee - Goldman Sachs
Maheep Mandloi - Credit Suisse
Philip Shen - ROTH Capital Partners
Kashy Harrison - Piper Sandler
Pavel Molchanov - Raymond James & Associates

Operator

Good afternoon. Welcome to the SunPower Corporation Second Quarter 2021 Results Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. As a reminder, today's 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.

Robert Okunski

Thank you. I would 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 growth initiatives in 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 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 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 also posted a supplemental datasheet detailing additional historical metrics.

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

Peter Faricy

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 four 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 number 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 buyers. 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 number 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 de-levered 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 head of our leverage target of less than 2.5 times 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 the 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 number seven. 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 number 8. Our CIS solution 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 216 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 onsite 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 offsite 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 IPC extension and standalone storage credits, 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 number 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 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 enhanced 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 two times the lifetime customer cash flows compared to SunVault.

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 solution for SunPower solar customers, giving those customers that 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 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?

Manavendra Sial

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 increase 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 the 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're focused on long-term customer relationships and see residential storage and the addition of our EV partnership as a 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 a 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 a 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 two 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 three times 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 megawatt recognized of 540 megawatts to 610 megawatts. Residential 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.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes from the line of Ben Kallo with Baird.

Benjamin Kallo

Peter, I guess you only get a few chances to ask questions, like what are your observations from the first 100 days? What do you think SunPower and the industry can improve 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.

Peter Faricy

First of all, I think the biggest 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 two 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 of the charger itself, so 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 one-time 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. The same conditions, interestingly enough, exist 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 having great demand.

The reason we talked about – in this call are doubling down on 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.

Benjamin Kallo

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

Peter Faricy

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.

Operator

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

Brian Lee

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 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 cancelled? 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 have a follow-up.

Peter Faricy

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 two 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. So, 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'll come through in Q3. Manu, do you want to add some more color to that as well?

Manavendra Sial

Yeah. Brian, I'll make two 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 and the business has got a mix of projects and we are seeing some of those projects moving to 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 2022 and beyond.

Brian Lee

The second question, I guess, related to Peter's comments around having the two 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. 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 two segments in the back half?

And then, specific to RLC, do 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, the 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.

Peter Faricy

Brian, let me start off. I'll give you a quick comment on SunVault and I'll turn it over to Manu for your two 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 $100 million run rate. And the number one 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 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?

Manavendra Sial

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 our 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, sequential increase in our gross margin per watt. At the Capital Markets Day, we 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 tailwind this business has in terms of the volume growth going into 2022.

Peter Faricy

Just one more thing on SunVault, Brian. We're really pleased that most of our SunVault attach 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 costs for a solar add-on. So, from a margin perspective, it's accretive and we're very pleased with that.

Operator

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

Maheep Mandloi

Peter, maybe we 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?

Peter Faricy

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 start to 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.

Maheep Mandloi

Maybe just a follow-up. Somewhat unrelated on the batteries, maybe if we can talk about how much revenue growth 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. I'm sort of talking about increased booking run rate. Longer term, 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?

Peter Faricy

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. So, 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 to 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.

Operator

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

Philip Shen

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?

Peter Faricy

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

Manavendra Sial

Sure. 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.

Philip Shen

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 more color on why we're seeing the push out. Is it driven by the – 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 2022? It seems like a modest amount. And are you seeing even risk of projects from 2022 getting pushed out to 2023? My guess is no, but I figured I'd ask.

Peter Faricy

Phil, just to clarify, I think my comment earlier was not about 2022. 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 move from second quarter to the third quarter and that sort of dynamics behind that?

Eric Potts

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're 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.

Philip Shen

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?

Peter Faricy

I think what we're talking about is, when you talk to consumers, two 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 option. 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.

Operator

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

Kashy Harrison

Just to follow-up on two 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?

Peter Faricy

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

Kashy Harrison

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 early question, you talked about a long-term opportunity perhaps associated with a large commercial business. I was wondering if you could maybe dig into more detail on the investment thesis associated with keeping this business in the SunPower family? And when do you expect this business to contribute more meaningfully to EBITDA and cash flow?

Peter Faricy

I think those are very fair questions, by the way. 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. 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, targets areas like schools and government buildings where we have been the historic number one leader in solar, without question.

So, I think that the biggest investment thesis for me is forward looking. This is a really attractive business from a growth perspective. It's a little bit of a different nature than residential. So, it will still probably have some lumpy periods, 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.

Operator

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

Pavel Molchanov

California is supposedly tracking to provide their new net metering seed, could be within the next 90 days. I'm curious if you have any expectations or perspective on what that's going to do in your largest market historically?

Peter Faricy

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 and 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 US.

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 it. 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 and 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.

Operator

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

Peter Faricy

Okay. Thank you, everyone. And we'll see at the next earnings call. Thanks. Bye.

Operator

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.