SunPower Corporation (NASDAQ:SPWR) Q4 2020 Earnings Conference Call February 17, 2021 4:30 PM ET

Corporate Participants

Bob Okunski - Vice President, Investor Relations
Tom Werner - Chairman and Chief Executive Officer
Manu Sial - Executive Vice President and Chief Financial Officer
Norm Taffe - Executive Vice President, NA Residential and Commercial Channels
Eric Potts - Senior Vice President, Commercial Americas

Conference Call Participants

Brian Lee - Goldman Sachs
Michael Weinstein - Credit Suisse
Ben Kallo - Baird
Julien Dumoulin-Smith - Bank of America
Jeff Osborne - Cowan & Company
Philip Shen - ROTH Capital
Kashy Harrison - Simmons Energy
Pavel Molchanov - Raymond James

Operator

Good afternoon. Welcome to SunPower Corporation's Fourth Quarter 2020 Earnings Call. At this time all participants lines are in a listen-only mode. After the speaker presentation there will be a question-and-answer session. [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.

Bob Okunski

Thank you. I would like to welcome everyone to our fourth quarter 2020 Earnings Conference Call. On the call today, we'll 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 Web site. 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 2019 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 Presentation page of our Investor Relations Web site. 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?

Tom Werner

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 focus strategy following this successful Maxeon split positions us for long-term, profitable growth.

Please turn to Slide three. 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 Analysts 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 continued to seek cleaner more affordable energy, more resiliency in the face of increased great outages and shutdowns. These factors, as well as others are driving strong industry tailwinds.

Please turn the Slide four. U.S. residential solar growth is set to accelerate over the next five 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 shut-offs increase storage demand continues to rise we expect to see rapid adoption over the next several years in both commercial and residential markets. The 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 five. SunPower's long panel leader in the distributed generation solar and storage market, which we expect to grow to $65 billion market over the next 30 years. As we look to 2021 and beyond, we see three 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're developing new digital services that enable customers from 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 the top three priorities for this year, please turn to Slide six. 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 in community solar efforts.

Our second priority is to improve our profitability through margin expansion. As we discussed at our Analysts 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 product enables more people to adopt solar at highly attractive rates in 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 innovation to screening 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 industry 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're making significant progress on this front and expect to release our 2020 sustainability report this spring.

I'd now like to shift to the performance of our individual business segments. Please turn to Slide seven. Our residential and light commercial segment continued to outperform as momentum built in this business. In addition to strong sequential megawatt growth, gross margins rose to 24%, up from 18% in Q3. And these are 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 their 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 about 50% with significant interest in our one roof and SunVault products for 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 eight, 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 system to continue to shift towards more finance systems which improves our residential unit economics.

We expect about two thirds of our residential systems to be financed by the end of Q4 2021 driven primarily by growing demand for our attractively priced phones 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 a very robust dealer platform with some of the leading digital marketing and operations solutions that have helped our dealers generate more sales at lower cost.

In the future, we plan to incrementally monetize 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 nine. Our C&I solution 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 positioned 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 about 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 in the industry leading solar and storage solutions. We are focused on three strategic initiatives that will enable us to significantly expand our C&I TAM.

First, continue to serve behind the meter market, while laying the foundation for 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'd like to turn the call over to Manu Sial, CFO of SunPower.

Manu Sial

Thanks, Tom.

Please turn to Slide 11, there we 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 is 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. A C&I solution segment was also up approximately 65% compared to the third quarter. We expect a 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 quarter 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 $0.27 per watt down 13% sequentially as we've seen the benefit of cost initiatives in scale. If you exclude our investments in digital and products, which we see as more capital deployment than OpEx; OpEx for what 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 though 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 pipelines that include future revenues from asset management services through sequentially and was $637 million at the end of fourth quarter, giving us confidence in achieving 2021 revenue targets.

The traction and 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 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 look to increase our share and 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?

Tom Werner

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 in 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. 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 tailwind, 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.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Brian Lee from Goldman Sachs.

Brian Lee

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 market stay, gross margin sound 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 something changing on the margin target there?

Tom Werner

So I'll say a few words and I will let Manu comment. It should square up. So we appreciate the question. As you know, really late in the year we got investment cash credit expansion. And so we got the sort of positive impact of the step down in 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 it's a sign in strength of our business. We're actually thinking of being 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?

Manu Sial

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 you derive that from the Capital Markets Day metrics and that should translate into a stronger EBITDA performance. We can clean up the specifics in the call back.

Tom Werner

Yes. If I note, we normally add that there is some level of 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.

Brian Lee

Okay, fair enough. I'll take that offline just to kind of square up the numbers. And 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 Sonova Lennar announcement today, just wondering, were you working with Lennar at all? And do you have anything exclusive in your home builder relationships? Or could you see a similar arrangement with any of your partners in that channel in the future as you contemplated something to that effect at any point?

Tom Werner

I'll start the answer to this question. And then, I'm going to hand it over to Norm and just a few things.

First, visibility is great. It's inherent to the channel. And we have such long-term relationships with 18 in 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 Sonova and Lennar for their transaction. We do not do business with them, we did, 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 top 20 builders, I will turn to Norm for any specifics and comments on visibility.

Norm Taffe

Yes. Thanks, Tom. Yes, just to echo what Tom said -- as Tom mentioned, we have 18 of the top 20 builders, well, one of the two that's not in the 18, of course, has been Lennar. So we have not done business, we don't expect it 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 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 the 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.

Operator

Thank you. Our next question comes from the line of Michael Weinstein from Credit Suisse.

Michael Weinstein

In your profit or your EBITDA growth for 2022, what are you assuming in SunStrong's cost of capital assumptions regarding discount rates were at least value profit per watt?

Tom Werner

Okay. Manu, maybe to add a little more clarity there. Manu, do you want to go straight to it.

Manu Sial

Yes, sure. So, Michael, 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 assumptions between '21 and '22. That gives us confidence on increasing EBITDA greater than 40% going into 2022.

Tom Werner

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've set 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, which still exists. But it's not a significant variable.

Michael Weinstein

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

Tom Werner

Yes. I will make quick work on that answers now. And that's one of the advantages of the relationship we have. And I 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.

Michael Weinstein

I mean, you're not seeing, I guess, a growing demand for non-western China modules?

Tom Werner

I see. There is an element of that but that minimal impact on us and so you're probably get more cover on that when you talk to them actually unfold.

Operator

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

Ben Kallo

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? And I apologize if you said this. And then, how much of investment should we think about up on that line? And then I have a follow up on a bigger issue.

Tom Werner

Okay, Ben. I'll probably give a little color on it. 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 expected to become more efficient. So a lower percentage of revenue and it's an investment we made when we think of digital, we think of customer tools, obviously, that's monitoring in the app that they have. And then, think of extensive dealer tools as well and of course commissioning of the solar system and of the storage system, just want to give some color. That investment goes back probably more like four or five 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.

Norm Taffe

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 that our dealers and our customers can use. But they're one of the key things that really allows us to provide complete solutions to our dealer channel into the broader marketplace overall.

Ben Kallo

Great. 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 expand upon that a little bit. Thank you, guys.

Manu Sial

Yes. So, I think maybe the best way to talk through that is, if you look at our Slide eight, 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 years you can see that on the page. And if you compare that to the value creation coming from our cash product, I think the inherent mix between the two 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?

Norm Taffe

No. I think the main driver, I would say as the main driver of improvement is the fact that we have much better both lease and loan economics are 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 -- its 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.

Ben Kallo

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

Manu Sial

Let me take that, Norm. So, Ben, I think our interest is two-fold. One is to provide the maximum value to the customers and keep customer control. And second is improve 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.

Operator

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

Julien Dumoulin-Smith

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. We'd love to hear a little bit more on that and also the front of meter comment you guys made as well on Helix?

Tom Werner

I'll say a few words and then turn to Norm. And then I'll come back on front of 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, were good. I'll let Norm go into detail. Third is installation labor, we're ramping retraining and we're able to hire sufficiently on that sort of a broad overview. Norm, take it from here.

Norm Taffe

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 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 did 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 we're installing. We've just opened up sales outside of California. So we expect that to be another driver of growth. And then, importantly, starting in second quarter we will 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 will actually also be able to attack our installed base with SunVault. 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 has been extremely well received.

Tom Werner

And just quickly on front of the meter storage, I'll say really short, a few words and turn it to Eric Potts. We started Helix storage three years ago and our software is working great. And we have now strong behind the meter business because of synergies with front of the meter. And I will like Eric to mention it a little bit.

Eric Potts

Thanks, Tom. 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.

Julien Dumoulin-Smith

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 becomes your go-to-market strategy? Just elaborate on this 12 month target?

Tom Werner

The question is shifting next to loan and lease. And the one thing I'd say, and then I'm going to turn to Norm is, we're actually writing 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 there to expand on that a little bit.

Norm Taffe

Yes. The biggest thing there is, we can see and you 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 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 into essentially make it more economical for a 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 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.

Operator

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

Jeff Osborne

I just had one follow up on, 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, you just flush out with the business policy?

Tom Werner

Sure, Eric. Can you take that?

Eric Potts

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

Jeff Osborne

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 looks like you're getting off to a slow start in Q1, but it wasn't sure after the strong Q4, how to think about the momentum through the year?

Tom Werner

Yes. I appreciate that. So we actually had a really strong bookings here in 2020 and ended the year with our best booking quarter of the year and probably our best looking quarter for quite a while. I don't remember the exact percentage on going into the year. So I'm going to turn to Eric for that. It's more the -- since it 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, present back log?

Eric Potts

Roughly three quarters 75% in backlog and the remaining 25% have been awarded. And it's now a matter of signing and then constructing those projects.

Operator

Thank you. Our next question comes from a line of Philip Shen from ROTH Capital.

Philip Shen

I had some follow ups on the loan product. So Sunlight and Loanpal have been out there for a while and I know you guys launched this about six 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 to expect that to trend going forward? Some of our dealer suggests 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. 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 on to the loan product/

Tom Werner

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

Norm Taffe

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, we'll 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. And that's a lot of where that 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 makes the best sense for them. The more we can provide them an easy path to solving the customers' problem and providing the customer the options they want, the better off we are. And so that's a huge effort for us just to continue to focus on the digital making it easier and easier to do business with us and offering more and more products and 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.

Philip Shen

Great. That's really helpful Norm. Thanks. 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 $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 to that and perhaps where you are, with the goal of hitting $0.25 per watt.

NormTaffe

Now, 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 the loan TAM in our dealer base that is using our loan. I just don't have that off. I just know that kind of the raw number of dealers using. But we can follow up and get that data, I don't want to make something. I don't know the number off the top my head.

Philip Shen

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

Tom Werner

Yes, I think Norm will take that. And he is going to say probably very similar. Right, Norm?

Norm Taffe

Yes, for sure. We're making great progress. Similar thing, at least, 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, we're starting 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 has been the most dramatic improvement of all three of our platforms over the last year as far as -- versus where they were, which of course what we were forecasting and we're well along delivering that improvement that was forecasted.

Tom Werner

Okay. Appreciate it. We're going to take two more questioners and we're going to try to do it pseudo lightning round. Sure we hit timeframe for everybody. So next question, please.

Operator

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

Kashy Harrison

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?

Manu Sial

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

Kashy Harrison

Got it. That's helpful. And then, my second question, so we look like Q4 megawatt, recognize 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 three business lines in Q1.

Manu Sial

Sure. The comment I will 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 businesses did extremely well from a gross margin and EBITDA perspective that resulted in above guidance, EBITDA. Then in terms of 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...

Tom Werner

Last questioner please.

Operator

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

Pavel Molchanov

Thanks for taking the question. First, just quick housekeeping. Net retained value was barely up during 2020 any reason for that?

Manu Sial

So yes, I can hop on to 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 and 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.

Pavel Molchanov

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?

Manu Sial

So, of course, that happens at the end of the year. So at the end of this year, I would say 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 is also already been proposals that give us something to focus on. So as we looked at 2022, no, we did build that in.

Tom Werner

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.

Operator

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