SunPower (SPWR) Q1 2021 Earnings Call Transcript

SunPower (SPWR -1.02%)
Q1 2021 Earnings Call
May 05, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to the SunPower first-quarter 2021 results conference call. My name is Vanessa, and I will be your operator for today's call. [Operator instructions] I will now turn the call over to Mr. Bob Okunski.

Bob Okunski -- Vice President, Investor Relations

Thank you. I would like to welcome everyone to our first-quarter 2021 earnings conference call. On the call today, we will provide a summary of the quarter, our view on 2021 as well as an update on our growth initiatives for 2022 and beyond. On the call today is Peter Faricy, CEO of SunPower, who will open the call.

Followed by Tom Werner, chairman of the board, who will discuss our Q1 execution. And Manu Sial, CFO, who will review our first-quarter results, before turning the call back to Peter for guidance. As a reminder, a replay of this call will be available later today on the investor relations page of our website. During today's call, we will make forward-looking statements that are subject to various risks and uncertainties that are described in the safe harbor slide of today's presentation, today's earnings press release, our 2020 10-K and our quarterly reports on Form 10-Q.

Please see those documents for additional information regarding those factors that may affect these forward-looking statements. Also, we will reference certain non-GAAP metrics during today's call. Please refer to the appendix of our presentation as well as today's earnings press release for the appropriate GAAP to non-GAAP reconciliations. Finally, to enhance this call, we have 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 data sheet detailing additional historical metrics. With that, I'd like to turn the call over to Peter Faricy, CEO of SunPower. Peter?

Peter Faricy -- Chief Executive Officer

Thanks, Bob and good morning to everyone. This is my first earnings call here at SunPower and I'd like to say that I'm thrilled to be part of the SunPower team. While I've only been on board for a few weeks, I'm very impressed with what I've seen so far. SunPower has a long history of technology and innovation, which has allowed us to offer the best solar solutions in the world.

My goal is to build on that history with new innovations and customer and digital experiences. In addition, we have a workforce comprised of bright, talented and passionate people who are on a mission to change how our world is powered. I believe we can accomplish amazing things going forward. My focus over the next 100 days will center around diving deep into the residential and commercial and industrial businesses.

We're going to start with the needs of our customers and work backwards with the goal of earning and keeping customer trust. Finally, I'd like to thank Tom Werner for his passion and commitment to SunPower over the last 18 years. Given his hard work and tireless dedication, SunPower now has a strong foundation for future growth, as evidenced by our first-quarter results, and is well positioned to continue to change how the world is powered. I look forward to meeting all of you, and I'd now like to have Tom discuss the results of the first quarter.

Tom?

Tom Werner -- Chairman of the Board

Thanks, Peter. Before we get into the specifics of the quarter, I would like to formally welcome Peter as SunPower's new CEO. Peter comes to us with significant background, creating exceptional customer experiences in rapid growth environments at both Amazon and Discovery. Peter's skills fit uniquely with SunPower's innovation heritage and purpose-driven culture.

Moving on to our Q1 results. Overall, we continue to execute on our strategic priorities during the quarter to position the company for success in 2021 and beyond. We are confident that our continued investment in our growth initiatives and strong financial foundation position SunPower for long-term profitable growth. Please turn to Slide 3.

We were pleased with our execution in Q1 as we met our revenue and EBITDA guidance, saw strong bookings momentum in both our residential and commercial businesses, while further investing in our growth initiatives. Specifically, we saw a continued strong residential customer growth as we added 12,000 customers, bringing our installed base to almost 365,000, as well as seeing solid CIS execution. We expect this trend to continue as overall residential bookings rose more than 30% year over year, as we are benefiting from strong demand and positive industry tailwinds. Commercial demand remained healthy as well, as megawatts deployed rose more than 30% versus last year, and we had an exceptionally strong bookings quarter.

Year-over-year unit economics improved as well, as company gross margin rose 60% in gross margin dollars compared to Q1 last year. Additionally, we further delevered our balance sheet through the early repayment of our $30 million CEDA loan. Looking forward, given the improving industry trends, executing on our strategic growth initiatives to expand our addressable market and favorable policy support, we continue to expect 2022 EBITDA growth to be more than 40%. As we discussed last quarter, we see significant growth opportunity to drive long-term growth through the expansion of our addressable market.

I'd now like to highlight how we are successfully executing on our expansion initiatives. Please turn to Slide 4. First, we continue to look at ways to expand our current DG market through storage and services and addressing additional market segments like multi-family and affordable housing. Second, capitalizing on increasing demand for off-site front-of-the-meter storage solutions through continued investment in our Helix platform.

We now have more than 20-megawatt hours of front-of-the-meter projects under contract, with more than 400-megawatt hours in our pipeline. We are investing in our Helix software platform to expand capabilities for front-of-the-meter solutions. Third, we made significant progress on expanding our DG services platform to support the extension of our servicing platform to SunPower loans. Also, in conjunction with Hannon Armstrong, we plan to add commercial asset portfolios to SunStrong.

Finally, we continued to invest in those initiatives that will enable us to expand our footprint into the long tail of the solar market. I'd now like to shift to the performance of our individual business segments. Please turn to Slide 5. Our Residential and Light Commercial segment continued to outperform as momentum builds in this business.

Gross margins for the quarter were 22%, up 780 basis points year over year. As we discussed last quarter, we put in place a number of initiatives that we expect to shift our cash mix over time to more finance and full systems sales versus cash equipment sales. These efforts include expanding our loan partnership with TCU as well as new lease financing programs. We already started to see start to this shift in Q1 in 55% of our volume with systems sales compared to 50% last quarter.

We also saw solid year over year growth in residential value creation as this metric rose to $0.41 from $0.25 in the first quarter of last year. New home sales also performed well as year-over-year megawatts grew 50%, with record bookings resulting in a current backlog of more than 200 megawatts, which now includes our multi-family homes initiatives. Our market share remains above 50%. We also remain bullish about the future of our SunVault storage solution as demand remains high.

For the quarter, we continued the ramp of our dealer channel as we now have close to 1,000 individuals who have completed SunVault training. We saw a consistent attach rates of 20% in California and a substantial increase in bookings outside of the state. Our annualized April bookings run rate is approaching $50 million, and we expect to reach $100 million of bookings run rate before end of this year. However, installation lead times have been longer than expected due in part to efforts to improve our installed firmware and the commissioning customer experience.

We are highly focused on shortening these lead times and see them returning closer to expected levels by the end of the second quarter. Finally, we are working on several new product features for the second half of the year, including the ability to combine multi -- multiple SunVaults for larger system sizes, as well as expanding compatibility with legacy inverters for our stand-alone storage efforts. I would now like to discuss one of our key strategic initiatives to expand our addressable market for the long tail by leveraging our robust financing platform. Please turn to Slide 6.

We view the long tail as dealers who have annual average installed volume of less than 1 megawatt and currently makes up 70% of the residential market. This is a significant growth opportunity for SunPower, given our indirect channel experience, and is a natural extension of our current model. We are evolving our software platforms to enable services for this group of dealers as well. Currently, 85% of our 500 million dealers install less than 1 megawatt, and we see a significant opportunity for growth by increasing share of account at these dealers.

We are also exploring various partnerships to expand our reach to a wider dealer network. These partnerships will enable us to lower our customer acquisition costs, while offering the potential to expand into adjacent markets. Moving on to CIS on Slide 7. Our CIS Solutions segment also performed well, and we remain excited about our growth prospects for this business, especially in storage.

For the quarter, we continue to see strong demand trends as we added to our significant backlog, now above 275 megawatts of solar, as well as more than 250-megawatt hours of on-site storage projects under contract were awarded. We've also significantly improved the financial performance of this business, given the initiatives we put into place last year. On a year-over-year basis, we saw a material improvement in revenue and gross margin, while continuing to build bookings momentum. Additionally, we are making strong progress on our commercial growth initiatives, including expansion of our off-site storage efforts for front-of-the-meter in the community solar market.

We also see two distinct parts to how we approach our commercial business: origination and development and leveraging our storage and services platform. While both offer significant opportunities ultimately, overtime, we expect storage and services to become a much greater focus of our CIS business. Please turn to Slide 8. For origination and development, we have four key areas of focus.

First, continuing to expand our origination pipeline as demand for our industry-leading Helix solutions continue to grow. Trends remain strong, and we expect to maintain our market share leadership as our pipeline now exceeds 275 megawatts. Second, our focus remains on improving profitability through better project execution and increasing Helix storage installations. Third, we continue to add to our community solar pipeline, which now exceeds 115 megawatts.

Finally, we are continuing to work with our financing partners to reduce risk, improve linearity and -- for better working capital management. We also made significant progress in relation to our storage and service initiatives during the quarter. We remain the leader in behind-the-meter or on-site storage with more than 125-megawatt hours installed and under contract. Our investment in off-site front-of-the-meter solutions to expand our TAM is also paying off as we now have 20-megawatt hours under contract, with more than 400-megawatt hours either awarded or shortlisted.

Finally, we are increasing our investment in Helix storage software to bring more capabilities to our front-of-the-meter storage offering. Overall, we remain very excited about the opportunity in C&I going forward. With that, I would like to turn the call over to Manu Sial, CFO of SunPower. Manu?

Manu Sial -- Chief Financial Officer

Thanks, Tom. Please turn to Slide 9 where we have provided our consolidated financial results and select metrics. We are pleased with our financial performance for the first quarter, where we significantly improved our EBITDA compared to first-quarter 2020, and are executing on our balance sheet improvements ahead of plan. We had a strong execution in both our segments as we met our megawatts recognized revenue and EBITDA guidance for the first quarter.

Residential saw a strong bookings growth of 25% in the first quarter on continued strong demand, with C&I Solutions bookings growing 50% year over year. Visibility for the balance of the year is strong, and we are well positioned with a strong run rate going into the second half of 2021 and expect this trend to continue in 2022 and beyond. Consolidated non-GAAP gross margin in DevCo was $0.42 per watt and up more than 50% from $0.27 per watt in the first quarter of last year. Residential gross margin per watt was $0.65 per watt, driven by improving mix toward full systems and lower cost of capital.

Non-GAAP opex per watt was $0.34. And if you exclude our investments in digital and products, which we see as more capital deployment rather than opex, opex per watt was $0.27. For 2021, we are, however, increasing our investments in digital and products for key TAM expansion initiatives like front-of-the-meter storage that will help improve long-term value creation for SunPower. Our priority is the customer, and that focus helps us grow long-term revenue streams.

First-quarter services pipeline is at $644 million and ahead of our capital markets day expectations. We've also made the decision to build out our residential loan servicing capabilities as this is a natural extension of our already-successful residential lease servicing organization and will contribute to further improving our margins on our loan products and drive an increase in long-term customer value. We are also expanding the scope of the SunStrong joint venture to include the first set of commercial project portfolios. This would not only increase the net retail value attributable to SunPower from SunStrong, but also expand our services pipeline.

Finally, our business units generated cash in a seasonally weak first quarter, and our net debt is down 50% from prior year. In April, we further strengthened our balance sheet as we repaid our eight and a half percent interest CEDA loan, ahead of our capital markets day target. I would now like to spend a few minutes on value creation, which we see as a key indicator of the performance and trajectory of our business. We believe this metric captures the impact of all our initiatives and provides a data point that is more comparable to our competitors.

Please turn to Slide 10. Value creation is defined as adjusted EBITDA of our residential and commercial business units, excluding any products and digital investment, plus SunPower's share of net retained value. We have provided details of the digital and product spend in the appendix, which we view as capital spend for lowering customer acquisition costs and driving long-term customer value. In 2021, we expect approximately 65% of the spend to be on digital and product programs and the balance being infrastructure spend that will not scale with the growth of the business.

As you can see from the chart, we expect to essentially double value creation in 2021 compared to 2020, and approximately 90% of the value creation is driven by day one cash margin. The significant growth expected in residential revenue and margins in 2021 makes it a greater contributor to SunPower value creation compared to a percentage of megawatts recognized for this year. Given residential is the fastest-growing part of our business, we expect this trend to continue beyond 2021. We also expect residential value creation on a per watt basis to further increase in 2021 and beyond through shift to more full systems and lowering of cost of capital, which is now below previously communicated 6%, thereby contributing to significant increase in value creation in '22 and beyond.

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

Peter Faricy -- Chief Executive Officer

Thanks, Manu. I'd now like to discuss our guidance. Please turn to Slide 11. For the second quarter, we expect continued strength in our residential business, with Q2 Residential and Light Commercial volume growth of approximately 20% sequentially and over 50% increase versus prior year, partially offset by the timing of certain project milestones in our large commercial business, which is expected to be in line with Q2 2020 results.

Specifically, we expect second-quarter GAAP revenue of between $295 million to $345 million, GAAP net loss of between $12 million to $1 million and megawatts recognition of between 120 to 150 megawatts. Second-quarter adjusted EBITDA will be in the range of $16 million to $27 million as linearity has significantly improved in the first half compared to the previous two years. For fiscal year 2021, our guidance remains unchanged, with 2021 GAAP revenue growth of approximately 35%, megawatts recognized growth of approximately 25%, and our adjusted EBITDA guidance remains unchanged. We continue to see margin strength in our residential business, given our improving mix and visibility into our commercial business continues to improve.

We have, therefore, made the decision to increase our investment in digital and products for key TAM expansion initiatives like front-of-the-meter storage that will improve the long-term value creation for SunPower, while still maintaining our 2021 forecast. We continue to see strong industry and policy tailwinds as well as increasing demand for our residential and commercial storage solutions, which will drive expected adjusted EBITDA growth of greater than 40% in 2022. Before I turn the call over to questions, I'd like to briefly discuss a couple of the positive tailwinds we see for 2022 that we see as incremental upside to our current forecast. First is how we are best positioned to capitalize on the Biden-Harris administration's recently announced infrastructure plan.

For more details on that, please turn to Slide 12. On the left side of the page, we highlight what we believe are the top renewable initiatives in the plan as well as the proposed funding for each. Based on this, we see an incremental market opportunity of more than $225 billion. The biggest opportunity for SunPower is the benefit of a long-term ITC extension, which we see as a strong catalyst in driving continued cash and loan demand.

Second, we are well positioned for a stand-alone storage ITC, given our approximately 3-gigawatt installed base in residential and commercial, while potential refundability will help our light commercial business the most. Finally, we see a tremendous opportunity in the federal building mandate, given our leadership position in this space, as we have installed more than 150 megawatts over the last 15-plus years. We are also best positioned for the education sector mandate as we remain the market leader in this space, also with more than 150 megawatts installed across close to 40 school districts. I would also like to highlight some of the areas where we see tremendous future opportunity.

Please turn to Slide 13. Over the last 24 months, we have fundamentally changed SunPower from a vertically integrated global solar provider to a more focused, profitable, cash-generating, distributed generation energy solutions company, while delevering our balance sheet and growing our industry-leading installed base. At the same time, we've continued to invest in those initiatives that we feel offer the greatest growth opportunities, TAM expansion, our digital, financial and services platforms, but as well as looking to adjacent markets for future growth. As we look ahead, we remain excited about our future.

Growth of renewable energy in the end will be driven by making solar easy, reliable and affordable. We believe our exceptional customer service and digital innovation will lay the foundation for future growth. With that, I would like to turn the call over for questions. Thank you.

Questions & Answers:

Operator

[Operator instructions] And our first question comes from Ben Kallo with Baird. Please go ahead.

Ben Kallo -- Robert W. Baird -- Analyst

Hey, good morning, everyone. Tom, I was calculating, it's -- I think it's my 55th quarterly call with you or 56th, so thank you. Peter, maybe just given your background taking over Amazon, Discovery, how do you think that matches up with SunPower? What are the differences? And do you see any changes in the current model? And then I have a kind of a smaller-level question.

Peter Faricy -- Chief Executive Officer

Good morning, Ben and thanks for recognizing Tom. His incredible 18-year career has laid this foundation for all of us, and we're so excited as we look forward. It's an honor to be the CEO of SunPower. And from a personal standpoint, this is a mission I'm very passionate about.

Renewable energy, and particularly solar, is so critical for all of us and for our future. But it's -- in particular, for me, as I took a look at SunPower and this opportunity, I was so amazed by the leadership and technology that this company has had over the last 20 years. And my plan is to preserve this wonderful heritage and build upon that over time. And there's three areas in particular -- it's early days, but there's three areas in particular that I think we can look forward to building with this technology expertise we have.

One is, how can we continue to build world-class customer experiences? How can we be the leader in providing this ease, reliability and resiliency? Two, how can we develop new innovations for consumers that help them take advantage of all the things that renewable energy and storage and beyond offer? And then three, how can we continue to scale this company efficiently through automation, self-service and all the ways that you would think a technology company would approach a problem like this? So I'm so looking forward to our future, and I'm ready to get started.

Ben Kallo -- Robert W. Baird -- Analyst

And my second question is, we've heard lots about supply constraints that's running across the board. Enphase, in particular, can you talk about what you guys are seeing there? And I didn't really hear you guys call any of that out, but could you talk about how you guys are dealing with that and what we should expect?

Peter Faricy -- Chief Executive Officer

Yeah, I think it's a terrific question. And this is, as you know, Ben, much bigger than a solar industry issue. This is really across all industrial companies, particularly in electronics area. There's a couple of things, I guess, I'd highlight.

One is, through our terrific partnerships with both Maxeon and Enphase, we've been pleased that we've been able to continue to serve customer demand, and we feel really comfortable with those partnerships being able to do that this year. And then secondly, the team has done an incredible job of managing all these different changes across the globe. And I'd love to ask Norm, if he could, to offer a little bit of color commentary on what we've been doing to make sure that we continue to meet customer demand.

Norm Taffe -- Vice President and General Manager

Yeah. Thanks, Peter. Kind of as you mentioned, there's really two issues here on the supply chain side, and that definitely is challenging out there. One is, of course, the ability to support your growth, but also, there's the cost impacts on materials and freight.

I would say we definitely have seen cost increases in freight and some materials. I would say that, frankly, makes our gross margin performance even more impressive. And we've been able to, because of the strength of the business, both sustained gross -- strong gross margins, and we expect to do that throughout the remainder of the year. From an availability perspective, we feel very good about where we're at.

We're managing this very, very closely with multiple suppliers. And we remain confident that we have access to the components we need to meet our growth plans this year.

Ben Kallo -- Robert W. Baird -- Analyst

Got it. Welcome aboard, Peter and thank you, Tom.

Tom Werner -- Chairman of the Board

Thanks, Ben.

Peter Faricy -- Chief Executive Officer

Thanks, Ben.

Operator

We have our next question from Brian Lee with Goldman Sachs.

Brian Lee -- Goldman Sachs -- Analyst

Hey, guys. Good morning. Thanks for taking the questions. Welcome onboard, Peter.

And yeah, I don't know what's more impressive, time of your career at SunPower and in the industry, or Ben pulling out a calculator to figure out all the quarters he's been on with you, but kudos to you both. And no offense, Ben, I know you're good at Math. But yes, it's been an honor working with you, and best of luck, Tom, in your future endeavors. On questions.

I guess the first one, just housekeeping, the lead time issues in battery storage, are they leading to a change here in the guidance? It seems like you had said resi battery revenues of $100 million in 2021, I think that was the target. It seems like the semantics have changed. You're talking about bookings now of $100 million. So is the revenue target pushing a bit? And is that all due to some of the lead time issues you're calling here -- calling on here?

Peter Faricy -- Chief Executive Officer

Yeah. Thanks, Brian. Let me start by saying -- I'm going to broaden your question a little bit. I think on the storage opportunity for us and SunVault, in particular, a couple of the things that happened in Q1.

One is, we're very pleased with the reaction so far from our dealers. Their positive feedback has inspired us, and we really -- we feel more and more confident about how big this opportunity is. And then we're quite pleased with the demand from consumers. And we think that's representative of the fact that this is a really important product for consumers, particularly as they try to make their energy more resilient over time.

Norm, you want to comment more specifically on Brian's question about how we're managing the SunVault product?

Norm Taffe -- Vice President and General Manager

Yeah, absolutely. I think as you kind of inferred, our pace of install is falling a little bit behind our plans there, while bookings are growing very nicely. I think our storage plans always included a strong second half ramp, and we're still hopeful we can hit our 2021 goals. But our primary focus is making sure we deliver a superior customer experience.

So really, our lead time issue there is more related to us managing the installed pace, while we focus on improving the commissioning times and really the whole installation and turnaround process for our customers. As we alluded to, we did receive some feedback from dealers and partners saying that they like to see some improvements in those areas. And we rolled out most of the changes, which are all based in firmware to -- already for most of that, although we have some other fixes coming in to improve that aspect before the end of this month. Our expectation is our commissioning will be less than an hour and that the customer install and turnaround process is seamless for our customers.

So that's our primary focus. But we are seeing demand grow nicely and really confident in the overall growth of SunPower -- of SunVault, excuse me. And I'd also like to reiterate, regardless of that, as Manu indicated, we still are highly confident in meeting our overall RLC margin and profit targets for the year.

Brian Lee -- Goldman Sachs -- Analyst

OK. Great. That's super helpful. I appreciate that -- the clarification.

And I guess just staying on top of batteries. SunVault, I think, you guys have been pretty clear on sort of the ramp timing and outlook for that. I think what doesn't get as much attention for you guys, even though it's becoming a much bigger business and has a big pipeline here, is the sort of commercial battery side of the business. So any kind of quantification you can provide on sort of the revenue potential in 2021 for your sort of non-resi battery side of the business? Not sure if you've broken that out by segment, just if you have a view there? And if there's any supply chain constraints or sort of lead time commissioning installation issues that you're also experiencing there? And then maybe I had one follow-up that I wanted to squeeze in.

Thank you guys.

Peter Faricy -- Chief Executive Officer

Yeah. Thanks, Brian. And we agree with your assessment, by the way. We do think that battery is equally as a big opportunity on the commercial side.

I'm going to turn it over to Eric for a little bit more detail on how we're thinking about it, and then over to Manu to give you a little bit more detail on how that impacts our plan for this year and beyond. Go ahead, Eric.

Eric Potts -- Executive Vice President for Commercial Americas

Great. Thanks, Peter. As mentioned throughout the deck, we have some really strong growth in a couple of different areas within storage. One is, when we pair storage with solar in our traditional behind-the-meter business.

We've also seen really nice growth in stand-alone storage, where we're up selling to existing customers. And then the newer frontier for us is starting to participate in the front-of-the-meter market. And you can see a combination of megawatts under contract, then also megawatts that have been either awarded or shortlisted. We are building a 40- to 50-megawatt hours this year of storage and expect that to significantly increase beyond.

From a supply chain and lead time perspectives, we are seeing manageable lead times. Our project schedules allow us a little bit extra visibility, and don't expect any significant changes to our ability to execute on those storage projects going forward.

Manu Sial -- Chief Financial Officer

All right. And just from a financial perspective, Brian, the way to think about it is the Helix storage efforts of the commercial business is showing up in improving margins. As you can see, our margins are up 900 basis points in the commercial business. Year on year, those tailwinds and sustainable margin improvements will continue.

The storage attach rates are up of 30%, as we've talked about, and that will show up in improving revenue throughout the year and as we go into 2022.

Brian Lee -- Goldman Sachs -- Analyst

OK. That's great. And then maybe one last one, probably for Peter. I'd hate to put you on the spot, but you had the Slide 13, sorry, the Slide 12 about the Biden plan and sort of policy catalysts.

I think a lot of investors are also focused on policy in California with respect to net metering. You guys obviously have a ton of exposure there. Any initial thoughts on proceedings there? What you're sort of expecting out of that process as we move through the rest of the year?

Peter Faricy -- Chief Executive Officer

Yeah. Yeah, just a quick comment and then I'm going to turn it over to Tom to talk more about the specifics in California. But the policy piece here, Brian, I think you're hitting on an excellent point, this is a pivotal time for all of us on the policy front. There's never been a better opportunity for this industry to take advantage of the momentum we have here.

In my first week, I've met with the governors of California and Michigan, have a meeting in two hours with Secretary Granholm, Department of Energy, and expect to be meeting with a couple of senators before the week's over. So it's something that we're spending a lot of time on and investing in because I think it's an important part of our future. Tom, do you want to give a quick comment on -- as it relates to California?

Tom Werner -- Chairman of the Board

Yeah. As you know, I'll be staying as chairman of the board for six months. And one of the things I will continue to work on is policy, specifically NEM 3.0 will be one of the things I'll coordinate with Peter working on. I don't -- there's been any surprises in how things have evolved and sort of the predictable opening salvo from the IOUs.

We're going to be super engaged throughout the year. And I think fixed charges are just not going to be popular with customers and, therefore, the PUC is unlikely to honor that part of the request from the IOUs. Rate changes are likely, but won't be part of that process. And anything that gets implemented is 2022 at the earliest.

So Peter and I will be partnered with our policy team and actively engaged.

Brian Lee -- Goldman Sachs -- Analyst

All right, everyone. I'll pass it on.

Peter Faricy -- Chief Executive Officer

Thanks, Brian.

Operator

And we have our next question from Michael Weinstein with Credit Suisse. Please go ahead, sir. Michael, your line is open. Please, remember to unmute.

Michael Weinstein -- Credit Suisse -- Analyst

I apologize there. I'm sorry about that. Hey, good morning guys. Good morning, Peter.

Peter Faricy -- Chief Executive Officer

Good morning, Michael.

Tom Werner -- Chairman of the Board

Good morning.

Michael Weinstein -- Credit Suisse -- Analyst

Could you help quantify the impact you think you might see from -- for the commercial business from ITC refundability that's coming? You'd -- I think you identified bottlenecks, right? But is there any further explanation you could give there?

Peter Faricy -- Chief Executive Officer

Yeah. Eric, do you want to take that?

Eric Potts -- Executive Vice President for Commercial Americas

Sure. I think I'll talk about both parts of our commercial business, both the commercial direct business, but also our light commercial. In terms of commercial direct, we offer a full suite of project types, PPAs and traditional cash projects. But I think this does -- this just makes a -- the offering for the traditional customer a little bit bigger.

They have an ownership opportunity, even if they don't have a tax liability. So expect TAM to increase. That could also improve deal velocity. That could put a little less constraint on tax equity providers.

So we see general positive movement there. From a light commercial perspective, where we're working with our dealers and oftentimes smaller customers, that's been one of the harder places for us to be able to provide that broad suite of financial offerings. And so I think we see larger opportunity in that light commercial space for the ITC refundability to really drive increased TAM.

Michael Weinstein -- Credit Suisse -- Analyst

Got you. And on residential loan servicing, is that -- are you talking about putting loans on the balance sheet? Is this a new business completely? Or is this more like a coupon clipping or fee-based business?

Peter Faricy -- Chief Executive Officer

Yeah. Before I turn it over to Manu to talk more about that, I think one of the big advantages I feel like we have in our residential business is that our strategy on financing starts with the customer and works backwards. So we're really indifferent in terms of providing cash lease in loans. We really want to do what's actually best for our customer and kind of work backwards from there.

Manu, do you want to talk more about the philosophy on the balance sheet piece?

Manu Sial -- Chief Financial Officer

Sure. So our residential loans would work similar to our residential leases. So we do not have residential leases on our balance sheet. What it does for us is it gives us recurring revenues in terms of loan servicing.

And more importantly, it gives us more deeper relationship with the customer that allows us to upsell and enhance the long-term customer value for SunPower.

Michael Weinstein -- Credit Suisse -- Analyst

Lastly, can you talk about your expanded supply agreement with Maxeon on these P-Series in the U.S. market? Which segment benefits the most with that product? And does that drive revenue upside in '21 or '22?

Peter Faricy -- Chief Executive Officer

Terrific. Yeah, we're so excited. And first of all, I want to say, we've got a terrific partner with Maxeon. Obviously, they're part of our history, but they make the best modules and panels in the world.

And our customers tell us how much they love that, and so do our dealers. Norm, do you want to talk a bit more about the P-Series opportunity? Because I think that's also a big opportunity for growth as well.

Norm Taffe -- Vice President and General Manager

Yeah. No, happy to. And P-Series is really going to help us broaden really the -- maybe the customer rates, really the revenue opportunities we have in Residential and Light Commercial. Obviously, our ITC line is the premium line.

It's the best panel in the business. The access from Maxeon to a unique and what we believe is the best kind of mid-range performance panel in the industry is really going to help expand our capabilities across residential. And it's particularly important for our light commercial business, also appealing to Eric's business on the commercial direct side. So it really fills out the portfolio with the great quality that Maxeon is known for and now really having kind of both good, better and best offerings for our customer base.

And I think, really, starting in 2022, it's an incremental revenue growth driver for the company.

Michael Weinstein -- Credit Suisse -- Analyst

Got you. Thank you very much.

Peter Faricy -- Chief Executive Officer

Thanks, Michael.

Operator

Our next question is from Philip Shen with ROTH Capital Partners.

Philip Shen -- ROTH Capital Partners -- Analyst

Hey guys. Thanks for taking my questions. Tom, thank you for your service. It's been great working with you.

And Peter, congrats on your new role.

Peter Faricy -- Chief Executive Officer

Thanks, Phil.

Philip Shen -- ROTH Capital Partners -- Analyst

On Slide 6, Tom, I think you talked about having and going after a wider installer network. I was wondering if you might be able to quantify what that might mean more. So specifically, how many new partners might you be able to bring on perhaps this year or next year as you talk about lowering the customer acquisition costs? How much could they go down by with this strategy in particular?

Peter Faricy -- Chief Executive Officer

Yeah. Thanks, and I'll take that question, Phil. Thank you. The -- let me start with the beginning.

One of the big blessings for me coming into this role is to see that we have the highest-quality dealer network in the world, period. It's incredible. I've spent a lot of time in my first three weeks meeting with some of our biggest dealers and plan to spend more and more time there. So as we look behind us, the dealers have been a big part of our strategy.

And as we look forward, they're going to remain at the center of the strategy as we look forward to the future growth over the next couple of decades. What we are trying to do is blend together our dealer network and, where it makes sense, we think, direct-to-consumer activities. And you mentioned the opportunity to improve the customer acquisition cost, I think that's one of the big opportunities. But it may also be an opportunity to serve the demand that we expect to see and also begin to really build this world-class customer experience.

Norm, is there anything else you want to add color -- commentary on that piece?

Norm Taffe -- Vice President and General Manager

Yeah. Just a little, Peter. I think that from a front end of the funnel and acquiring customers, we've seen a tremendous improvement in our efficiency. In fact, we've more than doubled the number of dealer appointments we generate every week.

We're well over 1,000 a week. And those are appointments, I can tell you, our dealers actually pay for because the close rates are so much higher on the ones that we find. And we've just gotten better and better and more efficient at signing those opportunities through a variety of methods. And one other interesting point that's just kind of related.

Storage, we're seeing, actually has a significant effective improvement in customer acquisition costs. And what that really comes from is the fact that now, when we're acquiring customers, we're acquiring, in many cases, not just for a solar system, but we're getting much more revenue for that same customer acquisition. So the percentage of the cost is actually going down quite a bit. It's one of the reasons we see storage as such a big opportunity to really impact the bottom line is because we can amortize that cost over a bigger revenue base.

So I think there's great opportunities there. I also think Peter brings some incredible capabilities to improve this side of our business. His experience, I think, is going to make us significantly better at the marketing end and the front end, and we can already see that in just the first few weeks on the job.

Philip Shen -- ROTH Capital Partners -- Analyst

Great.

Peter Faricy -- Chief Executive Officer

Phil, I'll mention one more quick thing. When I led the marketplace business at Amazon, we worked with third-party merchants to help them sell their products on the Amazon platform. It's a very similar model to the model where we use dealers today. And one of the things that we did at Amazon is we invested heavily in the technology and tools so these merchants and small businesses and entrepreneurs could really focus on what they did best.

And that became its own positive flywheel of growth over time. And as I've talked to the dealers in these first few weeks, and I've taken a look at the tools and technology, I see a lot of that same opportunity here. So I think you should expect to see us really invest in the platform that we use to work with our dealers so that their lives are easier, and they can really focus on doing what they do best, which is taking great care of our customers.

Bob Okunski -- Vice President, Investor Relations

We have time for a couple more questions.

Operator

Thank you. Our next question is from Thomas Boyes with Cowen and Company.

Thomas Boyes -- Cowen and Company -- Analyst

Hi. Thank you for taking the question. My first one is just on the mechanics with SunStrong, if they're now going to be including commercial. When do you think that will start? Is there going to be like an immediate drop-down of assets into that JV? Or how would that work?

Manu Sial -- Chief Financial Officer

Right. Let me take that piece. So the mechanics will be very similar to how we operate around residential leases. We expect to drop down our first set of commercial portfolios in second quarter.

And SunPower would be doing the servicing of that portfolio through the life of the portfolio and any upsell opportunities come with that. Also, we will have 50% of the retained value coming out of that portfolio attributable to SunPower that we will report as part of the net retained value we report every quarter.

Thomas Boyes -- Cowen and Company -- Analyst

Got it. And then just kind of to touch upon the digital transformation item. Where would you think that, that you kind of attack first? Is that going to be just the largest dealers? Would you go toward long-tail residential or commercial as you're kind of trying to address each one? I would imagine the approach is slightly different for each.

Peter Faricy -- Chief Executive Officer

Sorry, Thomas, you broke up a little bit. Could you just repeat that question again? I couldn't hear you very well.

Thomas Boyes -- Cowen and Company -- Analyst

Yeah. My apologies. It was just on the digital transformation, where you would address that first, is it the largest dealers, long-term residential, commercial? I would imagine the approach would be different for each one of that market?

Peter Faricy -- Chief Executive Officer

Well, as we take a look at the footprint in the U.S., I mean, the interesting thing to me is, if you believe the third-party estimates that there's 100 million homes that would save money tomorrow from adopting solar, and you think about what the implication is for the dealer network, I think the implication is we're going to need a wide variety of dealers to serve the entire U.S. footprint. We'll need some large dealers. We'll need some small dealers.

So we don't necessarily have a goal on size of dealers, and we're not necessarily favoring some over the others. What we're really trying to do is pick the dealers who have the highest-quality customer experience, and who have the ability to scale up and meet what we believe is this increase in demand that we're going to see coming. So we're going to continue to work and build the tools and technology that will allow them to be most successful at doing those two things.

Thomas Boyes -- Cowen and Company -- Analyst

Make sense. Thank you very much guys.

Operator

And thank you. Our next question is from Colin Rusch with Oppenheimer.

Colin Rusch -- Oppenheimer & Co. -- Analyst

Thanks so much guys. And Tom, I'll pass on my congratulations as well. It's been a tremendous run. Guys, can you talk a little bit about the evolving technology landscape? Obviously, you've got nice offerings with solar storage.

But as you look at providing more comprehensive solutions for distributed resilient power, how are you thinking about integrating some of the other technologies that are emerging or some of the legacy technologies that you might be able to integrate?

Peter Faricy -- Chief Executive Officer

Yeah. I think it's a terrific question, Colin. And it's -- as I take a look at the experience today in the solar world, I do see a lot of apps that look pretty and provide some interesting information. But I think the next frontier is to go well beyond that.

How do we really put the tools in place for consumers to act upon it? And at the end of the day, if it's really about how easy do we make things like solar, storage and EV charging, how reliable can we make it, and how much can we help people save money, I think there's a lot of opportunity there for us to be innovative on that side. So probably the best thing I could say is stay tuned. We're working on some interesting things and can't wait to talk to you more about that in future calls. And I want to thank everybody for your participation on today's call and particularly thank all of those who recognize Tom.

It's an honor to follow in his footsteps. It's been an incredible 18-year period. And we're going to make him proud as chairman by building upon that and marching forward in a very positive way. So thanks again, terrific performance in Q1, and we look forward to talking to you about Q2.

Bob Okunski -- Vice President, Investor Relations

Thank you.

Operator

[Operator signoff]

Duration: 53 minutes

Call participants:

Bob Okunski -- Vice President, Investor Relations

Peter Faricy -- Chief Executive Officer

Tom Werner -- Chairman of the Board

Manu Sial -- Chief Financial Officer

Ben Kallo -- Robert W. Baird -- Analyst

Norm Taffe -- Vice President and General Manager

Brian Lee -- Goldman Sachs -- Analyst

Eric Potts -- Executive Vice President for Commercial Americas

Michael Weinstein -- Credit Suisse -- Analyst

Philip Shen -- ROTH Capital Partners -- Analyst

Thomas Boyes -- Cowen and Company -- Analyst

Colin Rusch -- Oppenheimer & Co. -- Analyst

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