Peter Faricy: That’s a great question, Joseph. As you might imagine, as an inpatient business leader, we want it done yesterday. And I think to be fair to the Department of Treasury, I think they’re trying to sort out how to provide guidance and meet the needs of many constituents. But the guidance that came out earlier for both low income and energy communities, we do believe needs more clarity and needs to be better defined and needs to be more specific. When I have met with the Department of Energy, I know how passionate they are about serving low-income consumers and US citizens in these energy communities. So I know the intentions are good, but it will be difficult for businesses to act upon without more clarity, and that’s what we’re working on with the Department of Treasury right now.
So I still remain cautiously optimistic. I know that they care about this and they want to get this right. To answer your question as directly as I can, I would say, we’ll probably take another quarter before the clarity is there, and it’s built in the tools, and it’s kind of a regular business practice. And if we can make that happen sooner, that would certainly be our preference.
Joseph Osha: Okay. Thank you. And then the second question, return to what Kashy was asking, really more on the lease side. You’ve got — are you saying enough financing in place to cover this year. But as you pointed out, the industry seems to be shifting more to third-party ownership on a longer term basis. So, as you think about that, is there some, perhaps, special way that you might come at that given your relationship with Hannon, or might we see you out there in the ABS market with lease PPA securitizations alongside your competitors?
Peter Faricy: Sure. Guthrie, do you want to cover that?
Guthrie Dundas: Of course. So, I’d say we are — we have discussions going and are quite confident in our ability to bring in additional partners across the capital stack should we need them. Tax equity debt — senior debt market as well as potential other sources of subordinated capital. Hannon is a wonderful partner and we have a lot of runway to continue working with them to partner with them to bring in all of the capital. So, I think we continue to evaluate all of the various ways that we can most efficiently monetize our lease business and that could include direct securitization market and could include other forms as well, but we’re confident in our ability to — with efficient capital and to raise it very efficiently.
Joseph Osha: Okay. So, we could see you in the ABS market at some point on the lease side. That’s one of the — at least one of the potential outcomes?
Guthrie Dundas: Certainly, one of the potential outcomes for sure.
Joseph Osha: Okay. Thank you very much.
Operator: Thank you. And our next question comes from the line of Corinne Blanchard from Deutsche Bank. Your question please.
Corinne Blanchard: Hey good evening everyone. Thank you for — question. The first one, if you could try to give us maybe the cadence that we could expect quarter-after-quarter for the EBITDA, maybe like your rough commentary? And then second question would be what is baked in the EBITDA guidance? Like the key taken — for the low range of the guidance and the high range? Thank you.
Peter Faricy: Yes. Thank you, Corinne. So, let me go back to 2022, actually, I’ll start actually with Analyst Day. I think part of what we laid out over this vision between now and 2025 was heavy investment years in 2022 and 2023 and gaining more business leverage in 2024 and 2025, and we’re well on track, both from a customer standpoint and EBITDA standpoint and EBITDA per customer standpoint. So, we’re pleased with 2022, and we’re looking forward to 2023. Let me give you some context on the EBITDA and then I’m going to answer your question on the — how we think about it throughout the year. So, last year, we grew EBITDA at 26%, as I said in my opening comments. The midpoint of our guidance this year is 47% growth. So, that’s quite an acceleration.
That 2,100 bp acceleration, frankly, is earlier than we would have expected it back at Analyst Day, and we’re excited to have that leverage be happening in the business already. From a sequencing standpoint, even though we don’t give quarterly guidance, we did say last year most of it would be back-end loaded and that same thing will be true for 2023. Last year, we were about 25% EBITDA in the first half, 75% of the EBITDA in the second half, and we’ve modeled that exact same EBITDA pattern for this year. So, you could pick it as 25% and 75% again this year. And some context for that is particularly in Q1, there is some seasonality. So, Q1 is smaller than the other three quarters of the year. Part of that’s related to weather and the beginning of the seasonality piece here.
But the two unique factors are one, we’re making a big investment in California purposefully. That’s a unique investment that wouldn’t have normally made for one particular quarter. And that’s really to be smart about helping as many customers qualify for NEM 2.0 as possible. So those extra expenses we’ll be taking on in Q1. And then also for some context, our best two quarters last year in new homes were Q1 and Q2 of last year. Quite a bit of our EBITDA in Q1 from last year was due to new homes. And so, we’ve talked about the new home slowdown and our modest expectations for new homes profitability this year. So just to give you some color, I would say, still 25% of the EBITDA in Q1, Q2, but we expect Q1 to be pretty modest as we make these investments to build and grow our business for the year.
Corinne Blanchard: Thank you. And, yes, just maybe if you can give any other color on, like, what’s baked in the guidance? Like, just like what would it take for you to reach the $150 million, or what can go wrong to reach the $125 million?
Peter Faricy: Yes. Well, we’ve sort of thought about it as a mix of — it is a mix of headwinds and tailwinds. That’s the reality. It’s not a doomsday story. It’s not a strictly positive story. On the headwinds front, we talked about new homes in our remarks. We talked about California NEM. And then obviously, there’s this inflation economy factor that’s out there that could impact consumer sentiment. The positives are the two we talked about as well, which is the IRA is going to be an incremental net benefit this year and rising utility costs have continued to make solar more and more valuable. So where we net out on those is, we were conservative for both new homes and conservative for California NEM, is either one of those two outperforms our conservatism, that takes you to the 140 and above guidance.
And then, if any, of those headwinds are stronger headwinds than we’re anticipating, then we’re below the 140 guidance. And I think, we feel pretty good about where we’re going to be on new homes in California NEM. It’s really just — is there any kind of unexpected variance in the economy or customer confidence that happens. If something unexpected like that happened then would push us below the 140 and closer to the 125. But its way — as I said, it’s way too early to judge after the first six weeks of the year. But, I would say, so far, we’re pleased.
Corinne Blanchard: All right. Thank you.
Operator: Thank you. One moment for our next question. And our next question comes from the line of Biju Perincheril from Susquehanna Financial. Your question, please.
Biju Perincheril: Hi. Good afternoon. Thanks for taking the question. Question about battery attach rates. Once we have sort of fully transitioned to NEM 3.0, can you talk about where do you expect the attach rates to go? And also related to that, how quickly can you increase your supplies from, I think, you mentioned low double-digit attach rates that you can do now?
Peter Faricy: Yes. Thank you. I think if you take a look at where California NEM 3.0 rules are headed, what you immediately noticed is the battery becomes really, really critical, so that you could help consumers take advantage of this dynamic rate structure that California is putting in place. And so, the battery goes from something that would be helpful for resiliency to something actually critical as part of saving money. And that’s why the battery plus PV is really likely to become the more standard option there. So, if you take a look at where this has played out and you take a look at a country like Germany, I believe their battery attach rates are now over 70%, 75%. So I think at some point, that’s what happens in California.
Certainly, on the new homes front, we’re seeing most of our new homes are PV plus battery and frankly, more and more a PV plus battery plus EV charger. But I think retrofit homes, I think you’ll see more and more consumers opting in for that over time. Our battery attach rates are in the mid-teens for our direct channel as we talked about. I’m a little disappointed they haven’t grown faster, but we also take a long-term view of the business. In other words, a customer doesn’t have to buy a battery at the time of PV installation to have a battery over time. And so I also think at some point, we’re going to see some growth in California for people adding batteries as they understand this dynamic rate structure and how important batteries are to take advantage of both that and future VPP program.
So, in our Analyst Day presentation, I think we’ve talked about getting to a battery attach rate that was maybe closer to 40% or something like that. And I would hope we’re expecting California that it’s probably above that level within the next few years.
Biju Perincheril: Thanks for that. And then a related follow-up is, when you have the next-generation battery available, how does your gross margin improve on the battery product?
Peter Faricy: Yes. Terrific question. I think as I see the battery market — solar battery market across the US, it’s my understanding that many battery makers struggle to sell batteries profitably. I’m happy to report that our battery business is profitable. It may not be growing as fast as I wanted to, but it is profitable right now, and we think we’re in a good position from an inventory standpoint. But I think forward-looking, the SunVault 2.0, we’re going to work on is critical. Once we re-architect the product, I think we’re actually going to be able to take out a bunch of the cost and significantly reduce the time it takes to install and commission. And that’s what matters to consumers on the cost side, and that’s what matters to dealers and installers who are in the field putting these products in for customers.
So, forward-looking, if you take a look at all the other competitors in the battery space, it’s taking them a couple of generations of batteries to get it right. We have a good, solid competitive product today, but not a product that’s differentiated I think SunVault 2.0 will be an opportunity for us to really differentiate ourselves in this space, and we’re very excited about what we’re working on behind the scenes. Thank you.
Biju Perincheril: Thanks.
Operator: Thank you. And our next question comes from the line of Pavel Molchanov from Raymond James. Your question please.
Pavel Molchanov: Thanks for taking the question. As you saw that table of utility rates having jumped more last year than in the previous decade combined, are there any specific states or geographies that you can point to that have emerged as demand drivers, whereas they were not a year ago?
Peter Faricy: Thanks Pavel. I’m not sure I can point it necessarily compared to a year ago, but I will say we have been surprised and delighted by the growth in the Northeast part of the country. So, if you take a look at that, Massachusetts, New York, New Jersey, Connecticut corridor, our business there has outgrown what our expectations would have been. And I think a lot of that is due to these older, really inefficient energy systems that much of that installed customer base has over time. So, I think the Northeast is the area that’s probably outgrowing its normal growth rate due to high utility prices. But what’s interesting is that it is pretty uniform across the US. I mean, an average of 11% that really is hitting consumers every month.
And we’re seeing an increasing amount of feedback. People have always wanted to have solar, as solar prices came down to save money. But I think that’s risen on the list of reasons why they purchase, and it’s a very big focus on the discussions we have with new customers as they come on board. They really want to make sure that they save money and they save it quickly.
