Sunlight Financial (SUNLQ) 16 Nov 212021 Q3 Earnings call transcript

Thank you for standing by. This is the conference operator. Welcome to the Sunlight Financial Third Quarter 2021 Earnings Call.

As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. now Head turn of would to conference I Dempsey, Lucia Investor Instructions] like the to over [Operator Relations. Please go ahead.

Good Third our website Quarter SEC and close to Investor metrics, filed Sunlight Relations call. key an with quarter welcome today, the the XX-Q third market of afternoon After the earnings financial at announced XXXX posted ir.sunlightfinancial.com. our XXXX and Earnings we Financial’s presentation to

Officer. Barry Matt are Sunlight Chief Edinburg, Potere, Chief and Financial Joining me today, Executive Financial’s Officer;

remarks, open will to prepared call their Following we Q&A. the

to we webcast begin, could of factors indicated expectations, include and other These meaning Reform that actual uncertainties statements I'd cause or that Before Litigation like to a statements. variety XXXX. materially beliefs, and implied are estimates, the may constitute plans remarks everyone from that remind risks, to prospects. about results within of this Securities differ of Such such statements the future Private those by contain subject certain Act statements forward-looking

but include, to, performance or of competitive are limited statements Forward-looking expectation and business conditions, and financial and outlooks. Sunlight prediction and Financial's industry not

website is expressly Forward-looking of refers that SEC our company guaranteed supplemental uncertainties update, to discussion issued or The today information, performance. no risks are on and can and result otherwise, to the by filed new except revise whether Financial's they as not and the filings alter of disclaims also and call future any business. posted under any participants Financial company otherwise with made, to presentation obligation Sunlight a as The law. affect press risks, a the are our the by or assumptions this for Sunlight the obligation release of statements required are and SEC. events statements, as speak subject of day to forward-looking

considered measures can this we in in Additionally, information should discuss performance. non-GAAP and their measures in be GAAP supplemental to be of both presentation can with call, prepared turn measures GAAP. press pleasure not additional release as presentation. be for in It a directly Potere. my believe during we comparable Matt to call over substitute most will the The which the non-GAAP results these reconciliation A our found isolation or useful is today's evaluating now to accordance of our

thank million share Thank XX% XXXX to Sunlight’s you, the from afternoon of XXXX, results year-over-year joining our up Lucia. the In metrics. we of excellent pleased of Good of experienced for I loans, and year. third us. third quarter am in quarter funded third $XXX as quarter all key Sunlight growth you last

fee financial delays. total also Despite and adjusted in industry-wide strong our robust came in growth, X.X%, We supply revenue quarter permitting our shortages challenges EBITDA increase in and to high our total $XX.X forecast chains, saw due growth labor of to $XX platform to loans year-over-year below the with XX% funded in third million. million metrics up record with our

subsequently We lengthening funded times, of have seen reduces loans. which our installation macro these project issues levels

third the for $X.XX to While $X.XX they to the quarter us particularly to persisted fourth these loan billion. year several funded full leading been billion in our less and quarter challenges months, building XXXX have have guidance accelerated into reduce

XXXX, lighter range its which quarter have the increased am full and for will affirm in fee volume third quarter expected I of XXXX EBITDA greater and Many in margins platform XXXX to expected further are in EBITDA our year than the heard one, and However, to of of to Barry guidance access Sunlight’s our discuss of offset distribution revenue, pleased detail. business XXXX and value adjusted fourth risk value which to stable funded network cost like total Today, you are improve drives distribution. adjusted building that our for financing Financial on and about critical funding. management creating to channel, low partners. by the distribution, Sunlight for I’d nearly talk me pillars consistently access focuses the loyalty contractor first on proposition, three any credit focus margins

addition few months last expand efficiency to have initiatives competitive pricing, and implemented we in product maintaining several In process to the improve our suite.

for NTP upgraded Orange, processes with and eliminates the we’ve platform reduces process by adding expense it our our only NTP This point-of-sale technology approval operational First, contractors, proprietary not providing review instant robotic automation. construction. notice also This process contractors begin process to precede improves to enhanced manual it. or with associated time efficiency but when with

non-prime to Sunlight increase of value solar MAX, financing a and Sunlight’s and approval which even Second, offer to leveraged offers products. called to Sunlight’s who we’ve are proposition improvement options initiative contractors improve more now rates for a homeowners. home set This able launched program expertise credit the

the of are We effect already to seeing and other efforts loyalty. build positive these contractor

have funded loans. first today, billion more we look exclusivity with expected in XXXX established As commitments of than $X contractors in buying representing

continue improving third existing grow the our we this contractor contractors In adding XX% a quarter we to our of contractors from suite contractors home to for fuel new increase size addition the value unmatched these network, our XXXX and improvement representing pleased base in to providing XX are with XX to begin and technology product overall best-in-class and of solar their growth. XX platform new quarter,

we the in year-over-year industry-wide growth loan from impacting We operational despite metrics in XX% for issues quarter, financing other prior the the continuing year period. to strong also up XX,XXX are facilitated volumes, funded see key borrowers

backup the of the our to funding solar more balances of creating to increasing $XX,XXX. quarter year phase growth being driven X% in for balance cited multiple support strong in That’s and nearly solar dip average the is homeowners, to quarter due loan for third high was In positively to With loan quarter to in delays have storage turn in shipping addition from XX%. Edinburg, financial call the batteries, more future. results battery production to availability like desire remains by to attach in the continue period. the In the record Sunlight’s manufacturers slight The XX% our prior rose in of and will as reliability particular Sunlight’s grew and Sunlight’s homeowners’ this the stability. over And last third $XX,XXX discuss I’d average growth likely detail. Barry XXXX, is twice to the demand loans that, a lower for rate as and of CFO high

XXXX, of market, XXXX, XX% million, XX% from high Thanks, up XX.X% our In for of new continue last of from third had providers exactly to fee and at adjusted margins is EBITDA attractive Matt. last cash EBITDA for rebound quarter’s cash a capital what and of year the happened. the flow quarter flow flow business. that to in XXXX; quarter our of quarter year. an quarterly the and the our adjusted third revenue light the increase and free business. We platform in pricing of negotiated total nature the million approach produced up model was quarter continuing generated a business. revenue, an Sunlight in to of XX.X% capital EBITDA, $XX.X of in our of this convert to we that’s was another over Free materially was a call, high This amount Adjusted earnings indicated EBITDA In third of enabling rate. unique extremely substantial third our the consecutive validation model, major also third quarter and third Adjusted quarter generation to XXth revenue to quarter the positive our we with of free the the feature and improvements $XX validate Sunlight margin recording the cash quarter

margin fee fee of success margin channel from quarter even regard second X.X% X.X% the improved increased platform to the second this that our is the quarter, up quarter. from our X.X% platform X.X% quarter. in to in overall Our third better this An direct indicator in in

these new combination as closed that quarter. ability income few to are our loss platform to in to attractive loans. a providers. access to low GAAP testament to more capital has our returns we’ve We fourth months, X these and our focused quality and leading network items that business contractor mutually the providers calculation our to the attractive in Sunlight’s the loans a on drive add expect risk-adjusted flexible, strong costs relating relating that to capital of capital and our July for us a credit of and for ability momentum capital expanding the pricing furthering for is the side as recent materially fund relationships of to remain provide this the approach improvements This items providers impacted certain the net partnerships. partnerships reference our net to on expenses We cost also through developed industry-leading to three beneficial delivering pricing enabled as the business diverse to on to lead accelerate funded pricing flow capital like to I’d to provider quarter market. there

The in close approximately first is combination. equity-based million by the the compensation expense third quarter the taken related of to driven awards $XX business of

million context amortization $XX intangible The third the combination. primarily second approximately quarter amortizing is to amounting in assets in the depreciation to that the and business relates of established the

EBITDA transaction-related XX-Q to We that are amortization It of will expenses. will is fully assets have however, adjusted reduce described assets in our amortize such important impact until neither these net and been continue to the as intangible they non-cash note GAAP these amortized. income items as

guidance XXXX billion, funded guidance earlier, of we’ve to full for $X.XX to XXXX we year $X.XX referenced full our loans reaffirming year but our Matt billion are the remainder As adjusted metrics.

to slowdowns continue challenges negatively fourth revenue, labor funded with These million, to the million we permitting $XXX macro For million XXXX. our this quarter adjusted relative and XX% EBITDA, impacted million, believe installation dynamic supply margin $XX of and to Industry-wide for to project expectations, have $XXX XX%. will third chains, $XX for timelines. EBITDA delays quarter shortages adjusted loans into reduced total

and back turn should in impact that, margins affirm improvement robust our guidance for adjusted platform fee to provided ranges enabling revenue, Matt. total our EBITDA to to margins. With However, us I’d previously this it adjusted like EBITDA offset

time, In XXXX up full for continued company call full mean setting next XXXX we the remainder XXXX on to committed Barry. next fourth the Thanks, Sunlight our in year. for this of our initiate plans and success on remain delivering year the time, to year. At of plans quarter March guidance year

growth. highlight for long-term Before drivers we shift a of to Q&A, continued to couple like I’d

and our of providers capital channel business improvement to new home fragmented market, contractors highly a margins loans. in market, large and business our platform, partially solar will size, robust The increased higher from market of share our contractors demand with growth existing benefit average and storage. increasing the across add our new home growth addressable fund platform driven residential on will direct by driven improvement battery home adding and by the we Our to be for loan growth addition contractors as improvement

we now to and that Finally, in I’d cash that verticals ways and for and contractor including capital growth new strong M&A operator Q&A. support free turn continue opportunities. deploy like Sunlight long-term to generate the flow potential in to advances, over the of call the growth success

ahead. from go Instructions] [Operator first Capital ROTH Our of Please comes Philip question Partners. Shen

questions. Thanks Hey for guys. taking my

one even outlook QX First for agreements. we into new these QX, negotiated credit get is into as on margins you’ve and the

the And seems you have in coming quarters. so, it like more benefits

credit I as also, a are tap if agreements, how So, back market, - into other to, you if higher basis the heard, to to X.X% peers some then of be you QX from all. that And market it current you might from just continues dynamic we In wondering the with into at wanted could might affirmation in to relates much wondering see the to the was it words X.X%? was from but standpoint ABS be go the they level, of to lower. check could able if trend the X%, point EBITDA going it speak

you those are the moves dynamic where Thanks. they credit you unions they can they market that the help so, and agreements new kind credit of at continue And all if your are partners with with stay galore? have, to

I appreciate Thanks that. the Yes. questions, for Phil.

to that and of to the has are for not immediate positive ask aspects have able our don’t rule are as back negative go about we rising they to aspects dynamic, other worry environment positive aspects pricing. credit as and that unions are changes improved the pricing a positive The periodically. improvements and dynamic and aspects. negative nature that they far And As rate we of are general

that we as positive. And view so, a

a materially about our margins margin materially just As we fourth have fourth trying that quote specific would to our of months further we quarter, number, what than higher expect can’t ago. we a since be pricing talked quarter ways providers I last quarter to improved than been that number a We’ve the far in thought time platform our and as bunch also a are capital we the fee quarter. few such of but higher in even third with do

really fee margins. So, we levers are things a control pulling able we’ve order to that that done in on our platform pull good to job can executing benefit and

Our Please Barclays. next question go comes Moses ahead. of from Sutton

Hi. peaks loan battery potentially Thanks questions. in you and balance my to of deflates? trending Specifically, balance pushed average How sort for the system see despite from in $XX,XXX inflation then as taking quarter-over-quarter do average the solar $XX,XXX the solar attach dropping. loan

we bridge of sort So that? how do

the time, back. step it’s Thanks Over Yes. call. to for going

the increasing battery of but due balance solar installers offerings alongside Over part the add ability the average of last storage, solar. ability also the to to money. in be size that efficiency is the seen and years, to rise, The upsell part able we’ve more becomes and that couple more growth solar of of and is in for to due other systems as

some are saw battery you slight we But despite long-term dip so, trends. right, in saw that, growth. even attach we a the this good We really And feel about quarter. rate

average don’t out, explicitly guidance favorable. the provide are certainly trends we look we think we but very and balance, As forecast around

then, a probably Got could on question of shift of you margin. was competition next side. was we still how tightening George. sense capital helpful. between where it. the benign the But update bit into trying quarter the Phil – margin Any dynamically last then? end. Last to market going some great front where The giving that’s since Got moving. I side it on amount really of on There a changed how were And we competitive is sort quarter it. the are of were had on this think the now on just on year? on of Things questions the platform an the back-end and That’s asked against,

Great sure. question. Yes,

attractive. an So, a margin. the certainly, Barry this too. competitive about talked is It our be market expansion in will

note make expanded improvement of one pricing. to in quarter important to think the substantially improvement is, have I our our contractors improvement, despite even give and the and us material expand further it and that’s fourth that’s being even to things better some we accelerate expect margin to able

and us note really compete to of the win we there. we It And new well price. products and do has that we is beyond rolled just out, Sunlight price, Max, feel to so, while enhancements be that that that beyond we’ve Orange we like also about helped been very successful have We we the necessarily we don’t to we have contractors important price to on compete we and we are positioned as that lowest some made attract there. have contractor relationships also talked competitive

well positioned. we So are we like feel

and Got basis? you jump think quarter-over-quarter to the on it. on California you the Got I’ll strongest specific most conversely, helpful. then, And severe, it. elaborate one maybe momentum for queue. Can a Very last any constraints me. where those back labor anything in where

– is interesting see from it what’s we our hear the side. labor what directly. feel and on don’t Yes, fortunately, we contractors, We

for is So not labor But realize to on we and that hear that. lengthened. we do perhaps inflation there the feel these instance, like installers timelines roof. it’s don’t is, we extent What have the in just which cost directly

something needs who in it’s to We trades, jurisdictions. it’s are it’s backed and that. [Audio it’s to I’d from up ramp cases, to country. officers across maestro add other just challenging focused that some they like provider. And that all Our we Gap] value Difficulty] Sunlight really the the com say, many to trade a that officers, do can the contractors a then electrician fact in get needing In onsite that And party been permitting do labor as indirectly trying has [Technical permitting point up. But on hear capital been

the pass in terms three time so, of that finalizing agreed them. them we they added looking also the agreement acquired at that started, the announced to new at month, or it the of of capital to note and not are were we platform And forward bring providers we those. the one sort a was getting and I’d but

that extent not then you are would the be we the move But inclusive mentioned, to Chris. forward, three they that of that So, fourth. one a

then, tackling new expect would that these existing And – something with terms capital just be it would capital reasonable prior to Okay. current are your, we assume on any to similar their with reason different? are to providers terms and providers

the and cost our who we’ll and both add I way capital about expect the capital something it adding of different. Definitely wouldn’t selectively just on platform is to value add Sunlight. partners think I partners on providers lowering mean, focus that, we will otherwise we to them. to not Yes, finding add

of We have capacity. lots

So, - when for partners partners, we that Understood. we are relationships good for Unidentified long-term reason a Alright. think and for will be it’s good Q adding it’s Sunlight. Analyst

much. Thanks very

And then on.

Oh, yes. Sure.

We often are and three high term Barry focused really on get quality are announcement demand we of originating high talk capital flexible capital? ultimately originating quality adding because so it to the being and why assets of said, and of how good providers for long-term morning cost attracts as focused signing just then, And this us from capital about to lower sheet partners. those the examples that on lower with assets, creates

you. Thank me. to sense makes It Okay.

Our Arren ahead. comes Citi. next question of from Please Cyganovich go

Thanks.

that dynamics. what year. fourth Just in remind next withstand another are And question the and to some might are? able programs have There about you on how talked into be market entering the notes some and just the other rising you your competitive piloting Could the folks competitive into competition? quarter investors of

is, make which, need relationships is and it’s do to with three and model about two to this. each platforms things like risk need talk ways to underwrite spent access to priced X,XXX for have contractors of last that we there we years, One access refining that yes six we to to capital need cost diverse sure is and our to always they distribution, three. think Yes, I low ours appropriately the at look those

for those If successful to distribution, got products. you contractors. entrants been We’ve look hundreds the create access will not And to of competitively if new first, priced winning at with very we’ve thousands who relationships relationships. need

to and is Max and rolling use. that Our plus products a example XX,XXX see have offer sales range Orange reviews we proprietary easy it’s again which that’s people platform had. very used And we technology so diverse gets very wide Sunlight very, the can set products by the of out products all that you that the and the of we of that innovation high

if win the so to think they to to front need we they’ll need at but just access understand And also want risk really we entrants and we well be cost new to really to think capital good will well priced. that need they to to contractors, compete be not low diverse have end,

And so, attractive it’s market. an again,

it’s by challenging entrant positioned XX think year and plus to contractors are doubt. have a think us see roughly But come you It $X to the those – can new attract we produce for entrants. and made we well it we that and who next will in new would XX volume. will commitments We for billion think we contractors no we have be in – think

Great. Thank you.

question line Jeff Osborne Our live. of comes possible from Credit you question Cowen. Is go Our Credit Maheep are Mandloi your Instructions] Maheep Please comes [Operator it is Please of in next Mandloi next ahead. mute? go Suisse. Suisse, ahead. from of

that and One, about on are And I are? parameters you happened? margins here the wondering just are rollout. Max few to what how the there impact great. what was a questions. on Can when just Hey going talk subprime had I

Sure.

it improvement. for third So, that the out we home out and rolled rolled quarter. both solar We in

appropriately. particular in about that So box is lot make they What’s the and those significant spent this credit priced incremental risk sure and credit important the broader assets we for our are these those what’s and assets products that are credit to priced we to our for way we separate that appropriately ensuring our for We loan purposes. risk think think is, so buy understand contractors capital their right providers time about are a here really talk expertise. with

So about while we you tell don’t returns been thoughtful capital risk-adjusted the can the disclose margins that receive. providers I will we’ve product-by-product,

partners that and would earn as makes them So we long-term also sense on it the that for as margins that well.

a thoughtful by take and engine to well start approach the as premier received contractors. been really we it’s very So

is score drawing a And on minimum putting there of the just basis terms past? in subprime line that are a existing maybe for variety go? or that is two providers FICO follow-ups. had of on in there of how a will new in Is the Is is like those dedicated exclusively and three a it you Barry, to people then or sense a one you minimum products case-by-case or capital there in the

take FICO. So, one, credit the FICOs, disclose strategy minimum to yes, we our just don’t happy is first because beyond

So uses picking maximize it that the box with make are we proprietary sure could the multiple at did to and to providers we work it’s make guesses. that capital sure the right and up attributes. But we buy

they priced question. answer you Barry, that second happy are to let So the appropriately.

what one say Yes, generate on Yes. we returns these the and of is loans. are accounting providers public these intentionally capital safe on then to that loans of focused loans providers that to and pools originated give but it’s our brought of we coupons good types

in had timeline the Got can was quarter, your remind today? release, where for is helpful question lengthening - of it. the the to relative about perspective? us where it loan guidance relates And is Any commentary the dining the expectations to you last signed type funding that new and would is, put QX? I a for What’s is as typical it be it getting sense. at last of what where timeline just Makes table a to of the contract

Sure. Yes.

in can couple the and just That typically little in seeing and delaying the load the steps. There you to and then system signing. agreement is to running times We at installed. takes think delaying cycle agreeing process sometimes But the three table is days which weeks credit whole loan the chain, is signing credit first and installation. labor XX-day result would I It’s are kitchen you times. cycle about later the for don’t So, sign tightness, solar. we customers the or signing, range. give two go – is permitting the what approval of disclose not moves issues, those that credit a tell to delays the it’s I as loan context supply is, Then

back So it on demand-driven. is the not It’s end.

delays macro demand, We are because not delays these seeing issues. we because of are it’s seeing

we But it’s So, quarters. of delays are look at the impact, you year, impact guidance, not really will to if half you out get a midpoint giving of the the full a specific $XXX numbers give pushed into the timeline. that million back around in subsequent that our of for the sense change in year,

sense had gives offset magnitude to good the success that. you some help in quarter hopefully of and fourth fortunately of our margins the we will So, in rates order that increasing third and the we

I appreciate all I it. That’s Matt. have. Thanks,

question ahead. is of Philip next Shen Partners. Our go Instructions] Capital [Operator Please from ROTH

for follow-ups here. Hey taking guys. Thanks my

Just as not I in question, credit a you just last the tag talked that Matt, your think, you seeing are delays approvals. about on to

to just That perhaps the volumes approvals. growth So if said, credit maybe of some at inflations, I contractors not you seeing to to you or out fall credit the they are – that from and perhaps so, approval beginning the the was but of at your short relative worked on level, with wondering inflation. year the and the push to

some and Sunlight shortage, if I will the QX. grew if some is chain, supply – reasons grew up in labor other picked volumes permitting. I wanted have cited share being The loan to mean, shifting, dynamics market We there meaning quarter-over-quarter you I XX% think funded challenged, the reality competitive on for and beyond the you understand why is

I think from was other industry data sources, up. quarter-over-quarter, the

might perhaps walk commented And That competitive you through some so, thus dynamics you of could or just the, curious be beyond of that on share you’ve can Thanks. shift kind far. what us if provide?

Yes.

remained demand it’s Sunlight definitely has So, I note, to think for important strong.

much funnel, of at gave midpoint look to of result I pushed top bit if issues. $XXX is That’s So, is. a guidance volume believe little million we a context of as getting range we how of out our the these

you fairly volume. of add third was quarter it the if on, we result think that of least And so, can see alone. XX% types as growth a XX% of lower And our north you pressures. of substantial At in these

it’s it’s their contractors’ you result the for opinions think the we of issues. that and at other pretty look if three proposition these and interest, of don’t to So we And strong procedure contractors, commitments think a XX do contractors value of it’s the contractors their think demand-related. vote signs I We from them. from provide

out for quarterly next standpoint, quarter-over-quarter little Appreciate looking I QX you like, guidance. margins expect Matt. a cadence of might Thanks, performance was as to that. from through a long margin able Any there color do then, could of bit you I wondering official And and a are year? from a or example helpful growth not to But what into it standpoint? giving flatten XXXX, know sketch be you lead if standpoint for might look be I guess, from

Yes.

XXXX So, now. we guidance are not providing

a think company. broad are broadly, think things Historically, think been we’ve important. few high growth I I I

We profitable. are

quarter-over-quarter see EBITDA You business. positive our history of can cash and that are we from flow adjusted the a

And so, market. the out market XXXX to into provide good We momentum guidance. this winning in in and the we about business has XXXX. expect will into continue tremendous and we to momentum we’ve But first quarter, win the we the been feel get

me. for one last One Great. Okay.

low the been of for XX%. historically XX there, guys as thought competition I range it approval levels, competition the given in type like that’s XX% that’s levels approval As kind in you of have out to – relates the versus – the low

You fee, dealer guys fee. come higher in dealer a the with competition a lower has

changing at Just if all. at Are if all? around has changed approval all? How the rates are dealer increasing your dynamic fees Thanks. wondering guys at you that

that’s for providing – perfect best industry. doesn’t we thinking credit the been still for of Sunlight rates there we we the the we approval rates, quality mean because in and is it robust lets But we – Yes. approval a our We really tell at market rates. But say and you we from are compete That lift better goods well. market. data we’ve Since the market can’t have rate. Max, or measure than the I in what think is quality is that market have perfect no no us are and are the absolute north it’s believe There but we added better credit others’ quantify average now what are we bads the can approval highest in we average approval has think the that substantial. have publicly rates

accelerates so, really feedback because and believe let got approval contractors remains above just price. that and the it pricing providers have has that are us competitive further rate turn and – that’s market still well margin we’ve we priced we average well got to from capital well above because And our competitive. been favorable, – good And our

Thank Okay. pass on. I’ll you, Matt. it

Phil. Thanks,

comes from Sutton ahead. Our Barclays. Moses of next question go Please

Yes, just one follow-up for me.

solar So, quarter. a you borrowers provide the Can there? number you in had XX,XXX the specific

are home breaking number solar, of not improvement the and Moses, out generally we Yes, borrowers.

reporting just the we So total. on are

Thank it. you. Got

home we solar, volumes Yes, maybe improvement for but a little are you side. context momentum tell is, overwhelmingly, see good I on do the still can’t our

Great. Thanks.

for answer I session. over the Potere to to and conference This like Mr. closing remarks. would the turn question concludes any

the continued interest Thank all Great. in great your for and Sunlight. you. thanks for And questions

joining and in have us appreciate momentum We we evening. Thank today. and of ahead you business us a you are and excited really great our opportunity by all the the

today's call. conference concludes This

and you disconnect lines. a may day. participating, Thank your have for You pleasant