SUNL - Earnings call transcript Q2 2022 | Sunlight Financial Holdings Inc.

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Operator

Greetings, and welcome to Sunlight Financial Second Quarter 2022 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Lucia Dempsey, Head of Investor Relations. Please go ahead.

Lucia Dempsey

Good afternoon, and welcome to Sunlight Financial’s Second Quarter 2022 Earnings Call. the and we to posted Relations at of XXXX second our close website results financial an ir.sunlightfinancial.com. the market announced today, quarter Investor After earnings presentation

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

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

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

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

on Chief Financial’s will Yoder, additional Executive Financial then Sunlight will Financial’s Potere, Chief Matt Matt are quarter, today Officer. detail financial Sunlight update Rodney Rodney Officer; me results. Joining the operational and and our an on share provide

we Matt call these It pleasure Q&A. Following my to the over to will call remarks, to Potere. turn is open the prepared now

Matt Potere

you flow including our Lucia, new you, to million and $XXX second us record in quarter record solar Financial’s funded In the joining results thank operational of and results. was XXXX pleased strong a improvement discuss with improvement generation the $XX all and volume strong as of Home $X than nearly $XX high for second Thank funded metrics of second of million. home the of we financial more higher XXXX, results, quarter report and second a free in Sunlight quarter XXXX I’m quarterly cash and second number quarter, quarter loans, double in funded of of million. the particularly second million million than funded volume quarter $XXX loans Sunlight XXXX.

customer structural our both excited rapidly value our demand selling we reinforcing solar persistently financing. products and installers homeowners. credit see with with success despite and this the momentum of we’re for improvement billion as growing strong market. in inflationary remain our provide highly numbers pleased applications the engaged platform, I’m to strong that home we the seeing record about presence expand incredibly business We’re with the environment, $XXX We in

XX% perform funded XXXX installations XXXX. to and for loans nearly remain process and as for metrics again, in routinely provides lingering to financing customers as battery relative increased June quarter to high higher contractors Solar the again, balances increasing relative XX,XXX projects. Sunlight’s Sunlight averaged for solar prices. cost XX% to battery supply, up a a and loan continues expense. of financing leading in of company attachment a frictionless driving from operational quarter. Average XX% We the quarterly homeowners the are key particular, fast from in incremental related revenue highest We for Despite above inflation. period yet the increased the on year In second platform up second are June loans on and the up This particular, and challenges savings driven also a quarter, by well new company. which nearly solar this our utility bills choice have any this headline ago been the as systems, and well. with That’s $XX,XXX, XX.X% average the market achieve for loans, Sunlight larger for quarter is rate potentially XX% a resilient in without rate home combination borrowers additional their yet nationally same Orange second of add-ons improvement once XXXX. to

than and EV lower is as increase incentives. government supported XXXX, we storage shortages battery abate this increases, While adoption battery rates time over believe by that will

pleased are second active our over an to have in the on XXX X,XXX. our bringing to We relationships contractors platform quarter, installer total additional

quality direct provider have pipeline stable, of institutions following capital conditions loans their market will current To While new margins sold advantages allocated provides negatively impact be with channel half a of that this were a and year. partnerships that in a end, strategic with second merger indirect bank. to are our depository credit the our Sunlight industry-leading to we and channel our

reliance and our shift million into of the However, indirect of us to the also of from that the on the half quarter second the second and caused the approximately ultimate delay merger $XX year, of sale loans increase funded near-term channel. cancellation we’ll

recent key new and detail. the markets differentiator is in environment quality. margins actions capital second especially the implemented our increases impact negatively in A in increased expect to interest year, In finance this half XXXX. conditions, that We addition, indirect we price industry-leading products. our will several the rates of to deliver will Rodney model, market of these in levels in the credit and applications channel eliminated To discuss fee rise platform volatility have strength highlights credit address we challenging on in as believe normalized the more harder business pricing

we announced are rates As our better significantly June, Sunlight’s peers. than credit loss in

focus supports risk-adjusted on to relentless attract and quality on a network attractive the call Our capital to providers. to turn they as Yoder, and focus maintain lever of returns that, an like strong capital credit Rodney important is I’d With over Sunlight’s CFO. providers

Rodney Yoder

in second in Up Thanks, the generated an Matt. of $XX platform XXXX. from total quarter ‘XX, of second primarily revenue of driven million increase the by margin. Sunlight XX% fee quarter

fee provider quality Matt our As credit demand to margins loans, Sunlight industry-leading year-over-year. capital supports leading for increased discussed, platform

quarter was up XX points points year. share last percentage X.X% of even with from net quarter the Direct fully fee million this second up fee quarter $XX.X second the income for same the to basis in of from quarter X.X% basis was The $X.XX or in was the the diluted at relative second ‘XX. platform XXX X.X%, EBITDA total quarter quarter $X.X million second for per $X.X million X.X%, XXXX. the Adjusted in ‘XX. Our platform of period in million compared Adjusted $X.X Solar was higher

second of Matt of the revenues $X unsold were Although increased year, the earlier. half as second relative million by this shifted last of to to $XX the funded impacted million year, gross volume mentioned that by quarter profit

in areas, approximately and not did addition, compensation, company second company public including $X expense incur million In we a of had other quarter $X.X benefits million we number a private of higher as for and additional of the costs in ‘XX expenses.

our in to existing low. contractor. EBITDA losses primarily to and also decreased Overall, success solar quarter higher contractor Due to deepening installers. contractor for recorded minimal have a experiencing in $X.X advances, very over loan expenses, margin with increase related and a while relationships in We future contributed has the XXXX. To XX% remain million advanced new we we single from advances advanced to date, of the our last loss the second billion adjusted provisions of program $X to expect year quarter in these second losses, XX% in winning

stable, rapid operationally market channel impact change margins our increased half channel continues reliance indirect of second will to the in direct perform XXXX. on conditions and fees company the strong indirect in channel the While platform and the are our the

of capital on We provider loss providers As to our In assets. our we for platform, reducing risk-adjusted new margins XXXX forward the this adjusted to to to in hold, support ‘XX total the growth. $X are to high-quality year, and consistently revenue return as maintain implemented and closely quarter I’d EBITDA new million; we $X.X billion; $XX a and million support with changes price receiving a business work to and ensuring a take our normalized sudden to lead We follows: the provider $XXX for an they EBITDA and metrics liquidity result to adjusted sources growth strategy of we provide second near-term their also of of time added billion this strategy. guidance requirements, our capital pipeline funding update and market of to consistently EBITDA believe of capital strong funding regularly million. volume additional to look total adjusted to healthy like are evaluate our conditions, a long-term loan and resuming $XXX $XX beyond. a funded million is impact

a cash flow Sunlight model very cash XXXX, also the million EBITDA conversion rate. The is profitable $X.X second significant capital-light free noted, quarter cash flow maintains and this business debt we’ve flow. our and In free As balance and environment. cash-generative, million generates particularly operates and representing to capitalized of million equivalents attractive valuable with a of sheet, of $XX was unrestricted strong in only on well which the cash $XX cash liquidity is short-term underscoring model, business nearly company

an Given that and program. Board we we May our business XX-month capital-light repurchase received in strong $XX generation announced million approval flow model, for cash share

we a cash $X.X hand excess and As over with XX, have cash on shares X.X A of million million, Class total August flow. for funded operational purchased of

shareholder repurchases happy are ensuring use it the capital back to capital while programmatic through drive of Matt. efficient that, return. return turn With to I’ll to We

Matt Potere

Rodney. Thanks,

to are Q&A, clean includes investments, $XX growing billion highlight the of energy to that is the passage which pleased Inflation infrastructure. energy with of we in specific which recent renewable turn like the million Act, we Reduction to currently $XXX Before I’d

residential significant upgrades. about solar and solar with XXXX even additional and in and low-income We a through improvement for help provides solar more for as efficiency will tax credits this further see residential are home particularly XX% homeowners extension, credit We communities. excited growth money save energy XX-year ITC which support the

today to markets, unique value advantages to In level, X serves the ESG-focused large, years Sunlight’s are on solar improvement. growing residential progress addition and home driving and will rapidly for macro Sunlight come.

This financing equity scale balance capital-light is and a sheet our quarter positive our an for adjusted a support We point-of-sale this lastly, extremely XXth taking EBITDA, growth. unmatched industry which quickly reliance proprietary operate recording limited on debt this with reducing is marks is cash-generative valuable come. minimal And and testament credit just ability to fuels the model, environment business for in not to on platform, to of risk business. current consecutive Our but feature profitable and consistently years our to incremental our cost. consumer our of Orange,

While our term. shareholders over profitability and to mind, we we focus growth returns do drive we the business the so strong long in with for expansion, generate and on ensuring value

Operator

[Operator from Instructions] Shen Your Capital. question first with Philip ROTH comes

Philip Shen

from enough not return do the move with if was First you and X.XX% for on high $XX they offerings. had on million. get maybe what And you them a example, over for X.XX% the assets think what path more X.XX% time, and happened decided why where, see take not And so, wanted on X.XX% to I on it have from bank to the and that you the based color products. one were is a I originated. on little to

Matt Potere

Phil, your question. thanks for

result company that So bank. that the with merging was into of we with entered that was partnership a a a

fulfill obligations their loans. purchase all they as that prevented them And our merging. closing were so inability to from And and unable to transaction a the result, complete of

and about feedback, execute the attractiveness tell unfortunately, completely space. and a we independent in loans unable But that So Sunlight both the to others on of this anything partner get close consistently I’ll where they assets. scenario, credit merger our in the unable the positive quality the to it was our and, situation you, were of from of deal. the loans in the from or was it market therefore, -- from

Philip Shen

partners What of that where kind some -- assets don’t -- risk more bank originating? your bank on for actually ahead do of see or it. you Got these your funding you’re challenges of the take

Matt Potere

Yes.

transaction. So close we their this was partner scenario expected a loans unique to expected to point started we that we -- where this to

approval received as OCC or approval you to this context, as -- the more of the Just little give beginning a from July. transaction this bit merger received recently

So significant momentum. had it

we and it those pipeline, they loans $XX the to as shift didn’t well it we’ll to loans indirect when loans channel. million in mentioned close. that Unfortunately, additional the is expected close, in as expected it Rodney close We the why which to had

And us in down have channel, so flex roll out highlighted one to we’ve flex the past have and these the depository of the relationships new we model strengths which allows that is and our indirect products. that we and up of

to side, while they’re capital ensure able And continue direct attractive some look industry, make, with see industry. recent providers have healthy we’ve -- of the a increased do to to ourselves. our we’ve for On been returns to if ratios able been I’ll risk-adjusted the their our we’ve that to and products. across earn across changes continue to been you able increase interest margins -- of getting loan-to-deposit lot you yields the pricing in tell the you

So of we’ve experienced to as in historically. of to channel conditions, indirect as the year, we the while what expect look direct the out to maintain we a market margins rest consistent pressure the expect channel we result

have to a that of around value. benefit optimism we that. And continue we real long-term provides channel of the think us So lot strategic

Philip Shen

Okay.

be tough X.XX% you the of products? the to back margin you you maintain EBITDA think think which could you’ll treasuries, seemed on growth of you those could result coupon your that relates them, to that? it and -- -- below margin and Do and if seemed X.XX% there view do a be think As expansion Do them? if and source compression. like a Or what’s maybe don’t, products, as remove be you

Matt Potere

Yes.

a So it’s great question.

we we’ve eliminated side capital I’ll markets As over the tell we’ve why some price and the -- on the products. made we’ve which seen made, indirect is that days, significant in we’ve XX of the changes last you, even seen and some those changes

are Some lower harder rate interest the of that products the finance. eliminated are products that we’ve to

managers, the as we we’re think changes, we we’re But We that’s assets or actions. market take on prudent so as appropriate that market. on -- right are change constantly constantly ensuring suite these that appropriately, if priced evaluating have the actions. we pricing are additional view team the good especially we’ll, market conditions a the now, the And product is think now based if focused risk course, on And our that. of have

Philip Shen

Okay.

some you pricing, recently. may to And it your also relates increased you of pricing it like funding be partners As pricing seems for guys increasing guys.

-- for maybe And ahead so do do see sorry, increases you you price see base customer in more QX? your or funding QX more

Matt Potere

Yes.

credit which do I think have for returns so. we’ll new continue made provide that And to pricing margin. where additional that certainly appropriate in extent think are we’re us But a make we with the ensure are we’ve right that that. providers changes now, that monitor approving risk-adjusted capital loans changes, we to healthy and need healthy to the to we we’ll

term, expect near XXXX. margins. be the changes levels the do on to margins that we But with to the we’ve in indirect indirect we on historic mentioned, made, Rodney in As back expect pressure

Philip Shen

And me. for last Okay. one one

was For million the I contractors. loan capital think single $X.X you And contractor. I working that mentioned to right, loss advances, on, a provision, think, with

unique think of So contractor? happened can is still a was it philosophically go, do is be what and us with expect think the share it? I How a ahead? best pattern wondering way -- Or you you what that this to situation to for you if might

Rodney Yoder

Phil Yes. Yes. for the question. Thanks,

onetime That a including losses for and advanced installer take million and installer this as We So charges. did installer monitor any we for take further factors, yes, program, don’t $X.X reserve of of a like each said, expect program. reevaluate part variety incremental to we on we a single financial potential our stability.

to And instance. date losses. again, we’ve actual is program minimal But so over advanced one this with $X billion

and getting this improving for volume terms So installers, attracting in good really commitments with deepening is maintaining us our differentiator relationships a margins. and of new

So it. we like

Philip Shen

Great. Yes.

it’s like -- or minimal low are with talking we losses, about single seems sub-X% $X the digits? it billion So like of like

Rodney Yoder

Yes, very, up the it show on small. doesn’t very It’s calculator. even

Operator

with from Company. and comes Osborne Cowen question Jeff next Your

Jeff Osborne

questions A on couple end. of my

On the half, about think the percentage was I indirect do we loans you then of what funded side, how should second for XXXX? anticipate wondering And in that?

Matt Potere

Jeff, thanks for question. the

guidance today. the margin mix direct or channel our So provide -- the don’t to we channel, the updated or guidance while or we we the implied for our did margins and gives specific is indirect includes what that mix -- expect

our if look giving the overall loans But not there. at and we’re revenue, So our you blend. specific you guidance get can funded to

higher of Rodney indirect we in the fact, expect And as also launched in and quarter. do the pipeline number to partnership have mentioned, expect capital channel, near we we capital the in online we but provider As term bring new reliance providers we direct the that in in mentioned, that brought new a online. a second

Jeff Osborne

about the You’ve or Got the it. for we in ‘XX when midpoint? that And normal, on to guidance. reasons should and then flow time changes the the that time to being What average flow new is a on the think through? quarter did lot X lead that through? Matt, you pricing. more about at through the made early mentioned, will on the talked lower flow returning lead year but during Rodney How happen does to

Matt Potere

Yes.

return We about as recently. So made we’ve we some to that And levels. historical made a XXXX, that of get into number will product expect, of we changes we changes. pricing the talked margins

pipeline we a conversations based that pipeline We So new of credit new to near-term point. in had market and volatility historic the we pricing market, the on a quarter based a I think we’ve not the based or as now think of been of this the that the And impact where we’ve pinpointing this on at we’ll well at a think we’re place is time the dislocation. they’ll on execute think some some think But We as margins. have capital return. providers. I

Jeff Osborne

Maybe glass getting elongation on to when Orange that prior you’ve still the it. question into time calls. top Got asking to another know the loan roof the funnel of funded? highlighted there the guys in system longer? from without it’s I way an on of for a is the put that margins, of is you when the Is

Matt Potere

Yes.

approval that see started credit materialized. think some an -- last so this in recently, And We see we to started year, of year, said Earlier have green think the shoots. hasn’t we I from funded starting to elongation loans. middle we that more to I

And yet. We the actually them installers roof so and labor, glass we crews the timing is closer to installation and return to do supply chain get see also really the get we expect there around pull-through don’t think the and rates needs which that pressure less healthy, and is the to we those getting need ability fully think on impacting both it’s normal. will for permits. to impacting But

so times it’s to continuing than And they’ve keep been longer cycle those historically.

That’s we timing. into talking we’re margins account about are seeing that. as taken So and

pull-through at looking up. pulling way and all that curves, funding the We’re curves the those and

Jeff Osborne

understanding first the Got people any that Are tax last question, you credit loan, allowed months Are and tax keeping it. it? opportunity for to my this the take reamortize and credit helpful. and to pay in do around they change any themselves? then My down just have and the prepayments? I the Typically, would your but maybe is be of loan within expect consumers the answer, XX comments anecdotal seeing don’t funded

Matt Potere

Yes.

is So strong. and what remained have to speeds think quality seen date prepayment very I we’ve asset

that cycles through knew other cycles, change. can One behavior on reasons credit of we focus was as consumer economic credit go and we that we the

customers to very it focusing not strong highest credit helps but the that only quality so prepayments. And have strong helps ensure us get also quality we on credit

so far, see continue case. be to that And the we to

Operator

Credit Your with next question comes from Suisse. Maheep Mandloi

Unidentified Analyst

reduce of your channel a what This expand seeing indirect is behalf sort soon I talk little year-over-year. can the facilities lenders impact down Maheep. with understand of about on of sort of the mix? on Could also Chandee direct you’re your [ph] were to through bit your how direct loans wanted ground? looking to X% you the And ahead, funded you

Matt Potere

think So the when earlier that is in about we the that those a direct and we’re funded note, indirect, and channel the partnership I and the of direct I think more credit July, channel. approvals. In fact to through impact the top important broadly, be we June mentioned at strong result the had think indirect loans And the seeing I it’s very in will record funnel. demand of

in And long-term so continue have growth confidence long-term a of to the opportunity. we and lot the

Rodney Yoder

with you year, we would to Matt, comparable in if into context about -- the remainder Yes. rates year, really in certainly, pull-through the starting brought The see this go of fact with last credit the think top approvals half you’ll you is elongate add, the thing strong funnel. more really, the as of only at that back results I the of of combined up just

So do we growth expect throughout the remainder to see year. this of sequential

Unidentified Analyst

to follow-up. slowdown some extensions guidance, see of guidance? tax of sort going year sort Just part become that the that there XX-year of Is your is available? one credit also And we’re demand the just baked given other into full

Matt Potere

Yes.

to not we about So broadly, the I it ITC XX%. we policy, say is sales where will XX% sign that’s think near-term passed, as for and increase we’re salespeople are included guidance. Inflation selling yet But solar. implicitly constraint the I from not What is, our think and XX the President really that getting extend the is because to Act today, and years Reduction in by excited on we out think more

to in certainly, benefit and near-term message geographies expand invest new to ITC, to sales think the get so benefit long-term crews, this to allows that the homeowners. certainty their more is solar and the fact real extension it And be some but the there it that by installers provides out we could

said really most long-term we it’s we’re near-term be value pickup, there that that some but certainly So could excited about. that

Operator

closing and Matt Ladies the and to gentlemen, we I’d back call for like have remarks. the session, reached of Potere to the turn question-and-answer end

Matt Potere

evening. we you challenges, second all there this thank questions earnings half very concludes Sunlight. And us all that of that really of this market negatively We interest in our impacting while for year, executing. your and joining XXXX and are the about plan call. are been Hector, quarter long-term you, appreciate us growth have in your This excited Thank the back we’re Great.

capital-light very is Our market. cash what rapidly night. Thank have a in significant evening, generates fact growing you business your it that great model, time for this a the and

Operator

This concludes today’s conference.

may You for your you participation. time. lines disconnect this at all Thank your

Sunlight Financial (SUNLQ) 16 Aug 222022 Q2 Earnings call transcript