- Earnings call transcript Q3 2022

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Operator

Greetings, and welcome to the Sunlight Financial Third Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [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. you. Thank

begin. may You

Lucia Dempsey

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

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

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

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

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

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

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

Matthew Potere

volume Thank for us XXXX you, we quarter funding results. Sunlight third operational in Despite third quarter and particularly Lucia, solar million. million $XX a improvement double and was volumes of thank financial you environment, home macroeconomic joining all $XXX and XX% funded XXXX $XXX as quarter XXXX challenging of achieved strong funded million quarter Financial’s in record the Sunlight discuss with loans, the the of Home improvement third volume than year-over-year. up of third more

that’s platform in We XX,XXX for expand up in the presence We’re We year ago, this company. and XX% new a loans fast and funded the frictionless provides as in high billion financing quarter seeing continues momentum Sunlight installations and the other for Orange excited for the leading about over a solar perform we for to projects. third home a period borrowers quarterly this choice our also and our business, homeowners, operational well remain metrics. contractors as financing on $XXX market. we’re key same from process the improvement

the continue X,XXX. relationships contractors third active our also installer our to bringing XXX strengthen to We grow new total to adding relationships, our contractor and quarter, in platform

re-underwriting we largest completed September, significant Contractor a impairment. became installer As process take Subsequently, the installer Advance leading disclosed program. in partners in program all Contractor for to us the our insolvent, Advance a in

advance within in to advance this taken reducing reducing eligibility our job, installers rate and pricing installers. number risk a for credit mitigate actions As certain of increasing the per eliminating advance these for a have result including reviews, program, we of this limits, program,

We proactively their installers profile. program in this in also continue changes to risk monitor for

quarter of outstanding $XX million, outstanding largest with installer the and advances at in no $X advance $XX had greater we As than million million. end, other single

XXXX, more in to indirect the channel eliminated will our pricing and rates protect our since in impact XX% months, their homeowners prices are harder-to-finance just impacting rapid of interest in hedging detail, a electricity remains Despite on solar program discuss an over solar made buy up a in We’ve a to exploring average impact XX%, systems, the from interest value the we’ve the us of near-term volatility performance. we future. the proposition. reliance rates To residential rise up increased As cost will portion negative utility interest forward, XX residential rate significant and in higher eliminate going mitigate changes. With financial the certain Rodney on attractive products, have bill. substantial last

decade. ITC passage the increased Inflation Additionally, the over of XX% industry for the Act, the from next provides which increased Reduction the XX%, certainty to

well consumer continues is a responsible by a quality perform side, definition, Sunlight and for the to in by home loss purpose. for and XXXX, solar driven same our who their asset class money peer credit owns vintages loans, than XXXX the continue to On borrower, of for particular, XXXX financially the terms outperform substantially averages borrowing are rates in our respective vintages. quality lower as high

to loss call strong are increased been the our as and economic While and even Yoder, valuable more attract focus like assets capital a maintain that, current Sunlight’s for improve is of an providers. demand capital in credit important lever quality always leading our CFO. to providers’ industry rates network turn I’d low environment Rodney With has over become the yields, to

Rodney Yoder

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

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

Our XXXX results key impacted third were quarter by several items.

for The primarily due mentioned first calculation. Matt million was our also provision impacted loan loss a $XX.X to losses provision contractor expense event insolvency earlier, the which

to As losses event on advances expense quarter. were statement. average a increased balance that of took incremental provision rate, installer, to the collect non-cash sheet million on and also bankruptcy, asset this on income we for driving a owed we This result the for losses determined expensed the $XX.X loss related unable charge advances a of the by and installer’s provision historical

related the fair of performance macroeconomic to in company balance our goodwill financial on is time market environment, impact the second and combination. at goodwill, recorded we exceeded and the the sheet of impacting value. book the we of The to its challenges Due implied peers, business the value that believe

we goodwill months ended impairment of $XXX.X for recorded a XXXX. So charge September million non-cash XX, the X

our profitably indirect In our year. channel to which and speed rate our of on capacity affect channel unprecedented addition, the far, thus capital reduced direct monetize will increases to also originated we loans indirect ability increased and see provider have earlier and reliance magnitude, interest continue this

low increases been months making significant products. removing these over the by we market though, have As addressing several past and Matt price APR mentioned, conditions

We expect margins compelling to to basis by earlier and increase Sunlight. our actions yields points this these for delivering XXX returns adjusted future attractive over for asset year, relative providers risk capital

and increases over ended by $XX.X program. with be a take sheet. channel on like sold of approval the flow million, indirect However, purchased loans unrestricted date, million short rate the million free on chosen operational share XX-month debt the at liquidity at will the provide on Class our near-term quarter that, free I’d the and suspended repurchases the I’ll was effect. negative we and liquidity and volatility sheet, and interest cash the for and cash have to preserve in $X.X also the until turn In funded May, impacts near-term we With share balance short-term performance, XXXX, loss time. these in of In have of A received financial with to excess flow. pricing To to equivalents, this flow. cash a Sunlight’s million million a $XX we and we repurchase excess for Due on have of holding cash an cash total quarter update of balance shares Matt. just only million, it third cash hand cash Board to X $XX to $XX back impact

Matthew Potere

reflect very the the attractive compelling to environment, Thanks, a that current continue price does value share Rodney. not in challenging believe the macroeconomic position of Despite and market, a company. Sunlight intrinsic maintains an we

explore, range the alternatives of all number for company back grow have operator and Board to commenced of parties business process for stakeholders. a strategic Sunlight’s a alternatives, the our turn value to evaluate and that, that review, has With to to enable it continue As I’ll maximize potential approached with the Q&A.

Operator

now ROTH and question-and-answer the a first Instructions] conducting proceed. Shen you. Capital. Philip line Ladies Thank will Please gentlemen, be Our [Operator question with we from session. of comes

Philip Shen

sense for inbounds seeing potential have a more combinations that I point just are some last maybe be wondering I to you might but able that equity thanks banks actually. regional you bank, a as like but – and talk start – is Or companies. Thanks. wrong, be from tough have my guys fielding Third might of some a regional what know of we circulating? – talk that parties. I look bankers questions. like interest taking about, have be that you could like. interested kind it Hey, timing already, if to made I’d that you categorize been Maybe might acquiring they with know those Matt, and guys, just what’s are wrong talk you I private can dividend? be third was to Fifth might through, your there the Or through of

Matthew Potere

Phil. Thanks for question, the

stock And important inbounds an a of and it to value or strategic help that evaluate by number and parties range a evaluate discussed reflect of the that and advisor approached does both been Sunlight’s first, intrinsic we’ve options. I who management not of range think alternatives. retained have those undervalued, So, a to received us the and scenarios note the believe company. of team board it’s We’ve the is

As at point, we’ll an I details. specific and any we those, back provide about other come certainly can’t update. provide get more information this But

Philip Shen

appreciate Okay. I that. can

your with around compliance? are the wondering are could those bank to what And might was that relates for covenants I Rodney, be it the timing your potentially remind in As working remain what us, revolver, covenants if risk. to at you

Rodney Yoder

question. appreciate the I Phil. Thanks,

macro whom the environment for We comply. interest the we’ll we these And have with our performance of We’ve the financial rapidly impact and our number discussed rising and our a release bank we impact debt facility partners in relationships. extent credit with our strong in will our very covenants, the have covenants revolving rates work near-term. to press

Philip Shen

Got it.

the pricing actions. you talked so, about let’s the And frontend maybe business, of about guys talk have lot and a of

X. think I I count

so as then expect of on your average, on a and understand, base? And the makes And have maybe stand more XX%. way, looking gotten this it you or for of about right were to they XXXX increases anticipate loans? If XX% having ahead, sit do to you closer sense with rid lot where I X.XX% they now average. A talk do already price fees wanted now? And not you even fees even dealer your Do do now? X.XX% installer are Typically, where in about to well X.XX%? XX% blended

Rodney Yoder

question. a Yeah, great thanks. It’s

the is you undertaken at ensure yield, cumulative attractive adjusted that fee. about very that the increase spring. a earn of be X%, number position risk to when and a effect on eliminated we yield to our the to of asset increasing substantial earn us returns series changes, the by increase able pricing a X% well. so changes interest as that really dealer the really to estimate and look our and go-forward basis And pricing of in the compelling capital able you finance be So products. And a providers margins combination well going When low think, it the think will the to we we’ve harder interest of about rate we’ve back rate

Philip Shen

Got it.

think through your so, talked how we has percentage from that on reduced? the a XX%, talking you basis, blended And it and lower about about? and XX% and number each reduced, the one amount maybe other their how providers financial you capital much terms been been partners, have, partners has Is if lower, of are you lower? all add – a that – up in XX% unions credit it capacity you If those your of

Rodney Yoder

Phil. question, Good Yeah,

at ratios, depositories loan-to-deposit our So, rapidly their rising a have capacity. level, macro limiting seen

be a the as upon result, channel. we near term, so for more indirect And expect reliant our to

due Now, seek the we better that versus to we quality, as believe other originators strong have our advantage providers do said, do credit credit quality. an capital

Philip Shen

Right.

So, Rodney, capital you’ve a I access of you Or mean, that a the expected? point kind typically lost finer do to of XX% put think you quantify would way you can on, it? to there is have

Rodney Yoder

Yeah.

guess, additional indirect I reliant quarter, loans of In and know, million. $XXX million on you channel. funded as direct we’ve I’ll more what $XX So, the say is, the we and third we been an historically, channel, sold

interest and channel, quarter. those loans. the in So we to we’ve loans will about negatively But on those unsold expect fourth the the sell indirect the $X.X rise million got rates impact rapid margins in of in

And over taken we’ve actions loans forward. to months pricing several improve the increase margins going we as on mentioned past to significantly earlier, so,

Philip Shen

those Right. loans, loans loss expect for sales should you that indirect of And the indirect – the kind expect we to or what a or channel, in the there? channel

Rodney Yoder

will guidance some the we’re challenge have going we time. we fourth pricing we said, loss higher said, at so That – take That margins providing interest actions the will loans. quarter. seen a not a in deliver Yeah, taken be again, in and it any to we’ve forward. will this And,

Philip Shen

years heading when the your you you of place? year to annual through volume, think a Thank might we’re into in putting from do or do quarterly it way. quarter constructive When you back the just comfortable XXXX, that? able do away you – guidance you reinstate? you. relatively feel be we were of in you what think But possible kind Historically, into think think think end to and be the we’re about and longer Or could a guidance either future before

Matthew Potere

that that’s question for And, to investors we Yeah. business. have into recognize Phil, insight some an important the

large the quarter you quarter the look well impairment, we in was their line core third with the at a very in If absent, what business performed third think expectations.

funded year-over-year we clarity do rates. have direct challenges. and future, interest as to Rodney the of re-implementing at guidance, And the again, strong sequential significantly, the will some volatility on as do look significantly point volumes, you because importance don’t to some quarters the And And near-term up timing at well recognize, in spoke anticipate that up margins. we be pulled of we If now. in to the really guidance, some provide we on Street. And but a specific we right

Philip Shen

that, appreciate questions. Thanks the on. I for pass taking I’ll Matt. Okay. all it

Matthew Potere

Phil. Thanks,

Operator

Thanks.

Please the Suisse. next Maheep of question line comes proceed. from with Our Credit Mandloi

Maheep Mandloi

Hey, thanks questions. our for taking

a QX. flip-flip contribution on business. we follow-up Just not in actually, And XXX% pulling have that questions, QX, – saw up I previous should indirect I and direct and on any kind as expect at indirect of for then what all said we versus the

Rodney Yoder

for Thanks Maheep. No. the question, Yeah.

discussed. quarter the not again, guidance fourth for So, as we’re providing

we financials challenges the earlier, in some providing interest that And increases seen given QX, about be but so, impact caused talked in we to has there. any we’ve and guidance rapid rates, our won’t as

Maheep Mandloi

in in the the any as Yes. the on indirect fees – And in change quarters, what economics low clarity platform last think so for business X.X% we the on business, of as indirect has Just past? the that? few versus the saw

Matthew Potere

the we probably we it’s to bank is about. so which loans – existing Maheep, I the Yeah, pipeline, think, the it, in book. One think parts think two there’s about call

forward. interest months, I as earlier, about attractive mentioned loans. program expect rates mitigate That highlighted said, those several we on go-forward pricing hedging on on we’re points expect volatility we’ve last loans talking significant go-forward also earlier, his margins and going And to moved the loss we take actions over as do have look rapidly, highlighted, we’ve loans, a interest rate made basis. Rodney against in a help to As those we and implementing a

Maheep Mandloi

do when in? kick then, And those

Matthew Potere

takes months it X to for loan-to-fund. X typically, a So

And will it that. take a and so, there’s to we think – do tail

that over take that last the will taken for and pull months some several actions back to the fully overwhelm we book. pricing we’ve through time So

Maheep Mandloi

the right. And added just it’s Do you and or any macro Act back Reduction on this given a competition more on going growth under for leases. the market Inflation stepping forward environment? then, demand credit higher the All level for tax just see shrinking? are Or loans thoughts Thanks. IRA

Rodney Yoder

Yeah.

utility believe XX%, significant an earlier year-over-year the and rates environment. out in to solar from certainty proposition. So, to gives inflationary we want certainly are us utility and it it’s tax I higher, continue credit, XX% up not make continue a investment increases the – also XX%, it attractive provides rates likely to increase solar increased said, the some decade, to rates interest to and highlighted are even and market extended perhaps Plus it an But make accelerate. value to only economics who even solar. so go was uncertainty. which That better homeowners

when improvement and look positioned, in at had we at the improvement is macro trends, look think as there. So a home We’ve well we we’re getting just business home well. started is the really and solar market we growth, momentum market, tremendous large broader and

trends So optimistic here. the we’re about really long-term

Maheep Mandloi

to does leases a solar it leasing for that impact the to leases structure through you of Thanks. the then probably over trying higher XX% forward? the impact tax Is going right, get here? think the taxes, versus with Just just possible or here? on for the not dynamics to which move like loans loans. is portion, redundant even And [ph] higher, How available

Matthew Potere

consistently get they because the of they definition, salespeople, their to talk the And us product and over like and they tell By continue we that they Yeah, they own own the so customers simplicity. loan to want homes, economics solar us to products, as these a bolted what’s loan. like talk they roof. homeowners, with to lease we to tell that

where made, are versus more vast we majority going do forward. homeowner, the but overwhelmingly, And be of certainly make you market today play believe the that the the an – some continue will despite cases there of leases loans to losses. individual to that will is Now, sense for loans continue points market

Maheep Mandloi

the Thanks right. I’ll back the questions. All in jump for queue.

Matthew Potere

you, Thank Maheep.

Operator

Our the Osborne of line proceed. Company. Cowen from Jeff next & question comes with Please

Jeffrey Osborne

questions. of prior follow-ups into I evening. couple wanted a good Yeah, the to on dig

the On shrug ramifications expected loss want and you off. the any crystal next I to the covenant clear is be you QX covenants just side, that sort the anticipate over or two? of in balance, that tripping cash to the don’t quarter

Rodney Yoder

so question. Yeah, the – for thanks

sell those while, like transparent. does, we’ll we indirect on the strong may we those with bank again, the an our And whom talked that that with loans have about be in channel a extent very very We We’ve we quarter at it will impact So to work loss. in XX-Q. earlier, the the sold the fourth in covenants relationships. been disclosed covenants, have partners it

But it’s wanted sure just to that you that there. make So information. had all

Jeffrey Osborne

appreciate all No. there. I It’s it.

You just it. to dismiss seem

bottom spring. I’m trying to Matt, we the X to If wait those I X given get that. until sales? recent? the attribution But you’ll trying do I start why a how lag, was from positive you just to that’s the month get that’s then think, XQ year Were mentioned sense of at be of a or any need started to to next of that seeing loans expected of increases. maybe a in X selling you more So loan long pricing, X said to – the had Phil and price loss.

Matthew Potere

question. it’s Yeah, so a good –

the then loans in we’ve ensure take continued that fourth up the pricing we priced into So spring, to that to making – including started make and and pricing appropriately. products are quarter actions to late changes a eliminating

were is into certainly in funding is recently there. two. will loans goes there the favorable there loans when the some clearly year lag are a loan So tail the be more or effect, credit least But from earlier that credit over when that customer’s pricing last month margins re-priced a versus until the so have change the approved that were approved funded,

Jeffrey Osborne

been the company, I And demand oddball site, litany business, given the people question. the staffed the how are Business there’s bankruptcy. you can Pink bit appreciate after that you up got guess, go in of those?] to better been customer working wanted insolvent want with increases to to [I to these due your [ph] any then, understand, Better Energy it. loans complaints mean, side just I largely of Bureau you’re go now against with dealing I your of isn’t an have for a But, service corporation I and proper to equipment an and

Matthew Potere

very it’s and take question, Yeah, a good seriously. that we something

have up of the to PTO-ed internally assist customers, regarding We’ve a support So customers and who did PTO, but their help team may not were questions there to or portion get them installed those are a systems have to if to staffed help connected they grid. systems. their

So we number helping get that progress made significant on take definitely and a something we’ve of PTO. seriously, good customers

Jeffrey Osborne

you’re a Got is I’ve on calls, the topic and is asked someone And a worse? on loan the getting that on – this signs of roof, this well. on getting or duration But it. glass better when to that evasive prior bit as you

Matthew Potere

we instance. curves XXXX has longer of seen to compare some it more or – pull still through due recently. It now, But, to little for stayed We’ve a even in It’s if chain labor XXXX, shortages. fairly taken bit take time and it does historical versus compression consistent. the supply

there, bit elongated improvement of averages. it but little So historical to is relative a

Jeffrey Osborne

partially Got the started? it. fully it hedging book? place? place? started, sequence is how it to you do is Like in in X-parter. is it in hedging across My last one if Has the Or And

Rodney Yoder

Yeah, question. good

the of we time the approval. price locked risk of is credit capital provider take market as direct the the the don’t with on our side So just to clarify, business, at

those funded the through of we’ve we have some with banks, On this are risk the in forward. quarter. the that past, and mitigate established the to we ultimately market sold. approval to fourth of new the to be loan in place get And risk is a from alternatives expect but takes we in going time working channel, for as discussed loans indirect programs number do the time until It hedging

Jeffrey Osborne

then, to next to are ramifications quarter, the when of later, X second quarter is financial see a things that or bit that offer months for then year, the And more and so no? of like you in – loans fourth we’d X normalized more

Rodney Yoder

We won’t give through terms of reiterate as the any really assets. say, I performance. interest we’ve multiple just as that’s we’ve in the rise What guidance made rates, on price will changes, to seen in is, rapid yield us the and Matt increased walked

we as returns capital as about contemplate As for cost margins, into our think this. hedging risk adjusted providers do well of any we

to we deliver establishing are in so, And XXXX. strong margins pricing

Jeffrey Osborne

have. I Yeah. all That’s Thank you.

Rodney Yoder

Jeff. Thanks, Yeah.

Matthew Potere

you. Thank

Operator

Thank you.

Our next the from Shen again Capital. line with of ROTH Philip proceed. Please question comes

Philip Shen

It’s figure the because trying on in wondering, which I share was with particular, here. risk? ratio, Rodney, which – thanks us, it for guys, taking you monitor? covenants Is back we’re that if follow-up. to to covenants the out could specifically Hey, And which one is

Rodney Yoder

covenants. standard there’s mean, I Yeah. profitability

as addressed, really near we’ll So covenants around the to need relationships of standard And profitability. with if and I We’ve there. in the a there’s be loans the can, you loss, through really sale those covenants work and it’s partner strong our term, indirect given got like bank the said, that. in there,

Philip Shen

Okay.

ratio? coverage debt the be it’d So

Rodney Yoder

No.

So side. it would earning the more be on

Philip Shen

Got it.

Okay.

relates it a published to bunch about we’ve loan how down. slowing As market – the is

not about, adders, to does adders asking the the a get up there financing that’s have attractive, are XX% was can which ability Maheep because more to and lease a loan how of access making ITC. I those bunch So, think,

slowing we’ve the how been originations well. about as writing On for side, has other down the been loans

we confidence you the of I in so period QX, have QX in that because price we many slowdown, to shock increases Matt, adjust into is, a you highlight But time. salespeople there long-term, as of so a And such short and think have business. the believe to get

leading where thesis deal expect And or see it leads are as so Are originations with fair – your that slowdown? well? slowing QX points, QX, how Can data true? you as that, slowdown your would so, is And it you to do that and you say that down? into look seeing to be you’re in you Thanks.

Matthew Potere

Yeah.

So appreciate I question. the definitely

one lease. to loan thing the tend simplicity that over a more loans true As helps lease, to is choose years be explain few to I versus we last simpler a that drive for think loan has salespeople to think customers homeowners, and over been

one again, we from prefer it’s going to continue for be years, preferred that from XX their homeowners loan. they so, XX – a hear and salespeople, to or they or and a loan a prefer aren’t lease. that doesn’t lease that versus homeowners It to have are prefer there cases mean And on that system there where own for reason They roof another.

As about few a we are things to. probably point can volume, think, there think you I I that

saw that Sunlight strong relationships. we’ve but is contractor in ultimate the loan very metric, eagerness you growth shared that And of We’ve overall seen contractors’ funded there. and with willingness it growth volume think if we work third and indication and to proposition that offer. we don’t does First, we’ve the some before, in provide volume overall our value at also look the our sequentially, quarter, strong loan up good and year-over-year

Philip Shen

Okay. Thanks, color. the guys. additional I appreciate

Matthew Potere

Phil. Thanks,

Rodney Yoder

Thanks, Phil.

Operator

Ladies question-and-answer concludes you. gentlemen, our session. and Thank this

for like Potere, Now, to call back I’d closing to remarks. turn Matt the

Matthew Potere

Great. and you Well, thank interest for for all Sunlight. questions your your in

While there negatively in are certainly that year. half of market the back impact will the Sunlight challenges

growth evening. value have for this Thank for good We to market. and time and continue execute believe attractive you are generate stakeholders in to we’re plan, your our well a long-term our we on excited to positioned

Operator

concludes today’s This you. Thank conference.

your lines. you your disconnect for now may You Thank participation.

Sunlight Financial (SUNLQ) 15 Nov 222022 Q3 Earnings call transcript