Good morning, welcome to SunPower Corporation’s fourth-quarter and full-year 2023 earnings call [Operator instructions] Please be advised, today’s conference is being recorded. I would now like to turn the call over to Mr. Mike Weinstein, vice president of investor relations at SunPower Corporation.

You may begin.

Mike Weinstein — Vice President, Investor Relations

Good morning. I would like to welcome everyone to our fourth quarter 2023 earnings conference call On the call today, we will begin with comments from Peter Faricy, CEO of SunPower, who will provide an update on Q4 business highlights, recent cost reduction actions, and our recent announcement of fresh capital from our majority shareholders along with our entrance into new long-term waivers from key financial partners, and our entry into an amendment to our revolving debt facility. Peter will also provide a view of key drivers for improved profitability and cash flow in 2024, along with updates on New Homes and SunPower Financial.

Following Peter’s comments, Beth Eby, SunPower CFO, will then review our financial results. Peter will close with guidance for gross margin and cash flow improvement in 2024 and beyond. As a reminder, a replay of the call will be available later today on the Investor Relations page of our website. During today’s call, we will make forward-looking statements that are subject to various risks and uncertainties, and our actual performance and results may differ materially from our forward-looking statements.

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These risks and uncertainties are described in the forward-looking statement disclaimers contained in today’s slide presentation, today’s press release, our 2022 Form 10-K/A, and our quarterly reports on Form 10-Q. Please see these documents for additional information regarding factors that may affect forward-looking statements and read the forward-looking statement disclaimers contained therein. Also, we will reference certain non-GAP metrics during today’s call. Please refer to the appendix of the presentation as well as today’s earnings press release for the GAAP to non-GAAP reconciliation.

Finally, to enhance the call, we have posted PowerPoint slides, which we’ll reference during the call on the Events and Presentations page of our Investor Relations website. We have also posted a supplemental data sheet detailing additional historical metrics. With that, I would like to turn the call over to Peter Faricy, CEO of SunPower. Peter?

Peter Faricy — Chief Executive Officer

Thanks, Mike, and good morning, everyone. Today I will discuss our Q4 2023 results, our recent injection of new capital, and the expected impact from cost reduction actions taken in the last few months. We believe these cost reductions will make meaningful improvements to profitability and cash flow later this year and beyond. 2023 was one of the toughest years this industry has had to endure and we know that last year was as frustrating for you as it has been for us.

We have been taking concrete actions designed to position the company for success in 2024 and beyond even if consumer demand declines. I look forward to sharing with you how we intend to continue delivering the best customer experience in the industry, while we aim to reduce costs and improve profitability going forward. Please turn to Slide number 4. I’m pleased to report that we have successfully raised $200 million of new capital commitments, including $175 million of second-lien debt from Sol Holding, the JV between TotalEnergies and GIP that holds a majority of our shares outstanding, which is inclusive of the $45 million of bridge loan financing already provided since December.

In addition, we have also obtained new long-term waivers from key financial partners and entered into an amendment to our revolving debt facility that includes access to an incremental $25 million of revolver capacity. Please turn to Slide number 5. In the fourth quarter, difficult market conditions continued, driven by higher interest rates and net metering policy changes in California under NEM 3.0. As I will discuss further in a few moments, we’ve already taken actions that we estimate will result in approximately $100 million of analyzed run rate savings, most of which we expect to be realized by midyear 2024.

We added 16,000 new customers for the quarter as we transitioned away from NEM 2.0 installations. Our backlog of 52,100 homes this year reflects a combination of retrofit and new homes channels, including a growing multifamily segment. Retrofit backlog now stands at 15,100, reflecting both our ability to execute on installations as well as a deliberate effort to resolve pending cancellations at year-end. New Homes backlog remained mostly steady at 37,000, while New Homes installations continued to improve and grew 19% in Q4 versus Q3.

I’ll have more to add on our New Homes segment in a few minutes. We began to see some improvement in new sales bookings in September, and overall net bookings for Q4 were down 24% year over year on a revenue basis, including the resolution of cancellations. Winter is a seasonally slow period for the industry, as many of you know, so we will be looking for further signs of improvement in the spring. We continue to anticipate a growing value proposition for our customers over the long term as we expect traditional retail electric costs to rise, while solar and storage equipment costs decline in the years to come.

And that further clarity on solar tax credits for domestic content will also come to light over time. Storage and SunPower Financial sales attach rates continue to be bright spots for the quarter, with the Storage attach rate at 76% in our California Direct Channel and a 23% attach rate overall. Moreover, storage attach rates for full-year 2024 are expected to continue improving as we transition away from SunVault to expand our offerings and include a grid-tied option for consumers. SunPower Financial reached a record setting 65% attach rate for the quarter and continues to benefit from strong consumer interest in lease contracts.

As noted previously, further growth for leasing is expected in 2024 and beyond due

SunPower Steers Toward Improved Profitability and Cash Flow in 2024

Cost Saving Strategies on the Horizon

Following a dynamic end to 2023, SunPower appears poised for a reinvigorated approach to bolster profitability and enhance cash flow in the upcoming year. The company, a leading force in the residential solar sphere, has displayed a mindset attuned to sharpening financial metrics. By concentrating on a strong gross margin and cash flow, SunPower sets its sights on transforming challenging market conditions into a triumphant narrative.

Strategic Supplier Relationships and Cost Reduction

As part of their strategic vision, SunPower seeks to capitalize on their newfound associations with key suppliers, in conjunction with the tantalizing prospect of decreased equipment costs, particularly in the realm of solar panels. The shift in supply chains and an inflow of diverse avenues promise an opening for the company to drive customer and shareholder value without compromising on quality. The anticipation of a considerable 37% dip in overall equipment expenses emanates from decreased expenditure on panels, inverters, and racking systems.

Quality Meets Affordability

The company underscores their commitment to providing both customers and dealers with premium, yet cost-effective products. SunPower expresses their confidence in maintaining product excellence while concurrently offering a more budget-friendly price point. By highlighting the convergence of premium manufacturer panels on efficiency and lowered production expenses, the company aims to amplify their accessibility to a wide-ranging consumer base.

Riding the Wave of New Home Performance

With an optimistic outlook on new home construction, SunPower positions itself to witness an upsurge in installation figures, buttressed by a newfound proliferation in the new home sector. An escalation in total Q4 new homes bookings, coupled with burgeoning traction in California, signals a promising trajectory that could potentially translate into enhanced market share overall.

Strategic Financial Growth and Market Positioning

SunPower steers through 2024 with a financial armamentarium of substantial proportions. Emboldened by a record high customer attach rate and a burgeoning lease program, the company propels itself into a position of strength. Furthermore, they are deliberating the establishment of a programmatic approach to project financing, thereby signaling their intention to stay ahead of the curve in the evolving financial landscape.

The Ongoing Battle for Solar Energy

Amidst a backdrop of escalating electric utility rates, SunPower stands as a beacon, offering a respite to consumers grappling with rising costs. As electric bills soar and investments in utility capital witness an upward trajectory, the need for residential solar energy continues to become increasingly pronounced. The company positions itself as a formidable alternative to stabilize and diminish daunting home electric bills.

Customer Experience: The Bedrock of SunPower’s Success

Rooted in a stellar customer experience, SunPower continues to soar above the competition. Armed with an impressive Better Business Bureau rating and a slew of stellar reviews, the company has cultivated a loyal following. The relentless pursuit of consumer satisfaction forms the bedrock of their ongoing success, supplemented by an evolving digital experience that encompasses the entire customer journey.

In sum, SunPower’s voyage into 2024 hints at a company wading through the ebbs and flows of the market with an unwavering resolve. The sagacious strategic maneuvers and a deep-seated commitment to consumer welfare stand as pillars supporting the company’s trajectory. As SunPower charts its course, the pathway to renewed financial vigor and an elevated market prominence beckons.

SunPower’s Financial Outlook: Navigating Challenges and Charting a Course for Growth

Adjusting to Industry Headwinds

SunPower, a leading solar energy company, has reported a decline in adjusted gross margin for Q4. This drop is attributed to SunPower Direct’s pre-install and install costs being spread over lower volumes. The company, however, anticipates costs to improve in 2024 following recent restructuring actions.

Additionally, SunPower mentioned that various one-time items, amounting to $48 million, are not expected to recur in 2024. These include adjustment for inventory write-down, warranty costs related to the commercial business sold in 2022, a lease cost of capital increase due to unhedged rapid interest rate rises, and the delay of recognition of ITC warranty reserves on legacy projects. Despite these challenges, the company ended Q4 with $87 million in cash on hand and $208 million of net recourse debt.

Strategic Shift and Financial Guidance

The company’s Chief Executive Officer, Peter Faricy, revealed a shift in reporting and guidance approach, with a focus on gross margin and cash flow instead of platform investment. SunPower has decided against providing customer and EBITDA guidance for 2024 demand at this early stage. The emphasis remains on driving results through restructuring, cost reductions, and prudent working capital stewardship. The company is striving for profitability, positive cash flow, and improved financial strength to secure its position as a top player in the residential solar industry for 2025 and beyond.

Market Conditions and Future Prospects

While grappling with challenging market conditions, SunPower anticipates favorable industry tailwinds, including increasing utility rates and lower equipment pricing. The company also expects a more stable interest rate environment and improved clarity on the bonus tax credits available under the Inflation Reduction Act. SunPower anticipates benefiting from lower-cost products and plans to monitor long-term opportunities for growth and investment, aligning its cash usage with market expectations for future periods.

Investor Confidence and Strategic Partnerships

Faricy discussed the significant capital commitments from Total Energies and Global Infrastructure Partners, amounting to $200 million. This substantial commitment is viewed as a vote of confidence in SunPower’s future. The CEO highlighted the extensive due diligence and strong belief in the company’s prospects by the two major investors. He expressed optimism that the capital infusion would bolster the company’s liquidity and support its business plan, particularly in achieving positive cash flow.

Lease Capacity Expansion

Faricy addressed the need for additional lease capital, emphasizing the company’s remarkable growth in lease and loan financing. SunPower’s expansion of lease capacity is a top priority, given the increasing preference for leases over third-party financing. The CEO reassured investors about the company’s robust position, with $900 million of available loan capacity, and hinted at upcoming announcements regarding the augmentation of lease capacities.

As SunPower navigates through an uncertain landscape, the company remains resolute in its pursuit of long-term growth, sustainability, and financial resilience in the solar energy sector.

SunPower CEO Discusses Market Dynamics in California and Dealer Strategy Amidst Changing Landscape

Disappointing Market Slowdown in California

California has historically been a strategic stronghold for SunPower, but the company’s Chief Executive Officer, Peter Faricy, expressed disappointment over the sluggish recovery of the market. The implementation of NEM 3.0 regulations has undeniably impacted consumer demand, resulting in a modest recovery towards the end of the year. Faricy highlighted that the need for battery attach rates and the modest increase in system sizes under NEM 3.0 have driven up the overall ring per customer in California. However, he raised concerns about the state’s ability to meet its clean energy goals given the impact of NEM 3.0, indicating a questionable trajectory for the current program.

Adapting Dealer Strategy Amid Changing Market Conditions

When confronted with questions concerning SunPower’s dealer strategy amidst the evolving regulatory and capital landscape, Faricy emphasized the pivotal role of the company’s dealer network. He acknowledged the challenges faced by small and medium businesses within their dealer network, emphasizing the need to support these businesses and ensure their long-term viability. Despite the trying market conditions, expanding the dealer network across the country remains an opportunity SunPower is keen on pursuing. Faricy reasserted that the dealer network will continue to be an integral part of the company’s vision, emphasizing commitment and perseverance amidst the ongoing industry-wide challenges.

Fostering Trust and Embracing Change

Addressing concerns about the competitiveness and liquidity challenges, Faricy underscored the necessity of continually earning trust with key partners, highlighting their commitment to building a resilient, sustainable future. Amidst liquidity challenges and industry changes, SunPower remains dedicated to fostering trust with its dealer partners and transforming the business model to navigate the current market dynamics. Faricy lauded the alignment of SunPower with its dealers, stressing the collective effort to adapt to the challenging year while upholding the brand’s excellence in providing a top-notch customer experience.

Transition to Technology Agnostic Model

In response to inquiries about SunPower’s transition to a more technology-agnostic model, Faricy addressed the impact on dealers accustomed to exclusively using SunPower equipment. He acknowledged the industry’s shift, highlighting how the panel market has significantly evolved over the past few years and leading to convergence among premium panel makers. Highlighting the company’s strategic direction, Faricy provided insights into SunPower’s revised approach, recognizing the changing dynamics of the panel market and the need to adapt to these industry shifts in a technology-agnostic landscape.

SunPower Corp CEO Outlines Shift in Solar Strategy

The Quest for High-Quality Solar Panels

SunPower Corp’s CEO, Peter Faricy, recently highlighted the company’s shift in strategy towards delivering high-quality solar products at a more affordable price. Addressing concerns about the overall market, Faricy emphasized the essential need for not only high-quality products but also products that are priced competitively. According to Faricy, this approach is a necessary evolution in the solar industry, considering that only a few companies globally can effectively deliver such high caliber products. Describing the move as a “game of scale,” he emphasized the importance of aligning with battery makers that can uphold the highest quality standards while offering great value.

Transition in Battery Solution

Responding to queries about the shift in SunPower’s battery solutions, Faricy expressed the company’s intention to partner with battery makers that can not only match their brand’s high-quality standards and customer experience but also provide cost-effective options. While recognizing the achievements of the SunVault, their first-generation battery, Faricy indicated a strategic move towards fostering innovation and scale in the battery business. He hinted at forthcoming partnerships with battery makers that align with SunPower’s vision.

Weather Challenges and Market Impact

Faricy’s conversation delved into the challenges posed by adverse weather conditions in California and their impact on business operations, particularly in the residential solar segment. He acknowledged the slowdown caused by atmospheric rivers and reiterated the company’s unwavering commitment to prioritizing the safety of employees and dealers, even if it means a reduction in installations. Highlighting the recurring nature of such weather challenges, Faricy maintained a cautious yet optimistic outlook, drawing parallels with similar weather occurrences in the past.

Navigating Dealer Relations and Capital Prioritization

During the discussion, Faricy addressed concerns about SunPower’s dealer relationships, emphasizing a year-over-year increase in dealer count. He underscored the company’s selective approach in onboarding new dealers and expressed confidence in the sustained interest of U.S. entities in becoming SunPower dealers. Touching on the capital infusion, CFO Beth Eby reiterated the company’s conservative 2024 plan, aiming to achieve consistent free cash flow in the latter part of the year. The discussion also shed light on SunPower’s vigilance towards monitoring the residential solar market and considering additional equity or capital as a means to fortify financial positioning.

Revenue Outlook and Cost Management

In summarizing SunPower’s strategy, Faricy emphasized a proactive stance towards managing costs, particularly against the backdrop of uncertain demand. He indicated that SunPower’s forecasts for the year have been more conservative, reflecting an understanding of the volatile market dynamics. Faricy’s closing remarks struck a tone of adaptability, hinting at continuously evaluating cost structures and maintaining vigilance over fixed and variable costs amid evolving market conditions.

SunPower Analyst Q&A: A Glimpse into Operational Strategies and Market Outlook

Enhanced Resilience and Cost Structure

A keen look into the recent SunPower analyst call reveals an insightful journey into the company’s resolute efforts to strengthen its cost structure. In response to concerns about financing and the capacity to withstand a potential downtrend, the CEO, Peter Faricy, elucidated on the critical factors driving the sustainability of the business. Faricy emphasized that the escalating retail electric rates stand out as the primary impetus behind the soaring demand for residential solar. The CEO aptly characterized the business as navigating through an unparalleled landscape, all the while exuding robustness in the face of increasing challenges.

Development of Profitability Improvement Targets

The Chief Executive Officer further underscored the company’s financial trajectory, highlighting how the year’s performance is back-end weighted. This orchestrates a strategic phenomenon where SunPower would be vending high-cost equipment in the initial half of the year, only to transition to marketing lower-cost equipment in the latter half. Furthermore, Beth Eby, the Chief Financial Officer, alluded to the completion of cost reduction exercises, paving the way for a promising and cash flow positive future.

Insights into Customer Mix and Operational Capacities

Addressing inquiries regarding customer installations, Faricy unveiled the evolving dynamics within SunPower’s customer segment. He elaborated on the burgeoning potential of the new homes segment, buttressed by an upsurge in new housing starts, which is poised to augment SunPower’s market presence in 2024. He also shed light on the transformation in the installation mix, elucidating how the company has judiciously transitioned from NEM 2.0 to NEM 3.0 in California. This transition exemplifies SunPower’s adaptability and acumen in navigating regulatory environments.

Furthermore, in response to queries about SunPower’s post-restructure operational capacities, Faricy expounded on the company’s multi-pronged approach to the market. SunPower boasts an extensive dealer network, including the thriving Blue Raven, which augurs well for the company’s operational prowess. The CEO’s detailed exposition underscored the company’s proactivity in capitalizing on existing operational channels and resources.

SunPower’s comprehensive re-structuring and enunciated operational strategies serve as testament to the company’s adaptability and strategic foresight, positioning it for sustainable growth and resilience. As the company forges ahead, it is evident that SunPower remains steadfast and well-equipped to navigate the complexities of the market, bolstered by robust strategies and operational astuteness.

SunPower: Navigating the Path Forward

Kashy Harrison — Piper Sandler — Analyst

In an uncertain market where the winds of change blow unpredictably, SunPower has charted a thoughtful and cautious course. The company’s Chief Financial Officer, Beth Eby, has shed light on the terms and conditions of the second lien note, offering investors a beacon of transparency to navigate these uncertain waters. The company has secured a five-year maturity loan with key shareholders at a 13% to 15% interest rate, demonstrating the underlying support for SunPower.

A Beacon of Transparency: The Terms of the Second Lien Note

Brian Lee — Goldman Sachs — Analyst

During a recent discussion, Brian Lee of Goldman Sachs probed deeper into the intricacies of the second lien term loan. Eby’s revelation that the shareholders’ support is akin to a beacon of hope in a stormy sea provides insight into the company’s liquidity and its pathway to achieving positive free cash flow in the near future. The mention of penny warrants for a substantive share of the outstanding warrants is a testament to SunPower’s perseverance and resilience in the face of adversity.

Long-Term Waivers and Changing Covenants

Brian Lee — Goldman Sachs — Analyst

Eby has shone a light on the longer-term waivers that SunPower has secured, assuring stakeholders of the company’s adherence to its obligations. With adjustments to liquidity covenants for 2024 and a gradual transition to standard covenants by 2025, SunPower is displaying a commitment to maintaining financial health and stability.

Looking Toward the Horizon: EBITDA and Customer Metrics

Andrew Percoco — Morgan Stanley — Analyst

As Andrew Percoco from Morgan Stanley sought clarity on the company’s guidance for 2024, Eby and CEO Peter Faricy emphasized the importance of EBITDA ratios and the evolving unit economics. The executives stressed the significance of recalibrating their approach toward EBITDA guidance as the company progresses through the current market landscape and incorporates capital. SunPower’s focus on adaptability and optimization of metrics reflects its resilience in a dynamic business environment.

With a steady hand on the tiller, SunPower’s voyage through the realm of financial intricacies promises to be an intriguing one. The company’s efforts to enhance transparency, navigate changing covenants, and adapt key financial metrics demonstrate a commitment to steadfast growth and stability in the face of ever-changing market dynamics. As stakeholders look toward the horizon, SunPower’s ability to navigate the tides of uncertainty stands as a testament to its fortitude and long-term vision.

SunPower Unfolds Plans to Boost Profitability Amid Tough Market Conditions

SunPower recently held a conference call to discuss its strategies for driving positive free cash flow and profitability. The call brought together Chief Executive Officer, Peter Faricy; Chief Financial Officer, Beth Eby; and various analysts from top investment firms.

Addressing Cost Reduction Initiatives

The company emphasized its aggressive plans to optimize costs and create a leaner operating structure. Eby revealed that significant savings in operating expenses had already been achieved, with SunPower also making moves to reduce its cost of goods sold. This initiative aims to drastically improve the firm’s adjusted EBITDA, even as it navigates through challenging market conditions.

Faricy further detailed that the company’s business mix is expected to shift, with a decreased emphasis on lower-margin sales to dealers. Instead, SunPower plans to focus on higher-margin segments like SunPower Financial and New Homes, which promise higher average selling prices and better margins.

Capital and Partnerships Strategy

Analysts inquired about SunPower’s potential capital sources and partnerships. Eby acknowledged that while the company would consider all options for securing capital, such as selling off residual ownership of its joint venture SunStrong, it is not an active pursuit at the moment.

Faricy provided updates on SunPower’s partnership with Enphase, highlighting the strong alignment between the two firms and their commitment to product quality, engineering, and customer support. He stated that while there were no current news to announce on that front, they anticipate continued partnership success in the future.

Financial Stability and Future Outlook

In response to concerns about the company’s financial stability, Eby assured analysts that discussions with auditors and review of financial plans did not suggest a going concern provision in the upcoming 10-K report.

Faricy concluded the call by expressing his excitement about SunPower’s new capital commitment of $200 million, stressing the company’s focused efforts on generating positive free cash flow and profitability in the current year.

The call provided a glimpse into SunPower’s proactive measures to weather the tough market conditions, showcasing its commitment to financial resilience and sustainable growth.

As with all public company conference call transcripts, the points discussed indicate the company’s strategic direction to investors and are subject to market conditions.

Nasdaq, Inc. does not necessarily endorse or recommend the investments discussed. It is essential for individuals to conduct their own research and due diligence before making financial decisions.

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