Q4 2023 SunPower Corp Earnings Call
Good day, good morning, welcome to Sunpower Corporation's fourth quarter and full year 2023 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your <unk>.
Telephone you will then hear an automated message advising you. Your hand is raised to withdraw your question. Please press star. One again. 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.
Good morning, I would like to welcome everyone to our fourth quarter 2023 earnings Conference call.
Call today will begin with comments from Peter Pharisees CEO of Sunpower, who will provide an update on Q4 business highlights recent cost reduction actions and our recent announcement of fresh capital from a majority of shareholders along with our entrance into new long term waivers from chief financial partners and our entry into an amendment to our revolving debt facility.
I'll also provide a view of key drivers for improved profitability and cash flow in 2024, along with updates on new homes and Sunpower financials.
Following Peter's comments Beth eby.
Our CFO will then review our financial results.
I'll close with guidance for gross margin and cash flow improvement in 'twenty 'twenty four 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.
<unk> looking statements are subject to various risks and uncertainties and our actual performance and results may differ materially from our forward looking statements. These risks and uncertainties are described in the forward looking statements disclaimers contained in today's slide presentation and today's press release, our 2022 10, a 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 there at.
Also we will reference certain non-GAAP 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, we will reference during the call on the events and presentations page of our Investor Relations website.
Also posted a supplemental data sheet detailing additional historical metrics.
With that I would like to turn the call over to Peter <unk> CEO of Sunpower.
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.
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 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 aimed to reduce costs and improve profitability going forward.
Please turn to slide number four.
I'm pleased to report that we have successfully raised $200 million of new capital commitments, including $175 million of second lien debt from so holding the JV between total energies in Gi P. That holds the majority of our shares outstanding which is inclusive of the $45 million bridge loan.
Financing already providing 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 five.
In the fourth quarter difficult market conditions continued driven by higher interest rates and net metering policy changes in California under NIM three pointed out.
As I will discuss further in a few moments we've already taken actions that we estimate will result in approximately $100 million of annualized run rate savings most of which we expect to be realized by mid year 2024.
We added 16000, new customers for the quarter as we transitioned away from NIM 2.0 installations, our backlog of 52100 homes. This year reflects a combination of retrofit and new homes channels, including our growing multifamily segment.
Retrofit backlog now stands at 15100, reflecting both our ability to execute on installations as well as the deliberate effort to resolve pending cancellations at year end.
New homes backlog remained mostly steady at 37000, 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 cost decline in the years to come.
And then further clarity on solar tax credits for domestic content will also come to light overtime.
Storage and power financial sales attach rates continue to be bright spots for the quarter with the storage attach rate at 76% and 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 the sunbelt to expand our offerings and include a grid grid tied option for consumers.
Some of our 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 to a combination of lease payment competitiveness versus higher utility bills and bonus tax incentives under the inflation reduction Act <unk>.
Somehow remain customer centric and agnostic toward lease or loan financing and we believe that our continued access to capital markets at the top tier residential solar company is a competitive advantage.
As we begin this year, we've decided to simplify the financial metrics. We provide you and we will no longer provide a calculation of EBITDA per customer before platform investment.
With our emphasis on profitability under current market conditions, we are shifting our attention towards gross margin and cash flow going forward and I will share the details on that shortly.
Please turn to slide number six.
We see several factors at work this year that we believe provide a highly visible path towards improved profitability and cash flow.
We've already executed on nearly $100 million of Cogs, and Opex savings, which we believe will recur annually with about two thirds of the savings from reduced Cogs, including the previously announced consolidation of Sunpower direct installation sites lower cost panels, lower freight costs and reduced overhead.
Furthermore, the majority of Opex reduction actions are related to labor costs with the remainder from facilities costs.
The cost to achieve these savings is relatively 9 million expected to be incurred in 2024.
Second we expect to benefit in 2024 from new relationships with key suppliers as well as lower cost of equipment, particularly panels as our supply chain to evolve and diversify we expect to see opportunities to provide more value to consumers and shareholders without sacrificing quality.
As supplier competition heats up over the next few years, we expect to realize as much as a 37% decline in overall equipment expense from lower cost panels, Inverters and racking systems.
Please turn to slide number seven.
We are pleased to be able to achieve material cost savings without having to sacrifice quality using panels. As an example, you can see that premium manufacturers are converging on panel efficiency.
At the same time best in class premium panel makers have also been able to achieve new levels of lower cost.
We believe we can continue to offer customers and dealers the highest quality products now at prices that are much more for them.
Please turn to slide number eight.
New homes performed better than expected in 2023 as the homebuilding industry proved to be surprisingly resilient in the face of higher mortgage rates.
Under our conservative assumption for slow growth in retrofit sales. This year, we expect new homes to take a larger share of our overall sales mix in 2024.
Total Q4, new home's bookings increased 18% versus Q3, and we've seen that momentum continue in early 2024.
We saw even better momentum in California, with an increase of bookings of 32% versus Q3.
New home storage sales under them three now in California increased 30% in Q4 versus Q3, holding steady at 22% attach rate.
From an install perspective, we saw Q4 installations increased sequentially, 19% versus Q3 declining only 4% year over year.
Our latest backlog estimate of 37000 homes reflects approximately 18 to 24 months of installation of depending on the pace of home sales themselves.
And 2024, we expect installations to grow compared to <unk> 23 in tandem with more new home construction.
Please turn to slide number nine.
Subpar financial continues to grow its footprint across our sales operation achieving a record high 65% customer attach rate in Q4 already entering the 2025 target range. We previously said at our analyst day.
This growth has been driven by strong consumer uptake of lease contracts, which comprised 73% of the leased loan financing in Q4 versus 26% the year prior.
We don't have raised nearly $1 8 billion of loan and lease funds over the past 24 months. We plan to continue growing this program with additional partner funds over the coming months. We're also exploring opportunities to establish a regular programmatic approach to project financing, particularly tax equity and we can.
To keep an eye on the securitized product markets for additional value opportunities.
Please turn to slide number 10.
We believe that Sunpower financial continues to bring multiple competitive advantages to the table, including one a lower cost of customer acquisition.
Two our customer focused sales approach, whereby sunpower earn similar origination fees for lease or loan products.
<unk>, a lower cost of capital driven by lower default rates from customers using higher quality equipment.
<unk> industry, leading remote monitoring system employing sophisticated digital analytics to identify problems early.
And finally, a longer history of granular customer payment data that goes back to 2009.
Please turn to slide number 11.
With U S residential solar market penetration of only 4% to 5% we view conventional electric utility rates as the primary competition for our industry.
The US energy information agency reports that average U S. Retail electric rates remained near all time highs as of November despite lower cost of bulk wholesale power and key fuels such as natural gas.
Price increases continue to hit the north Eastern and mid Atlantic States in California, with nearly 28 million potential customers in 10 states seeing increases greater than 10% year over year.
We estimate that more than 50 million potential customers reside in states, where electric rates rising faster than the cost of inflation.
In California, <unk> rates rose, 13% in January with further increases under review.
We believe that the steep cost increases and the impact of grid instability on residential customers continue to elevate the value proposition of residential solar as one of the most powerful ways to stabilize and reduce some electric bills <unk>.
Despite lower fuel prices the Edison Electric Institute is projecting a 20% increase in electric utility capital investment from 2023 to 2025 compared to the previous three years.
As these investments are recovered through electric bills. We continue to believe that the value of rooftop solar is likely to continue rising.
Please turn to slide number 12.
As we look forward to 2024 with a leaner operation in a recapitalized balance sheet I want to highlight what we believe is the most important differentiating factor that continues to distinguish sunpower from the rest of the pack.
Our customer experience that is second to none.
Despite the financial struggles we've seen these past few months Sunpower remains.
Top rated with customers, earning an a plus rating with the better business Bureau, and 4% to five star reviews with thousands of customers across multiple review sites.
Our reputation is hard earned through the hard work.
Thoughtful interactions of thousands of Sunpower employees at our incredible dealers. It continues to be enhanced with an improving digital experience that encompasses the entire customer lifecycle from system designed to energy management to ongoing and efficient customer support.
I'll now turn you over to Beth for more details on our Q4 results and then I'll close with some guidance for 2024.
Thank you Peter please turn to slide 14.
For the fourth quarter, we are reporting negative 68 million of adjusted EBITDA and $361 million of non-GAAP revenue.
Lower year over year installations at 16000 reflects the impact of reduced bookings since may under higher interest rates and the California three point Joe environment.
As well as the winding down of <unk>, two point or installation.
Increasing battery attach rates 2022 has been driven by NIM replay now demand in California, as well as lower cost options.
We expect to sell out of Sunbelt and shift to lower third party costs are lower cost third party batteries.
You too.
Adjusted gross margin declined in Q4, as a result of Sunpower direct pre install and install costs spread over lower volumes.
Costs are expected to improve in 2024 after recent restructuring actions.
Several items totaling $48 million.
<unk> also either not expected to recur in 2024 or with time shifted into Q1, including the restatement impact.
Adjustment for inventory write downs.
Warranty costs, mostly related to our commercial business that we sold in 2022.
A higher lease cost of capital on systems installed due to rapid interest rate increases which were unhedged.
And the delay of recognition reduced ITC warranty reserves on legacy projects from Q4 to Q1.
Please see the appendix for more detail.
Turning to the balance sheet, we ended Q4 with 87 million cash on hand, and $208 million of net recourse debt.
Inventory levels declined another $64 million to 261 million on December 31.
With efforts to reduce further continuing into 2024.
We continue to value our ownership of lease renewal net retained value and some strong using a 6% discount rate.
With growth in the portfolio, we now estimate the value of our stake to be about $320 million.
Before we turn the call over for Q&A I want to turn you back over to Peter for guidance on 2024 and closing comments Peter.
Thank you Beth please turn to slide 15.
As I mentioned earlier, we are shifting our reporting and guidance approach a bit to emphasize gross margin and cash flow rather than platform investment.
That said, we've decided against providing customer an EBITDA guidance on 'twenty for demand at this early stage, particularly as we intend to drive results. This year through a combination of restructuring carefully considered cost reductions and prudent working capital stewardship give.
Given the challenging market conditions, we are providing guidance on number one cash flow and number two gross margin.
With respect to cash flow, we are guiding to be cash flow positive for the second half of the year as lower inventory lower inventory cost and reduced opex I'll kick in.
We are also guiding to continue this trend to be cash flow positive for 2025 as well.
We are projecting a range of full year gross margins of 17% to 19% improving to greater than 20% in 2025.
We plan to update you with full year EBIT guidance later in the year. Once we've had the opportunity to complete the evaluation of our ongoing restructuring and recently announced recapitalization impacts.
We've deliberately been conservative in our strategic planning for the year and we're fully focused on goals for profitability cash flow and results as we work to improve our financial strength. This year to remain an industry, leading residential solar company for 2025 and beyond.
Please turn to slide 16.
This slide is largely the same one we showed you last quarter and continues to lift our view of the future as we reset in large forward into 2024 after a difficult 2023.
From a macro perspective, we continue to expect that increasing utility rates and lower equipment pricing will be tailwind for the industry. We also anticipate a more stable interest rate environment as well as improved clarity on how the bonus tax credits available under the inflation reduction Act.
For Sunpower, specifically, we expect to benefit from lower cost products as mentioned earlier.
Finally, while we have reduced opex and deemphasize plans for high growth platform investment. This year, we plan to keep an eye on long term opportunities for growth and investment.
<unk>, our level of cash usage up or down based on our expectations regarding the strength of the market in future periods.
With that operator, I'd like to turn the call over for questions. Thank you.
Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press one again.
Please standby, while we compile our Q&A roster.
And our first question is going to come from the line of James West with Evercore ISI. Your line is open. Please go ahead.
Thanks, Andrew Good morning, Peter and Beth.
Good morning, Jay and Peter.
Peter I'm curious.
Maybe if you could provide some context around the recent capital commitments that were made.
<unk>.
With Patrick at the town in GOP.
And kind of how that all came together.
Just kind of thinking through.
Their level of support because it's obviously a pretty clear that there's a lot of <unk>.
Support for Sunpower.
More to get a little more color.
Yeah. Thanks, James So.
I think the number one question on the minds of shareholders and investors has been our liquidity.
Appropriately so and so most of the reports I think that that I'd, rather they came out last year thought that sunpower needed something on the order of $100 million to get liquidity back in order. So I guess the first thing I'd put in perspective is the $200 million capital commitment is.
We're pleased I guess is the way to say it. We're we're pleased that that level of capital commitment because I think that puts us in a position to have the liquidity, we need to execute against our business plan. This year and a big part of the business play out as I mentioned in my opening remarks is getting us to cash flow positive and getting us back on this.
Positive Trail and then I think as you pointed out the second part of this that is a very big deal is that youre looking for signals from your majority shareholders total energies and global infrastructure partners are two of the most successful.
Companies and investors in the energy space globally, and you know when they put their capital behind something it's it's after a lot of due diligence and a lot of homework and a strong belief in the future of the company. So I really believe the second message here. Besides the fact that.
200 is a very big number is just the fact that there are so committed to the future of the company.
Right totally agree on my side and then what are your thoughts on the deed for additional lease capital as we go through this year.
Yes, that's a great question so to take a step back we had a terrific year and Sunpower financial as we pointed out in the slides that opening remarks really the idea that we could grow our attach rate from.
From 39% to <unk> 65 last year was great. That's a really great signal that more and more dealers and more and more customers are preferring to get their lease and loan financing from us versus other third parties so that trend.
It is terrific and we expect that to continue this year and really if you take a look at.
The capacity, we have undrawn on the loan side, we're really in great shape, we have $900 million of available capacity.
We're in a year, where most people believe interest rates will stabilize possibly have a chance to <unk>.
<unk> declined over the year and if loans begin to be more favorable we're in a really good position, but really really where we want to build a lot more capacity is on the lease side and as we pointed out I think it's.
It's true across the industry as well, but we just had enormous growth last year, because the value of leases increased over the value of loans. So we don't have anything to announce on this call, but I would say stay tuned because increasing or at least capacity is our top priority after today's call.
Got it thanks Peter.
Thanks James.
Thank you and one moment as we move on to our next question.
And our next question is going to come from the line of Colin Rusch with Oppenheimer <unk> Co. Your line is open. Please go ahead.
Thanks, So much guys can you talk a little bit about the pricing dynamics that you've gotten through a couple of quarters in California with non three pointed out.
Shifting the mix of what folks are buying can you just talk about on an apples to apples basis. How you are seeing pricing evolved in that market over the last call. It three quarters.
Yeah.
I guess two things on California, one is.
To be Frank we are disappointed that the market hasn't recovered faster than it has.
We did see some.
I'd say very modest recovery as we get to the end of the year, but clearly Nab 3.0 has had a big impact on consumer demand, having said that the consumers that are buying under the <unk> theres two characteristics I'd point out so far one is that.
As we talked about in my opening remarks, the battery attach rates are very high.
That's just for rational reasons for all the customers in California, Youre savings is maximized by the addition of a battery and so I would expect at some point you would all customers in California, who order solar panels.
Batteries will be seen as almost a standard product along with solar panels.
And then two what we're seeing is that system sizes have increased a little bit over now to point out.
A modest increase but it is a material increase.
Enough said, that's driving up a little bit higher overall rig per customer in California, but I think the big deal for California is really I think it's to me, it's questionable whether California is going to be able to meet its clean energy goals without reassessing, whether or not <unk>.
<unk> had.
Had the impact they thought it would and I think from our perspective, we're concerned that California's not in a position to meet its goals.
With the current program that's out there so.
We're working with our dealers and customers to make the best of the current program, but I would say the feedback from consumers in California and dealers is very consistent I think <unk> III Paulino has clearly slowed down demand.
And in the long run that's not great for for anybody in California.
That's super helpful. Thanks, and then in terms of your dealer strategy and how you are working with those folks.
The evolving landscape, both from a regulatory perspective, as well as from a capital perspective, and looking at kind of where you run into some issues with.
The dealer dealer channel can you talk about where you're seeing incremental need to and it does seem as if those relationships or evolve that strategy at all.
Yeah, well a couple of quick comments first I always like to recognize.
We were the pioneers in this business and building out a dealer network many years ago, the Sunpower dealer network and particularly our master dealers. They are the gold standard for this industry, we spend a lot of time reviewing both their their customer experience and also their financials to make sure that the quality.
<unk> to be a sunpower master dealer. So it's still very much a goldstar and it's a critical part of our our family and our future. So I've said many times, but our dealer network will be a part of this company.
I feel like forever, because it's such a critical part of our customer experience.
We grew our dealer count last year.
We grew it let's say, 10% on the installing dealer side and probably another 10% and then on installing dealer side and so we still see opportunity out there to expand our dealer network across the country I think right now in these challenging market conditions.
Number one thing we're focused on is making sure. We do everything we can to help these small and medium businesses be successful.
Like a lot of the big companies that have access to capital have struggled this past year with the change in demand that same dynamic has impacted these dealers as well. So our number one goal is to focus on helping build a strong viable long term business for each of our dealers in our network.
Perfect. Thanks, so much guys.
Thank you one moment as we move on to our next question.
And our next question is going to come from the line of Ben <unk> with Baird. Your line is open. Please go ahead.
Hi, Good morning, Thank you Peter.
Just maybe along those same lines.
Could you talk about discussions with your dealers or prospective dealers as well as at the home level the individual level just.
I know, it's very competitive.
With liquidity question marks.
Past can you just talk about how.
Environment changed.
Losing customers.
It's past us.
Yes, so I think this this level of capital commitment.
Our hope that that would put aside any concerns from any of our partners, including dealers on liquidity.
And the viability of the company as we go forward that would be our goal I think.
You are going through a liquidity challenge like we have.
It's thoughtful to believe that you need to continue to earn trust every single day with all of your key partners and I would certainly include dealers at the very top of our list of groups that we want to continue to earn and build trust with as we go forward.
One of the most important things that dealers tell us is they love being part of the Sunpower brand.
We are really aligned with our dealers on how do we think about the customer experience the importance of growing this business and the importance of.
Really expanding the market for clean renewable energy.
Think a lot of the dealers have been.
Working alongside us to really make sure that we all work together to to change our business model as we go through this more difficult challenging year, where demand isn't as strong as it was a couple of years ago, but from a dealer perspective, I just wonder I.
I can't reiterate enough how terrific our dealers have been they've been a really really big part of our success. When you take a look at the customer rating that we've achieved.
Often like to say that is in great part to the fact that our dealers have been aligned with us on really providing a great customer experience all across the U S.
Thank you.
As you move to more.
More and more.
Technology agnostic.
Our model.
How does that impact your dealers.
We have traditionally been used to.
Sunpower equipment always yes.
It gave them through the.
Thank you.
Yes, Thanks, Pat I think that that is a great question and I think it's been on the minds of a lot of people because our our.
Our strategy traditionally going back to the days when we were a panel maker ourselves was that having a exclusive differentiated panel made a real big difference in the market and I think for many years that was absolutely true, but part of the reason.
The slides we provided this time, we tried to show you. Our thinking is that the panel market has really changed a great deal over the past, even just three to five years and there is quite a bit.
Convergence on particularly among the Premier panel makers, who can make the highest quality highest efficiency panel there isn't one panel maker any more of that hold that spot there is really.
Two three or four panel makers globally that I think we believe our high equally high quality and capable of providing a really great customer experience for the life of the warranty and beyond so really the next thing that is how do you provide those high quality products at a much more affordable price.
I think the feedback from our dealers. So far has been very strong in this market in particular, we really collectively need to do a better job of providing not just high quality products, but high quality products at a much more affordable price. So it's early but I would say the signals for our equipment strategy had been.
<unk> have been very positive so far.
Thank you.
Thank you one moment as we move on to our next question.
And our next question from the line.
John.
John: Your line is open.
Well again.
Hey, great. Thanks for taking the questions I was wondering if you could add any additional color on the shift in the.
John: Battery solution away from Sunbelt.
So is it multiple suppliers one supplier just any any comments about the change in the product.
Yes, so John what we will provide more detail on that we're not quite ready to discuss that yet, but as we've talked about on our previous calls.
Sunbelt has a terrific product, we're very proud of it it was our first generation battery.
And.
We're excited to be able to sell down that remaining inventory and move forward, but looking forward in the battery business. It's really a game of scale and you need to have the size and scale. If you want to continue to invest in innovation and be able to provide.
High quality low cost options so.
As we move forward I think what Youll see us announce is partnerships with battery makers, who fit that bill those battery makers, who have the highest quality standards that match, our brand and our customer experience, but could also provide a great value and we look forward to sharing more of those details with you as we move.
Forward.
Alright. Thanks, So maybe just a quick follow up any comments.
John: Okay.
The other companies we cover have commented about the <unk>.
Cold weather situation in California, where that was a meaningful impact on <unk>.
Speaker Change: Thanks, Yes, the atmospheric rivers I think this is the second year in a row, we've been hit by this in California. So it is an ideal.
Prioritize the safety of our employees and our dealers over anything else. So when weather conditions exist that don't allow us to safely put people up on the roof and install residential solar our highest priority is the health and wellbeing of our people over.
Having more installations done so it has been.
Slow, but I would also say if you recall January of 2023, I believe there was a record number of atmospheric rivers Skinny in California as well. So we had relatively modest expectations for January and I think it's been in.
In line with those so far.
Appreciate your thoughts thanks.
Thank you and one moment as we move on to our next question.
And our next question is going to come from the line of Philip Shen with Roth Roth Capital Partners. Your line is open. Please go ahead.
Philip Shen: Hey, guys congrats on securing some additional capital here.
I'm going to ask a bit of a tough question here on dealer health I know you've already touched on this a couple of times that said.
Our checks suggest that some of your master dealer relationships may be strained.
As many of them have not been paid for a while.
For installation is already done.
Can you talk about the health of your relationships.
With Master dealers have you lost any exclusivity agreements you.
You had talked about.
Philip Shen: Some of these.
Dealer relationships in the past Peter.
How do you rebuild that trust and then as it relates to the priority of the new capital.
Can you talk about the order.
Philip Shen: People are getting paid.
Creditors vendors and then dealers or are you going to prioritize dealers first and then go to creditors and vendors. So how long ultimately does that capital last and what's the order of that.
Philip Shen: Capital flow.
Yeah, Phil so on the on the dealer piece I think I mentioned earlier really our dealer count.
Philip Shen: It has actually increased year over year, we continue to be very selective about bringing new dealers onboard in.
The interest level across the U S and becoming a sunpower dealer still remains high.
And we look forward to adding more dealers as this year goes on specifically on master dealers and then the dealers that we call dealer accelerator dealers, where we've made an equity investment that count last year was flat so yes.
Tough downmarket that count being flat I think is probably in line with what our expectations are and our goal has always been to continue to build a stronger and stronger partnership with all of our dealers and that includes our master dealers on our dealer accelerated dealers as we go forward and then on the capital piece, we really.
Philip Shen: We believe as I mentioned earlier that the capital provided.
It's us in a position to meet our 2024 business plan and get to a point that we're developing we're delivering free cash flow and positive cash flow in the second half of the year. Beth do you want to add any comment to that as well.
Sure.
The objective as Peter mentioned is that we've put in a conservative 2024 plan.
And that does still get us with the cost reductions that we put in place where we're going to be consistently free cash flow positive in the second half and.
And beyond that.
Speaker Change: Okay. Thanks, guys.
As for as it relates to the second $50 million tranche.
Do you guys anticipate needing to tap into that.
What might be some of the requirements in order to tap into that or is that available to you.
Whenever you need it and.
Do you see the need for additional equity or capital outside of the $200 million.
Speaker Change: Okay. Thanks.
Speaker Change: So we are going to continue to monitor the residential solar market.
It declined below our expectations.
We'll need to make additional moves.
<unk>.
Discussions with our sponsors on that additional $50 million are related to us meeting our business plans.
And as for additional financing, we are always going to be on the lookout to lower our cost of capital.
And we have a ongoing need as Peter mentioned, a couple of times for additional rounds of project financing, particularly in the lease space.
The only thing I'll add to that Phil is that.
The thing that looks uncertain. This year is really the demand side.
Our forecast for this year have been much more conservative than we were a year ago.
Particularly given what happened in 2023, so I think we're going to be on our toes with regards to our cost structure as well we're constantly taking a look at.
Are the costs, we have how do we how do we make as many of our fixed costs into variable costs and how do we keep our overall cost structure lean strong and in line with market conditions as we go forward.
Got it Peter Thank you very much.
Thank you and one moment as we move on to our next question.
And our next question is going to come from the line of Jordan Levy with tourists Securities. Your line is open. Please go ahead.
Thanks, So much I appreciate all the color guys.
You've got the near term financing concerns taken care of here I'm. Just curious how you think about the sort of resiliency profile of the go forward business and maybe this touches on the last question, but asked.
In another way do you believe now that youre in a position to handle a longer term trend and demand in and what sort of level, maybe just some thresholds around what demand levels would require additional financing.
Yes, so two comments on that Jordan. Thanks for the question I think one of the reasons that we continue to share the cost of retail electric rates is that fundamentally that's really the biggest driver of this business.
Speaker Change: In the long term.
And I think.
When you talk to customers why do they buy residential solar.
There's a group of reasons Theres certainly wanting to do good in the world and use clean energy instead of fossil fuels. There is certainly a theme around resiliency with grid instability, but the number one reason at the top of the list is really cost savings.
So as we see retail electric rates rising much faster than the cost of residential solar that spread getting bigger is really the.
The fundamental driver of bigger demand and this is still a market I mean, we have to keep in mind, even though last year was a very tough year still 4% penetration in this market.
<unk>.
Tens of millions of customers out there that we could save money for this month, if we can get in front of them with a lease offer our loan offer.
Our cash offer to help them get residential solar so really the fundamentals of this business from our perspective are still very strong.
On the cost side, what we've really tried to do was.
For perspective again in 2022, we grew revenue, 54% and I think last year, if I were to be locally self critical one of one of the.
Areas that we didn't do as well on was we still had a relatively optimistic revenue plan last year of 22% growth coming into the year and obviously that turned out not to be the case for the year. So the way we thought about it. This year is how do we stress test our top line and how do we prepare for scenario.
Speaker Change: In case demand declines and declines even more than we expect and so we've really thought about building our cost structure to be able to weather that storm. This year, if that makes sense.
That's really helpful. I appreciate that Peter and then maybe just as a follow up.
As we go forward here what are some of the major.
It's a market data point to a point or two to get a good sense of where you are coming in in terms of hitting profitability improvement target to hit sort of a second half full year free cash flow inflection or are there other things that you'd be tracking well.
Yes, definitely I mean, I think the for color.
Our year is definitely back half loaded and that's really a function of the fact that we're selling through higher cost equipment in the first half of the year and selling lower cost equipment in the second half of the year. So that part is pretty straightforward, but same thing for cost of capital our cost of capital.
<unk> is a little higher at the beginning of the year and will be lower in the second half of the year those two things plus the full year kick in of all of our cost of goods sold and Opex savings really create a very different picture for the second half of the year.
Want to give any more color on that.
<unk>.
With the restructuring that we announced a couple of weeks ago, we are.
In a position where most of the cost reduction for the year has been done we still have some ongoing productivity improvements that we'll be delivering through the year, but the cost reductions have been implemented. So we're looking forward to a much more cash flow positive year. This year.
Thank you all for all the comments.
Thank you and one moment as we move on to our next question.
And our next question is going to come from the line of Kashi Harrison with Piper Sandler. Your line is open. Please go ahead.
Kashi Harrison: Good morning, and thanks for taking the questions.
So first one for me I know, we're not getting customer guidance for 2024, but I was wondering if you could give us maybe some more color on the <unk> 23 installation mix specifically.
What proportion of installations, where California nm to what proportion of our California, and then three and then how should we think about non California.
Sure.
Kashi Harrison: So.
On the customer side I would say two things for color. One is as I said in my opening remarks, we do believe that the new homes business wind up being a greater share of our total customer count this year.
That's really due to the fact that there is a new homes deficit in the U S and frankly, new homebuilders have done a great job of managing higher interest rates and the economic environment more new housing starts.
For the most part means more new solar which is terrific. So.
I would expect that segment of our business to have an opportunity to grow in 2024, but we've been as I mentioned earlier very conservative in how we thought about.
The rest of the retrofit market and that includes our dealers sunpower direct and Blue Raven and we've been I would say our customer expectations. There are in line with the wood Mackenzie and the.
AUM analytics.
Forecast for this year, and then back to the fourth quarter.
For California them.
Most of the Californian them two O installs finished up by the end of the fourth quarter.
As we mentioned we did actually go through and really work hard to understand what customers in California were serious about really getting residential solar so we weeded out those cancellations and really got the installation is done at the end of the year. So I think you're really beginning to see the mix in the first quarter.
This year be primarily from from them three pointed out.
Okay got it.
Speaker Change: And then maybe.
A question on the business post restructure.
And following all the employee rationalization and cost that you are taking out can you give us a sense of the level of customer.
Speaker Change: The level of installations, you could do theoretically in a recovery scenario without adding more employees. So so in other words.
What is the level of demand that would require you to start making platform investments.
So the way we've thought about it it's a great question, we really have four different ways to go to market today.
Our terrific dealer network, we talked about earlier, we have blue Raven, which is.
As you know a part of the Sunpower family and growing and thriving across the mid part of the U S. And then within our direct business to give you. Some color we have the ability to do our direct business, both with our own employees and also with installing partners and so almost think of it as.
Our process with multiple hurdles.
When demand is uncertain or volatile or low <unk>.
Speaker Change: Probably won't put ourselves in a position where we're doing very much if any of our direct business and we will really rely upon the dealer network in those geographies when demand levels begin to increase.
We will be thoughtful about participating ourselves to make sure that we can cover customer demand with sunpower direct but even at the beginning of Sunpower direct.
We'll be looking for ways to keep those costs as variable as possible and using installation partners as a way to do that in the beginning before you have enough volume to put your own teams in place.
Speaker Change: The dream scenario is that.
Demand for residential solar and get so high that Sunpower direct task teams in the major metropolitan areas across the U S. But we're not in that position today and I think part of the rationalization.
22 to 23 was really kind of recognizing this new level set of consumer demand and so we're being I would say erring on the side of being cautious and thoughtful at this point.
Helpful. Thanks, and just one final one.
I apologize if this was mentioned and I missed this or are there some detailed somewhere but.
Speaker Change: What are the terms on the on the second lien note.
Speaker Change: Specifically, what's the interest rate on the loan from total <unk> and then how should we think about the maturity date.
So the interest rate on the second lien is 13% cash or 15% if paid in kind.
Speaker Change: And for both.
Amendment to our first lien the maturity was pushed out its a five year maturity and secondly, we will be after that.
Thank you.
Thank you and one moment as we move on to our next question.
And our next question is going to come from the line of Brian Lee with Goldman Sachs <unk> Co. Your line is open. Please go ahead.
Hey, everyone. Good morning, Thanks for squeezing me in.
Maybe a couple of follow up questions to the prior.
<unk> around the second lien term loan.
Brian Lee: 13% to 15%.
Brian Lee: Interest rate based on how you pay it.
There is also it looks like about $75 million 75 million shares.
Brian Lee: Laurence.
Being granted.
Just kind of how do they work the penny warrants work and then also just 13% to 15% cost of debt on top of that Thats kind of 40 plus percent of the shares out that they potentially could could receive and share compensation as well like I understand thats a sweetener in any of these financing packages, but.
That process around kind of.
Including that level of equity.
Exposure as well for for this deal.
So we actually look at look at this as excellent support from our key shareholders.
And.
Very important for improving our liquidity and getting us to the point, where we can be free cash flow positive in the second half.
The warrants are our penny warrants for a substantive share of the outstanding they do come in tranches, if we don't need to draw that second that last $50 million of financing then we there wont be as many warrants outstanding.
So it gives us the chance to work through the business plan at a little less.
Brian Lee: A little less dilution.
But the financing is there if we need it.
Okay Fair enough and then Beth you mentioned the first.
The first lien loan also had a maturity pushout.
Can you I know in the press release, you talked about a long term waiver what are the terms around the long term waiver and also.
Have any of the key covenants change I know liquidity interest coverage were the key ones equal or have any of the covenants themselves actually changed or what's sort of.
Brian Lee: The scope of the longer term waivers that you've received here.
Yes, so there is a maturity push out.
Brian Lee: Only covenants for 2024, our liquidity covenants, which are lower as we said in the press release.
The Q1 liquidity is $20 million $30 million for Q2, Q3 hundred $50 million for Q4.
Brian Lee: And then in 2025, we will start to ratchet up some of the other covenants that we.
Brian Lee: We have had in place in terms of net leverage ratio interest coverage.
Brian Lee: And asset ratios.
Yes.
Brian Lee: It is a.
Yeah.
Prady.
Good set of covenants that we can meet for 2024.
And then start ratcheting back to a normal normal situations through 2025.
Speaker Change: Okay fair enough.
One for me I mean, presumably based on that you don't need to post positive EBITDA in 'twenty, four and you would still stay.
Compliant given given the way the 24 scope of the covenants are structured.
Speaker Change: But I guess, if one is that right and then two what what's the thought.
Speaker Change: The rationale behind that.
No EBITDA per customer I understand customer count growth visibility those are kind of impaired given the current environment.
Restructuring the financing packaging, having just come together, but in terms of the unit economics, no longer being rather than can you kind of walk us through that.
Speaker Change: The process because I always thought that was a key sort of framework around the longer term profit targets for you guys. Thanks.
Speaker Change: So.
The first one is our EBIT <unk> ratios and our <unk>.
Our covenants have always been a trailing 12.
<unk> EBITDA so.
Given where we are at the moment.
Not having EBITDA covenants in 2020 for US is important and does not mean that we aren't going to have.
Speaker Change: EBIT.
Well, so I'd add one other quick point here, which is you're right, Brian The unit economics, which was a big topic in our analyst day. That's still is important but I think it's an important part of the story, it's really about the EBITDA per customer before platform investment given that this is a time where platform investment.
That will be.
A small part of our investment it really doesn't make sense to talk about EBITDA per customer before platform investment kind of a metric but.
Speaker Change: One of the reasons that.
Speaker Change: It was critical for us to make progress on battery attach and storage attach is if you go to the core economics of the business. We've traditionally been a residential solar company that just sold solar panels period.
So part of our investment thesis is the fact that we believed we could drive a bigger customer rang with batteries someday EV Chargers other programs, but also a critical part of this is making sure that every time someone does or leaser alone. They do the leaser along with us so once we haven't.
To reassess this year, particularly on the demand side and incorporate the capital will come back to you with EBIT guidance later on in the year and I think the EBITDA per customer metric will still makes sense as we move forward, particularly once we get through this.
Alright, Thanks, a lot I'll pass it on.
Thank you and one moment for our next question.
And our next question is going to come from the line of Andrew <unk> with Morgan Stanley. Your line is open. Please go ahead.
Great. Thanks, so much for squeezing me in.
Hey, just wanted to come back to the 24 guidance for a second I know youre, not giving volume growth expectations, but if I guess overlay market expectations, whether that'd be wood Mackenzie or other sources.
On top of your gross margin expectation. It implies that you still have a good amount of work to do on the opex side to get to a point, where you're generating positive adjusted EBITDA. So can you just give us a sense for how much potentially on a dollar basis, you expect to cut out of cash opex in 2024 versus the $330 million or <unk>.
So in 2023.
Speaker Change: So I think we what we announced in.
Few weeks ago, I think the bulk of that work is already done.
We announced a pretty significant.
Things in Opex.
Speaker Change: As well as some moves on that.
On our cost of goods sold and so the bulk of that work is pretty much done.
Speaker Change: And the other comment I would add Andrew for color as that.
As the.
Mix between our businesses shifts this year.
Speaker Change: We will likely do less panel only sales to dealers, so think of that as potentially a little lower margin a little lower ASP.
Speaker Change: And we will be mixing out higher in other segments like Sunpower financial and new homes.
That have higher Asps are higher margin, so I do think that.
Between the being more conservative in how we have planned for the top line and then really being aggressive on.
Leaning out the company and making it a much stronger opex and Cogs cost structure, we feel like we're in a good position to endure what what's likely to be still a pretty tough 2024.
Okay understood. That's Super helpful. And then I guess the last question I have.
Speaker Change: Just relates to Sun's strong.
It's clearly still have some residual ownership.
That JV is there an opportunity to potentially rotate that asset or sell down that residual ownership as another source of capital just thinking through other potential sources of capital from here to the extent demand doesn't improve in line with your expectations.
Speaker Change: Well, we would always look at all options as the sources of capital to reduce our cost of capital that's not something that we're actively looking at.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you and one moment our next question.
And our last question comes from the line of Michael Blum with Wells Fargo. Your line is open. Please go ahead.
Thanks, I appreciate it I'll just squeeze two quick ones in here.
Speaker Change: <unk>.
The first is just <unk>.
<unk> funding that you announced this morning will that definitively remove.
Going concern language in your financials and what's the path there and then kind of unrelated but can you give us any updates on your <unk>.
Speaker Change: Contract, that's coming up here with Enphase and a little bit. Thanks.
So while we are still in discussions with auditors and reviewing financial plans.
We do not expect at the moment Debbie going concern provision in their 10-K, that's coming in.
And then regarding Enphase.
No update to provide on this call.
There is still a terrific partner of ours, we really are quite aligned with how they think about the quality and the engineering and the support of their products.
And I think they've made also great strides in improving the.
The cost structure, and providing better value for consumers over time so.
<unk> had a terrific partnership with them as we go forward.
Speaker Change: I think when there is no new news to announce their battery and I are happy to share that more broadly.
Speaker Change: Great. Thank you.
Okay. Thanks, everyone.
We're very excited again about this new capital commitment of $200 million and were really focused this year on driving positive free cash flow and profitability. Thank you all for.
Speaker Change: Your questions today, and we look forward to talking to you next quarter. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Okay.
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Yes.
Speaker Change: Okay.
Okay.
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Yes.