Q4 2023 and Q1 2024 Complete Solaria Inc Earnings Call

May 2, 2024

Brian Wuebbels: Earnings call. My name is Brian Wuebbels, and I am the Chief Operating Officer for Complete Solaria. Joining me here today is T.J. Rodgers, Chief Executive Officer of Complete Solaria. We will be presenting the company's recent financial and operational results for Q4 of 2023, Q1 of 2024, and a business update. The formal presentation will be followed by a question-and-answer session. A few quick reminders before we start. First, today's call is being webcast. A link to the webcast can be found along with our press release on our investor section of our company website at www.completesolaria.com. Second, during this call, we will be making forward-looking statements based on current expectations. Actual results may differ due to factors noted in the press release and in our periodic SEC filings. We will reference some non-GAAP financial measures.

Brian Wuebbels: Reconciliations to the nearest corresponding GAAP measure can be found in today's release on our website. Last, questions can be submitted any time during the call using the question submission box found on your screen. With that, I will turn it over to T.J. Rodgers.

T.J. Rodgers: Thanks, Ryan. First of all, let me introduce people going, starting with you. This is, as he said, Brian Wuebbels, who's our COO. He is actually our CFO as well. We will hire to replace him. Since Brian is moving up in the company, I'd like him to introduce himself to you.

Brian Wuebbels: Yeah. Thanks, TJ. Just a little bit about myself. I joined the company about a year ago as the CFO, as TJ mentioned. You know, I started my life out as an engineer. I have a mechanical engineering degree from the University of Illinois. I've also got my MBA. Before I joined Complete Solaria, I was with a multinational company, and I was the president of the Control and Elevator division of that business, and that company was called Nidec. Before I joined Nidec, I'd actually spent some time in solar, quite a bit of time actually, at GCL, running their US finance operations. Before that, I was with almost 10 years with MEMC Electronic Materials and SunEdison, and with various operating and finance roles.

Brian Wuebbels: Prior to my experience in solar, which was about 10+ years, I spent my life at two large industrials. I spent my time at Honeywell for about 4 years and the beginning of my career, where I worked in operations and finance with the General Electric Company under Jack Welch's leadership. I'm super excited to be here. You know, like I said, I've been on the long road in the last year getting the company public, and I think what's really exciting about where we're at right now as the company is I can come in and provide some stability. I can also help the company move to the next level in quality, delivery, and cycle time, which T.J. is gonna talk about today.

Brian Wuebbels: I'm super excited to be part of this, transformation and work closely with T.J. as our new CEO. I'll turn it back to you, T.J.

T.J. Rodgers: Next is Will Anderson. I've introduced him before. Will is the founder of Complete Solaria. 12 years, 13. Will is still probably our best engineer. He's certainly in the software side, great, and he is the guy we go to to solve problems. I'll talk about stock grants today and how he helped us out. I'll wait till I get there. Last one is Siddharth Madhav. Siddharth is from Ayna. Ayna is a company that spun out of McKinsey. McKinsey, the famous McKinsey that we all know. The most highly known McKinsey group was Palo Alto. That group came to my company and helped me when I went to Enphase for a turnaround effort. I rehired the same group 'cause they'd been very, did a lot for me at Cypress.

T.J. Rodgers: Siddharth was the project leader for the Enphase turnaround. I think that one's pretty famous. That's the one that went from, I don't know, $115 today, and when I came in, they were $0.92. They were big enough that the turnaround isn't me coming in, pounding on the table. The turnaround is 15 guys working for a year to get a lot of stuff fixed. That is the level of work we're doing right now at Complete Solaria. Siddharth, you got a...

Siddarth Madhav: Thank you, TJ. As TJ said, my name is Siddharth Madhav. I help lead the team that is supporting Complete Solaria. I think I'll just home in on the topics that Brian covered: gross margin, cycle time, quality, customer satisfaction. The company is on the verge of lots of initiatives which will take time to bear fruit, but we're already seeing early results. It's a privilege for me and the team to work with TJ and his team on this effort.

Siddharth Madhav: Thank you, TJ. As TJ said, my name is Siddharth Madhav. I help lead the team that is supporting Complete Solaria. I think I'll just home in on the topics that Brian covered: gross margin, cycle time, quality, customer satisfaction. The company is on the verge of lots of initiatives which will take time to bear fruit, but we're already seeing early results. It's a privilege for me and the team to work with TJ and his team on this effort.

T.J. Rodgers: Okay, let's get on with the quarter report. First of all, we did our first 10-K this year, and that thing didn't get ready till almost the end of the Q1. We decided to put the Q1 report and the 2023 Q4 report together. By the time, of course, you get to the Q1, that's all you care about, and you wanna know about the Q2. That's really what we're gonna talk about today. Press release. I wrote this myself. I picked the title that I thought would tell you the most important thing that happened, and that is we're to be self-funded in the quarter we're in right now. T.J. won't be writing any more checks.

T.J. Rodgers: That's even more important for me, and that's a lot of work, and I'll show you what that is. The bullets. First talk about revenue. Our Q1 revenue was $10 million, half of the prior quarter. We got cut in half in one quarter, even though our backlog was $17.8 million. The revenue drop is due to a shortage of working capital. We can't buy panels to put on people's roofs, therefore, we can't charge them and get our revenue. That's where we are right now, and that's. We're running just super lean on capital. The working capital crunch is due to an unresolved loan situation with one of our private equity funding firms, Carlyle.

T.J. Rodgers: Our revenue in the second quarter, we already had a very lean April, will also be limited, and depending upon whether or not I get a few hundred thousand bucks is all I need. Maybe I'll do crowdfunding. A few hundred thousand bucks, we can be on the high end of that. Okay, our gross margin was 24%. That is not our target. Our target is over 40%. With $10 million in revenue, that was pretty good. We've got a forecast to break the 30% mark in Q2, again, with the low revenue hanging over it. Headcount and employees, we now are down to 109 employees. We started last June with 428. That's almost exactly three out of every four.

T.J. Rodgers: Pretty tough layoff, tougher than I've ever been involved in before. The team handled it well. I'll show you the tranches that we did. All remaining employees have now been awarded retention stock options. That's the way Silicon Valley works. This company did not work that way. We now have given out options. I'll talk about that. Our OpEx is now $5.5 million. That's down from $12.9 million a year ago quarter. We're forecasting next quarter, we've got some cuts we've already made to get to $3.6 million. That's almost a factor of three down in OpEx. In terms of OpEx, we're about where we wanna be.

T.J. Rodgers: Sales commissions, the way our industry works, for those of you who don't know it, is that you typically buy your orders if you don't have a sales force, and an order costs you 33, 34% of sales. You pay for that, a lot of it upfront, and the order fallout rate is something on the order of 30%. A lot of times you pay, and then the order doesn't happen. The guy that changes his mind, whatever. This is, if you wanna ask, the weakest part of our profit and loss statement right now is getting control of these orders. By the way, last quarter, we dropped from 38%, which is higher than the industry, to 31%, which is better than the industry, specifically from having worked on this problem.

T.J. Rodgers: We've got farther to go. The last equity input in the company is $5 million in January. We now believe based on we have very accurate cash flow capability, this is gonna last us up to through Q2. I put to July 2024 here. We'll need more money at that time, but we're not voracious for money. We're running real close to cash flow break even. Here are the finances from the report. By the way, that report, if you go there, is this where they go to get the report? Okay, you go to this and this report is available. Okay, so here's the non-GAAP numbers. Look at revenue, gross margin, operating income, funding, cash flow, and cash balance at the end of the quarter. We're looking at the last quarter before Q4 of 2023.

T.J. Rodgers: This is a report for Q4 of 2023 and Q1 of 2024. You can see the cash crunch has taken our revenue down dramatically. We do have orders, and I'll even show you our orders. Okay, story number one is normally, if your revenue gets cut in half and the quarter is over. The fact is our losses, which were $12 million last quarter, went to $6 million. We actually cut our losses in half, meaning our cost-cutting effort offset a massive revenue decline, and we actually cut our losses at the same time. Of course, that projects forward. I'll come to that later. There is the last, we hope, $5 million bucks. You can see our funding, what's required.

T.J. Rodgers: You know, your cash balance is kind of an artificial thing with your operating income and what's gotta fill in from funding. As you can see, our funding has been dropping dramatically, and this quarter, which I've not forecast, is zero. Second thing I wanna talk about is gross margin. In the last quarter, even with $10 million, we had 24% gross margin. We have a whole team working on gross margin. We're very, actually very proud that we got hammered this badly. If you look in the year-ago quarter, we had 2.5 times more revenue and the same gross margin. All of that came out of cost. We're proud of that. That's been painful. It's just not been an easy road. Okay, we changed.

T.J. Rodgers: I became a week or so ago, the CEO. Our CEO, Chris Lundell, is from Salt Lake. He was our man in the corner. He was the steward of the place. Right now, we need. I helped with cost-cutting, so I was kinda like a driving force. Now we need to raise some money, and we need to do some M&A. I've done a lot of those in my career. When I was CEO of Cypress, I acquired 26 companies in 34 years. I even have a spec for it. What a surprise. T.J. Rodgers's objective as CEO. There's really two points. In the press release about a month ago, I said, "I am not willing to work for Carlyle for free anymore.

T.J. Rodgers: In fact, I'm not willing to work for Carlyle at all," and that's still true. That's got to get resolved if we're gonna go forward. When becoming CEO, I'm 76. All this stuff happened literally when I take one vacation a year. I go sit on the beach in Mexico and read the book I didn't have time to read, and I got the call down in Mexico, more like 20 of them in one day. I took over, and therefore I want a well-defined endpoint. This is not career two for me. We're gonna have one of two things happen. We're gonna have success, and I'll define that, and it's vague right now. I'll quantify it later.

T.J. Rodgers: When we're on solid economic footing, that means we got a bank account, and we're not rationing capital and telling stories like that. Growing rapidly, meaning we're taking off from that revenue trough, and in a solar world, it's not that great right now. We're recovering back to our old revenue. We've routinely had revenue in the low $20 million to the low $30 million per quarter in the past. The failure point is when I believe that the chokehold that private equity debt holders have on us, and I'll talk more about that later, will prevent the company from ever being successful. I'm not willing to waste my time, and I am willing to walk off of my own investment. We already introduced you to Brian, so I won't do that. He's our COO.

T.J. Rodgers: During the quarter, we reorganized into product lines. When I ran a chip company, in my industry, you ran it with product lines, and the studs in the semiconductor company were the seven product line managers who all made silicon things, but they were different chips made differently for different customers, and they really were different businesses. We've divided into product lines, one for California, one for rest of US, and that means for us now Texas and the East Coast, Massachusetts, Connecticut, New York, and one for Starbucks and other new homes we have. People don't know much about Starbucks, but it's a pretty interesting opportunity. We've already upgraded 33 of their outlets, and we got another 42 contracts. Here's a Starbucks solar awning.

T.J. Rodgers: A lot of panels up there, 50kW, so this looks good, and it makes a statement about being committed to solar. It also will cut your electricity bill way down, because it produces a lot of power. Okay, headcount. I've shown this graph before. Number of employees starting at 428 back in June of last year. The last RIF took us down to 109. Like I said, I've never been through it before. The companies I've worked for or have run, typically if you do a 5% layoff, you get screaming and crying. If you do a 10% layoff, you get temper tantrums, and this was the most severe I've seen. It also obviously says the company was fat, and I used exactly those words.

T.J. Rodgers: I actually used the term morbidly obese, so, with them. Here's our RIF number one. It was difficult. I'll show you. You notice this climb here. I'll talk about that in a minute. When you get to 109 people, then the math, even for a $10 million quarter, for 109 employees, the math works out to be $367,000 per employee per year. That's right there even a little bit better than Sunrun, Sunnova, and SunPower with only $10 million a quarter per revenue. The point is there's a huge amount of leverage in our company for dropping through orders. We have a lean and efficient company. We've had just a quarter ago or two quarters ago a $24 million quarter.

T.J. Rodgers: That number starts to approach $1 million, and any company that has $1 million per employee per year is a viable company in any industry. Here I told you we laid off, and then we had the backsliding. It's classic. I have a system called the requisition auction that is requisition as in employment requisition to hire somebody. All companies typically have hundreds of these, and they are the giant waste of time and a big game. I managed to get rid of them at Cypress. The way they work is simple. There are no reqs. You can interview anybody anytime you want, and the only way you get to hire somebody is if somebody else quits. Now I'm talking about now the stasis in headcount.

T.J. Rodgers: You can go up and down by adding and subtracting reqs from the mix. Let's suppose you're trying to hold headcount. You get a bi-weekly report exactly who left. Of course, it's denominated in US dollars, so you're dealing, this is done in US dollars, so I'm gonna for sake of explanation talk about heads. You go to your staff meeting. The president runs it, and the VP of HR comes in and says, "Mary Jane in marketing quit last week." You got one req. The question is, what do you do with it? It's a very valuable asset. This builds up the mentality of people are a valuable asset, and you don't waste them, and you don't have extra ones.

T.J. Rodgers: You go around the room, and each VP argues why he or she wants such and such a person. What I loved about it was it used to be nine VPs against T.J. I would argue your efficiency isn't that good. You should get more per person per week out of that fab or, you know, you should be able to design a chip with so many people. I was always on the end of one argument on the wrong side of it. In the new method, the req gets thrown on a piece of table, you know, meat flies onto the boardroom table, and then the VPs start talking about why the person they want is most important. They also learn, don't try to get 18 reqs. Don't hire a recruiting firm. Find the one person you need.

T.J. Rodgers: Take your time to find the really right person that will change the company and bring them in and make a compelling argument that overwhelms the other guy's compelling argument. That's called a requisition auction. That's how it works. It really does work. Here I didn't have it, and I saw the classic backward drift. Here I turned it on. In this case, we had it turned on with less than one-to-one replacement. As you can see, even though we were really lean, we were drifting downward at a new record low level. That's the requisition auction. I actually filmed a staff meeting, and the VP of HR came in and did say Mary Jane in marketing left. Then we decided who would get that. By the way, the way the system works, think about it.

T.J. Rodgers: Your attrition, the people that don't want to be there, may be not that productive. You can rehire if that is an important position. It's very unlikely that somebody who quits is going to be more important than the most important person to hire in the corporation. That's what you get. You have this turnover, and less important people go away, and key people get hired. After you do that for a year, it changes your company. By the way, this is very scalable. Think about a 1,000-person company. They got a 5% turnover. That's 50 people a year. Okay, 5% turnover is moderate or even a little bit low. Well, 50 people a year is one person a week. The req auction means every week VP walks in HR and says, we can hire one person, maybe two, maybe zero.

T.J. Rodgers: Then you have the argument, then you hire the person. A year later, you have 50 people that the consensus of the executives are key people, and you don't have 50 other people whose names you maybe even can't remember anymore. That's how it works. Now I want to show it to you in action. This was truly Mary Jane in marketing quitting. Then we're trying to decide who gets it. I was going to bring in my hat today. I forgot it. There's the req auction in action. By the way, that system I just described comes out of a book I wrote in 1992. That book was the story of building a semiconductor company from 1982 when I wrote the business plan in my living room, Cypress Semiconductor, to getting it to $100 million in revenue.

T.J. Rodgers: It was all the things you had to do to build a company. It's systems for hiring, systems for giving raises, giving out stock, measuring efficiency, speccing and bringing to market on time new products, et cetera. Each time, back in those days, we had no tools, right? We didn't have IT departments, which really isn't that bad, okay? We ended up having to use the tools we had. Word, in that time it was WordPerfect, Excel, in that time it was Lotus 1-2-3, and the other, and PowerPoint. That's what you had to run a company with. You had to run a chip company, so it was not an easy company to run. At age 10, I worked on writing all those systems down. What's interesting, the book didn't sell very well.

T.J. Rodgers: The reason I have a picture of one to show you here with a brand new clean cover on it is that I have several cases of them in my study. It turns out this book is exactly right for where these guys are. They don't have a lot of money. They don't have an effective IT department. They need to build a company. Investors don't care about any of that. Okay, fab. We call the area where we make new systems, solar systems for people's houses a fab because of my background. It is a virtual fab in that there are no physical objects working through it. If you look at a fab in semiconductors, you got a box that's got wafers in it, bunny suits, and the boxes move through the fab from step to step.

T.J. Rodgers: Typically, you have something like 35 or 40 masking steps. Each masking step has two or three operations. You have something like 100 operations. Our fab has 42 steps. We've documented it semiconductor style. Each step has got a spec. It's not perfect yet. Every time we mess up something, we make that spec a little bit better. We are getting better. The numbers, and I'll show you in a minute. Okay, this is jobs. Our fab, we used to have things back in the non-computer days called lot travelers. They'd move the silicon. The operator would come in. They'd mark the step they're at. They'd mark the machine number. They'd mark the lot number. They'd go and do the operation on the machine, pulling up the recipe that they were supposed to.

T.J. Rodgers: There'd be an output measurement, thickness of a layer, whatever, and they'd mark that down. Then that lot traveler would move through along. At the end of the line, you'd have a record. That also is computerized on a silicon lot. You can start doing yield analysis and cycle time measurement and stuff you've got to do to make a fab run right. We exactly have a fab, only we have the lot traveler. The things that move around in the world are out in Texas or Southern California. We treat it like a fab, and we think about it like a fab. Okay, I'm now looking at the number of jobs in the fab, and that's 2,000, 4,000. This is back in January 2023, and everybody in the company tells me those were the good old days.

T.J. Rodgers: We started out saying 2000 is what we can handle. 2000 is what we can handle and not screw it up. What screws you up, of course, is each job has its own special problems. Like, the city won't give you a permit because the person has an unpermitted structure, and they'll shut you down for that. That's illegal in California, but legal everywhere else. Or the financing got done and then the date on the financing expired, and the financing expired. Now you gotta go get refinanced, et cetera. I can name 100 of them. These are the defects that pile up, and when you have a lot of jobs in the fab, those defects end up being pretty important. They slow you down, and that's what happened here.

T.J. Rodgers: Here you see, this is when I came in on 23 June, and their inventory was big. For fab guys, this is called back-of-the-envelope analysis on the inventory, and I said, "You guys have bloated inventory." I said, "You know, you gotta cut down on the inventory." They said, "No, we're not gonna do that," in the standard way, ignore me, and then go off and do what they want. We went a little bit longer, and when we got to that point, I send out the memo, "No new jobs are to go in our fab. None." That means we're gonna turn away orders. Yep. If we don't have orders, we might not have revenue. Yep. If we don't have revenue, we might die. I go, "Bingo.

T.J. Rodgers: You better get the problem fixed, don't you think? That kind of shutting down on authority is often used in the real world in manufacturing, where when you screw something up, it's not a recoverable error, getting another permit. It's an irrecoverable error, ruining a wafer that never will produce revenue. There we shut her down. When did we turn it back on? I should have put that in here.

Will Anderson: November.

T.J. Rodgers: Okay. I didn't really hang in there too long. I turned it back. We had this drop, I remember this drop here, and I turned it back on. But that broke the problem, and then the inventory came back, and the news today is we now have 2,000 lots in the line. I have the shutdown. Now, what's interesting is when we started, our cycle time was 112 days. We managed to hold that cycle time. That's way too slow, just FYI. This is cycle time from order to install, complete. We managed to hold it, but it's not good enough. You can't react quickly enough to problems. You can't flush your line. You can't take advantages of new orders if you're that slow.

T.J. Rodgers: We started working on cycle time, and cycle time primarily is getting rid of quality defects. That in the semiconductor scope, first pass yield. You want something to go to a step, go through the step, get it done right the first time and move on and do all that in a fraction of a day. Today, by the way, we have a couple semiconductor experts that are helping us on this problem in the line. Their work, which is primarily quality, has brought our cycle time down to the 34- to 40-day. Meaning, when you're here, you can do 2.5 cycles per year, so you can make 2000 times 2.5 lots per year. Here, let's say, let me use 34, it's a month. You can do 12 cycles a year.

T.J. Rodgers: You can do 24,000 lots a year, so you're getting more out of the same fab. It's a very powerful effect. That's where we are today, and if I had to name one thing that changed the company, it's that. Now the other point is, this is our target, and let's take that as a given. I'm gonna suggest it's not good enough in a minute. That had $56 million of revenue in it. When you run a fab like this, you're taking money, and you think about roofing a guy's house with hundred-dollar bills, and they stay there for months. Then you do another one and another one and another one, then you run out of money, and you borrow some money, and that was the problem.

T.J. Rodgers: Of course, what we've done now is we've taken that money back out, or the fraction of it that was still left. You lose some. We're down here. I did a calculation today, and it's again back of the envelope, but it's not far from wrong, and within a week it'll be a paper on exactly what we have to do by our consultants. I think we should have 1,000 jobs instead of 2,000. I think we could maintain our revenue with half the WIP, half the money in WIP, work in process. That is what. That's the next step here now that we've had a nice move to where we are. By the way, I think this, these number of days can drop some more as well. Okay.

T.J. Rodgers: Well, given that tech talk, I know, for many of you, I'm speaking boring stuff. Let me talk about cash flow, break even, and profitability. Last quarter, $10 million cash limited, talked about it. To get back to our $25 million quarterly revenue, that's a $100 million runway. I'd be happy as heck right now to have a $100 million profitable solar company, and it's very doable. We're gonna need about $11.5 million more of working capital. Even with fast cycle time, you do have to have stuff you buy and put on their roof, and you're holding, you're paying for it until you turn it on, and then they get the money from the finance company and start paying you back.

T.J. Rodgers: Another thing, being cash shy, we've piled up $13 million of accounts payable. Some of it's not okay. Like the lawyer who checked this pitch today for accuracy, so I didn't mislead anybody. We owe him money, millions. He did it 'cause he likes us, and he's trying to help us. We've got there between those two things, there's $25 million. In my career, I've raised billions of dollars. I've had single offerings that were in the old days, right? This is back. Even then, I would have $600 million offerings. This offering is not a big deal. Problem is, if you have somebody saying you're in default of your covenants, and we can call it, and then you call their bluff and say, "Great. Come on in.

T.J. Rodgers: Run the company. Here's the keys through the front door." Of course, they go, "Well, you know, we'll let you work on it for a while," hence my statement I made before. We've got to get past that because nobody's gonna let us, no, nobody's gonna give us money in an offering with the hammer hanging over our head, and that's where we are right now. We need Carlyle and Kline Hill to agree to a debt to equity swap. They made profit on us on the debt, significant 'cause the debt's high coupon debt. They can roll the whole thing over into equity, and I'll make money for the shareholders if I'm still around, and this company is still alive. I am quite convinced we can make money for shareholders. Now, this I wrote this data last night.

T.J. Rodgers: I wrote this thing last night, and eight minutes after I got it done, the lawyers called me up and said, "Kline Hill. We got a deal with Kline Hill." That's one of the two equity firms. They invest in Complete Solaria with a debt for equity swap. The deal was 9.8 million shares. That's 19.9%, the largest amount the board can authorize without a shareholder vote, in return for all of their debt. They also are gonna buy 3.7 million shares of Complete Solaria. Obviously, I was overjoyed on that. I have Mike Beagle here. This is gonna be ugly. He's on a cell phone. He's the president of Kline Hill. He's in New York.

T.J. Rodgers: Mike, I apologize in advance for all the bad things I've said and will say in this talk about New York. Why did you do it, and thank you very much.

Mike Bingle: Hey, TJ, first of all, thank you so much for including me on this call. I'm very excited about everything that you're doing, everything going on at the company. For those who don't know Kline Hill Partners, we are a $4 billion diversified secondary fund. We typically provide liquidity to investors in private assets, and we only get directly involved in companies when we see there's a huge potential upside. We're super excited about everything going on in Complete Solaria, and it's like three things. It's the Complete Solaria platform, the technology, everything going on at the company, the management team led by TJ, and we're excited about the unlocked cap table. Talk about a little in a second. With regards to the company, you know, the solar space is huge and expected to grow substantially over the years.

Michael Bingle: Hey, TJ, first of all, thank you so much for including me on this call. I'm very excited about everything that you're doing, everything going on at the company. For those who don't know Kline Hill Partners, we are a $4 billion diversified secondary fund. We typically provide liquidity to investors in private assets, and we only get directly involved in companies when we see there's a huge potential upside. We're super excited about everything going on in Complete Solaria, and it's like three things. It's the Complete Solaria platform, the technology, everything going on at the company, the management team led by TJ, and we're excited about the unlocked cap table. Talk about a little in a second. With regards to the company, you know, the solar space is huge and expected to grow substantially over the years.

Mike Bingle: We see their technology and what they can offer to, you know, to the residential market throughout the US as being a like very compelling offering with like substantial upside. It's a huge opportunity. Right now, Complete Solaria is very small, so there's a huge amount of upside there. Second is the management team led by T.J. The thing there is he's a guy and they're a team that thinks big and can execute big. You've got this smaller company, huge opportunity, and people that are there that can execute on a huge amount of growth. You know, obviously, everybody knows T.J. has been like very successful. He's been fantastic to work with.

Michael Bingle: We see their technology and what they can offer to, you know, to the residential market throughout the US as being a like very compelling offering with like substantial upside. It's a huge opportunity. Right now, Complete Solaria is very small, so there's a huge amount of upside there. Second is the management team led by T.J. The thing there is he's a guy and they're a team that thinks big and can execute big. You've got this smaller company, huge opportunity, and people that are there that can execute on a huge amount of growth. You know, obviously, everybody knows T.J. has been like very successful. He's been fantastic to work with.

Mike Bingle: Same thing with, like, a very high level of quality across the whole management team. Then the last part where Kline Hill's coming in a little bit right now is what we're very excited about, is unlocking the capital structure. That has been a little bit of a noose around the neck of the company, and that probably has been the number one thing holding the company back over the recent past. We're very excited to convert our debt into equity because we see a lot more upside on the equity, from an equity standpoint as we and Carlyle looking to do this jointly together. We would be doing this, you know, as and when Carlyle is also agreeing to come alongside with us on this.

Michael Bingle: Same thing with, like, a very high level of quality across the whole management team. Then the last part where Kline Hill's coming in a little bit right now is what we're very excited about, is unlocking the capital structure. That has been a little bit of a noose around the neck of the company, and that probably has been the number one thing holding the company back over the recent past. We're very excited to convert our debt into equity because we see a lot more upside on the equity, from an equity standpoint as we and Carlyle looking to do this jointly together. We would be doing this, you know, as and when Carlyle is also agreeing to come alongside with us on this.

Mike Bingle: They're, you know, reasonable, very smart investors, so we're, you know, really expecting that to be coming out shortly as well. It's a tremendous opportunity for investors. If you just, like, stand back, again, it's like Complete Solaria, industry-leading company, amazing platform, tons of room to grow into the industry. TJ and this management company thinking big, executing big. Now this capital structure will wipe out this massive entire layer of debt, free the company up to be much more nimble. In addition to converting the debt, we're also excited to be putting capital into the company. Thank you. Thank you, TJ. Thank you everyone at Complete Solaria. We're very excited about the prospects.

Michael Bingle: They're, you know, reasonable, very smart investors, so we're, you know, really expecting that to be coming out shortly as well. It's a tremendous opportunity for investors. If you just, like, stand back, again, it's like Complete Solaria, industry-leading company, amazing platform, tons of room to grow into the industry. TJ and this management company thinking big, executing big. Now this capital structure will wipe out this massive entire layer of debt, free the company up to be much more nimble. In addition to converting the debt, we're also excited to be putting capital into the company. Thank you. Thank you, TJ. Thank you everyone at Complete Solaria. We're very excited about the prospects.

T.J. Rodgers: Eleven o'clock last night, having gotten the news, I had to figure out what to say that was true about Kline Hill. I said, "Thank you, Kline Hill, for your confidence in us. I would like to sincerely thank Mike Bingle and his team for working with us literally for years in supporting our company." Thanks. Okay, conclusion. We're alive, and we're starting to improve. I won't claim victory yet, but we have a different company than nine months ago. Our fab is doing a lot better right now. We've had a vigorous but painful reorganization. We don't need any funding until July. I had this in last night.

T.J. Rodgers: We have to come to terms with two private equity groups, and I put this one in. We got one left. If we get that, then we can go raise money based on merit. My last point was last night, if we survive, our newly lean and fit company can become profitable and grow. That's for a question in case you ask it. That's it. We like to take questions. There are electronic texting kind of things.

Brian Wuebbels: Thank you, TJ, and thanks everyone for joining the call. We're gonna now move into the Q&A section. If you have any questions, you can go on the link that's on the webcast, and you can type your question in directly. First question I've got here, TJ, is from Derek Soderberg from Cantor Fitzgerald. It says, "In the event that Carlyle is refusing to convert their debt, what is the most logical way for the company to solve the working capital problem and return to the $100 million annual run rate?

T.J. Rodgers: I'd have to ask other questions. Let me tell you something. Our contracts with Carlyle, we have two of them. These are debt contracts, right? Give me money, give me interest. Then, of course, there's covenants. One is 84 pages long, and one is 55 pages long. I can't go to the bathroom without calling New York. That ain't gonna happen. Answer number one is, if that structure, and I used the word knee in my neck in a prior communication, stays in place, I'm gone, and I don't think the company's gonna make it. Maybe it will. You know, Carlyle is a big company. They've got a lot of solar companies.

T.J. Rodgers: Maybe they got a hotshot that wants to come in, get a lot of the stock at less than a buck, and that would be fine with me, and I'd do everything in my power to help the guy out because after all, I got a bunch of money in the company. It's not in my interest to do anything negative. The best way is a debt for equity swap, assuming you can agree, and that's a big assumption. But we'll talk. What I've got to be able to do is run the company. Right now, I can't raise money with equity. I can't raise money with debt. I can't sell an asset unless I get written permission, and the written permission always has a Now Therefore clause and then a few more pages. Can't work that way.

T.J. Rodgers: That, that's gotta end. Other than that, we'll talk. I'll leave it there. We'll talk.

Brian Wuebbels: Yeah. Thanks, TJ. We got another question here. It says, "Dear, Complete Solaria management, under the assumption that the debt-to-equity swap with Carlyle completes soon, what would be the approximate break-even revenue?" There's a second question as well. We'll go with the first.

T.J. Rodgers: All right, I read that question five minutes before showtime here, and it turns out we obviously ask that question to ourselves all the time. That's the question. I'll give you this. This is a large document, and I picked out one page. What it is is three parameters that matter, commission percent, gross margin percent, and this is gross margin on the solar. Commission is treated separately. Then OpEx. Our OpEx is headed to $3 million next quarter, 3.6 and less than 3 after that. That's kind of a given. This table defines for a matrix of percentages what is our break-even revenue. This says at 30% commission, we're currently at 31%, and 47% gross margin, our break-even revenue is $16.6 million.

T.J. Rodgers: That break-even revenue could be a lower gross margin and lower commission, yet it's quite possible if we work on getting an indigenous order creation effort in the company, and we're paying for cost for orders as opposed to the higher profit that we can get down to these levels. Right now, I just showed you 24, 25 percent. That is based on $10 million of revenue. We can see how to get into the 40s pretty well. The answer to your question is somewhere between 90 and 99 million dollars a quarter. The real numbers are here, and $60 million is an achievable number within a couple of quarters. I don't know how long it's gonna take to grow back from $10 million.

T.J. Rodgers: I don't know how much damage has been done. Right now, I know there's a robust market for solar. I forgot to show you. Let me show you this. Okay, this is the graph I showed you. This is inventory and jobs, and then it divides it out by where it is. This is pre-construction. Think of orders. This is post-construction, orange. Then up here is pending PTO. That's power turn-on. This is the system's in, and it's we've already been paid for it, and we're waiting to turn it on. This is a place where when you get in trouble, this bulks up. You see the good old days turned into the not so good old days when that one bulked up. Okay.

T.J. Rodgers: Here's our order backlog that peaked up when we were getting orders, and they went into fab and didn't move, or we couldn't put them in the fab because the fab was jammed. Notice what's happening here. They're piling up again, and it's because we can't service them. I infer that this means there's business out there. Utilities are charging more and more. They're extremely inefficient businesses. People don't like them. All you gotta do is go put solar on their house, and they'll appreciate it. The faster you put it on, we keep tracking that promoter score. The faster you put it on, the more they like you. The recipe's pretty simple. This little fab right here is complex, and it's kinda obvious. You know, you say, well, it's silicon fab.

T.J. Rodgers: It's got equipment, it's got science and all that." This one's got 5,000 jurisdictions with 5,000 different sets of rules in it, with a lot of people who really don't like you or solar, and you've gotta somehow make it happen, and you've gotta get funding for it in a 7% world. This particular problem, although there's no big technology in it from a company point of view, is a significant problem. By the way, any companies you see having survived this little downturn, I think we're getting near the end. I think we'll have a better summer. Those are good companies that are well-run.

Brian Wuebbels: Yeah. Thank you, T.J. You answered his second question. The next question comes from Thomas Merrick at Janney. Using the fab chart on page 13, will you discuss the improvements in gross margin you've realized over the past 12 months?

T.J. Rodgers: Okay. Do we have Finform one here? We'll have to bring this out of our head. We obviously track that. What is our record for gross margin?

Brian Wuebbels: 49%.

T.J. Rodgers: The company at one time in its life made 49%, that's how we chose the 47% gross margin. Right now, we're looking at operational issues and financing issues that don't get us into the 40s. We can see easily how to get in the 40s. There's also a tailwind in gross margin. China Inc. has got this little problem. They use slave labor to make silicon, and the world doesn't like it, and they shut them down. They move plants to Malaysia and Vietnam to circumvent the shutdown, and now there's a circumvention. Their panels can go to Europe, can't come to the United States. There's been a dump of panels, and the business is going down. There's been a dump of panels on the market. Our costs are gonna go down, at least our equipment costs.

T.J. Rodgers: One of the things we're learning from Ayna is how to buy stuff. We're not very good at that. We kinda pay retail, and we kinda do ad hoc purchasing. Sometimes we do purchasing on the way to the job, and obviously that's bad. In Indianapolis, we've got a rent-a purchasing group that's pros, and we're gonna start driving our costs down. We've got quite a bit of room there to do better. I believe gross margin will get into the 40% range in a couple of quarters. If you notice, I fudged. You can always tell. Let me go back here. Okay. See, gross margin was 24% despite higher revenue. Q4 forecast is greater than 30%.

T.J. Rodgers: That's 'cause I don't know what my revenue's gonna be. That's a guard banded number on what we think we can do. We think we can get into the mid-30s, but we don't know. Then the next step after that is we have to get back a little volume. You have amortization of overhead the way you amortize OpEx to make operating income. You amortize manufacturing overhead, and you've got a VP of manufacturing, you've got a plant, you know, got all that. You amortize manufacturing overhead with revenue that comes through it. We'll have a natural improvement in gross margin just from running more stuff with the same group of people.

Brian Wuebbels: Thank you, TJ. The next question comes from Derek Soderberg at Cantor Fitzgerald. You guys, we made some final cuts in the workforce here down to 109. Can you talk about the cadence of OpEx from here? Should we continue to expect OpEx around $3.6 million per quarter?

T.J. Rodgers: You, CFO.

Brian Wuebbels: I think T.J. actually answered this question a little bit earlier. Right now we're projecting $3.6 million for this coming quarter, Q2. I think you saw from the break-even chart kinda where we're headed. We believe we need to get this business under $3 million of OpEx in order to be at a break even and at a efficiency level that we think makes sense. That's our focus. I think, you know, to give away a little bit of how much we've been focused on this, if you did notice on that break-even chart that T.J. said, that's version four. I believe the first version that T.J. shared was during our October call, where we talked about the North Star plan version one.

Brian Wuebbels: Will gave some updates on it in December, and we were still on version one. We have really started to hone in, I wanna just thank Siddarth and the team at Ayna for their help because they are helping us think differently every day about what's possible. That's where we're headed. Thanks, Derek. The next question is, we'll throw this one out there. Do you see a reverse split coming up to stay in compliance?

T.J. Rodgers: Well, I got a letter from Nasdaq the other day, and they said, "Your stock's under a buck, been under a buck for 30 days, and if you don't," what do they call it? Cure. "If you don't cure the problem, then you'll get traded on the pink sheets." The answer would've been yes. I think the company will be clearly worth well north of a dollar shortly. The question is, how do you wanna play the game? To me, I give somebody the dollar and he gives me two 50-cent pieces; it doesn't matter, or I give him two 50-cent pieces and get a dollar. A lot of people care about that.

T.J. Rodgers: A lot of people like stock where they can buy 100,000 shares. The fact is, if we're safely on the right side of Nasdaq, and employees like options like that, where they can see upsides, we'll probably not do a reverse split. It's easily doable if we wanna do it. It's another paragraph in the annual report. Right now, there's not a plan. Right now, we're gonna earn our way back above $1.

Brian Wuebbels: Yeah. Thank you, TJ. Next question comes from Thomas Merrick at Janney. You talked about the 1,000-job WIP target. What do you expect the cash generation or the free cash flow to be at that point?

T.J. Rodgers: Answering that question makes me feel like a dinosaur, a brontosaurus, and he's in Southern California at the La Brea Tar Pits, and somebody says, "Why don't you put your foot in the tar?" The dinosaur goes, "Hmm, that's kinda sticky." He uses his other foot to try to pull it out, and then 50,000 years later, you find its bones. I don't know. It's hard for me to answer that question. Look at the issues today. Look at the statement, "If we survive." I haven't done those calculations. That's step after next, and we will do those calculations. We're capable of doing it.

Brian Wuebbels: Thank you, T.J. Can you discuss the current retail economics for solar customers, i.e., the value proposition for our customers, as well as the availability for financing to those homeowners?

T.J. Rodgers: Will, you wanna do that?

Will Anderson: Yeah. The current economics for the retail customer was the question.

Brian Wuebbels: Mm-hmm.

Will Anderson: We're seeing utility rates increase all over the country. In California, they've been going up very rapidly. That's our biggest market. Texas, where retail energy is non-regulated, rates have stayed down lower, but even there it's going up. The cost of burning things in order to generate power continues to increase. That's really the competition for the solar industry, is to compete against the retail cost of power coming from traditional sources. In all of our markets, we beat the utility, and that gap is growing. As we continue to work on our cost basis and improve our margins, that gives us even more opportunity to hold our prices and allow consumers to increase the benefit to them.

Will Anderson: It is typical that we'll see our customers saving on a financed project 40% to 20%. If they're buying it outright, you know, their return on investment happens within 5 to 7 years.

T.J. Rodgers: Let me take a shot at that one as well. It's about the structure of the industry, which isn't very good, frankly. When I was at Stanford, I took two courses from William Shockley, the Nobel Prize winner, on transistor electronics. In 1962, he and one of his students, a guy named Queisser, wrote a paper based on quantum mechanics, on the theoretical efficiency of a solar cell made from silicon. It turns out it's still true today. The answer is 29.3%. That's it. If you wanna do more than that, you gotta start using more exotic materials, using layers of material to trap different colors of light. I actually work with a couple companies that work on that stuff. Okay, that's big-time science. I've always loved that. Guess what?

T.J. Rodgers: It doesn't make a damn bit of difference today, because in China, you've got the government that's decided they're gonna own that market, and they will drop to whatever price is required to own it, and they currently own a lot of it. I'm a free market capitalist, but suppose they attack me and they really kill me and they drop the price of panels to zero, and then I get all I want. All I have to do is install them and make money. It's not bad. If you look at the value chain and you ask, "Is there a free market, a true free market with competition in the value chain?" The answer is, "Not really." The hardest point is to sell the solar. The kitchen table sell to sell solar is the hardest point.

T.J. Rodgers: Therefore, there are sales companies that know this, and that's what they do for a living. Some of the stuff they do to their customers isn't good. As a matter of fact, we just signed a document. It's a credo for the corporation. It's called The Golden Rule, Customer Golden Rule, and Ten Commandments, and it talks about ethical treatment of customers. There's a lot of it in the sales industry that's not there. The point I'm making is that after all the science and all the work and all the incredible things that have happened, the guy who knocks on your door and knows how to talk his way in, even if everything he says is not true, is the limiting point in the solar chain. Therefore, that guy is king. The industry is organized around that.

T.J. Rodgers: Solar companies, EPC, engineering, procurement, and construction companies, which is what we are, we have a price called a red line. That, in effect, is our price. That price is, let's say $2, $2.10, something per watt. Anything that's above that is profit for the sales guy, and they can charge $6. That's fine. They pay us $2, they get $6. That's how the industry's segregated. In America, the solar prices aren't what they could be. For example, it's the totally opposite in the semiconductor industry. Totally opposite. You know, today, honest to God, you can buy 1 billion transistors for $1. Okay? I'm not used to that. I'm used to cost cutting and competing head on in order to serve customers.

T.J. Rodgers: Of course, in our case, they're the electronics companies who are some of the toughest buyers in the entire world. Retail pricing in the United States is looking like EnergySage, you can get their documents, looking like $3 a watt. A typical system might be 10kW, that'll be $30,000. The same system in Europe, because of, frankly, our government and the way it runs, you can buy for $1 a watt. They get much cheaper and better. Now they actually, believe it or not, in France run freer markets for solar than we run here.

T.J. Rodgers: We've got structural and government problems, and asking what the price is is if, you know, you try harder, you advertise, you get a better technology, you get your efficiency up, all the things you would think about doing, doesn't matter. It's some politician wanting to get elected that sets price, and the guys that are willing to go to the edge of ethics to sell, and that's how the industry runs. We specialize in the things we can do, we get excellent at them, and where we can do it better than anybody else, that's value added, and that's where we are. Point two, where's value added? It used to be the calculation was you buy a solar system, and you pay so many dollars a watt, and then you get so many kilowatt hours from the solar system.

T.J. Rodgers: Like 1,500 kWh per year per kW in California, for example. You save therefore, pick a number, $0.20/kWh times the number of kWh your system produces, and that's your savings. That means your utility bill goes down by that much. You add up the savings over the years with the appropriate interest rate, and you have a payback time. That payback time used to be four, five years. What happened is utilities who have a lot of clout have changed the rules. The rules are called NEM, Net Energy Metering, NEM. It used to be the utility served as a storage element for your solar system.

T.J. Rodgers: Your solar system would put electricity. The meter would run backwards, and the solar system, the utility would do it. Well, now they're not willing to buy your power anymore. In the United States, the power they buy back as opposed to their price, let's say $0.20/kWh, is now $0.05/kWh. You can't do that calculation anymore. Fortunately, the utilities are creating another opportunity, and that opportunity is for time shifting. They kinda charge you. Pick a number, $0.20/kWh during the day, and then at 4:00PM, they really screw you. We're talking $0.60/kWh. The new pitch for systems is buy a battery, and this is a big lithium-ion battery. Buy a battery.

T.J. Rodgers: During the day, let your solar system charge the battery. Then at night, let the battery run your house. You design that system to have the right size battery to move the right number of kilowatt hours back and forth every day from the sun in the day to your house at night, and you wipe out those site charges. That ROI works today. It's actually pretty good for us because the batteries are lucrative to install. I happen to be a board member of Enphase, and I happen to be an expert on batteries. So we have a collaboration with them. We're actually having a meeting with them in Salt Lake later this week. That's the opportunity to make money right now. The point is, the value proposition, you have to be nimble.

T.J. Rodgers: You have to be able to figure out what customers need and provide it at a competitive price. Right now, it's battery-based systems that do time shifting. 20% of customers also care about backup. In Germany, you can't sell a backup system. You go to a guy and say, "How'd you like a battery, and if the power goes off, you know, it'll keep your house running." The guy goes, "The power hasn't gone off in Germany in, like, the last two years. Why would I buy that?" In the United States, if you're on PG&E, it's. If you can pick up your phone, meaning the power's on, you know, you do have a problem there. We are looking at new products and new partners all the time to try to keep a real-time value proposition in front of customers.

<unk> levels and I am the Chief operating officer for completes a lorry joining me here today is T. J Rodgers Chief Executive Officer completes a laureate we.

T.J. Rodgers: 'Cause they are homeowners. They don't have a lot of money, and you really do have to. They're not that dumb. They really wanna see a return on investment, and we provide them an honest one. That's one of our ten commandments, a completely honest return on investment. There are times when you do an ROI, and the number's negative. That is, if you buy this system, 8 years from now, you'll have less money than you have now. We tell them that straight up.

Speaker Change: We will be presenting the companys recent financial and operational results for the fourth quarter of 2023 first quarter of 2024, and a business update the formal presentation will be followed by a question and answer session. A few quick reminders before we start first today's call is being webcast a link to the webcast.

Speaker Change: Can be found along with our press release on our investors section of our company website at Www Dot complete so lauria dot com.

Brian Wuebbels: All right. Well, thank you, everyone. We've come to the top of the hour, and I wanna thank everyone for joining us today for the Q4 2023 and Q1 2024 earnings update call for Complete Solaria. I hope everyone has a great day. Thank you.

Speaker Change: Second during this call we will be making forward looking statements based on current expectations. Actual results may differ due to factors noted in the press release and in our periodic SEC filings, we will reference some non-GAAP financial measures reconciliations to the nearest corresponding GAAP measure can be found.

Speaker Change: In today's release on our website.

Last questions can be submitted any time during the call using the question submission box found on your screen and with that I will turn it over to T. J Rodgers. Thanks, Ryan first of all let me.

Speaker Change: Introduce people going starting with you. This is as he said, Brian Wobbles Who's our C O N.

Speaker Change: He is actually our CFO as well he is our we will hire to replace him and I as since Brian is moving up in the company I'd like him to introduce himself to you.

Brian Wobbles: Thanks, T J and just a little bit about myself I joined the company.

About a year ago as the CFO as TJ mentioned.

Brian Wobbles: You know I started my life out as an engineer I have a mechanical engineering degree from the University of Illinois, I've also got my MBA.

Brian Wobbles: Before I joined completes a lauria.

Brian Wobbles: I was with a multinational company and I was the president of the control an elevator division of that business and that company was called <unk>.

Speaker Change: Before I joined need egg I'd actually spent some time in solar or quite a bit of time actually.

Speaker Change: At G C L running their U S finance operations and before that I was with almost 10 years with M. A N C electronic materials, and Sunedison, where I laughed with various operating and finance roles.

Speaker Change: And then prior to my experience in solar which is about 10 plus years I spent my life at two large industrials I spend my time at.

Speaker Change: Honeywell for about four years in the beginning of my career, where I worked in operations and finance with the General Electric company under Jack Welch's leadership so.

Speaker Change: I'm Super excited to be here I'm.

Speaker Change: Like I said I've been on a long road in the last year getting the company public and I think what's really exciting about where we're at right. Now is the company is I can come in and provide some stability I can also help the company move to the next level and quality.

Speaker Change: Delivery and cycle time, which T. J is going to talk about today. So I'm super excited to be part of this transformation and work closely with T. J as our new CEO. So I'll turn it back to you T. J Nexus will Anderson I've introduced them before well is the founder of complete Salariat 12 years 13.

Speaker Change: Will is.

Speaker Change: Still probably our best engineers certainly in the software side, great any any is the guy we go two to solve problems I'll talk about.

Speaker Change: Stock grants today, and how he helped to sort of wait until I get there last one is sit earth manav siddharth is from Ina.

<unk> is a company that spun out of Mckinsey Mckinsey the famous Mackenzie that we all know are the most highly known Mckinsey group was Palo Alto that.

Speaker Change: That group came to my company and help me.

Speaker Change: When I went to enphase for a turnaround effort.

Speaker Change: I hired rehired the same group because they they had been very did a lot for me at Cypress.

Instead ours was the project leader for the Enphase turnaround I think that one's pretty famous that's the one that went from.

Speaker Change: The 115 Bucks today than when I came in there were 92 cents.

Speaker Change: And they were big enough that the turnaround isn't.

Speaker Change: Me coming in pounding on the table. The turnaround is 15 guys working for a year to get a lot of stuff fixed on that.

Speaker Change: That is the level of work, we're doing right now complete celerity.

Speaker Change: So you've got a.

Speaker Change: Thank you P J.

Speaker Change: My name is.

Speaker Change: It's the 14th.

Speaker Change: Yes.

Speaker Change: On the topics that Brian cover.

Speaker Change: Gross margin cycle time quality customer satisfaction are the.

Speaker Change: The company's on the on the verge of lots of initiatives, which will take time to bear fruit, but we're already seeing early results and it's a privilege for me and the team to to work with D. J.

Speaker Change: And his team on this effort.

Speaker Change: Okay. So let's get on with the quarter report first of all we did our first 10-K this year and that thing didn't get ready till almost the end of the first quarter. So we decided to.

Speaker Change: Put the first quarter report in the 'twenty twenty-three Q4 report together by the time of course to get through the first quarter. That's all you care about and you want to know about second quarter. So that's really really what we're going to talk about today.

Speaker Change:

Speaker Change: Okay.

Speaker Change: Press release.

Speaker Change: I wrote this myself so I picked the title that I thought it would.

Speaker Change: Tell you the most important thing that happened and that is where to be self funded in the quarter. We're in right now TJ won't be writing any more checks that's even even more important for me and that's a lot of work and I'll show you what that is the bullets.

First talk about revenue, our Q1 revenue was $10 million.

Half of the prior quarter, we got cut in half in one quarter.

Speaker Change: Even though our backlog was $17 $8 million.

Speaker Change: The revenue drop is due to a shortage of working capital we can buy panels, who put on people's roofs. Therefore, we can't charge them and get a revenue.

Speaker Change: And that's where we are right now and that's we're running just super lean on capital.

Speaker Change: The working capital Crunches studio and unresolved loan situation with one of our private equity funding firms Carlyle.

Speaker Change: And our revenue in the second quarter, we already had a very lean April I will also be limited and depending upon brother not I get a few hundred thousand Bucks is all I need deep it maybe I'll do crowdfunding.

Speaker Change: The 200000 Bucks it will be we can be on the high end of that.

Speaker Change: Okay. Our gross margin was 24% that is not our target our target is over 40%, but with a $10 million in revenue that was pretty good and we've got a forecast to break that 30% Mark in Q2 again with the low revenue hanging over it.

Speaker Change: Head count and employees. We now are down to 109 employees. We started last June with 428.

Speaker Change: It's almost exactly three out of every four.

Speaker Change: Pretty tough lay off.

Speaker Change: Tougher than I've ever been involved in before.

Speaker Change: And the team handled it well now I'll show you the tranches that we did.

Speaker Change:

Speaker Change: All remaining employees have now been awarded retention stock options. So that's the way Silicon Valley works. This company did not work that way and we now have given out options I'll talk about that.

Speaker Change: Our Opex is now $5 5 million.

Speaker Change: That's down from $12 9 million a year ago quarter.

Speaker Change: We're forecasting next quarter, we've got some cuts we've already made to get to 3.6 million. So that's the almost a factor three down in Opex and in terms of Opex, where we're about where we want to be.

Speaker Change: Sales commissions, though the way our industry works for those who don't know it is that you typically buy your orders. If you don't have a sales force in an order caused you.

Speaker Change: 33, 34% of sales.

Speaker Change: And do you pay for that a lot of it upfront.

Speaker Change: And the order fallout rate is something on the order of 30%. So a lot of times you pay and then the order doesn't happen the guy who changes his mind whatever.

Speaker Change: So this is if you want to ask the weakest part of our profit and loss statement right now is.

Speaker Change: It's getting control of these orders.

Speaker Change: And by the way last quarter, we dropped from 38%, which is higher than the industry to 31%, which is better than the industry specifically from having worked on this problem, but we've got further to go.

Speaker Change: The last equity and putting the company has 5 million Bucks in January.

Speaker Change: And we now believe based on we have very accurate casual.

Speaker Change: Capability.

Speaker Change: That's going to last us up to through the second quarter. So I put to July 24 here.

Speaker Change: We'll need more money at that time, but our we're not voracious for money where were running real close to cash flow breakeven.

Speaker Change: Here are the financing from the report and by the way that report if you go there.

Speaker Change: Is this where they go to get the report.

Speaker Change: Okay. You go to this and this report is available.

Speaker Change: Okay, So here's the non-GAAP numbers.

Speaker Change: Look at revenue gross margin Op, Inc.

Speaker Change: Funding cash flow and cash balance at the end of the quarter.

We're looking at the.

Speaker Change: The last quarter before Q4 23. This is our report for Q4 of 23 in Q1 of 'twenty four.

Speaker Change: So you can see the cash crunches taken our revenue down dramatically, we do have orders and I'll even show you our our orders.

Speaker Change: Okay story number one is <unk>.

Speaker Change: Normally if your revenue gets cut in half in the quarter's over.

And the fact is our losses, which were $12 million last quarter went to six so we actually cut our losses in half, meaning our cost cutting effort offset a massive revenue decline.

Speaker Change: And we are we actually cut our losses at the same time and of course that projects, Florida I'll come to that later.

Speaker Change: There is the last we hope 5 million Bucks.

Speaker Change: And you can see our funding what's required.

Speaker Change: Your cash balances.

Speaker Change: Of an artificial thing with your operating income and what's got to fill in from funding and as you can see our funding has been dropping dramatically in this this quarter, which have not forecast is zero.

Second thing I want to talk about is gross margin.

Speaker Change: In the last quarter, even with $10 million, we had 24% gross margin and.

Speaker Change: And we have a whole team working on gross margin.

Speaker Change: And we're very actually very proud that we got hammered. This badly if you look in the year ago quarter, we had two and a half times more revenue than the same gross margin. So all of that came out of cost and we're proud of that and that's been painful as this has not been an easy road.

Speaker Change: Okay, we changed I became.

Speaker Change: A week or so ago the CEO.

Speaker Change:

Speaker Change: We have our CEO, Chris one Dell is from Salt Lake He was our.

Speaker Change: Our man in the corner he was a steward of the place right now we need and I helped as cost cutting so I was kind of like a driving force.

Speaker Change: Now we need to raise some money and we need to do some M&A and they've done a lot of those in my career.

When I was CEO of Cypress.

Speaker Change: Wired twenty-six companies in 34 years, so I, even have spec for it.

Speaker Change: A surprise.

Speaker Change: Rogers objective as CEO.

Speaker Change: And Theres really two points.

Speaker Change: The press release about a month ago, I said I am not willing to work for Carlyle for free anymore. In fact, I'm not work and willing to work for Carlyle at all and that's still true that's gotta get resolved if we're going to go forward.

Speaker Change: And then will.

Speaker Change: When becoming CEO.

Speaker Change: 76.

Speaker Change: All this stuff happen literally when I take one vacation here I go sit in the beach in Mexico and read the book I didn't have time to read.

Speaker Change: And I.

Speaker Change: I got the call non in Mexico, more like 20 of them in one day.

Speaker Change: And so I took over.

Speaker Change: And.

Speaker Change: Therefore, I wanted well defined endpoint. This is not this is not career two for me.

Speaker Change: And we're going to have one of two things happen, we're going to have success and I'll define that and it's vague right now quantify it later when we're on solid economic footing that means we got a bank account and were not rationing capital and telling stories like that and growing rapidly, meaning we're taking off from that revenue trough and in solar work.

Speaker Change: It's not that great right now who are recovering back to your old revenue.

Speaker Change: <unk> routinely had revenue in the low twenties to the low thirties of millions of dollars per quarter in the past.

Speaker Change: The failure point is when I believe that the chokehold or private equity debtholders have on us and I'll talk more about that later will prevent the company from ever being successful in that I'm not willing to waste my time, and I am willing to walk off of my own investment.

Speaker Change: We already introduced you to Brian So I won't do that these are C O L.

Speaker Change: During the quarter, we reorganized in the product lines when I ran a chip company.

Speaker Change: In my industry, you ran it with product lines and studs in the semiconductor company, where the seven product line managers gourmet silicon things, but they were different shifts made differently for different customers and they really were different businesses.

Speaker Change: And we've decided divided into new product lines, one for California.

Speaker Change: One for rest of U S and that means for US now, Texas and the East Coast, Massachusetts, Connecticut, New York and one for Starbucks and other new homes. We have people don't know much about Starbucks, but is a pretty interesting opportunity we've already upgraded thirty-three of their outlets and then.

Speaker Change: You've got another 42 contracts.

Speaker Change: So here's a Starbucks solar Ani.

Speaker Change: Lot of panels up there 50000 watts. So this is looks good and it makes a statement about being committed to solar. It also will cut your electricity Bill way down because it produces a lot of power.

Speaker Change: Okay head count So I showed this graph before.

Speaker Change: Number of employees starting at 428 back in June of last year, and then the ride and we got to.

The last riff took us down to 109.

Speaker Change: And.

Speaker Change: Like I said I've never been through it before the companies I've worked for or have run.

Speaker Change: Typically if you do a 5% layoff you get screaming and crying. If you do a 10% layoff you get temper tantrums and this was the most severe I've seen it also.

Speaker Change: Obviously it says the company was fat and I used exactly those were inside I actually I used the term morbidly obese.

Speaker Change: So with them.

Speaker Change: Here's our risk number one.

Speaker Change: It was a difficult and then I'll show you as you notice. This this climb here I'll talk about that in a minute.

Speaker Change: When you get to 109 people then the math, even for a $10 million quarter.

Speaker Change: For 109 employs the math works out to be $367000 per employee per year, that's right, there, even a little bit better than sunrun Sonoma and sunpower.

Speaker Change: With only $10 million a quarter for revenue. So the point is there's a huge amount of leverage in our company for dropping dropping through orders, where we have a lean and efficient company. We've had just a quarter ago or two quarters ago $24 million quarter that number starts to approach a million dollars in any company that has a million.

Speaker Change: Dollars per employee per year is a viable company in any industry.

Speaker Change: Here I told you we laid off and then we had.

Speaker Change: The back citing is classic.

Speaker Change:

Speaker Change: I have a system called the record and that is requisition as an employment requisition to hire somebody.

Speaker Change: All companies typically have hundreds of these and they are the.

Speaker Change: Giant waste of time and a big game.

Speaker Change: I managed to get rid of them.

Speaker Change: The cypress and the way they work is simple.

Speaker Change: There are no Rex you can interview anybody anytime you want.

Speaker Change: And the only way you get to hire somebody is if somebody else quits.

Speaker Change: I'm talking about now the.

Speaker Change: Stasis in in head Count you can go up and down by adding or subtracting Rex from the mix, but let's suppose you're trying to hold head count.

Speaker Change: Then you have you have you get a weekly report exactly who left of course is denominated in dollars. So youre dealing. This this is done in dollars when I'm gonna for sake of explanation talk about heads.

Speaker Change: So.

Speaker Change: He got to your staff meeting the President runs it and the VP of HR comes in and says Mary Jane and marketing quit last week.

Speaker Change: Then you got one rack.

Speaker Change: And then the question is what do you do with it is a very valuable asset this builds up the mentality.

Speaker Change: People are a valuable asset and you don't waste them and you don't have extra ones.

Speaker Change: So you go around the room and each V. P argues why he or she wants such and such a person now what I loved about it was it used to be 90 pes against T. J and I would argue your efficiency isn't that good you should get more per person per week out of that fab or you know.

Speaker Change: You should be able to design a chip with so many people that I was always on the and the one argument on the wrong side of it in.

Speaker Change: In the new and the new method direct gets thrown out a piece of the table you know meet flies under the boardroom table and then the V. P start talking about why the person they want.

Speaker Change: Is most important and they also learned don't try to get 18 racks don't hire recruiting firm.

Speaker Change: The one person you need take your time to find the really right personnel change of company and bring them in and make a compelling argument that overwhelms the other guys compelling argument.

It's called a wreck auction that's how it works.

Speaker Change: And it really does work so here I didn't have it and I saw the classic backward drift here I turned it on and in this case, we had it turned on with.

Speaker Change: Less than one to one replacement and as you can see we even though we were really lean we were drifting downward at a new record low level.

Speaker Change: That's a wreck auction.

Speaker Change: So.

Speaker Change: I actually.

Speaker Change: Film a staff meeting.

Speaker Change: And the VP of VP of HR came in and did say Mary Jane and marketing left and then we decided who would get that by the way the way the system works think about it your attrition and the people that don't want to be there maybe not that productive you can rehire if it if that is an important position.

But it's very unlikely that somebody who quit is going to be more important than the most important person to hire in the corporation and that's what you get so you have this turnover and.

Speaker Change: Less important people go away and key people will get hired and after you do that for year. It changes your company.

Speaker Change: And by the way this is very scalable.

Speaker Change: Think about a 1000 person company they've got a 5% turnover that's 50 people a year.

Speaker Change: 5% turnover is moderate or even a little bit low well 50 people years, one person a week. So the rec auction means every week V P walks in HR.

Speaker Change: <unk> says we can hire one person may be to maybe zero and then you have the argument then you hired the person and then a year later you have 50 people that the consensus of the executives are key people and you don't have 50 other people, whose names you maybe even can't remember anymore.

Speaker Change: <unk> works now I want to show it to you in action.

Speaker Change: And this was truly Mary Jane in marketing quitting and then we're trying to decide who gets it.

Speaker Change: Yeah.

Speaker Change: I didn't bring I was going to bring in my head today for I forgot. It. So there is a wreck auction in action.

Speaker Change: By the way that system I. Just described comes out of a book I wrote in 1992.

Speaker Change: And that book was the story of building a semiconductor company.

Speaker Change: From 1982, when I wrote the business swaying in my living room, Cypress semiconductor to getting it to a $100 million in revenue. It was all the things he had to do to build the company.

Speaker Change: And it's our it systems for hiring systems for giving raises giving out stock measuring efficiency stacking and bringing to market on time, new products et cetera, and each time.

Speaker Change: Back in those days, we had no tools right and we didn't have it departments.

Speaker Change: Which really isn't that bad okay.

Speaker Change: And we ended up having to use the tools we had word.

Speaker Change: And at that time was word perfect.

Speaker Change: Excel in that time was Lotus 123.

Speaker Change: And and the other in Powerpoint.

Speaker Change: And that's what she had to run a company with an you had around a chip company. So it's not an easy company to run so.

Speaker Change: At age 10.

Speaker Change: I worked on writing all those systems down and what's interesting the booked and sell very well. The reason I have a picture one to show you here with the brand new clean cover on it is that I have several cases of them in my study, but it turns out. This book is exactly right for where these guys are they don't have a lot of money. They don't have an effective I T department and they need.

Speaker Change: To build a company and investors don't care about any of that.

Speaker Change: Okay fab, so we call the area, where we make.

Speaker Change: New systems solar systems for People's houses, a fab because of my background.

Speaker Change: It is a virtual fab in that there are no physical objects working through it.

Speaker Change: But if you look at our fab in semiconductors.

Speaker Change: You got a box that's got wafers in it Bunny suits and the boxes moved through the fab from step to step typically you have.

Speaker Change: Something like 35, or 40 masking steps in each masking step has two or three operations. So you have something like 100 operations. Our fab is 42 steps and we've documented at semiconductor style. So each step is got a spec and it's not perfect yet, but as every time, we mess up something we'd make that spa.

Speaker Change: A little bit better and we are getting better and the numbers and I'll show you in a minute.

Speaker Change: Okay. So this is <unk>.

Speaker Change: <unk> and so the our fab we used to have things back and then on computer days called lot travelers, so they'd move with the silicon.

Speaker Change: The operator come in they'd marked a step there as they mark the machine number they'd marked a lot number they go and do the operational and the machine pulling up the recipe that they were supposed to there'd be an output measurement thickness of alere or whatever and they mark that down and then that law traveler would move through along and at the end of the line you'd have a record and that also is computerized.

Speaker Change: On a silicon lot. So you can start doing yield analysis and cycle time measurement and stuff you've got to do to make a fab run rate.

Speaker Change: So we exactly have a fab.

Speaker Change: Only we have the lot traveler in the things that move around in the world are out in Texas or southern California. So we treat it like a fab when we think about it like a fab.

Speaker Change: Okay I'm now looking at the number of jobs in the fab and that's 2000 4000.

Speaker Change: And this was back in January 23, and everybody in the company tells me those were the good old days. So we started out saying 2000 is what we can handle.

Speaker Change: 2000, and what we can handle in a screw it up.

Speaker Change: It was crazy up of course is.

Speaker Change: Each job has its own special problems.

Speaker Change: Like I said, you won't give you a permit because the person has an unpermitted structure and they'll shut you down for that that's illegal in California, but legal everywhere else.

Speaker Change: Or the financing got done.

Speaker Change: And then the the dating on the financing expired in the financing expired now you got to go get refinanced.

Speaker Change: Cetera, I can name 100 of them and these are the defects that pile up and when you have a lot of jobs in the fab those defects end up being pretty important and the slow you down and that's what happened here.

Speaker Change: So here you see it.

Speaker Change: This is when I came in.

Speaker Change: On June 23, and their their inventory was big I did it.

Speaker Change: For fab guys just call back of the envelope analysis on the inventory and I said, you guys have bloated inventory.

Speaker Change: And then I said.

Speaker Change: You know you got to cut down on the inventory.

Speaker Change: And then they said no we're not going to do that in a standard way ignore me and then go off and do what they want so we went a little bit longer and when we got to that point.

I send out the memo no new jobs are to go in our fab none.

But that means we're going to turn away orders he up but if we don't have orders we might not have revenue yet and if we don't have revenue we might die and I go bingo. So you better get the problem fixed don't you think in that kind of shutdown authority is often used in the real world in manufacturing, where when you screw something up it's not a recoverable error.

Speaker Change: We're getting another permit is an irrecoverable are ruining a wafer that never will produce revenue.

Speaker Change: So there are we shuttered down.

Speaker Change: When do we turn it back on I should have put that in here.

Speaker Change: November.

Speaker Change: Okay. So I didn't really hanging in there too long.

Speaker Change: I turned it back we had this drop I remember this drop here and I turned it back on but that broke the problem.

Speaker Change: And then the inventory came back in the news today is we now have 2000 lots in the line.

Speaker Change: And.

Speaker Change: So I have the shutdown now whats interesting is when we started our cycle time was 112 days, we manage the whole that cycle time.

Speaker Change: Way too slow just FYI in this the cycle time from order to install complete.

Speaker Change: We managed to hold it but it's not good enough and you can't react quickly enough to problems you can't flush. Your line you can't take advantages of new orders, if you that slope.

Speaker Change: So we started working on cycle time and cycle time, primarily is getting rid of quality defects and that debt in the semiconductor and skull first pass yield do you want something to go to a step go through the step to get it done right. The first time and move on and do all that in a fraction of a day.

Speaker Change: Today and by the way we have couple of semiconductor experts.

Speaker Change: That are helping us on on this problem in line and they their work, which is primarily quality has brought our cycle time down to the 34 to 40 day mean.

Speaker Change: Meaning.

Speaker Change: When are you here you can do to.

Speaker Change: Two and a half cycles per year. So you can make 2000 times, two and a half loss per year.

Speaker Change: Here.

Speaker Change: Let's say somebody who's 34, its a month you can do 12 cycles a year. So you can do 24000 lots a year, so you're getting more out of the same fab is a it's a very powerful effect.

And that's where we are today and if I had the name one thing that changed the company.

Speaker Change: Pat.

Pat: Now the other point is this is our target and let's take that as a given and I'm going to suggest is not good enough in a minute.

Pat: That had $56 million revenue in it so when you run a fab like this you're taking money and if you think about think about roofing and guys House 100 dollar bills and they stay there for months and then you do another one and another one in another one then you run out of money borrow some money in that and that was the problem.

Pat: And of course, what we've done now is we've taken that money back out or the fraction of what they were still left you lose some.

Pat: And we're down here.

Pat: I did a calculation today.

Pat: And it's again back of the envelope, but it's not far from wrong and within a week it'll be a paper on exactly what we have to do by our consultants.

Pat: I think we should have 1000 jobs instead of 2000, and I think we could maintain our revenue with half the whip half the money in whip.

Pat: Work in process. So that is what we're that's the next step here now that we've had a nice move to where we are and by the way I think as these number of days can drop some more as well.

Speaker Change: Okay, well given that tech talk I know I'm for many of you I'm speaking.

Speaker Change: Boring stuff.

Let me talk about cash flow breakeven and profitability.

Speaker Change: Last quarter.

Speaker Change: 10 million cash limit had talked about it.

Speaker Change: To get back to our 25 million quarterly revenue.

Speaker Change: That's $100 million runway and I'd be happy as heck right now they have $100 million profitable solar company and it's very doable.

Speaker Change: We're going to need about 11 and have more million dollars of working capital even with fast cycle time, you do have to have stuff you buy and put on their roof and you're holding your paying for it until you turn it on and then they get the money from the finance company and start paying pay you back.

Speaker Change: Another thing being cashed shy, we've piled up $13 million of accounts payable.

Speaker Change:

Speaker Change: Some of them, it's not okay.

Speaker Change: The lawyer.

Speaker Change: Who checked this pitch today for accuracy, so I didn't mislead anybody.

Speaker Change: We owe them money millions and and he did it because he likes us and he is trying to help us, but we've got there. So there between those two things there's 25 million Bucks.

Career I've raised billions of dollars I I've had single offerings that were.

The old days right this back, but but even then I would have $600 million offerings. So this this offering is not a big deal problem is.

Speaker Change: If you have somebody is saying you are in default of your covenants.

Speaker Change: And we can call. It and then you call their bluff and say great.

Speaker Change: Come on in.

Speaker Change: On the company.

Speaker Change: Here's the keys through the front door then of course, they go well you know we will let you work on it for awhile, Hence my.

Speaker Change: My statement I made before we've got to get past that because nobody's going to let us know nobody's going to give us money in an offering with the hammer hanging over our head and that's where we are right now.

Speaker Change: So we need Carlisle inclining oil to agree to a debt to equity swap.

Speaker Change: And they made profit honest on the debt are significant because the depths high high coupon debt.

Speaker Change: They can roll the whole thing over into equity and <unk>.

Speaker Change: I will make money for the shareholders, if if I'm still around in this company is still alive.

Speaker Change: I'm quite convinced we can make money for shareholders.

Speaker Change: Now this this I wrote this data last night I wrote this thing last night.

Speaker Change: In eight minutes after.

Speaker Change: I got it done the lawyers call me up and said.

Speaker Change: Oh, we got to deal with client you know that's one of the two equity firms they invest in complete celerity with a debt for equity swap.

Speaker Change: So the deal was $9 8 million shares at 19.9% the largest amount the board can authorize without a shareholder vote.

Speaker Change: In return for all of their debt and they also got are going to buy $3 7 million shares that completes hilarious. So obviously I was overjoyed on that.

Speaker Change: I have Mike <unk> here.

Speaker Change: It's going to be ugly he's on a cell phone he's the president of Klein he'll he's in New York.

Speaker Change: And Mike I apologize in advance for all the bad things I said and will say in this talk about New York, but.

Speaker Change: Why did you do it and thank you very much.

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: Scott.

Speaker Change: Yes.

Speaker Change: Client partners.

Speaker Change: Hey.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: In private assets.

They get directly involved in companies.

As a huge potential upside and we're super excited about everything going on in complete hilarious.

Speaker Change: Yes.

Speaker Change: Complete malaria platform technology.

Speaker Change: Company.

Speaker Change: Okay.

Speaker Change: Jay.

Speaker Change: We're excited about.

Speaker Change: Kathy will talk about.

Speaker Change: So with regards to the company.

Speaker Change: Solar space is huge and expected to grow substantially over the years.

Speaker Change: We see their technology and what they can offer too.

Speaker Change: Okay.

Speaker Change: No.

Speaker Change: So markets throughout the U S.

Speaker Change: Very compelling offering.

Speaker Change: Thank you.

Speaker Change: Opportunity in right now.

Speaker Change: Very small.

Speaker Change: Upside there.

Speaker Change: It is.

Speaker Change: Yes.

Speaker Change: E J.

Speaker Change: Yes.

And there are key.

Speaker Change: And can execute.

Speaker Change: As a smaller company huge opportunity and people that are there that they can execute on a huge amount of growth.

Speaker Change: And.

Speaker Change: Obviously everybody knows.

Speaker Change: <unk> successfully.

Speaker Change: The theory.

Speaker Change: <unk>.

Speaker Change: And across the whole management team.

Speaker Change: It's coming in a little bit right now, but we're very excited about it.

Speaker Change: And the capital structure, and so that has been a little bit of a noose around the neck of the company and that probably has been the number one thing holding the company back over the recent past.

We're very excited to convert our debt.

Speaker Change: Equity because we see a lot more upside in the equity.

Speaker Change: As we.

Speaker Change: We're looking to do this jointly together so we wouldn't be doing this.

Speaker Change: Carlyle is off screen to come alongside with us.

Speaker Change: You know reasonably very smart investors don't work.

Speaker Change: We're really expecting.

Speaker Change: That should be coming out shortly as well.

Speaker Change: And then.

Speaker Change: So there's a tremendous opportunity for investors and so if you just stand back again.

Speaker Change: Complete malaria industry, leading company.

Speaker Change: <unk> platform.

Speaker Change: The room to grow into the industry and this management company.

Speaker Change: Big.

Speaker Change: Now there's capital structure will layout.

Speaker Change: It's a entirely.

Speaker Change: Company MTV.

Speaker Change: Much more nimble and efficient.

Speaker Change: We're also putting.

Speaker Change: Capital into the company. So thank you.

Speaker Change: Thank you Brian.

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: So 11 o'clock last night.

Speaker Change: <unk> gotten the news I had to figure out what to say that was true.

Speaker Change: About about client Hill.

Speaker Change: I said, thank you Cline Hill for your confidence in Us I would like to sincerely, Thank Mike Vigo and his team for working with us literally for years.

Speaker Change: Supporting our company so thanks.

Speaker Change: Okay conclusion.

Speaker Change: Were alive and were starting to improve I won't claim victory, yet, but we are a different company than then.

Speaker Change: Nine months ago.

Our fab is doing a lot better right now.

Speaker Change: We've had a vigorous but painful reorganization.

We don't need any funding until July.

And.

Speaker Change: I had this in last night, we have come to terms with two private.

Speaker Change: We have to come to terms with two private equity groups and I put this one in and we got one left.

And if we get that then then than the we can go raise money based on merit.

Speaker Change: And my last point was last night, if we survive our newly lean and fit company can become profitable and grow.

Speaker Change: So that but yeah, that's where your question in case you ask it that's it we like to take questions that their electronic texting kinds of things.

Speaker Change: T J and thanks, everyone for joining the call we're going to now move into the Q&A section. So if you have any questions. You can go on the link that's on the.

Speaker Change: On the the webcast and you can type. Your question indirectly first question Ive got here T. J is from Derek Soderberg from Cantor Fitzgerald.

Speaker Change: It says in the event that Carlyle is refusing to convert their debt what is the most logical way for the company to solve a working capital problem and returned to the $100 million annual run rate.

Speaker Change: I'd have to ask other questions if.

Speaker Change: That happens in a way that I.

Speaker Change: Let me tell you something or contracts with with.

Speaker Change: Carlisle.

Speaker Change: We have two of them and these are debt contracts right Gimme money give me interest.

Speaker Change: And then of course who's covenants, one is 84 pages long and one is 55 pages long.

Speaker Change: I can't go to the bathroom without calling New York Danny is going to happen. So answer number one is if that structure.

And I use the word D in my neck and in prior communications stays in place I'm gone and I don't think the company is going to make it maybe it will.

Speaker Change: Carlyle is a big company, they've got a lot of solar companies.

Speaker Change: <unk>.

Speaker Change: Maybe they've got a hot dog that wants to come in and get a lot of socket that are less than a buck and that would be fine with me and I do everything in my power to help the guy out because after all I got a bunch of money in the company is not in my interests to do anything negative.

Speaker Change: The best way is a debt to equity swap assuming you can agree and that's a big assumption.

Speaker Change: But.

Speaker Change: We'll talk what I've got to be able to do is run the company right now.

Speaker Change: Can't raise money with equity I can't raise money was that I can't sell an asset unless I get written permission in the written permission always says.

Speaker Change: Now therefore clause and then a few more pages.

Speaker Change: In.

Speaker Change: Can't work that way, that's got and other than that.

Speaker Change: We'll talk.

Speaker Change: <unk>.

Speaker Change: I'll leave it there we'll talk.

Speaker Change: Yeah. Thanks T. J, we got another question here it says dear.

Speaker Change: Sorry, I meant completes Hillary management under the assumption that the debt to equity swap with Carlisle complete soon what would be the approximate breakeven revenue.

Speaker Change: And then second question as well.

Speaker Change: Yeah.

Speaker Change: Alright, so I read that question when a five minutes before Showtime here.

And it turns out.

Speaker Change: Obviously asked that question of ourselves all the time. That's the question. So I'll give you. This is a this is a large document and I picked out one page.

Speaker Change: And what it is is three parameters that matter Commission.

Speaker Change: <unk>.

Speaker Change: Gross margin percent and this is gross margin on the solar commissions is treated separately.

And then opex.

Speaker Change: And our Opex is headed to $3 million next quarter.

Speaker Change: 3.6, and more or less and three after that so that's kind of a given then this table defines for a matrix of percentages what is our breakeven revenue. So this says at 30% Commission were currently 31.

Speaker Change: 47% gross margin, our breakeven revenue $16 6 million and that breakeven revenue could be a lower gross margin and lower commission lower gross margin and lower commission yet is quite possible.

Speaker Change: If we work on getting an indigenous order.

Speaker Change: Creation effort in the company and we're paying for costs of orders as opposed to the higher profit.

Speaker Change: We can get down to these levels right now I. Just showed you 24, 25% that that is based on $10 million of revenue.

Speaker Change: We can see how to get into the forties pretty well.

Speaker Change: So the answer to your question is.

Somewhere between 90 and $9 million a quarter.

Speaker Change: And the real numbers are here and $16 million is achievable number within a couple of course I don't know how long, it's going to take to grow back from $10 million I don't know.

Speaker Change: How much damage has been done but right now I know, there's a robust market for solar let me.

Speaker Change: Forgot to show you let me show you. This okay. This is this is the graph I showed you.

Speaker Change: This is inventory and jobs and then the device it out by where it is so this is preconstruction think of orders there.

Speaker Change: This is post construction orange and.

Speaker Change: And then up here is pending P. T O. That's powered turn on so this is a systems in and it's we've already been paid for it and we're waiting to turn it on and this is a place where when you get in trouble with Bulks up. So you see the good old days turned in the not so good old days when that that one bulked up.

Speaker Change: Okay.

Speaker Change: So here's the order backlog the peaked up when we were getting orders.

Speaker Change: And we couldn't and they want new fab didn't move or we couldn't put them in the fab because the fabs jammed.

Speaker Change: Notice was happening here there are piling up again, and it's because we can't service them.

Speaker Change: So I infer that this means there is business out there.

Speaker Change: Utilities are charging more and more of their extremely inefficient businesses people don't like them and all you got to do is go put solar on their house and they will appreciate it and the faster you put it on we keep track of net promoter score the faster you put it on the more they like it.

So the recipes pretty simple.

Speaker Change: This little fab right here is complex.

Speaker Change: And it's kind of obvious you know I'd say well, it's silicon Fabs got equipment, It's got science and I'll add this.

Speaker Change: This one's got 5000 jurisdictions with 5000 different sets of rules in it with a lot of people, who really don't like you or solar and you got to somehow make it happen and you've got to get funding for it and 7% World. So this particular problem, although there's no big technology in it from a company point of view is this.

Significant problem there.

Speaker Change: By the way any companies you see having survived this little go downturn.

We're getting near the end I think we'll have better summer those are good companies. Those are good companies that are well run.

Speaker Change: Thank you TJ and you answered the second question. So the next question comes from Thomas America Janney.

Using the Fab chart on page 13.

Speaker Change: You discussed the improvement in gross margin Uveal realized over the past 12 months.

Speaker Change:

Speaker Change: Okay.

Speaker Change: We gotta do if inform one here.

Speaker Change: We will have to bring inside of our heads, we obviously track that.

Speaker Change: What is a record for gross margin.

49%, So the company and one time its life made 49% that's how we chose a 47% gross margin right now we're looking at operational issues and financing issues that don't get us into the 40 <unk>, we can see easily how to get in the Forty's. There's also a tailwind in gross margin.

Speaker Change: China, Inc has got this little problem.

Speaker Change: They use slave labor to make silicon and the world doesn't like it and they shut them down then they move plants to two to Malaysia, and Vietnam to circumvent the shut down and now there is a circumvention.

Their panels.

Speaker Change: Can go to Europe can't come to the United States.

And theres been a dump of panels and the business is going down and there's been a dump of panels on the market.

Speaker Change: So.

Speaker Change: Our costs are going to go down at least where equipment costs were also one of the things. We're learning from China, you sort of buy stuff, we're not very good at that.

Speaker Change: We kind of pay retail and we kind of do AD hoc purchasing sometimes we do you're purchasing on the weight of the job.

Speaker Change: And obviously that's bad so now we have a in Indianapolis, we've got a renter purchasing group, there's pros and we're gonna start driving our costs down so we've got quite a bit of room, there to do better.

Speaker Change: I believe gross margin will get into the 40% range in a couple of quarters, we will go into the <unk>.

Speaker Change: You notice I fudged.

Speaker Change: You can always tell let me go back here.

Speaker Change: You can always okay see gross margin was 24, despite higher revenue.

Speaker Change: Q4 forecast is greater than 30% that's because they don't know what my revenue is going to be so that's a guard band a number on what we think we can do so we think we can get into the mid thirty's, but we don't know.

Speaker Change: And then the next step after that is we got it he would have to get back a little volume you have amortization of overhead the way you amortize opex to make operating income you amortize manufacturing overhead and you've gotta VP of manufacturing you got a plant you've got all that you amortize manufacturing overhead with revenue that comes come.

Speaker Change: Through it. So we are we will have a natural improvement in gross margin just from running more stuff with the same group of people.

Speaker Change: Thank you T. J. The next question comes from Derek Soderberg at Cantor Fitzgerald, you guys. We made some final thoughts the workforce here down. The 109 can you talk about the cadence of Opex from here should we continue to expect opex around $3 $6 million per quarter.

Speaker Change: He was CFO.

Speaker Change: So I think he actually answered this question a little bit earlier.

Speaker Change: Right now, we're projecting $3 6 million for this coming quarter Q2.

Speaker Change: I think you saw from the breakeven chart.

Speaker Change: Where we're headed.

Speaker Change: We believe we need to get this business under $3 million.

Opex.

Speaker Change: It would be a breakeven.

Speaker Change: The efficiency level that we think makes sense.

Speaker Change: So that's our focus and I think you know to give away a little bit of.

Speaker Change: How much we've been focused on this if you did notice on that breakeven chart that T. J said that's version four.

Speaker Change: And I believe the first version that T. J shared was during our October call, where we talked about the Northstar planned version one will gave some updates on it in December.

Speaker Change: And we were still on version one so we have really started to hone in and I wanted to just think siddharth and the team at <unk> for their help because they are helping us think differently every day about what's possible.

Speaker Change: So that's where we're headed.

Derrick: Thanks Derrick the next question is.

Derrick: We'll throw this one out there do you see a reverse split coming up to stay in compliance.

Derrick: Well.

I got a letter from NASDAQ the other day and he said your stock sooner Buckman under Buck for 30 days and if you don't what do they call a cure if you don't cure the problem.

Derrick: Then then you get traded on the pink sheets.

Derrick: So the answer to that would have been yes, I think the company will be clearly worth well north of a dollar shortly.

Derrick: And then the question is.

Derrick: How do you want to play the game to me.

Derrick: I give somebody the dollar and he gives me to 50 cent pieces, it doesn't matter or I give them $2.50 pieces and get a dollar a lot of people care about that a lot of people like stock where they can buy a 100000 shares.

Derrick: So the fact is if we're safely in the right side of NASDAQ.

Derrick: And in <unk>.

Derrick: Employees like options like that where they can see upsides, we'll probably not do a reverse split is easily doable. If we want to do it it's another paragraph in the in the annual report.

Derrick: Right now there's not a plan right now we're going to earn our way back above a dollar.

Thank you T. J. Our next question comes from Thomas Merrick of Janney. What do you expect you talked about though 1000 job with target.

Speaker Change: Or do you expect the cash generating or the free cash flow to be at that point.

Speaker Change: [laughter] answering that question.

Speaker Change: Makes me feel like a dinosaur Brontosaurus, then eastern and southern California to Labree attire pits and somebody says why don't you put your foot in the tire and design a sort of a something that's kind of sticky and then he uses other foot to try to pull it out and then 50000 years later you find its bones.

Speaker Change: No it's hard for me to answer that question.

Speaker Change: Look at look at the issues today look at the statement if we survive comma.

Aye.

Speaker Change: I haven't done those calculations that step after next and we will do those calculations were capable of doing it.

Jay: Thank you Jay.

Speaker Change: Can you discuss the current retail economics for solar customers I E. The value proposition for our customers as well as the availability for financing to those homeowners.

Will you want to do that.

Speaker Change: Yeah. So the current economics for the retail.

Speaker Change: Customer question.

Speaker Change: So we're seeing.

Speaker Change: Utility rates increase.

All over the country in California that they've been going up very rapidly that's our biggest market.

Speaker Change: Texas, where.

Speaker Change: Retail energy as a.

Speaker Change: Nonregulated.

Rates stay down lower but even there it's going up.

Speaker Change: The cost of burning things in order to generate power.

Speaker Change: <unk> continues to increase.

Speaker Change: And so that's really the competition for the solar industry has to compete against the retail cost of power.

Speaker Change: Coming from traditional sources.

Speaker Change: And in all of our markets, we beat the utility.

Speaker Change: And that gap is growing.

As we continue to work on our cost basis and improve our margins.

Speaker Change: That gives us even more opportunity to hold our prices and allow consumers to.

Speaker Change: Increase the benefit to them so.

Speaker Change: It is typical that we'll see our our customers.

Speaker Change: <unk>.

Speaker Change: On a financed project.

Speaker Change: 40% to 20%.

Speaker Change: And then if theyre buying it outright then there.

Speaker Change: Return on investment happens within.

Speaker Change: Uh huh.

Speaker Change: Five to seven years.

Speaker Change: Let me take a shot at that one as well.

Speaker Change:

Speaker Change: And it's about the structure of the industry, which isn't very good frankly.

Speaker Change: 19, six when I was a Stanford I took two courses from William Shockley, The Nobel Prize winner.

On transistor electronics and in 1962, he in one of his students Sky name Cressa wrote a paper.

Speaker Change: Based on quantum mechanics on the theoretical efficiency of a solar cell made from silicon.

Speaker Change: And it turns out it's still true today and the answer is 29.3% that's it and if you want to do more than that you've got to start.

Speaker Change: Using more exotic materials using layers of material to trap different colors of light and I actually work with a couple of companies that work on that stuff okay.

Speaker Change: That's big time science.

Speaker Change: I've always loved that.

Speaker Change: Guess, what it doesn't make a damn bit a difference today.

Speaker Change: Because in China, you've got the government has decided they're going to own that market and they will drop to whatever prices required to own it and they currently own a lot of it.

Speaker Change: I'm, a free market capitalist but.

Speaker Change: Supposedly attacked me and they really kill me and they dropped the price of panels to zero and then they get all I want then I'll have to do is install them and make money, it's not it's not bad.

Speaker Change: So then if you look at the value chain and you ask is there a free marga true free market with competition in the value chain. The answer is not really.

Speaker Change: And the.

Speaker Change: The hardest point is to sell a solar the kitchen table cell to cell solar is the hardest point and therefore, there are sales companies that know this and that's what they do for a living.

Speaker Change: And some of the stuff they do too.

Speaker Change: Their customers isn't good as a matter of fact, we just signed.

Speaker Change: The document which is a.

Speaker Change: It's a credo for the corporation is called the Golden rule customer Golden rule, and 10 Commandments and it talks about ethical treatment of customers.

Speaker Change: And.

Speaker Change: There's a lot of it in the sales industry, that's not there.

Speaker Change: The point I'm, making is that after all is science and all the work and all the incredible things that have happened the guy and knocks on your door and knows how to talk his way uneven if everything he says not true is the limiting point in the in the solar chain. Therefore that guy is king so the industry is organized around that.

Speaker Change: So solar companies EPC engineering procurement and construction companies, which is what we are.

Speaker Change: We have a price called the Red line that and the fact is our price and then and that prices as a let's say two bucks to turn something per watt and.

Speaker Change: And then anything that's above that is profit for the sales guy.

Speaker Change: And they can charge six bucks.

Speaker Change: And that's fine they pay us to they get sick. So so that's out of the industry segregated So in America.

Speaker Change: The solar prices aren't what they could be for example, it's a totally opposite in the semiconductor industry totally opposite.

Speaker Change: Today honest to God today, you can buy a 1 billion transistors for a dollar.

Speaker Change: Okay. So I'm not used to that I'm used to that I'm used to cost cutting and competing head on in order to serve customers of course in our case or the electronics companies, who are some of the toughest buyers in the entire world.

Speaker Change: So retail pricing in the United States is looking like.

Speaker Change: Energy stage, you can get there their documents looking like $3 a watt so a typical system might be 10 kilowatts and it'll be $30000.

Speaker Change: And.

The same system in Europe.

Cause of frankly, our government and the way it runs the same system in Europe, you can buy for a dollar a watt.

Speaker Change: And and they they get much cheaper and better now they don't they actually believe it or not in France are inferior markets for solar than we run here.

Speaker Change: So we've got structural and government problems and asked me what the price is is if you try harder you advertise you get a better technology get your efficiency up all of the things you would think about doing.

It doesn't matter.

Speaker Change: Some politicians wanting to get elected that sets price and the guys that are willing to go to the edge of ethics to sell and that's out of the industry runs.

Speaker Change: So we specialize in the things we can do we get excellent at them and where we can do it better than anybody else that's value added and that's where we are.

Speaker Change: 0.2, whereas value added.

Speaker Change: It used to be the calculation once you buy.

Speaker Change: Our solar system.

Speaker Change: And you pay so many dollars what and then you get so many kilowatt hours from the solar system.

Speaker Change: And like 15 hours kilowatt hours per year.

Speaker Change: Per kilowatt in California for example, and then you save therefore pick a number 20 kilowatt hour times the number of kilowatt hours through system produces and that's your savings that means your utility Bill goes down by that much then you add up the savings over the years, where the appropriate interest rate and do you have.

Speaker Change: Hey back time in that payback time used to be four five years.

Speaker Change: What happened is utilities.

Speaker Change: Two a lot of clout have changed the rules.

Speaker Change: And the rules are called NIM on net.

Speaker Change: Energy metering NIM.

Speaker Change: NIM.

And it used to be utility served as a storage element for your solar system.

Speaker Change: So your solar system would put electricity meter would run backwards in the solar system. The utility would do it we will know theyre not willing to buy your power anymore.

Speaker Change: And it is in the United States that powered the buyback as opposed to their price, let's say 'twenty sense of what the what our kilowatt hour is now five cents kilowatt hour. So you can do that calculation anymore.

Speaker Change: Fortunately utilities are creating another opportunity and that opportunity.

He is for time shifting.

Speaker Change: So they kind of charge you.

Speaker Change: Pick a number 20 kilowatt hour during the day and then at four o'clock at night, they really screwy.

Speaker Change: We're talking 60 cents a kilowatt hour.

So the new the new pitch for systems is buy a battery and this is a big lithium ion battery by battery.

During the day, let your solar system charged battery and and at night, let the battery run your house.

Speaker Change: And then you design a system. They are the right size battery to move the right number of kilowatt hours back and forth every day from the Sun and the day to your house at night, and you wipe out the site charges. The net ROI works today.

Speaker Change: And it's actually pretty good for us because batteries are lucrative to install.

Speaker Change: And I happened to be a board member of Enphase and I happened to be an extra on batteries.

Speaker Change: And so we we have a collaboration with them, we actually having a meeting with them in Salt Lake later this week.

And so that's the opportunity to make money right now so the point is the value proposition you have to be nimble.

Speaker Change: You have to be able to figure out what customers need and provide it at a competitive price and right now is battery based systems that do time shifting.

Speaker Change: And 20% of customers also care about backup.

Germany, you can't sell a backup system you go to a guy and say how would you like a battery and if the power goes off you know keep your house right and the Guy goes.

Speaker Change: The power Hasnt gone off of Germany in like the last two years, So why would I buy that in the United States, If you're on P. G E.

Speaker Change: If you can pick up your phone, meaning the powers on you know you do you do have a problem there.

Speaker Change: So we.

Speaker Change: We are looking at new products and new partners, all the time to try to.

Speaker Change: Keep a real time value proposition in front of customers because they are they are homeowners. They don't have a lot of money and you really do after and there theyre not that dumb they really want to see.

Speaker Change: Return on investment and we provide them an honest one this one over 10 commandments. It completely honest return on investment and there are there are times when you do an ROI and the number is negative that is if you buy the system eight years from now you'll have less money than you have now.

Speaker Change: And we tell them that straight up.

Speaker Change: Alright, well. Thank you everyone. We've come to the top of the hour and I want to thank everyone for joining us today for the Q4 23 in Q1 'twenty four earnings update call for completes a lawyer and I hope everyone has a great day. Thank you.

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