SunPower Inc. Q4 FY2024 earnings call

• SunPower integration is substantially complete, with headcount reduced from 3,499 to 1,140. • Revenue in 4Q was $81.1 million, with a forecast of $82 million for the current quarter. • Operating expenses cut significantly, from $94 million in Q3 to $35 million in Q4, and aiming for a further 30% cut in Q1. • Board awarded a $1.14 million bonus to employees for 4Q performance. • Key hires include Venki Sundaresan from Enphase and Cypress Semiconductor, and Surinder Bedi from Lucid Motors.

Revenue for 4Q 2024 was non-GAAP $81.1 million, with annualized revenue of $324 million. The New Homes division had revenue with cancellations but is filling back up, while the Blue Raven division stayed ahead of its plan. The dealer division was scaled down. Gross margin was 37%, and operating expenses were reduced from $94 million in Q3 to $35 million in Q4.

• Forecasts $82 million revenue for the current quarter. • Projects operating income breakeven in Q1 2025 with non-GAAP operating income of around $800,000. • Expect revenue growth in the current quarter and continued cost-cutting efforts to achieve breakeven in Q1 2025.

• Uncertainty in achieving operating income breakeven in Q1 2025. • Volatility in solar industry backlogs, as backlogs are not as solid as in other industries like chips. • Challenges in acquiring other solar companies due to less tight operations and less stable backlogs in the solar sector.

Q: How is the portfolio churn trending in the New Homes business?

A: That business is more profitable, had revenue looking flat with cancellations but is filling back up. We will be up by the end of the year in New Homes having survived the bankruptcy and hardest hit part of SunPower during its bankruptcy.

Q: How will CSLR effectively leverage the SunPower brand, do you have any new plans?

A: I do. And this little teaser here is part of it. Right now, I want to get more braggable in the corporation. But we are going to make use of the name. By the way, we were attacked in court to try to take the name we want. So we own the name. We have the division, the home division of SunPower is still with us and some other people were in the dealer division are still with us in Blue Raven.

Q: We understand you have contracts with Starbucks. Is there any more commercial deals in the pipeline? And how do you view that business?

A: Okay. I don’t – unfortunately, I don’t have the picture here. Normally, I keep an appendix with all my pictures in it. There’s a fantastic picture of Starbucks and they’ve got an awning. So you’re looking at 3-storey high Starbucks within an awning that sticks out over the entire parking lot, all solar, and it’s glass-on-glass solar. So some panels today are made with glass and then the silicon and then below that, another layer of glass. So when you look at them, you can see right through parts of them. That Starbucks has got a 50,000-watt system. We have 57 Starbucks we’ve dealt with. I think it’s great business. But right now, I got 2 divisions. I’ve got Blue Raven. And there they’re putting homes all over America throughout the Midwest included, and then I’ve got New Homes. The New Homes division is capable of doing the light commercial and that may be the place or we may acquire a company that is in that business.

Q: The company has moved through its initial integration and cost reduction quickly post-acquisition of the SunPower assets. Can you discuss incremental cost reduction efforts? And how much more should the market expect on that front?

A: How much incremental cost reduction should we expect? What you don’t know is we’re actually ahead of that game. The reason last quarter had a $5.9 million loss was that curve, and we had the high part of the curve, spending a lot of money then coming down. And the average of the quarter was the high part and the low part. We’re entering the new quarter low. So that cost cutting is there already built in. Where else? We’re still paying some rent that we need to get rid of. We still have some software packages we need to stop paying on. But by and large, the heavy lifting is done, cutting costs another 30%.

Q: You announced achieving operating income breakeven in the first quarter of 2025. What are the risks to this?

A: The risk is we don’t do it and then I’m making an aggressive announcement which is atypical. As I said earlier, if you could see the spreadsheets, actually are in here, but I’m not going to show them. Our planned profit, including the ability to pay another bonus. Planned profit is $800,000. Disappears like that if you s**** something up. But if we miss, I don’t think it will be by much. And if we make it, and I think it’s more likely than not we will make it. It’s not a given. It will be a big deal, we’ll celebrate.

Q: With regards to additional acquisitions. What is your appetite? And if you are seeking them, would target be bolt-on to current positions or seek to expand your footprint and offerings?

A: Give me the choice he gave me. I heard that. What are the two choices he gave me. Okay. On expanding, that can be good or bad. Problem is you’ve had in the last 2 years, you’ve had 70 solar companies go out of business. Now you can argue the interest rate is directly what people pay for solar, double the interest rate, double the payment and therefore, high interest rates. The inflation that we’ve unfortunately inflicted on ourselves has harmed a lot of solar companies, that’s 70, I got a list that’s in an alphabetical order and SunPower is on the list. Now having said that, solar companies are not run as tightly as other companies, point one. And point two, the backlog of solar companies, the orders is not as solid. For example, in the chip business, we would take backlog and if some – and we would make chips for somebody, not custom, just a bigger number for another company and they didn’t take them. After that point in time, they would pay a down payment. And therefore, backlog is pretty sacred in our company as most chip companies, you were locked in the last 30 days to take or pay. So you had – you were informed 30 days before the order is going to ship, the order is going to ship, and that was your last chance to bail out. Backlog isn’t solid like that in solar. You actually have teams of people calling other people. And how are things going, and you have a real rate like 20% of people say, “You know, I kind of changed my mind. And it’s a consumer thing, and you can’t be the big bad corporation pounding on some poor homeowner somewhere. So for that reason, solar companies shrink and get bigger and smaller by huge factors. So you can’t take a solar company that’s big and doing well and buy it at a high price. So I look more at potential of companies and I look more at people. And if you’ve got a solid company, that has good practices, that has customers who love them and hasn’t eaten up a lot of cash like SunPower ate up, then and you’ve got something worth acquiring. So I look for companies like that. I look for companies that we acquired a company a year ago, and I talked to the founder. And I said we were thinking about acquiring and I said, “send me your deck. That guy’s name is Cole Farmer, he is still with us, and he said, “I don’t have a deck.” And I said, “I’m thinking how in the hell can you not have a deck”. And he said, we never raised any money. We funded our first systems and then the money from that funded the other systems. And I thought my exact thoughts in that Sunday afternoon phone call, here is the real man. He didn’t run to Wall Street and get paid and gripe about the economy. He goes and makes money. So that’s the kind of company if we acquire. And we will acquire if we can, indigenous growth is great, but extra growth through acquisition is fine. That’s more like what I’m looking for, not some high-flying company or new capability. The consumer – commercial rather you talked about earlier, that’s a more stable business. You’re now dealing with other companies. And that’s a business that if we found somebody that was good at it, and that means they make bigger systems. We’re now talking not 10 kilowatts on your roof, we’re talking about 1 million watts in a field with control of the angle of the panels to follow the sun. That could be another option. Technology is another option, by getting a technology that gives us a better panel or gives us a better panel. And I’m actually working with companies on that right now. And that would be something else. So we’re not just going to grow. There were companies in Salt Lake that tried that, just sort of agglomerating companies and they found a bunch of small wheat companies, equaled one big wheat company and it didn’t work out.

Q: I have a longer one with respect to the dealers division. It sounds like you shrank the dealers division to create more profitable growth in the long term. Can you please discuss the strategy and your outlook for that segment?

A: It was a real tight call right at the end to stay in the dealer business or not. The way the dealer business works is you have people who sell orders. They go through their process, which is complex, and they get a homeowner to sign a contract. I will buy your system. Then they can sell that deal to a company that installs and is a full-service company like ours. And amazingly enough, that order is worth 30% or even more sometimes of the value of the order. That is getting the order costs you 30% of revenue upfront. And then you deal with the guy changes his mind halfway through. Therefore, it’s an unstable business, and there are tectonic shifts in the business where that goes into fashion, goes out of fashion. And what I know from our own experience with the division, we merged into the other division and my company before that, Complete Solar. The mother of this – by the way, oddly enough, Complete Solar, the mother of this company is a grand total of maybe 60 people out of 1,000, and we’re spread all over the company, including my position. And we’re not the company anymore. We’re the money and the funding and the guidance for the company. So we’re looking for solid things. It’s not quite reasonable to use Warren Buffet’s name here, but we’re thinking that way when we look at what we can acquire and bring in and which businesses we should grow. And right now, dealer does not look like one of those businesses we grow. And by the way, I want to point out that our Blue Raven division is its own dealer. It has a large group of salespeople, and we get our own orders, and therefore, we get all the profit going up. So we understand how it works. We understand what it costs. That 30% is not phony. That is it really takes that much money to get the order and keep it. So right now, that’s not where we want to be.

Q: How do you see yourself differentiated versus your peers in the next 6 to 12 months?

A: We will be financially stable on a cash flow basis in tough times. So Marine Corps we’re going to come out of this being a difficult company to compete with. In a consumer business, we are going in and are now. They have great consumer ratings. We’re going to get better on that. And then the new angle is going to be technology and acquisition, which, again, I can’t – right now, I’m working on several technologies, and I can’t name one for you that I’m ready to move on. And in acquisitions, we’re always looking at acquisitions, always.

Q: Can you provide any timing on when your name change to SunPower might occur?

A: I’m surprised that, that is a major – well, I asked for it, right? I showed the picture of the airplane. Can’t right now, the problem we’ve got is the SunPower I knew, I was the Chairman of SunPower when it went public in, I think it was 2004. I was the Chairman of SunPower, Cypress Semiconductor my company owned them. And the SunPower, I remember, they conquered the world, built and put the power in that airplane, wasn’t the one that was experienced in Salt Lake. It was something that would cause this like if you worked with them. And so I got half the company that doesn’t remember SunPower well, but I got a name that’s worth $0.5 billion, and I’m going to figure out how to make all that work together.