SunPower Inc.

Good morning. Welcome to SunPower Corporation's third quarter 2023 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the call over to Mr. Mike Weinstein, Vice President of Investor Relations at SunPower Corporation. Thank you, sir. You may begin.

Good morning. I would like to welcome everyone to our third quarter 2023 earnings conference call. On the call today, we will begin with comments from Peter Ferrissey, CEO of SunPower, who will provide an update on third quarter announcements and business highlights. followed by an update on 2023 guidance, including recent sales trends, backlog, operating expense, and financing. Following Peter's comments, Beth Eby, SunPower's CFO, will then review our financial results. As a reminder, a replay of the call will be available later today on the Investor Relations page of the website. During today's call, we will make forward-looking statements that are subject to various risks and uncertainties as described in the Safe Harbor slide of today's presentation, today's press release, our 2022 10-K, and our quarterly reports on Form 10-Q. As we disclosed on October 24th, in a Form 8-K filing, the company plans to restate, as soon as practicable, financial statements for the 2022 10-K and the first and second quarter 10-Qs for 2023. Please see those documents for additional information regarding those factors that may affect these forward-looking statements. Also, we will reference certain non-GAAP metrics during today's call. Please refer to the appendix of our presentation as well as today's earnings press release for the appropriate gaps and non-gap reconciliations. Finally, to enhance this call, we've also posted a set of PowerPoint slides, which we will reference during the call on the events and presentations page of the Investor Relations website. For prior periods, we have presented our best preliminary estimate of historical period financial information, pending the outcome of the aforementioned restatement. We are also delaying the reposting or the posting of our supplemental data sheet, detailing additional historical metrics, And so we have completed this restatement of historical financial information. And with that, I'd like to turn the call over to Peter Ferrissey, CEO of Suncower. Peter?

Thanks, Mike, and good morning, everyone. Today I will discuss our Q3 2023 results, our update to our full year 2023 guidance based on the latest information on markets and our progress with cost reduction and our view of the important factors that could affect 2024. In the third quarter, we continued to see difficult market conditions with a contraction in customer bookings and installations that is more persistent than we had previously forecast as a result of the higher impact of higher interest rates on consumer behavior. While these trends have continued longer and deeper than we expected this year, we will highlight some of the early positive signs in our sales channels that began materializing in September. We continue to anticipate a growing value proposition for our customers as traditional energy costs rise, and we expect an improved picture for SunPower and the entire residential solar industry in 2024. We reported a negative $1 million of adjusted EBITDA this quarter from 18,800 new customer additions. Slower bookings this summer and higher installation expenses were the primary drivers of lower results this quarter. As we will discuss in more detail later, we have reduced our 2023 guidance to reflect current market conditions to new ranges of 70,000 to 80,000 new customers, 600 to $700 of adjusted EBITDA per customer before platform investment, platform investment of 70 to $90 million, and adjusted EBITDA of negative 35 to negative $25 million. These new ranges reflect the impact of lower than expected consumer demand and the delayed revenue recognition as cycle times have increased under higher lease buy-ins. We expect that our actions announced today to deepen our cost reduction will result in the realization of meaningful improvement to our operating expenses in 2024 as we aim to maintain financial strength through the weaker near-term market conditions. Please turn to slide four. We added 18,800 new customers in Q3, and while we are currently facing stormy seas, we are highlighting some of the more notable pockets of strength in the business here. SunPower's new home business continues to perform above expectations, with installations growing 26% in Q3 versus Q2, and 38,000 new homes in backlog. Sales continue to be driven in part by the growth of solar standard communities outside of California and a strong market for builders despite higher mortgage rates. SunPower's retrofit backlog stands at 18,100 customers. While higher lease volumes have increased the average time from booking to revenue recognition, we expect to complete the installation of substantially all of our California NEM 2.0 backlog this year. Adjusted EBITDA per customer was $1,000 before platform investment, with room to improve next year as average inventory costs and installation costs are expected to continue their declines. SunVault energy storage system sales continue to show strength, with a California attach rate greater than 60% and an overall attach rate of more than 25% across our sales channels. We expect to deplete our inventory of Sunvolt V1 models by early 2024. Battery storage costs are declining rapidly, and this is an important part of the value proposition for customers, especially in California, where NEM 3.0 reduced the benefits of net metering with the utilities. SunPower Financial reached a 56% customer attach rate for lease and loan products in the third quarter, well on its way to achieving the 65% to 75% target that we highlighted at last year's analyst day. Lease demand continues to grow with a 217% increase in contracted volumes in Q3. As noted previously, Further growth for leasing is expected in 2023 and beyond due to a combination of lease payment competitiveness versus higher utility bills and bonus tax incentives under the Inflation Reduction Act. SunPower remains customer-centric and agnostic towards lease or loan financing, and we believe that our current access to capital markets as a top-tier residential solar company is a major competitive advantage. Please turn to slide number five. With over 60,000 new customers so far this year, we've tightened the guidance for our full year 2023 range to 70,000 to 80,000 customers. While it may be early to call a turnaround trend, we want to highlight that we're seeing in September as bookings appeared to improve sharply versus prior months, particularly in key states such as California, Texas, Florida, and Colorado. We continue to see some of these same improvement trends in October. The bottom line is that the steep year-over-year sales contraction that we've been seeing since May has improved marketably in September and October. We're optimistic that these booking trends will continue and help boost the installation and customer recognition figures in the first half of 2024. Please turn to slide number six. We've reduced our 2023 guidance this quarter, and I will disclose the factors that led us to take this action as well as some of the remedies as we continue to pursue as we aim for a better outcome in 2024. As I mentioned earlier, we've tightened the customer range to 70 to 80,000. While September and October booking trends are indeed positive, we are nonetheless affected by the slower pace of bookings this past summer that will slow our customer recognition. We continue to face some delays in the California system activation from the state's utilities, although we've seen recent significant improvements from earlier this year. New homes backlog and customer bookings have exceeded our expectations, and we had our best Q3 for customer bookings for new homes in the company's history. New homes is on track to comprise 15 to 20% of our total 2023 customers. Reduced guidance for 2023 EBITDA of negative minus $35 million to negative $25 million in EBITDA per customer before platform investment of $600 to $700 reflected the higher cost of goods sold and the amortization of installation spread across lower than expected volume. The increase in lease volumes, which is a positive trend that ultimately boosts sales origination fees, nonetheless results in extended cycle times for revenue recognition versus loans and cash sales. The range for platform investment of $70 to $90 million is still well below our original plan earlier this year and now reflects primarily the higher legacy business unit costs and the restatement of prior period inventory values. We plan to continue reducing operating expense in order to maintain financial strength through the near-term economic and market uncertainties. Long term, we continue to expect substantial tailwinds for the U.S. distributed solar market, including low market penetration, climbing utility bills, a strained electrical grid, plus a decade of tax benefits under the Inflation Reduction Act. Platform investment is intended to continue positioning some power to gain market share as market conditions continue to develop. We plan to adjust our investment pace judiciously as conditions change. Finally, we're projecting an improvement in cash flow operations during 2024. We intend to manage this with reductions to fixed and variable costs, continued inventory reduction, and continued expansion of customer financing capacity. Please turn to slide number seven. Conventional electric utility rates are the primary competition for our industry. Energy Information Agency reports that average U.S. retail electric rates remain near all-time highs as of August, despite the moderating cost of bulk wholesale power and key fuels such as natural gas. Price increases continue to hit the northeastern and mid-Atlantic states and California, with nine states seeing increases greater than 10% year over year. We estimate that more than 40 million potential customers reside in states with electric rates rising faster than inflation. In California, PG&E rates are set to rise 9% to 13% in January of 2024. We believe that these steep cost increases and the impact of grid instability on residential customers continue to elevate the value proposition of residential solar as one of the most powerful ways to stabilize and reduce home energy bills. Despite lower fuel prices, the Edison Electric Institute is projecting a 20% increase in electric utility capital investment from 2023 to 2025 compared to the previous three years. As these investments are recovered through electric bills, we continue to believe that the value of rooftop solar is likely to continue rising. Please turn to slide number eight. Next, I'll share the most important progress we've made in Q3 as we move forward with the five pillars of our long-term strategic plan. For customer experience, SunPower remained the top-ranked U.S. home solar installer, as indicated by our ratings and reviews on multiple platforms. We've also launched a new self-help center experience within the MySunPower app and on our website to help resolve questions faster with less friction. For products, SunVault's attach rates reached new highs in Q3, with sales up 163% versus Q2 and our best-ever sales month in September. For growth, September retrofit bookings grew 59% in September versus August, and new homes expanded outside California with new communities signed with home builders such as CC Homes in Florida, Toll Brothers in Nevada, New York, and Massachusetts, and Meritage in Colorado. We also added 97 new dealers in Q3, the most onboarded in a single quarter. For digital, SunPower released a new sales proposal tool for new homes customers and completed the rollout of new scheduling software, which is designed to increase appointment reliability and reduce utilization costs. And finally, SunPower Financial completed the first phase of the ADP Solars launch using SunPower Financial, enabling lease and PPA sales in seven states. Please turn to slide number nine. SunPower Financial continues to grow its business despite the impact of slower sales on SunPower overall. In Q3, we launched as the exclusive lessor for ADP solar customers choosing to finance with a lease or power purchase agreement. Loan financing is expected to launch in Q4, and the program has the potential to be a meaningful contributor to 2024 volume and profitability at gross margins that are roughly in line with the existing finance business. As mentioned earlier, our lease net bookings continue to grow strongly in the third quarter, and leases currently enjoy a cost-to-capital advantage compared to loans. We continue to work on agreements with financing partners to increase our lease financing capacity and facilities are in place to access ABS funding in the future. We are excited by the opportunities in this space, so stay tuned for more to follow. With that, I'll now turn it over to Beth for more details on our Q3 results. Beth.