Prepared remarks
Hello, my name is Sioban Hickie, VP of Investor Relations, and I would like to welcome everyone to SunPower's Q1 2025 Earnings Call. A few housekeeping items before we get started today. First, all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Please note today's conference call may contain projections and other forward-looking statements. These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ from those expressed or implied in our statements. Also, on today's conference call, we may discuss certain non-GAAP financial measures. Reconciliations of the differences between those non-GAAP financial measures and the most directly comparable GAAP financial measures can be found in the press release issued this morning. I'll now turn the call over to T.J. Rodgers, SunPower's Chairman and CEO.
Good morning. My name is T.J. Rodgers. I'm the CEO of SunPower. We've got the quarterly call and I've got some added remarks that I actually delivered at the company. So let's get on with it. Okay. My computer is not advancing; backward, try to make it work and see what happens from here. Okay. I'm trying to get rid of that. Apologize. This is not okay. Did you guys give me a left-handed mouse? Can I just have a normal mouse? They're trying to help me by giving me a left-handed mouse, so everything I do is backwards. Just turn it to left-handed mouse. We want a right-handed mouse that works. Okay. The title is SunPower reports Q1 2025 $80 million in revenue, $1.3 million in profit. That's the big news really. I'll talk later about the ad; I'll actually show it to you. The numbers are here. So we've got, as usual, GAAP and non-GAAP numbers. The numbers I'm focusing on here are Q1 2025 non-GAAP numbers.
So this is the big news. We've got $1.27 million in profit, up from minus $5.9 million in the prior quarter. The GAAP numbers have bigger losses. Those are all related to the acquisition and the write-offs that we've had. We actually were profitable; both profitable and cash flow positive in the quarter. That's good financial news. I'll point out on the non-GAAP numbers. This is not what we reported last quarter. It was $81.1 million we reported. This is what we would have reported with the new three company revenue recognition rules. The reason I'm telling you that is the number was $81.1 million. This was not 47%; it was 36%. On advice of our lawyers, I put the new numbers in there because these are the quote, audited numbers. They made our numbers better. And I don't want to report better numbers here today. Okay. This is our profit. Q3 is a truly unofficial number where I simply added the profitability of the three companies.
The merger occurred right here and then we lost $5.9 million in Q4, M&A profit in Q1. So that is our curve. These are audited numbers. These are not. I'd like to congratulate our team. We broke the profit barrier starting here 180 days later, we got profit. The rest of this report, that's really the financial news. We have a relatively simple company. The rest of the report I'm going to talk about what went on and I'm going to talk a little bit about our view of the future. Our $80 million was in line with expectations. We are currently an $80 million plus per quarter company in revenue. The next step is to move away from that. I'll talk about that later. SunPower, the new company, the new name is now properly and leanly staffed. So if you look at the headcount history, if you go back to the third quarter of last year, the three combined companies had 3,500 employees. The first stop was post-merger day one.
We chopped down immediately to 1,341. One quarter post-merger, we were down to 1,140. I'm going to talk about these layoffs; they're critical. How we do them? And whether or not they hurt the company does matter. And today, we're down at 906. The target headcount back here when after we merged was 1,225. The target headcount here, including the beginning of this quarter, was 980. And there's a reason for those targets. I'll show you later. So the good news is, of course, if you're worried about money, this is a dramatic cost-cutting effort. The problem you've got is that you can't let it harm the company, and you have to balance those off against each other. Here's how we do that. This is a memo just in our standard format. We haven't changed our logos yet. And this is a thing called the requisition auction. It's a process I used back in the semiconductor industry to maintain the right headcount, a very tough industry for maintaining profitability.
On Page 1, it details the number of people we had at the beginning of the week, those who left, those looking to join, and our final headcount. In this instance, we actually increased our headcount, which is quite rare given the trend, finishing at 907. This marked the third day of workweek 17. Below is the cost summary. By adjusting the financial figures related to our personnel, we show a quarter-to-date saving of $1.6 million on an annualized basis. This method helps us monitor finances and achieve profit quickly, as we review it three times a week. This process is very disciplined. Ignoring the box for now, this reflects the total company headcount, which has declined over time. The actual numbers are there, and we currently have a target headcount of 881. This is regarding workweeks 13 through 17. We review this a couple of times weekly to ensure we stay on track, and it appears we are.
The company's total headcount is segmented into six parts, organized into two divisions. I believe in having distinct profit and loss divisions that oversee the company. My role resembles that of an engaged director rather than a CEO. While I am involved in many details, the division managers are responsible for driving revenue and profits. The overhead functions also have different trajectories, with administration below its target, IT at its target, and finance approaching its target. Due to closing the quarter with three companies, there was substantial work in quality and engineering, leading me to collaborate with one VP overseeing both areas. In a company like this, wearing multiple hats is essential for success, which is a common challenge in solar management. We are assisted by a group of consultants named Ayna, who previously spun out of McKinsey. They are highly adept and have been valuable during our recovery phase.
They provide various metrics, including benchmarks for staffing levels within HR relative to revenue, based on data from numerous high-tech firms. This analysis helps drive our groups toward established ratios and revenue-per-employee metrics. Our current revenue per employee is $369,000 per year, which is impressive for the solar industry. In comparison, other firms show much lower figures, sometimes as low as $200,000, indicating weaknesses in their business models. The overall performance reflects our two divisions, including our classic solar division—Blue Raven and our New Homes division, which sells to corporate clients involved in housing development. Due to differing sales approaches, their headcounts and targets vary. We track these metrics every Monday, Wednesday, and Friday morning, which has been pivotal for profitability and revenue generation. Our strict approach stems from practices rooted in the semiconductor industry.
The Director of HR oversees this reporting process, ensuring specifications are met consistently. I won’t disclose his name for confidentiality, but he is 25 and very competent, representing the hard-working employees we have in Salt Lake, which is a hub for solar companies. I've developed a specification sheet over the years that guides our operations, transferring various business processes to the new company with training. This is just one aspect of our disciplined workflow. I had a light-hearted reference to a staff meeting last week, but we truly maintain discipline now, which was initially lacking upon my arrival. A historical reference: Lee Ermey from Full Metal Jacket famously coached actors on precision and discipline. Unlike typical portrayals, this was an authentic Gunnery Sergeant, demonstrating how vital strictness is, especially in education and preparation. Concurrently, I’ve focused on creating processes for retaining valuable employees.
When someone resigns, a prompt response is crucial, with immediate actions prioritized above all else. Delaying engagement in such situations is unacceptable. I've illustrated this commitment by canceling my meetings to address important resignations. We also have a process in place to evaluate and recycle salaries from headcount reductions to attract top industry talent. This simultaneous approach of cutting and hiring is an ongoing cycle we manage three times a week. Recently, we had two excellent new hires, and I'm excited to introduce them. One is Dick Swanson, who previously was a respected faculty member at Stanford and played a significant role in our field. He has an impressive background, being a Co-Founder, President, and CTO of SunPower Corporation, with honors in the engineering community. I discussed his role with him, and he opted to be referred to as a Technology Consultant, which aligns with our values of genuine contributions over titles. I’m thrilled to welcome Dick Swanson to speak with you today.
Thank you, T.J. Well, today, we're at a pivotal moment in the renewable revolution. About a year and a half ago, we surpassed 1 terawatt of installed PV capacity globally. And as we speak right now, we're bumping up to 2 terawatts of global PV capacity. To give you some idea of the magnitude of this, the entire U.S. electrical generation capacity is 1 terawatt. We're going to be very soon producing 1 terawatt per year of photovoltaics. And the reason for this is simply that PV has become the lowest-cost form of electrical energy. So this is sort of a transition point in our industry. The way I see it, we are entering a new phase. The question is, okay, we've done this. What now? How do we take our energy supply from sub 5% of the global generation to the dominant source generation? How do we do that? And so this is a whole new phase in our industry, and I'm really excited about the opportunity to come and help make that transition and use my 50 years of experience in the industry to work with them on the complex supply chain and technology landscape that we're facing and look forward to great results here. So thank you, T.J., for inviting me.
So he slipped and said the word Cypress, and I'll tell you why. Next, Mehran Sedigh is the Executive Vice President of the Storage Systems division. The Storage System is not merely a battery; it encompasses a system that includes batteries among other components. Our Chief Technology Officer holds a Ph.D. in Chemical Engineering from USC and previously built a $500 million storage business at Enphase, where he established strong connections. While Dick made a statement that is accurate, it may be contested by others. The cost per kilowatt hour for solar energy is indeed the lowest at around $0.02, compared to $0.06 for nuclear and between $0.06 and $0.08 for gas. However, there's a challenge: where I live, the sun only shines for an average of five hours a day. This is where batteries come into play, and that's what Mehran has focused on. The goal now is to implement what is known as a “grid connected battery.”
Your solar system will be sized larger than your household consumption, allowing you to store excess energy during the day. Then, when the utility charges peak at around $0.30 to $0.50 per kilowatt hour in the evening, you can utilize the stored energy from your battery. Essentially, it's like a bulldozer; you gather power during the day and supply it back to your home at night. The battery will become the key return on investment factor in solar installations. This is why we needed an expert in batteries, and that’s Mehran’s role. He will lead a system focused on creating comprehensive storage products rather than merely selling other companies' batteries. Mehran?
Thank you, T.J. Good morning. Really excited to be joining SunPower. It's a really important junction in SunPower. If you go back to the days that they started and T.J. helped push the company forward, it has its roots in innovation, and this is where we are going to go back to really both in products as well as services. T.J. talked about me coming from Enphase. I spent six years there developing a regeneration of the energy system, not just a battery. It is true that battery is, of course, an essential part of any energy management system, but it's not sufficient; electrification is pushing homes forward more and more to consuming more electricity. AI is coming to the picture in everything we do. It is going to put more pressure on the grid, and having an independent energy source, which is sun on our roof, is no longer nice; it's a necessity. And using that requires sophisticated software development, sophisticated AI-enabled algorithms to manage all that manage interaction with the grid, making sure the homeowner is taken care of financially with ROI and using the cheapest source of energy available. So I'm excited to start coming in, contributing to that process forward with SunPower and having some fun along the way.
My recruitment for this team was purely technical. As you join us, we will implement changes that will significantly impact the world. That’s really the key message I want to convey about our mission moving forward. Additionally, we've established a strategic partnership with a company called Sunder, which you might not be familiar with unless you're in Salt Lake City, where they're quite prominent and well-respected in their sales firm. They actually have more salespeople than we currently have employees, which should give you an idea of their scale. They're now aiding our growth, and we'll start seeing orders coming in during the third quarter. Moreover, we've enhanced our Board by welcoming three directors who are former CEOs of public companies. First, Lothar Maier, who was the CEO of Linear Technology, a $1.4 billion chip company. Next is Dan McCranie, a former chairman of five high-tech companies, including Freescale and On, which originated from Motorola's spin-off into two public companies.
Finally, we have Jamie Haenggi, a former CEO of ADT Solar who resides in Wichita. When we transitioned from a startup to a public company, our Board was initially comprised of startup members, and we didn’t adhere to independence rules; we simply chose the best talent available. Now, with stricter independence guidelines in place, the person who engages with the public can no longer be me since I am an employee. Consequently, we've appointed Ron Pasek as the Chairman of our Audit Committee and the lead director who communicates with the public. Even though I serve as Chairman, he's the one managing public interactions. On another note, Dan McCranie, who I've just introduced, will also take over the Compensation Committee role, succeeding a previous member who was not independent. This makes our current Board composition quite robust, with 11 Directors, of which 8 have CEO experience and 7 are independent.
I also addressed economic conditions and market concerns in our presentation. While many companies in our industry are struggling, we haven't been hit as hard. I compared our year-to-date performance against several key companies, and we find ourselves slightly ahead, which suggests financial recognition for our efforts. At our recent all-hands meeting in Salt Lake, attended by around 1,000 people, we discussed the rebranding of SunPower, following our acquisition of a startup named Blue Raven whose team is very proud of its identity. This rebranding has been crucial, especially given the unfortunate situation many solar companies face, with numerous bankruptcies. We need to focus on maintaining strong financials, which has required tough decisions, including layoffs that I know are unpopular. We talked about our approach to rapidly grow by acquiring solar companies, while also being cautious because the mobility of solar salesforces can make recruitment tricky.
Our strategy for acquisitions will include strong retention measures to ensure that our new teams remain engaged. Reflecting on history, SunPower has gone through its ups and downs. During tough times, we received a critical $750,000 investment that enabled us to survive. I shared past success stories, including our significant financial growth after going public, led by Tom Werner. We envision exciting prospects for SunPower moving forward, as our brand holds substantial value. Our focus is on regaining a technological edge, which we plan to achieve through partnerships, particularly with REC for panels and Enphase for inverters. These collaborations align with our mission to provide top-notch solar solutions. We believe that customer service is paramount in the solar industry, where several competitors have faltered. I'm committed to ensuring exceptional customer care, maintaining open lines of communication, and treating feedback seriously.
We track escalations and address issues promptly, fostering a culture of respect and accountability. Finally, I've transformed our question-and-answer sessions into an interactive experience to encourage a more positive dialogue with our team members. My goal is to connect with everyone effectively, reinforcing the core values that drive our success while also recognizing and rewarding our team's contributions. In conclusion, I’m excited about what lies ahead for SunPower and the potential we have to lead in the solar energy market. I welcome any questions you have.
Thank you, T.J. A few instructions before we begin Q&A. Our first call this morning is from Derek Soderberg from Cantor Fitzgerald. Go ahead, Derek.
Questions and answers
Yes. Hey guys, congrats on the financial results here. Just continuing on your vision, T.J., you've already gotten the business to a strong margin profile. You lowered sales commission significantly. But on the revenue side, how do you see the SunPower story playing out over the next year or so? Just to really set up the business to become a $1 billion annualized revenue company; is that going to be through acquisition, through partnerships, or organically? Can you provide some color on that vision and reaching that billion-dollar annualized level?
I'm glad you didn't ask when we plan to reach the $770 million figure mentioned on the slide. Our goal is to hit $1 billion, and I believe that's a realistic target. The slide illustrates that during meetings, we often face skepticism about what’s achievable. However, this can definitely be done, as demonstrated in the past when the solar market was much smaller. Achieving stability is essential, and we have managed to stabilize at $80 million per quarter. We have a direct salesforce that engages with customers directly, which gives us opportunities to grow that revenue. While I won’t speculate on the growth rate, it will take some time to reach the $100 million mark. Additionally, I am a proponent of inorganic growth. Companies we acquire often have strengths that we lack. Success depends on selecting the right management team for the merged entity. However, we need to acknowledge that customer retention in the solar industry is significantly easier than in the semiconductor industry.
I’d like to remind shareholders that our company meeting is coming up in May. The substantial leap from $5.5 million last quarter at my previous company to $80 million is thanks to acquiring SunPower, which added 1,000 new employees to our team. These employees have been given stock options with a one-year vesting period, but I need your approval for that stock at the upcoming meeting. This is crucial for the company's growth. The shift in mindset towards ownership among employees is gradually happening. I've had instances where employees have expressed their preference for stock options over salary increases. At a recent meeting, someone asked about selling stock, and I informed them that we have a service in place for that, which is standard in Silicon Valley. I’m not inclined to work with companies where the owners have complete control, as many small solar firms operate. Our approach, when acquiring, will combine both cash and stock in the compensation package, ensuring long-term incentives for new hires through vesting.
This way, we’ll enhance our ability to attract and retain talent. As we build momentum, our profitability will become evident, and that will create a compelling environment in the solar industry. This is aligned with our values and operations in Silicon Valley.
Got it, something new as my…
Go ahead. Sorry.
Can I get a follow-up? Just T.J., wanted to quickly touch on the battery systems commentary. You mentioned the importance of that to the ROI and that you're going to create your own battery systems, not to sell somebody else's battery. Can you talk about that a bit? Are you going to build the batteries? You've got experience with Enovix and SunPower. How should we think about that opportunity in batteries for the company?
Thank you for your question. I can imagine people are eager to sell right now. T.J. is entering the battery industry, but our batteries are produced by Enphase. If you consider the approach of the Enphase battery, it involves a panel paired with an inverter, resembling an old-fashioned VHS tape. Direct current comes from the panel, say 10 amperes at 40 volts, which equates to 400 watts entering the inverter. The inverter contains a fully digital system that converts direct current to alternating current. It's a complex engineering task, with the controlling chip having 4 million gates and two high-performance computers. This setup communicates with the grid, and after eight revisions, we are prepared for everything the grid might throw at us, especially since PG&E actively seeks to find new ways to disrupt solar systems. Our system is robust. Now, if that inverter could handle a kilowatt, adding a battery allows the inverter to recognize the 40 volts and convert it into usable power, utilizing all its learning to ensure efficient energy use.
Enphase batteries, which are lithium-ion, integrate seamlessly with Enphase inverters and connect to the grid, which is a challenging aspect. This is why Enphase inverters are priced higher than competitors; they represent true systems. In the Enphase ecosystem, there's a consistent product. They manufacture about 5 million units quarterly at a low cost, which interact with the grid and connect other devices such as batteries and solar panels. We plan to enhance this product with software, enabling it to perform additional functions. Enphase is already making strides in this area. For instance, they now offer a plug for charging electric cars. With the Enphase app, users can track energy output from sunrise onwards for each panel in their home. This app will allow for more advanced controls, such as charging a car exclusively with solar energy instead of grid electricity. This isn't a simple task; varying weather conditions complicate the power supply and usage relationship, requiring smart management between energy generation and consumption.
Our goal is to develop products that are robust, reliable, and affordable, delivering tangible results to our customers. We won't produce the components ourselves; our focus isn’t on manufacturing batteries, especially when companies like Enovix already create advanced batteries. The batteries used in cars and homes are significantly more economical than high-tech alternatives, and venturing into that space isn't our intention.
Thank you, Derek. Our next question comes from the web. How realistic is further inorganic growth and how is the current opportunity set for acquisitions of distressed assets of companies such as Sonova?
Well, I don't know about Sonova. That was a major crash. There's a huge amount of money in it and they may or may not ever sell assets. If they do, I'll be their bidding if the assets are priced right. But I gave you a list of 70 companies. So the answer right now is, you want some stock and a job and a good salary and work in a company that's going to grow, we can accommodate that. And so right now, for those of us capable of growing, it's a great market.
On that note, you actually have a question from the web asking about employment opportunities. How open are you to accepting applications from former SunPower employees?
Oh, when these individuals were running SunPower, it was very well managed and a leader in the industry. Over the past few years, however, it has not been. When I took over, I discovered a management structure that was struggling—costly, detached, and not focused on details. That said, SunPower is home to thousands of talented individuals, the kind you wouldn't find anywhere else. They came for the vision during its prime. So, if you have knowledge of solar, are smart, and willing to work hard, please send your resume to TJRodgers at tjr@tjrodgers.com. Remember, there's a D in Rodgers.
Thank you. The next question is about the TCL SunPower panels and any potential panel partnerships you may have.
The situation with batteries is similar, as the Chinese have driven prices down to a point where even their own companies are struggling, leading to some going out of business. With such low prices, it's unwise to attempt manufacturing in California. The same goes for solar panels; when I left SunPower, the cost was $2 per watt, and now it has plummeted to $0.31 per watt, delivered like milk. If you're considering the risk of importing panels through customs, it could cost as little as a dime per watt, making it challenging to turn a profit. I don't want to compete in the battery and panel market. If prices drop significantly, the focus should shift to creating affordable, high-quality products that function effectively. However, the manufacturers of those products won't provide customer services, such as quick repairs or installations. In our industry, we face around 5,000 different building jurisdictions, with each having its own slow processes and regulations. This task is essential, and we can excel in it, providing valuable services to our customers while also being profitable. I am not involved in manufacturing panels or batteries, though I plan to produce advanced batteries here with ten times the energy density.
Thank you. Our next question surrounds tariffs and exposure to China. What impact might this have on SunPower's profitability and supply?
Well, what everybody's pointing out to our President, he's got a guy named Navarro telling him how we're going to build back the industry and factories will spring up from the ground. The guy's hallucinating. So what is a tariff? A tariff is simple, a tax. So if they charge me double $0.60 a watt instead of $0.30 a watt, then our customers will start paying double. I'm not going to pay the tariff and have my company go bankrupt. So I'll pay the tariff as tax, pass that tax on to my customers. So I do care about it in the fact there's a larger feedback loop that if solar becomes too expensive again, then the whole market will go down and all the companies in the market will suffer. I'm hoping they will wake up by that time.
Thank you. The next question is leaning into forward guidance. Can you share any thoughts on revenue growth, margins for the next couple of years and the impact of a potential recession?
You guys just saw six months of work, right? It's kind of like being a goalie in hockey, right. I stand there and catch the pucks before they get in the net. So can I have a long-term forecast? I can, but it's based on positioning more so than actually looking at what you project the P&L to be. Right now, we have a very lean workforce and it's going to get leaner and it's American. Okay. So one good thing about being an American, if you're selling to American houses, you got to be American. They're not going to import that. So when you have a company that's lean, we now have a company that's lean, we've actually started as you heard today doing some hiring. You can survive in the market because just like my stock graph, your stock will be green, and the companies that aren't lean will be red. So that, that's the main event being having a stable company. Will the market go up? One statistic I like comes from the EIA.
It's a government organization that tracks it. And right now, close as I can estimate, the number of houses that have solar on them divided by the number of houses that could have solar on them is 4%. So we have a toe in the water. This industry we talk about being big is the toe in the water. And what we've got to do is continue to hold costs and now we need to supply what they need and what they need is storage. They need storage more than they need solar. You make the cheapest electricity in the world from 9:00 a.m. to 3:00 p.m., okay, then what are you going to do in the other hours of the day? And that's where the problem is right now hence storage division. That by the way, when storage becomes spread around the country, that's a big deal. That gets rid of the utilities as having a giant power plant that took 10 years to build. And they go to the government and say I need more money because of blah, blah, all of a sudden you're there with your own battery and it's not that far to see when you flip the switch and say goodbye, and your solar system, and you make your house more efficient too. You can't waste energy. But you can gather enough energy from your solar system and store it that it'll take care of your house. That, that vision is not that far away.
Thank you. We only have a couple more. The next one is how does stock price and valuation impact your willingness to use stock for acquisitions? And what is your view on the current valuation relative to that?
Right now, last time I checked our stock was $2. We have 80 million shares if you check the SEC website, so we're $160 million. So first is, if you're worth $160 million and they want to buy something that's worth $160 million, their proposition is give me half your stock. Then you have to say, look, our stock's not going to be at $2 for the same reason that people invest in it going forward. You need to do that too. Alternatively, okay, you've got your stock. Oh, you don't have stock. Oh, you've got your stock, and your stock is down. Okay, so what you're doing is swapping your stock for our stock, and you're betting which one's going to go up faster. So there are arguments today. Obviously, what I love is the stock to be $20, and then you've got all the currency you want. But what I've discovered in the solar industry, I call it money poisoning. That, that we had in the other industries, I always at Cypress I always had $500 million in the bank. I never thought about cash ever. I thought about beating the bad guys. And right now, for the first time in my life, I'm living in a cash flow-dominated world, and I'll tell you, we run a tighter, leaner company because of that. So it's a dangerous world, but it's an exhilarating world. The market is infinitely large, and if they don't help us to death in Washington, we'll be fine.
Thank you. With plans to expand capacity, how are you ensuring workforce training aligns with quality benchmarks?
Workforce training is important to us, and we acknowledge that we still have room for improvement in this area. Everything I shared today included management systems that have specifications, quality processes linked to those specifications, and associated training. This means that in our training environment, knowledgeable individuals are available to guide others. Even a relatively inexperienced member of our HR team is capable of producing reports that compare favorably to what we achieved in previous, larger divisions. While we still have strides to make in terms of maturity as a company, we are continuously improving each quarter. I didn’t introduce him today, but we have a quality expert named Surinder Bedi who is currently focused on enhancing our execution quality. Our products have become quite dependable, as we've significantly reduced the incidence of failures. For us, quality is about execution – whether there’s a specification, if it’s done correctly, and if it’s done right the first time. Essentially, quality correlates closely with operational excellence.
Thank you. That is all the questions we have in the queue today. I'll turn it back to T.J. Rodgers for any closing remarks.
Well, I talked long as usual, but I thought this was cool stuff. I appreciate your coming in and listening to us. Thank you.