SunPower Reports First Quarter 2020 Results
SAN JOSE, Calif., May 7, 2020 /PRNewswire/ -- SunPower Corp. (NASDAQ:SPWR) today announced financial results for its first quarter ended March 29, 2020.
First Quarter Company Highlights
-- Strong global Distributed Generation (DG) demand - 50 percent year over
year volume growth
-- Significant progress in Commercial Direct business - expected
profitability in second half 2020
-- Continued investment in new products/services - next generation Maxeon
technology, Equinox storage, digital
-- Spin-off of Maxeon Solar Technologies expected for second quarter of
2020, pending regulatory approval and the signing of financial
facilities
-- Focused on health and safety of employees and customers during pandemic
-- Anticipated cost/cash savings of up to $100 million in 2020 - available
liquidity of up to $500 million over next 12 months
($
Millions,
except
percentages
and
per-
share
data) 1st Quarter 2020 4th Quarter 2019 1st Quarter 2019
---
GAAP
revenue $449.2 $603.8 $348.2
---
GAAP
gross
margin 8.3% 15.8% (10.7)%
---
GAAP
net
income
(loss) $(1.4) $5.4 $(89.7)
---
GAAP
net
income
(loss)
per
diluted
share $(0.01) $0.03 $(0.63)
---
Non-
GAAP
revenue(1) $454.4 $607.0 $411.6
---
Non-
GAAP
gross
margin(1) 12.5% 20.8% 6.0%
---
Non-
GAAP
net
income
(loss)(1) $(17.3) $35.8 $(57.4)
---
Non-
GAAP
net
income
(loss)
per
diluted
share(1) $(0.10) $0.23 $(0.41)
---
Adjusted
EBITDA(1) $9.4 $71.5 $(23.8)
---
MW
Recognized 538 707 455
---
Cash(2) $205.5 $423.0 $185.6
---
(1)Information about SunPower's
use of non-GAAP financial
information, including a
reconciliation to U.S. GAAP, is
provided under "Use of Non-GAAP
Financial Measures" below.
(2)Includes cash, and cash
equivalents, excluding
restricted cash
First Quarter 2020 Results
"We had a strong start to the year, exceeding our margin and adjusted EBITDA guidance driven by strong global DG demand and outperformance by our U.S. channels business," said Tom Werner, SunPower CEO and chairman of the board. "However, we have seen a material impact across the industry and our business, caused by the COVID-19 virus pandemic during the second quarter. Our primary focus during this disruption remains on the safety and well-being of our employees, working closely with our partners and maintaining our industry leading customer service levels. Despite the disruption, our fundamentals remain strong and we believe that our differentiated business model, rigorous prioritization of cost containment and continued investment will position the company well post-pandemic."
"Looking forward, we remain very confident in the significant longer term growth opportunity in solar and our investment priorities are consistent with this potential. These investments include our next generation Maxeon technology, Equinox and Helix storage solutions and our digital initiatives. We have also instituted a number of programs that we expect to result in cost and cash savings of up to $100 million in 2020. Finally, we expect to complete our planned company split into two, independently focused, pure-play solar companies by the end of the second quarter pending closing conditions. With further investment in our industry-leading technology and initiatives in place to strengthen our balance sheet, we remain focused on emerging from the current disruption in a much stronger competitive position."
SunPower Energy Services (SPES)
"Our channels business had a strong quarter and outperformed on both revenue and installation volume, with deployments up over 50 percent year over year. We further expanded our leadership in new homes with bookings doubling year over year and a growing pipeline of new opportunities. We have seen strong support from our financing partners and remain comfortable with our tax equity and project debt capacity for the balance of the year. Additionally, we recently announced that we have joined forces with Technology Credit Union to fund up to $1 billion in residential solar loans over the next four years. However, we are seeing some softness in the second quarter. Strategically, we have been moving our residential business to a robust digital platform for more than a year. This put us in a strong position to transition our channel rapidly and comprehensively to a virtual sales model when the COVID-19 disruption began. Our transition to digital included expanding customer and dealer adoption of our proprietary digital Design Studio and mySunPower applications that streamline the sales process and improve customer experience. As a result of these efforts, more than 95 percent of our residential sales are now occurring online with little to no customer contact. We believe that our industry leading digital platforms are helping our channel mitigate demand softness in the second quarter."
"In Commercial Direct, we maintained our leading market share, with increased year on year installation volume. We are beginning to see the benefits of our recent restructuring and expect our commercial direct business to return to profitability in the second half of this year. Our origination teams performed well and we now have 90 percent of our 2020 forecast in backlog. Demand for our Helix Storage solution remains strong with a pipeline exceeding $320 million and attach rates in excess of 30 percent. In particular, we are seeing significant traction for storage in California's innovative Self-Generation Incentive Program (SGIP), driven by strong customer interest in resiliency."
SunPower Technologies (SPT)
"SPT, the international portion of which will soon be Maxeon Solar Technologies, posted a solid quarter, with year on year shipment growth of 29 percent. Demand growth in DG markets was particularly strong, with DG shipments up 60 percent compared to the first quarter of 2019 and comprising 70 percent of total SPT shipments. While we were impacted by both supply and demand phases of COVID-19 related disruption during the quarter, our supply chain and operations teams were able to achieve record volume shipments and meet our customer's needs. However, while our first quarter performance was strong, we are experiencing a material impact in our results in the second quarter due to the pandemic. Our Performance-Series joint venture is now back to full production with the balance of our manufacturing facilities in operation. We expect our remaining facilities to resume production in the coming weeks and expect to have sufficient existing inventory to meet our commitments for the second quarter," Werner concluded.
Consolidated Financials
"Our first quarter performance reflected the strength of our DG market model as well as the early and rapid response to the COVID-19 disruption, including the implementation of our proactive cost control initiatives," said Manavendra Sial, SunPower chief financial officer. "Also, we continued to reduce the leverage of the company as we retired approximately $90 million of convertible debt during the quarter. Additionally, we have implemented a number of initiatives that will result in savings of up to $100 million this year, including initiatives to align our cost structure to the current environment. We remain confident in our financial position as we strengthened our balance sheet and have identified up to $500 million in potential liquidity over the next 12 months, including our $55 million revolver which remains undrawn. While current conditions remain difficult, we believe that with the actions we are taking, we are well positioned for the future," Sial added.
First quarter fiscal year 2020 non-GAAP results exclude net adjustments that, in the aggregate, increased non-GAAP loss by $15.9 million, including $47.9 million related to gain on mark-to-market gain on equity investments. This was partially offset by $10.0 million related to the cost of above-market polysilicon, $7.8 million related to business reorganization costs and restructuring charges, $6.9 million related to stock-based compensation expense, $4.8 million related to construction revenue on solar services contracts, $1.8 million related to amortization of intangible assets, and $0.7 million related to other non-recurring items and tax effects.
Financial Outlook
As previously announced, the company continues to assess the impact of the COVID-19 crisis on its fiscal year 2020 forecasts. As a result, the company will not be providing fiscal year 2020 guidance at this time.
The company's second quarter 2020 GAAP and non-GAAP guidance is as follows: on a GAAP basis, revenue of $290 million to $330 million, gross margin of negative 9 percent to negative 3 percent and net loss of $120 million to $100 million. On a non-GAAP basis, the company expects revenue of $290 million to $330 million, gross margin of 0 percent to 6 percent and megawatt (MW) deployed in the range of 340 MW to 400 MW. The company also expects break even to slightly positive cash generation in the second quarter.
The company expects second quarter 2020 Adjusted EBITDA guidance in the range of negative $40 million to negative $20 million with SPT in the range of negative $25 to $15 million and SPES in the range of negative $10 to $0 million.
The company will host a conference call for investors this afternoon to discuss its first quarter 2020 performance at 1:30 p.m. Pacific Time. The call will be webcast and can be accessed from SunPower's website at http://investors.sunpower.com/events.cfm
This press release contains both GAAP and non-GAAP financial information. Non-GAAP figures are reconciled to the closest GAAP equivalent categories in the financial attachment of this press release. Please note that the company has posted supplemental information and slides related to its first quarter 2020 performance on the Events and Presentations section of SunPower's Investor Relations page at http://investors.sunpower.com/events.cfm
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements regarding: (a) the expected financial performance of our business lines, including timing and expectations for returning our Commercial Direct business to profitability; (b) plans and expectations regarding our areas of technology, services, and product development focus, including continued investment plans, and the impact thereof; (c) statements regarding the anticipated spin-off of Maxeon Solar, including timing and certainty, the anticipated achievement of conditions precedent for the transaction and the timing thereof, and Maxeon Solar's preparation to act as an independent entity on the date of spin; (d) anticipated cash savings as the result of our cost-reduction and containment initiatives, including timing, amounts, and expected impacts on our financial performance, liquidity, and our expected competitive and financial positioning post-recovery; (e) our expectations regarding the impacts of Covid-19 on our business, our industry, and our markets, including supply and demand impacts, anticipated recovery, and our expected positioning post-pandemic; (f) our plans and expectations for our products and planned products, including anticipated markets and demand, cost impacts, and impacts on our financial performance and our ability to meet our targets and goals; (g) our expectations regarding our industry, market factors, anticipated including demand and volume; (h) expectations regarding our future performance based on bookings, backlog, and pipelines in our sales channels; (i) our expectations regarding tax equity and project debt capacity and adequacy for the remainder of the year; (j) our expectations for our strategic agreement with Technology Credit Union, and the financial impacts thereof; (k) our expectations regarding resumption of production in certain of our manufacturing facilities, and the sufficiency of our existing inventory to meet our commitments; (l) our expectations regarding 2020 financial performance, including anticipated liquidity; and (m) our second quarter fiscal 2020 guidance, including GAAP revenue, gross margin, and net loss, as well as non-GAAP revenue, gross margin, Adjusted EBITDA, and MW deployed, and related assumptions.
These forward-looking statements are based on our current assumptions, expectations and beliefs and involve substantial risks and uncertainties that may cause results, performance or achievement to materially differ from those expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to: (1) challenges in executing transactions key to our strategic plans, including regulatory and other challenges that may arise; (2) potential disruptions to our operations and supply chain that may result from epidemics or natural disasters, including impacts of the Covid-19 pandemic; (3) the success of our ongoing research and development efforts and our ability to commercialize new products and services, including products and services developed through strategic partnerships; (4) competition in the solar and general energy industry and downward pressure on selling prices and wholesale energy pricing; (5) our liquidity, substantial indebtedness, and ability to obtain additional financing for our projects and customers; (6) changes in public policy, including the imposition and applicability of tariffs; (7) regulatory changes and the availability of economic incentives promoting use of solar energy; (8) fluctuations in our operating results; (9) appropriately sizing our manufacturing capacity and containing manufacturing and logistics difficulties that could arise; and (10) challenges managing our acquisitions, joint ventures and partnerships, including our ability to successfully manage acquired assets and supplier relationships. In addition, the proposed and the associated investment by TZS in Maxeon Solar may not be consummated within the anticipated period or at all and the ultimate results of any separation depend on a number of factors, including the development of final plans and the impact of local regulatory requirements. A detailed discussion of these factors and other risks that affect our business is included in filings we make with the Securities and Exchange Commission (SEC) from time to time, including our most recent report on Form 10-K, particularly under the heading "Risk Factors." Copies of these filings are available online from the SEC or on the SEC Filings section of our Investor Relations website at investors.sunpower.com. All forward-looking statements in this press release are based on information currently available to us, and we assume no obligation to update these forward-looking statements in light of new information or future events.
©2020 SunPower Corporation. All rights reserved. SUNPOWER, the SUNPOWER logo, EQUINOX and HELIX are trademarks or registered trademarks of SunPower Corporation in the U.S. and other countries as well.
SUNPOWER CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
Mar. 29
Dec. 29,
2020 2019
Assets
Current assets:
Cash and cash equivalents $205,452 $422,955
Restricted cash and cash
equivalents, current portion 29,466 26,348
Restricted short-term
marketable securities 6,196 6,187
Accounts receivable, net 243,476 226,476
Contract assets 102,340 99,426
Inventories 391,800 358,257
Advances to suppliers,
current portion 98,452 107,388
Project assets -plants and
land, current portion 21,581 12,650
Prepaid expenses and other
current assets 104,635 121,244
Total current assets 1,203,398 1,380,931
Restricted cash and cash
equivalents, net of current
portion 9,364 9,354
Property, plant and
equipment, net 312,192 323,726
Operating lease right-of-
use assets 60,796 51,258
Solar power systems leased,
net 53,375 54,338
Advances to suppliers, net of
current portion 13,993 13,993
Other intangible assets, net 5,568 7,466
Other long-term assets 338,838 330,855
Total assets $1,997,524 $2,171,921
===
Liabilities and Equity
Current liabilities:
Accounts payable $403,180 $441,759
Accrued liabilities 165,863 203,890
Operating lease liabilities,
current portion 11,424 9,463
Contract liabilities, current
portion 126,281 138,441
Short-term debt 124,682 104,856
Total current liabilities 831,430 898,409
Long-term debt 98,095 113,827
Convertible debt 730,637 820,259
Operating lease liabilities,
net of current portion 53,740 46,089
Contract liabilities, net of
current portion 63,567 67,538
Other long-term liabilities 199,994 204,300
Total liabilities 1,977,463 2,150,422
Equity:
Preferred stock -
Common stock 170 168
Additional paid-in capital 2,668,704 2,661,819
Accumulated deficit (2,451,110) (2,449,679)
Accumulated other
comprehensive loss (8,789) (9,512)
Treasury stock, at cost (199,543) (192,633)
Total stockholders' equity 9,432 10,163
Noncontrolling interests in
subsidiaries 10,629 11,336
Total equity 20,061 21,499
Total liabilities and equity $1,997,524 $2,171,921
===
SUNPOWER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED
Mar. 29,
Dec. 29,
Mar. 31,
2020 2019 2019
Revenue:
SunPower Energy Services $289,869 $352,226 $178,221
SunPower Technologies 248,196 434,708 230,804
Intersegment eliminations (88,875) (183,173) (60,800)
Total revenue 449,190 603,761 348,225
Cost of revenue:
SunPower Energy Services 259,461 306,698 171,078
SunPower Technologies 257,129 369,363 282,868
Intersegment eliminations (104,848) (167,439) (68,436)
Total cost of revenue 411,742 508,622 385,510
Gross profit (loss) 37,448 95,139 (37,285)
Operating expenses:
Research and development 15,638 18,262 14,993
Sales, general and administrative 65,958 70,875 62,857
Restructuring charges (credits) 1,576 8,039 (665)
(Gain) loss on sale and impairment
of residential lease assets (274) (2,931) 9,226
Gain on business divestiture (6,114)
Total operating expenses 82,898 94,245 80,297
Operating income (loss) (45,450) 894 (117,582)
Other income (expense), net:
Interest income 404 259 852
Interest expense (10,537) (9,489) (16,791)
Other, net 55,069 28,709 33,073
Other income, net 44,936 19,479 17,134
Income (loss) before income taxes
and equity in losses of
unconsolidated investees (514) 20,373 (100,448)
Provision for income taxes (1,869) (9,388) (5,797)
Equity in earnings (losses) of
unconsolidated investees 245 (5,008) 1,680
Net income (loss) (2,138) 5,977 (104,565)
Net income (loss) attributable to
noncontrolling interests and
redeemable noncontrolling
interests 707 (537) 14,841
Net income (loss) attributable to
stockholders $(1,431) $5,440 $(89,724)
Basic net income (loss) per share
attributable to stockholders $(0.01) $0.04 $(0.63)
Diluted net income (loss) per share
attributable to stockholders $(0.01) $0.03 $(0.63)
Basic weighted-average shares 168,822 152,439 141,720
Diluted weighted-average shares 168,822 156,004 141,720
SUNPOWER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
THREE MONTHS ENDED
Mar. 29, Dec. 29, Mar. 31,
2020 2019 2019
Cash flows from operating
activities:
Net income (loss) $
(2,138) $
5,977 $
(104,565)
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Depreciation and amortization 16,892 18,059 24,190
Stock-based compensation 6,867 8,008 5,666
Non-cash interest expense 1,910 2,005 2,415
Equity in (earnings) losses of
unconsolidated investees (245) 5,008 (1,680)
Gain on equity investments (49,152) (29,250) (33,000)
Gain on retirement of convertible
debt (2,956)
Gain on business divestiture (6,114)
Deferred income taxes (349) 4,567 2,048
(Gain) loss on sale and Impairment
of residential lease assets 289 (2,931) 9,226
Gain on sale of assets (3,829)
Changes in operating assets and
liabilities:
Accounts receivable (17,880) (20,484) 12,196
Contract assets 295 (20,139) 1,712
Inventories (43,061) (20,311) (41,718)
Project assets (8,881) 7,050 776
Prepaid expenses and other assets 18,635 (10,228) 11,727
Operating lease right-of-use
assets 2,923 2,311 2,603
Long-term financing receivables,
net (1,611)
Advances to suppliers 8,936 16,899 13,055
Accounts payable and other accrued
liabilities (92,599) 15,384 (28,819)
Contract liabilities (16,130) 19,404 (14,578)
Operating lease liabilities (2,849) (1,752) (2,559)
Net cash used in operating
activities (179,493) (4,252) (149,030)
Cash flows from investing
activities:
Purchases of property, plant and
equipment (6,213) (12,295) (6,548)
Cash paid for solar power systems (610) (1,458) (27,600)
Proceeds from business divestiture 9,677
Proceeds from sale of assets 20,000
Cash outflow from sale of
residential lease portfolio, net
of cash received 5,474
Proceeds from sale of distribution
rights of debt refinancing 1,950
Proceeds from sale of equity
investment and partial return of
capital by an unconsolidated
investee 46,149
Net cash provided by (used in)
investing activities 39,326 13,671 (24,471)
Cash flows from financing
activities:
Proceeds from bank loans and other
debt 76,544 150,439 67,979
Repayment of bank loans and other
debt (65,730) (61,920) (58,372)
Proceeds from issuance of non-
recourse residential financing,
net of issuance costs 22,255
Contributions from noncontrolling
interests and redeemable
noncontrolling interests
attributable to residential
projects 4,371 20,987
Proceeds from issuance of non-
recourse power plant and
commercial financing, net of
issuance costs 9,754 3,004
Payment for prior business
combination (30,000)
Proceeds of common stock equity
offering, net of offering costs 171,834
Cash paid for repurchase of
convertible debt (87,141)
Settlement of contingent
consideration arrangement, net of
cash received 423 802 (2,448)
Equity offering costs paid (928)
Purchases of stock for tax
withholding obligations on vested
restricted stock (6,914) (908) (3,872)
Net cash (used in) provided by
financing activities (73,992) 237,622 46,529
Effect of exchange rate changes on
cash, cash equivalents, restricted
cash and restricted cash
equivalents (216) 881 112
Net increase (decrease) in cash,
cash equivalents, restricted cash
and restricted cash equivalents (214,375) 247,922 (126,860)
Cash, cash equivalents, restricted
cash and restricted cash
equivalents, beginning of period 458,657 210,735 363,763
Cash, cash equivalents, restricted
cash and restricted cash
equivalents, end of period $
244,282 $
458,657 $
236,903
Non-cash transactions:
Costs of solar power systems
sourced from existing inventory
$ $
21,173 $
16,406
Costs of solar power systems funded
by liabilities $
1,184 $
2,671 $
4,553
Property, plant and equipment
acquisitions funded by liabilities $
2,385 $
13,745 $
10,792
Contractual obligations satisfied
by inventory $
975 $
1,701
$
Right-of-use assets obtained in
exchange of lease obligations $
12,461 $
7,398 $
81,525
Holdback related to business
divestiture
$ $
1,927
$
Receivables in connection with sale
of residential lease portfolio
$ $
2,570
$
Aged supplier financing balances
reclassified from accounts payable
to short-term debt $
5,000 $
22,500
$
Use of Non-GAAP Financial Measures
To supplement its consolidated financial results presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), the company uses non-GAAP measures that are adjusted for certain items from the most directly comparable GAAP measures. The specific non-GAAP measures listed below are: revenue; gross margin; net loss; net loss per diluted share; and adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA"). Management believes that each of these non-GAAP measures are useful to investors, enabling them to better assess changes in each of these key elements of the company's results of operations across different reporting periods on a consistent basis, independent of certain items as described below. Thus, each of these non-GAAP financial measures provide investors with another method to assess the company's operating results in a manner that is focused on its ongoing, core operating performance, absent the effects of these items. Management uses these non-GAAP measures internally to assess the business, its financial performance, current and historical results, as well as for strategic decision-making and forecasting future results. Many of the analysts covering the company also use these non-GAAP measures in their analysis. Given management's use of these non-GAAP measures, the company believes these measures are important to investors in understanding the company's operating results as seen through the eyes of management. These non-GAAP measures are not prepared in accordance with GAAP or intended to be a replacement for GAAP financial data; and therefore, should be reviewed together with the GAAP measures and are not intended to serve as a substitute for results under GAAP, and may be different from non-GAAP measures used by other companies.
Non-GAAP revenue includes adjustments relating to legacy utility and power plant projects and construction revenue on solar service contracts, each of which is described below. In addition to the above adjustments, non-GAAP gross margin includes adjustments relating to legacy sale-leaseback transactions, business process improvement costs, gain/loss on sale and impairment of residential lease assets, cost of above-market polysilicon, litigation, stock-based compensation, amortization of intangible assets, and business reorganization costs, each of which is described below. In addition to the above adjustments, non-GAAP net loss and non-GAAP net loss per diluted share are adjusted for adjustments relating to mark to market gain on equity investments, gain on business divestiture, impairment of property, plant, and equipment, transaction-related costs, non-cash interest expense, restructuring charges (credits), gain on convertible debt repurchased, tax effect of these non-GAAP adjustments, each of which is described below. In addition to the above adjustments, Adjusted EBITDA includes adjustments relating to cash interest expense (net of interest income), provision for income taxes, and depreciation.
Non-GAAP Adjustments Based on International Financial Reporting Standards ("IFRS")
The company's non-GAAP results include adjustments under IFRS that are consistent with the adjustments made in connection with the company's internal reporting process as part of its status as a consolidated subsidiary of Total S.A., our controlling shareholder and a foreign public registrant that reports under IFRS. Differences between GAAP and IFRS reflected in the company's non-GAAP results are further described below. In these situations, management believes that IFRS enables investors to better evaluate the company's performance, and assists in aligning the perspectives of the management with those of Total S.A.
-- Legacy utility and power plant projects: The company included
adjustments related to the revenue recognition of certain utility and
power plant projects based on percentage-of-completion accounting and,
when relevant, the allocation of revenue and margin to our project
development efforts at the time of initial project sale. Under IFRS,
such projects were accounted for when the customer obtains control of
the promised goods or services which generally results in earlier
recognition of revenue and profit than U.S. GAAP. Over the life of each
project, cumulative revenue and gross margin are eventually equivalent
under both GAAP and IFRS; however, revenue and gross margin is generally
recognized earlier under IFRS.
-- Legacy sale-leaseback transactions: The company included adjustments
related to the revenue recognition on certain legacy sale-leaseback
transactions entered into before December 31, 2018, based on the net
proceeds received from the buyer-lessor. Under U.S. GAAP, these
transactions were accounted for under the financing method in accordance
with the applicable accounting guidance. Under such guidance, no revenue
or profit is recognized at the inception of the transaction, and the net
proceeds from the buyer-lessor are recorded as a financing liability.
Imputed interest is recorded on the liability equal to our incremental
borrowing rate adjusted solely to prevent negative amortization. Under
IFRS, such revenue and profit is recognized at the time of sale to the
buyer-lessor if certain criteria are met. Upon adoption of IFRS 16,
Leases, on December 31, 2018, IFRS is aligned with GAAP.
-- Mark-to-market gain in equity investments: The company recognizes
adjustments related to the fair value of equity investments with readily
determinable fair value based on the changes in the stock price of these
equity investments at every reporting period. Under GAAP, mark-to-market
gains and losses due to changes in stock prices for these securities are
recorded in earnings while under IFRS, an election can be made to
recognize such gains and losses in other comprehensive income. Such an
election was made by Total S.A. Further, we elected the Fair Value
Option ("FVO") for some of our equity method investments, and we adjust
the carrying value of those investments based on their fair market value
calculated periodically. Such option is not available under IFRS, and
equity method accounting is required for such investments. Management
believes that excluding these adjustments on equity investments is
consistent with our internal reporting process as part of its status as
a consolidated subsidiary of Total S.A. and better reflects our ongoing
results.
Other Non-GAAP Adjustments
-- Business process improvement costs: During fiscal 2019, the company
initiated a project to improve its manufacturing and related processes
to improve gross margin in coming years and engaged third party experts
to consult on business process improvements. Management believes it is
appropriate to exclude these consulting expenses from our non-GAAP
results as they are non-recurring in nature, and are not reflective of
the company's ongoing operating results.
-- Gain/loss on sale and impairment of residential lease assets: In fiscal
2018 and 2019, in an effort to deconsolidate all the residential lease
assets owned by us, the company sold membership units representing a 49%
membership interest in its residential lease business and retained a 51%
membership interest. The loss on divestment, including adjustments to
contingent consideration shortly after the closure of the transaction,
and the remaining unsold residential lease assets impairment with its
corresponding depreciation savings are excluded from the company's
non-GAAP results as they are non-recurring in nature and not reflective
of ongoing operating results.
-- Impairment of property, plant, and equipment: The Company evaluates
property, plant and equipment for impairment whenever certain triggering
events or changes in circumstances arise. This evaluation includes
consideration of technology obsolescence that may indicate that the
carrying value of such assets may not be recoverable. In accordance with
such evaluation, the company recognizes a non-cash impairment charge
when the asset group's fair value is lower than its carrying value. Such
impairment charge is excluded from the company's non-GAAP results as it
is non-recurring in nature and not reflective of ongoing operating
results. Any such non-recurring impairment charge recorded by our equity
method or other unconsolidated investees is also excluded from our
non-GAAP results as it is not reflective of their ongoing operating
results.
-- Construction revenue on solar services contracts: Upon adoption of the
new lease accounting guidance ("ASC 842") in the first quarter of fiscal
2019, revenue and cost of revenue on solar services contracts with
residential customers are recognized ratably over the term of those
contracts, once the projects are placed in service. For non-GAAP
results, the company recognizes revenue and cost of revenue upfront
based on the expected cash proceeds to align with the legacy lease
accounting guidance. Management believes it is appropriate to recognize
revenue and cost of revenue upfront based on total expected cash
proceeds, as it better reflects the company's ongoing results as such
method aligns revenue and costs incurred most accurately in the same
period.
-- Cost of above-market polysilicon: The company has entered into multiple
long-term, fixed-price supply agreements to purchase polysilicon for
periods of up to 10 years. The prices in select legacy supply
agreements, which incorporate a cash portion and a non-cash portion
attributable to the amortization of prepayments made under the
agreements, significantly exceed current market prices. Additionally, in
order to reduce inventory and improve working capital, the company has
periodically elected to sell polysilicon inventory in the marketplace at
prices below the company's purchase price, thereby incurring a loss.
Management believes that it is appropriate to exclude the impact of its
above-market cost of polysilicon, including the effect of above-market
polysilicon on product costs, losses incurred on sales of polysilicon to
third parties, and inventory reserves and project asset impairments from
the company's non-GAAP results as they are not reflective of ongoing
operating results.
-- Stock-based compensation: Stock-based compensation relates primarily to
the company's equity incentive awards. Stock-based compensation is a
non-cash expense that is dependent on market forces that are difficult
to predict. Management believes that this adjustment for stock-based
compensation provides investors with a basis to measure the company's
core performance, including compared with the performance of other
companies, without the period-to-period variability created by
stock-based compensation.
-- Amortization of intangible assets: The company incurs amortization of
intangible assets as a result of acquisitions, which includes patents,
purchased technology, project pipeline assets, and in-process research
and development. Management believes that it is appropriate to exclude
these amortization charges from the company's non-GAAP financial
measures as they arise from prior acquisitions, which are not reflective
of ongoing operating results.
-- Gain on business divestiture: In the second quarter of fiscal 2019, the
company entered into a transaction pursuant to which it sold membership
interest in certain of its subsidiaries that own leasehold interests in
projects subject to sale-leaseback financing arrangements. In connection
with this sale, the company recognized a gain relating to this business
divestiture. In the third quarter of fiscal 2018, the company entered
into a transaction pursuant to which the company sold certain assets and
intellectual property related to the production of microinverters for
purchase consideration comprised of both cash and stock. In connection
with this sale, the company recognized a gain relating to this business
divestiture. Management believes that it is appropriate to exclude both
of these gains from the company's non-GAAP results as it is not
reflective of ongoing operating results.
-- Litigation: The company may be involved in various litigations, claims
and proceedings that result in payments or recoveries from such
proceedings. The company excludes any gains or losses on such litigation
recoveries or payments from the non-GAAP results as it is not reflective
of ongoing operating results.
-- Transaction-related costs: In connection with material non-recurring
transactions such as acquisition or divestiture of a business, the
company incurred transaction costs including legal and accounting fees.
Management believes that it is appropriate to exclude these costs from
the company's non-GAAP results as it is not reflective of ongoing
operating results.
-- Business reorganization costs: In connection with the reorganization of
our business into an upstream and downstream, and subsequent
announcement of the separation transaction to separate the Company into
two independent, and publicly traded companies, we incurred and expect
to continue to incur in upcoming quarters, non-recurring charges on
third-party legal and consulting expenses to close the separation
transaction. The company believes that it is appropriate to exclude
these from company's non-GAAP results as it is not reflective of ongoing
operating results.
-- Non-cash interest expense: The company incurs non-cash interest expense
related to the amortization of items such as original issuance discounts
on its debt. The company excludes non-cash interest expense because the
expense does not reflect its financial results in the period incurred.
Management believes that this adjustment for non-cash interest expense
provides investors with a basis to evaluate the company's performance,
including compared with the performance of other companies, without
non-cash interest expense.
-- Restructuring charges (credits): The company incurs restructuring
expenses related to reorganization plans aimed towards realigning
resources consistent with the company's global strategy and improving
its overall operating efficiency and cost structure. Although the
company has engaged in restructuring activities in the past, each has
been a discrete event based on a unique set of business objectives. The
company believes that it is appropriate to exclude these from company's
non-GAAP results as it is not reflective of ongoing operating results.
-- Gain on convertible debt repurchased: In connection with the early
repurchase of a portion of our 0.875% Convertible debentures due June 1,
2021, we recognized a gain, represented by the difference between the
book value of the convertible debentures, net of the remaining
unamortized discount prior to repurchase and the reacquisition price of
the convertible notes upon repurchase. The company believes that it is
appropriate to exclude these from our non-GAAP results as it is not
reflective of ongoing operating results.
-- Tax effect: This amount is used to present each of the adjustments
described above on an after-tax basis in connection with the
presentation of non-GAAP net income (loss) and non-GAAP net income
(loss) per diluted share. The company's non-GAAP tax amount is based on
estimated cash tax expense and reserves. The company forecasts its
annual cash tax liability and allocates the tax to each quarter in a
manner generally consistent with its GAAP methodology. This approach is
designed to enhance investors' ability to understand the impact of the
company's tax expense on its current operations, provide improved
modeling accuracy, and substantially reduce fluctuations caused by GAAP
to non-GAAP adjustments, which may not reflect actual cash tax expense.
-- Adjusted EBITDA adjustments: When calculating Adjusted EBITDA, in
addition to adjustments described above, the company excludes the impact
of the following items during the period:
-- Cash interest expense, net of interest income
-- Provision for income taxes
-- Depreciation
For more information about these non-GAAP financial measures, please see the tables captioned "Reconciliations of GAAP Measures to Non-GAAP Measures" set forth at the end of this release, which should be read together with the preceding financial statements prepared in accordance with GAAP.
SUNPOWER CORPORATION
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands, except percentages and per share data)
(Unaudited)
Adjustments to Revenue:
THREE MONTHS ENDED
Mar. 29,
Dec. 29,
Mar. 31,
2020 2019 2019
GAAP revenue $449,190 $603,761 $348,225
Adjustments based on IFRS:
Legacy utility and power plant projects (207) (44) (171)
Other adjustments:
Construction revenue on solar services contracts 5,392 3,235 63,505
Non-GAAP revenue $454,375 $606,952 $411,559
Adjustments to Gross Profit (Loss) / Margin:
THREE MONTHS ENDED
Mar. 29,
Dec. 29,
Mar. 31,
2020 2019 2019
GAAP gross profit (loss) $37,448 $95,139 $(37,285)
Adjustments based on IFRS:
Legacy utility and power plant projects (34) 116
Legacy sale-leaseback transactions 20 (75) (823)
Other adjustments:
Business process improvement costs 2,464 1,091
Construction revenue on solar service contracts 4,735 1,966 11,386
Gain on sale and impairment of residential lease assets (448) (435) (125)
Cost of above-market polysilicon 10,043 27,549 49,428
Litigation (163) (2,515)
Stock-based compensation expense 1,109 1,559 168
Amortization of intangible assets 1,785 1,783 1,786
Business reorganization costs 5
Non-GAAP gross profit $56,964 $126,062 $24,651
GAAP gross margin (%) 8.3% 15.8% -10.7%
Non-GAAP gross margin (%) 12.5% 20.8% 6.0%
Adjustments to Net income (loss):
THREE MONTHS ENDED
Mar. 29,
Dec. 29,
Mar. 31,
2020 2019 2019
GAAP net income (loss) attributable to stockholders $(1,431) $5,440 $(89,724)
Adjustments based on IFRS:
Legacy utility and power plant projects (34) 116
Legacy sale-leaseback transactions 20 (75) 4,911
Mark-to-market gain on equity investments (47,871) (28,250) (33,000)
Other adjustments:
Business process improvements costs 2,464 1,091
Construction revenue on solar services contracts 4,735 1,966 (3,740)
(Gain) loss on sale and impairment of residential lease assets (722) (3,366) 8,313
Impairment of property, plant and equipment 4,053
Cost of above-market polysilicon 10,043 27,549 49,428
Litigation 321 (2,509)
Stock-based compensation expense 6,867 8,006 5,666
Amortization of intangible assets 1,786 1,783 1,786
Gain on business divestiture (6,114)
Transaction-related costs 481 1,723 1,422
Business reorganization costs 6,193 10,696 2,649
Non-cash interest expense 3 10
Restructuring charges (credits) 1,576 8,039 (665)
Gain on convertible debt repurchased (2,956)
Tax effect 1,247 (384) 1,518
Non-GAAP net income (loss) attributable to stockholders $(17,281) $35,765 $(57,424)
Adjustments to Net income (loss) per diluted share:
THREE MONTHS ENDED
Mar. 29,
Dec. 29,
Mar. 31,
2020 2019 2019
Net income (loss) per diluted share
Numerator:
GAAP net income (loss) available to common stockholders $(1,431) $5,440 $(89,724)
Non-GAAP net income (loss) available to common stockholders $(17,281) $35,765 $(57,424)
Denominator:
GAAP weighted-average shares 168,822 152,439 141,720
Effect of dilutive securities:
Restricted stock units 3,565
GAAP dilutive weighted-average common shares: 168,822 156,004 141,720
Non-GAAP weighted-average shares1 168,822 152,439 141,720
Effect of dilutive securities:
Restricted stock units 3,565
Non-GAAP dilutive weighted-average shares1 168,822 156,004 141,720
GAAP net income (loss) per diluted share $(0.01) $0.03 $(0.63)
Non-GAAP net income (loss) per diluted share $(0.10) $0.23 $(0.41)
1 In accordance with the if-converted method, net income (loss) available to common stockholders excludes interest expense related to the 0.875% and 4.0% debentures if the debentures are considered converted in the calculation of net income (loss) per diluted share. If the conversion option for a debenture is not in
the money for the relevant period, the potential conversion of the debenture under the if-converted method is excluded from the calculation of non-GAAP net income (loss) per diluted share.
Adjusted EBITDA:
THREE MONTHS ENDED
Mar. 29,
Dec. 29,
Mar. 31,
2020 2019 2019
GAAP net income (loss) attributable to stockholders $(1,431) $5,440 $(89,724)
Adjustments based on IFRS:
Legacy utility and power plant projects (34) 116
Legacy sale-leaseback transactions 20 (75) 4,911
Mark-to-market gain on equity investment (47,871) (28,250) (33,000)
Other adjustments:
Business process improvement costs 2,464 1,091
Construction revenue on solar services contracts 4,735 1,966 (3,740)
(Gain) loss on sale and impairment of residential lease assets (722) (3,366) 8,313
Impairment of property, plant and equipment 4,053
Cost of above-market polysilicon 10,043 27,549 49,428
Litigation 321 (2,509)
Stock-based compensation expense 6,867 8,006 5,666
Amortization of intangible assets 1,786 1,783 1,786
Gain on business divestiture (6,114)
Transaction-related costs 481 1,723 1,422
Business reorganization costs 6,193 10,696 2,649
Non-cash interest expense 3 10
Restructuring charges (credits) 1,576 8,039 (665)
Gain on convertible debt repurchased (2,956)
Cash interest expense, net of interest income 10,133 9,229 10,206
Provision for income taxes 1,868 9,388 5,797
Depreciation 15,896 16,773 19,181
Adjusted EBITDA $9,369 $71,539 $(23,758)
Q2 2020 GUIDANCE
(in thousands except
percentages) Q2 2020
Revenue (GAAP)
$290,000-$330,000
Revenue (non-GAAP)
$290,000-$330,000
Gross margin (GAAP)
(9%) - (3%)
Gross margin (non-GAAP)(1) 0% - 6%
Net loss (GAAP)
$(120,000)-$(100,000)
Adjusted EBITDA(2)
$(40,000)-$(20,000)
Estimated non-GAAP amounts above
for Q2 2020 include net
adjustments that increase gross
margin by approximately $25
million related to cost of above-
market polysilicon, $1 million
related to stock-based
compensation expense and $2
million related to amortization of
1. intangible assets.
Estimated Adjusted EBITDA amounts
above for Q2 2020 include net
adjustments that decrease net loss
by approximately $25 million
related to cost of above-market
polysilicon, $17 million related
to depreciation, $17 million in
business reorganization costs and
restructuring charges, $8 million
related to stock-based
compensation expense, $8 million
related to interest expense, $3
million related to income taxes
and $2 million related to
2. amortization of intangible assets.
SUPPLEMENTAL DATA
(In thousands, except percentages)
The following supplemental data represent the adjustments that are included or excluded from SunPower's non-GAAP revenue, gross profit/margin, net income (loss) and net income (loss) per diluted share measures for each period presented in the Consolidated Statements of Operations contained herein.
SUNPOWER CORPORATION
(In thousands, except percentages)
THREE MONTHS ENDED
March 29, 2020
---
Revenue
Gross profit / margin
Operating expenses Other income (expense), net Provision for income taxes Net income (loss) attributable to stockholders
SunPower Energy Services
SunPower Technologies
Intersegment eliminations SunPower Energy Services
SunPower Technologies
Intersegment eliminations
Research and
Sales, general
Restructuring charges (Gain)/loss on sale and
impairment of residential
lease assets
development and administrative
GAAP $289,869 $248,196 $(88,875) $30,408 10.5% $(8,933) -3.6% $15,973 $(1,431)
Adjustments based on IFRS:
Legacy utility and power plant
projects (207) (34) (34)
Legacy sale-leaseback
transactions 20 20
Mark-to-market gain on equity
investments (47,871) (47,871)
Other adjustments:
Business process improvement
costs 2,464 2,464
(Gain)/loss on sale and
impairment of residential lease
assets (448) (274) (722)
Construction revenue on solar
services contracts 5,392 4,735 4,735
Cost of above-market
polysilicon 17,253 (7,210) 10,043
Litigation (164) 485 321
Stock-based compensation
expense 559 551 760 4,997 6,867
Amortization of intangible
assets 1,785 1,785
Business reorganization costs 5 513 5,676 6,194
Transaction-related costs 481 481
Restructuring charges 1,576 1,576
Gain on convertible debt
repurchased (2,956) (2,956)
Tax effect 1,247 1,247
Non-GAAP $295,261 $247,989 $(88,875) $35,274 11.9% $12,927 5.2% $8,763 $(17,281)
December 29, 2019
---
Revenue
Gross profit / margin
Operating expenses Other income (expense), net Provision for income taxes Equity in earnings of unconsolidated investees
Net income (loss) attributable to stockholders
SunPower Energy Services
SunPower Technologies
Intersegment eliminations SunPower Energy Services
SunPower Technologies
Intersegment eliminations
Research and
Sales, general
Restructuring charges (Gain)/loss on sale and
impairment of residential
lease assets
development and administrative
GAAP $352,226 $434,708 $(183,173) $45,528 12.9% $65,345 15.0% $(15,734) $5,440
Adjustments based on IFRS:
Legacy utility and power plant
projects (44)
Legacy sale-leaseback
transactions (75) (75)
Mark-to-market gain on equity
investments (29,250) 1,000 (28,250)
Other adjustments:
Business process improvement
costs 1,091 1,091
(Gain)/loss on sale and
impairment of residential lease
assets (435) (2,931) (3,366)
Construction revenue on solar
services contracts 3,235 1,966 1,966
Impairment of property, plant &
equipment 4,053 4,053
Cost of above-market
polysilicon 29,181 (1,632) 27,549
Litigation 709 (3,224) 6 (2,509)
Stock-based compensation
expense 1,020 539 824 5,623 8,006
Amortization of intangible
assets 1,783 1,783
Business reorganization costs 569 10,127 10,696
Transaction-related costs 1,723 1,723
Non-cash interest expense 3 3
Restructuring charges 8,039 8,039
Tax effect (384) (384)
Non-GAAP $355,461 $434,664 $(183,173) $48,713 13.7% $94,715 21.8% $(17,366) $35,765
March 31, 2019
---
Revenue
Gross profit / margin
Operating expenses Other income (expense), net Benefit from (provision for) income taxes Gain (Loss) attributable to non-controlling interests Net income (loss) attributable to stockholders
SunPower Energy Services
SunPower Technologies
Intersegment eliminations SunPower Energy Services
SunPower Technologies
Intersegment eliminations
Research and
Sales, general
Restructuring credits Impairment of residential
lease assets Gain on business divestiture
development and administrative
GAAP $178,221 $230,804 $(60,800) $7,143 4.0% $(52,064) -22.6% $7,636 $(89,724)
Adjustments based on IFRS:
Legacy utility and power plant
projects (171) 125 (9) 116
Legacy sale-leaseback
transactions (824) 1 5,734 4,911
Mark-to-market gain on equity
investments (33,000) (33,000)
Other adjustments:
Impairment of residential lease
assets (125) 9,226 (788) 8,313
Construction revenue on solar
services contracts 63,505 11,386 (15,126) (3,740)
Cost of above-market
polysilicon 49,428 49,428
Stock-based compensation
expense 168 593 4,905 5,666
Amortization of intangible
assets 1,786 1,786
Gain on business divestiture (6,114) (6,114)
Business reorganization costs 2,649 2,649
Transaction-related costs 1,422 1,422
Non-cash interest expense 10 10
Restructuring charges (credits) (665) (665)
Tax effect 1,518 1,518
Non-GAAP $241,726 $230,633 $(60,800) $17,873 7.4% $(858) -0.4% $7,636 $(57,424)
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SOURCE SunPower Corp.
