SunPower [SPWR] Conference call transcript for 2025 q2
2025-07-22 00:00:00
Fiscal: 2025 q2
Thurman Rodgers: Hi, this is T.J. Rodgers. I'm CEO of SunPower, and I'm here to tell you about our quarter. I dragged out an old picture to talk about the ITC and the weather out there. So let me start out with the numbers. That slide is buried in there. So this is our new logo. SunPower is the old one and the airplane, which is called Helios, also Solar Challenger is really an image of a power of the sun. You can see solar cells on the wing of the airplane, giant propellers that are required really for thin air. This airplane, just so you know about it and why it is a great icon for solar energy, truly energy. It set a record that has never been broken of level flight at altitude in 2001, and that was 92,800 feet. I won't go over the specs, but it's a huge airplane, 247 feet. It can carry a payload of 726 pounds, 60,000 solar cells putting out 35 kilowatts, 14 2-horsepower motors. So they only use 21 of the 35. The reason for that is there's batteries in the airplane that will fly the airplane for 5 hours. An airplane very similar to this one flew around the world. Interesting performance because the thick air at ground level is slow, but this thing can do 170 miles an hour at altitude. And it was designed to fly endurance missions of 70,000 feet, artificial satellite. Okay. That's my geek presentation for this thing, but this is one of my favorite pictures ever. This is one more picture I got from one of the engineers on the project. This is the airplane at altitude. You can see the solar cells, they're so thin, they've been like paper. And you can see that the earth is indeed round. By the way, the atmospheric pressure up here is 0.2 pounds per square inch. So you're above 99% of the atmosphere. You can clearly see that here. Okay. To the quarter, we had $67.5 million in revenue. That's a number less than we wanted and $2.4 million in operating profit that we're very proud of, especially given the revenue. The buy line is vigorous cost cutting. We have a very lean company now, canceled out an ITC-related revenue drop. I'll talk about both of them. That has my stamp of approval, and I've created a stamp of approval that I use in the company now to talk about various things. The numbers, we have a new accounting person and CFO who helped me. And these numbers are -- I spent a lot of time on them, and they're perfect in terms of accuracy. The first 2 quarters of 2025, we have accounting methods that were developed during our 10-K, and they were developed to merge 3 companies with different accounting rules together. So we've applied those accounting methods and will in the future to present GAAP, which is a legal requirement and non-GAAP, which is the way we run the company. So there's the story. There are only 3 points to make on this graph. I have the key parameters here. Number one is, last quarter, we did $82.7 million, and that was a third $80 million-plus quarter in a row. This quarter, we dropped like a rock. It's due to the ITC. It's also due to some last-minute problem that pushed $5 million out of the quarter, but it is what it is, and I'll talk about going forward later. If you look at the gross profit, we suffered, therefore, a hit to profitability of $3.7 million. We made up for some of that by focusing on the most profitable segments and having excellent gross margin. And we also had a tremendous cost-cutting program where our OpEx, less commission, the actual real OpEx. FASB requires putting commission into OpEx in the GAAP thing one of the distortions I don't like. We cut $4.5 million. So you might say, wahoo, you actually cut more than you lost in gross margin, not quite because the operating expense with commission, this difference here was only $3.2 million better. So if you go on to the profit line, it's the old profit, plus $3.7 million, minus $3.2 million, minus -- excuse me, minus $3.7 million, plus $3.2 million, $520,000 short. So we dropped from $2.9 million last quarter to $2.4 million this quarter. Those are both pretty good numbers given our size right now. And they say we're very healthy. Now the next and only other thing you need to explain, which I was certainly asked for if I were watching this presentation is, okay, tell me how you have $2.4 million of GAAP profit and a $2.7 million loss of non-GAAP profit and a $2.7 million loss of GAAP. And I've added an extra line to the P&L to explain that. This is stock compensation and intangible costs. In other words, noncash required accounting that doesn't really affect cash profit. And that jumped this quarter, primarily because you approved a lot of stock, which we give out to our employees, to $5.1 million. So if you look at that difference, if you look at that difference, that is what took $2.8 million down to $2.7 million. And if you difference those numbers, all of these numbers work both vertically and horizontally. So where did that come from? It's in the footnote. I won't spend a lot of time going through it. Basically, $3.7 million in stock-based compensation. My feeling is now and it's always been that I reflect stock compensation and the dilution of the extra shares and $1,419 million in amortization of intangibles. This is a goodwill charge that's put artificially on the books when you make an acquisition if the assets you acquire are less than what you paid for the acquisition. Okay. I talk here about the ITC revenue deep freeze, fast and steep. And it reminded me of my hometown in Wisconsin when I woke up on that day, January 31, 1967. And if you looked at that, that was a Sunday, it was 18 below 0, and it was windy and the chill factor was almost minus 50. That was the day of a Green Bay game, a championship game, NFL championship with the Dallas Cowboys, and it was so cold that -- and you can see this is kind of a weird crowd, double park up, that your breath didn't -- you couldn't see your breath, your breath froze into ice and the ice clog hung over the stadium all day long. This is a picture I showed in the beginning. This is me running in 2000 also in Oshkosh. I was 52 at the time. And I just showed it to prove that, yes, your eyes can indeed free shut. And this is why my rule is I never run if it's below 0. So I didn't run that day of minus 18. Just so to give you the last thing, they won the game. This is a quarterback going in with less than 30 seconds left. This was a monster defensive line man Jethro Pugh of the Cowboys and he's getting blocked by Jerry Kramer, the famous All-Pro guard of Green Bay. He's not saying touchdown. He's saying, I didn't push the quarterback because the tush push then was illegal and they lost the game had that been called. That's the winning play. I'm not going to -- and Jerry Kramer is the guy that did the blocking. This is a club I run a country club I run in Oshkosh. And I was fortunate enough to get Jerry, who's now 88 to come and talk to [ Krog ] was thrilled. He's an excellent speaker. I won't tell you about this and I'm just putting it in to tell you that in the future, if I have another bad revenue quarter, I'll tell you the story about Max McGee, but that is a picture of the ball going over the goal line on the first touchdown in the first Super Bowl. And I'm not going to tell you the story about how Max didn't take the game seriously, and he stayed out all night and came in at 6:30 in the morning before the game with 2 stewardesses hanging on. End of that story. Okay. The good story is profit. This is a graph of profit. The merger is here. We've now been a company for 3 quarters. If you took the sum of losses of the 3 companies before merger, we managed to cut that down a lot in the first quarter. We broke profitable in the second quarter. We've never gotten credit for that, and I'll explain in the stock price, and I'll explain why. Now this quarter, we had decent profit on a lot less revenue. That was positive news. Then the question is, how are you going to make the revenue bigger? And I'll talk about that. When we merged, I created a theory for the 3 companies, the arc theory of merger. And I calculated the arc would be the thing when the rain came that would save the people on it, and I calculated that there could be 1,225 seats. It turned out to be an excellent way to cut 2/3 in a merger. It couldn't have happened if I didn't lay off not by trying to lay off people, which would have been possible even if you're tough and push on it. I laid off by not hiring. And that difference is what made it work. This is a graph with SunPower headcount. By the way, once SunPower learned how to do this, they liked it. We like it. The company is lean. It's better now than it was when we had a lot more people. So we had a pool of 3,499 people. When I said 1,225 was our target, that's that line right there. And we started out with -- on the first day of the first quarter, 1,341 people and made our target by the end of the quarter, beat it. And then the first quarter was $80 million instead of $100 million, which is what I had hoped for. So I told everybody that there were no longer 1,225 seats on the arc. There were 980, and we reset the target to 980, and we made that in the second quarter. Then we weren't profitable. And I said, then we wanted to get a lot profitable. And I said we've got to go to 820. At this point, people started griping, we're keeping losing seats on the arc. And my comment was, well, we didn't need giraffes anyway. And we now are down to 861. So we're almost on at that target. So if you think of everybody is spending money, this is like the graph of cost and the graph of cost reduction. And the good thing is you can drive it and you can drive it early. You don't have to wait for accountants to tell you that you lost money because you had too many people. We actually keep more careful track of headcount than that. I review this graph 3 days a week. This is the total headcount in the company. You can see 5 weeks' worth of data here. We look at rolling 5 weeks, and this shows going from 900 to 861 over the last 5 weeks, our target of 820 and a little hint that the next target is below that. This is the curve for Blue Raven. This is the curve for New Homes. These are our 2 divisions. These guys will make -- my target for revenue per employee is $400,000. These guys are already there. They're already lean. These guys have gone backwards, and they're not lean, and that's not a good number. And you can see they've actually gone up. This is because -- not because we added people, but because the laws in Nevada and Utah changed, and we had to turn 1,099 contractors that we don't pay and don't count as employees into W-2 employees. So this is my pork problem right here, and we're working on it. Meanwhile, I keep track of every little group inside the company. These are places where they like to hide overhead. And I have a consulting group, a good one, an ex-McKinsey consulting group, giving me indices for the median of 200 tech companies and the top quartile best of the companies for a lot of parameters. For example, information technology, IT, full-time equivalent per billion of revenue, 77% down to 62% finance spend as a percent of revenue. And we then developed the dash line targets here. In the case of finance, we drove it down. And that drive right there, I'll talk about twice more today, required us to move some finance from Salt Lake to India. I wanted the group together in Salt Lake, I can't afford it, so I couldn't do it. Okay. Outlook. This quarter, we're in now. We're going to increase revenue. We're going to bounce partway back. I have about $70 million there, and I put the word about and $70 million because after missing a quarter on revenue, I don't want to do it again. The better news is that when we look at profit, a lot of those cuts happened after the great quarter we just had. We're half and halfway through. That is they'll be effective for the whole quarter -- this quarter. And the profit then will be $3 million. Now all of a sudden, we've got real profit and the concerns about our viability are going to start to evaporate more on that later. Okay. A few bullets. SunPower estate. This is the bankruptcy of state run by lawyers and the Bank of America and the coalition of lenders signed an agreement with us on the last day of the quarter that authorizes us to collect all old SunPower accounts receivable. Well, gee, isn't that wonderful? We bought them. We paid $46 million, $45 million for them, and now they're signing that we will agree. And what they did was they hired bill collection firm and wrote letters to all the people that own the money for the SunPower systems we bought, systems on roofs working that we own. And they were arguing about accounts receivable. I won't use the word unethical, but I would if I weren't in a public forum. Okay. So that is behind us, but it delayed AR that was owed to us, and we're going to -- now starting to collect that AR. And that was part of the revenue problem. That was $5 million of the revenue problem right there. We joined 2 Russell indices, not going to brag about it, but always any company that -- any index that people follow, they own a mix. They'll buy your stock, they trade your stock, your stock becomes better known. That's goodness. And then the one I said I would come back to, we created a low-cost finance center in India. The city is Chennai. We even gave 2 companies, and they together become our low-cost center for finance, and we're even doing stocks there. They're pretty good. One company is called Excelencia. In the British way of doing business, the company uses chartered accountants. We call them CPAs. So they've got really good accounting, and they're going to be most of our accounting work, and we move jobs out. That's part of the headcount reduction I talked about. We also have a start-up. MylAI is an AI start-up, high tech. And they have proprietary AI software that studies things like expense mapping expense into accounts, other HR stuff, for example. And they take your processes and look at the manual inputs and outputs of the process and create codes for an automated process. So that's our AI effort rather than trying to hire an American 1 or 2 guys and hoping it's going to work. This is a company, and it's in our low-cost center. So I think this is a -- certainly, it's a good move for managing the company the way we want. Therefore, CFO, Dan Poley, is leaving SunPower. You can imagine he wasn't happy. He relocated to Salt Lake. Thank you. Then because of cost cutting, he lost some of his guys. So he and I agreed last year that he could leave SunPower, but not before the 10-K was filed and he had created low-cost finance center in India. So he agreed to walk out the door, shut the door, turn off the license, shut the door, a really high integrity move in this part, and we thank him for that. Our new interim CFO is Jeanne Nguyen. I'll show you a picture in a minute. And then again, I want to thank Dan Foley. He's done everything we've asked him to do. That's Dan, that's Jeanne. She's an accountant. She's it -- look at it. She took her own selfie picture. She's a happy accountant. And we will now find out if she likes to raw me for breakfast or not. Okay. Then we have a Chief Legal Officer. We've switched Chief Legal Officer. His name is Nicolas Wenker, Swiss origin. He writes well. He's energetic. He's got a lot of degrees, and we'll find out that he wants to get out of the private company world into the public company, and he's worked for Kirkland & Ellis. So we wish him luck. And finally, we've tapped the SunPower Board member, Dan McCranie, who's here with me today. He's got a background. He's been on the Board of 10 -- that's spelled on NASDAQ companies. I listed the 7 most important here. He's been the Chief Executive. That was the EPROM company that spun out of Intel, and he's been VP of Marketing Sales. So at Cypress, he was our VP of Marketing and Sales for a decade. So I told Dan that his retirement time was over, and he needed to -- and I paid him for it, and he needed to help us up. So right now, I'm going to introduce Dan, and he's going to tell you, he's been on the job a month. He's going to tell you what he found and what he's going to do about it. So we have him now.
John McCranie: Thanks, T.J. Hello, everybody. Well, first off, T.J., thank you very much for using a 15-year-old picture. I appreciate that very much. Let's get to the slides. So first off, I've been on this job now almost 3 weeks, but that doesn't mean I've only had 3 weeks of looking at this particular operation at SunPower. I joined the Board in the December time frame. And from that time on, I spent about 20 hours a week monitoring all of the major meetings from December to July. So what I'm about to show you is not my observations in the last 3 weeks of this position, but really 6 months. So I only point that out because I think it adds more credibility if you've got more time watching the stuff. First and foremost, I've come to truly, truly like the young men and women in the sales organization. We have a broad organization of direct virtual and dealer as well as new home sales personnel. And I find them smart, find them focused, very loyal to SunPower, very aggressive. I really have come to love that energy, but also pretty loosely managed. The result of that is all that energy and all that positive collaboration is not maximized in terms of bookings. We need to get bookings in order to pop up the revenue. And there's -- as far as I can see right now, the total available market in solar is, for all intents and purposes, infinite for us. And the issue is, is to get this team of good people, good men and women to function better and more aggressively. But here's how I see it right now. [indiscernible] First off, the sales organization hasn't been responsible for forecasting quarterly bookings. And the problem with that, I see this back in my day, I used to see this on start-up companies where the sales force was doing best efforts as opposed to having skin in the game in terms of actually forecasting the bookings along with the sales, along with the operations guys. But I'm not used to seeing that with a company this size. You must have input from sales. Once you have that input, sales no longer provides best effort. They actually are accountable, truly accountable to the numbers that they're forecasting. Second, the sales management has been slow to react to changes in the industry and customer environment. This is bad all the time, but it's particularly bad in solar. As all of you are aware, the kits keep on coming in solar. We've had huge changes in the last 6 months. It is really the responsibility of executive sales management to move fast and quickly as these changes occur. And frankly, that's been unacceptable. Individual sales personnel are not giving performance targets. So it's not just bookings. You've got to manage the entire funnel. That funnel is all the way from generating leads to driving appointments to doing pitches with the customers to bookings to the final design complete and then all the way through to revenue, which is at installs. If you don't drive all elements of that funnel, you're going to find yourself waking up with a subpar performance in bookings, which we did in Q2. And I'll get on to that a little bit later. Finally, the sales executives, the 1,099 do not effectively engage with other corporate departments. An example of that would be when you're doing your forecast or when you're trying to figure out what's going on, for instance, in latest ITC ruling, the sales executives previously were not collaborating with finance, HR, operations or engineering. When you get these seminal changes in the industry, you've got to be engaged. And frankly, I found in the 6 months I've been watching this, there was ineffective engagement, therefore, ineffective sales strategies as a result. Cost of selling is another issue. This is a very high cost of selling. I've been in semiconductors most of my life. I'm used to cost of selling being in low single digits percentage of revenue, 4%, 5%. I'm not used to this double-digit cost of selling, but it gives us an opportunity and you take a look at where your problems are, your cost of lead generation is extraordinary compared to the industry. Center management is probably double industry standard. Funnel velocity is slow. The problem with slow funnel velocity is that you end up losing orders that you've worked for months to secure. The funnel yield, which refers to how much you get out for what you brought in is, from my investigation, not at industry standard. So they're all poor when compared to what I would call best-in-class in the solar industry. So here's our corrective action and progress. It's been 3 weeks. So we reorganized SunPower to a truly functional organization. The advantage of that is that now the VP of Sales is on par with the top finance people, with the top operations people, with the top legal people. And so we can have a seat at the table, if you will, for strategies going forward. It's also under one department. So we can have cross-pollinization between New Homes, between dealer, between direct, between all the channels going into sales, and they all report directly to the CEO. We're going to recruit eventually a sales executive to drive the organization. In the meantime, you're looking at your sales executive. I want to make those senior executive changes necessary to improve group performance drive. Now I told you I was proud of the team and I am. There were some issues, and we made some changes at the executive level on a couple of those areas, and those changes have been made, and we're now in the process of replacing those executives with very good, strong, young men and women who are currently inside the SunPower organization. Now we created a more detailed forecast. I told you the sales force didn't participate in the forecast. We now have forecast on a weekly basis, measured daily on all the important parameters that lead to strong bookings, and that's leads, appointments, pitches, bookings, FDCs, and another one, installs. We track that multiple times per week. The min are given a weekly bonus and a weekly forecast in addition to a quarterly forecast. And just as a brief point on that, we've been banging on that for about 4 weeks now, and I am very encouraged in the first 4 weeks of this operation. I like the FDCs, final design complete. That's our version of bookings to the factory. That's up almost 30% from this time last quarter, and I am very proud of the minute for doing that. We need to set global cost, funnel yield and funnel velocity goals for sales. I haven't exactly got that yet. We've created a plan to get what would be entitlement for each of those areas. We've already started monitoring some of the basic yield issues. I won't bore you with which ones that are. But throughout the quarter, we're going to add all the rest of the issues in the funnel and drive cost. We think we're spending almost twice the price per watt effective for certain -- compared to the industry for certain effective. That's it, T.J.
Thurman Rodgers: Okay. So what you've heard so far, we're happy with, we're proud of. But the obvious question that I saved for the last section is, so why isn't the stock price higher if everything is so great, how come? And I want to address that now and what we're doing about it. There are things that can get improved that will work on multiple. So if I talk about -- I call it the PS ratio, price to sales, market cap on revenue. When I did the slide, it was $1.81. The revenue was down to a run rate of $270 million, down from $300 million and it's 0.54x. So here, we have a group of companies, small tech companies, and they have a very stable going back through 2024, 2.5x price-to-sales ratio. My company, Cypress, that I ran for 34 years, I kept this data religiously and our average at Cypress over 30 years was 2.4x. Enphase company, which on its board, I am a very good company, is now -- has come down, but they're still at 5x. Okay. Now the solar industry has taken a hit, and this is the leader in the solar industry, Sunrun. And you can see they've been ground down over the last year, and they're now starting to come back as people start to think they're going to do okay. So they're at 1x. And here we are banging along at the bottom. That's good news and bad news. Bad news is low share price today. The good news is, in addition to growth, raising share price, we can also have multiple. There can be 2 factors multiplying each other. Okay. So why is that? This is a screenshot of our stock price. Back here, we were up at $2 and sometimes over $2 when we reported our first profitable quarter. And I thought we've finally broken out of the [ more risks ]. Then that happened, and I got -- I thank shareholders, by the way, for sending the information. I really appreciate it. I got this and the day our risk factors were published. The day our risk factors were published, we published them after market close, but that very day, we had this problem. And I read the risk factors and they weren't -- they were too aggressive. The lawyers were "protecting" us too much. For example, I read in my own risk factors that we may not achieve profitability, okay? You go back to Page 1, and this says SunPower makes first profit in 4 years. Okay. We do have vulnerability. There are risk factors. We do have a going concern. I'm not arguing that, but that's overkill. And from now on, T.J. is going to be involved. T.J. is going to read it. T.J. is going to red line it. And by the way, the benefit for you is when you see the risk factors, they're real. I left them there for a reason. Okay. Now underlying this, this is -- and then, of course, the house ITC bill hit. This was the first announcement, and there are several hits for the house ITC bill, but this took us down to a little over $1.25. And there's nothing you can do about that. But underneath this statement of risk factors are the risk factors themselves, and that's profitability and cash flow. And like I said, in Q3 '25, we intend to have a third consecutive quarter of profit and it's likely to be the highest profit in the current run, dollars 10 percent. Next point, and we are working hard on acquisitions to grow inorganically. Now you just heard the story about how we plan to get more sales by selling more effectively with a 1,000-person sales force. We ought to be able to do that. But we're working on inorganic growth. I can tell you that I've been to the negotiating table 3 times in the last 4 months. And I'm still talking to all 3 of those companies, but I haven't bagged one yet. I'm going to bag one. We're going to make this happen. And at that time, I'll come back to you and ask you to fund that acquisition, whatever it is, and I'll tell you the story. Okay. Here, I'm pitching about bad reporting by stock services. If you go to MarketWatch. And by the way, I picked them because they're the biggest and most famous they're all -- they all have the same problem. And you go right underneath the stock graph, you see, Another Green Energy Bust, August 9, 2004. This is the old SunPower. SunPower files for bankruptcy, SunPower stock falls after company files for bankruptcy, SunPower files -- listen, this the first 4 things you see. So my complaint was, gentlemen, why do you have your bots, keep digging up dinosaur bones and beating us over the head with them. Now to be completely fair, I complain about that one other time in the invitation to this meeting, I griped about it and MarketWatch printed it. So I'm hopeful they're going to work with us and clean up the same because I actually have investors call me and say, "Gee, I wanted to invest in SunPower, but you guys are right on the edge of bankruptcy. I'm not going to invest." No, we aren't in the edge. We want bankrupt. Now look at the date and now look forward. Okay. That's all we got. Questions?
Sioban Hickie: Thank you, T.J. [Operator Instructions] Our first question today comes from Derek Soderberg from Cantor Fitzgerald.
Derek Soderberg: So T.J., on your call recently, you were talking about the ITC being eliminated. You sort of spoke to the fact that the industry has been bloated with cheap capital, sort of propped up mismanaged companies. For the past 2 quarters here, you've already proven that you can achieve positive operating income despite some of these challenges. And while you guys are generating income, your peers are going bankrupt, some of them. How can SunPower benefit from surviving this cycle? And when might we see some of that organic growth coming from, in a sense, a less crowded industry?
Thurman Rodgers: Okay. Think about my pitch. We made $2.5 million last quarter. This quarter, we're going to make $3 million, and we're a public company. You're private, your cash flow is 0 or negative and you're not public, so you have no liquidity on your stock. What if we work together? And by the way, we have a good organization. We are starting to have structure that means you can join the organization and join something that is going to be run well, and you can run your own division. You have to conform to our accounting rules, et cetera, et cetera. But -- and you will get some help. We have a good legal group, et cetera. And we do accounting in India, so you can save money there. Let's work together. And oh, by the way, I'm 77 years old. Although right now, I'm in the full war mode, and I'm actually enjoying myself. I'm 77 years old, and I ain't going to be around a year from today, I won't be there, and you might be the guy to replace me. What do you think? It's a compelling pitch, and it gets more and more compelling as the economy gets crappier. That's why I used the famous Martin Luther King quote, "Free at last, Lord God mighty, free at last." When we got the government, I thought the hell out of solar, so we can just run companies and compete in the free market. Right now, that's happening for part of the market. It's not happening for the other part. I'm most worried about -- actually, everybody would say it's important to the safe harbor. If you want to induce a company to poor practices, give them a safe harbor, let them buy equipment for the next year, put it in the warehouse so it can start aging. It's like buying a year's worth of lettuce, okay, it's not going to be good by the time you need it. So we're not out of the woods yet, but I believe the solar industry surely will be better off. We have this always help from government in our industry, and it costs you $3 a watt or $2.75 a watt to put solar on your house. Well, in Australia, it's $1 a watt. In Europe, it's $1.5. So if we have free markets in a free economy and we're America, how come the consumers getting screwed? And the answer is all of these games, the Monday morning pronouncement about what's going to be tariff and what's not. All of that is the friction in the economy that needs to go away with the ITC, and that's more important than Joe Blow's P&L. And if you want to be around, just make your P&L nice when it's gone, then you will win.
John McCranie: Can I add Derek, a couple of things on the SunPower sales organization. As large as it is and as much as it's been around and punching, there are certain areas where it is below critical mass. And those areas happen to be the biggest positive potential future growth even with the ITC ruling. As an example, the states of California, Texas and Florida are going to continue to be robust even during this ITC operation. SunPower does not have a very large direct presence in Florida, and it has a very poor presence in California and in Texas. My point is that we can take some of our energy and some of our personnel currently at SunPower, redirect them into those critical states and have an opportunity to attack areas with a large total available market for which we are currently doing very poor. So I think one of the ways we can pop up revenue is, if you will, reallocation of our precious sales resources into areas that have a high TAM even in this ITC environment.
Derek Soderberg: Got it. Super helpful. I do want to touch on the business here. I think there was a mention on the call here about the backlog, up 30% from last quarter. I was wondering if that's the case. And if so, what's sort of driving backlog today, which area of the business? Can you just talk a little bit more about that backlog growth?
Thurman Rodgers: Go ahead.
John McCranie: Yes. So the biggest thing that's happened now, we have 3 fundamental divisions inside SunPower. We have what we call the direct business, then we have New Homes, and then we have the virtual business. The thing that popped us up last quarter big time was a direct business. We had -- a matter of fact, if I just look at the numbers, we had a terrible book-to-bill in Q1 2025 of 0.8 book-to-bill. That's actually because there's about a 9-week lag there between when we book it and when the factory ships it. So 9 weeks, you can kind of see your future in front of you. So at a 0.81 book-to-bill, that explains -- that is the reason for the pathetic -- not pathetic -- for the poor revenue we posted in Q2. Fast forward to today, our Q2 book-to-bill was 1.2, so a strong growth in that. And that has -- it has nothing to do with me, since I only came in 4 weeks ago. It has everything to do, I think, to the spirit and the aggressiveness of this young sales organization who popped back up strong in what we call the direct business, which is selling directly to the homeowner. We also had, for the first time, some regrowth in New Homes. New Homes was more abound -- going back to Q4 2024 from a bookings perspective, and they had a very strong first quarter out of the block. So that's what was contributing to it. And as I said, if you take a look at the first 3 weeks, actually the first 3 weeks of 1 day since I just saw yesterday's numbers this morning, we are continuing on that strong booking path for both New Homes as well as direct.
Thurman Rodgers: More comments. So when I'm looking for companies, I'm looking for New Homes companies. That's our most profitable division. That's are ones $600,000 of revenue per employee. So that would be an acquisition, the specific acquisition I'm after. Also, you got to talk about batteries. In Europe, in the Netherlands, we talk about NEM in California, the net electricity metering. And when solar started, the way it worked was if you imported power into your house, you paid for it and there is a tariff for it as a function of daytime. And then if you had excess power, then power would run your meter backwards literally, and you'd get paid for it at the going rate. NEM cut that going rate to $0.05. So now exporting power in the middle of the day doesn't cut it. And the reason I mentioned the Netherlands is their midday export rate is negative. They charge you for taking your junk power away. So for obvious reasons at noon time, we have extra power. We're now up to 4 terawatts of solar. And within a couple of years, it will be the largest source of power on the face of the earth, okay? So store the stuff. Now the short-term thing is if you want to sell some solar, you go to a guy and say, "Look, I'll give you a battery." We'll sell you a battery, you hook it up. During noon time, when you can't get anything from your power, you charge your battery and starting at 4:00 in the afternoon when they start screwing you for $0.50 a kilowatt hour, then run off your battery. And that's called a grid-type battery. It's the cheapest of all batteries, and you don't need a big one. It's the smallest and cheapest. So that is taking off because you only need enough battery power to run one house from 4:00 in the afternoon to midnight. Think about 5-kilowatt hours is plenty. And even if you need a little bit bigger battery, it doesn't matter. You get 5 kilowatt hours at $0.50 a kilowatt hour, $2.50 every day, times 7, times 52, and that number adds up. So batteries are becoming important. And from an electrical engineering point of view, store it during the day and use it at night. So the growth of the battery market exceeds the growth of the solar market. So we're pushing on that. Now if Dan said, well, our sales force is slow to change. My first talk to the sales force was in Scottsdale, Arizona last January. And I gave a 1-hour long lecture on batteries, why they're good, why they need them. And we're not selling enough. So the second point is our deployment tends to be Midwest, stripe across the country, loan finance, no battery. Well, we need to change that, and that means we need a presence in particular in California. So number two, I need a company that is strong in California and SunPower is not strong and has never been really strong in California. So that's my shopping list. I'm in continuous communication. My next phone call to a guy who runs the company is -- what time is it now?
John McCranie: 1050.
Thurman Rodgers: 1050. So 1 hour and 10 minutes. So eventually, I'll score because my arguments are becoming more compelling, and I'll ask you for some money to make us big.
Derek Soderberg: No, that's helpful, T.J. And you brought up batteries. I'm curious how much that changes if you have batteries in the platform and the offering, how much does that change the economics of your average agreement? Is it 20% higher in terms of revenue potential? Any change in gross margin? Having batteries, how does that change the economics for you guys?
Thurman Rodgers: The first order, we'll get the same gross margin. So then how much more gross profit dollars is the -- what's called in the industry, the attach rate. Right now, the attach rate in California is literally 95% because of that time-shifting argument I gave you earlier. In the United States, it's approaching 50%. We are at 14%. All right. You can say bad performance, and I'll say yes, but you can say major upside. But think about it, you don't go to more sites. You simply effectively sell a battery when you sell a solar system. So we're floating on solar systems right now and get a 1.14 multiplier, and we need to quadruple that number. And to do that, I hired the Head of the Battery division from Enphase. Enphase is the of the 2 most important manufacturers of batteries in the United States, the other being Tesla. And I hired their top guy. He ran a 300-person division making batteries. And it was all about batteries, all about sublease and he's a good businessman. I had him sitting here last time, Mehran Sedigh. So yes, batteries will make a difference. The answer to your question is 1.3x on its way to 1.6x over time.
Derek Soderberg: Wow, that's pretty meaningful for you guys. And then just a quick one on gross margin here. I think in the press release, you noted the company is focusing on high-margin business. And T.J., you mentioned New Homes as one of the most profitable parts of the business. I was curious if that was the case, the reason for the higher gross margins? And then just, again, wondering how sustainable gross margins are here. Can you talk about that a bit?
Thurman Rodgers: I come from the chip business and what you look at is your gross margin every day to see if you're going to make it to the next day. So I'm paranoid about gross margins as a way of doing business. We have fortuitously high gross margins and how do gross margins get high? Well, you're big enough, you can buy equipment cheaply, and we're going to get better. We're going to amortize that overhead more as we grow above $300 million. But the other way to have good gross margins don't have so many people in the arc. It's real simple because a lot of people are in the gross margin. So we've done -- that's a byproduct of what we've managed in the company, and we're exemplary at that, and we're going to get better. We're going to be killer to compete against in the market with our gross margin. Now having said that, I want to be completely transparent. a lot of the SunPower business we inherited was delayed because of their bankruptcy, and we've got some juicy contracts. If they were rewritten, they wouldn't be quite as good. So part of the incremental gross margin when we said we focused on areas for better gross margin were to fulfill old SunPower orders, and that was worth several points of gross margin. Eventually, and that means in 2026, we got a lot of money out like that in front of us. But eventually, in 2026, we'll go to "normal gross margins." And for me, that's 36%.
Sioban Hickie: Thank you, Derek. We have a few coming in from the web. First one follows on to some of what you were saying. Based on comments regarding New Homes, are you able to quantify how much AR revenue you're seeking to collect that has been pushed into 3Q and the second half of the year? Or are you able to provide any amount of guidance on that impact?
Thurman Rodgers: Well, yes, I'm able to provide guidance given that I got a daily report, and I read my morning report this morning. And the answer is they got $16 million that either we're going to collect in Q3 or there are going to be some people in trouble. That's simple, and then there's more for Q4.
Sioban Hickie: Thank you. The other one we have here is, can you please provide an update on the impact of the ITC macro environment on SunPower's business? And is it too soon to really know what a rational base run rate for the revenue would look like?
Thurman Rodgers: Well, I picked the frozen eyebrow picture to tell you the effect on the business right now. If you want one digital, remember that. It is cold enough, your eyes really can't freeze shut. Going forward, we have been an $80 million company. We're going to bounce back to that number. Okay. That means I got to get $13 million to get back status quo. I was planning on getting $13 million to go from $80 million to $93 million. So now starting back at $80 million again, which, by the way, will be really profitable. And when we get back there, we're going to acquire. That's what we got to do, and I went through my pitch.
Sioban Hickie: Thank you. The other 2 questions appear to be redundant things you've already addressed. So that looks like that's all we have in the queue today.
Thurman Rodgers: Thank you for watching our presentation today. We appreciate your support, and we appreciate your investment.
