SunPower Corp
NASDAQ:SPWR
Earnings Call Analysis
Q4-2023 Analysis
SunPower Corp
The past year proved to be one of the harshest for the industry, but concrete actions have been put in place to navigate these turbulent times. This includes a significant capital injection of $200 million that includes $175 million in second-lien debt and a new $25 million increase in revolving debt capacity. With these initiatives, the company is working towards meaningful improvements in profitability and cash flow later in the year. To better weather future challenges and even if consumer demand declines, cost reduction actions are estimated to save approximately $100 million annually, with substantial savings expected by mid-2024.
Despite a challenging Q4, the company has managed to add 16,000 new customers and has seen a shift in the backlog toward retrofit and New Homes channels, which indicates adaptability to market changes. Storage and SunPower Financial sales attach rates have been promising, with a record 65% customer attach rate for the latter, suggesting strong consumer interest and potential for growth in leasing due to competitive lease payment structures and tax incentives under the Inflation Reduction Act. Additionally, the company will no longer provide EBITDA per customer before platform investment as a financial metric and will instead focus on gross margin and cash flow.
Cost of Goods Sold (COGS) and Operational Expenditures (OpEx) savings are going to be a major profitability driver, with nearly $100 million of savings implemented, expected to recur annually. Along with this, the new relationships with suppliers and the lower equipment cost, especially for panels, are projected to decrease equipment expenses by as much as 37%. These changes are believed to significantly impact the company's ability to offer high-quality products at a much more affordable price.
Looking beyond the current challenges, the company positions itself favorably against conventional electric utility rates. Residential solar proves to be attractive in states where electric rates are rising faster than the cost of inflation. The company anticipates the ongoing value proposition of rooftop solar to rise, supported by the belief that electricity provider investments – which translate into higher bills – will increasingly favor solar solutions.
The company sustains a strong focus on differentiating itself through a top-rated customer experience. This is achieved through the collaboration with dealers and a dedication to providing excellent, digitally enhanced customer support throughout the customer life cycle. Goodwill from customers and dealers alike is considered a crucial component of the company's resilience".
The company looks forward to a more cash flow positive situation as it progresses through the year, thanks to the capital commitments received and the productivity improvements already underway. The reduction of going concern language in financial disclosures reflects confidence in the stability and outlook of the business operations moving forward.
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Good day. Good morning, welcome to SunPower Corporation's Fourth Quarter and Full Year 2023 Earnings Call. [Operator Instructions]. I would now like to turn the call over to Mr. Mike Weinstein, Vice President of Investor Relations at SunPower Corporation. You may begin.
Good morning. I would like to welcome everyone to our fourth quarter 2023 earnings conference call. On the call today, we will begin with comments from Peter Faricy, CEO of SunPower, who'll provide an update on Q4 business highlights, recent cost reduction actions, and our recent announcement of fresh capital from our majority shareholders, along with our entrance into new long-term waivers from key financial partners and our entry into an amendment to our revolving debt facility. Peter will also provide a view of key drivers for improved profitability and cash flow in 2024, along with updates on new homes and SunPower Financial. Following Peter's comments, Beth Eby, SunPower's CFO, will then review our financial results. Peter will close with guidance for gross margin and cash flow improvement in 2024 and beyond. As a reminder, a replay of the call will be available later today on the Investor Relations page of our website. During today's call, we will make forward-looking statements that are subject to various risks and uncertainties, and our actual performance and results may differ materially from our forward-looking statements. These risks and uncertainties are described in the forward-looking statement disclaimers contained in today's slide presentation, today's press release, our 2022 Form 10-K/A, and our quarterly reports on Form 10-Q. Please see these documents for additional information regarding factors that may affect forward-looking statements and read the forward-looking statement disclaimers contained therein. Also, we will reference certain non-GAAP metrics during today's call. Please refer to the appendix of the presentation as well as today's earnings press release for the GAAP to non-GAAP reconciliations. Finally, to enhance the call, we have posted PowerPoint slides, which we'll reference during the call on the Events and Presentations page of our Investor Relations website. We have also posted a supplemental data sheet detailing additional historical metrics. With that, I would like to turn the call over to Peter Faricy, CEO of SunPower. Peter?
Thanks, Mike, and good morning, everyone. Today, I will discuss our Q4 2023 results, our recent injection of new capital, and the expected impact from cost reduction actions taken in the last few months. We believe these cost reductions will make meaningful improvements to profitability and cash flow later this year and beyond. 2023 was one of the toughest years this industry has had to endure, and we know that last year was as frustrating for you as it has been for us. We have been taking concrete actions designed to position the company for success in 2024 and beyond, even if consumer demand declines. I look forward to sharing with you how we intend to continue delivering the best customer experience in the industry, while we aim to reduce costs and improve profitability going forward. Please turn to Slide #4. I'm pleased to report that we have successfully raised $200 million of new capital commitments, including $175 million of second-lien debt from Sol Holding, the JV between TotalEnergies and GIP that holds a majority of our shares outstanding, which is inclusive of the $45 million of bridge loan financing already provided since December. In addition, we have also obtained new long-term waivers from key financial partners and entered into an amendment to our revolving debt facility that includes access to an incremental $25 million of revolver capacity. Please turn to Slide #5. In the fourth quarter, difficult market conditions continued, driven by higher interest rates and net metering policy changes in California under NEM 3.0. As I will discuss further in a few moments, we have already taken actions that we estimate will result in approximately $100 million of annualized run rate savings, most of which we expect to be realized by midyear 2024. We added 16,000 new customers for the quarter as we transitioned away from NEM 2.0 installations. Our backlog of 52,100 homes this year reflects a combination of retrofit and New Homes channels, including a growing multifamily segment. Retrofit backlog now stands at 52,100, reflecting both our ability to execute on installations as well as a deliberate effort to resolve pending cancellations at year-end. New Homes backlog remained mostly steady at 37,000, while New Homes installations continue to improve and grew 19% in Q4 versus Q3. I have more to add on our New Homes segment in a few minutes. We began to see some improvement in new sales bookings in September, and overall net bookings for Q4 were down 24% year-over-year on a revenue basis, including the resolution of cancellations. Winter is a seasonally slow period for the industry, as many of you know. So we will be looking for further signs of improvement in the spring. We continue to anticipate a growing value proposition for our customers over the long term as we expect traditional retail electric costs to rise while solar and storage equipment costs decline in the years to come. And that further clarity on solar tax credits for domestic content will also come to light over time. Storage and SunPower financial sales attach rates continue to be bright spots for the quarter, with the storage attach rate at 76% in our California direct channel and a 23% attach rate overall. Moreover, storage attach rates for full year 2024 are expected to continue improving as we transition away from SunVault to expand our offerings and include a grid-tied option for consumers. SunPower Financial reached a record-setting 65% attach rate for the quarter and continues to benefit from strong consumer interest and lease contracts. As noted previously, further growth for leasing is expected in 2024 and beyond due to a combination of lease payment competitiveness versus higher utility bills and bonus tax incentives under the Inflation Reduction Act. SunPower remains customer-centric and agnostic toward lease or loan financing, and we believe that our continued access to capital markets as a top-tier residential solar company is a competitive advantage. As we begin this year, we've decided to simplify the financial metrics we provide to you and will no longer provide a calculation of EBITDA per customer before platform investment. With our emphasis on profitability under current market conditions, we are shifting our attention towards gross margin and cash flow going forward, and I'll share the details on that shortly. Please turn to Slide #6. We see several factors at work this year that we believe provide a highly visible path towards improved profitability and cash flow. First, we've already executed on nearly $100 million of COGS OpEx savings, which we believe will recur annually with about 2/3 of these savings from reduced COGS, including the previously announced consolidation of SunPower direct installation sites, lower cost panels, lower freight costs, and reduced overhead. Furthermore, the majority of OpEx reduction actions are related to labor costs with the remainder from facilities costs. The cost to achieve these savings is relatively $9 million expected to be incurred in 2024. Second, we expect to benefit in 2024 from new relationships with key suppliers as well as lower cost of equipment, particularly panels. As our supply chains evolve and diversify, we expect to see opportunities to provide more value to consumers and shareholders without sacrificing quality as supplier competition heats up over the next few years. We expect to realize as much as a 37% decline in overall equipment expense from lower-cost panels, inverters, and racking systems. Please turn to Slide #7. We are pleased to be able to achieve material cost savings without having to sacrifice quality. Using panels, as an example, you can see that premium manufacturers are converging on panel efficiency. At the same time, best-in-class premium panel makers have also been able to achieve new levels of lower costs. We believe we can continue to offer customers and dealers the highest quality products now at prices that are much more affordable. Please turn to Slide #8. New Homes performed better than expected in 2023 as the homebuilding industry proved to be surprisingly resilient in the face of higher mortgage rates. Under our conservative assumption for slow growth in retrofit sales this year, we expect New Homes to take a larger share of our overall sales mix in 2024. Total Q4 New Homes bookings increased 18% versus Q3, and we've seen that momentum continue in early 2024.We saw even better momentum in California with an increase of bookings of 32% versus Q3. New Home storage sales under NEM 3.0 in California increased 30% in Q4 versus Q3, holding steady at 22% attach rate. From an install perspective, we saw Q4 installations increase sequentially, 19% versus Q3, declining only 4% year-over-year. Our latest backlog estimate of 37,000 homes reflects approximately 18 to 24 months of installations depending on the pace of home sales themselves. In 2024, we expect installations to grow compared to '23 in tandem with more New Home construction. Please turn to Slide #9. SunPower Financial continues to grow its footprint across our sales operation, achieving a record-high 65% customer attach rate in Q4, already entering the 2025 target range we previously said at our Analyst Day. This growth has been driven by strong consumer uptake of lease contracts, which comprise 73% of the lease loan financing in Q4 versus 26% the year prior. We now have raised nearly $1.8 billion of loan and lease funds over the past 24 months. We plan to continue growing this program with additional partner funds over the coming months. We're also exploring opportunities to establish a regular programmatic approach to project financing, particularly tax equity, and we continue to keep an eye on the securitized product markets for additional value opportunities. Please turn to Slide #10.We believe that SunPower Financial continues to bring multiple competitive advantages to the table, including one, a lower cost of customer acquisition; two, a customer-focused sales approach, whereby SunPower earned similar origination fees for lease or loan products; three, a lower cost of capital driven by lower default rates from customers using higher quality equipment under an industry-leading remote monitoring system, employing sophisticated digital analytics to identify problems early. And finally, a longer history of granular customer payment data that goes back to 2009. Please turn to Slide #11. With U.S. residential solar market penetration of only 4% to 5%, we view conventional electric utility rates as the primary competition for our industry. The U.S. Energy Information Agency reports that average U.S. retail electric rates remain near all-time highs as of November despite lower cost of bulk wholesale power in key fuels such as natural gas. Price increases continue to hit the Northeastern and Mid-Atlantic states in California with nearly 28 million potential customers in 10 states, seeing increases greater than 10% year-over-year. We estimate that more than 50 million potential customers reside in states where electric rates rising faster than the cost of inflation. In California, PG&E rates rose 13% in January with further increases under review. We believe that these steep cost increases and the impact of grid instability on residential customers continue to elevate the value proposition of residential solar as one of the most powerful ways to stabilize and reduce home electric bills. Despite lower fuel prices, the Edison Electric Institute is projecting a 20% increase in electric utility capital investment from 2023 to 2025 compared to the previous 3 years. As these investments are recovered through electric bills, we continue to believe that the value of rooftop solar is likely to continue rising. Please turn to Slide #12. As we look forward to 2024 with a leaner operation and a recapitalized balance sheet, I want to highlight what we believe is the most important differentiating factor that continues to distinguish SunPower from the rest of the pack. A customer experience that is second to none. Despite the financial struggles we've seen these past few months, SunPower remains top-rated with customers, earning an A+ rating with the Better Business Bureau and 4- to 5-star reviews with thousands of customers across multiple review sites. Our reputation is hard-earned through the hard work and thoughtful interactions of thousands of SunPower employees and our incredible dealers. It continues to be enhanced with an improving digital experience that encompasses the entire customer life cycle from system design to energy management to ongoing and efficient customer support. I'll now turn you over to Beth for more details on our Q4 results and then I'll close with some guidance for 2024. Beth?
Thank you, Peter. Please turn to Slide 14. For the fourth quarter, we are reporting negative $68 million of adjusted EBITDA and $361 million of non-GAAP revenue. Lower year-over-year installations at 16,000 reflect the impact of reduced bookings since May under higher interest rates and the California NEM 3.0 environment as well as the winding down of NEM 2.0 installations. Increasing battery attach rates since 2022 have been driven by NEM 3.0 demand in California as well as lower cost options. We expect to sell out of SunVault and shift to lower-cost third-party batteries in Q2. Adjusted gross margin declined in Q4 as a result of SunPower Direct pre-install and install costs spread over lower volumes. Costs are expected to improve in 2024 after recent restructuring actions. Several items totaling $48 million are also either not expected to recur in 2024 or were time shifted into Q1, including the restatement impact, adjustment for inventory write-downs, warranty costs, mostly related to our commercial business that we sold in 2022, a higher lease cost of capital on systems installed due to rapid interest rate increases, which were unhedged, and the delay of recognition reduced ITC warranty reserves on legacy projects from Q4 to Q1. Please see the appendix for more detail. Turning to the balance sheet. We ended Q4 with $87 million cash on hand and $208 million of net recourse debt. Inventory levels declined another $64 million to $261 million on December 31, with efforts to reduce further continuing into 2024. We continue to value our ownership of lease renewals, net retained value in SunStrong using a 6% discount rate. With growth in the portfolio, we now estimate the value of our stake to be about $320 million. Before we turn the call over for Q&A, I want to turn you back over to Peter for guidance on 2024 and closing comments. Peter?
Thank you, Beth. Please turn to Slide 15. As I mentioned earlier, we are shifting our reporting and guidance approach a bit to emphasize gross margin and cash flow rather than platform investment. That said, we've decided against providing customer EBITDA guidance on '24 demand at this early stage, particularly as we intend to drive results this year through a combination of restructuring, carefully considered cost reductions, and prudent working capital stewardship. Given the challenging market conditions, we are providing guidance on, number one, cash flow; and number two, gross margin. With respect to cash flow, we are guiding to be cash flow positive for the second half of the year as lower inventory, lower inventory costs, and reduced OpEx all kick in. We are also guiding to continue this trend to be cash flow positive for 2025 as well. We are projecting a range of full-year gross margins of 17% to 19%, improving to greater than 20% in 2025. We plan to update you with full-year EBITDA guidance later in the year once we've had the opportunity to complete the evaluation of our ongoing restructuring and recently announced recapitalization impacts. We've deliberately been conservative in our strategic planning for the year, and we're fully focused on goals for profitability, cash flow, and results as we work to improve our financial strength this year to remain an industry-leading residential solar company for 2025 and beyond. Please turn to Slide 16. This slide is largely the same one we showed you last quarter and continues to list our view of the future as we reset and launch forward into 2024 after a difficult 2023. From a macro perspective, we continue to expect that increasing utility rates and lower equipment pricing will be tailwinds for the industry. We also anticipate a more stable interest rate environment as well as improved clarity on how the bonus tax credits available under the Inflation Reduction Act.For SunPower specifically, we expect to benefit from lower-cost products, as mentioned earlier. Finally, while we have reduced OpEx and deemphasized plans for high-growth platform investment this year, we plan to keep an eye on long-term opportunities for growth and investment, adjusting our level of cash usage up or down based on our expectations regarding the strength of the market in future periods. With that, operator, I'd like to turn the call over for questions. Thank you.
[Operator Instructions]. And our first question is going to come from the line of Jim West with Evercore ISI.
Peter, curious and maybe if you could provide some context around the recent capital commitments that were made, particularly with Patrick and Patel and GIP, and how that all came together. Just thinking through their level of support because it's obviously pretty clear that there's a lot of support for SunPower. And I just wanted to get a little more color.
Yes. Thanks, James. So I think the #1 question on the minds of shareholders and investors has been our liquidity, appropriately so. And so most of the reports, I think that I've read or that came out last year thought that SunPower needed something on the order of $100 million to get liquidity back in order. So I guess the first thing I'd put in perspective is the $200 million capital commitment is we're pleased, I guess, is the way to say it. We're pleased that that level of capital commitment because I think that puts us in a position to have the liquidity we need to execute against our business plan this year. And a big part of the business plan, as I mentioned in my opening remarks, is getting us to cash flow positive and getting us back on this positive trail. And then I think as you point out, the second part of this, that is a very big deal is that you're looking for signals from your majority shareholders. TotalEnergies and Global Infrastructure Partners are two of the most successful companies and investors in the energy space globally. And when they put their capital behind something, it's after a lot of due diligence and a lot of homework, and a strong belief in the future of the company. So I really believe the second message here, besides the fact that 200 is a very big number is just the fact that they're so committed to the future of the company.
Right. Totally agreed on my side. And then what are your thoughts on the need for additional lease capital as we go through this year?
Yes. That's a great question. So to take a step back, we had a terrific year in SunPower Financial, as we pointed out in the slides and opening remarks. Really, the idea that we could grow our attach rate from 39% to 65 last year was great. That's a really great signal. That more and more dealers and more and more customers are preferring to get their lease and loan financing from us versus other third parties. So that trend is terrific, and we expect that to continue this year. And really, if you take a look at the capacity we have undrawn. On the loan side, we're really in great shape. We have a $900 million of available capacity. We're in a year where most people believe interest rates will stabilize, possibly have a chance to decline over the year. And if loans begin to be more favorable, we're in a really good position. But really, where we want to build a lot more capacity is on the lease side. And as we pointed out, I think it's true across the industry as well. But we just had enormous growth last year because the value of leases increased over the value of loans. So we don't have any to announce on this call, but I would say stay tuned because increasingly, our lease capacity is our top priority after today's call.
And one moment as we move on to our next question. And our next question is going to come from the line of Colin Rusch with Oppenheimer & Co.
Can you talk a little bit about the pricing dynamics? As you've gotten through a couple of quarters in California with NEM 3.0 and you start shifting the mix of what folks are buying, you just talk about on an apples-to-apples basis, how you're seeing pricing evolve in that market over the last, call it, 3 quarters?
Yes. So I guess 2 things on California. One is, to be frank, we are disappointed that the market hasn't recovered faster than it has. We did see some, I'd say, very modest recovery as we get to the end of the year. But clearly, NEM 3.0 has had a big impact on consumer demand. Having said that, the consumers that are buying under NEM 3.0, there's 2 characteristics I'd point out so far. One is that, as we talked about in my opening remarks, the battery attach rates are very high. And that's just for rational reasons. For all the customers in California, your savings is maximized by the addition of a battery. And so I would expect, at some point, all customers in California who order solar panels, batteries will be seen as almost a standard product along with solar panels. And then two, what we're seeing is that system sizes have increased a little bit over NEM 2.0. It's a modest increase, but it is a material increase enough that's driving up a little bit higher overall ring per customer in California. But I think the big deal for California is really, I think to me, it's questionable whether California is going to be able to meet its clean energy goals without reassessing whether or not NEM 3.0 had the impact they thought it would. And I think from our perspective, we're concerned that California is not in a position to meet its goals with the current program that's out there. So we're working with our dealers and customers to make the best of the current program. But I would say the feedback from consumers in California and dealers is very consistent. I think NEM 3.0 has clearly slowed down demand. And in the long run, that's not great for anybody in California.
That's super helpful. And then in terms of your dealer strategy and how you're working with those folks, given the evolving landscape, both from a regulatory perspective as well as from a capital perspective and looking at where you run into some issues with the dealer channel. Can you talk about where you're seeing incremental need to edit those things out of those relationships or evolve that strategy at all?
Yes. Well, a couple of quick comments. First, I always like to recognize we were the pioneers in this business and building on a dealer network many years ago. The SunPower dealer network and particularly our master dealers, they're the gold standard for this industry. We spent a lot of time reviewing both their customer experience and also their financials to make sure that they qualify to be a SunPower master dealer. So it's still very much a gold star and it's a critical part of our family and our future. So I've said many times that our dealer network will be a part of this company, I feel like forever because it's such a critical part of our customer experience. We grew our dealer count last year. We grew at, let's say, 10% on the installing dealer side and probably another 10% in the non-installing dealer side. And so we still see opportunity out there to expand our dealer network across the country. I think right now in these challenging market conditions, the #1 thing we're focused on is making sure we do everything we can to help these small and medium businesses be successful. Just like a lot of the big companies that have access to capital have struggled this past year with the change in demand, that same dynamic has impacted these dealers as well. So our #1 goal is to focus on helping build a strong, viable long-term business for each of our dealers in our network.
Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Ben Kallo with Baird.
Just maybe along those same lines, can you talk about discussions with your dealers or prospective dealers as well as at the home level, the individual level, I know it's very competitive and with liquidity question marks you've had in the past, could you just talk about how the environment changed the competitiveness and losing customers, if that's past us.
Yes. So I think this level of capital commitment, it's our hope that, that would put aside any concerns from any of our partners, including dealers on liquidity and the viability of the company as we go forward. That would be our goal. I think when you're going through a liquidity challenge like we have, it's thoughtful to believe that you need to continue to earn trust every single day with all of your key partners, and I would certainly include dealers at the very top of our list of groups that we want to continue to earn and build trust with as we go forward. One of the most important things that dealers tell us is they love being part of the SunPower brand. We're really aligned with our dealers on how we think about the customer experience, the importance of growing this business, and the importance of really expanding the market for clean renewable energy. So I think a lot of the dealers have been working alongside us to really make sure that we all work together to change our business model as we go through this more difficult challenging year where demand isn't as strong as it was a couple of years ago. But from a dealer perspective, I can't iterate enough how terrific our dealers have been. They've been a really, really big part of our success. When you take a look at the customer rating that we've achieved, I often like to say that is in great part to the fact that our dealers have been aligned with us on really providing a great customer experience all across the U.S.
And then as you move to more and more of your technology agnostic model, how does that impact the dealers that may have traditionally been used to SunPower equipment only and getting them through that help? Thank you.
Yes. Thanks, Ben. I think that is a great question, and I think it's been on the minds of a lot of people because our strategy traditionally going back to the days when we were a panel maker ourselves, was that having an exclusive differentiated panel made a real big difference in the market. And I think for many years, that was absolutely true. But part of the reason in the slides we provided this time, we tried to show you our thinking is that the panel market has really changed a great deal over the past even just 3 to 5 years. And there's quite a bit of convergence particularly among the premium panel makers who can make the highest quality, highest efficiency panel, there isn't one panel maker anymore than hold that spot. There's really 2, 3 or 4 panel makers globally that I think we believe are equally high quality and capable of providing a really great customer experience for the life of the warranty and beyond. So really, the next thing then is how do you provide those high-quality products at a much more affordable price. And I think the feedback from our dealers so far has been very strong that in this market, in particular, we really collectively need to do a better job of providing not just high-quality products, but high-quality products at a much more affordable price. So it's early, but I would say the signals for our equipment strategy have been very positive so far.
Thank you. And one moment as we move on to our next question. Our next question is from the line of Jon Windham with UBS.
I was wondering if you could add any additional color on the shift in the battery solution away from SunVault. So is it multiple suppliers, one supplier? Just any comments about the change in the product?
Yes. So John, we will provide more detail on that. We're not quite ready to discuss that yet. But as we talked about on our previous calls, SunVault is a terrific product. We're very proud of it. It was our first generation battery and we're excited to be able to sell down that remaining inventory and move forward. But looking forward in the battery business, it's really a game of scale, and you need to have the size and scale if you want to continue to invest in innovation and be able to provide high-quality, low-cost options. So as we move forward, I think what you'll see us announce is partnerships with battery makers who fit that bill. Those battery makers who have the highest quality standards that match our brand and our customer experience but could also provide a great value. And we look forward to sharing more of those details with you as we move forward.
Perfect. And maybe just a quick follow-up. Any comments that's obviously some of the other companies we cover have commented about the difficult weather situation in California, whether that was a meaningful impact in 1Q? Thanks.
Thanks. Yes, the atmospheric rivers, I think this is the second year in a row, we've been hit by this in California. So it isn't ideal. We prioritize the safety of our employees and our dealers over anything else. So when weather conditions exist that don't allow us to safely put people up on the roof and install a residential solar, our highest priority is the health and well-being of our people over having more installations done. So it has been slow, but I would also say, if you recall, January of 2023, I believe there was a record number of atmospheric rivers in California as well. So we had relatively modest expectations for January, and I think it's been in line with those so far.
I appreciate your thoughts.
And one moment as we move on to our next question. And our next question is going to come from the line of Philip Shen with ROTH Capital Partners.
Congrats on securing some additional capital here. I'm going to ask a bit of a tough question here on dealer health. I know you've already touched on this a couple of times. That said, checks suggest that some of your master dealer relationships may be strained as many of them have not been paid for a while for installations already done. Can you talk about the health of your relationships with master dealers? Have you lost any exclusivity agreements? You had talked about and added some of these dealer relationships in the past, Peter, how do you rebuild that trust? And then as it relates to the priority of the new capital, can you talk about the order of people getting paid creditors, vendors and then dealers? Or are you going to prioritize dealers first and then go to creditors and vendors. So how long ultimately does that capital last? And what's the order of that capital flow?
Yes. Phil, so on the dealer piece, I think I mentioned earlier, really our dealer count has actually increased year-over-year. We continue to be very selective about bringing new dealers on board. And the interest level across the U.S. and becoming a SunPower dealer still remains high, and we look forward to adding more dealers as this year goes on. Specifically on master dealers and then the dealers that we call dealer accelerator dealers, where we've made an equity investment, that count last year was flat. So a tough down market, that count being flat, I think, is probably in line with what our expectations are. And our goal has always been to continue to build a stronger and stronger partnership with all of our dealers, and that includes our master dealers and our dealer accelerator dealers as we go forward. And then on the capital piece, we really believe, as I mentioned earlier, that the capital provided puts us in a position to meet our 2024 business plan and get to a point that we're delivering free cash flow and positive cash flow in the second half of the year. Beth, do you want to add any comments to that as well?
Sure. The objective, as Peter mentioned, is that we put in a conservative 2024 plan, and that does still get us with the cost reductions that we put in place where we're going to be consistently free cash flow positive in the second half and beyond that.
Okay. As it relates to the second $50 million tranche, do you guys anticipate needing to tap into that? What might be some of the requirements in order to tap into that? Or is that available to you whenever you need it? And do you see the need for additional equity or capital outside of the $200 million announced today.
So we are going to continue to monitor the residential solar market. If it declines below our expectations, we will need to make additional moves. The discussions with our sponsors on that additional $50 million are related to us meeting our business plans. And as for additional financing, we are always going to be on the lookout to lower our cost of capital. And we have an ongoing need, as Peter mentioned a couple of times for additional rounds of project financing, particularly in the lease space.
The only thing I'll add to that, Phil, is that the thing that looks uncertain this year is really the demand side. Our forecast for this year have been much more conservative than we were a year ago, particularly given what happened in 2023. So I think we're going to be on our toes with regards to our cost structure as well. We're constantly taking a look at are the costs we have, how do we make as many of our fixed costs and the variable costs and how do we keep our overall cost structure lean, strong, and in line with market conditions as we go forward.
Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Jordan Levy with Truist Securities.
I appreciate all the color, guys. Now that you've got the near-term financing concerns taking care of here. I'm just curious how you think about the sort of resiliency profile of the go-forward business? And maybe just to touch on the last question but asked in another way, do you believe now that you're in a position to handle a longer-term downtrend in demand? And what level maybe just some thresholds around what demand levels would require additional financing.
Yes. So two comments on that. Jordan, thanks for the question. I think one of the reasons that we continue to share the cost of retail electric rates is that fundamentally, that's really the biggest driver of this business in the long term. And I think when you talk to customers, why did they buy residential solar. There's a group of reasons. They're certainly wanting to do good in the world and use clean energy instead of fossil fuels. There's certainly a theme around resiliency with grid instability. But the #1 reason at the top of the list is really cost savings. And so as we see retail electric rates rising much faster than the cost of residential solar, that spread getting bigger is really the fundamental driver of bigger demand. And this is still a market, I mean, we have to keep in mind, even though last year was a very tough year, still 4% penetration in this market. There's tens of millions of customers out there that we could save money for this month if we can get in front of them with a lease offer or a loan offer or cash offer to help them give residential solar. So really, the fundamentals of this business from our perspective are still very strong. On the cost side, what we really tried to do was for perspective, again, in 2022, we grew revenue 54%. And I think last year, if I were to be locally self-critical, one of the areas that we didn't do as well on was we still had a relatively optimistic revenue plan last year of 22% growth coming into the year. And obviously, that turned out not to be the case for the year. So the way we thought about it this year is how do we stress test our top line and how do we prepare for scenarios in case demand declines and declines even more than we expect. And so we've really thought about building our cost structure to be able to weather that storm this year, if that makes sense.
That's really helpful. I appreciate that, Peter. And then maybe just as a follow-up. As we go forward here, what are the major benchmark data points you would point to you to get a good sense of where you're coming in, in terms of hitting profitability improvement targets. Is it that second half of the year free cash flow inflection? Or are there other things that would be tracking as well?
Yes, definitely. I think for color, our year is definitely back half-loaded. And that's really a function of the fact that we're selling through higher cost equipment in the first half of the year and selling lower cost equipment in the second half of the year. So that part is pretty straightforward. But same thing for cost of capital. Our cost of capital is a little higher at the beginning of the year and will be lower in the second half of the year. Those 2 things plus the full-year kick in of all of our cost of goods sold and OpEx savings really create a very different picture for the second half of the year. Beth, do you want to give any more color on that?
And I think with the restructuring that we announced a couple of weeks ago, we are in a position where most of the cost reduction for the year has been done. We still have some ongoing productivity improvements that we'll be delivering through the year. But the cost reductions have been implemented. So we're looking forward to a much more cash flow positive here this year.
Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Kashy Harrison with Piper Stanley.
So first one for me. I know we're not getting customer guidance for 2024. But I was wondering if you could give us maybe some more color on 4Q '23 installation mix, specifically, what proportion of installations were California NEM 2.0, what proportion were California NEM 3.0? And then how should we think about non-California?
Sure. So on the customer side, I would say two things for color. One is, as I said in my opening remarks, we do believe that the New Homes business wind up being a greater share of our total customer count this year. That's really due to the fact that there's a new home deficit in the U.S. And frankly, new homebuilders have done a great job of managing higher interest rates in the economic environment. More new housing starts for the most part, means more new solar, which is terrific. So I would expect that segment of our business to have an opportunity to grow in 2024. But we've been, as I mentioned earlier, very conservative in how we thought about the rest of the retrofit market, and that includes our dealers, SunPower Direct and Blue Raven. And we've been, I would say, our customer expectations there are in line with the Wood Mackenzie and the OM Analytics forecast for this year. And then back to the fourth quarter for California NEM, most of the California NEM 2.0 installs finished up by the end of the fourth quarter. As we mentioned, we did actually go through and really work hard to understand what customers in California were serious about really getting residential solar. So we weeded out those cancellations and really got the installation done at the end of the year. So I think you're really beginning to see the mix in the first quarter of this year be primarily from NEM 3.0.
Got it. And then maybe a question on the business post-restructure. Following all the employee rationalization and costs that you're taking out, can you give us a sense of the level of installations you could do theoretically in a recovery scenario without adding more employees. So in other words, what is the level of demand that would require you to start making platform investments?
So the way we've thought about it, it's a great question. We really have 4 different ways to go to market today. We have our terrific dealer network we talked about earlier. We have Blue Raven, which is, as you know, a part of the SunPower family and growing and thriving across the mid part of the U.S. And then within our direct business, to give you some color, we have the ability to do our direct business, both with our own employees and also with installing partners. And so almost think of it as a process with multiple hurdles. When demand is uncertain or volatile or low, we probably won't put ourselves in a position where we're doing very much, if any, of our direct business and will really rely upon the dealer network in those geographies. When demand levels begin to increase, we'll be thoughtful about participating ourselves to make sure that we can cover customer demand with SunPower Direct. But even at the beginning of SunPower Direct, we'll be looking for ways to keep those costs as variable as possible and using installation partners is a way to do that in the beginning before you have enough volume to put your own teams in place. The dream scenario is that demand for residential solar gets so high that SunPower Direct has teams in the major metropolitan areas across the U.S. But we're not in that position today. And I think part of the rationalization from '22 to '23 was really recognizing this new level set of consumer demand. And so we're, I would say, airing on the side of being cautious and thoughtful at this point.
Helpful. And just one final one. Apologies if this was mentioned and I missed this or there's some details somewhere. But what are the terms on the second lien note, specifically, what's the interest rate on the loan from Total GIP? And then how should we think about the maturity date?
So the interest rate on the second lien is 13% cash or 15% if paid in kind. And for both the amendment to our first lien, the maturity was pushed out at the 5-year maturity and the second lien will be after that.
Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Brian Lee with Goldman Sachs & Co.
Maybe a couple of follow-up questions to the prior question around the second lien term loan. So 13% to 15% interest rate based on how you pay it. It looks like about 75 million shares of warrants being granted. Can you give us how do they work, the penny warrants work? And then also just 13% to 15% cost of debt on top of that, that's 40-plus percent of the shares out that they potentially could receive in share compensation as well. Like I understand that's a sweetener in any of these financing packages, but thought process around kind of including that level of equity exposure as well for this deal?
So we actually look at this as excellent support from our key shareholders and very important for improving our liquidity and getting us to the point where we can be free cash flow positive in the second half. The warrants are penny warrants for a substantive share of the outstanding. They do come in tranches, if we don't need to draw that last $50 million of financing, then there won't be as many warrants outstanding. So it gives us the chance to work through the business plan in a little less dilution. But the financing is there if we need it.
Okay. Fair enough. And then, Beth, you mentioned the first lien loan also had a maturity pushout. I know in the press release, you talked about a long-term waiver. What are the terms around the long-term waiver? And also, have any of the key covenants changed? I know liquidity, interest coverage were the key ones before? Have any of the covenants themselves actually changed? Or what's the scope of the longer-term waivers that you've received here?
Yes. So there was a maturity pushout. The only covenants for 2024 are liquidity covenants, which are lower, as we said in the press release, the Q1 liquidity is $20 million, $30 million for Q2, Q3, $50 million for Q4. And then in 2025, we'll start to ratchet up some of the other covenants that we have had in place in terms of net leverage ratio, interest coverage, and asset ratios. So there it is a pretty good set of covenants that we can meet for 2024 and then start ratcheting back to a normal situation through 2025.
Okay. Fair enough. And last one for me. I mean, presumably based on that, you don't need to post positive EBITDA in '24, and you still stay compliant given the way the '24 scope of the covenants are structured. But I guess one, is that right? And then two, what's the rationale behind the no EBITDA per customer? I understand customer count growth visibility. Those are impaired given the current environment, the restructuring, the financing packaging having just come together. But in terms of unit economics, no longer being relevant, can you kind of walk us through that thought process because I always thought that was a key framework around the longer-term profit targets for you guys?
So the first one is our EBITDA ratios and our covenants have always been a trailing 12 EBITDA. So given where we are at the moment, not having EBITDA covenants in 2024 is important and does not mean that we aren't going to have EBITDA.
Well, so I'd add one other quick point here, which is you're right, Brian. The unit economics, which was a big topic in our Analyst Day, that's still is important. And I think it's an important part of the story. It's really about the EBITDA per customer before platform investment. Given that this is a time where platform investment will be a small part of our investment. It really doesn't make sense to talk about EBITDA per customer before platform investment metric. But I think one of the reasons that it was critical for us to make progress on battery attached and storage attached is if you go to the core economics of the business, we've traditionally been a residential solar company that just sold solar panels, period. And so part of our investment thesis is the fact that we believe we could drive a bigger customer ring with batteries, someday EV chargers, other programs, but also a critical part of this is making sure that every time someone does their lease or a loan, they do the lease or a loan with us. So once we have a chance to reassess this year, particularly on the demand side, and incorporate the capital, we'll come back to you with EBITDA guidance later on in the year. And I think the EBITDA per customer metric will still make sense as we move forward, particularly once we get through this bottoming out of consumer demand, if you will.
And one moment for our next question. And our next question is going to come from the line of Andrew Percoco with Morgan Stanley.
I did just want to come back to the 24% guidance for a second. I know you're not giving volume growth expectations, but if I just overlay market expectations, whether that be Wood Mackenzie or other sources on top of your gross margin expectation, it implies that you still have a good amount of work to do on the OpEx side to get to a point where you're generating positive adjusted EBITDA. So can you just give us a sense for how much potentially on a dollar basis you expect to cut out of cash OpEx in 2024 versus the $330 million or so in 2023?
So I think what we announced a few weeks ago, I think the bulk of that work is already done. We announced a pretty significant savings in OpEx as well as some moves on our cost of goods sold. And so the bulk of that work is pretty much done.
Yes. And the other comment I'd add, Andrew, for color is that as the mix between our businesses shifts this year, we'll likely do less panel-only sales to dealers. So think of that as potentially a little lower margin, a little lower ASP, and we'll be mixing out higher in other segments like SunPower Financial and New Homes that have higher ASPs or higher margins. So I do think that between the being more conservative in how we have planned for the top line and then really being aggressive on leaning out the company and making it a much stronger OpEx and COGS cost structure we feel like we're in a good position to endure what's likely to be still a pretty tough 2024.
Okay. Understood. That's super helpful. And then I guess the last question I have just relates to SunStrong. You clearly still have some residual ownership of that JV. Is there an opportunity to potentially rotate that asset or sell down that residual ownership as another source of capital, just thinking through other potential sources of capital from here to the extent demand doesn't improve in line with your expectations?
Well, we would always look at all options as sources of capital to reduce our cost of capital, and that's not something that we're actively looking at.
Thank you. And one moment for our next question. And our last question is going to come from the line of Michael Blum with Wells Fargo.
I appreciate it. I'll just squeeze two quick ones in here, if you don't mind. The first is just will this funding that you announced this morning, will that definitively remove the going concern language in your financials? And what's the path there? And then unrelated, but can you give us any updates on your contract that's coming up here with Enphase a little bit?
So while we are still in discussions with auditors and reviewing financial plans, we do not expect at the moment to have a going concern provision in their 10-K that's coming out.
And then regarding Enphase, no update to provide on this call. They're still a terrific partner of ours. We really are quite aligned with how they think about the quality and the engineering and the support of their products. And I think they've made also great strides in improving the cost structure and providing better value for consumers over time. So we've had a terrific partnership with them as we go forward. And I think when there's new news to announce there, Beth and I are happy to share that more broadly. Thanks, everyone. We're very excited again about this new capital commitment of $200 million, and we're really focused this year on driving positive free cash flow and profitability. Thank you all for your questions today, and we look forward to talking to you next quarter. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.