SunPower Corp. today announced financial results for its third quarter ended October 2, 2016 and significant cost reduction initiatives to position the company for sustained profitability.
"Our solid third quarter results reflect continued execution of our diversified downstream strategy as we met or exceeded our key financial targets for the quarter," said Tom Werner, SunPower president and CEO. "During the quarter, we continued to see strong demand for our SunPower Equinox residential complete solution while further building out our Helix™ solution footprint in the commercial space. We also executed on our construction commitments in our power plant segment, including the sale of our 49 percent ownership stake in our 102-megawatt (MW) Henrietta project to 8point3™ Energy Partners, and launched our third-generation Oasis® power plant complete solution that seamlessly integrates both hardware and software to maximize energy production at a given site. Operationally, we met our goals on yield and panel output and are pleased with the ramp of our P-Series product which benefits from the decline in industry cell pricing.
"While prospects for long term solar industry growth remain strong, we are seeing a significant near term market dislocation in the solar market that we expect will impact our financial performance through 2017. Our core strategy of developing innovative, complete customer solutions based on differentiated technology and deploying these solutions across a diversified portfolio of applications and geographic markets remains unchanged. However, given the current market environment, we have made the decision to implement a companywide cost reduction program, along with other proactive strategic initiatives, to focus on improving cash flow through the current market dislocation while positioning the company to succeed in the next phase of industry growth. We intend to conclude our cost reduction analysis in the near future and will formally announce our restructuring program on December 7, 2016."
The company will implement the following initiatives:
- Reduce capacity to lower inventory, improve cash flow and match to profitable demand
- Cost reduction programs that are expected to improve margins and reduce 2017 annual operating expenses to approximately $350 million
- Target 2017 capital expenditures of approximately $100 million, a reduction of more than 50 percent compared to 2016
- Initiatives to improve liquidity with the goal of generating positive cash flow from operations through the end of 2017 and exiting the year with approximately $300 million in cash
SunPower will host a conference call on December 7, 2016 to provide additional details related to the cost initiatives listed above, estimated charges related to its expected restructuring program and to provide 2017 guidance.
Total and SunPower have also agreed to deepen their solar market cooperation through a number of strategic initiatives, including the signing of a four-year, up to 200-MW supply agreement to support the solarization of Total facilities around the world. This agreement covers the supply of 150 MW of E-series panels with an option to purchase up to another 50 MW of P-Series panels, and includes pre-payment in the amount of approximately $90 million. Also, the companies are currently in discussions to expand their global power plant partnership to include potential Total project ownership opportunities in such markets as Japan, South Africa and France.
"With this cost reduction program, as well as continued strong support from Total, we believe we will be able to reduce our cost structure, more prudently allocate our product and technology investments, appropriately size our manufacturing to balance production with near term demand, and improve cash flow," continued Werner. "Combined with our realignment initiatives announced last quarter, we believe we will be well positioned for sustained profitability when market conditions improve."
"While we are pleased with our third quarter performance, we felt it was important to be proactive in positioning the company to address the difficult near term industry conditions," said Chuck Boynton, SunPower chief financial officer. "We are very focused on prudently managing our working capital and maximizing cost reduction to improve cash flow and fund our strategic plans. We believe that these initiatives will position us well to capitalize on long term industry growth."
Additionally, third quarter fiscal 2016 non-GAAP results include net adjustments that, in the aggregate, decreased non-GAAP net loss by $137.6 million, including $19.3 million related to 8point3 Energy Partners, $2.1 million related to sale of operating lease assets, $15.9 million related to stock-based compensation expense, $3.0 million related to amortization of intangible assets, $57.8 million related to goodwill impairment, $31.2 million related to restructuring expense, $0.6 million related to other adjustments, and $7.7 million related to tax effect.
As a result of near-term industry conditions and its announced cost reduction program, the company is updating its 2016 financial guidance. Specifically, the company continues to expect above market growth in its residential business but anticipates a slight moderation of the previously forecasted rate of this growth in this segment for the fourth quarter. Additionally, fourth quarter performance in the commercial segment will be impacted by the timing of certain public sector projects which have been delayed until the first half of 2017. In power plant, the pricing environment remains challenging and the company's focus is to deliver more than 400 MW of committed projects by the end of 2016. Operationally, the company expects its fiscal year 2016 performance to reflect higher than expected factory underutilization charges resulting from additional capacity reductions as well as the impact from its current cost reduction initiatives.
On a GAAP basis, the company now expects 2016 revenue of $2.43 billion to $2.63 billion, gross margin of 8 percent to 10 percent and net loss of $295 million to $320 million. Fiscal year 2016 GAAP guidance includes the impact of the company's HoldCo asset strategy and revenue and timing deferrals due to real estate accounting, but excludes the impact of any charges related to the company's planned cost reduction initiatives.
The company's updated 2016 non-GAAP financial guidance is as follows: revenue of $2.6 billion to $2.8 billion, gross margin of 9 percent to 11 percent, Adjusted EBITDA of $185 million to $210 million, capital expenditures of $220 million to $240 million and gigawatts (GW) deployed in the range of 1.325GW to 1.355GW.
The company's fourth quarter fiscal 2016 GAAP guidance is as follows: revenue of $0.9 billion to $1.1 billion, gross margin of zero percent to 2 percent and net loss of $100 million to $125 million. Fourth quarter 2016 GAAP guidance includes the impact of the company's HoldCo asset strategy and revenue and timing deferrals due to real estate accounting, but excludes the impact of any charges related to the company's planned cost reduction initiatives. On a non-GAAP basis, the company expects revenue of $1.0 billion to $1.2 billion, gross margin of 1 percent to 3 percent, Adjusted EBITDA of $0 to $25 million and megawatts deployed in the range of 235 MW to 265 MW.
In light of the circumstances noted above, the company's previously issued 2017 guidance should no longer be considered current. The company expects to issue revised 2017 guidance once its restructuring proposal is finalized and announced in December.