SunPower(SPWR) - 2021 Q4 - Annual Report

Part I Business SunPower Corporation is a leading solar energy company focused on the U.S. and Canadian Distributed Generation (DG) market, providing complete solar solutions including hardware, software, and financing Company Overview and Recent Developments SunPower is a leading solar energy solutions provider in the U.S. and Canada, focusing on the Distributed Generation (DG) market for residential and commercial customers - SunPower is a leader in the U.S. downstream Distributed Generation (DG) market, offering complete solar solutions to residential and commercial customers through a network of dealers and direct sales[15] - On August 26, 2020, the company completed the spin-off of its non-U.S. manufacturing operations, Maxeon Solar Technologies, Ltd. This strategic move reshaped the company's focus towards its downstream business[16] - On May 14, 2020, SunPower sold the majority of its Operations & Maintenance (O&M) services contracts and related assets to NovaSource Power Services for a total consideration of $36.3 million[18] Segments Overview Concurrent with the Maxeon Solar spin-off in Q3 2020, SunPower reorganized its business into new segments to focus on the U.S. downstream market - The company's new segments are Residential, Light Commercial (RLC), Commercial and Industrial Solutions (C&I Solutions), and Others (for non-core legacy businesses)[21] - RLC includes sales to third-party dealers, storage solutions, and direct cash, loan, and lease sales to end customers[21] - C&I Solutions focuses on direct sales of turn-key EPC services and energy sales under Power Purchase Agreements (PPAs)[21] - Business performance is viewed through two revenue streams: 'Dev Co' (origination/installation) and 'Power Co' (recurring services), reflecting different risk profiles[22] Impact of COVID-19 The COVID-19 pandemic prompted SunPower to shift to virtual operations, expanding its internal virtual salesforce and enabling dealers to conduct virtual consultations, which has helped reduce customer acquisition costs - The company expanded its virtual salesforce and enabled dealers to conduct virtual sales consultations, leading to attractive customer acquisition costs[23] - Strict safety measures were implemented for on-site installation employees, as this work is considered an essential business in many areas[25] - Temporary salary reductions for executives, directors, and certain employees were implemented to sustain the business, with full salaries restored by September 2020[25] Solutions and Technology SunPower offers comprehensive solar solutions, including the SunPower Equinox® for residential and Helix® for commercial customers, which are pre-engineered modular systems - The company offers complete solutions like the SunPower Equinox® for residential and Helix® for commercial applications, combining high-efficiency modules with integrated hardware[28][34] - Introduced OneRoof™, a Class A fire-rated, integrated roof-plus-solar solution designed for new home construction that installs 2-3 times faster than conventional mounting[30] - Launched SunVault™ storage, a home solar and storage solution designed, installed, and warranted by one company, providing backup power and intelligent energy management[31] - Offers flexible financing, including loans via third-party partners and a residential lease program, to make solar solutions accessible to a wide range of customers[32][33] - The "Smart Energy" initiative focuses on adding intelligent control to homes and buildings, integrating energy storage and management to reduce customers' overall cost of energy[40][41] Supply, Customers, and Competition SunPower sources all its solar panels from Maxeon Solar under an exclusive supply agreement established during the spin-off - Solar panels are entirely sourced from Maxeon Solar under an exclusive supply agreement established post-spin-off[39] - The customer base is diverse, ranging from individual homeowners to large commercial and governmental entities, served through direct sales and a broad partner network[45] - Key competitors include SunRun, Inc., Sunnova Energy International Inc., Tesla, Inc., and GAF Energy, among others in the residential and commercial solar markets[47] - Competitive factors in the market include total system price, LCOE/CCOE, panel efficiency, ease of installation, financing availability, and warranty protection[51] Intellectual Property and Regulations SunPower protects its proprietary rights through a combination of patents, trademarks, trade secrets, and contractual agreements - As of January 3, 2021, the company held 565 U.S. patents (353 licensed to Maxeon Solar) and 26 U.S. trademarks[53][54] - The business is significantly influenced by government policies like tax credits, feed-in tariffs, and net energy metering, which accelerate solar adoption[56] - The company is subject to environmental regulations regarding the use and disposal of hazardous chemicals in its research, development, and construction activities[59] - Disclosed activities of its affiliate TOTAL SE related to Iran, noting that operational activities stopped in 2018, but a representative office for non-operational functions remains[61][62] Human Capital As of January 3, 2021, SunPower employed approximately 2,200 full-time employees globally, with about 1,300 in the United States and 900 in the Philippines - As of January 3, 2021, SunPower had approximately 2,200 full-time employees worldwide, with 1,300 in the U.S. and 900 in the Philippines[75] - The company is committed to diversity, equity, and inclusion, believing that a diverse workforce leads to more innovation and better decision-making[78][79] - A comprehensive total rewards system, including a pay-for-performance philosophy and stock-based awards, is used to attract and retain key employees[78] Risk Factors The company faces significant risks that could adversely affect its business Risks Related to COVID-19 Pandemic The COVID-19 pandemic has adversely affected SunPower's business, operations, and financial condition - The pandemic has negatively impacted business operations, manufacturing, sales, and supply chains, and may affect the ability to invest in planned R&D initiatives[100][103] - A decline in demand for solar panels is expected to continue due to the global economic slowdown and decreased consumer spending, potentially impacting revenue and cash flows[104] - Reduced cash flow generation due to the pandemic could impact the company's ability to meet its debt obligations[105] Risks Related to the Spin-Off The spin-off of Maxeon Solar presents several risks, including potential tax implications and unrealized benefits - If the spin-off distribution does not qualify as tax-free, it could be treated as a dividend to stockholders, and SunPower may have to indemnify Maxeon Solar for related taxes[109][111] - The anticipated strategic, financial, and operational benefits of the spin-off may not be fully achieved, and as a smaller, less-diversified company, SunPower may be more vulnerable to market changes[112] - Divergent interests between SunPower and Maxeon Solar could negatively impact the scope and effectiveness of the transition services and other ancillary agreements[113][114] Risks Related to Our Sales Channels SunPower's sales channels are subject to significant risks, including unpredictable fluctuations in revenue, particularly from large commercial projects - Results of operations are subject to significant fluctuations, as a substantial portion of revenue can come from a few large commercial projects, making revenue timing unpredictable[119] - Changes in international trade policies, such as the safeguard tariffs on imported solar cells and modules, could adversely affect business, margins, and cash flows[125][126] - The company's growth strategy depends on the continued availability of third-party financing for its projects and customers, which is affected by general economic and credit market conditions[129][130][131] - The reduction, modification, or elimination of government incentives like feed-in tariffs, tax credits, and net metering could cause revenue to decline[142] Risks Related to Our Supply Chain The company's supply chain is exposed to significant concentration risk due to its dependency on Maxeon Solar as the sole source for critical components - SunPower depends on Maxeon Solar as a sole source supplier for critical components, including solar cells and modules, under an exclusive supply agreement[171][172] - Any supply interruption or delay from Maxeon Solar could result in sales and installation delays, penalty payments, and loss of market share[171][174] Risks Related to Our Operations Operational risks include potential quality issues with solar products that could harm sales and reputation, and adverse changes to the solar investment tax credit (ITC) - Product quality issues or defects could lead to significant warranty costs, damage customer relations, and harm the company's reputation[178][179] - Adverse changes to the solar investment tax credit (ITC) could negatively impact business, as the company's financial planning and customer agreements rely on assumptions about these incentives[180][181] - As a general contractor for many installations, SunPower is exposed to construction risks, including cost overruns, delays, and performance penalties, which could materially affect financial results[198][200][201] - Project development involves significant upfront investment and risks, such as permitting delays and unforeseen engineering problems, which could result in the inability to recover investments if a project is not completed[195][197] Risks Related to Our Liquidity SunPower faces liquidity risks due to its significant debt and the capital-intensive nature of its business - The company may not generate sufficient cash flow or access external financing to fund operations, capital investments, and project development[159][160] - As of January 3, 2021, SunPower had approximately $638.5 million of outstanding debt, which could make it difficult to meet payment obligations and fund working capital[163] - Debt agreements contain restrictive covenants that may limit the ability to incur additional debt, make certain investments, or sell assets, potentially hindering the ability to respond to changing business conditions[168] Risks Related to Our Intellectual Property SunPower's business depends on its intellectual property, exposing it to risks of infringement claims which can be costly and time-consuming to defend - The company may face intellectual property infringement claims that are expensive to defend and could result in the loss of significant rights or require substantial damage payments[224][225] - Protection of proprietary rights relies heavily on trade secret laws and confidentiality agreements, which may not be adequate to prevent misappropriation of technology[227] - Failure to obtain sufficient patent protection for new technology could harm the company's competitive position and increase expenses[230][231] Risks Related to Our Debt and Equity Securities The company's debt and equity securities carry several risks, including the subordination of convertible debentures and the influence of its majority stockholder - Outstanding convertible debentures are unsecured and effectively subordinated to existing and future secured debt, as well as liabilities of subsidiaries[239][240] - TOTAL SE's majority ownership (approx. 52%) gives it significant control over the company, which could adversely affect the stock's liquidity and value, and limit other stockholders' influence[241][242] - Future sales of common stock or conversion of outstanding debentures could dilute ownership and cause the market price of the stock to decrease[246][247][248] - The company's ability to use its net operating loss carryforwards ($498.0 million federal, $863.1 million California state as of Jan 3, 2021) may be limited by Section 382 ownership change rules[256][257] Unresolved Staff Comments The company reports that there are no unresolved staff comments - None[286] Properties The company leases all of its principal properties, which include its corporate headquarters in California, a manufacturing facility in Oregon, and global support offices in California, Texas, and the Philippines Principal Leased Properties | Facility | Location | Approx. Square Footage | Ownership | Lease Expiration Year | | :--- | :--- | :--- | :--- | :--- | | Corporate headquarters | California, U.S. | 61,000 | Leased | 2027 | | Solar cell and module manufacturing facility | Oregon, U.S. | 212,000 | Leased | 2022 | | Global support offices | California, U.S. | 163,000 | Leased | 2023 | | Global support offices | Texas, U.S. | 46,000 & 23,000 | Leased | 2024 & 2021 | | Global support offices | Philippines | 65,000 | Leased | 2021 | Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 10, "Commitments and Contingencies—Legal Matters," in the Notes to the Consolidated Financial Statements - Disclosure for legal proceedings is incorporated by reference from Note 10 of the financial statements[287] Mine Safety Disclosures This item is not applicable to the company - Not applicable[289] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities SunPower's common stock is traded on the Nasdaq Global Select Market under the symbol "SPWR" - The company's common stock is listed on the Nasdaq Global Select Market under the symbol "SPWR"[290] - SunPower has never declared or paid a cash dividend on its common stock and does not intend to in the foreseeable future[291] Issuer Purchases of Equity Securities (Q4 2020) | Period | Total Shares Purchased | Average Price Per Share | | :--- | :--- | :--- | | Sep 28, 2020 - Oct 25, 2020 | 8,583 | $15.56 | | Oct 26, 2020 - Nov 22, 2020 | 31,787 | $18.90 | | Nov 23, 2020 - Jan 3, 2021 | 172,785 | $21.13 | | Total | 213,155 | - | Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal 2020, SunPower's total revenue increased by 3% to $1.12 billion, driven by growth in the Commercial and Industrial Solutions segment Results of Operations For fiscal year 2020, total revenue increased 3% to $1.12 billion from $1.09 billion in 2019, primarily due to a 5% increase in the Commercial and Industrial Solutions segment Key Financial Results (Fiscal Year Ended) | Metric (in thousands) | Jan 3, 2021 | Dec 29, 2019 | Dec 30, 2018 | | :--- | :--- | :--- | :--- | | Total Revenue | $1,124,829 | $1,092,226 | $1,202,311 | | Gross Profit | $167,127 | $163,478 | $148,497 | | Operating Income (Loss) | $(6,012) | $60,573 | $(303,180) | | Income (Loss) from Continuing Operations | $597,020 | $172,783 | $(383,468) | | Net Income (Loss) Attributable to Stockholders | $475,048 | $22,159 | $(811,091) | Revenue by Segment (in thousands) | Segment | FY 2020 | FY 2019 | % Change (YoY) | | :--- | :--- | :--- | :--- | | Residential, Light Commercial | $848,073 | $863,853 | (2)% | | Commercial and Industrial Solutions | $254,811 | $243,311 | 5% | | Other | $65,574 | $156,615 | (58)% | - Other income increased by $515.9 million in fiscal 2020 compared to 2019, primarily due to a $692.1 million gain on an equity investment with a readily determinable fair value[350] - R&D expense decreased by $11.8 million in fiscal 2020, mainly due to a $12.5 million reimbursement from Maxeon Solar under a product collaboration agreement[335] Critical Accounting Estimates Management's discussion highlights several critical accounting estimates that require significant judgment - Revenue Recognition: Significant judgment is required for EPC contracts to estimate total costs to completion, which determines the timing of revenue recognition using a cost-based input method[364][365] - Impairment of Long-Lived Assets: The company evaluates assets for impairment by analyzing estimated future undiscounted net cash flows, which involves significant assumptions[380][503] - Product Warranties: Warranty reserves are based on management's best estimate of future costs, considering historical claims, lab testing, and field monitoring data[384][508] - Accounting for Income Taxes: The company records a valuation allowance against its U.S. and Mexico deferred tax assets, assessing historical income levels and future taxable income estimates[390] Liquidity and Capital Resources As of January 3, 2021, SunPower had $232.8 million in unrestricted cash and cash equivalents Cash Flow Summary (in thousands) | Activity | FY 2020 | FY 2019 | FY 2018 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(187,391) | $(270,413) | $(543,389) | | Net cash provided by investing activities | $129,190 | $21,366 | $274,900 | | Net cash (used in) provided by financing activities | $(153,852) | $344,314 | $85,847 | - The company ended fiscal 2020 with $232.8 million in unrestricted cash and cash equivalents, down from $302.0 million at the end of fiscal 2019[405] Contractual Obligations as of Jan 3, 2021 (in thousands) | Obligation Type | Total | Due in 2021 | Due in 2022-2023 | | :--- | :--- | :--- | :--- | | Convertible debt, including interest | $522,616 | $79,908 | $442,708 | | CEDA loan, including interest | $56,775 | $2,550 | $5,100 | | Other debt, including interest | $134,555 | $104,664 | $25,219 | | Operating lease commitments | $77,919 | $14,164 | $26,543 | | Supply agreement commitments | $394,411 | $248,965 | $137,654 | - Management believes total cash and cash equivalents are sufficient to meet obligations over the next 12 months, including the repayment of the remaining $62.6 million of 0.875% debentures due in 2021[409] Quantitative and Qualitative Disclosures About Market Risk SunPower is exposed to several market risks, including credit risk from its financial instruments and accounts receivable, which it manages through policies requiring high-quality counterparties - Credit Risk: Exposure exists with cash, investments, and accounts receivable. This is managed by using high-quality financial institutions and performing ongoing credit evaluations of customers[417] - Interest Rate Risk: An increase in interest rates could negatively impact customer demand by making financing for solar systems more expensive and could increase the company's own interest expense on variable-rate debt[418] - Equity Price Risk: The company holds 3.5 million shares of Enphase common stock as of January 3, 2021, the value of which is subject to market price fluctuations[422] - Debt Market Risk: The fair market value of the company's $487.6 million in convertible debentures is sensitive to changes in interest rates and the market price of SunPower's common stock[423] Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements for the fiscal year ended January 3, 2021, including the Consolidated Balance Sheets, Statements of Operations, Statements of Comprehensive Income (Loss), Statements of Equity (Deficit), and Statements of Cash Flows Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports that there were no changes in or disagreements with its accountants on accounting and financial disclosure - None[782] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of January 3, 2021 - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of January 3, 2021[784] - Management concluded that the company's internal control over financial reporting was effective as of January 3, 2021, based on the COSO framework[785] Other Information The company reports no other information under this item - None[787] Part III Directors, Executive Officers and Corporate Governance Information required for this item is incorporated by reference from the company's proxy statement for the 2021 annual meeting of stockholders - Information is incorporated by reference from the 2021 proxy statement[789] Executive Compensation Information required for this item is incorporated by reference from the company's proxy statement for the 2021 annual meeting of stockholders - Information is incorporated by reference from the 2021 proxy statement[790] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required for this item is incorporated by reference from the company's proxy statement for the 2021 annual meeting of stockholders - Information is incorporated by reference from the 2021 proxy statement[790] Certain Relationships and Related Transactions, and Director Independence Information required for this item is incorporated by reference from the company's proxy statement for the 2021 annual meeting of stockholders - Information is incorporated by reference from the 2021 proxy statement[791] Principal Accountant Fees and Services Information required for this item is incorporated by reference from the company's proxy statement for the 2021 annual meeting of stockholders - Information is incorporated by reference from the 2021 proxy statement[791] Part IV Exhibits, Financial Statement Schedules This section lists the documents filed as part of the Annual Report on Form 10-K - This section contains the index of financial statements and a list of all exhibits filed with the 10-K report[792][796]