SunPower(SPWR) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides SunPower Corporation's unaudited condensed consolidated financial statements and management's discussion and analysis for the period ended July 3, 2022 ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) This section presents SunPower Corporation's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income (loss), equity, and cash flows, for the quarterly period ended July 3, 2022 Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position at specific points in time, detailing assets, liabilities, and equity | Metric (in thousands) | July 3, 2022 | January 2, 2022 | | :-------------------- | :----------- | :-------------- | | Assets | | | | Total Current Assets | $1,071,587 | $1,073,466 | | Total Assets | $1,536,472 | $1,554,806 | | Liabilities & Equity | | | | Total Current Liabilities | $903,091 | $509,596 | | Total Liabilities | $1,117,381 | $1,164,782 | | Total Equity | $419,091 | $390,024 | - Total current liabilities significantly increased from $509.6 million to $903.1 million, primarily due to the reclassification of $424.3 million in convertible debt to current portion as of July 3, 2022, and an increase in accrued liabilities and contract liabilities[8] Condensed Consolidated Statements of Operations This section outlines the company's revenues, expenses, and net income or loss over specific periods | Metric (in thousands) | Three Months Ended July 3, 2022 | Three Months Ended July 4, 2021 | Six Months Ended July 3, 2022 | Six Months Ended July 4, 2021 | | :-------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Total Revenues | $417,772 | $260,751 | $768,049 | $500,887 | | Gross Profit | $81,499 | $60,711 | $153,808 | $106,677 | | Operating (Loss) Income | $(17,961) | $13,181 | $(28,551) | $11,803 | | Net (Loss) Income | $(62,327) | $74,769 | $(90,787) | $25,271 | | Net (Loss) Income per Share – Basic | $(0.36) | $0.43 | $(0.53) | $0.15 | - The company reported a significant net loss of $62.3 million for the three months ended July 3, 2022, compared to a net income of $74.8 million in the prior year, and a net loss of $90.8 million for the six months, compared to a net income of $25.3 million in the prior year, largely driven by operating losses and other expenses, net, which included a loss on equity investments[11] Condensed Consolidated Statements of Comprehensive (Loss) Income This section presents the total comprehensive income or loss, including net income and other comprehensive income items | Metric (in thousands) | Three Months Ended July 3, 2022 | Three Months Ended July 4, 2021 | Six Months Ended July 3, 2022 | Six Months Ended July 4, 2021 | | :-------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net (Loss) Income | $(62,327) | $74,769 | $(90,787) | $25,271 | | Total Other Comprehensive (Loss) Income | $(31) | $492 | $(29) | $590 | | Total Comprehensive (Loss) Income | $(62,358) | $75,261 | $(90,816) | $25,861 | - Total comprehensive loss for the three and six months ended July 3, 2022, was $(62.4) million and $(90.8) million, respectively, a significant decline from comprehensive income in the prior year, primarily reflecting the net loss[15] Condensed Consolidated Statements of Equity This section details changes in the company's equity, including contributions, distributions, and net income or loss | Metric (in thousands) | January 2, 2022 | July 3, 2022 | | :-------------------- | :-------------- | :----------- | | Total Stockholders' Equity | $388,389 | $413,317 | | Noncontrolling Interests | $1,635 | $5,774 | | Total Equity | $390,024 | $419,091 | - Total equity increased from $390.0 million at January 2, 2022, to $419.1 million at July 3, 2022, largely due to a $114.4 million gain on the sale of the C&I Solutions business recorded in additional paid-in capital, partially offset by a net loss of $90.8 million[19] Condensed Consolidated Statements of Cash Flows This section reports the cash generated and used by the company across operating, investing, and financing activities | Metric (in thousands) | Six Months Ended July 3, 2022 | Six Months Ended July 4, 2021 | | :-------------------- | :---------------------------- | :---------------------------- | | Net Cash Used in Operating Activities | $(164,577) | $(18,353) | | Net Cash Provided by Investing Activities | $252,087 | $7,363 | | Net Cash Used in Financing Activities | $(7,474) | $(84,187) | | Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | $80,036 | $(95,177) | | Cash, Cash Equivalents, and Restricted Cash, End of Period | $228,649 | $151,627 | - Net cash used in operating activities significantly increased to $164.6 million for the six months ended July 3, 2022, from $18.4 million in the prior year, offset by a substantial increase in net cash provided by investing activities to $252.1 million, primarily from the sale of the C&I Solutions business and equity investments[23] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note describes SunPower Corporation's business, recent strategic shifts, and key accounting principles applied - SunPower Corporation is a leading solar technology and energy services provider, primarily serving residential customers in the U.S. and Canada with integrated solar, storage, and home energy solutions[27] - The company completed the sale of its Commercial and Industrial Solutions (C&I Solutions) business on May 31, 2022, for a preliminary purchase price of $190.0 million, resulting in a strategic shift to a single operating segment focused on residential customers[28][35] - Management believes current cash and cash equivalents, along with potential proceeds from Enphase Energy, Inc. stock sales and operational cash generation, will be sufficient to meet obligations over the next 12 months, including the $425.0 million 4.00% senior convertible debentures due 2023[29][234] - The company launched SunPower Financial in Q4 2021 to offer long-term retail installment contracts (typically 20-25 years) for solar power system purchases, recognizing revenue upon system installation and final permit, with a significant financing component deferred and recognized over the contract term[38] Note 2. DISCONTINUED OPERATIONS This note details the financial impact and strategic implications of the C&I Solutions business divestiture - The sale of the C&I Solutions business to TotalEnergies Renewables, a common control transaction, closed on May 31, 2022, yielding net cash consideration of $149.2 million, with a gain of $118.3 million recorded primarily in additional paid-in capital[41][42][45] - Transaction costs of $8.3 million and $10.6 million were incurred for the three and six months ended July 3, 2022, respectively, and expensed within 'loss from discontinued operations before income taxes'[44] Discontinued Operations Financials | Metric (in thousands) | Three Months Ended July 3, 2022 | Six Months Ended July 3, 2022 | | :-------------------- | :------------------------------ | :---------------------------- | | Total Revenues | $8,256 | $36,710 | | Gross (Loss) Profit | $(6,574) | $(23,150) | | Net (Loss) Income from Discontinued Operations, net of taxes | $(20,616) | $(46,571) | Note 3. TRANSACTIONS WITH TOTAL AND TOTALENERGIES SE This note describes the company's relationship and financial transactions with its majority shareholder, TotalEnergies SE - TotalEnergies SE and its affiliates hold approximately 51% ownership of SunPower's outstanding common stock as of July 3, 2022[52] - TotalEnergies SE announced an agreement to acquire 50% of Clearway Energy Group from Global Infrastructure Partners, with consideration including a 50% minus one share interest in the TotalEnergies subsidiary holding SunPower's common stock, expected to close in late fiscal 2022[53] - The Affiliation Agreement with Total imposes restrictions on Total's ownership thresholds and certain corporate actions, while also granting Total the right to maintain its percentage ownership in new securities issuances[55][56][57] - SunPower's obligations under the Strategic Cooperation Framework Agreement with Total were transferred to TotalEnergies Renewables following the sale of the C&I Solutions business[59] - Total holds $100.0 million of SunPower's $425.0 million 4.00% debentures due 2023, which are convertible into common stock at a rate of 40.1552 shares per $1,000 principal amount and mature on January 15, 2023[61] Note 4. REVENUE FROM CONTRACTS WITH CUSTOMERS This note details the breakdown of revenue by category and the aggregate transaction price from customer contracts Revenue by Category | Revenue Category (in thousands) | Three Months Ended July 3, 2022 | Three Months Ended July 4, 2021 | Six Months Ended July 3, 2022 | Six Months Ended July 4, 2021 | | :------------------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Solar power systems sales | $320,294 | $172,837 | $591,938 | $339,164 | | Component sales | $74,542 | $56,656 | $134,419 | $107,388 | | Light commercial sales | $24,569 | $19,107 | $38,765 | $34,825 | | Services and other | $(1,633) | $12,151 | $2,927 | $19,510 | | Total revenues | $417,772 | $260,751 | $768,049 | $500,887 | - Total revenues increased by 60% (QoQ) and 53% (YoY) driven by higher volume in organic residential business and the Blue Raven acquisition, partially offset by a reduction in 'services and other' revenue due to the reversal of variable consideration on legacy power plant projects[67][196] - As of July 3, 2022, the company has $817.9 million in aggregate transaction price from contracts with customers, with the majority expected to be recognized within the next 12 months[69] Note 5. BALANCE SHEET COMPONENTS This note provides a detailed breakdown of specific asset and liability accounts on the balance sheet Selected Balance Sheet Accounts | Metric (in thousands) | July 3, 2022 | January 2, 2022 | | :-------------------- | :----------- | :-------------- | | Accounts Receivable, net | $149,166 | $121,268 | | Inventories | $222,524 | $214,432 | | Prepaid Expenses and Other Current Assets | $166,364 | $100,212 | | Property, Plant and Equipment, net | $50,675 | $33,560 | | Other Long-term Assets | $169,882 | $156,994 | | Accrued Liabilities | $155,273 | $101,980 | | Other Long-term Liabilities | $117,942 | $141,197 | - Accounts receivable, net, increased by $27.9 million, and prepaid expenses and other current assets increased by $66.2 million, reflecting growth in operations and deferred project costs, while property, plant, and equipment, net, also increased by $17.1 million[71][74][76] - Accrued liabilities rose by $53.3 million, primarily due to increases in employee compensation, short-term warranty reserves, and a $6.3 million payable to Total related to the C&I Solutions sale, while other long-term liabilities decreased by $23.3 million[79][80] Note 6. GOODWILL AND INTANGIBLE ASSETS This note details the company's goodwill and intangible assets, including their sources and amortization - Goodwill of $126.3 million as of July 3, 2022, resulted from the acquisition of Blue Raven Solar Holdings, LLC in Q4 2021[82] Intangible Assets | Intangible Asset (in thousands) | Gross Carrying Amount (July 3, 2022) | Net Book Value (July 3, 2022) | | :------------------------------ | :----------------------------------- | :---------------------------- | | Developed technology | $3,700 | $2,775 | | Brand | $15,800 | $12,837 | | Non-compete agreements | $3,400 | $2,550 | | Software development costs | $6,286 | $6,239 | | Total | $29,186 | $24,401 | - Aggregate amortization expense for intangible assets was $1.6 million and $3.2 million for the three and six months ended July 3, 2022, respectively, with no impairment loss recorded[86] Note 7. FAIR VALUE MEASUREMENTS This note provides information on assets and liabilities measured at fair value, including valuation methodologies and inputs Fair Value of Assets | Asset (in thousands) | Total Fair Value (July 3, 2022) | Level 3 (July 3, 2022) | Level 1 (July 3, 2022) | | :------------------- | :------------------------------ | :--------------------- | :--------------------- | | Equity investments with FVO | $11,692 | $11,692 | — | | Equity investments with readily determinable fair value | $293,580 | — | $293,580 | | Total assets | $305,272 | $11,692 | $293,580 | - Equity investments with fair value option (FVO), primarily in joint ventures like SunStrong Capital Holdings, LLC and Dorado Development Partners, LLC, are classified as Level 3 due to significant unobservable inputs (discount rate, residual value) in their valuation[92][96] - The company recorded a loss of $15.2 million and $13.9 million for the three and six months ended July 3, 2022, respectively, on equity investments with readily determinable fair value (Enphase common stock), compared to gains in the prior year, with 1 million shares of Enphase stock sold for $149.8 million cash proceeds[97] - Retail installment contract receivables, net, had a carrying value of $100.5 million and a fair value of $80.2 million as of July 3, 2022, with fair value determined using Level 2 inputs based on market-indexed pricing[98] Note 8. RESTRUCTURING This note outlines the company's restructuring plans, associated costs, and their current status - The January 2021 restructuring plan, related to the closure of the Hillsboro, Oregon manufacturing facility, is substantially completed, with cumulative costs of approximately $3.3 million incurred as of July 3, 2022[99][102] - The December 2019 restructuring plan, initiated to optimize workforce requirements following the Spin-Off, was completed during Q2 2022, with cumulative costs of approximately $6.1 million[103] Restructuring Charges (Credits) | Restructuring Plan (in thousands) | Three Months Ended July 3, 2022 | Six Months Ended July 3, 2022 | | :-------------------------------- | :------------------------------ | :---------------------------- | | January 2021 Restructuring Plan | $(303) | $(265) | | December 2019 Restructuring Plan | $(236) | $(53) | | Other restructuring | $45 | $451 | | Total Restructuring Charges (Credits) | $(494) | $133 | - Restructuring credits in Q2 2022 primarily resulted from employee transfers to Maxeon Solar due to an amendment to the cross license agreement, while six-month charges included severance for exiting the Light Commercial business[107][205] Note 9. COMMITMENTS AND CONTINGENCIES This note details the company's lease obligations, purchase commitments, warranty liabilities, and legal matters Lease Expenses | Lease Metric (in thousands) | Six Months Ended July 3, 2022 | Six Months Ended July 4, 2021 | | :-------------------------- | :---------------------------- | :---------------------------- | | Operating and finance lease expense | $6,888 | $6,817 | | Sublease income | $(191) | $(211) | | Rent expense | $6,697 | $6,606 | | Cash paid for operating and finance leases | $4,652 | $8,001 | - Future minimum lease payments under non-cancellable operating leases total $45.4 million as of July 3, 2022, with $7.5 million due in the remaining six months of 2022[116] - Future purchase obligations under non-cancellable agreements amount to $338.7 million as of July 3, 2022, primarily for photovoltaic modules from Maxeon Solar and MLPEs from another vendor, with a new Master Supply Agreement with Maxeon Solar effective in Q1 2022[117] Warranty Activity | Warranty Metric (in thousands) | Six Months Ended July 3, 2022 | Six Months Ended July 4, 2021 | | :----------------------------- | :---------------------------- | :---------------------------- | | Balance at beginning of period | $80,282 | $62,801 | | Accruals for warranties issued | $3,866 | $9,675 | | Settlements and adjustments | $(5,564) | $(13,058) | | Balance at end of period | $78,584 | $59,418 | - The company recorded a one-time quality charge of $26.5 million in fiscal 2021 for a cracking issue, with repairs expected to be completed through fiscal 2023, and no significant changes to this estimate occurred in Q1/Q2 2022[122] - Liabilities for uncertain tax positions totaled $15.4 million as of July 3, 2022, an increase of $0.7 million from January 2, 2022, primarily due to interest, penalties, and foreign exchange rate changes[123][172] - SunPower is contractually liable for certain obligations under Hemlock Agreements, but is fully indemnified by Maxeon Solar under a Back-to-Back Agreement, with ongoing discussions regarding alleged inflationary price escalation clauses[127][128] - A liability of $6.3 million was recorded for litigation indemnity provided to Maxeon Solar, including a $2.0 million change in fair value for a settled matter[129] Note 10. EQUITY INVESTMENTS This note provides details on the company's equity investments, including their fair value and contributions to joint ventures Equity Investments | Equity Investment Category (in thousands) | July 3, 2022 | January 2, 2022 | | :---------------------------------------- | :----------- | :-------------- | | Equity investments with readily determinable fair value (Enphase) | $293,580 | $457,352 | | Equity investments without readily determinable fair value | $17,392 | $807 | | Equity investments with fair value option | $11,692 | $8,374 | | Total equity investments | $322,664 | $466,533 | - New equity investments in Q1/Q2 2022 include $5.0 million in OhmConnect, Inc. (1.8% interest), $2.0 million in Sea Bright Solar, Inc. (20% interest, equity method), and $9.4 million in Freedom Solar Holdings, LLC (4.5% interest, equity method)[133][134][135] - SunPower entered a joint venture with Hannon Armstrong and SunStrong to form Dorado DevCo in March 2022 for residential lease solar power projects, with SunPower contributing $3.3 million in capital for the six months ended July 3, 2022[139][141] - SunStrong, a significant unconsolidated VIE, reported revenues of $72.2 million and a net income of $8.8 million for the six months ended July 3, 2022[143] - Revenues and fees received from investees for products/services decreased to $86.6 million for the six months ended July 3, 2022, from $100.1 million in the prior year[148] Note 11. DEBT AND CREDIT SOURCES This note provides a comprehensive overview of the company's debt obligations and available credit facilities Debt and Credit Sources | Debt Type (in thousands) | Face Value (July 3, 2022) | Short-term (July 3, 2022) | Long-term (July 3, 2022) | | :----------------------- | :------------------------ | :------------------------ | :----------------------- | | 4.00% convertible debentures due 2023 | $424,991 | $424,298 | — | | Asset-Backed Loan | $61,687 | $61,649 | — | | Safe Harbor Loan | $0 | $0 | — | | Credit Suisse Warehouse Loan | $55,656 | — | $53,798 | | Vendor Financing and Other Debt | $772 | $441 | $331 | | Total | $543,106 | $486,388 | $54,129 | - The $425.0 million 4.00% convertible debentures due 2023 are now classified as current portion, with a carrying value of $424.3 million and a fair value of $454.7 million as of July 3, 2022[152][156] - SunPower repaid the remaining $47.6 million Safe Harbor loan with Hannon Armstrong in June 2022[153] - A new $100.0 million delayed draw term loan facility was entered into with Credit Suisse AG on June 30, 2022, to finance retail installment contract receivables, with $55.7 million outstanding as of July 3, 2022[160][161] - The company has letter of credit facilities with Deutsche Bank Trust (up to $200.0 million, fully cash-collateralized) and Bank of the West (up to $25.0 million, 50% cash-secured), with $22.0 million outstanding under the Bank of the West facility and none under Deutsche Bank as of July 3, 2022[157][158][159] Note 12. RELATED-PARTY TRANSACTIONS This note outlines significant transactions and agreements with related parties, including Maxeon Solar - SunPower entered into a First Amendment to the Cross License Agreement with Maxeon Solar in Q2 2022, adjusting the scope of Maxeon Solar's non-exclusive license and settling certain payments[164] - A net loss of $4.3 million was recorded in Q2 2022 related to these agreements, impacting research and development and sales, general, and administrative expenses[165] Related-Party Transactions | Transaction (in thousands) | Three Months Ended July 3, 2022 | Six Months Ended July 3, 2022 | | :------------------------- | :------------------------------ | :---------------------------- | | Purchases of photo-voltaic modules | $62,602 | $135,061 | | Research and development expenses reimbursement received | $8,061 | $17,535 | | Income (expense) from transition services agreement, net | $(24) | $(290) | Note 13. INCOME TAXES This note provides details on the company's income tax provision or benefit and uncertain tax positions - For the three months ended July 3, 2022, an income tax provision of $3.2 million was recorded on a pre-tax loss of $38.5 million, primarily due to changes in the forecasted annual effective tax rate and mark-to-market unrealized losses on equity investments[168][214] - For the six months ended July 3, 2022, an income tax benefit of $8.4 million was recorded on a pre-tax loss of $52.6 million, mainly due to the reversal of deferred taxes for California following the enactment of Senate Bill 113, which restored the ability to utilize net operating losses[169][215] - The sale of the C&I Solutions business resulted in a taxable gain, with a $1.4 million tax impact recorded in 'additional paid-in capital'[171] Note 14. NET INCOME (LOSS) PER SHARE This note presents the basic and diluted net income or loss per share calculations and related factors Earnings Per Share | EPS Metric | Three Months Ended July 3, 2022 | Three Months Ended July 4, 2021 | Six Months Ended July 3, 2022 | Six Months Ended July 4, 2021 | | :--------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Basic Net (Loss) Income per Share | $(0.36) | $0.43 | $(0.53) | $0.15 | | Diluted Net (Loss) Income per Share | $(0.36) | $0.39 | $(0.53) | $0.15 | - Basic and diluted net loss per share were $(0.36) for the three months and $(0.53) for the six months ended July 3, 2022, a significant decrease from positive EPS in the prior year periods[177] - Anti-dilutive potential common stock excluded from diluted EPS calculations for the three and six months ended July 3, 2022, included 17.1 million shares from 4.00% debentures due 2023 and 3.4 million restricted stock units[180] Note 15. STOCK-BASED COMPENSATION This note details the company's stock-based compensation expense across various categories Stock-Based Compensation Expense | Expense Category (in thousands) | Three Months Ended July 3, 2022 | Three Months Ended July 4, 2021 | Six Months Ended July 3, 2022 | Six Months Ended July 4, 2021 | | :------------------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Cost of revenues | $1,395 | $698 | $2,350 | $1,282 | | Research and development | $270 | $1,441 | $839 | $1,799 | | Sales, general, and administrative | $5,386 | $7,115 | $9,263 | $10,524 | | Total stock-based compensation expense | $7,051 | $9,254 | $12,452 | $13,605 | - Total stock-based compensation expense decreased by $2.2 million for the three months and $1.2 million for the six months ended July 3, 2022, compared to the prior year periods[182] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on SunPower's financial condition and results of operations for the period ended July 3, 2022 Cautionary Statement Regarding Forward-Looking Statements This section advises readers that the report contains forward-looking statements subject to risks and uncertainties - The report contains forward-looking statements regarding future financial results, business strategies, liquidity, costs, product development, supply chain, inflation, regulatory compliance, and other factors, which are subject to risks and uncertainties that could cause actual results to differ materially[186] Overview This section provides a high-level summary of SunPower's business model and strategic focus - SunPower is a leading solar technology and energy services provider, offering integrated solar, storage, and home energy solutions primarily to residential customers in the U.S. and Canada, with its 'Smart Energy' initiative aiming to add intelligent control to homes and grids[188] - Following the classification of the C&I Solutions business as discontinued operations, SunPower now operates in a single segment focused on residential customers[188] Key Developments This section highlights significant events and strategic actions undertaken by the company during the reporting period - The sale of the Commercial and Industrial Solutions (C&I Solutions) business to TotalEnergies Renewables USA, LLC closed on May 31, 2022, for a preliminary purchase price of $190.0 million, with net cash consideration of $149.2 million received[190] - SunPower published its fiscal 2021 Environmental, Social, and Governance (ESG) Report in Q2 2022, detailing its commitment to energy sustainability, waste minimization, and diversity, equity, and inclusion initiatives[191] Results of Operations This section analyzes the company's financial performance, including revenue, gross profit, and operating expenses Financial Performance Summary | Metric (in thousands) | Three Months Ended July 3, 2022 | % of Revenues (2022) | Three Months Ended July 4, 2021 | % of Revenues (2021) | | :-------------------- | :------------------------------ | :------------------- | :------------------------------ | :------------------- | | Total Revenues | $417,772 | 100% | $260,751 | 100% | | Gross Profit | $81,499 | 20% | $60,711 | 23% | | Operating (Loss) Income | $(17,961) | (4)% | $13,181 | 5% | | Other (Expense) Income, net | $(20,524) | (5)% | $77,518 | 30% | | Net (Loss) Income from continuing operations attributable to stockholders | $(42,496) | (10)% | $87,094 | 33% | - Total revenues increased by 60% (QoQ) and 53% (YoY) due to higher residential business volume and the Blue Raven acquisition, partially offset by a reduction in 'services and other' revenue from legacy power plant projects[196] - Gross margin decreased by 3 percentage points (QoQ) and 1 percentage point (YoY) primarily due to inflationary cost increases exceeding pricing increases, and the revenue reduction from legacy projects[201] - R&D expenses increased by 74% (QoQ) and 40% (YoY) due to higher labor costs, increased headcount, and hiring costs[202] - SG&A expenses increased by 88% (QoQ) and 85% (YoY), driven by the Blue Raven acquisition, strategic hiring, and increased acquisition/divestiture-related transaction costs[203] - Other (expense) income, net, decreased significantly by $98.7 million (QoQ) and $52.8 million (YoY), primarily due to a loss on equity investments with readily determinable fair value in 2022, compared to a gain in 2021[212] Critical Accounting Estimates This section discusses the accounting policies that require significant judgment and estimation by management - No significant changes were made to critical accounting estimates during Q2 2022, except for the detailed disclosure on retail installment contract receivables, net[220] - Retail installment contracts involve long-term loans for solar system purchases, with revenue recognized upon system completion and a significant financing component deferred and amortized over the contract term[221][222] Liquidity and Capital Resources This section analyzes the company's ability to generate and manage cash, including cash flow activities and contractual obligations Cash Flow Summary | Cash Flow Activity (in thousands) | Six Months Ended July 3, 2022 | Six Months Ended July 4, 2021 | | :-------------------------------- | :---------------------------- | :---------------------------- | | Net cash (used in) provided by operating activities | $(164,577) | $(18,353) | | Net cash provided by (used in) investing activities | $252,087 | $7,363 | | Net cash (used in) provided by financing activities | $(7,474) | $(84,187) | - Net cash used in operating activities increased by $146.2 million, primarily due to a higher net loss (excluding non-cash items) and increases in accounts receivable, prepaid expenses, and inventories[226] - Net cash provided by investing activities increased by $244.7 million, mainly from the C&I Solutions sale proceeds ($146.3 million) and sale of equity investments ($149.8 million), partially offset by increased capital expenditures and new equity investments[227][228] - Net cash used in financing activities decreased by $76.7 million, primarily due to higher net proceeds from bank loans and other debt, and the absence of convertible debt repayment that occurred in fiscal 2021[229] - Unrestricted cash and cash equivalents increased to $206.4 million as of July 3, 2022, from $123.7 million at January 2, 2022, with the company planning to use available cash, short-term equity investments, and debt for operations, capital expenditures, and M&A[230][231] - Management believes current liquidity sources are sufficient to meet obligations for the next 12 months, including the $425.0 million 4.00% debentures due 2023, potentially using proceeds from Enphase stock sales and operational cash[234] Contractual Obligations | Contractual Obligation (in thousands) | Total | 2022 (remaining 6 months) | 2023-2024 | 2025-2026 | Beyond 2026 | | :------------------------------------ | :-------- | :------------------------ | :---------- | :-------- | :---------- | | Convertible debt, including interest | $434,199 | $8,500 | $425,699 | — | — | | Other debt, including interest | $122,968 | $63,543 | $59,168 | $158 | $99 | | Operating lease commitments | $45,370 | $7,523 | $24,862 | $10,966 | $2,019 | | Supply agreement commitments | $338,731 | $129,517 | $202,978 | $1,707 | $4,529 | | Total | $941,268 | $209,083 | $712,707 | $12,831 | $6,647 | - Liabilities associated with uncertain tax positions ($15.4 million as of July 3, 2022) are excluded from contractual obligations due to the inability to reliably estimate cash settlement periods[238] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section discusses SunPower's exposure to market risks, specifically focusing on interest rate risk - SunPower is exposed to interest rate risk due to fixed-rate financing receivables from retail installment contracts, where increases in market interest rates could adversely affect the company as it has locked in lower fixed rates for these contracts, which will need to be refinanced[241] - The fair value of retail installment contract receivables was $80.2 million as of July 3, 2022, and a hypothetical 50 basis points change in market interest rates did not have a material effect on their fair value[241] - Rising interest rates could also make it difficult for customers to obtain financing for solar power systems on favorable terms, impacting sales[242] ITEM 4. CONTROLS AND PROCEDURES This section details the evaluation of SunPower's disclosure controls and procedures and any changes in internal control over financial reporting - The CEO and CFO concluded that SunPower's disclosure controls and procedures were effective at a reasonable assurance level as of July 3, 2022[244] - A new enterprise resource planning (ERP) system was implemented in Q1 2022, leading to modifications in internal control processes and procedures related to the new system, with no other material changes to internal control over financial reporting occurring[245] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and exhibits filed with the report ITEM 1. LEGAL PROCEEDINGS This section refers to the disclosures on legal matters within the Notes to Condensed Consolidated Financial Statements - Information on legal proceedings is incorporated by reference from Note 9, 'Commitments and Contingencies—Legal Matters,' in the financial statements[248] ITEM 1A. RISK FACTORS This section states that there have been no material changes to the risk factors previously disclosed in prior reports - No material changes to previously disclosed risk factors were identified since the Annual Report on Form 10-K for January 2, 2022, and the Quarterly Report on Form 10-Q for April 3, 2022[249] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section details the company's purchases of its own equity securities, specifically shares surrendered by employees for tax obligations Shares Purchased | Period | Total Number of Shares Purchased | Average Price Per Share | | :-------------------------- | :------------------------------- | :---------------------- | | April 4, 2022 – May 1, 2022 | 9,769 | $23.48 | | May 2, 2022 – May 29, 2022 | 29,368 | $18.08 | | May 30, 2022 – July 3, 2022 | 84,428 | $17.71 | | Total | 123,565 | | - The shares purchased represent shares surrendered by employees to satisfy tax withholding obligations on vested restricted stock[251] ITEM 6. EXHIBITS This section provides an index of exhibits filed with the Quarterly Report on Form 10-Q - The exhibits include a Letter Agreement related to the C&I Solutions sale, an Amendment to the Cross License Agreement with Maxeon Solar, an Amendment to Securities Purchase Agreement, and an Amendment to Master Supply Agreement with Enphase Energy, Inc[253] - Certifications by the Chief Executive Officer and Chief Financial Officer, as well as XBRL taxonomy documents, are also filed[253] SIGNATURES This section contains the signature of the authorized officer, Manavendra S. Sial, Executive Vice President and Chief Financial Officer, certifying the filing of the report - The report was signed by Manavendra S. Sial, Executive Vice President and Chief Financial Officer, on August 2, 2022[256]