"Our second quarter execution was solid as we met our financial targets and achieved key milestones across the company," said Tom Werner, SunPower president and CEO. "During the quarter we saw significant customer demand for our recently introduced Helix and SunPower Equinox complete commercial and residential solutions, respectively. We are also seeing stronger than anticipated demand and price premium for our highest efficiency, next generation X-21 and X-22 Series solar panels. In our upstream solar cell and panel manufacturing operations, we delivered strong yields and panel output in our fabs, continued our technology leadership with the announcement of our world record 24.1 percent efficient rooftop solar panel and successfully started up our first high volume, Performance Series production lines in Mexico.”
Improved traction in Europe
"In our distributed generation business for the second quarter, we saw solid execution in both the residential and commercial segments. In commercial, our performance was above plan as we successfully ramped our Helix product deployment to approximately 20 megawatts (MW) in the second quarter while signing over 25 MW of new contracts for customers such as the U.S. Army. With a record pipeline of more than $1.3 billion, strong bookings, currently stable pricing and the continued successful ramp of our Helix solution, we are well positioned to gain share in the commercial market. Our residential segment also performed well, with solid fundamentals in the U.S. and improving traction in Europe and Japan. In the U.S., we are seeing a pronounced shift to our new SunPower Equinox complete solution which accounted for 50 percent of bookings by the end of the quarter. Total U.S. residential MW deployment was up approximately 25 percent year-over-year, and we continued to expand our utility channel initiatives, most recently a new solar plus storage partnership with Consolidated Edison.
Solar plus battery storage projects in French overseas territories
"In our power plant segment, we expanded our international project backlog with the announcement of more than 250 MW of projects in Chile, bringing our total Latin America signed Power Purchase Agreement (PPA) portfolio to over 800 MW. Additionally, we secured 40 MW of innovative solar plus battery storage projects for deployment in the French overseas territories. In the U.S., we were pleased to announce the sale of a controlling interest in our 102-MW Henrietta project to Southern Company and added to our public sector footprint as we started construction of our 9.5-MW project for the California Department of Water Resources.
Aggressive pricing in the utility scale market
"However, while the long-term fundamentals for solar power remain strong, we see a number of near-term industry challenges, primarily in our power plant segment, that we expect to impact our business and financial performance in the second half of 2016. The extension of the Investment Tax Credit, as well as the bonus depreciation credit, while beneficial to the long-term health of the industry, has reduced the urgency to complete new solar projects by the end of 2016, with many customers adopting a longer-term timeline for project completion. Additionally, near-term economic returns have deteriorated due to aggressive PPA pricing by new market entrants, including a number of large, global independent power companies. We are also seeing customer project IRRs rising in the near term as buyers have increased their hurdle rates due to industry conditions. Finally, the continued market disruption in the YieldCo environment has impacted our assumptions related to monetizing deferred profits.
Shifting investment to distributed generation
"As a result, we have proactively decided to streamline our power plant development segment while shifting investment to our distributed generation (DG) segments. We intend to focus our development resources on a limited number of core markets, primarily in the Americas, where we believe we have a sustainable competitive advantage and a project pipeline of over 9 gigawatts (GW). Outside these core markets, we will focus our power plant business on the sale of our new Oasis complete solution incorporating Performance Series panel technology to developers and Engineering, Procurement and Construction companies in global markets, including Total. We also plan to delay the timing of certain projects in our 2016 and 2017 pipeline to take advantage of planned cost reduction efforts over the next two years. We expect these actions to significantly lower operating expense and capital deployment in our power plant business while maintaining leadership in our core markets.
Shut down of the Philippine fab
"Additionally, we are realigning our manufacturing operations to increase the relative mix of X-Series capacity due to expected strong customer demand in our DG business as well as adjusting our panel assembly capacity to be closer to our core markets. We plan to utilize equipment from some of our older solar cell manufacturing lines in Fab 2 to debottleneck capacity of our latest generation technology in order to increase the supply of X-Series panels. These initiatives will enable us to increase X-Series output by up to 100 MW by the end of 2017. Additionally, in connection with the realignment of our power plant segment principally around our core markets, we have made the decision to close our Philippine panel assembly facility and transfer the equipment to our latest generation, lower cost facilities in Mexico. This change will optimize our supply chain and move final panel assembly closer to our key markets.
Strengthen competitive position
"Overall, we expect these initiatives will strengthen our overall competitive position and enable us to profitably capitalize on the anticipated global growth of solar power as a long term, mainstream energy source. The core foundation of our long-term strategy remains unchanged, namely, developing innovative, complete customer solutions based on differentiated technology and deploying these solutions across a diversified portfolio of applications and geographic markets," concluded Werner.
Balance sheet of more than $590 million in cash
"Our solid second quarter performance reflects the benefits of our diversified go-to-market strategy" said Chuck Boynton, SunPower Chief Financial Officer. "Our balance sheet remains strong as we exited the quarter with more than $590 million in cash. Looking forward, we believe our realignment plan will enable us to expand our leadership position in distributed generation, further strengthen our presence in our core power plant markets, improve cash flow and lower our annual operating expenses by up to 10 percent." As a result of the announced realignment, the company expects a workforce reduction of approximately 15 percent or 1,200 employees, primarily related to its Philippine facility closure.
Up to 1.65 GW deployment expected for 2016
As a result of the challenges described above, the company is updating its previously disclosed fiscal year 2016 guidance, as well as providing selected forecasts for fiscal year 2017. On a GAAP basis, the company now expects 2016 revenue of $2.8 billion to $3.0 billion, gross margin of 9.5 percent to 11.5 percent and net loss of $175 million to $125 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. The company's updated 2016 non-GAAP financial guidance is as follows: revenue of $3.0 billion to $3.2 billion, gross margin of 10.5 percent to 12.5 percent, EBITDA of $275 million to $325 million, capital expenditures of $225 million to $245 million and gigawatts deployed in the range of 1.45 GW to 1.65 GW.
2017 EBITDA generated almost entirely from DG business
For 2017, the company expects a GAAP net loss of $200 million to $100 million and EBITDA in the range of $300 million to $400 million. The company expects that at the lower end of the guidance range, 2017 EBITDA would be generated almost entirely from the company's DG business and believes that with the announced realignment, it will be well positioned to capitalize on the long term growth potential in the global power plant market.
Q3 gross margin of up to 18.5 percent expected
The company's third quarter fiscal 2016 GAAP guidance is as follows: revenue of $700 million to $800 million, gross margin of 14.5 percent to 16.5 percent and net loss of $5 million to net income of $20 million. Third quarter 2016 GAAP guidance includes the impact of the company's HoldCo asset strategy and revenue and timing deferrals due to real estate accounting. On a non-GAAP basis, the company expects revenue of $750 million to $850 million, gross margin of 16.5 percent to 18.5 percent, EBITDA of $115 million to $140 million and megawatts deployed in the range of 380 MW to 420 MW.(HCN)
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