Complete Solaria Inc. (NASDAQ: CSLR) published its second quarter
2023 results, which will be reviewed for investors at 5:00 p.m. EDT
today, https://investors.completesolaria.com/.
Second quarter summary (financial comments based
on non-GAAP results unless noted):
- Revenue of $32.2 million, down 9%
from previous quarterSystems: $25.6 million, up 54% QoQ, and a
recordModules: $6.6 million, down 65% QoQ
- 18% gross margin, up 6% QoQ
- Strategic Decision: company to
pursue only higher-margin Systems business in the future
- Sale of Modules business:
non-binding term sheet with module manufacturer signed
- Streamlined organization: RIF of 59
with $7.9 million of annualized savings
- New Systems bookings remain strong
with $49.1 million in contracts in Q2
Fellow Shareholders:
Our revenue and earnings for the quarter are
given below, compared with the prior quarter:
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($1000s, except gross margin) |
GAAP |
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Non-GAAP* |
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Q2 2023 |
Q1 2023 |
Q2 2023 |
Q1 2023 |
Revenue |
|
32,174 |
|
|
35,398 |
|
|
32,174 |
|
|
35,398 |
|
Gross Margin |
|
18 |
% |
|
6 |
% |
|
17 |
% |
|
6 |
% |
Operating Income |
|
(17,546 |
) |
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(20,233 |
) |
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(15,788 |
) |
|
(15,698 |
) |
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*reconciliation attached |
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The details of a plan to address operating
losses are found in the CEO’s report, which comes directly after
the Chairman’s report, which focusses on restructuring.
Chairman’s Report
When I became the Executive Chairman of Complete
Solaria seven weeks ago, I chose to devote most of my time to
improving the company’s organization and business practices – to
build a “machine to make quarters,” not to make quarters per se.
Those efforts are just becoming visible.
The first operational problem we addressed was
described to investors in a Zoom-cast from Complete Solaria’s Salt
Lake fabrication plant (fab) on June 30, 2023. We told investors
that a surge in orders had flooded the Salt Lake fab with new
installation jobs, jamming it up and slowing it down. Our fab
inventory had climbed to 2,800 home installation jobs, up from the
historical 1,200 or fewer jobs. That fab logjam and slowdown
limited our total Q2 revenue to $32.2 million, as we forecasted on
the Zoom-cast. Despite the fab slowdown, our Systems revenue
actually achieved a record in Q2. The low overall revenue was the
result of low Modules revenue, which was in turn due to a
deliberate decision described below.
I asked for help from three top experts: a fab
expert who came to the Salt Lake fab for two extended periods, a
quality expert who began to systematically address underlying fab
quality problems, and an information technology expert who helped
to install manufacturing-friendly documentation and specification
systems. These experts also spent considerable time tutoring
management and workers.
While the fab remains overloaded, its cycle time
went down slightly in Q2, despite a higher number of jobs
installed. This good news leads us to expect Q3 Systems revenue of
well over $30 million, setting another record. Finally, we analyzed
and “leaned out” the Systems organization, yielding a reduction of
34 employees and $3.2 million in annual savings.
Yesterday, we announced an additional reduction
of 25 employees from our Module organization by divestiture.
Together, the total company-wide reduction comes to 59 employees
(16%) and $7.9 million in annual savings. After the reductions,
Complete Solaria will have 312 employees and contractors, and a
respectable annualized revenue per employee of over $480,000 per
year.
The Modules organization wind-down is a result
of a measured business decision to stop offering solar modules
separately. A glut of modules from Chinese manufacturers has driven
market pricing down below $0.40 per watt and market gross margins
to near zero, a situation which we see as the “new normal.” We
shipped $18.7 million in Modules in Q1 but chose not to fully
restock inventory for Q2. This decision reduced Modules revenue to
$6.6 million in Q2 and was the reason for our low overall revenue,
despite record Systems revenue. We will sell our remaining module
inventory in Q3 and Q4, and focus solely on the Systems business,
as quantified in the CEO’s report below.
The shift to the Systems business (where the
price is about $3.60 per watt) from the Modules business (where the
price is about $0.50 per watt) is expected to increase our gross
margins by over 10 percentage points from Q2 to Q3, not only due to
the revenue mix change, but also due to taking advantage of our
added sales through our inherited Solaria “ProPartners” installer
base and our inherited factory-direct module pricing, 30%-plus
below our current distribution pricing.
To conclude, we restructured Complete Solaria
this quarter, cutting headcount by 59 and costs by $7.9 million. We
also reorganized to improve quality, yield and speed of execution.
The fab is starting to improve, but it will take the rest of the
year to get it into shape.
CEO’s Report
The Company experienced a significant shift in
its business during the second quarter of 2023. Over the previous
four quarters, our Systems and Modules businesses generated
approximately equivalent revenue (54% Systems, 46%
Module). In Q2, however, Systems increased its revenue
significantly, growing 54% over the prior quarter and 56%
year-over-year. Conversely, after the Modules market pricing and
margins deteriorated, we chose not to fully restock the inventory
causing Modules revenue drop to only $6.6 million, leading to a
total revenue of $32.2 million, an overall decline of 9%
sequentially.
We expect the Systems business to achieve
another revenue record in Q3 with continued margin improvement,
while the Modules revenue will be flat in Q3 as it begins to wind
down.
We plan to sell certain Modules assets to a
global tier-1 solar panel manufacturer, which will provide cash to
the company and enable us to focus on growing our core Systems
business. We have signed a non-binding term sheet and are working
to close the transaction in Q3. Note there is no assurance this
transaction will close and remains subject to the signing of a
Definitive Agreement with the buyer. However, there are several
panel manufacturers interested in gaining access to the U.S.
Residential market, as well as supplying Complete Solaria as a
customer. The transaction anticipates an ongoing supply agreement
that is expected to maintain Complete Solaria’s access to
differentiated, premium solar panels at a competitive cost to
preserve our end-to-end offering to customers.
Our Q2 gross margin was 18%, up from 6% in the
prior quarter. Systems gross margin increased from 16% in Q1 to 21%
in Q2, while Modules gross margin was slightly negative in each
quarter at (4)% in Q1 and (2)% in Q2.
Operating losses in Q2 were driven by: 1)
one-time expenses related to our business combination with Freedom
Acquisition 1 Corp., 2) negative Modules gross margin, and 3) $2.7
million in reserve additions for inventory aging due to the fab
slowdown. We thus expect a significant reduction to our operating
loss in Q3, as our higher-margin Systems business will account for
a larger proportion of the company’s revenues. We also expect to
reduce the operating loss further in Q4 with continued revenue
growth and a full quarter of the cost cutting measures.
Third Quarter 2023 Financial
Outlook
For the third quarter of 2023, Complete Solaria
estimates financial results as follows: Revenues in the range of
$38 million to $41million and Gross Margin of 29%. Results through
the first seven weeks of Q3 are on track to meet this target.
We believe our gross margin will continue to
increase from Q2 levels based on a larger proportion of revenues
from Systems, continued reduction in module costs, and selective
use of internal install capability to further reduce the cost of
goods sold.
We generated $19.7 million of net proceeds from
our July 18, 2023 NASDAQ listing and expect to generate additional
cash proceeds from the sale of our Module business assets to a
global tier-1 solar panel manufacturer in a deal expected to close
in Q3.
About Complete SolariaComplete
Solaria is a solar company with unique technology and an end-to-end
customer offering – which includes financing, design and project
fulfilment, and follow-on customer service – allowing it to sell
more products across more markets and enable more options for
customers wishing to make the switch to a more energy-efficient
lifestyle. To learn more,
visit:https://www.completesolaria.com.
Forward Looking
Statements This press release may contain certain
forward-looking statements within the meaning of the federal
securities laws with respect to the referenced transactions. These
forward-looking statements generally are identified by the words
“anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,”
“intend,” “may,” “might,” “plan,” “possible,” “potential,”
“predict,” “project,” “should,” “would,” and similar expressions,
but the absence of these words does not mean that a statement is
not a forward-looking statement. Forward-looking statements are
forecasts, predictions, projections and other statements about
future events that are based on current expectations, hopes,
beliefs, intentions, strategies and assumptions and, as a result,
are subject to risks and uncertainties. Many factors could cause
actual future events to differ materially from the forward-looking
statements in this press release, including but not limited to: (i)
risks that the sale of certain assets will not be completed on the
terms set forth in the non-binding Letter of Intent; (ii) the sale
of assets disrupts current plans and operations of the companies or
diverts managements’ attention from Complete Solaria’s business
operations; (iii) the outcome of any legal proceedings that may be
instituted in connection with the assets sale; (iv) the price of
Complete Solaria’s securities may be volatile due to a variety of
factors, including changes in the applicable competitive or
regulatory landscapes, variations in operating performance across
competitors, changes in laws and regulations affecting Complete
Solaria’s business, and changes in the combined capital structure;
(v) the ability to implement business plans, forecasts, and other
expectations after the completion of the business combination, and
identify and realize additional opportunities; (vi) the evolution
of the markets in which Complete Solaria will compete.
The foregoing list of factors is not exhaustive.
Readers should carefully consider the foregoing factors and the
other risks and uncertainties described in the “Risk Factors”
section of the registration statement on Form S-4 filed, which was
declared effective by the Securities and Exchange Commission (the
“SEC”) on June 30, 2023. Such filings identify and address other
important risks and uncertainties that could cause actual events
and results to differ materially from those contained in the
forward-looking statements. Forward-looking statements speak only
as of the date they are made. Readers are cautioned not to put
undue reliance on forward-looking statements, and Complete Solaria
assumes no obligation and does not intend to update or revise these
forward-looking statements, whether as a result of new information,
future events, or otherwise.
Contacts:
Brian Wuebbels CFObwuebbels@completesolaria.com
Sioban Hickie Investor Relations
sioban.hickie@icrinc.com
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COMPLETE SOLARIA, INC. |
CONDENSED CONSOLIDATED CONDENSED BALANCE SHEETS |
(In $ '000) |
(Unaudited) |
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July 3, 2023 |
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December 31, 2022 |
ASSETS |
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Current Assets: |
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Cash |
|
2,545 |
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|
4,409 |
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Accounts receivable, net |
|
24,263 |
|
|
27,717 |
|
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Inventories, net |
|
7,977 |
|
|
13,059 |
|
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Prepaid expenses and other current assets |
|
15,028 |
|
|
10,071 |
|
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Total Current Assets |
|
49,813 |
|
|
55,256 |
|
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Property, plant and equipment, net |
|
3,942 |
|
|
3,476 |
|
Goodwill and other intangible assets, net |
|
160,543 |
|
|
162,032 |
|
Other assets |
|
10,825 |
|
|
7,419 |
|
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Total Assets |
|
225,123 |
|
|
228,183 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current Liabilities: |
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Accounts payable |
|
15,071 |
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|
14,474 |
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Accrued expenses and other current liabilites |
|
32,305 |
|
|
25,237 |
|
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Notes payable |
|
27,159 |
|
|
20,403 |
|
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Total Current Liabilities |
|
74,535 |
|
|
60,114 |
|
Redeemable convertible preferred stock warrant liability |
|
4,735 |
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|
14,152 |
|
Long term debt and convertible notes |
|
68,317 |
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|
44,148 |
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Other long term liabilities |
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5,166 |
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|
4,488 |
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Total liabilities |
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152,753 |
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|
122,902 |
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Redeemable convertible preferred stock |
|
155,630 |
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|
155,630 |
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Stockholders' deficit |
|
(83,260 |
) |
|
(50,349 |
) |
|
Total liabilities, mezzanine equity and stockholder' deficit |
|
|
225,123 |
|
|
228,183 |
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COMPLETE SOLARIA,
INC. |
CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS |
ON A GAAP BASIS |
(In $ '000) |
(Unaudited) |
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Thirteen Weeks Ended |
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July 3, 2023 |
|
April 2, 2023 |
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Product revenues |
|
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6,554 |
|
|
|
18,721 |
|
Service revenues |
|
|
25,620 |
|
|
|
16,677 |
|
Total revenues |
|
|
32,174 |
|
|
|
35,398 |
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Costs of product revenues |
|
|
7,046 |
|
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|
19,489 |
|
Costs of service revenues |
|
|
19,588 |
|
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|
13,818 |
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Total cost of revenue |
|
|
26,634 |
|
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|
33,307 |
|
Gross profit |
|
|
5,540 |
|
|
|
2,091 |
|
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Operating expenses: |
|
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|
Sales commissions |
|
|
8,789 |
|
|
|
5,677 |
|
Sales and marketing |
|
|
3,883 |
|
|
|
3,549 |
|
General and administrative |
|
|
10,414 |
|
|
|
13,098 |
|
Operating expenses |
|
|
23,086 |
|
|
|
22,324 |
|
Loss from operations |
|
|
(17,546 |
) |
|
|
(20,233 |
) |
Other income (expense), net |
|
|
6,036 |
|
|
|
(3,286 |
) |
Loss before income taxes |
|
|
(11,510 |
) |
|
|
(23,519 |
) |
Income tax provision |
|
|
- |
|
|
|
5 |
|
Net loss |
|
|
(11,510 |
) |
|
|
(23,514 |
) |
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COMPLETE SOLARIA,
INC. |
CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS |
ON A NON GAAP
BASIS |
(In $ '000) |
(Unaudited) |
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Thirteen Weeks Ended |
|
|
July 3, 2023 |
|
April 2, 2023 |
|
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Product revenues |
|
|
6,554 |
|
|
|
18,721 |
|
Service
revenues |
|
|
25,620 |
|
|
|
16,677 |
|
Total revenues |
|
|
32,174 |
|
|
|
35,398 |
|
Costs of
product revenues |
|
|
6,712 |
|
|
|
19,480 |
|
Costs of
service revenues |
|
|
19,586 |
|
|
|
13,817 |
|
Total cost
of revenue |
|
|
26,298 |
|
|
|
33,297 |
|
Gross profit |
|
|
5,876 |
|
|
|
2,101 |
|
|
|
|
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|
Operating
expenses: |
|
|
|
|
Sales commissions |
|
|
8,789 |
|
|
|
5,677 |
|
Sales and marketing |
|
|
3,087 |
|
|
|
2,634 |
|
General and administrative |
|
|
9,788 |
|
|
|
9,489 |
|
Operating expenses |
|
|
21,664 |
|
|
|
17,800 |
|
Loss from
operations |
|
|
(15,788 |
) |
|
|
(15,699 |
) |
Other income
(expense), net |
|
|
(3,171 |
) |
|
|
(3,286 |
) |
Loss before
income taxes |
|
|
(18,959 |
) |
|
|
(18,985 |
) |
Income tax
provision |
|
|
- |
|
|
|
5 |
|
Net
loss |
|
|
(18,959 |
) |
|
|
(18,980 |
) |
|
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COMPLETE SOLARIA,
INC. |
Reconciliation of
GAAP to Non-GAAP Measures |
(In $ '000) |
(Unaudited) |
|
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Thirteen Weeks Ended |
|
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|
July 3, 2023 |
|
April 2, 2023 |
GAAP Net Loss |
|
Note |
|
(11,510 |
) |
|
(23,514 |
) |
|
|
|
|
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|
|
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|
Amortization of acquired intangible assets |
|
|
|
A |
|
738 |
|
|
748 |
|
Stock based compensation |
|
B |
|
1,020 |
|
|
1,021 |
|
Transaction related charges |
|
C |
|
- |
|
|
2,765 |
|
Change in fair value of warrants |
|
D |
|
(9,207 |
) |
|
- |
|
Total of Non-GAAP adjustments |
|
|
|
(7,449 |
) |
|
4,534 |
|
|
|
|
|
|
|
|
|
|
Non-GAAP net loss |
|
|
|
(18,959 |
) |
|
(18,980 |
) |
|
|
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Notes: |
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(A) Amortization
of acquired intangible assets - The amortization expense recognized
in relation to the intangible assets recognized for the Solaria
merger transaction. These are excluded from our GAAP results. |
B) Stock-based
compensation: Stock-based compensation relates primarily to our
equity incentive awards. Stock-based compensation is a non-cash
expense. |
(C) Transaction
related charges: These expenses are related to audit and consulting
fees in connection with efforts needed for the DPAC process, which
includes IPO readiness, catch-up audits etc. |
(D) Change in
fair value of warrants: this is a non-cash, non-operating
impact. |
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Use of Non-GAAP Financial
Measures
Non-GAAP gross margin, non-GAAP operating income
and other non-GAAP measures are intended as supplemental financial
measures of our performance that are neither required by, nor
presented in accordance with GAAP. We believe that the use of
Non-GAAP measures provides an additional tool for investors to use
in evaluating ongoing operating results, trends, and in comparing
our financial measures with those of comparable companies, which
may present similar Non-GAAP financial measures to investors.
However, you should be aware that when
evaluating the non-GAAP measures, we may incur future expenses
similar to those excluded when calculating these measures. In
addition, the presentation of these measures should not be
construed as an inference that our future results will be
unaffected by unusual or nonrecurring items. Our computation of
non-GAAP gross margin, non-GAAP operating income and other non-GAAP
measures may not be comparable to other similarly titled measures
computed by other companies, because all companies may not
calculate the non-GAAP measures in the same fashion.
Source: Complete Solaria, Inc.
A chart accompanying this announcement is available at
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