SunPower - Earnings Call - Q2 2025

Transcript

Speaker 3

Hi, this is T.J. Rodgers. I'm CEO of Complete Solaria and here to tell you about our quarter. I dragged out an old picture to talk about the ITC and the weather out there. Let me start out with the numbers. That slide is buried in there. This is our new logo. Complete Solaria is the old one. The airplane, which is called Helios, also Solar Challenger, is really an image of the power of the sun. You can see solar cells on the wing of the airplane, giant propellers that are required really for thin air. This airplane, just so you know about it and why it is a great, great icon for solar energy, truly energy. It set a record that has never been broken of level flight at altitude in 2001, and that was 92,800 ft.

I won't go over the specs, but it's a huge airplane. 247 ft. It can carry a payload of 726 pounds. 60,000 solar cells putting out 35 kilowatts, 142 horsepower motors. They only use 21 of the 35. The reason for that is there's batteries in the airplane that'll fly the airplane for five hours. An airplane very similar to this one flew around the world. Interesting performance because the thick air at ground level is slow. This thing can do 170 miles an hour at altitude. It was designed to fly endurance missions to 70,000 ft. An artificial satellite. That's my geek presentation for this thing. This is one of my favorite pictures ever. This is one more picture I got from one of the engineers on the project. This airplane at altitude. You can see the solar cells. They're so thin, they bend like paper.

You can see that the earth is indeed round. By the way, the atmospheric pressure up here is 0.2 pounds per square inch. You're above 99% of the atmosphere. You can clearly see that here. To the quarter, we had $67.5 million in revenue. That's a number less than we wanted and $2.4 million in operating profit that we're very proud of, especially given the revenue. The byline is vigorous cost-cutting. We have a very lean company now canceled out, an ITC related revenue drop. I'll talk about both of them. That has my stamp of approval and I've created a stamp of approval that I use in the company now to talk about various things. The numbers. We have a new accounting person and CFO who helped me. These numbers are.

I spent a lot of time on them and they're perfect in terms of accuracy the first two quarters of 2025. We have accounting methods that were developed during our 10-K and they were developed to merge three companies with different accounting rules together. We have applied those accounting methods and will in the future to present GAAP, which is a legal requirement, non-GAAP, which is the way we run the company. There are only three points to make on this graph. I have the key parameters here. Number one is last quarter we did $82.7 million and that was the third $80 million plus quarter in a row. This quarter we dropped like a rock. It's due to the ITC. It's also due to some last minute problem, pushed $5 million out of the quarter. It is what it is and I'll talk about going forward later.

If you look at the gross profit, we suffered, therefore a hit to profitability at $3.7 million. We made up for some of that by focusing on the most profitable segments and having excellent gross margin. We also had a tremendous cost-cutting program where our OpEx less commission, the actual real OpEx, FASB requires putting commission into OpEx in the GAAP thing, it's one of the distortions I don't like. We cut $4.5 million, so you might say, wahoo, you actually cut more than you lost in gross margin. Not quite. Because the operating expense with commission, this difference here was only $3.2 million better. If you go down to the profit line, it's the old profit, plus $3.7 million minus $3.2 million minus $5 million. Excuse me, minus $3.7 million plus $3.2 million, $520,000 short. We dropped from $2.9 million last quarter to $2.4 million this quarter.

Those are both pretty good numbers given our size right now. They say we're very healthy. The next and only other thing you need to explain, which I would certainly ask for if I were watching this presentation, is okay, tell me how you have $2.4 million of GAAP profit and a $2.7 million loss of non-GAAP profit and $2.7 million loss of GAAP. I've added an extra line to the P&L to explain that this is stock compensation and intangible costs. In other words, non-cash required accounting that doesn't really affect cash profit. That jumped this quarter primarily because you approved a lot of stock which we give out to our employees to $5.1 million. If you look at that difference, if you look at that difference, that is what took $2.8 million down to $2.7 million.

If you difference those numbers, all of these numbers work both vertically and horizontally. Where did that come from? It's in the footnote. I won't spend a lot of time going through it. Basically $3.7 million in stock-based compensation. My feeling is now, and it's always been, that I reflect stock compensation and the dilution of the extra shares and $14 million, $19 million, and amortization of intangibles. This is a goodwill charge that's put artificially on the books when you make an acquisition if the assets you acquire are less than what you paid for the acquisition. I talk here about the Investment Tax Credit (ITC) revenue deep freeze fasten, Steve. It reminded me of my hometown in Wisconsin when I woke up on that day, January 31, 1967. If you looked at that, that was a Sunday.

It was 18 below zero, and it was windy, and the chill factor was almost minus 50. That was the day of a Green Bay game, a championship game, NFL championship with Dallas Cowboys. It was so cold that your breath froze into ice, and the ice cloud hung over the stadium all day long. This is a picture I showed in the beginning. This is me running in 2000, also in Oshkosh. I was 52 at the time, and I just showed it to prove that, yes, your eyes can indeed freeze shut. This is why my rule is I never run if it's below zero. I didn't run that day of -18. Just to give you the last thing, they won the game. This is a quarterback going in with less than 30 seconds left.

This was the monster defensive lineman Jethro Pugh of the Cowboys, and he's getting blocked by Jerry Kramer, the famous All-Pro guard of Green Bay. He's not saying touchdown, he's saying, I didn't push the quarterback because the tush push then was illegal, and they would have lost the game had that been called. That's the winning play. I'm not going to that. Jerry Kramer is the guy that did the blocking. This is a club I run in, a country club I run in Oshkosh. I was fortunate enough to get Jerry, who's now 88, to come and talk. The crowd was thrilled. He's an excellent speaker.

I won't tell you about this one, I'm just putting it in to tell you that in the future if I have another bad revenue quarter, I'll tell you the story about Max McGee, but that is a picture of the ball going over the goal line on the first touchdown in the first Super Bowl. I'm not going to tell you the story about how Max didn't take the game seriously and he stayed out all night and came in at 6:30 A.M. before the game with two stewardesses hanging out. End of that story. The good story is profit. This is a graph of profit. The merger is here. We've now been a company for three quarters. If you took the sum of losses of the three companies before merger, we managed to cut that down a lot.

The first quarter we broke profitable, the second quarter we've never gotten credit for that. I'll explain in stock price and I'll explain why. Now, this quarter we had decent profit on a lot less revenue. That was positive news. The question is how are you going to make the revenue bigger? I'll talk about that. When we merged, I created a theory for the three companies, the arc theory of merger. I calculated the arc would be the thing when the rain came that would save the people on it. I calculated that there could be 1,225 seats. It turned out to be an excellent way to cut 2/3 in a merger. It couldn't have happened if I didn't lay off, not by trying to lay off people, which would have been possible even if you're tough and push on it. I laid off by not hiring.

That difference is what made it work. This is a graph of Complete Solaria headcount, by the way. Once Complete Solaria learned how to do this, they liked it. We like it. The company's lean. It's better now than it was when we had a lot more people. We had a pool of 3,499 people. When I said 1,225 was our target, that's that line right there. We started out on the first day of the first quarter with 1,341 people and made our target by the end of the quarter, beat it. The first quarter was $80 million instead of $100 million, which is what I had hoped for. I told everybody that there were no longer 1,225 seats on the arc. There were 980. We reset the target to 980 and we made that in the second quarter. We weren't profitable.

I said we wanted to get a lot profitable and I said we've got to go to 820. At this point, people started griping, you know, we're keeping losing seats on the arc. My comment was we didn't need giraffes anyway. We now are down to 861. We're almost done at that target. If you think of everybody as spending money, this is like the graph of cost and the graph of cost reduction. The good thing is you can drive it and you can drive it early. You don't have to wait for accountants to tell you that you lost money because you had too many people. We actually keep more careful track of headcount in that. I review this graph three days a week. This is the total headcount in the company. You can see five weeks worth of data here.

Look at rolling five weeks. This shows going from 900 to 861 over the last five weeks. Our target of 820 and a little hint that the next target is below that. This is the curve for Blue Raven. This is the curve for New Homes. These are our two divisions. My target for revenue per employee is $400,000. These guys are already there, they're already lean. These guys have gone backwards and they're not lean. That's not a good number. You can see they've actually gone up. This is because, not because we added people, but because the laws in Nevada and Utah changed. We had to turn 1099 contractors that we don't pay and don't count as employees into W2 employees. This is my pork problem right here. We're working on it. Meanwhile, I keep track of every little group inside the company.

These are places where they like to hide overhead. I have a consulting group, a good one, an ex-McKinsey consulting group giving me indices for the median of 200 tech companies and the top quartile best of the companies for a lot of parameters. For example, information technology IT full-time equivalent per billion in revenue, 77 down to 62, finance spend as a % of revenue. We then developed the dash line targets here. In the case of finance, we drove it down. That drive right there, I'll talk about twice more today, required us to move some finance from Salt Lake to India. I wanted the group together in Salt Lake. Can't afford it, so I couldn't do it. Okay, outlook this quarter we're in now. We're going to increase revenue. We're going to bounce partway back.

I have about $70 million there and I put the word about and 70 because after missing a quarter on revenue I don't want to do it again. Better news is that when we look at profit, a lot of those cuts happened after the great quarter we just had or happened halfway through, that is, they'll be effective for the whole quarter this quarter and their profit then be $3 million. Now all of a sudden we've got real profit and the concerns about our viability are going to start to evaporate. More on that later. Okay, a few bullets. Complete Solaria State. This is the bankruptcy of state run by lawyers and the Bank of America and coalition of lenders signed an agreement with us on the last day of the quarter that authorizes us to collect all old SunPower accounts receivable. Isn't that wonderful?

We bought them, we paid $46.45 million for them and now they're signing that we will agree and what they did was they hired a bill collection firm and wrote letters to all the people that owed money for the SunPower systems. We bought systems enroute working that we own and they were arguing about accounts receivable. I won't use the word unethical but I would if I weren't in a public forum. That's behind us but it delayed AR that was owed to us and we're now starting to collect that AR and that was part of the revenue problem. That was $5 million of the revenue problem right there. We joined two Russell indices. Not going to brag about it but any company that any index that people follow, they own a mix, they'll buy your stock, they trade your stock, your stock becomes better known. That's goodness.

The one I said I would come back to, we created a low cost finance center in India. The city is Chennai. We even gave two companies and they together become our low cost center for finance. We're even doing stocks there. They're pretty good. One company's called Excellencia in the British way of doing business. The company uses chartered accountants, we call them CPAs. They've got really good accounting and they're going to be doing most of our accounting work and we move jobs out. That's part of the headcount reduction I talked about. We also have a startup Mill.AI is an AI startup, high tech and they have proprietary AI software that studies things like expense mapping expense into accounts, other HR stuff for example and they take your processes and look at the manual inputs and outputs of the process and create code for an automated process.

That's our AI effort, rather than trying to hire an American, one or two guys and hoping it's going to work. This is a company and it's in our low cost center. I think this is certainly a good move for managing the company the way we want. Therefore, CFO Dan Foley is leaving SunPower. You can imagine he wasn't happy he relocated to Salt Lake. Thank you. Because cost-cutting, he lost some of his guys. He and I agreed last year that he could leave SunPower, but not before the 10-K was filed and he had created a low-cost finance center in India. He agreed to walk out the door, turn off the lights, and shut the door. Really high integrity move on his part and we thank him for that. Our new interim CFO is Jeannie Nguyen. I'll show you her picture in a minute.

I want to thank Dan Foley. He's done everything we've asked him to do. That's Dan. That's Jeannie. She's an accountant. Look at her. She took her own selfie picture. She's a happy accountant. We will now find out if she likes to eat raw meat for breakfast or not. We have a Chief Legal Officer. We switched Chief Legal Officers. His name is Nicholas Banker, Swiss origin. He writes well, he's energetic, he's got a lot of degrees. We will find out that he wants to get out of the private company world into the public company. He's worked for Kirkland Ellis. We wish him luck. Finally, we've tapped the SunPower board member, Dan McCraney, who's here with me today. He's got a background. He's been on the board of ten NASDAQ companies. I listed the seven most important here. He's been the Chief Executive.

That was the EEPROM company that spun out of Intel. He's been VP of Marketing Sales. At Cypress, he was our VP of Marketing Sales for a decade. I told Dan that his retirement time was over and he needed to, and I paid him for it, and he needed to help us out. Right now I'm going to introduce Dan and he's going to tell you he's been on the job a month. He's going to tell you what he found and what he's going to do about it. We have the most.

Speaker 0

Thanks, TJ. Hello everybody. First off, TJ, thank you very much for using a 15 year old pitcher. I appreciate that very much. Let's get to the slides. First off, I've been on this job now almost three weeks, but that doesn't mean I've only had three weeks of looking at this particular operation. At Complete Solaria, I joined the board in December time frame and from that time on I spend about 20 hours a week monitoring all of the major meetings from December to July. What I'm about to show you is not my observations from the last three weeks of this position, but really six months. I want to point that out because I think it adds more credibility if you've got more time watching this stuff. First and foremost, I've come to truly, truly like the young men and women in the sales organization.

We have a broad organization of direct, virtual and dealer as well as new homes, sales personnel, and I find them smart, find them focused, very loyal to Complete Solaria, very aggressive. I really have come to love that energy, but also pretty loosely managed. The result of that is all that energy and all that positive collaboration is not maximized in terms of bookings. We need to get bookings in order to pop up the revenue. As far as I can see right now, the total available market in solar is for all intents and purposes infinite for us. The issue is to get this team of good people, good men and women to function better and more aggressively. Here's how I see it right now. First off, the sales organization hasn't been responsible for forecasted quarterly bookings.

The problem with that, I see this back in my day I used to see this on startup companies where the salesforce was doing best efforts as opposed to having skin in the game in terms of actually forecasting the bookings along with the sales, along with the operations guys. I'm not used to seeing that with a company this size, you must have input from sales. Once you have that input, sales no longer provides best effort. They actually are accountable, truly accountable for the numbers that they're forecasting. Second, the sales management has been slow to react to changes in the industry and customer environment. This is bad all the time, but it's particularly bad in solar. As all of you are aware of, the hits keep on coming. In solar, we've had huge changes in the last six months.

It is really the responsibility of executive sales management to move fast and quickly as these changes occur. Frankly, that's been unacceptable. Individual sales personnel are not given performance targets. It's not just bookings. You've got to manage the entire funnel that funnels all the way from generating leads to driving appointments, to doing pitches with the customers, to bookings, to the final design complete and then all the way through to revenue, which is at installs. If you don't drive all elements of that funnel, you're going to find yourself waking up with a subpar performance in bookings, which we did in Q2. I'll get on to that a little bit later. Finally, the sales executives at 1099 do not effectively engage with other core departments. An example of that would be when you're doing your forecast, when you're trying to figure out what's going on.

For instance, this latest ITC ruling. The sales executives previously were not collaborating with finance, HR, operations or engineering. When you get these seminal changes in the industry, you've got to be engaged. Frankly, I found in the six months I've been watching this, there was ineffective engagement, therefore ineffective sales strategies as a result. Cost of selling is another issue. This is a very high cost of selling. I've been in semiconductors most of my life. I'm used to cost of selling being in low single digits, percentage of revenue, 4% or 5%. I'm not used to this double-digit cost of selling, but it gives us an opportunity and you take a look at where your problems are. Your cost of lead generation is extraordinary compared to the industry standard. Management is probably double industry standard. Funnel velocity is slow.

The problem with slow funnel velocity is that you end up losing orders that you've worked for months to secure. The funnel yield, which refers to how much you get out for what you brought in, is from my investigation not at industry standard. They're all poor when compared to what I would call best in class in the solar industry. Here's our corrective action and progress. It's been three weeks, so we've reorganized Complete Solaria to a truly functional organization. The advantage of that is that now the VP of Sales is on par with the top finance people, with the top operations people, with the top legal people. We can have a seat at the table, if you will, for strategies going forward.

It's also under one department, so we can have cross-pollinization between new homes, between dealer, between direct, between all the channels going into sales, and they all report directly to the CEO. We're going to recruit eventually a sales executive to drive the organization. In the meantime, you're looking at your sales executive. I want to make those Senior Executive changes necessary to improve group performance. Drive. I told you I was proud of the team and I am. There were some issues and we made some changes at the executive level on a couple of those areas, and those changes have been made. We're now in the process of replacing those executives with very good, strong young men and women who are currently inside the Complete Solaria organization. Now we create a more detailed forecast. I told you the salesforce didn't participate in the forecast.

We now have forecasts on a weekly basis, measured daily on all the important parameters that lead to strong bookings. That's leads, appointments, pitches, bookings. FDCs is another one, installs. We track that multiple times per week. The men are given a weekly bonus, a weekly forecast in addition to a quarterly forecast. Just as a brief point on that, we've been banging on that for about four weeks now, and I am very encouraged. The first four weeks of this operation, I like the FDCs, final design complete. That's our version of bookings to the factory. That's up almost 30% from this time last quarter, and I am very proud of the Mint for doing that. We need to set global costs, funnel yield, and funnel velocity goals for sales. Haven't exactly got that yet.

We've created a plan to get what would be entitlement for each of those areas. We've already started monitoring some of the basic yield issues. Won't bore you with which ones that are, but throughout the quarter we're going to add all the rest of the issues in the funnel and drive cost. We think we're spending almost twice the price per watt, effective for certain compared to the industry for certain effective ailments. Whoops. Back to that's it.

Speaker 3

Okay, so what you've heard so far, we're happy with Repado but the obvious question that I saved for the last section is, why isn't stock price higher? If everything's so great, how come. I want to address that now and what we're doing about it. There are things that can get improved that will work on multiple, so if I talk about P, I call it the P/S ratio, price to sales, market cap on revenue. When I did the slide, it was $1.81. The revenue was down to a run rate of $270 million, down from $300 million, and it's 0.54. Here we have a group of companies, small tech companies, and they have a very stable, going back through 2024, 2.5 price to sales ratio.

My company, Cypress, that I ran for 34 years, I kept the state of religiously and our average at Cypress over 30 years was 2.4. Enphase, which, on whose board I am, a very good company, is now, has come down, but they're still at 5. Now the solar industry's taking a hit and this is the leader in the solar industry, SunPower. You can see they've been ground down over the last year and they're now starting to come back as people start to think they're going to do okay. They're at 1 and here we are banging along at the bottom. That's good news and bad news. The bad news is the low share price today. The good news is, in addition to growth raising share price, we can also have multiple. There can be two factors multiplying each other. Okay, so why is that?

This is a screenshot of our stock price back here. We were up at $2 and sometimes over $2 when we reported our first profitable quarter. I thought I finally broken out of the morass. That happened. I thank shareholders, by the way, for sending the information. I really appreciate it. I got this. The day our risk factors were published, the day our risk factors were published, we published them after market closed. That very day we had this problem. I read the risk factors and they weren't, they were too aggressive. The lawyers were, quote, protecting, unquote, us too much. For example, I read in my own risk factors that we may not achieve profitability. Go back to page one and it says, Complete Solaria makes first profit in four years. We do have vulnerability. There are risk factors. We do have a going concern.

I'm not arguing that, but that's overkill. From now on, TJ is going to be involved. TJ's going to read it. TJ's going to redline it. By the way, the benefit for you is when you see the risk factors, they're real. I left them there for a reason. Okay? Underlying this, this is a. Of course, the House ITC bill hit. This was the first announcement, and there are several hits for the House ITC bill, but this took us down to a little over $1.25. There's nothing you can do about that. Underneath this statement of risk factors are the risk factors themselves, and that's profitability and cash flow. Like I said in Q3 2025, we intend to have a third consecutive quarter profit and it's likely to be the highest profit in the current run. Dollars, 10%. Next point.

We are working hard on acquisitions to grow inorganically. You just heard the story about how we plan to get more sales by selling more effectively. With a 1,000 person salesforce, we ought to be able to do that. We're working on inorganic growth. I can tell you that I've been to the negotiating table three times in the last four months and I'm still talking to all three of those companies. I haven't bagged one yet. I'm going to bag one. We're going to make this happen. At that time, I'll come back to you and ask you to fund that acquisition, whatever it is, and I'll tell you the story. Okay? Here I'm bitching about bad reporting by stock services. If you go to Market Watch, and by the way, pick them because they're the biggest and most famous, they all have the same problem.

You go right underneath the stock graph, you see another green energy bust. August 9, 2004. This is the old Sunflower. Sun PAR files for bankruptcy. Sun PAR stock falls after company files for bankruptcy. Sun PAR files. This is the first four things you see. My complaint was, gentlemen, why do you have your bots keep digging up dinosaur bones and beating us over the head with them? To be completely fair, I complained about that one other time in invitation to this meeting. I griped about it and Market Watch printed it. I'm hopeful they're going to work with us and clean up the same. I actually have investors call me and say, gee, I wanted to invest in Complete Solaria, but you know, you guys are right on the edge of bankruptcy. I'm not going to invest. No, we aren't on the edge. We want bankruptcy.

Now look at the date. Now look forward. Okay, that's all we got. Questions?

Speaker 1

Thank you, T.J. We will now begin our Q&A session. As a reminder for those joining via the web, you may submit a written question via the submission box located on the right-hand side of your screen. For those joining via live Q&A, please click the raise hand located at the bottom of your screen within the black bar. When it is your turn, you will receive a message on your screen allowing you to speak when your name is called. Please accept, unmute your audio, and ask your question. Our first question today comes from Derek Soderbergh from Cantor Fitzgerald. You may go ahead.

Speaker 3

Yeah.

Hey, thanks for taking the questions. TJ, on your call recently, you were talking about the ITC being eliminated. You spoke to the fact that the industry has been bloated with cheap capital, propped up mismanaged companies for the past two quarters. Here, you've proven that you can achieve positive operating income despite some of these challenges. While you guys are generating income, your peers are going bankrupt, some of them. How can Complete Solaria benefit from surviving this cycle? When might we see some of that organic growth coming from, in a sense, a less crowded industry?

Okay, think about my pitch. We made $2 million, $2.5 million last quarter. This quarter we're going to make $3 million. We're a public company. You're private. Your cash flow is zero or negative, and you're not public, so you have no liquidity on your stock. What if we work together? By the way, we have a good organization. We are starting to have structure. That means you can join the organization and join something that is going to be run well, and you can run your own division. You have to conform to our accounting rules, et cetera, et cetera, and you will get some help. We have a good legal group, etc. We do accounting in India, so you can save money there. Let's work together. By the way, I'm 77 years old, although right now I'm in full war mode and I'm actually enjoying myself.

I'm 77 years old and I ain't going to be around a year from today. I won't be there. You might be the guy to replace me. What do you think? It's a compelling pitch. It gets more and more compelling as the economy gets crappier. That's why I use the famous Martin Luther King quote, free at last, Lord God Almighty, free at last. When we got the government, I fought the hell out of solar. We can just run companies and compete in a free market. Right now that's happening for part of the market. It's not happening for the other part. I'm most worried about, actually. Everybody would say it's important that the safe harbor. You want to induce a company to poor practices, give them a safe harbor, let them buy equipment for the next year, put it in the warehouse so it can start aging.

It's like buying a year's worth of lettuce, okay, it's not going to be good by the time you need it. We're not out of the woods yet, but I believe the solar industry surely will be better off. We have all this help from government in our industry and it costs you $3 a watt, $2.75 a watt to put solar on your house. In Australia it's $1 a watt. In Europe it's $1.5 a watt. If we have free markets and a free economy and we're America, how come the consumer's getting screwed? The answer is all of these games. The Monday morning pronouncement about what's going to be tariff and what's not, all of that is the friction in the economy that needs to go away with the ITC. That's more important than Joe Blow's P&L.

If you want to be around, just make your P&L nice when it's gone, then you will win.

Speaker 0

Can I add, Derek, a couple of things on the Complete Solaria sales organization? As large as it is and as much as it's been around and punching, there are certain areas where it is below critical mass, and those areas happen to be the biggest positive potential future growth. Even with the ITC ruling as an example, the states of California, Texas, and Florida are going to continue to be robust even during this ITC operation. Complete Solaria does not have a very large direct presence in Florida, and it has a very poor presence in California and in Texas. My point is that we could take some of our energy and some of our personnel currently at Complete Solaria, redirect them into those critical states, and have an opportunity to attack areas with a large total available market for which we are currently doing very poor.

I think one of the ways we can pop up revenue is, if you will, reallocation of our precious sales resources into areas that have a high TAM even in this ITC environment.

Speaker 3

Got it.

Super helpful. I do want to touch on the business here. I think there was a mention on the call here about the backlog, up 30% from last quarter. I was wondering if that's the case. If so, what's sort of driving backlog today? Which area of the business? Can you just talk a little bit more about that backlog growth?

Go ahead.

Speaker 0

Yeah. The biggest thing that's happened now is we have three fundamental divisions inside Complete Solaria. We have what we call the direct business, then we have new homes, and then we have the virtual business. The thing that popped us up last quarter big time was the direct business. As a matter of fact, I just looked at the numbers. We had a terrible book to bill in Q1 2025 of 0.8 book to bill. That's actually because there's about a nine week lag there between when we book it and when the factory ships it. Nine weeks, you can kind of see your future in front of you. At a 0.81 book to bill, that explains the reason for the poor revenue we posted in Q2. Fast forward to today, our Q2 book to bill was 1.2. Strong growth in that.

It has nothing to do with me since I only came in four weeks ago. It has everything to do, I think, with the spirit and the aggressiveness of this young sales organization who popped back up strong in what we call the direct business, which is selling directly to the homeowner. We also had, for the first time, some regrowth in new homes. New homes was more abundant going back to Q4 2024 from a bookings perspective, and they had a very strong first quarter out of the block. That's what was contributing to it. As I said, if you take a look at the first three weeks, actually the first three weeks and one day since I just saw yesterday's numbers this morning, we are continuing on that strong booking path for both new homes as well as direct.

Speaker 3

More comments. When I'm looking for companies, I'm looking for new homes companies. That's our most profitable division. That's the $1.6 million of revenue per employee. That would be an acquisition. The specific acquisition I'm after also got to talk about batteries. In Europe, in the Netherlands, we talk about NEM. In California, the net electricity metering. When solar started, the way it worked was if you imported power into your house, you paid for it and there's a tariff for it as a function of daytime. If you had excess power, then power would run your meter backwards literally and you would get paid for it at the going rate. NEM cut that going rate to $0.05. Now exporting power in the middle of the day doesn't cut it. The reason I mention the Netherlands is their midday export rate is negative.

They charge you for taking your junk power away. For obvious reasons, at noontime we have extra power. We're now up to 4 terawatts of solar and within a couple years, it will be the largest source of power on the base of the earth. Store the stuff. The short term thing is if you want to sell some solar, you go to a guy and say, look, we'll give you a battery, we'll sell you a battery, you hook it up during noontime when you can't get anything from your power. You charge your battery starting at 4:00 P.M. and they start screwing you for $0.50 a kilowatt hour, then run off your battery. That's called a grid type battery. It's the cheapest of all batteries and you don't need a big one. It's the smallest and cheapest.

That is taking off now because you only need enough battery power to run one house from 4:00 P.M. till midnight. Think about 5 kilowatt hours is plenty. Even if you need a little bit bigger battery, it doesn't matter. You get 5 kilowatt hours at $0.50 a kilowatt hour, $2.50 every day times 7, times 52 and that number adds up. Batteries are becoming important and from an electrical engineering point of view, store it during the day and use it at night. The growth of the battery market exceeds the growth of the solar market. We're pushing on that now. Dan said our salesforce is slow to change. My first talk to the salesforce was in Scottsdale, Arizona last January and I gave a one hour long lecture on batteries, why they're good, why they need them and we're not selling enough.

The second point is our deployment tends to be Midwest stripe across the country, loan financed, no battery. We need to change that, and that means we need a presence in particular in California. Number two, I need a company that is strong in California, and Complete Solaria is not strong and has never been really strong in California. That's my shopping list. I'm in continuous communication. My next phone call to a guy who runs a company is what time is it now?

Speaker 0

10:50.

Speaker 3

One hour, 10 minutes. Eventually I'll score because my arguments are becoming more compelling. I'll ask you for some money to make us bigger.

No, that's helpful, T.J., and you brought up batteries. I'm curious how much that changes, you know, if you have batteries in the platform, in the offering, how much does that change the economics of your average agreement? Is it 20% higher in terms of revenue potential? Any change in gross margin? You know what, having batteries, how does that change the economics for you guys.

The first order, we'll get the same gross margin. Then how much more gross profit dollars is the, what was called in the industry the attach rate? Right now the attach rate in California is literally 95% because of that time shifting argument I gave you earlier. On the U.S. it's approaching 50%. We are at 14%. You can say bad performance and I'll say yep, but you can say major upside. Think about it, you don't go to more sites. You simply effectively sell a battery when you sell a solar system. We're floating on solar systems right now. Again, a 1.14 multiplier. We need to quadruple that number. To do that I hired the head of the battery division from Enphase. Enphase is one of the two most important manufacturers of batteries in the United States, the other being Tesla.

I hired their top guy, he ran a 300 person division making batteries and it was all about batteries, all about subtlety, saying he's a good businessman. I had him sitting here last time. Yes, batteries will make a difference. The answer to your question is 1.3x on its way to 1.6x over time.

That's pretty meaningful for you guys. Just a quick one on gross margin here. I think in the press release you noted the company's focusing on high margin business, and T.J., you mentioned new homes as one of the most profitable parts of the business. Was curious if that was the case, the reason for the higher gross margins. Just again wondering how sustainable gross margins are here. Can you talk about that a bit?

I come from the chip business, and what you look at is your gross margin every day to see if you're going to make it to the next day. I'm paranoid about gross margins as a way of doing business. We have fortuitously high gross margins. How do gross margins get high? You're big enough, you can buy equipment cheaply, and we're going to get better. We're going to amortize that overhead more as we grow above $300 million. The other way to have good gross margins is don't have so many people on the arc. It's real simple, because a lot of people are in the gross margin. That's a byproduct of what we've managed in the company, and we're exemplary at that. We're going to get better. We're going to be killer to compete against in the market with our gross margin.

Now, having said that, I want to be completely transparent. A lot of the Complete Solaria business we inherited was delayed because of their bankruptcy. We've got some juicy contracts. If they were rewritten, they wouldn't be quite as good. Part of the incremental gross margin, when we said we focused on areas for better gross margin, were to fulfill old Complete Solaria orders, and that was worth several points of gross margin eventually. That means in 2026 we got a lot of money out like that in front of us. Eventually in 2026, we'll go to "normal" gross margins. For me, that's 36%. Got it.

That's super helpful. I'll hop back in the queue.

Speaker 1

Thank you, Derek. We have a few coming in from the web. The first one follows on to some of what you were saying. Based on comments regarding new homes, are you able to quantify how much accounts receivable revenue you are seeking to collect that has been pushed into Q3 in the second half of the year, or are you able to provide any amount of guidance on that impact?

Speaker 3

I'm able to provide guidance given that I got a daily report and I read my morning report this morning, and the answer is I got $16 million that either we're going to collect in Q3 or there are going to be some people in trouble. That simple. There's more for Q4.

Speaker 1

Thank you. The other one we have here is can you please provide an update on the impact of the ITC macro environment on Complete Solaria's business? Is it too soon to really know what a rational base run rate for revenue would look like?

Speaker 3

I picked the frozen eyebrow picture to tell you the effect on the business right now. If you want one visual, remember that it is cold enough. Your eyes really can't breathe shut. Going forward, we have been an $80 million company. We're going to bounce back to that number. That means I got to get $13 million to get back status quo. I was planning on getting $13 million to go from $80 million to $93 million. Now starting back at $80 million again, which, by the way, will be really profitable when we get back there, we're going to acquire that. That's what we got to do. I went through my pitch.

Speaker 1

Thank you. The other two questions appear to be redundant things you've already addressed. That looks like that's all we have in the queue today.

Speaker 3

Thank you for watching our presentation today. We appreciate your support, and we appreciate your investment.