Good morning. I would like to welcome everyone to SunPower's 2Q Business Update call. A few housekeeping items before we start. Please note today's presentation may contain projections and other forward-looking statements. These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ from those expressed or implied in our statements. Also, on today's conference call, we may discuss certain non-GAAP financial measures. A reconciliation of any differences shown today between those non-GAAP financial measures and the most directly comparable GAAP financial measures will be made available with the publication of associated presentation materials. As a reminder, this call is being recorded today and will be available later on the events section of our website. We will hold a question-and-answer session after the end of formal remarks today.
For those watching via the webcast, you may submit a written question at any time via the submission box located on the right-hand side of your screen. I will now turn the call over to Mr. T.J. Rodgers, SunPower's Chairman and CEO.
Hi. I'm T.J. Rodgers, SunPower CEO. Next to me is Will Anderson. Yep, thank you, is Will Anderson. He's on our board. He's also the founding CEO of Complete Solar. And the reason he's here with me today is we're addressing the ITC problem, and that requires statistics and analysis. Will is an MIT grad who's also got a Stanford MBA, so he worked with me and helped me out on this stuff. Okay, here we are. The question is, and people have started to address it, what are we going to do about the ITC loss? Here's my answer. The written answer, including the analysis, will be published today or tonight and be available on the website. It's about a nine-page paper.
Okay, this is the first page of the document, and it's my comment on the ITC loss. That is really commenting on the pending legislation, which is in flux, and in an administration which is in flux that may wind down or kill the ITC. I thought carefully about that. Everybody's going, "Safe harbor, safe harbor. Let's buy a lot of stuff. Let's do this, let's do that." After I thought about it, I actually changed the subtitle of this pitch four or five times until I found something that I really, truly believe. That is this: "Free at last. Thank God Almighty, free at last." That, of course, is a Martin Luther King quote, and it's appropriate to describe the opportunity facing the solar industry. We've been jacked around since 1978. We turn on and turn off. We turn off tariffs.
I remember, one time they turned on a tariff, and then I had to—this was two, three years ago—then I had to pay for something that was not there yet. The company I was in actually went out of business, and we asked for our tariff money back, and they still have not given it back to us. We are having to use lawyers to get it. That is not business-friendly. We do not want to work with them. We do not want to get their permission to do stuff. I am just happier than hell that that is where we are headed right now. The question comes, can you live in a subsidy-less world, a world without corporate welfare? The answer is any day of the week. That is really what I am going to talk about.
When I started this, I started the next three pages with, "I survived two waves of government subsidy." SEMATECH, I was a semiconductor guy. I ran Cypress semi for 34 years, $2 billion, 5,500 employees. I went through SEMATECH, and I wrote all the bad things that happened on a subsidy that was supposed to help the semiconductor industry, which absolutely did not. The biggest supporter of it in Silicon Valley here was Intel. They went from the number one or number two most valued chip company to off the top 10. They had always been ahead of Advanced Micro Devices. Advanced Micro Devices dumped their fab and the subsidies and all that and just ran a company right and took share from Intel and they are number five on the highly valued semiconductor companies. Now, I'm not going to go into that.
It turns out I started writing it for a long time. Then I realized it was long, and I sent the middle part of this presentation to The Wall Street Journal. That appeared yesterday. All the stories I'm not going to tell you today why welfare for companies is bad, I have in there. If you want to look at it, the highest level is—actually, I have one thing in here to tell you that sort of summarizes it. When you get subsidized, and this has happened to us, and it sure happened in Silicon, and it is happening in Silicon again with the new CHIPS Act. You start out with free money. Everybody runs for free money, talks about what they're going to do with it. Then you find out the money's got political strings.
The political strings make you find out where you have to live, how you have to work, what regulations you have to live with. They are always bad. The deeper you get in, it is like a fly in flypaper you cannot get your foot off. I am happy that the solar industry is going to go cold turkey. I hope. I hope it does not fade out for a long time. I realize I am at odds for that. Okay, enough about semis and my philosophy of life. I am going to tell you, and I know many of you know this, please bear with me on three slides. It is not a big deal, how we are put together, and because that is a part of why we are going to not only survive but prosper in an ITC-less world.
Our company was built on what I dubbed the ARK merger theory. It is nothing but a Silicon Valley startup when you can use the remnants of a corporation as part of the startup. In the case of SunPower, SunPower is trying to borrow big money to save itself. That would have killed them. They died because they had $500 million worth of debt they could not service. They wanted $750 million more. Their banker said, "No." Their credit went away, and so did they. We bought their assets. The ARK theory is different. It says, "Start out with what you have got that is valuable." It is like a startup team or an idea or a patent. Your old company has great assets. Get venture funding for those assets. In our case, what we needed was $80 million, and that is all we have—for the last year, that is what we have gotten.
Build a new startup organization around them that can make a profit with the assets you have. In my case, I can jog to Sand Hill Road literally in eight minutes. My statement was, "Let's take the SunPower assets. They've got great assets. They've got great technology. They've got a great customer base. They've treated their customers well over the year." Toward the end, it's a little shaky, but they treated their customers well. Let's grab that, get enough money to run it, take only enough money, and build a company only big enough to be profitable with the assets we can get. We bought assets for $45 million, raised $80 million. My friend in the venture world helped me on that.
I needed to create an image that told our employees, who were spoiled employees in a too fat company, we're going to get lean. I used ARK. The idea is, of course, you get on those ARK. If you're on the ARK, that's good. If it starts raining and you're not on the ARK, that's bad. It turns out on day zero of SunPower Cyprus, we had 3,499 employees, 3,500 employees. I could handle about a third of them. I did the calculation of the weighted average cost and revenue per employee, and I calculated. I needed a crude number. Obviously, P&Ls are very refined, but they don't work when you're trying to tell somebody where we've got to go as a corporation. I did a calculation. We can have 1,225 seats, and I made a business pitch.
Now, this is a private placement. My company had been dying. This was a loss of funding, really. I promised them I'd give them a $100 million quarter. I worked with SunPower. We did a plan. We did five revs of the plan. They believed we could do 154. I pushed on them to be more conservative. In rev five, they said 120. After that, I cut it by another 20. I pitched this. This is the slide that raised the $80 million. There is the date back when that happened. Our first quarter came out 80. When the dust settled, the assets we had brought an $80 million quarter. Nothing to be ashamed about. That is a $320 million company. We grew by a factor of 15. That was Complete Solar at that time.
We had a company with 65 people acquiring 1,000 people from SunPower to have a 1,225 company. By the way, I was serious about the number of people the ARK can handle. When they drop from $100 million per quarter to $80 million, I dropped from 1,200 seats to 980. That is our current operating plan. We have already beat it. I will talk more about that later. We are talking about this. I am not going to talk about it, speculate on it. I do not care what the Senate does. I cannot afford to care what the Senate does. I do not care if President Trump has a good or bad opinion of it. I really do not care about any of that. What I care about is having a viable company that I am proud of and employees that are taken care of and a company that can earn money.
The question is, with all this crap going on that is distracting, what are you going to do? Okay, here's where my friend Will comes in. This is a graph, an elasticity graph of demand versus price. Here we have megawatts of solar. Okay, so what's that mean? 1,000 MW at a dollar is 1,000 million watts, is a billion watts at a dollar each. At a dollar each, that's a billion dollars. If you say the average solar watt is $3, then that's $3 billion. You can make this thing 3, 6, 9, 12 in terms of end market eventual revenue. This is dollars per watt. You take a typical system in California. How many watts?
Seven.
7,000 W times three bucks a watt is $21,000. Maybe four bucks a watt because pricing is full retail, and they do stick it to you for that sales profit. Okay, this is what happened. These are all data points, and they're annotated with a year. All of a sudden, you're not looking at trends over time, which everybody gets—I mean, look here. This is 15 years of your life. You live that one year at a time. That becomes reality to you. What if you back off and splatter it on a piece of paper? What does it tell you? It turns out it took me about four days working with Will to figure this thing out. First thing, I thought, this is a hyperbola. You think it's one over X, and a hyperbola has that kind of curve.
It says volume takes off when price goes down. When the price goes up, volume gets crunched. That kind of makes sense. There are hyperbolic fits you can put on it. We could not get a good correlation coefficient. We said, "This looks like two different realms, two different curves." We started looking at recent times, which form one curve, which is like vertical, and another curve, which looks like a classic curve where when the price goes up, the demand goes down. Although in here, you would have to correct for time as well. It is what it is. The first thing we did was we put least squares lines through it. This is the—let's look at this regime right here. The least square line looks like that.
You say, "Okay, really high demand." Your next thing says, this is a Pearson product-moment correlation coefficient. It says the percent of the variation in the Y data that is dependent on the X data. Typically, you like that to be 0.85 or higher. It is 0.06. This says Y has no relationship to X. If you believe statistics, it says, "Stop talking about it then, because that's not the problem." By the way, if it is not correlated, it sure as hell cannot be causal. You have to be correlated first, and then you may or may not be causal after that. You look at it and ask yourself, "Obviously, it is bullshit because this has a positive number." That means as the price goes up, demand goes up, right? This line slopes upward.
Okay, which demand curve do you know where if you raise the price, the volume goes up? When you get all done with that, you realize we're not dealing with a standard demand curve here. You have to account for that. The way we did that was we looked at the data. There was a realm of high shipment, didn't matter the year, that was from two to four to seven megawatts. It bounces up and down. It actually was down last year and it set a record the year before that. We also noticed that if you look at the price column, the prices were within 35 cents of each other. That reiterated what our squared said, and that is price doesn't matter. How do you account for that?
The answer is, "I don't know, but I have a way to look at it." First of all, this is a free-range market. By free range, I mean you wander anywhere in a range. It's a pasture. You wander anywhere you want. You're not driven in one direction or another by price because price does not matter in this curve. I picked a box. I picked the tight prices that define the box and then the relatively wide range of demand on the box. I said, "In effect, in this box, on this graph, we're not dealing with some curve you got to deal with. We're dealing with you got to be in the box." The box is reasonably tight in price at a moderate price. It widely ranges in volume. We looked at it.
We picked last year's volume, which is down. Therefore, might be expectations expect the starting point here. We picked the highest price in this narrow range of $3.65. This is the starting point. The assumption is, "I can get to that dot without a lot of pain." I got to start paying. How do you pay? You pay over here, because this curve is a classic demand curve. There is a slope, and it says, "For every buck you raise the price per watt, you lose 584 MW of demand in the year." There is that one. You start there, and that puts you in the free range. That is a reasonable assumption.
If you move away from there, which you have to because that price is not good enough, you have to go higher than that to get rid of the 30%. I will show that in a minute. You figure how much it pays to go from that point to where you have to be in order to pay off the 30%. That math is pretty straightforward. You have the ITC is 30%. This free range price is 10.6 points above the latest price of $330. It is 10% above it. The other factor, pay factor, is 17.5%. You have to take 17.5% times that sensitivity and calculate how much the price goes up. If you do that, you take $330, the last price we have, and it is not going up by 30%, but it will go up by 17.5%. That is $388.
The wattage will be 4,742. This is the basic assumption of our plan. Of course, you can't prove it. The only thing that'll prove you're wrong is after you've been screwed and you look back and say, "Yeah, we should have done this or that." It can give you some parameters on what you have to do to stay alive. That is what the second part of the analysis is. What do we have to do to not stay alive, prosper, gain share, be a more important company? This is our standard P&L. I used it at Cypress for years. I had seven divisions that made seven different kinds of chips. To keep track of all of them and manage them, I had to have a form where I could eyeball the form. This is the upper left-hand corner of that form.
It's got other parts to it. I could walk into a room and have a meaningful operations review. All right, so here's last quarter, actual 2,125. This is five quarters. You can always look over five quarters of history and see if there's a discontinuity you're predicting. Then say, "If you can't tell me why there will be a discontinuity, then don't tell me there's going to be one because I don't believe it." Right now, what we've consistently said is we took an $80 million per quarter business. That's what we bought. By the way, we bought it for $45 million. That was a really good deal. $320 million business for $45 million. I'll come more to that price-to-sales ratio thing later. Now I looked at Q2. If I forecast where we're—this is our current guidance.
Then I run through the P&L. Not worth doing here. Here's what I do get from this. This is a vector that goes down for another page. We declined from 1,000 people to 909. We started out, as I said, at 3,500 total candidates. We have ongoing cost reduction. That ongoing cost reduction looks like dropping from OpEx, not counting commission, real OpEx, paying people, $42.8 million- $19 million- $12 million- $11 million. We have ongoing cost reduction. Into that, we insert $80 million. Is that a given? Yes and no. That's what's in our plan. I can show you a sheet five times more complicated than this on the 13 things we're doing as we speak to make that plan. I pick up the newspapers and I read about some finance company having a problem.
All of a sudden, you think if it's a big, wide problem that you're in the midst of a culture of that, then you're a cork in the ocean. You're going to move with it. Right now, that's our number. That's our guidance. It's been consistent. There's Q4 of last year. There's Q1 of this year. There's the current guidance. That I know about. That I can control. That's one thing I like about no ITC. I now can start managing the corporation. That gives us an OPENC of $2.2 million. We've recorded this number if you look back. I have history going farther back. This number has been negative. Look at those numbers for a long time. The profit we did last year, last quarter, $1.3 million was the first profit some firm made in four years. I am very proud of that.
Now, if I run the numbers, we've cut our costs enough that the same revenue will produce more profit. I want to say to you, model, not guidance. Model, not guidance. I'm showing you how I think and why I do what I do. When it's guidance, I'll let you know. This is not guidance. I'll show you guidance in a minute. This is the same data graph. This is the old company. This is the first quarter of $80 million. I've already showed you $80 million in the $80 million here. There's the revenue for SunPower. This is old Complete Solar. Our profit, this is the sum of losses of the companies the quarter before we merged. We merged right in that crack right there. That was - $40 million. The first quarter, we got it to -$5.9 million. I inherited three divisions.
I shut down one of them. I now have a two-division company. We're lean. We're down to 900 people. That was Q1. We finally made a profit. Already bragged about that. That's guidance. I can tell you why it's guidance. When it comes to Saturday and Sunday of the last week of the June quarter, that's work week 26. As soon as I see $1.4 million, I'm going to tell the troops to go home and enjoy the weekend. That's why that's guidance, not the theoretical that I showed you before. All right, there's the trajectory of profit. Of course, the question to all of us is, in this presentation and another presentation, I'll address how does this get bigger and what's the fall through to make that bigger. That's a much more fun topic.
Right now, I'm just saying, are we going to lose this? I've had people ask me. I was on a call the other day. The guy said, "You're a medium-sized company. In this environment, medium-sized companies don't have the staying power." I go, "Okay." I gave him all the reasons why I thought that we had thought about that. We had plans for it. He said, "Yeah, I understand that. But you're a medium-sized company. In this environment, you don't have staying power." He repeated the same question four times. I disagree. He's a shareholder. If he's worried enough to ask the same question four times, that's real. I got to deal with it. That's simple. What I've done here is you'll recognize the numbers here.
This is all the stuff I've showed you up to this point. I started with the forecast for the quarter we're in. This is a model, not guidance. That's why it's in the title. What it says is, when revenue goes down and it crashes for reasons you can't even articulate right now, maybe your prices are such that they're high and you don't get as many orders. Maybe the market itself is smaller. I didn't address or speculate on that. It's like speculating on the ITC. You're guessing. What I said was, how bad can stuff get before it screws our shareholders and me? I own 30 million shares. Okay? By the way, my 30 million shares have an ASP over the years that I bought in of $3.
If you want to understand where I think the thing's headed, that's the statement that's louder than words. Okay, let's see. In this case, instead of doing the $80 million guaranteed quarter, what if we get hammered to $75.6 million? Then I go through all the numbers. Then I come down to the profit of $1,446. Whoa, what a surprise. That's my guidance for profit. It's about $800,000 less than what I think I can make in the model. That tells you how this stuff fits together. By the way, we're a small company, but we have really good financial planning and really good financial planning and analysis. We got Cypress systems that worked on a seven P&L company in the semiconductor business, which is more complicated. We've got people from McKinsey that are really good.
They're the same group that helped turn around Enphase. I'm not telling you. I can't brag too much about how great these numbers are because one of your lawyers will get the snippet from this little talk and decide that I hyped it. Let's just say I've looked at these numbers eight hours a day for four days. It's the best I know how to do right now. I will admit that I've screwed up before. All right, what I did then was I started dropping the revenue up here. I actually have programmed this. In this case, we're at nine. We go to 897. This is you trim the company a little bit. The team has already taken the hit of getting cut a lot. You leave them alone pretty much, tweak up a little bit.
You put revenue in here until you aren't willing to lower it anymore for various reasons. This one was picked to say what target we have to hit to make more profit than last quarter, even if we don't make more revenue than last quarter. That's how that target was picked. You look here and you look at the operating income. You look at the operating income. These numbers are all like a raggedy, I'll call it a raggedy zero, where we dropped these things. This one we dropped to $71 million because it was in Q1, the January, February, March quarter, which is always a crappy quarter. This is what it looks like if we get hammered from an $80 million run rate to these numbers. I was pretty happy with it.
I said, "We got to do something here to bolster that up." The next thing I said, "Okay, so I talked about that. And I talked about that." The next thing I said was, "Let's trim the company up." We did another calculation on where we could be. We believe we can be at 820. If I had told the 3,500 people, 3,499, that they had to get to 820, they would not have joined the company. The team that got to 980 and 909 right now, they understand tight is actually better. They are more efficient and they are better, more powerful than they were before. They can see that, maybe a little apprehensive.
In this plan I've done now, I take 901 and I go through a gradual rationalization of the organization, no layoffs, but tweaking this group, that group up and getting down to 820. That's the one change plus headcount reduction of the model I just showed you. There's the $75 million that I talked about. There's the 71 in the bottom quarter. There's the headcount count. There's the revenue again, the same revenue. There's profit. In this case, we can still beat last quarter's profit, which is my target. I'll give it up in a minute to be profitable if I need something to need something to run forward.
You can see we can make in this mode, this would be at the bottom, acquiring nothing, having an industry that went in the doldrums all the way to the Q4 of 2026. That is what I see here. Right now, I can stand in front of our people and say something unless something catastrophic happens. This would be a financial dislocation of some sort, not even bad orders. This is where we can go. By the way, 71 is no longer the bottom. The translation, the bottom line, OPENC to top line, when you consider all the cost in the middle, including commissions, is about 5x. That number of $1.3 million times five is $6.5 million, meaning the break-even number here is about $6 million lower than that number. I did not show that.
I sure as hell do not plan on going there. That is my guard band, if you will, shown as profit here going forward. Okay, if you run the company so well and if everything is so tight, why does your share price suck? I have a new topic here. Our share price has been very disappointing to me for the whole year because I feel our reports, our progress is outstanding. We went from - $40 million to a profit in 180 days, two quarters as a company. It is real. We report OPENC, not EBITDA, and all that kind of stuff. Here is one of the problems. This is a measurement of the problem. I am going to show you two causes for the problem and tell you what I am going to do about them.
Okay, this is a group of companies that includes High Runner, Sunrun, HORRIBLE COMPANY, Sunnova, very high runner Enphase, SolarEdge for Solar. It is a mixture of energy companies in the solar space. They have an amazingly, so now I'm looking at price-to-sales ratio. They have an amazingly constant price-to-sales ratio. If you're in high-tech renewables, you take your revenue, multiply it times two, and that's your market cap divided by your share count, and there's your share price. That math works. Now, the solar industry has been hit harder. If you take Sunrun as being sort of the flagship company of the solar industry, it has been, while Cleantech has been hanging in there, the best solar company has been ground down. They're now starting to climb back, but they're at half, a little bit less than half. Okay, so get that. You're $320 million.
One times $320 million is a market cap of $320 million. You have 80 million shares, stocks of $4 stocks. Why is your stock down to $4? Very simple calculation. The answer is we've been down after the announcement of the ITC. We went down as the lowest multiple of 0.3. We've been there before. Just keep, no matter what kind of news you have, you just keep bouncing along the bottom. That's a frustration for me. I want to show you that frustration as a picture. Then I'll come back. Guess what? I put it in this morning at 6:00 A.M. It didn't stick. All right. The picture I was going to show you is a picture of a share price right after we got rid of the private equity guys. Our stock popped to $3.
Over the course of six months, it dropped back down to a buck and change. That really frustrated me. It turns out it's now happened four or five times. What happens is we have good news, good quarter, made the profit for the first time. These are good news items. Stock pops. Then over the next, sometimes it isn't even a couple of quarters, sometimes it's a few months, it drops back down into the doldrums again. I believe there are two reasons. They're both addressable. Here's one. This is when the stock bottomed after the announcement of the House ITC bill. This is just a week ago, two weeks ago. If you look at what happened to us, everybody took a hit there. Yet we went down and stayed down. Here's what happened to us that I noticed.
I thank you guys when you mail me emails. I had a guy in England mail me and say, "No." No, in Asia. He was in Hong Kong. He mailed me and said, "You know, your stock went down when your risk factors came out." I go, "Huh?" Our risk factors came out as part of the 8-K or, excuse me, the 10-Q later than that. It turns out they come out the day before in Asia. When our risk factors came out, that is when the 8-Q became available. Somebody in Asia dumped a bunch of stocks. There is one problem. That is what I will call the double whammy, where we are subject to normal market forces. I now believe our risk factors, which I have never paid attention to ever in my career, matter. I read the risk factors.
It's a relatively appalling document, like reading the warnings on the back of a medicine bottle, where lawyers give a long list of maladies that the medicine could cause. If you go to court, you have some defensive warnings right there in the back of the bottle. You read it. The risk factors have gone to an art of almost sadomasochism, where lawyers outdo each other saying bad things about their own company. The newest trend is that it's said in the first person, "Me. I don't think we can make it. There's no guarantee we'll ever be profitable." I put in my head, my asterisk pops up and says, "Other than the last quarter for the first time in four years, there's no guarantee we can be profitable." Normally, it is like the back of a bullshit medicine bottle.
People normally ignore it. When you have a solar crisis and you have a solar company and we are thinly funded, I'll use that term, thinly funded, then all of a sudden you read those risk factors and they look pretty scary. That is one problem. The solution is obvious. Get rid of it. I am going to do that. They are going to be rational in the future. People who do not know anything about risk factors or us read something that is said properly and honestly. I will sign up for it. I will put my name there so they know which number to call if they do not like them. We are going to get rid of the need for respect, the risk factors that we have a going concern, right? That is sort of a classic airtight lead shield risk factor.
There's no guarantee we're going to make it. Now, it turns out those words sometimes are used for real. When SunPower had no money left, couldn't buy panels, therefore had no revenue, and you extrapolated their cash down. I was in these meetings, and they had less than a month of cash left. That's a going concern, and that's real. On the other hand, if you ask, "Are we a going concern?" You bet you ask we are. The language should be different, and it's not. It's boilerplate. I bitched about it. I apologize for it. I will work on it. The main thing is to get the company funded well enough that we have among the list of things I now understand you have to have enough cash so that nobody can say that some disruption will put us out of business.
This one, nobody can do anything about. This is the Wild West show I talked about. Oh, here it is. Here it is. This is the—no? Yes. This is the graph I was looking for before. This is back when we got rid of the private equity debt. Stock popped to $3. Then it came down from $3 over a period of one, two, three, a quarter, a little over a quarter. This kind of pop, relax, pop, relax has plagued us for our entire life. I think factor number one is that risk factor. Factor number two is here. One of my friends said, "Should I invest in your company? It looks a little risky." I go, "Yeah, you ought to invest. Stock's really low. Invest." The guy, he was a banker, and he had people, and he did a little analysis.
He came back and said, "Too risky." I'm thinking if a guy who knows me doesn't invest, how about it? You take 10 guys who don't know me, don't know the company, then I'll be one for 10 on the yield for that. I mean, if I go in and I read after, and by the way, these are my red pen lines on screenshots that are from last week, "Announcing bankruptcy and delisting from the Nasdaq Stock Exchange." Okay, which SunPower are you talking about? The one I have or something that happened more than six months ago? Normally, if you say something bad about somebody and it harms them, you go to court. It's called slander, and you pay damages.
In a financial case, if your market cap, my market cap goes down because of something you said that was proven not to be true, that's bad news for you because typically in financial cases, the numbers are significant. It turns out there's sort of a bot slander, that is a robot slander, AI slander, exclusion of that if it was true at the time you said it. If you bring it up and it's no longer true, it's not your fault. You get a get out of jail free card. I don't believe that. I don't believe that's law. I don't believe that's proven. We also have ordinary slander. End of the line. Okay? Why is SunPower stock so low? This is a classic AI bot answer. Announcing bankruptcy and delisting. Okay?
When you look up consensus rating of a strong sell for SunPower, this is even worse, where instead of being an historical statement that's no longer true, this is a forward-looking statement that purports to be true in the future. Currently, it has a consensus rating strong. It's not true. We don't have that rating. Okay? This is what I call bot slander disguises forward-looking. Recent bankruptcy. I'm going in my war mode on this. Think about Carlyle and the Carlyle Letters if you know what I'm referring to. If not, it doesn't matter. There is good news on the front of the image of the company, which I'm going to start working on in ways I always worked on the image of. It's like the football game where some football player in the NFL is trashing another guy.
The other guy points up at the scoreboard. It's 28 to three. He says, "I don't need to respond to the bullshit. Look at the scoreboard." I've always been a scoreboard guy. Now I've got to look at some of the other stuff, at least for a while. The other stuff, we just went on the Russell Microc ap Index. That's good. We also went on the Russell 300 Index. That's good. I'm going to pay more attention to this stuff than I have. I'm not going to spend a lot of money on it, but I'm going to pay more attention to it. Okay. This is my memo on the data I just showed you. That's it. Questions.
Thank you, T.J.. We will now open the lineup to analyst questions. The first person in the queue is Derek Soderberg from Cantor Fitzgerald.
Please go ahead. Okay.
There we go. Appreciate taking the questions. T.J., you mentioned in the press release last week your belief that sort of in the worst case, revenue could fall below the break-even point, but that that's an unlikely event. What sort of gives you the confidence with that revenue outlook, not dropping below, say, $70 million? Can you talk about the backlog that you guys have that maybe supports your belief?
Okay. So I was going to quibble with your wording then when you find what you said meant, then I agree with it. So I have shown safety to a low level, let's say $70 million. And I actually went to $66 million if we continue on our current aggressive cost cutting, the number was $66 million. But what if it goes below that number, is your question.
The answer is, I guess we're going to lose money. That's quarters out. I think you've all seen, given that we've only been working on this thing for two quarters, we don't wait for quarters for bad shit to happen. We've had five emergency meetings on the potential ways, and I'm talking about executive staff, that the market could get us. We're working on every one of them as we speak. We will be proactive. I keep last quarter we ended with $13 million, slightly cash flow positive in the bank. I've never done that in my life. I always ran companies that had a billion dollars in the bank or $500 million. I didn't think accounts payable receivable, didn't think about any of that. I just ran my company, worried about Moore's Law, worried about competition.
At first, I thought it was kind of tacky to be in that mode. Now I'm understanding it brings a sense of urgency that other businesses should have. I don't mean to make this pick on Intel Day, but I think if Intel had been closer to the grim reaper, Intel wouldn't have done some really dumb stuff that they did. This is back a couple of presidents ago when they finally, the foundation started to crack. A, I like managing with a little bit of cash. Now, do you like managing with a little bit of cash such that one little lawsuit or whatever can put you out of business? No. The fact is you have the backup. I don't like banks for backup.
They're called private equity when you borrow from them, and they want 18% interest, and then they own your company, and they have first lien and all that crap that I've been through that I'll never go through again with anybody. Even if you go to a normal bank, then you'll say, "If I have a problem, I want to be able to get $10 million transferred that afternoon, $20 million, whatever." You tell them that, and they go, "Oh, you want a standby letter of credit? That'll cost you X hundred thousand or million dollars to get it, and then you have to pay a maintenance fee." You're dealing with, I don't mean to be negative, standard bank shit. I don't deal that way. I'm an equity guy.
When I want to deal with a little bit farther beyond just pure equity, I like Converts. That is where I made my living, in Converts. That is how my fund and my company got funded. One answer is I have got a group of Convert guys that I have made money for. They liked the Enphase deal. That worked out real well for them. That was 100 to one. Even today, when I went into Enphase, I bought my stock. I bought in. I paid to get in. I did not get money. I bought my stock for 92 cents, and I do not know what it is today. It is 50 or 60. Even today, it is 50 to one. They like that. When I tell them, I show them the graph with a little spike on it and say, "See a $100 million quarter happening," they do that.
I've got a group of Convert guys that will show up, sign an NDA, listen to a story, and help me. Now, can you count on that? No. They've got fiduciary responsibility too. If my story isn't good or if I'm down and it looks like I'm going down farther, they might not be able to invest. I have an equity line of credit. Never used it, but I have an equity line of credit for $30 million. It will be active in three quarters. ITC, not ITC, ATM. I have that. I am going to work. Then there's me, right? I've written checks for the three precursor companies in the company of $95 million. The kind of thing that will take you out with the numbers I've shown is a $10 million hit that's not covered. There's me.
I won't say I'm tapped out, but I've got all I want invested, although I have been in the market for the last few days. I couldn't not average down when I saw $1.38 price the other day. I think about this. I have decent connections, and I have enough different avenues that one of them will work. As quickly as we move, you can't really get screwed to death in less than 90 days. That is my confidence that Muhammad Ali, one of my favorite athletes of all time, he jabbed, but he was so fast he never got hit. I feel that that's the difference, is how we work and how we think. The money's always there. There's always somebody wanting to make money. There's always somebody with a risk profile. I haven't talked about my buddy buddies.
I never put the bite on them. At the last thing I could do, call it a Palo Alto crowdsource, kind of a private crowdsource. I am wary of the problem. The fact that the problem is stated reasonably the way you said it means that I have a lot more clout in the company. I am not just a grouchy old guy that makes you do impossible things. I am the guy that explains with numbers what you got to do and why. Yeah, the answer is, let me ask it a different way. Okay. When that bottom drops out, who else is going to be left? Right? When there is only 20% of us left, will we be one of them? The answer is, of course we will. We are SunPower. We are the oldest and the best-known solar company in the history of the solar business.
We're in the process of building ourselves back up toward a billion dollars. We ain't going away because some goddamn law got passed by students who call themselves congressmen who pull an all-nighter and pass a bill without reading it. I will not be liable to that. I won't make my shareholders liable to that. I've never screwed them ever on something like that.
That's super helpful. It leads me into my follow-up. Just around the acquisition environment, you mentioned how this could be potentially favorable with the ITC going away as you guys being a survivor. How do you feel about the acquisition environment in that scenario? Are there going to be other acquisitions similar to the SunPower acquisition where you can get really great assets on the cheap? Can you just talk about the potential acquisition environment?
Sure.
Let me start with, at Cypress, when you're in a given market, we were in the market for static random access memories, which are the memories that surround the core. They're the memories that can give and take data from the core at the maximum speed, gigahertz, right? That's what we made. At the end of the day, that was a $500 million market. Our company got to be $2 billion. I had to acquire companies that could use our fabs, our design, our processes to make other kinds of chips that used the attributes we had. We had a competitive advantage. I did that. I acquired 26 companies in Cypress over my 34-year time as CEO. I have specs for it. I have checklists. I've done it. Okay. Now I come fast forward to Solar Valley.
We moved the headquarters to Salt Lake. Nominally, not true, but nominally, it's a fantastic market. They're all starving. All of them, especially the little guys in the sales-only companies or the companies that have a very thin business. Therefore, you'd ask yourself, can you acquire them? I can tell you that, first of all, I work on it all the time. I've got lists. I've got scanning. I've got people working. I've got evaluation techniques and stuff like that. I can tell you in the last six months, I've been to the altar three times. I'm talking to the altar. The minister opened his book three times. The little guys that run little companies freak out and run away. Then there's some argument about something that doesn't matter to justify what they did.
When offered a chance between working in a solid company with a million share stock option that when it goes to 10, you're going to make a bunch of money, and think about that versus being in the solar sales business, and think about a chance to run a company that's got moving parts, it's public and all that, seems like it should be a slam dunk. It's not. The answer is the guys who run sales companies have a certain mindset. That mindset is to score big. At the last minute, if it's a solid deal that is justified in solid financials, which is all I ever deal with, then I got problems. I'm way over here. It's a 30-minute drive from Woodside to, I'm in Silicon Valley at Enovix right here. I called one candidate.
I called the VP and told him to call a candidate who's getting cold feet and talk to him. I learned that I have another hot candidate that I haven't seen yet, but they're enthusiastic, and they're going to start the preliminary stuff. The VPs do that. Yeah, I know how to acquire. I won't overpay for acquisition. That's been the problem so far. They want more to have the big score at the end of the day than they want to be part of a profitable, growing company where over a five-year period with multiple stock options, they learn a lot more and they make a bunch of money. I got to find and by the way, it's a wonderful SIV. I'll find the guys that don't want the big score. I won't waste time on them.
I'll do an early big score test thing so I don't burn time. These all the way to the altars, we're talking weeks of time. In one case, three days off-site to talk to each other. We'll try to minimize the ROI or maximize the ROI on our part by minimizing the time spent. There are hundreds of companies that are in trouble. There are 70 companies that went bankrupt. One of the things is, why would you buy it when you can buy the assets? For example, SunPower. We're talking a company that was a multi-billion dollar company, and I bought all the three businesses for $45 million. So I'm going to shop at auctions of IP and auctions of bankruptcies. The deal there is dark theory. You go buy the IP, you go to the people who used to run it, say, "I'll hire you.
You'll get a stock option." You didn't get one there. You got a commission for sales. You didn't get a stock option. You weren't an owner of the company. We were able to hire X. In our case, we hired one out of three of the SunPower people. We have processes for doing it. You notice our 65-person company acquired 1,000 people. You never heard me say once, "There were some you didn't see," but, "Oh, we had this glitch. We had that misunderstanding. This happened, that happened." We made our quarters, and they are now part of the company. Yeah, I am going to acquire. It has only been six months. I am a little bit embarrassed. I have only got one, but that is a massive one, and we did it right. I am in the market all the time.
That is in a market where I cannot count on order growth. You cannot count with all the stuff going on that the solar market per se will get bigger, and therefore you will get bigger just because you have a certain share of market. We are going to do that. I am working on it. I will bring home a 25 lb trout before the end of this year. Trust me.
That is helpful. Thanks, T.J..
Thank you, Derek. T.J. also answered two other questions that were in the queue from the audience, somewhat related. One question was, what other revenue growth programs are being implemented to assist currently in this environment?
Yeah. Sorry, will you just repeat it one more time? What other revenue?
Sources.
Sources?
Building and corporation mentioned that you are doing.
Yeah.
The opportunities to try to boost our revenue are through our two main channels, which are retrofit and new homes. One of the main ways that T.J. just talked about was acquisition to be able to fit into those two categories. We are also exploring opportunities on the financing side of things as well. As things change with the ITC, that is going to require some different types of financing. We are trying to make sure that we are working with the right partners where we can actually preserve cost, preserve our pricing, preserve our margins, and have a competitive advantage there. Those are primarily the channels. The fact of the matter is that there is still a lot of untapped market for solar, and that is across both of our divisions. Layering into it, the addition of additional storage products is also critical.
Between those avenues, there's lots of room to grow for this market still.
The entrepreneur here is on the board. I'm not working full-time because he's got his own company. He's first minute solar, minute solar.
SameDay Solar.
SameDay Solar. Okay. The pitch there is it takes too long. You guys are big, burdensome, ponderous companies. I got SameDay Solar. You want your solar, I give it to you. He's building that one up. He's piggybacking on some of our resources. Then we get his business as the installer. That's part of it. We can do more deals like that. We've got one as a prototype. He's working on financing. I've always avoided financing. There's no reason to believe I should be able to beat smart guys in Manhattan in financing stuff, right?
I want to take you on when Erwin Schrödinger is involved. Then we'll have a contest. No problem. So I've never dabbled in money, but now I look at the way the money flows, and it's got a multiple markup chain. And it has a kind of a horrible corporate overtone to it. And I'm talking big corporation versus little guy kind of overtone to it. So he's got another startup. The deal is let's get together some local banks that have national charters and figure out a system to hook them directly to the users. That takes out one layer in the financing chain. And he's running that. I haven't gotten involved in that one, but I think it's a great idea. So yeah, we're looking all the time. We're looking at other things we can do with what we have, the arc theory.
Get your assets, figure out what you can do, make your money, and don't burn more money than you need to. I'll give you an example. Commercial. Why are all residential companies not commercial companies? If you can install 5 kw on a guy's roof, can't you install 75 kw or 150 kw on the flat roof on a building? The answer is those are companies, and you can't jack up the prices. The way solar is sold to residential, there's a certain price called the red line price. That's what the solar company gets. The sellers, they don't work for you. In a typical company, the people who sell are called 1099s, meaning IRS code 1099, meaning they're contractors. They really are contractors.
The IRS is jealous that you're trying to hide a W-2 employee and not do all the withholding and things that you should do. They really watch it. Therefore, they really need to be independent contractors. We have 1,000 independent contractors generating orders. You have red line, which is what I get. They go out and they sell for whatever they can sell for. That's part of the mentality. The big hit is the most important thing in your life mentality, the Vegas mentality of the solar industry. That guy can go out, and if he can get $7 a watt, he gets $7 a watt. He gets a whole difference on the way down to what we get for installing it. Our prices are high. That creates inefficiency. That's one of my biggest arguments against subsidies.
If you get subsidized, you get fat. If you get fat, your ability to work out goes away, and your toughness and endurance as a human being goes away, or as a corporation. That is why I see unsubsidized companies as what we need to do, why we need to do it. Finishing off a long point, we will install. We will install commercial because we are efficient, and we will make it happen. By the way, acquiring one of them, acquiring a group that does X jobs in parallel and has a revenue of a few million bucks and comes into an environment where they can have stock, they can have healthcare insurance, that is a big selling point. We will do that. We are not going to go into bizarro stuff. I am not going to sell aluminum siding, stuff like that.
We're also going to start working on higher tech panels. When I was at SunPower, I never thought about sales. I acquired a sales company because our engineers didn't understand how to sell. So we acquired a company called PowerLight out of Berkeley. They were salespeople. They didn't understand sales would become dominant in this industry. Then there's other shit like making the panels. Really, that's the way it is. I want to go back and have technologies that matter. You're not talking about, can you cut this, can you cut that in a commodity call. You're talking about, do you want this capability? In one company, we're working with REC, and we're going to get some special panels that are different.
We're going to say, hey, those panels cost eight cents more a watt than the other panels or even 20 cents more a watt. It's worth it because here's what they do, and then we can explain technically. We're also doing the same thing with Enphase. I'm still on the Board of Enphase, although it's a healthy, well-run company. They now have a lot of stuff I need. I just hired the guy who ran their battery division. He's come in, and he's going to run a battery division for us. By batteries, I don't mean buy some Chinese batteries, talk about tariffs, talk about Donald Trump. I don't mean that crap. I mean battery systems, which are incredibly complicated. In this guy's division, his name is Mehran Sedigh. He was sitting next to me in the last meeting. He made battery systems.
That means he had 250 engineers, 250, working for 18 months to make a system that takes the anomalies that are present in a lithium-ion battery and turns them into a reliable power source for a house that turns on and off when you want it. What I really like is Enphase is now into other aspects of solar. For example, they're into car charging. What they do is they take panels, which are DC sourced, and they connect them to the grid, which is AC, and they move back and forth. Same thing with a car. Car's DC. Motors in cars are DC. The power that charges them is AC.
If you want to use the battery in a car, and by the way, you all have an 80 kWh monster battery in your car, if you ever want to use the battery in your car to run your house, you got to go the other direction. Enphase has started that. That requires power and communication interfaces that talk to each other. I'll give you one example. On the Enphase, you guys, it's worth it putting 10 panels on your house and putting an Enphase inverter. On your cell phone, you'll go like that, and you will see a picture of your house. You will see a picture of the panels on your house, and there will be a number on every panel, a number describing the number of watt-hours produced by that panel since sunrise that day.
You push it again, and you get cumulative over an arbitrary period, just like a stock chart. Their newest application, now that they've got all the stuff talking to each other, is car charging from solar. Think about it. No gas. First of all, electricity would be cheaper if the utilities were not taking advantage of it. It still is quite a bit cheaper to have an electric car for a given level of performance than a gas car. Secondly, if that electricity comes from solar panels, then your incremental cost to buy it is zero. You have depreciation on the solar, but you do not pay any money. Thirdly, if you are a greenie and you do not like carbon dioxide, you can have green electrons charge your car, and you can drive creating zero carbon dioxide.
That is push your button on a panel and making your system. Cloud goes over the sun, does not go over the sun. You need power for your house. You do not need power for your house. It is near 5:00 P.M., and you are getting ready for time shifting when the battery turns on to protect your house from 80 cent a kilowatt-hour gouging by the utilities. In the middle of all that, it turns on and off and connects and disconnects your car. That is the future of solar, solar systems. That is where we are going. We will have best equipment installed better. We will be competitive in the tough solar business, but we are going to move up a click. I am a tech guy. I am not happy unless I got tech to sell. By the way, just to tell you one thing.
There are panels which instead of having opaque things on the back and glass on the front and an aluminum frame, I had them in my building in 2003 that had no frame. That's $15 and a lot of energy required to do aluminum. It's electrically purified. You don't need that. The back plate is not a piece of plastic. The back plate is another piece of glass. You have completely hermetically sealed glass on glass, which is a good thing for reliability. Light can go down and actually go into the back. That's called bifacial. Those of you in solar know that.
That bifacial characteristic is used all the time in utilities where they get that last few percent of power from a given installation by, for example, putting white gravel on the ground and getting reflection into the backside of the panel. That is going to become available to homes. There have been startups that have worked on that. I've got some guys from them, and we talk, and we're getting excited about doing this stuff. Major riff. We're going to be efficient. We're not going to make excuses we can't compete, but we're going to go technical. We're going to talk. Do you want to push the button on your cell phone and charge your car with only green electrons? We're the only company in the world that's got it. It's not that expensive.
Thank you. One last question in the queue about costs.
The company has rationalized headcount considerably and become much more efficient. Given everything that's going on in the market, how should we think about the need for additional cost cutting and the impacts on margins in the coming quarters?
That was the—not often. When you have a blow away answer at your fingertips, go for it. This one describes our headcount staying low and constant, the lowest revenue we can tolerate. The point was made it could go lower than that. I do not see that right now, but that surely can happen. We are going to make money no matter what. This is not having a financial crisis. This is making money. Just to do the last slide, I did the exact same model, and I put in headcount reduction. Here, I took our headcount down from only 80 people.
It's not like killer. And now, for the same lousy revenue stream, I'm looking at $1.5 million-$2 million a quarter in operating profit. So yeah, we're going to continue to do it. The only difference, what I articulated, is our headcount reduction will no longer be lopping off large chunks of companies that shouldn't have never been hired. It will be merging two groups together and taking 10 + 10 and doing the job with 16 people on the other side. And that's the kind of stuff we're doing right now. So that, of course, if revenue goes up, then you're dealing with fall-through. And I can tell you, well, you can see the fall-through. There's our gross margin. So you see our gross margins in the 30s, high 30s. So take 0.4 so I can do the math. So every million dollars, I fall through $400,000.
We're right at the point where fall-through is about ready to tape up. By design, we built a company just big enough to do what we need to do. That's what we've done. Now, of course, when you shoot up in revenue, you only hire the guys that are screaming the most. You hire a few people here, a few people there. Then the fall-through is astronomical. Yes, we're on the edge of that. Right now, I'm figuring out how to convince you that I'm going to be alive a year from now.
Let's hope that's not something we have to convince us of. This concludes our Q&A session. I would like to turn the call back over to Mr. Rodgers for any closing remarks.
I'm sitting here realizing how much I talk. We have a solid company.
We have management that has got broader experience than the size of our company would warrant. We are guiding it well, and we are doing things quickly. We are not exactly tiny. A $320 million company is real. We are in a position where it will actually be a benefit to us to make it through this period, lose those last 80 people, reorganize so that our cycle—we measure cycle times and yields. We have all kinds of programs like chip companies get better during hard times because then when you take off a hard time, you can scale. You cannot scale if you have a large organization with a lot of people, and you have not rationalized your organization. Of course, that is the name of the game in chips, right? Scaling. Moore's Law, you go to the next node, you get two times more chips per wafer.
The wafer is more expensive, but it doesn't matter. So I'm quite bullish about the company. That's not to say I'm not worried. That's not to say that it's some plague sweeping through the financial industry, drying up the sources of money for solar. We're not talking now about the government and the gravy. We're talking about the fundamental flow. There's something like that could get us. Let me put it this way. If there's anybody left in solar, in the top 20%, 80% go away. We're going to be in the top 20%. That's for sure. Thank you.
You may now disconnect.