SunPower (SPWR) Q3 2023 Earnings Call Transcript

SunPower (SPWR 5.85%)
Q3 2023 Earnings Call
Nov 01, 2023, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. Welcome to SunPower Corporation's third quarter 2023 earnings call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session.

[Operator instructions] Please be advised that today's conference is being recorded. I would now like to turn the call over to Mr. Mike Weinstein, vice president of investor relations at SunPower Corporation. Thank you, sir.

You may begin.

Mike Weinstein -- Vice President, Investor Relations

Good morning. I would like to welcome everyone to our third quarter 2023 earnings conference call. On the call today, we will begin with comments from Peter Faricy, CEO of SunPower, who will provide an update with third quarter announcements, some business highlights, followed by an update on 2023 guidance, including recent sales trends, backlog, operating expense, and financing. Following Peter's comments, Beth Eby, SunPower CFO, will then review our financial results.

As a reminder, a replay of the call will be available later today on the investor relations page of the website. During today's call, we will make forward-looking statements that are subject to various risks and uncertainties that are described in the safe harbor slide of today's presentation, today's press release, our 2022 10-K, and our quarterly reports on Form 10-Q. As we disclosed on October 24th in a Form 8-K filing, the company plans to restate, as soon as practicable, financial statements for the 2022 10-K and the first and second quarter 10-Qs for 2023. Please see those documents for additional information regarding those factors that may affect these forward-looking statements.

Also, we will reference certain non-GAAP metrics during today's call. Please refer to the appendix of our presentation, as well as today's earnings press release, for the appropriate GAAP to non-GAAP reconciliations. Finally, to enhance this call, we've also posted a set of PowerPoint slides, which we will reference during the call, on the events and presentations page of the investor relations website. For prior periods, we have presented our best preliminary estimate of historical period financial information pending the outcome of the aforementioned restatement.

We are also delaying the reposting or the posting of our supplemental data sheet detailing additional historical metrics until we have completed this restatement of historical financial information. And with that, I'd like to turn the call over to Peter Faricy, CEO of SunPower. Peter.

Peter Faricy -- Chief Executive Officer

Thanks, Mike, and good morning, everyone. Today, I will discuss our Q3 2023 results, our update to our full year 2023 guidance based on the latest information on markets, and our progress with cost reduction, and our view of the important factors that could affect 2024. In the third quarter, we continued to see difficult market conditions with a contraction in customer bookings and installations that is more persistent than we had previously forecast as a result of the higher impact of higher interest rates on consumer behavior. While these trends have continued longer and deeper than we expected this year, we will highlight some of the early positive signs in our sales channels that began materializing in September.

We continue to anticipate our growing value proposition for our customers as traditional energy costs rise, and we expect an improved picture for SunPower and the entire residential solar industry in 2024. We reported a negative 1 million of adjusted EBITDA this quarter from 18,800 new customer additions. Slower bookings this summer and higher installation expenses were the primary drivers of lower results this quarter. As we will discuss in more detail later, we have reduced our 2023 guidance to reflect current market conditions to new ranges of 70,000 to 80,000 new customers, $600 to $700 of adjusted EBITDA per customer before platform investment, platform investment of $70 million to $90 million, and adjusted EBITDA of negative $35 million to negative $25 million.

These new ranges reflect the impact of lower-than-expected consumer demand and the delayed revenue recognition as cycle times have increased under higher lease volumes. We expect that our actions announced today to deepen our cost reduction will result in the realization of meaningful improvement to our operating expenses in 2024 as we aim to maintain financial strength through the weaker near-term market conditions. Please turn to Slide 4. We added 18,800 new customers in Q3.

And while we are currently facing stormy seas, we are highlighting some of the more notable pockets of strength in the business here. SunPower's new homes business continues to perform above expectations with installations growing 26% in Q3 versus Q2 and a 38,000 new homes in backlog. Sales continue to be driven, in part, by the growth of solar standard communities outside of California and a strong market for builders despite higher mortgage rates. SunPower's retrofit backlog stands at 18,100 customers.

While higher lease volumes have increased the average time from booking to revenue recognition, we expect to complete the installation of substantially all of our California NEM 2.0 backlog this year. Adjusted EBITDA per customer was $1,000 before platform investment with room to improve next year as average inventory cost and installation costs are expected to continue their declines. SunVault energy storage system sales continue to show strength with a California attach rate greater than 60% and an overall attach rate of more than 25% across our sales channels. We expect to deplete our inventory of SunVault v1 models by early 2024.

Battery storage costs are declining rapidly, and this is an important part of the value proposition for customers, especially in California, where NEM 3.0 reduced the benefits of net metering with the utilities. SunPower Financial reached a 56% customer attach rate for lease and loan products in the third quarter, well on its way to achieving the 65% to 75% target that we highlighted at last year's Analyst Day. Lease demand continues to grow with a 217% increase in contracted volumes in Q3. As noted previously, further growth for leasing is expected in 2023 and beyond due to a combination of lease payment competitiveness versus higher utility bills and bonus tax incentives under the Inflation Reduction Act.

SunPower remains customer-centric and agnostic toward lease or loan financing, and we believe that our current access to capital markets as a top-tier residential solar company is a major competitive advantage. Please turn to Slide Number 5. With over 60,000 new customers so far this year, we've tightened the guidance for our full year 2023 range to 70,000 to 80,000 customers. While it may be early to call a turnaround trend, we want to highlight what we're seeing in September as bookings appeared to improve sharply versus prior months, particularly in key states such as California, Texas, Florida, and Colorado.

We continue to see some of these same improvement trends in October. The bottom line is that the steep year-over-year sales contraction that we've been seeing since May has improved markedly in September and October. We're optimistic that these booking trends will continue and help boost the installation and customer recognition figures in the first half of 2024. Please turn to Slide Number 6.

We've reduced our 2023 guidance this quarter, and I will disclose the factors that led us to take this action, as well as some of the remedies as we continue to pursue -- as we aim for a better outcome in 2024. As I mentioned earlier, we've tightened the customer range to 70,000 to 80,000. While September and October booking trends are indeed positive, we are nonetheless affected by the slower pace of bookings this past summer that will slow our customer recognition. We continue to face some delays in the California system activation from the state's utilities, although we've seen recent significant improvements from earlier this year.

New homes backlog and customer bookings have exceeded our expectations, and we had our best Q3 for customer bookings for new homes in the company's history. New homes is on track to comprise 15% to 20% of our total 2023 customers. Reduced guidance for 2023 EBITDA of negative -- minus 35 million to negative 25 million and EBITDA per customer before platform investment of 600 to 700 reflected the higher cost of goods sold and the amortization of installation spread across lower-than-expected volume. The increase in lease volumes, which is a positive trend that ultimately boosts sales origination fees, nonetheless results in extended cycle times for revenue recognition versus loans and cash sales.

The range for platform investment of 70 million to 90 million is still well below our original plan earlier this year and now reflects primarily the higher legacy business unit costs and the restatement of prior-period inventory values. We plan to continue reducing operating expense in order to maintain financial strength through the near-term economic and market uncertainty. Long term, we continue to expect substantial tailwinds for the U.S. distributed solar market, including low market penetration, climbing utility bills, a strained electrical grid, plus a decade of tax benefits under the Inflation Reduction Act.

Platform investment is intended to continue positioning SunPower to gain market share as market conditions continue to develop. We plan to earn adjustments -- to adjust our investment pace judiciously as conditions change. Finally, we're projecting an improvement in cash from operations during 2024. We intend to manage this with reductions to fixed and variable costs, continued inventory reduction, and continued expansion of customer financing capacity.

Please turn to Slide Number 7. Conventional electric utility rates are the primary competition for our industry. The U.S. Energy Information Agency reports that average U.S.

retail electric rates remain near all-time highs as of August despite the moderating cost of bulk wholesale power and key fuels such as natural gas. Price increases continue to hit the northeastern and mid-Atlantic states and California, with nine states seeing increases greater than 10% year over year. We estimate that more than 40 million potential customers reside in states with electric rates rising faster than inflation. In California, PG&E rates are set to rise 9% to 13% in January of 2024.

We believe that these steep cost increases and the impact of grid instability on residential customers continue to elevate the value proposition of residential solar as one of the most powerful ways to stabilize and reduce home energy bills. Despite lower fuel prices, the Edison Electric Institute is projecting a 20% increase in electric utility capital investment from 2023 to 2025 compared to the previous three years. As these investments are recovered through electric bills, we continue to believe that the value of rooftop solar is likely to continue rising. Please turn to Slide Number 8.

Next, I'll share the most important progress we've made in Q3 as we move forward with the five pillars of our long-term strategic plan. For customer experience, SunPower remained the top-ranked U.S. home solar installer, as indicated by our ratings and reviews on multiple platforms. We've also launched a new self-help center experience within the mySunPower app and on our website to help resolve questions faster with less friction.

For products, SunVault attach rates reached new highs in Q3 with sales up 163% versus Q2 and our best-ever sales month in September. For growth, September retrofit bookings grew 59% in September versus August and new homes expanded outside California, with new communities signed with homebuilders such as CC Homes in Florida, Toll Brothers in Nevada, New York, and Massachusetts, and Meritage in Colorado. We also added 97 new dealers in Q3, the most onboarded in a single quarter. For digital, SunPower released a new sales proposal tool for new homes customers and completed the rollout of new scheduling software, which is designed to increase appointment reliability and reduce utilization costs.

And finally, SunPower Financial completed the first phase of the ADT Solar's launch using SunPower Financial, enabling lease and PPA sales in seven states. Please turn to Slide Number 9. SunPower Financial continues to grow its business despite the impact of slower sales on SunPower overall. In Q3, we launched as the exclusive lessor for ADT Solar customers choosing to finance with the lease or power purchase agreement.

Loan financing is expected to launch in Q4, and the program has the potential to be a meaningful contributor to 2024 volume and profitability at gross margins that are roughly in line with the existing finance business. As mentioned earlier, our lease net bookings continue to grow strongly in the third quarter, and leases currently enjoy a cost of capital advantage compared to loans. We continue to work on agreements with financing partners to increase our lease financing capacity, and facilities are in place to access ABS funding in the future. We are excited by the opportunities in this space, so stay tuned for more to follow.

With that, I'll now turn it over to Beth for more details on our Q3 results. Beth.

Beth Eby -- Chief Financial Officer

Thank you, Peter. Please turn to Slide 11. Before I begin, I want to say a few words about our recent 8-K. We are working expeditiously to file amended financial statements for the 2022 10-K and the Q1 and Q2 2023 10-Qs.

We expect to file our Q3 Form 10-Q as soon as practicable. The restatement of prior microinverter costs reduces the inventory and increases the cost of revenue. It does not change our cash position. We are also working to improve SunPower's reporting procedures, particularly around the issues we've identified around inventory and cost of goods sold.

Furthermore, as we previously disclosed, the company and Bank of America are currently negotiating the terms and conditions of a consent and waiver to address the effects of the restatement under our January 2023 amended credit agreement. While we can make no assurances regarding if and when the consent and waiver will be received, we are working productively and seek a positive outcome. For the third quarter, we are reporting negative $1 million of adjusted EBITDA and 432 million of non-GAAP revenue. We have added 18,800 new customers in Q3, with reduced customer demand that continued to be driven largely by the effect of higher interest rates.

However, as Peter mentioned, we are buoyed recently by stronger sales in September and October, as well as persistently strong customer interest in lease financing. Adjusted EBITDA per customer was $1,000 in the third quarter, lower year over year due to delayed revenue recognition from longer cycle times, as well as higher year-over-year installation costs. Adjusted gross margin improved in Q3 versus Q2, the result of cost reduction, sequentially improved amortization of installation cost, as well as the absence of a Q2 inventory writedown. Platform investments is primarily product, digital, and corporate opex.

While this increased slightly year over year, we continue to work toward matching our investment and opex levels to slower market conditions. Our aim is to maintain financial strength through this challenging period as we look to position the company for continued gains in market share under stronger future market conditions. Turning to the balance sheet. We ended the quarter with 104 million of cash and 143 million of net recourse debt.

With improved management of working capital, we reduced inventory levels to 328 million at the end of the quarter and generated positive cash from operations of 48 million. We have plans in place to bring inventory levels down further through the remainder of 2023 and 2024. We continue to value our ownership of lease renewal net retained value in SunStrong using a 6% discount rate. With growth in the portfolio, we now estimate the value of our stake at about 295 million.

Please turn to Slide 12. As Peter already discussed, we reduced our 2023 guidance to a new range of negative 35 million to negative 25 million of adjusted EBITDA, driven by an anticipated 70,000 to 80,000 incremental customers with adjusted EBITDA per customer before platform investment of $600 to $700. Platform investment of 70 million to 90 million this year is higher than prior guidance due to higher legacy cost and the impact of prior-period adjustments, although this is still significantly lower than our original guide this year. We will continue our efforts to reduce our platform investment through 2024.

Before we return the call -- before we turn the call over for Q&A, I want you -- I want to turn you back over to Peter for closing comments and a review of factors we are considering as we look ahead toward 2024.

Peter Faricy -- Chief Executive Officer

Thank you, Beth. Please turn to Slide 13. This slide is largely the same one we showed you last quarter and continues to list out our view of the future as we reset and launch forward into 2024 after a difficult 2023. We typically don't provide guidance for next year until February.

From a macro perspective, we continue to expect that increasing utility rates and lower equipment pricing will be tailwinds for the industry. We also anticipate a more stable interest rate environment, as well as improved clarity on the bonus tax credits available under the Inflation Reduction Act. For SunPower specifically, we expect to benefit from lower product costs, we intend to reduce our platform investment in the near term, and we expect this to benefit financial results in 2024 as we keep an eye on long-term opportunities for growth and investment. Stronger-than-expected new homes bookings growth with a large backlog this year are expected to add to customer recognition in 2024.

With additional lease financing capacity expected to close this year, we expect sales to benefit in 2024 from the growing popularity of lease financing and bonus tax credits from the Inflation Reduction Act. SunPower Financial continues to grow its financing origination attachment rates with SunPower customers, and we plan to continue to seek additional opportunities for growth through partnerships like the one we announced recently with ADT. We also expect to begin seeing financial benefit from our collaboration with General Motors in 2024 as we start selling EV charger and solar equipment to Silverado customers. With that, operator, I'd like to turn the call over for questions.

Thank you.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Tristan Richardson from Scotiabank.

Tristan Richardson -- Scotiabank -- Analyst

Hey. Good morning, guys. Just really kind of curious if you could drill in on some of your comments around September, October. It sounds pretty encouraging.

Peter, you mentioned bookings are deep in the positive. I wanted -- was curious if that's specific to new homes or just across the country. And then curious about some of the activity you're seeing in the states you mentioned, specifically California, Colorado, Texas, etc.

Peter Faricy -- Chief Executive Officer

Yeah. Good morning, Tristan. Thanks for the question. So, on the comments we made around September and October, you know, the best leading indicator of our businesses is consumer interest at the top of the funnel, and then right down from there is actual sales bookings.

That's where the rubber meets the road, so to speak. So, we were pleased that September turned out to be such a strong month and October has been, you know, of similar velocity from a sales bookings point of view. Coming into the end of the year, we're comping in November and December from last year that were pretty weak. So, you know, we're cautiously optimistic that we can end the year in a more positive note.

That was followed by what was a very challenging summer. You know, so if you go back to the last call we were on, we did think that May was going to be the low point of the year, and that turned out to be true. But what also turned out to be true is that June, July, and August were very challenging months from a sales booking point of view. And that's reflected in our updated guidance for 2023.

From a new homes standpoint, it's really almost a banner year for new homes. New homes bookings have been better than expected. Just to give you a feel, our new homes backlog is actually up 10% year over year. So, if you took a look at the backlog last year Q3 and compared it to the backlog right now, we're up 10% year over year.

We came into the year, you know, with a cautious, realistic view of that business, and we're ending the year, I think, with a very optimistic view of where that business is going as we go forward. The backlog we have -- just to give you a feel, that backlog is worth, you know, two years worth of installations. So, we feel pretty confident in our new homes business and our plans for next year. And I'd say, as of right now, you know, we're cautiously optimistic that that's a business that's going to grow as we head into 2024.

Tristan Richardson -- Scotiabank -- Analyst

Helpful. Appreciate it, Peter. And then maybe with respect to inventory, you talked about kind of working through SunVault 1.0 inventory by early next year. I'm curious on the micro side with respect to either existing inventory or pace of additions to inventory with respect to micros.

Peter Faricy -- Chief Executive Officer

Yeah. So, I think we're pleased with battery inventory levels with the comments we made about selling through SunVault through sometime in Q1. We're also pleased with microinverter inventory levels. Really, the inventory levels that we were wanting to work on that we talked about in the last call were really all about panels.

And we're pleased that we were able to, before the restatement, bring down inventory, $77 million in one quarter. So, that's good progress. We're still not where we want to be. There's still more room for improvement to get leaner in panels.

But we're pleased with that progress in a single quarter. And as Beth and I talked about in the last call, we're committed to get into a healthy position by the end of this calendar year. And I think we'll kick off 2024 in a much better position from a product standpoint across inventory levels across all products.

Tristan Richardson -- Scotiabank -- Analyst

Appreciate it. Thanks, Peter.

Peter Faricy -- Chief Executive Officer

Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Colin Rusch from Oppenheimer and Company, Inc.

Colin Rusch -- Oppenheimer and Company -- Analyst

Thanks so much, you guys. Can you talk about, you know, and obviously this is still fluid, the discussions around the credit agreement and what you might need to potentially be carrying in terms of restricted cash and some of the key variables that you guys are working through at this point?

Beth Eby -- Chief Financial Officer

The -- we're still in discussions with Bank of America and our lenders, so it's a little premature to talk about what the terms will be on the consent and waiver to address our restatement.

Colin Rusch -- Oppenheimer and Company -- Analyst

And I guess as a follow-up then, do you have a sense of a timeline on how long that's going to take before you reach a conclusion with them?

Beth Eby -- Chief Financial Officer

The discussions are ongoing and productive.

Colin Rusch -- Oppenheimer and Company -- Analyst

OK. Perfect. And then I guess on the technology side, as you guys look at the energy storage opportunity and the evolution of your platform, I guess the cadence of evolving the product, can you talk about how many adjustments to performance you might see here over the next couple of years and whether you need to really change the design of that product to meet some of the new market conditions that we're seeing with the rule changes?

Peter Faricy -- Chief Executive Officer

And sorry, Colin, are you referring to SunVault specifically or -- sorry, just clarify your question.

Colin Rusch -- Oppenheimer and Company -- Analyst

Yeah, yeah. Exactly. On SunVault.

Peter Faricy -- Chief Executive Officer

Yeah.

Colin Rusch -- Oppenheimer and Company -- Analyst

I mean [Inaudible]

Peter Faricy -- Chief Executive Officer

OK. Yeah. So --

Colin Rusch -- Oppenheimer and Company -- Analyst

Go ahead.

Peter Faricy -- Chief Executive Officer

Yeah. Sorry. Yeah. No, that's a great question.

So, on SunVault, here's how we're thinking about the battery storage world as we go forward. So, we're pleased that SunVault sales growth, you know, we talked about September was our best sales month ever. We've really gained a lot of velocity, interestingly enough, across all of our sales channels. A lot of it has been California-based.

And consumers are -- you know, economically, they really benefit from having battery backup to better manage these NEM rates, but also many of them want the assuredness of having battery backup and resiliency with the grid outages that we've had, particularly in California. So, I think we're pleased with where that's going. But as we look ahead, there's two things that have changed that are -- that will be reflected in what we do going forward in the battery space. One is it's really important for our customers to be able to manage storage, panels, EV chargers, all seamlessly in a single app and have them integrated together.

Historically, we believed the primary way for us to be able to do that would be to assemble our own battery. Now, we've been able to negotiate partnerships that will permit us to have that data, manage this for the consumer, but not have to do the actual battery assembly. So, as we look forward, we're quite excited. I don't have anything to announce on this call.

I would say stay tuned. But we're excited to work with a number of other battery partners. And I think once we sell through SunVault 1.0, you know, we're looking forward to participating with other battery-makers. And I think, you know, the world in batteries has really become a game of scale, and we're not going to have the size and scale I think you need to compete effectively.

So, we've made the decision to stop working on SunVault 2.0 and to really focus on who are the world-class partners that would want to work with us as we go forward to serve consumers well in the space. So, more to be talked about in future discussions, but that's sort of how we're thinking about the battery world as we go forward.

Colin Rusch -- Oppenheimer and Company -- Analyst

Thanks so much. Appreciate it.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Philip Shen from ROTH MKM.

Philip Shen -- ROTH MKM -- Analyst

Guys, thanks for taking my questions. Looking out to '24, Peter, I know you haven't given the official guidance, but given where we are in the year and what you see so far, it looks like Q4 bookings have improved. But that said, you know, the Q4 customer adds are still down, you know, maybe 15% quarter over quarter. So, what kind of run rate should we expect for and what kind of activity should we expect for Q1 and Q2 of next year, and what that cadence might look like as we get through '24? Thanks.

Peter Faricy -- Chief Executive Officer

Thanks, Phil. Yeah, let me give you some color around how we're thinking about growth and the kinds of factors that impact it. One of the big positives this year is that because we've always been agnostic between lease loan and cash, we were well-positioned to pivot as the market pivoted. So, last year, at this time, we were roughly 80-20 loan on financing.

And this year, it's exactly the opposite. We're roughly 80-20 lease. Why does that matter on customers? Well, for leases, the revenue recognition is about 30-days-plus later than it is for cash and loans. And that's because we don't recognize revenue and EBITDA until we get to permission to operate stage.

And as you know, in California, the utilities have really struggled to keep up with the demand that came out of NEM 2.0 bookings. And so, that normal 30-day delay has been more like 60- to 90-day delay. So, it has really slowed down our customer recognition this year, and we'll work through most of that as we end through this calendar year. As we take a look at 2024, as you mentioned, we're not giving out guidance yet.

We give out guidance every year on our first quarter call. I think we're cautiously optimistic that the new homes business looks like it's trending positively, and we'll be in a position to grow next year. And then I think it's too early on the retrofit business. I like the signals of September and October, but I think if the volatility of this year has taught us anything, it's, you know, we need a longer proof that there's -- you know, that this is a trend that's going to continue before we make any comments on what that looks like as we go forward.

Just to put it in perspective, you know, last year, in 2022, we grew revenue at 56%, grew our customer base at 48%. So, the dramatic change this year is one that you normally don't see in consumer businesses. And so, I think given that volatility, we'll be thoughtful, we'll see how bookings play out for the remainder of this calendar year, and then we'll be better prepared when we talk to you in February to give you our guidance for '24.

Philip Shen -- ROTH MKM -- Analyst

OK. Thanks. Peter. Shifting to balance sheet and liquidity, I was wondering if you could help us understand the liquidity at the end of Q3 and then also share any thoughts on potential need for external capital, under what conditions might you need to pursue external capital.

And then, you know, inventory can be a lever for you. You know, how much do you think you need to work down by year-end to avoid external capital? Thanks.

Beth Eby -- Chief Financial Officer

So, we ended with 104 million of cash, 143 million of net recourse debt in the quarter. Cash from operations was good, the inventory drawdown. So, we're pleased with how we ended in Q3. Going forward, we are working multiple options to improve cash and liquidity, and there are multiple options.

And our -- but our first priority is the same thing as I said last quarter, is to improve our own working capital management and continue to draw down inventory. I think I mentioned last quarter that target days of inventory for us is about 60 days. We'll get there, and then we'll set a bigger target. But at a 60-day target, we'd be at about 200 -- at the moment, we'd be at about 250 million of inventory.

So, we've got some drawdown left to do.

Philip Shen -- ROTH MKM -- Analyst

OK. Thanks, Beth. Just to clarify, so you have 250. Can you quantify, you know, to get to that 60 days, what might that mean for inventory? How much in terms of dollars?

Beth Eby -- Chief Financial Officer

So, we're at about 327 right now, so that's another 75 million-ish.

Philip Shen -- ROTH MKM -- Analyst

Got it. Great. OK. Thanks very much.

Beth Eby -- Chief Financial Officer

We're shooting for that for year-end, but some of it might bleed over into Q1. But it's the focus for the whole company.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Pavel Molchanov from Raymond James.

Pavel Molchanov -- Raymond James -- Analyst

Yeah. Thanks for taking the question. Going back to the loan versus lease dynamic, given that in the final analysis, there is, you know, let's call it, $20,000 of capital per rooftop system that needs to be sourced from some capital provider, why does it matter so much from your perspective whether the customer chooses one flavor of financing versus the other?

Peter Faricy -- Chief Executive Officer

Well, I guess that's the point that we're -- that we've made, which is that we really believe we're the only residential solar company that's agnostic. You know, we really -- our goal is to talk to consumers, get to know them and their needs, and really figure out the best option for them, including cash, by the way. So, 20% of our business today is still cash sales. But when it comes to financing, we always offer both options and try to talk through the consumer the pros and cons of both.

You know, typically, loans require a down payment. Leases don't. Historically, last year, loans were a little better value. That's actually flipped.

The leases are a better value this year. So, I think the fact that leases are growing is very rational. You know, consumers like the fact that they're saving a little bit more than they would with -- versus a loan and no down payment required. It's an easier vehicle to get people into and get them off into rooftop solar.

For those -- you know, just as a friendly reminder, we've been in the lease business since 2008. So, it's not a new business for us. We've been in this business for a long time. We have a number of great partners on the tax equity side and on the regular lease capital side.

So, it's a business that we're excited about and plan to continue to grow as we go forward.

Pavel Molchanov -- Raymond James -- Analyst

OK. Let me follow up on with another inventory question. Benchmark price of modules, and you said this is the bulk of your inventory base, is down roughly 30% between April and October. At what point would you get into a situation where, just as a matter of accounting, you would have to recognize a writedown on the value?

Beth Eby -- Chief Financial Officer

You want me to do it? So, accounting rules are if you're selling it at above cost, you do not take a writedown, and we are still selling all of it above cost.

Peter Faricy -- Chief Executive Officer

The color I'd add is that, you know, from a panel perspective -- and this is really true across all equipment, by the way. So, it doesn't matter whether it's panels, inverters, EV chargers. Quality has gone up this past year and prices have come way down. You're focusing on the 30% drop in panels, which is really, really important.

What does that play out going forward? Well, for 2024, I think it's going to be great for consumers. You know, this -- it's going to mean for those who've been on the edge of whether or not they believe this is affordable because it's a big-ticket item, you know, we're going to be in a better position to provide more affordable options for consumers. And I think given the volatility we've had in the market this year, that's going to be terrific. We're selling through panels that I would say are, you know, close to market right now.

And then I think there's no question, in 2024, we'll have a greater and greater share of panels that are, you know, world-class quality and world-class price-competitive. And those are the two pieces we focus on the most. We really -- you know, for our dealers and our customers, we want to provide them the best panels in the world, but they have to be at affordable prices, and we think we can do both.

Pavel Molchanov -- Raymond James -- Analyst

All right. Thanks very much.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Joseph Osha from Guggenheim.

Joe Osha -- Guggenheim Partners -- Analyst

Good morning, everyone. A couple of questions. First, we've heard a few comments about reducing equipment costs. Obviously, buying in cheaper panels helps.

Wondering what you can say about your philosophy for procuring inverters as we move through 2024. And then I do have another question. Thanks.

Peter Faricy -- Chief Executive Officer

Sure. Yeah. Well, first of all, I think most of you know, we've had an exclusive relationship with Enphase. It's been in place for a number of years.

That goes through the first quarter of 2024. Enphase is a company that we respect a lot. They make high-quality products. We respect the engineering team and the quality team and the support we've gotten from them.

So, we have nothing, but if you were doing a customer survey, we're in the -- you know, we'd give positive reviews. We're pleased with those products and so are our customers and dealers. But I would say, forward-looking, what you would expect broadly is what I mentioned earlier, which is whether it's inverters or panels, you know, the market's going to a place where the expectations on quality are increasing and the expectations on value or prices, you know, prices are decreasing, and the expectation is that value is going to increase. And I would say that's certainly true in the inverter market.

So, we would expect that to be true as we go forward. I would say that that market, from our point of view, has gotten more competitive recently. I think there's a number of new entrants, there's a number of options that have been introduced this past year that I think are interesting from our dealer standpoint and, at some point, I think consumers would benefit from as well. But having said all that, I do expect that we'll continue to have a good partnership with Enphase, and I look forward to discussing that more in future calls as we go.

Joe Osha -- Guggenheim Partners -- Analyst

I'm sure Badri does, too. Just following up a little bit on some of your bookings comments, obviously, there's some sequential improvement, but I'm just wondering if you can maybe walk us, give us a year-on-year walk, and particularly in California, trying to understand what the progression for that look -- has looked like in Q3 and what you think that might look like into Q4 and Q1 given some of the unique dynamics of the state.

Peter Faricy -- Chief Executive Officer

Yeah. So, California's been interesting. We were actually pretty close in our forecast for the year to how it's turned out. The lull, I guess, lasted a little longer in the summer than we probably would have thought it would have based on the transition NEM 1 to NEM 2.

But I think the September and October recovery are kind of in line with our expectations on the California side. What's been frankly a lot more difficult to forecast this year was the outside-of-California business. I think we mentioned on previous calls, we were struggling in kind of the southeast and southwest part of the U.S. Some of those places like Arizona and Florida have low utility costs, so there's still benefit there, but the benefit does become a little bit more marginal if utility costs remain low.

So, Arizona, Florida had been a struggle. Same thing for Texas, Colorado. So, the reason I think, you know, and the slide that we talk about, the retrofit booking increase, is that there is an increase in California, but we're really beginning to see some of these other southern states begin to get some traction, which I think is a positive signal. Now, I think it's too early.

September and October do not yet make up a long enough trend that we'd feel comfortable saying, you know, we know that this will last into 2024. I think, again, this has been such a volatile year. I think it's prudent to be cautious and thoughtful here. But we also -- you know, we are -- we'd rather have a positive signal, obviously, to end the year than have a neutral or negative signal.

So, quite a bit of improvement in September and October, and our hope is that that lasts for the remainder of the year.

Joe Osha -- Guggenheim Partners -- Analyst

OK. Not to just put you on the spot, do you think California can be up year on year in Q4 in bookings?

Peter Faricy -- Chief Executive Officer

I don't think it'll be up year over year, but I think it has a chance to get closer to flattish. You know, I mentioned earlier, we really had a -- we had a very, very strong bookings year last year until mid-November. You know, mid-November through the end of December was really light, and you can blame it on the holidays, the weather, you know, all those different factors. But that may have been, in retrospect, maybe interest rates finally catching up and consumer confidence finally catching up, and that may have been the beginning of what was really a bigger slowdown that happened into this year.

So, you know, from a November and December standpoint, it'll be easier to have flat year-over-year performance, if you will, because last year was so soft. So, that would be our hope and our goal is to get something closer to flat November and December in California.

Joe Osha -- Guggenheim Partners -- Analyst

Thank you very much.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Brian Lee from Goldman Sachs.

Brian Lee -- Goldman Sachs -- Analyst

Hey, everyone. Good morning. Thanks for taking the questions. I guess one question I had was more kind of housekeeping factual.

I know, Beth, you're still working with your creditors on the waivers and what have you, but could you remind us what the actual covenants are? I believe there might be some either minimum cash and/or EBITDA coverage covenants. Could you remind us what those are, where you stand relative to those today?

Beth Eby -- Chief Financial Officer

So, the -- there's four covenants. One is a net debt to EBITDA with all the adjustments of 4.5x, and that's all the nonrecourse. You take out the nonrecourse groups, there's interest coverage and there's a minimum liquidity, not minimum cash, and an asset covenant. And in Q3 --

Brian Lee -- Goldman Sachs -- Analyst

OK.

Beth Eby -- Chief Financial Officer

[Inaudible]

Brian Lee -- Goldman Sachs -- Analyst

Yes.

Beth Eby -- Chief Financial Officer

Well --

Brian Lee -- Goldman Sachs -- Analyst

And then given the --

Beth Eby -- Chief Financial Officer

Pending final adjustments, but yes.

Brian Lee -- Goldman Sachs -- Analyst

Understood. Sorry, I cut you off there. So, it sounds like even given the negative EBITDA outlook here that you updated the market on this morning, you still plan to be in compliance with all those covenants through year-end.

Beth Eby -- Chief Financial Officer

That's -- we need to get to the final because of there are always a backward-looking and we're fine in Q3 and we're talking to the banks about waivers for the restatement and anything else we need.

Brian Lee -- Goldman Sachs -- Analyst

OK. Understood. Helpful. And then just shifting gears a little bit, I know there's been a lot of focus around like growth and inventory, supply chain-type matters for you.

I guess I wanted to hone in on kind of the cost structure a bit. You know, you did almost 100 million in EBITDA last year on 80,000 new customers. At the midpoint this year, you're talking about 75,000 customers or so. I mean, I know it's off your original view entering the year, but, you know, relative to last year, it's not that, you know, significantly lower.

So -- but EBITDA is clearly going to be significantly negative given the new update here. So, wanted to understand better kind of where you're at in terms of thought process around the cost structure. It seems like you clearly had a higher cost structure coming into the year given a more optimistic view on volumes. That hasn't played out, and you haven't been able to pivot quick enough on costs to kind of, you know, to navigate.

But if you think about next year, I don't know if you have a fully formed view, but if it's flat, if it's still modestly down, like what are you thinking in terms of how fast and how much you can do on the cost side of things because, again, you did 100 million in EBITDA on 80,000 customers. You know, given where market trends are, I think it wouldn't be that aggressive to assume next year is flat and not a growth year. So, just kind of wondering what you think the cost structure needs to look like and what maybe targets there could be in terms of achieving some cost reduction?

Peter Faricy -- Chief Executive Officer

Yeah. Thanks, Brian. I'll take that. So, you're right.

I think this year, if you took a look at our guidance -- you know, last year, we grew revenue 54%, customers 48%. We were cautious this year. If you recall, at the very beginning of the year, our customer guidance was 20%. So, we thought with the impact of California NEM, obviously, that would slow things down.

But we didn't expect to be in a position where, you know, our revenue will be flattish year over year and customers will be down a little bit year over year. And so, we weren't prepared for that scenario. But this is the -- in our announcement today, we've announced our second round of cost reductions, fixed cost reductions. And we talked about this on our last call, but the very first thing you attack are discretionary spending and you look for places to reduce waste.

That's the formula that matters the most. You don't want to take away things that matter to customers and matter the dealers, but you really want to take away things that are discretionary and things that, in this kind of down market, are prudent to reduce. But we're not done yet. You know, we'll still continue to evaluate our fixed cost structure throughout Q4.

I anticipate the possibility that we'll eliminate even more fixed costs during this quarter. And the key thing for us is to really emerge as a stronger, more resilient company for 2024. The point you're making, I think we strongly agree with. This kind of volatility, you don't usually see this in consumer markets, but it is what it is, you know.

So, we have to build a company that's resilient and can be prepared for a minus 10 or minus 20, a flat, or plus 10 or plus 20. And that's our goal with these cost reductions, is to put ourselves in a position where we're able to work through the market, regardless of how volatile it is for next year. You know, we do have to recognize, from a world standpoint, you know, there are a lot of disruptions happening globally, and it is hard to say how those, you know, will have an impact on both consumer confidence and interest rates. So, it's prudent right now.

You know, you have to be thoughtful about where you spend and how you spend, and that's exactly what we plan to do. So, you know, the focus we talked about in the last call, deliver results, manage cash and liquidity, continue to lower our costs, put ourselves in a position where we have a stronger balance sheet, stronger company, that's exactly what we plan to do throughout the remainder of Q4 and be ready for, I hope, a great recovery year in 2024.

Brian Lee -- Goldman Sachs -- Analyst

That's helpful, Peter. So, I guess if I hear you correctly, there's a lot of fixed charge focus. So, if we're trying to track your progress over the next few quarters and into '24, is it fair to assume we'd see it more in your gross margins than in your opex line?

Peter Faricy -- Chief Executive Officer

Yeah. I think you will. And I think the other lever we have is, you know, one of the key ways to be successful when demand is more volatile is trying to make as many of your costs variable as possible. So, our goal would be to reduce fixed costs that are truly fixed and then make as many of our fixed costs variable costs so that they really only get accrued if the business is there and the business happens.

And that's the work that we're doing right now behind the scenes. And I expect that we're going to be in a position where, again, we're a much stronger and more resilient company by the time we end this calendar year.

Brian Lee -- Goldman Sachs -- Analyst

All right. Appreciate the color. Thanks, guys.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Ben Kallo from Baird.

Ben Kallo -- Robert W. Baird and Company -- Analyst

Hey. Good morning. Thanks for taking my question. Peter, could you just update us on the progress with new panel manufacturers? Any relationships there? And then as you open up to kind of an agnostic technology platform on both the panel side and the battery side, do you -- how do you balance that with the SunPower brands, which has a great brand value?

Peter Faricy -- Chief Executive Officer

Yeah. Great question, Ben. So, first, I'll back up. I think many of you know, we've had a partnership with Maxeon since the spinoff.

We continue to work with Maxeon. We're in discussions with them. I think those discussions have trended positive, and we're cautiously optimistic that we'll work out an agreement for both parties that, I think, is advantageous for both companies. So, on the Maxeon side, that's where we stand.

Interestingly enough, in Q3, we hit a milestone that we've never hit before, which is, actually, we sold more non-Maxeon panels than we sold Maxeon panels. That's not purposeful. It really is about what consumers want and what dealers want. And so, I think that's a signal that the mainstream segment and more leasing is probably going to put more pressure to have panels that are high quality, but also really affordable.

From our point of view and from dealer feedback, I think the panel business, as it is today, you know, short of any innovations, is really becoming more commoditized. It's becoming more challenging to differentiate one panel from another. There's a number of really high-quality panel-makers out there. We've been engaged with discussions with all of the high-quality panel-makers.

We'll never compromise our brand, to your point, by selling anything other than panels that meet our quality bar and our quality tests. But we will provide, I think, increasingly high quality but also more affordable options for consumers. And I think our dealers are excited about that. And I know consumers will benefit from that as well.

So, we're excited about where this goes going forward. No announcements to make on that today, but that's another area I'd say stay tuned. We're working behind the scenes with a number of different providers.

Ben Kallo -- Robert W. Baird and Company -- Analyst

Just a follow-up there on the dealers, I saw that you had a good quarter. I think what you said is it was the best quarter of dealer adds. I'm just wondering if, you know, the conversations on liquidity or kind of the shift to be more technology-agnostic have come up in these discussions or how you're managing those relationships? Thank you.

Peter Faricy -- Chief Executive Officer

Thank you. Yeah. Well, we've had -- it's interesting. You know, the last dealer conference we had, I recall countless stories of dealers telling me how high our bar is to become a SunPower dealer.

We really -- we think of ourselves as having the highest quality dealer network in the world. And dealers, particularly our master dealers and the dealers we've made equity investments in, they're world-class providers. They have a great customer experience. They're well-run businesses.

You know, they're businesses that we stand behind, and they've been resilient, even during this more turbulent stormy seas kind of a year. So, the fact that we've been able to recruit so many in Q3 and set a new record I think just goes to show you that even in this more turbulent market, you know, you can find these areas of great opportunity. When you talk to them, I think they're very attracted by the SunPower brand, our commitment to have a world-class customer experience. They know that we're the No.

1 rated solar -- residential solar company in the U.S., and it's across every survey, and the gap is pretty wide between us and the closest competitor on that front. So, people want to be part of that ecosystem. They want to be part of that family. And then you add to it the fact that we have attractive lease programs, we have attractive panel options, we've got great technology for consumers, and the mySunPower app that they love, you know, we've really got a great package for dealers.

So, the feedback has been very positive. I expect that we'll continue to be able to add high-quality dealers at -- I don't know if we'll have the same rate we did in Q3, but we expect to be adding quite a few dealers over the next 12 to 18 months.

Ben Kallo -- Robert W. Baird and Company -- Analyst

Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Jon Windham from UBS.

Jon Windham -- UBS -- Analyst

Perfect. Good morning. I just had a quick question about the updated adjusted EBITDA per customer guidance of 600 million to 700 million. In the third quarter, it was 1,000.

I think that was sort of the run rate this year. How do we think about that in terms of sequential profitability into the fourth quarter and how much of that is maybe due to some of the restatements of the previous? Just trying to balance the two moving parts. Thanks.

Peter Faricy -- Chief Executive Officer

So, the way we've thought about it is, you know, the new guidance reflects a couple of things. One is we did have softer bookings and lower consumer demand in the summer months. We talked about this. So, May was the low point, but June, July, and even August were below our expectations.

We believe it's due to the high interest rates and low consumer confidence. So, that's reflected in the fact that we're getting -- you know, there's fewer projects for us to get done in a particular quarter. That's exacerbated by the fact that more and more of our customer base is choosing -- are choosing leases. Leases, rev rec, you know, on average, during normal times, 30 days later.

But in California, where we still do a lot of our business, you know, it's been more like 60 to 90 days later. So, that really -- you know, think of it as it pushes out revenue and profit recognition, but the costs are still there. So, it's made the short term, I think, financials more challenging. And then the final piece is we have been aggressive at fixed cost reductions.

The reduction we announced as part of earnings today is our second major cost reduction, you know, in the past two quarters. But, as you know, those usually take some time to execute and play out. So, they -- you know, we'll get the full year benefit of those changes in 2024. But for example, the ones we announced today, we're only going to get partial benefit in Q4.

So, that gives you a little bit more color. The restatement piece has some impact on the EBITDA for the quarter, but it's, you know, call it, 5 million-ish. It's not huge. You know, a modest amount will be reflected in this quarter.

Jon Windham -- UBS -- Analyst

Perfect. Thank you so much for that.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Julien Dumoulin-Smith from Bank of America.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Hey. Good morning, team. Thank you, guys, very much for the time. Appreciate it.

Look, maybe just starting off on the cash and liquidity front, just real quickly, you guys mentioned specifically having some value tied to the SunStrong leads. I mean, how do you think about raising further liquidity, specifically through further asset monetization and rotation here? First off. And then secondly, I got a follow-up on some of the cost reductions, but just what else, as you think about sources of capital, can you point to, I guess, the core business here? But on the periphery of that, how do you think about the financing options on the table, specifically [Inaudible]

Peter Faricy -- Chief Executive Officer

Yeah. So, I mean, Julien, as you know, all public companies, you're constantly thinking about cash, liquidity, your debt. You're constantly managing those things. That's not new.

In volatile times, you're still -- you're spending time on it. But even in good times, you're trying to optimize that mix. You know, the No. 1 thing we were focused on coming out of last quarter, we're really pleased with the results.

How do we sell through the inventory we have? The 77 million reduction -- you know, million-dollar reduction before the restatement is terrific progress. And then the fact that we were positive cash from operations and positive free cash flow. Those are the kinds of things that if we were to do consistently, obviously, you know, significantly change our liquidity and our cash position. So, that's plan A.

And then I think, you know, are there other options for us to pursue? Absolutely. And so, we're always looking at those options. None of those options are things that, you know, we need to pursue right now. But there are always options that we're thinking about pursuing if necessary.

But the No. 1 focus of the company is really run the business well, you know, generate cash and put ourselves in a position where we're self-sufficient with cash generation.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Excellent. And actually, Peter, to that point, just talking about the running the business well, I mean, the opex reductions and just streamlining the variable versus fixed, I mean, how much of this is a geographic repositioning versus a platform repositioning? And how do you think about that impacting sales, right, because, at the same time, you put less dollars into the funnel, presumably that decelerates something on the other side? I mean -- and again, I get that isn't necessarily linear at times. But how do you think about that kind of translating here, again, whether that's geographic or through different sales channels? And then maybe just related to that, if I can help accentuate one more point, how much of it is like in cents per watt or, in your terms, EBITDA per customer? How do you think about the trend that you're seeing today on manufacturing and COGS reductions as you trend into -- through the quarter into '24? I mean, it seems like that's pretty substantive here. I'm curious if you can try to quantify some of that and help provide some context on '24 COGS reductions.

Peter Faricy -- Chief Executive Officer

Sure. So, on the first set of questions around how do you think about marketing investment? How do you think about the regionality part of this? Number one thing is we're still committed to run this business with a long-term focus. So, we haven't done the things you sometimes hear about other companies doing like just pulling down marketing spend to try to hit a number. We're not running the business that way.

So, we're still investing appropriately in marketing and sales. And it's important in this business, frankly, to do it so that you build the backlogs that we have and that you have a base of business to be able to run your business on going forward. So, we don't believe in taking shortcuts like cutting marketing and sales. I think those are really fool's gold, if you will, and I think it's important for us to continue to run the business thoughtfully and with the long-term investment in mind.

Now, having said that, you're right to point out that on a regional basis, particularly this year, it's been volatile, and we don't have to have the same strategy regionally as we go forward. We can really evaluate what are the best options to serve consumers. And in our case, we really have an advantage because we have a strong direct business, SunPower Direct and our SPRI operations. We have a strong subsidiary with Blue Raven.

We've got a great dealer network. We've got great installing partners that are partners of ours that are not part of any of those ecosystems. And so, the process that we're constantly going through and we'll be making changes throughout the fourth quarter to prepare ourselves for '24 is, you know, how do you anticipate how much demand you'll see. Really, it's not even state by state.

It's kind of utility by utility across the U.S. And then in our case, what's the best go-to-market strategy that makes the most sense economically? I think, again, the volatility of this year, if there's a big lesson coming out of it is, you know, you have to build a model that's more flexible and more resilient. And going into next year, our mindset is be prepared for the minus 20 and be prepared for the positive 20 and put ourselves in a position where we could be equally effective. But that's how we think about that as we go forward.

And then on the -- I think your last question was around COGS reduction. We've made great progress this year on opex reduction and COGS reduction. I think, certainly, from a materials cost point of view, we anticipate materials costs coming down year over year between '24 and '23. So, that'll be a positive for us.

We should also recognize is that prices are down, you know, year over year. Consumers are looking for more value. Dealers are looking for more value. So, that benefit in material costs will split between consumers, dealers, and we'll have the potential to keep some of that for ourselves.

And then really, I think it's around the other areas of COGS. You know, how do you think about your infrastructure, your overhead, your regional operations and how do you go through the process I just described to optimize those next year? And I think we feel like we're in a position that, by the time we finish Q4, we'll be in a strong position to be ready for 2024.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

OK. Excellent. Thank you, guys. Good luck with everything.

Peter Faricy -- Chief Executive Officer

Thanks to everybody for your participation. We look forward to, we hope, a strong close for 2023 and talking to all of you early next year about our expectations for 2024. Thank you very much.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Mike Weinstein -- Vice President, Investor Relations

Peter Faricy -- Chief Executive Officer

Beth Eby -- Chief Financial Officer

Tristan Richardson -- Scotiabank -- Analyst

Colin Rusch -- Oppenheimer and Company -- Analyst

Philip Shen -- ROTH MKM -- Analyst

Pavel Molchanov -- Raymond James -- Analyst

Joe Osha -- Guggenheim Partners -- Analyst

Brian Lee -- Goldman Sachs -- Analyst

Ben Kallo -- Robert W. Baird and Company -- Analyst

Jon Windham -- UBS -- Analyst

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

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