Shares of residential solar company SunPower (SPWR +0.00%) were plunging in Friday trading, down 22.4% as of 2:12 p.m. ET.
The company released an 8-K form late Wednesday, July 3, informing investors that its auditor, Ernst & Young, had resigned as of June 27. And the reasons for the resignation didn't sound good.
OTC: SPWR
Key Data Points
Statements from management can no longer be relied upon
It should be noted that back in April, SunPower disclosed that its audit committee had determined its financial statements for the years 2022 and 2023 needed to be restated. Two months prior to that in February, the company fired its CEO. Then in May, the company announced it had fired its chief operating officer. During the period from April to June, Ernst & Young had been working with the company to get its financial statements in order.
However, according to the 8-K form released Wednesday, on June 27, Ernst & Young informed the company that it was resigning, notifying the audit committee that "information has come to its attention that has made EY unwilling to be associated with the financial statements prepared by management."
Sometimes when a company needs to restate prior financial statements, the company in question may merely have counted certain revenue or costs in different periods. However, EY's statement today appears to indicate outright misconduct.
That is, needless to say, a pretty ominous note.
SunPower's survival is in question
While evidence has yet to come out, there is a plausible reason to believe management may have fudged numbers in order to make itself look more attractive. On its last Q4 2023 earnings release back in February -- the company did not give a Q1 2024 update -- the company noted it had raised $175 million from TotalEnergies and Global Infrastructure Partners. So while we don't know for sure, it's possible management was making things look a bit better in order to raise needed financing.
The solar industry has been in a severe downturn amid higher interest rates and inflation, which has hurt SunPower's results. In the fiscal fourth quarter of 2023, the last reported quarter, SunPower reported revenue down 28%, and its bottom line plunging from a $14 million operating income in the year-ago quarter to a $106 million operating loss.
Meanwhile, SunPower only had around $87 million in cash at that time. While the new financing may help the company make it through this difficult period, SunPower also burned through more than $200 million last year.
Basically, investors should steer clear of this situation altogether until the accounting issue has been resolved and one can be assured SunPower won't run out of cash -- but those issues could take a while to resolve.
