I am a hobbyist investor in SPWR and believe in the long term potential of this stock and the residential solar industry as a whole. These opinions are my own and please do any research yourself before making any financial decisions, this is not financial advice. I am also not a legal expert and these are my interpretations of the credit agreement as an investor.
This stock has received a lot of interest from short sellers because many funds seem to be betting against its ability to become cash flow positive and it's need to restate financials. It seems they are also betting that this stock will run out of funds before reaching profitability.
I believe this is misguided and view recent news about the stock to be an opportunity, while considering the risk/reward potential for me personally.
If you follow this ticker, you'll know that on February 15, 2024, SunPower announced they were able to secure an additional capital investment of up to $200M to fund their operations.
From the original 2/15/24 PR:
“The $175 million term loan includes $45 million previously funded to the Company in December and January, $80 million in new investment, and a $50 million second tranche that is available to be borrowed upon the satisfaction of certain conditions.”
As part of a recent June 3 Press release, SunPower announced that it would be drawing on the second tranche credit of $50M and issuing shares, which to me is noteworthy because it seems to indicate that they have successfully satisfied the conditions and terms of this second tranche credit agreement.
As part of the June 3 announcement, I was able to find the updated Form 8k which was filed with the SEC. The credit agreement for the second tranche of $50M was attached to the Form 8k as Exhibit 10.2, which lays out the terms of accessing the second tranche of their credit of $50M.
Why is this interesting to me? what are the conditions they had to meet to draw on this $50M credit line?
On the 2/15/24 earnings call, they stated that their plan is to be cash flow positive in the second half of 2024 and estimated a $100M run rate savings they will realize in 2024. I am speculating that they are still on target to hit that goal, because an agreed upon business plan seems to be one of the contingencies before they can even access the $50M second tranche.
Here are just a few of the notable conditions of the credit agreement for the second tranche. The lender goes on to stipulate several conditions as part of the second tranche.
Actions like:
- Section 6.01 (ii): They must have an independent CPA affirm their financial statements
- Section 6.01(m): From the closing date of the agreement through the reporting reversion date, SPWR must provide a monthly budget report and include a rolling 13-week cash flow forecast.
- Section 6.09 (n): SPWR was also required to file a weekly budgeting variance report starting on 2/15/2024, informing the lender of the weekly budgeting and any variance.
Number 3 is a big one, basically it says that SPWR has to provide weekly updates to the lender showing their budgeting, business plan progress, and any variance. It seems they’ve been doing this since the last earnings release on 2/15/24.
Section 6.19 stipulates that SPWR must retain a financial advisor as part of the terms of the loan.
To me, the June 3 PR about accessing the second tranche seems to indicate that the lender must feel confident that SPWR will successfully deliver this AND has already proven that they can execute on their business plan between the dates of February 15, 2024 and June 3, 2024.
Why between these dates specifically?
February 15, 2024 – The date of their last earnings call and the announcement of the first credit Tranche and potential second tranche of $50M upon “meeting certain conditions”.
June 3, 2024 – This is the date when the PR goes out that SPWR will be accessing the second tranche of $50M. Looking into the terms of this credit agreement, SPWR has needed to prove their financial diligence in the months leading up to accessing this second loan, so the dates between February 15, 2024- June 3, 2024.
Despite some of the financial hurdles this company has experienced, I feel that there's an opportunity for both the company and the stock to grow considerably.
Let's suppose they can achieve their previously stated goals to be cash flow positive by 2025 and increase to 20% margins throughout 2025. Not factoring in any growth potential, using their $1.7B in annual revenue, this would equate to roughly $340M in profit. A relatively conservative P/E of 10 puts them at a $3.4B valuation vs. the current $580M market cap.
Is anyone following this stock? Would be interested to hear your thoughts, good, bad, or indifferent! Let me know.
