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Segment and Geographical Information
 6 Months Ended
Jun. 28, 2020
Segment Reporting [Abstract]  
Segment and Geographical Information SEGMENT AND GEOGRAPHICAL INFORMATION
Our SunPower Energy Services Segment ("SunPower Energy Services" or "Downstream") refers to sales of solar energy solutions in the North America region previously included in the legacy Residential Segment and Commercial Segment including direct sales of turn-key EPC services, sales to our third-party dealer network, sales of energy under power purchase agreements ("PPAs"), storage solutions, cash sales and long-term leases directly to end customers, and sales to resellers. SunPower Energy Services Segment also includes sales of our global O&M services. Our SunPower Technologies Segment ("SunPower Technologies" or "Upstream") refers to our technology development, worldwide solar panel manufacturing operations, equipment supply to resellers and commercial and residential end-customers outside of North America ("International DG"), and worldwide power plant project development and project sales. Upon reorganization, some support functions and responsibilities, which previously resided within the corporate function, have been shifted to each segment, including financial planning and analysis, legal, treasury, tax and accounting support and services, among others.

Our Chief Executive Officer, as the chief operating decision maker (“CODM”), reviews our business, manages resource allocations and measures performance of our activities between the SunPower Energy Services Segment and the SunPower Technologies Segment.

Adjustments Made for Segment Purposes

Adjustments Based on International Financial Reporting Standards (“IFRS”)

Legacy utility and power plant projects

We included adjustments related to the revenue recognition of certain utility and power plant projects based on percentage-of-completion accounting and, when relevant, the allocation of revenue and margin to our project development efforts at the time of initial project sale. Under IFRS, such projects are accounted for when the customer obtains control of the promised goods or services which generally results in earlier recognition of revenue and profit than U.S. GAAP. Over the life of each project, cumulative revenue and gross margin will eventually be equivalent under both GAAP and IFRS; however, revenue and gross margin will generally be recognized earlier under IFRS.

Legacy sale-leaseback transactions

We included adjustments related to the revenue recognition on certain legacy sale-leaseback transactions entered into before December 31, 2018, based on the net proceeds received from the buyer-lessor. Under U.S. GAAP, these transactions were accounted for under the financing method in accordance with the applicable accounting guidance. Under such guidance, no revenue or profit is recognized at the inception of the transaction, and the net proceeds from the buyer-lessor are recorded as a financing liability. Imputed interest is recorded on the liability equal to our incremental borrowing rate adjusted solely to prevent negative amortization. Under IFRS, such revenue and profit are recognized at the time of sale to the buyer-lessor if certain criteria are met. Upon adoption of IFRS 16, Leases, on December 31, 2018, IFRS is aligned with GAAP.
Mark-to-market gain (loss) on equity investments

We recognize adjustments related to the fair value of equity investments with readily determinable fair value based on the changes in the stock price of these equity investments at every reporting period. Under GAAP, mark-to-market gains and losses due to changes in stock prices for these securities are recorded in earnings while under IFRS, an election can be made to recognize such gains and losses in other comprehensive income. Such an election was made by Total SE. Further, we elected the Fair Value Option (“FVO”) for some of our equity investments, and we adjust the carrying value of those investments based on their fair market value calculated periodically. Such option is not available under IFRS, and equity method accounting is required for those investments. Management believes that excluding these adjustments on equity investments is consistent with our internal reporting process as part of its status as a consolidated subsidiary of Total SE and better reflects our ongoing results.

Other Adjustments

        Intersegment gross margin

To increase efficiencies and the competitive advantage of our technologies, SunPower Technologies sells solar modules to SunPower Energy Services based on transfer prices determined based on management's assessment of market-based pricing terms. Such intersegment sales and related costs are eliminated at the corporate level to derive our condensed consolidated financial results.

Gain/Loss on sale and impairment of residential lease assets

In fiscal 2018 and 2019, in an effort to deconsolidate all the residential lease assets owned by us, we sold membership units representing a 49% membership interest in our residential lease business and retained a 51% membership interest. The loss on divestment, including adjustments to contingent consideration shortly after the closing of the transaction, and the remaining unsold residential lease assets impairment with its corresponding depreciation savings are excluded from our non-GAAP results as they are non-recurring in nature and cash in nature and not reflective of ongoing operating results. Additionally, in the third quarter of fiscal 2019, in continuation with our intention to deconsolidate all the residential lease assets owned by us, we sold the remainder of residential lease assets still owned by us, that were not previously sold. Gain/loss from such activity is excluded from our non-GAAP results as it is non-cash in nature and not reflective of ongoing operating results.

        Impairment of property, plant, and equipment

We evaluate property, plant and equipment for impairment whenever certain triggering events or changes in circumstances arise. This evaluation includes consideration of technology obsolescence that may indicate that the carrying value of such assets may not be recoverable. In accordance with such evaluation, we recognize a non-cash impairment charge when the asset group’s fair value is lower than its carrying value. Such impairment charge is excluded from our non-GAAP results as it is non-recurring in nature and not reflective of ongoing operating results. Any such non-recurring impairment charge recorded by our equity method or other unconsolidated investees is also excluded from our non-GAAP results as it is not reflective of their ongoing operating results.

Construction revenue on solar services contracts

Upon adoption of ASC 842 in the first quarter of fiscal 2019, revenue and cost of revenue on solar services contracts with residential customers are recognized ratably over the term of those contracts, beginning when the projects are placed in service. For segment reporting purposes, we recognize revenue and cost of revenue upfront based on the expected cash proceeds to align with the legacy lease accounting guidance. We believe it is appropriate to recognize revenue and cost of revenue upfront based on total expected cash proceeds as it better reflects our ongoing results as such method aligns revenue and costs incurred most accurately in the same period.
Cost of above-market polysilicon

As described in "Note 8. Commitments and Contingencies," we have entered into multiple long-term, fixed-price supply agreements to purchase polysilicon for periods of up to ten years. The prices in select legacy supply agreements, which include a cash portion and a non-cash portion attributable to the amortization of prepayments made under the agreements, significantly exceed current market prices. Additionally, in order to reduce inventory and improve working capital, we have periodically elected to sell polysilicon inventory in the marketplace at prices below our purchase price, thereby incurring a loss. We exclude the impact of our above-market cost of polysilicon, including the effect of above-market polysilicon on product costs, losses incurred on sales of polysilicon to third parties, and inventory reserves and project asset impairments recorded from our non-GAAP results as they are not reflective of ongoing operating results.

Stock-based compensation

Stock-based compensation relates primarily to our equity incentive awards. Stock-based compensation is a non-cash expense that is dependent on market forces that are difficult to predict. We believe that this adjustment for stock-based compensation provides investors with a basis to measure our core performance, including the ability to compare our performance with the performance of other companies, without the period-to-period variability created by stock-based compensation.

Amortization of intangible assets

We incur amortization of intangible assets as a result of acquisitions, which includes patents, purchased technology, project pipeline assets, and in-process research and development. We believe that it is appropriate to exclude these amortization charges from our non-GAAP financial measures as they arise from prior acquisitions, are not reflective of ongoing operating results, and do not contribute to a meaningful evaluation of our past operating performance.

Depreciation of idle equipment

In the fourth quarter of 2017, we changed the deployment plan for our next generation of solar cell technology, and revised our depreciation estimates to reflect the use of certain assets over their shortened useful lives. Such asset depreciation is excluded from our non-GAAP financial measures as it is non-cash in nature and not reflective of ongoing operating results. Excluding this data provides investors with a basis to compare our performance against the performance of other companies without such charges.

Business process improvements

During the second quarter of fiscal 2019, we initiated a project to improve our manufacturing and related processes to improve gross margin in coming years and engaged third-party experts to consult on business process improvements. Management believes it is appropriate to exclude these consulting expenses from our non-GAAP financial measures as they are non-recurring in nature and are not reflective of our ongoing operating results.

Gain on business divestiture

In fiscal 2019, we entered into a transaction pursuant to which we sold membership interest in certain of our subsidiaries that own leasehold interests in projects subject to sale-leaseback financing arrangements. In second quarter of fiscal 2020, we sold our Operations and Maintenance services contracts. In connection with this divestiture, we recognized a gain relating to these business divestiture. We believe that it is appropriate to exclude this gain from our segment results as it is not reflective of ongoing operating results.

Transaction-related costs

In connection with material transactions such as acquisition or divestiture of a business, we incur transaction costs including legal and accounting fees. We believe that it is appropriate to exclude these costs from our segment results as they would not have otherwise been incurred as part of our business operations and are therefore not reflective of ongoing operating results.
Business reorganization costs

In connection with the reorganization of our business into an upstream and downstream, and subsequent announcement to separate into two independent and publicly-traded companies, we incurred and expect to continue to incur in upcoming quarters, non-recurring charges on third-party legal and consulting expenses to close the separation transaction. We believe that it is appropriate to exclude these from our non-GAAP results as it is not reflective of ongoing operating results.

Non-cash interest expense

We incur non-cash interest expense related to the amortization of items such as original issuance discounts on our debt. We exclude non-cash interest expense because the expense does not reflect our financial results in the period incurred. We believe that this adjustment for non-cash interest expense provides investors with a basis to evaluate our performance, including compared with the performance of other companies, without non-cash interest expense.

Restructuring expenses

We incur restructuring expenses related to reorganization plans aimed towards realigning resources consistent with our global strategy and improving our overall operating efficiency and cost structure. Although we have engaged in restructuring activities in the past, each has been a discrete event based on a unique set of business objectives. We believe that it is appropriate to exclude these from our non-GAAP results as they are not reflective of ongoing operating results.

Litigation

We may be involved in various instances of litigation, claims and proceedings that result in payments or recoveries. We exclude gains or losses associated with such events because the gains or losses do not reflect our underlying financial results in the period incurred. We believe that it is appropriate to exclude these from our non-GAAP results as they are not reflective of ongoing operating results.

Gain on convertible notes repurchased

In connection with the early repurchase of aggregate principal amount of our 0.875% Convertible debentures due June 1, 2021, we recognized a gain, which represented the difference between the book value of the convertible debentures, net of the remaining unamortized discount prior to repurchase and the reacquisition price of the convertible notes upon repurchase. We believe that it is appropriate to exclude this gain from our non-GAAP results as it is not reflective of our ongoing operating results.
Segment and Geographical Information

The following tables present segment results for the three months and six months ended June 28, 2020 and June 30, 2019 for revenue, gross margin, and adjusted EBITDA, each as reviewed by the CODM, and their reconciliation to our condensed consolidated GAAP results, as well as information about significant customers and revenue by geography based on the destination of the shipments, and property, plant and equipment, net by segment.
Three Months Ended
June 28, 2020June 30, 2019
(In thousands): SunPower Energy ServicesSunPower TechnologiesSunPower Energy ServicesSunPower Technologies
Revenue from external customers:
Channels$160,305  $—  $200,589  $—  
North America Commercial48,183  —  44,149  —  
Operations and maintenance9,397  —  12,602  —  
Module sales—  137,760  —  211,751  
Development services and legacy power plant—  (2,731) —  12,781  
Intersegment revenue—  35,406  —  90,416  
Total segment revenue as reviewed by CODM$217,885  $170,435  $257,340  $314,948  
Segment gross profit as reviewed by CODM$38,526  $(4,701) $24,114  $24,469  
Adjusted EBITDA$13,632  $(17,574) $2,342  $11,700  

Six Months Ended
June 28, 2020June 30, 2019
(In thousands): SunPower Energy ServicesSunPower TechnologiesSunPower Energy ServicesSunPower Technologies
Revenue from external customers:
Channels$392,446  $—  $387,298  $—  
North America Commercial96,233  —  89,212  —  
Operations and maintenance24,467  —  22,555  —  
Module sales—  301,821  —  380,691  
Development services and legacy power plant—  (7,678) —  13,675  
Intersegment revenue—  124,281  —  151,216  
Total segment revenue as reviewed by CODM$513,146  $418,424  $499,065  $545,582  
Segment gross profit as reviewed by CODM$73,800  $8,226  $41,987  $23,611  
Adjusted EBITDA$18,114  $(14,927) $(11,569) $3,200  


Reconciliation of Segment Revenue to Condensed Consolidated GAAP RevenueThree Months EndedSix Months Ended
(In thousands): June 28, 2020June 30, 2019June 28, 2020June 30, 2019
Total segment revenue as reviewed by CODM$388,320  $572,288  $931,570  $1,044,647  
Adjustments to segment revenue:
Intersegment elimination(35,406) (90,416) (124,281) (151,216) 
Legacy utility and power plant projects—  23  207  194  
Construction revenue on solar services contracts—  (45,614) (5,392) (109,119) 
Condensed consolidated GAAP revenue$352,914  $436,281  $802,104  $784,506  
Reconciliation of Segment Gross Profit to Condensed Consolidated GAAP Gross Profit (Loss)Three Months EndedSix Months Ended
(In thousands): June 28, 2020June 30, 2019June 28, 2020June 30, 2019
Segment gross profit$33,825  $48,583  $82,026  $65,598  
Adjustments to segment gross profit:
Intersegment elimination628  2,157  9,391  9,793  
Legacy utility and power plant projects—  (884) 34  (1,000) 
Business process improvements(793) —  (3,257) —  
Legacy sale-leaseback transactions—  3,684  (20) 4,507  
Construction revenue on solar services contracts—  (5,506) (4,735) (16,892) 
Gain on sale and impairment of residential lease assets458  632  906  757  
Cost of above-market polysilicon(9,569) (25,950) (19,612) (75,378) 
Litigation—  —  163  —  
Stock-based compensation expense(1,175) (1,133) (2,284) (1,301) 
Amortization of intangible assets(1,783) (1,783) (3,568) (3,569) 
Business reorganization costs7  —  2  —  
Condensed consolidated GAAP gross profit (loss)$21,598  $19,800  $59,046  $(17,485) 
Reconciliation of Segments EBITDA to Loss before income taxes and equity in losses of unconsolidated investeesThree Months EndedSix Months Ended
(In thousands): June 28, 2020June 30, 2019June 28, 2020June 30, 2019
Segment adjusted EBITDA$(3,942) 14,042  $3,187  $(8,369) 
Adjustments to segment adjusted EBITDA:
Legacy utility and power plant projects—  (884) 34  (1,000) 
Business process improvements(793) —  (3,257) —  
Legacy sale-leaseback transactions—  (1,025) (20) (5,936) 
Mark-to-market gain on equity investments71,060  67,500  118,931  100,500  
Construction revenue on solar services contracts—  6,398  (4,735) 10,138  
Loss (gain) on sale and impairment of residential lease assets 317  (15,554) 1,039  (23,867) 
Cost of above-market polysilicon(9,569) (25,950) (19,612) (75,378) 
Stock-based compensation expense(5,879) (6,270) (12,746) (11,936) 
Amortization of intangible assets(1,784) (1,783) (3,570) (3,569) 
Gain on business divestiture10,529  137,286  10,529  143,400  
Transaction-related costs(2,382) (1,173) (2,863) (2,595) 
Litigation—  —  (321) —  
Business reorganization costs(2,861) (4,156) (9,054) (6,805) 
Restructuring charges(1,259) (2,453) (2,835) (1,788) 
Gain on convertible notes repurchased—  —  2,956  
Non-cash interest expense—  (10) —  (20) 
Equity in losses of unconsolidated investees889  1,963  644  283  
Net loss attributable to noncontrolling interests(980) (11,385) (1,687) (26,226) 
Cash interest expense, net of interest income(10,030) (11,148) (20,163) (21,354) 
Depreciation and amortization(15,954) (21,286) (31,850) (40,467) 
Corporate(5,007) (6,007) (2,766) (7,354) 
Income before income taxes and equity in loss of unconsolidated investees$22,355  $118,105  $21,841  $17,657  


Three Months EndedSix Months Ended
(As a percentage of total revenue):June 28, 2020June 30, 2019June 28, 2020June 30, 2019
Revenue by geography:
United States62 %48 %63 %49 %
France6 %11 %6 %11 %
Rest of World32 %41 %31 %40 %
100 %100 %100 %100 %