Good afternoon and welcome to the Complete Solaria's Earnings Call. My name is Brian Wuebbels, and I am the Chief Operating Officer for Complete Solaria. Joining me here today is T.J. Rodgers, Chief Executive Officer, Complete Solaria. We will be presenting the company's recent financial and operational results for the fourth quarter of 2023, first quarter of 2024 and a business update. The formal presentation will be followed by a question-and-answer session. A few quick reminders before we start. First, today's call is being webcast. A link to the webcast can be found along with our press release on our Investors section of our company website at www.completesolaria.com. Second, during this call we will be making forward-looking statements based on current expectations and actual results may differ due to factors noted in the press release and in our periodic SEC filings. We will reference some non-GAAP financial measures. Reconciliations to the nearest corresponding GAAP measure can be found in today's release on our website. Last, questions can be submitted any time during the call using the Question Submission Box found on your screen. And with that, I will turn it over to T.J. Rodgers.

Thanks, Brian. First of all, let me introduce people going starting with you. This is as you said Brian Wuebbels, who's our COO. He is actually our CFO, as well. He is – we will hire to replace him. And since Brian is moving up in the company, I'd like him to introduce himself to you.

Thanks T.J. And just a little bit about myself. I joined the company about a year ago as the CFO, as T.J. mentioned. I started my life out as an engineer. I have a mechanical engineering degree from the University of Illinois. I've also got my MBA. Before I joined Complete Solaria, I was with a multinational company and I was the President of the Control and Elevator Division of that business and that company was called NIDEC. Before I joined NIDEC, I'd actually spent some time in solar, quite a bit of time actually – at GCL, running their US finance operations. And before that I was with almost 10 years MEMC Electronic Materials and SunEdison, where I last – with various operating and finance roles. And then prior to my experience in solar, which was about 10-plus years, I spent my life at two large industrials. I spent my time at Honeywell for about four years and in the beginning of my career, where I worked in operations and finance with the General Electric Company, under Jack Welch's leadership. So I'm super excited to be here. Like I said I've been on the long road in the last year getting the company public. And I think what's really exciting about where we're at right now as the company is I can come in and provide some stability. I can also help the company move to the next level in quality, delivery and cycle time, which T.J. is going to talk about today. So I'm super excited to be part of this transformation and work closely with T.J. as our new CEO. So I'll turn it back to you T.J.

Next is Will Anderson. I've introduced him before. Will is the founder of Complete Solaria 12 years – 13. Will is still probably our best engineer. He's certainly in a software side grade. And he is the guy we go to solve problems. I'll talk about stock grants today and how it helped us out a way until I get there. Last one is Siddarth Madhav. Siddarth is from Ayna. Ayna is a company that spun out of McKinsey. McKinsey, the famous McKinsey that we all know. The most highly known McKinsey Group was Palo Alto. That group came to my company and helped me, when I went to Enphase for a turnaround effort. I rehired the same group because they've been very – did a lot for me at Cyprus. And Siddarth was the project leader for the Enphase turnaround. I think that one's pretty famous. That's one that went from $115 bucks today. And when I came in they were $0.92 and they were big enough that the turnaround isn't me coming in pounding on the table. The turnaround is 15 guys working for a year to get a lot of stuff fixed. And that is the level of work we're doing right now at Complete Solaria. Siddarth go ahead.

Thank you T.J. As T.J. said my name is Siddarth Madhav. I have been with the team that is supporting Complete Solaria in its [indiscernible] on the topics that Brian covered – gross margin, cycle time, quality, customer satisfaction. The company is on the verge of much of initiatives, which will take time to bear fruit, but we're already seeing early results. And it's a privilege for me and the team to work with T.J. and his team on this effort.

Okay. So let's get on with the quarter report. First of all, we did our first 10-K this year and that thing didn't get ready until almost the end of the first quarter. So we decided to put the first-quarter report and the 2023 Q4 report together. By the time, of course you get to the first quarter that's all you care about, and you want to know about the second quarter, so that's really what we're going to talk about today. Okay, press release, I wrote this myself. So I picked the title that I thought would tell you the most important thing that happened, and that is we're to be self-funded in the quarter we're in right now. T.J., won't be writing anymore checks. That's even more important for me. That's a lot of work and I'll show you what that is. The bullets, first, talking about revenue. Our Q1 revenue was $10 million half of the prior quarter. We got cut in half from one quarter, even though our backlog was $17.8 million. The revenue drop is due to a shortage of working capital, we can’t buy panels to put on people's roofs therefore, we can't charge in and get our revenue. And that's where we are right now. And that's we're running just super lean on capital. The working capital crunch due to an unresolved loan situation, with one of our private equity funding firms Carlyle and our revenue in the second quarter we already had a very lean April. We’ll also be limited. And depending upon rather not get a few hundred thousand bucks designee, maybe I'll do crowdfunding. The $300,000 we can be on the high end of that. Okay, our gross margin was 24%. That is not our target. Our target is over…

November.

Okay. So I didn't really hang in there too long. I turned it back. We had this drop and I remember this drop here and I turned it back on, but that broke the problem. And then, the inventory came back and the news today is we now have 2,000 lots in line. And so I have to shut down. Now, what's interesting is when we started, our cycle time is 112 days, we managed to hold that cycle time best way to slow just FYI and this was cycle time from order to install complete. We managed to hold it, but it's not good enough and you can't react quickly enough to problems. You can't slice your line. You can take advantage of new orders if you that slow. So we started working on cycle time and cycle time primarily is getting rid of quality defects and that's in the semiconductors scope first pass yield. Do you want something, you go to a step, go through the step, get it done right the first time and move on, and do all that in a fraction of the day. Today -- and by the way, we have a couple semiconductor experts that are helping us on this problem in line. And their work, which is primarily quality has brought our cycle time down to the 34 to 40 days. Meaning when you here you can do 2.5 cycles per year, so you can make 2000 times 2.5 lots per year. Here, let's say, means use 34 a month, you can do 12 cycles a year. So you can do 24,000 lots a year. So you're getting more out of the same fab. It’s a very powerful effect. And that's where we are today. And if I had the name one…

Hey, T.J., first of all, thank you so much for including me on this call. I'm very excited about everything that you're doing, everything going on at the company. For those who don't know, Kline Hill Partners, we are a $4 billion diversified secondary fund. We typically provide liquidity to investors and private assets, and we only get directly involved in companies when we see there's a huge potential upside. And we're super excited about everything going on at Complete Solaria. And it's like three things. It's the Complete Solaria platform, the technology, everything going on at the company, the management team led by T.J., and we're excited about the unlocked cap table. We'll talk about it a little in a second. So with regards to the company, the solar space is huge and expected to grow substantially over the years, and we see their technology and what they can offer to the residential market throughout the U.S. as being a very compelling offering with a substantial upside, and it's a huge opportunity, and right now, Complete Solaria is very small, so there's a huge amount of upside there. Second is the management team led by T.J. And the thing there is he's a guy and they're a team that thinks big and can execute big. So you've got this smaller company, huge opportunity, and people that are there that can execute on a huge amount of growth. And, obviously everybody knows T.J. He's been like, very successful. He's been fantastic to work with. Same thing with, like, a very high level of quality across the whole management team. And then the last part where Kline Hill is coming in a little bit right now is what we're very excited about is unlocking the capital structure. And so that has been a little bit of a noose around the neck of the company, and that probably has been the number one thing holding the company back over the recent past. And we're very excited to convert our debt into equity, because we see a lot more upside on the equity from an equity standpoint, as we and Carlyle looking to do this jointly together. So we would be doing this as in when Carlyle also agreeing to come alongside with us on this and they are reasonable very smart investors so we’re really expecting that to be coming out shortly as well. And its -- it's a tremendous opportunity for investors. And so if you just like stand back again like Complete Solaria industry-leading company, amazing platform, tons of room to grow into the industry. T.J. and his management company thinking big, executing big and than – capital structural laid out this – this massive entire earlier that through company have to be much more nimble, and in this and converting that we're also excited to putting capital on the company's. So thank you. Thanks, T.J. Thank you everyone at Complete Solaria. Very excited about the prospect.

So 11 o'clock last night having gotten the news. I had to figure out what to say that was true -- about Kline Hill. And I said thank you Kline -- for your confidence in us. I would like to sincerely thank Mike Bego and his team for working with us literally for years in supporting our company. So thanks. Okay. Conclusion. We’re alive and we're starting to improve. I won't claim victory yet but we have a different company than the nine months ago. Our fab is doing a lot better, right now. We've had a vigorous but painful reorganization. We don't need any funding until July. And I had this in last night that we have come to terms with two private deck. We have to come to terms with to private equity groups. And I put this when we got one left and if we get that then the -- we can go raise money based on merit. And my last point was last night if we survive our newly lean and fit company can become profitable and grow. So that yes -- that's for a question in case you ask it. That said, we like to take questions. There are electronic texting kind of things.

Thank you. T.J. and thanks everyone for joining the call. We're going to now move into the Q&A section. So if you have any questions you can go on the link. That's on the on the webcast and you can type your question in directly. First question, I've got here T.J. is from Derek Soderberg from Cantor Fitzgerald. Its says in the event that Carlyle is refusing to convert their debt, what is the most logical way for the company to solve the working capital from and returns to $100 million annual run rate?

I have to ask other question if that happens in a way that I -- let me tell you something. our contracts with Carlyle we have two of the them. These are debt contracts, right? Give me money, give me interest. Then of course there's covenants one is 84 pages long and one is 55 pages long. I can't go to the bathroom without calling New York. That isn’t going to happen. So answer number one is you have that structure – and I use the word the in my neck and in prior communications stays in place, I'm gone and I don't think the company is going to make it, may be it well. Carlyle is a big company. They've got a lot of solar companies. Maybe they got a hotdog, They want to come in, get a lot of socket that at less than a buck. And that would be fine with me. And I do everything in my power to help the guy out because after all I got a bunch of money in the company its not in my interest to do anything negative. The best way is the debt for equity swap assuming you can agree. And that's a big assumption. But we'll talk. What I've got to be able to do is run the company. Right now, I can't raise money with equity. I can't raise money with debt. I can't sell an asset unless I get written permission and written permission only says now four clause and then a few more pages. And it can't work that way. That's got to end. Other than that we will talk. And we've -- I leave it there. We'll talk.

Yes. Thanks T.J. We had another question here. It says their Solaria -- Complete Solaria management, under the assumption that the debt to equity swap with Carlyle complete soon, what would be the approximate breakeven revenue? And there is second question as well. We’ll go first.

All right. So I read that question, my five minutes before showtime here. It turns out obviously as a question ourselves all the time. That's the question. So I'll give you this is a this is a large document and I picked up one page. And what it is three parameters that matter; commission percent, gross margin percent – and this is gross margin on the solar commissions is treated separately; and then OpEx. And our OpEx is headed to $3 million next quarter. $3.6 million and more or less than $3 million after that. So, that's kind of a given. Then this table defines for a matrix of percentages what is our breakeven revenue? So, this says 30% commission, we're currently 31% and 47% gross margin. Our breakeven revenue $16.6 million. And that breakeven revenue could be a lower gross margin and lower commission, lower gross margin, lower commissions. Yet it's quite possible if we work on getting an indigenous order creation effort in the company and we're paying for costs orders as opposed to the higher profit that we can get down to these levels. Right now, I just showed you 24%, 25% that that is based on $10 million of revenue. We can see how to get into the 40s pretty well. So, the answer to your question is somewhere between $99 million a quarter and the real numbers are here and $16 million is achievable number within a couple of quarters. I don't know how long it's going to take to go back from $10 million. I don't know how much damage has been done, but right now I know this is a robust market for solar. Let me -- I forgot to show you, let me show you this. Okay, this is the graph I…

Thank you T.J. And you answered my second question. So, the next question comes from Thomas Meric at Janney. Using the fab chart on Page 13, will you discuss the improvements in gross margin you realized over the past 12 months.

Okay, we got to reaffirm from here. We'll have to bring inside overhead. We obviously track that. What is the record for gross margin?

49%.

So, the company and one-time slight made 49%. That's how we chose a 47% gross margin. Right now we're looking at operational issues and financing issues that don't get us into the 40s. We can see easily how to get in the 40s. There's also a tailwind in gross margin. China Inc. has got this little problem. They use slave labor to make silicon and the world doesn't like it and they shut them down then they move plants to Malaysia and Vietnam to circumvent the shutdown and now there's circumvention. So, their panels can go to Europe, can't come to the United States and there's been a dump panels and the business is going down. There's been a dump of panels on the market. So, our costs are going to go down, at least for equipment costs. We also -- one of the things we're learning from [indiscernible] you star to buy stuff. We're not very good at that. We kind of pay retail and we kind of do adhoc purchasing. Sometimes we do purchasing on the weight of the job and obviously that's bad. So now we have a -- in Indianapolis we've got the rental purchasing group. There are pros and we're going to start driving our costs down. So we've got quite a bit of room there to do better. I believe gross margin will get into the 40% range in a couple of quarters. We will go into that. If you notice a fudge, you can always tell me go back here. You can always, okay see, gross margin was 24 despite higher revenue. Q4 forecast is greater than 30%. That's because I don't know if my revenue is going to be. So that's a guard band a number on what we think we can do. So we think we can get into the mid 30s, but we don't know. And then the next step after that is, we got to have to get back a little volume. You have amortization of overhead. We amortize OpEx to make operating income, you amortize manufacturing overhead and you've got to be pure manufacturing, got a plant. You've got all at the amortized manufacturing overhead with revenue that comes through it. So, we are -- we'll have a natural improvement in gross margin just from running more stuff with the same group of people.

Thank you T.J. The next question comes from Derek Soderberg at Cantor Fitzgerald. We made some final half the workforce here down to 109. Can you talk about the cadence of OpEx from here? Should we continue to expect OpEx from $3.6 million per quarter?

New CFO?

So I think T.J. actually answered this question a little bit earlier. Right now, we're projecting 3.6 million for this coming quarter, Q2. I think you saw from the breakeven chart kind of where we're headed. We believe we can get this business under $3 million of OpEx in order to be breakeven and at efficiency level that we think makes sense. So that’s our focus and I think to give away a little bit of how much we've been focused on this. If you did notice on that breakeven chart that T.J. said that's Version 4. And I believe the first version that T.J. shared was during our October call where we talked about the Northstar plan Version 1. We'll give some updates on it in December and we were still on Version 1. So we have really started to hone in and I wanted to just think Siddarth and the team and [indiscernible] for their help because they're helping us think differently every day about what's possible. So that’s where we're headed. Thanks Derek. The next question is this one out there. Do you see a reverse split coming up to staying compliant?

Well, I got a letter from NASDAQ the other day and you said your stocks under book -- been under book for 30 days and if you don’t what they call it, a cure. If you don't cure the problem than you get traded on the pink sheets. So the answer to that would have been, yes. I think the company will be clearly worth well north of a dollar shortly. And then the question is, how do you want to play the game to me? I give somebody the dollar and he gives me two $0.50 pieces. It doesn't matter. I give them two $0.50 pieces and get $1. A lot of people care about that. A lot of people like stock or they can buy 100,000 shares. So the fact is if we safely and the right side of NASDAQ and employees like options like that where they can see upsides will probably not do a reverse split. It is easily doable if we want to do it, it's another paragraph in the annual report. Right now, there's not a plan. Right now, we're going to earn our way back above dollar.

Thank you, T. J. Next question comes from Thomas Merrick at Janney. What do you expect you talked about though 1,000 job with target? What do you expect the cash generating or the free cash flow to be looking at that point.

Answering that question makes me feel like as [indiscernible] and he is on Southern California the La Brea carpets and somebody says once you put your foot in the timing and design services and that’s kind of sticky me. He uses other foot and try to pull it out and then 50,000 years laters, you find his bones. I don't know, that's hard for me to answer that question. Look at the issues today, look at the statement, if we survive – I haven't done those calculations that step after next. And we will do those calculations, we’re capable of doing it.

Thanks, T.J. Can you discuss the current retail economics for solar customers, i.e. the value proposition for our customers as well as the availability for pioneer to those sub-owners?

Will, you want to do that?

Yes. So the current economics for the retail customer was the question. So we're seeing utility rates increase all over the country. In California, they’ve been going up rapidly. That’s our biggest market. Texas, where retail energy is non-regulated, like to stay there lower, but even it's going up. The cost of burning things in order to generate power continues to increase. And so that's really the competition for the solar industry is to compete against the retail cost of power coming from traditional sources and in all of our markets we beat the utility. And that gap is growing. As we continue to work on our cost basis and improve our margins that gives us even more opportunity to hold our prices and allow consumers to increase the benefit to them. So it is typical that we'll see our customers saving on our financed project 40% to 20%. And then if they're buying it outright than their return on investment happens within five to seven years.

Let me take a shot at that one as well. And it’s about the structure of the industry, which isn't very good frankly. 1960 when I was at Stanford, I took two courses from William Shockley, the Nobel Prize Winner on Transistor Electronics. And in 1962, he and one of his students guys name Qasir [ph] wrote a paper on the – based on corner mechanics under theoretical efficiency the solar cell made from silicon and turns out it’s still true today. And the answer is 29.3% that’s it. And if you want to do more than that you got to start using more exotic materials, using layers of material that trap different colors of light. And I actually worked with a couple of companies that work on that stuff. Okay. That’s big time science. I’ve always love that. Guess what? It doesn’t make a damn little difference today, because in China, you've got the government decided they're going to own that market and they will drop to whatever prices required to own it. And they currently own a lot of it. I'm a free market capitalist but suppose they attacked me, and they really killed me and they drop the price of the panels to zero. Then I get all I want. Then I’ll have to do some installment and make money. It’s not bad. So then if you look at the value chain and you ask, is there a free market, true free market with competition in the value chain? The answer is not really. And the hardest point is to sell a solar, the kitchen table cell, to sell solar is the hardest point. And therefore there are sales companies who know this and that's what they do for a living and some of the stuff they…

All right. Well, thank you, everyone. We've come to the top of the hour and I want to thank everyone for joining us today for the Q4 2023 and Q1 2024 earnings update call for Complete Solaria. And I hope everyone has a great day. Thank you.