Maxeon Solar Technologies, Ltd.

Ladies and gentlemen, and welcome to the Maximum Solemn Technologies fourth quarter 2021 earnings call. Currently, all participants are on a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host for today, Mr. Robert Leahy of Maximum Solemn Technologies. Sir, you may begin.

Thank you, Operator. Good day, everyone, and welcome to Maxion's fourth quarter 2021 earnings conference call. With us today, our Chief Executive Officer, Jeff Waters, Chief Financial Officer, Kai Strobeck, and Chief Strategy Officer, Peter Aschenbrenner. Let me cover a few housekeeping items before I turn the call over to Jeff. As a reminder, a replay of this call will be available later today on the investor relations page of Maxion's 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, the 20F, and other SEC filings. Please see those documents for additional information regarding those factors that may affect these forward-looking statements. To enhance this call, we have also posted a supplemental slide deck on the events and presentations page of Maxion's investor relations website. Also, we will reference certain non-GAAP measures during today's call. Please refer to the appendix of our supplemental slide deck, as well as today's earnings press release, both of which are available on Maxion's investor relations website for a presentation of the most directly comparable GAAP measure, as well as the relevant GAAP to non-GAAP reconciliations. With that, let me turn the call over to Maxion CEO, Jeff Waters. Jeff Waters Thank you, Rob, and good day, everyone.

I'll start by giving a business overview and covering recent accomplishments. Kai will then review our financial performance and outlook, and we'll conclude with Q&A. Last quarter, we challenged our team to maintain our strategic transformation roadmap in the face of prolonged supply chain headwinds, and they rose to the occasion. In spite of continued supply chain and logistics price pressure, extended lead times, and new challenges from Omicron, our teams executed to plan in line with fourth quarter top and bottom line guidance and hit key milestones on our transformation roadmap. We completed our upgrade from Maxion 2 to Maxion 6 and made our first volume shipments. We're now also upgrading the Maxion 5 lines to Maxion 6 and plan to complete the full conversion by mid-year. Our first mono PERC cell lines in Malaysia are up and running, and our new performance line Modco in Mexico commenced mass production in late February. Customer demand for this capacity is very high, and we recently announced over 700 megawatts of incremental orders with over $70 million of prepayments. In our DG business, the European sales team posted yet another record quarter while achieving an AC module mix of more than 25% in four of our largest markets. And finally, negotiations with SunPower culminated last month in a new supply contract, which not only reset pricing for our products to current market levels, but also enhanced and accelerated our ability to more broadly address the U.S. market. The foundation of a transformed Maxion is nearly in place. We are on schedule to complete this transformation just as our legacy polysilicon contract approaches expiration. Industry-wide supply chain headwinds, including the recent war in Ukraine that has disrupted global trade, represent an unwelcome challenge for our transformation process. But the presence of strong macro demand growth and ESG tailwinds reinforces our resolve and belief in the value we are creating as we execute our remaining transformation milestones. With that said, I'll start by discussing our highest priority, employee health and safety. In Asia and the Americas, Omicron's ability to spread quickly took Maxion and the world by surprise in December. But our employee vaccination programs helped mitigate the impact, with vaccination rates at 99% in Malaysia, 96% in the Philippines, and 75% in Mexico. Before Omicron impacted the Philippines, we supplemented vaccination initiatives with an aggressive testing program and hotel capacity for increased quarantine resources. We also designed a sophisticated shift system that helped contain the virus and prevented any material production impact in the fourth quarter. Thus far in the first quarter of 2022, we have seen a material uptick in cases with our employees in our Malaysia facilities. We are executing similar actions to what we developed for our facilities last year, with employee safety being decidedly our highest priority. Omicron also had a broader impact on the supply chain environment in the fourth quarter, and we continue to experience global supply chain disruptions with the war in Ukraine and the ongoing COVID-19 pandemic. The solar industry has not been shielded from these highly elevated costs and extended delivery times. Our approach to the situation is unchanged from last quarter. Identify and mitigate any costs we have the ability to influence and execute on our long-term transformation initiatives, which will reduce our exposure going forward. One example is the introduction of Maxion 6, which, combined with a redesigned packaging system, improved packing density by more than 25% compared to the same shipments of Maxion 2 earlier in 2021. We also ramped IBC Modco lines in Malaysia and can now ship product to Asia customers in less than four weeks, compared to our previous reliance on Mexico, which took more than 10 weeks for delivery. In North America, our newly ramped performance line capacity in Mexico can deliver product to U.S. customers via truck in one to two days, compared to most solar companies taking at least 10 weeks shipping on the water from Asia. On a more tactical level, we're also renegotiating contracts with shipping partners in Asia, concentrating more volume and fewer partners to secure better pricing. Although we don't have line of sites any relief for supply chain spot prices this year, we are addressing increased raw material costs by bringing on additional commodity suppliers, which will help us mitigate a portion of glass and aluminum price increases. In summary, we're using this current challenging environment to make Maxion a stronger company, and we're pleased with the results of the progress that will help mitigate the impact in the near term and position us for success when the environment normalizes. Now let me spend a few minutes on the three pillars of our growth strategy. First, leading panel innovation. At the beginning of 2021, approximately 40% of our IBC capacity was 2010 vintage Maxion II technology. While this product performed better than the vast majority of competing technologies, it was time for an upgrade. We closed 2021 with more than 140 megawatts of new Maxion VI cell capacity, which will increase to approximately 250 megawatts by mid-year when this part of the technology refresh is complete. This is a critical project for our gross margin turnaround, providing more than 20 points of margin improvement over Maxion 2. We'll see further margin upside in 2022 as we convert our Maxion 5 capacity to an additional 250 megawatts of Maxion 6 by mid-year. As additional evidence regarding the superiority of our technology, we recently increased our IBC module warranty to an unprecedented 40 years. This decision was not taken lightly, as Maxion and our customers both treat our industry-leading warranty terms as sacrosanct and a key differentiator versus our competition. Fortunately, we have access to comprehensive field degradation studies dating back over 15 years, rigorous measurement of actual warranty claims on our product shipped since 2004, and proprietary physics of failure models to correlate and extrapolate this historical field performance with predicted longer-term degradation rates. This data, vetted by third-party experts, ultimately met our high standards for increased warranty coverage. We are thrilled to be in the position to offer extended peace of mind to our customers and are seeing a strongly positive response from installers and end customers, especially in the residential segment. Now, a few words on Maxion 7. The excitement among our Fab Four pilot line engineers and technicians is increasing as they consistently produce our highest efficiency ever for IBC solar cells, and we're on track to produce our first modules next quarter. We expect that Maxion 7 will further distance our product performance from the competition and enhance our pricing power in the market, particularly in conjunction with our recently announced 40-year warranties. As development progresses, we're continuing to review options and the timeline to fund the Maxeon 7 production ramp. Now let's move on to our focused utility scale strategy, where we are ramping our U.S.-focused supply chain and experiencing increased market traction. We started initial mass production in Mexico of our shingled bifacial modules in February, and the first customer shipments are scheduled for April. COVID-related travel restrictions and inbound component shipment delays represent a headwind for the speed of our full manufacturing ramp. But our operation teams are highly focused on the task at hand, particularly considering the strength of demand for this product. Since our last earnings call, we executed contracts with two customers to supply over 700 megawatts of our bifacial performance line panels through 2024, bringing our contracted backlog to over 2 gigawatts. These contracts include prepayments of over $70 million. Coincident with these orders, we executed price callers on a significant portion of our BOM costs. With demand for our utility-scale product in the U.S. far outpacing supply, we are investigating options to expand capacity beyond our current 1.8 gigawatts, either in Mexico or the United States, depending on legislative events over the next few months. Outside of the U.S., Our utility scale sales team provided a meaningful contribution to our fourth quarter revenue as we recorded the final shipments to our project in India. However, we remain selective on our rest of world power plant business. Now to our differentiated DG channel. We closed 2021 with another record quarter of EMEA region volumes. And our DG group in Europe is off to a very fast start in 2022. The combination of megawatt shipments to date and backlog for the first half of the year at this point in the first quarter are almost double where we were at the same time in the first quarter last year. We expect continued strong demand in our European business and are actively pursuing tactics for de-bottlenecking our factories and reallocating supply from lower margin regions. This achievement is due to the combination of a truly differentiated product married with a robust direct to installer channel model that has been cultivated for more than a decade. This channel platform allowed us to ramp AC module sales from zero at the beginning of the year to over 25% of total volume in the fourth quarter in France, the Netherlands, Australia, and the UK. Other regions, including Italy, Austria, and Scandinavia, some of which launched later in 2021, saw similar initial growth trajectories, which are continuing in 2022. Customer feedback on the value proposition of a factory integrated product has been decidedly positive and supports our plan to launch storage sales in 2022. The success of our channel model in Europe and Australia is a strong motivator for geographic expansion, particularly in the Americas. We have several exciting initiatives progressing in Latin America. We are now increasingly focused on growing our direct presence in the United States. While SunPower sells our product with great success in key markets such as California and the Northeast U.S., when we look at the U.S. market as a whole, we see significant opportunity for volume and margin expansion by leveraging our deep expertise in channel sales, particularly to a large number of local installers across the U.S. who have historically had no access to our market-leading products. With demand for high-efficiency solar products increasing due to competitor exits and strong EV adoption, We're very excited to be engaging more directly in the USDG market. Our revised supply contract with SunPower provides us with the opportunity to launch our own USDG channel, starting with commercial this year and including residential next year. We have a lot of exciting initiatives coming together in 2022. We plan to complete the multi-year transformation of our core module business to achieve our target financial model in 2023. And we're launching new initiatives, including Beyond the Panel, that have the potential to propel us beyond these targets. We look forward to sharing our progress with all of you as we continue to execute in 2022. With that, I will turn the call over to Kai to review our financial performance.