Maxeon Solar Technologies, Ltd.

Good day, ladies and gentlemen, and welcome to the Maxion Solar Technologies first quarter 2022 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 call is being recorded. I would now like to turn the conference over to our host, Mr. Robert Leahy of Maxion Solar Technologies. Sir, you may begin.

Thank you, Operator. Good day, everyone, and welcome to Maxion's first quarter 2022 earnings conference call. With us today are Chief Executive Officer Jeff Waters, Chief Financial Officer Kai Strobeck, and Chief Strategy Officer Peter Aschenbender. 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 certain forward-looking statements that are subject to the various risks and uncertainties that are described in the Safe Harbor slide of today's presentation, today's press release, the 6K, 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've also posted a supplemental slide deck on the Events and Presentations page of MACSEON's Investor Relations website. 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's CEO, Jeff Waters.

Thank you, Rob, and good day, everyone. I'll start with commentary on our DG channels and then touch on industry pricing trends, U.S. market dynamics, Maxion 7, and our Beyond the Panel business model evolution. Then Kai will review our financial performance and outlook, and we'll conclude with Q&A. Our DG model is unique in the solar industry and based on a core observation that homeowners trust a strong global brand combined with local expert advice and support. We began our focus on the downstream channel in 2004 and now benefit from over 15 years of experience in the downstream market. This has created a tremendous foundation in terms of operational know-how and has allowed us to build deep relationships with our channel partners. In our largest markets, we sell via a direct-to-installer channel where we have active commercial relationships with over 1,700 installers employing tens of thousands of individual sales reps. This army of trained salespeople ultimately decide which solar products to recommend and how to position them to end customers, typically in their homes, often at the kitchen table. We see no other major solar equipment company doing this, in part because it takes years to build the channel infrastructure and because the benefits are greatest when the model is married with a highly differentiated product like ours. Because we are one step farther downstream than our peers, we can collaborate closely with our installer network to implement a highly effective sales process built around the SunPower brand, manage key metrics such as end customer pricing and net promoter scores, secure warranty registrations, and introduce complimentary offers such as storage and services. Strengthening this channel is a key element of our return to consistent top and bottom line growth as we continue the transformation of our company. Our channel today is strongest in Europe but also strong in other international markets like Australia. We're seeing especially robust growth in the Netherlands, where a threat to their equivalent of net metering is waning, and across European countries in reaction to natural gas supply disruption. In Italy, our mature channel footprint enabled an increase in our DG market share to over 25% in the first quarter of 2022, up from the low 20s in 2021 and high teens in 2019. Overall, our Q1 European DG sales volumes exceeded our USDG volumes, and revenue was up more than 75% year-on-year. We expect continued growth throughout 2022 driven by improving customer payback periods, potential new legislation supporting DG solar penetration, and the exit of certain historical competitors in the premium market segment. While the demand tailwinds in Europe and Australia are arguably among the strongest in the world right now for the solar industry, We also have significant strategic growth initiatives underway in the Americas. In Latin America, a focus area for expansion of Maxion's channel model, partner count increased to approximately 50, up more than 50% year-on-year. And in April, we began shipping our first IVC modules to DG commercial customers in the United States at ASPs that are the highest we have yet seen as an independent company. This is an important strategic first step in the USDG segment where dealers often serve both commercial and residential. In residential, we executed an agreement with CED Greentech, the nation's largest solar distributor. This partnership will enable and accelerate the launch of a new installer channel program in the U.S. under the Maxion brand. We plan to commence residential channel bookings for IBC products in the fourth quarter of 2022, with shipments starting in the new year. Initial demand signals are very encouraging based on our product's longstanding reputation in the market, North American manufacturing presence, EV adoption trends driving increased solar system sizes, and the exit of LG from the U.S. market. Margins within the DG segment have been held back by the out-of-market polysilicon contract and two other elements. The first is the work in progress of transforming our factories and products, which has contributed to relatively low absorption of fixed costs. The good news here is that we are in the final stages of our transformation with both the USP series supply chain and Maxion 6 ramps well underway, and our factory is getting closer to full utilization. We expect that by early 2023, both products will achieve our targeted volumes. The second element that has held back margins has been the ballooning supply chain costs and the lag between these cost increases and our ability to increase prices commensurately. Market pricing has lagged supply chain cost increases, given that most believe that the market would return to normal within a quarter or two. We attended the InterSolar trade show in Munich a few weeks back, and the key takeaway was that the sharp increase in energy prices and the significant supply complications brought on by COVID in China have significantly elevated global demand. This has, in turn, created conditions that should support more significant price increases in the near term, to more appreciably mitigate the increased supply chain costs. We have responded by increasing prices broadly in DG and expect to realize a margin benefit starting in the second half of this year. We're also seeing favorable pricing trends in the utility scale segment. Fixed pricing for future deliveries has been an industry standard for decades, but in today's supply chain environment, many suppliers are walking away from underwater contracts and others, like us, Are bidding such contracts very cautiously or not at all? As a result, we're hearing from credible global developers that they are now accepting cost-indexed risk sharing on future contracts. This is a significant shift for a company like ours that honors its contracts. It has the potential to bring more predictability to our margins and utility scale in 2024 and beyond. On a related topic, our competitive advantages in the U.S. continue to expand. I'll discuss this further in the context of our second strategic growth pillar, our focused utility scale approach. Last quarter, we announced 700 megawatts of 2023 delivery bookings with favorable prepayments features. We believe our growing success in this market is due to Maxion offering customers superior delivery security in a rapidly evolving regulatory environment. For example, subsequent to the 2021 signing of our first large U.S. supply contract, the industry was rocked by new traceability requirements from U.S. Customs and Border Patrol related to forced labor concerns. In contrast to some developers, our U.S. customers experienced zero disruptions. This past month, the industry was rocked by another U.S. policy event, an investigation by the U.S. Department of Commerce into the circumvention of tariffs targeting solar companies who allegedly moved cell and module facilities from China to some Southeast Asian countries, including Malaysia, in order to avoid tariffs set in 2012. Until the investigation is over, we'll refrain from providing commentary except to say that we believe we are in a fundamentally different position than most other solar companies active in Southeast Asia because our activity is limited to solar cell production and has always had an unusually low reliance on physical inputs of solar from China. Our Malaysia fab built in 2010 also predates the existence of the specific tariffs that allegedly motivated competitors Central Malaysia, and other Southeast Asian countries. Our differentiated position in Southeast Asia is just one element in the broader theme of Maxion as a reliable, trusted business partner. With demand soaring and current pricing structures that support our long-term gross margin targets, we're evaluating multiple options for expansion beyond our current 1.8 gigawatts of capacity. We're well advanced on a site for 3 gigawatts of incremental capacity in the Southeastern U.S., and are in a position to move rapidly if the SEMA legislation passes. If it does not, we are preparing alternative expansion plans, likely closely mirroring our current operations in Malaysia and Mexico. Regardless of the near-term policy outcomes, we believe the last two years of supply chain disruptions have created a structural advantage for Maxion in the U.S. power plant market. Bookings negotiations for 2024 deliveries are ongoing, and we expect to announce deals in the next month with some of the index-based pricing elements that I described earlier. Kai will provide more detail on this in his section. Last but not least, the third strategic pillar is our differentiated panel technology. No matter how far we expand downstream, our brand will always be anchored around a core of superior differentiated solar panels. Our panels are fundamentally different and better. They look better, perform better, last longer, and we believe provide unrivaled peace of mind. To put some facts behind this, in February, we announced what we call Solar for Life, a 40-year warranty on our IVC panels. This guarantees the product, service, and output for our Maxion family for four decades. We can do this confidently through our proprietary technology, and based on our testing, no other products can come close. So when we release our Maxion 7 technology with what is likely to be another round of world record efficiencies for high volume production technology, you will hear us communicating the fact that great panels are about more than just high efficiency. Later this year, we'll share a precise timing of the rollout, but we can share today that our pilot line has been consistently producing record efficiency cells at a median level for several months now. And last month, we produced our first Maxeon 7 module that achieved a new Maxeon record result. Based on achievement of these milestones, we've begun placing purchase orders for long lead time tools in order to ensure the 2023 availability while we continue to pursue funding for this next generation expansion opportunity. We'll unveil more details around Maxeon 7 at Maxeon's first analyst day that we expect to hold in the third quarter. Moving to our beyond the panel technology, At this month's Intersolar Conference in Munich, we made perhaps the most important announcement in our young company's history, the unveiling of Maxion's SunPower One, an integrated home energy solution initially targeting launch in Australia in Q3 and Europe in Q4. As a reminder, Maxion owns the SunPower brand outside of the U.S. and Canada. SunPower One is based on a flexible ecosystem of products and services, including Maxion solar panels, as well as battery storage and actionable household energy insights. Let me reinforce what makes a Maxion solution in this space credible. It comes down to a combination of three of our unique assets. First, the most compelling customer door opener in the form of our industry-leading solar panels. Second, an unrivaled customer intimacy through our global DG sales channels. And finally, an agile approach around working with an ecosystem of partners to deliver the best energy service products in the world. This effort is led by our Chief Products Officer, Ralph Elias, who spent his career at companies like Vodafone and Samsung, building consumer-oriented solutions through strong partner networks. SunPower One has an end customer app that goes well beyond the system monitoring software common in the United States. Our proprietary solution provides this baseline production information to homeowners, which helps secure initial engagement, and then we'll add a sophisticated view on consumption at the individual appliance level that includes intelligent and predictive energy saving recommendations. We expect that this will lead to greater customer engagement over time. SunPower One also has a channel-facing element, which is a massive overhaul of our existing installer-facing software, combining it all in a single platform. In this new digital ecosystem, installers will have a substantially easier experience accessing Maxion provided leads, digital sales tools, and managing the sale to electrification customer journey. It will include SunPower Design, an exclusive offering to our channel partners meant to improve the installer experience measured by time from qualified lead intake to proposal, as well as a redesign next. Adding a design tool to our installer-facing software platform is also critical for Maxion because third-party design tools do not fully quantify our technical performance advantages, including module conversion efficiency, year one kilowatt hours per kilowatt, annual degradation, and useful life. We also made a significant addition to our Beyond the Panel product portfolio with the introduction of our first storage product, Maxion SunPower Reserves. which we expect to start shipping to Australia in Q3 and Europe in Q4. We believe our timing for market entry is perfect, with more options from established vendor partners and clear customer demand for a branded and integrated energy solution. SunPower Reserve is a fifth-generation lithium-based solution using no cobalt that enables charging from both DC and AC panels and is available today in a 10-kilowatt-hour size, and includes technology for simultaneous charging and energy dispatch. An additional smaller battery size option is in development. The next product we plan to announce this year will be an EV charging device called SunPower Drive. It's worth noting that the addition of storage alone has the potential to approximately double Maxion's revenue from each customer that uses our storage. Now, before I turn the call over to Kai, I'd like to provide some commentary on other critical areas of focus for the Maxion management team. Employee safety, the supply chain environment, and our capacity transformation. I'm pleased to report that for the first time in recent memory, we had no major COVID impact to employee safety this quarter. While we performed well internally, the viruses spread in China disrupted a logistics environment already challenged by the war in Ukraine and various COVID-related events. Our strategy for managing this global crisis remains unchanged, focused on what we can control, which includes price, location of our module facilities, and shipping container design. We raised price multiple times in multiple geographies this quarter, including to Europe DG customers, US utility scale customers, and SunPower. We also successfully shipped our first performance line containers from Mexico to our customer's job site near Las Vegas. with no regulatory or logistical disruptions. Despite the cumulative challenges posed by pandemic and geopolitical events, I'm pleased to report our capacity transformation is generally on track. On slide six, you'll see that we remain on schedule to exit 2022 with more than triple our third quarter 21 capacity, or roughly 2.5 gigawatts capacity. and nearly three gigawatts expected in early 2023 as the final lines of our 1.8 gigawatt performance line fab are ramped. We are squarely focused on execution. With transformed supply capacity nearing completion and robust demand for our products, we are confident in returning to profitability next year. With that as a segue, let me turn the call over to Kai to talk about our financials.